As filed with the Securities and Exchange Commission on January 23, 1998.
Registration No. 333-_____
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------------------
MAINSTREET BANKGROUP INCORPORATED
(Exact name of registrant as specified in its charter)
VIRGINIA 6711 54-1046817
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
200 East Church Street
Martinsville, Virginia 24112
(540) 666-6724
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Rebecca J. Jenkins
Executive Vice President and Secretary
200 East Church Street
Martinsville, Virginia 24112
(540) 666-3272
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------------------
<PAGE>
Copies to:
Douglas W. Densmore George P. Whitley
Flippin, Densmore, Morse, LeClair Ryan
Rutherford & Jessee 707 East Main Street, 11th Floor
300 First Campbell Square Richmond, Virginia 23219
Roanoke, Virginia 24011 (804) 343-4089
(540) 510-3000
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in connection
with the formation of a holding ocompany, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================
Title of each class Proposed Proposed Proposed maximum Amount of
of securities to be Amount to be maximum offering aggregate offering Registration
registered registered(1) price per unit(2) price(2) Fee
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stock (3) 729,482 shs $9.84 $7,180,000 $2,119
================================================================================================================
</TABLE>
(1) This Registration Statement covers the maximum number of shares of
common Stock of the Registrant which are expected to be issued in
connection with the transactions described herein.
(2) Estimated in accordance with Rule 457(f)(2) for the purpose of
calculating the registration fee, with the value of Regency Common
Stock being exchanged in the transaction for MainStreet Common Stock
being based upon the book value of Regency Common Stock at September
30, 1997, the latest practical date prior to filing.
(3) The Rights to Purchase Participating Cumulative Preferred Stock, Series
A will be attached to and will trade with shares of the Common Stock of
MainStreet BankGroup Incorporated.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
<PAGE>
MAINSTREET BANKGROUP INCORPORATED
CROSS REFERENCE SHEET
Item of Form S-4 Location in Prospectus
1 Forepart of Facing Page; Cross Reference
Registration Statement Sheet; Outside Front Cover
and Outside Front Cover Page of Prospectus
Page of Prospectus
2 Inside Front and Inside Front Cover Page of
Outside Back Cover Prospectus; Table of Contents;
Pages of Prospectus Available Information;
Incorporation of Certain
Information by Reference
3 Risk Factors, Ratio of Summary; Comparative Per Share
Earnings to Fixed Data
Charges and Other
Information
4 Terms of the Summary; The Merger;
Transaction Comparative Rights of Shareholders;
Annex A
5 Pro Forma Financial Not Applicable
Information
6 Material Contacts with Not Applicable
the Company Being
Acquired
7 Additional Information Not Applicable
Required for Reoffering
by Persons and Parties
Deemed to be
Underwriters
8 Interests of Named Not Applicable
Experts and Counsel
9 Disclosure of Not Applicable
Commission Position
on Indemnification for
Securities Act Liabilities
10 Information with Available Information;
Respect to S-3 Incorporation of Certain
Registrants Information by Reference
Summary; MainStreet BankGroup
Incorporated
11 Incorporation of Incorporation of Certain
Certain Information by Information by Reference
Reference
12 Information with Not Applicable
Respect to S-2 or S-3
Registrants
13 Incorporation of Incorporation of Certain
Certain Information by Information by Reference
Reference
14 Information with Not Applicable
Respect to Registrants
Other than S-2 or S-3
Registrants
15 Information with Not Applicable
Respect to S-3
Companies
16 Information with Not Applicable
Respect to S-2 or S-3
Companies
17 Information with Summary; Supervision and
Respect to Companies Regulation; Regency; Market
other than S-2 or S-3 for and Dividends Paid on
Companies Regency Common Stock; Experts
18 Information if Proxies, Incorporation of Certain
Consents or Information By Reference;
Authorizations are to Summary -- Shareholder
be Solicited Meeting; The Merger
19 Information if Proxies, Not Applicable
Consents or
Authorizations are not
to be Solicited, or in
an Exchange Offer
<PAGE>
January ___, 1997
Dear Fellow Shareholders:
You are cordially invited to attend the Special Meeting of
Shareholders of Regency Financial Shares, Inc. ("Regency") to be held on
____________, ________________, 1998 at 3:30 p.m. at The Capital Club, Fourth
Floor, 1051 East Cary Street, Richmond, Virginia.
At this important meeting, you will be asked to consider and vote on
the Agreement and Plan of Merger, dated as of October 27, 1997, and the related
Plan of Merger (collectively, the "Merger Agreement") between Regency and
MainStreet BankGroup, Inc. ("MainStreet"). MainStreet is a community bank
holding company with consolidated total assets of approximately $1.5 billion at
September 30, 1997, headquartered in Martinsville, Virginia with its principal
operations being conducted through eight affiliate banks and one trust company
in Virginia and one affiliate bank in Maryland.
Under the terms of the Merger Agreement, each share of Regency common
stock will be converted into shares of MainStreet common stock having a market
value of $13.00, provided that a minimum of 0.406 shares and a maximum of 0.500
shares of MainStreet common stock will be issued for each share of Regency
common stock. MainStreet common stock is traded on the Nasdaq National Market
under the symbol "MSBC." It is anticipated that the affiliation will become
effective during the latter part of the first quarter of 1998.
Your Board of Directors has unanimously approved the Merger Agreement.
The Board believes that the affiliation with MainStreet is beneficial to all
shareholders and strongly encourages you to VOTE FOR the proposal. Regency's
financial advisor, Wheat, First Securities, Inc., has issued its opinion to
Regency's Board of Directors that the terms of the Merger Agreement are fair
from a financial point of view to our shareholders.
Regency shareholders will not recognize gain or loss for federal income
tax purposes to the extent MainStreet common stock is received in the
affiliation in exchange for Regency common stock, although the receipt of cash
in lieu of fractional shares will be taxable. Details of the proposed
transaction with MainStreet are set forth in the accompanying Proxy
Statement/Prospectus, which you are urged to read carefully in its entirety.
Approval of the transaction with MainStreet requires the affirmative vote of at
least a majority of the outstanding shares of common stock of Regency entitled
to vote at the Special Meeting.
We hope you can attend the Special Meeting. Whether or not you plan to
attend, please complete, sign and date the enclosed proxy card and return it
promptly in the enclosed envelope. Your vote is important regardless of the
number of shares you own.
We deeply appreciate your continuing loyalty and support, and we look
forward to seeing you at the Special Meeting.
Sincerely yours,
C. LELAND BASSETT MERLIN A. HENKEL
Chairman of the Board President and Chief Executive Officer
<PAGE>
REGENCY FINANCIAL SHARES, INC.
Notice of Special Meeting of Shareholders
To Be Held On January 30, 1998
To Our Shareholders:
A Special Meeting of Shareholders (the "Special Meeting") of Regency
Financial Shares, Inc. ("Regency") will be held at The Capital Club, Fourth
Floor, 1051 East Cary Street, Richmond, Virginia on ___________,
__________________, 1998 at 3:30 p.m. for the following purposes:
1. To consider and vote on the Agreement and Plan of Merger, dated as
of October 27, 1997, between Regency and MainStreet BankGroup Incorporated
("MainStreet") and a related Plan of Merger (collectively, the "Merger
Agreement"), providing for the merger of Regency with and into MainStreet upon
the terms and conditions therein (the "Merger"), including, among other things,
that each issued and outstanding share of Regency common stock will be converted
into shares of MainStreet common stock having a market value of $13.00, provided
that a minimum of 0.406 shares and a maximum of 0.500 shares of MainStreet
common stock will be issued for each share of Regency common stock. Cash will be
paid in lieu of issuing fractional shares. The Merger Agreement is enclosed with
the accompanying Proxy Statement/Prospectus as Annex A.
2. To consider such other matters as properly may come before the
Special Meeting or any adjournment of the Special Meeting.
Only holders of record of Regency Common Stock at the close of business
on December 31, 1997 will be entitled to notice of and to vote at the Special
Meeting.
Each Regency shareholder will have the right to dissent from the Merger
and to demand payment of the fair value of his shares in the event the Merger is
approved and consummated. Any right of any such Regency shareholder to receive
such payment is contingent upon strict compliance with the requirements set
forth in Article 15 of the Virginia Stock Corporation Act, the full text of
which is included as Annex C to the accompanying Proxy Statement/Prospectus.
By Order of the Board of Directors
Merlin A. Henkel
President and Chief Executive Officer
Richmond, Virginia
January __, 1998
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY
PROMPTLY, WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING.
THE BOARD OF DIRECTORS OF REGENCY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE MERGER AGREEMENT.
<PAGE>
REGENCY FINANCIAL SHARES, INC.
PROXY STATEMENT
MAINSTREET BANKGROUP INCORPORATED
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to shareholders of
Regency Financial Shares, Inc. ("Regency") in connection with the solicitation
of proxies by the Board of Directors of Regency (the "Regency Board") for use at
its Special Meeting of Shareholders (the "Meeting") to be held on
__________________, 1998, and any postponements or adjournments thereof.
At the Special Meeting, shareholders will be asked to approve an
Agreement and Plan of Merger, dated as of October 27, 1997, between Regency and
MainStreet BankGroup Incorporated, a bank holding company based in Martinsville,
Virginia ("MainStreet"), and a related Plan of Merger (collectively, the "Merger
Agreement") providing for the merger of Regency with and into MainStreet (the
"Merger") and the exchange of common stock of Regency ("Regency Common Stock")
for the common stock of MainStreet ("MainStreet Common Stock").
Upon consummation of the Merger, each outstanding share of Regency
Common Stock, other than shares as to which appraisal rights have been duly
exercised, will be converted into and exchanged for shares of MainStreet Common
Stock with an aggregate market value equal to $13.00, provided that a minimum of
0.406 shares and a maximum of 0.500 shares of MainStreet Common Stock will be
issued for each share of Regency Common Stock (the "Exchange Ratio"). Cash will
be paid in lieu of fractional shares. The Merger Agreement also provides for the
conversion upon consummation of the Merger of all stock options held by
employees (but not directors) outstanding under the Regency Incentive Stock Plan
(the "Regency Stock Options") into options to acquire shares of MainStreet
Common Stock, appropriately adjusted to reflect the Exchange Ratio. Stock
options held by directors of Regency and its subsidiary bank, Regency Bank,
under the Regency Incentive Stock Plan and outstanding at consummation of the
Merger will cease to be outstanding and will be exchanged for shares of
MainStreet Common Stock in the manner provided for in the Merger Agreement. A
copy of the Merger Agreement is included as Annex A hereto. See "The Merger."
Wheat, First Securities, Inc. ("Wheat First") has rendered its opinion,
updated to the date hereof, to the Board of Directors of Regency that the terms
of the Merger are fair to Regency's shareholders from a financial point of view.
See "The Merger -- Opinion of Financial Advisor."
The Board of Directors of Regency unanimously recommends that
shareholders vote to approve the Merger Agreement. Failure to vote is equivalent
to voting against the proposal.
(Continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is January __, 1998.
<PAGE>
This Proxy Statement/Prospectus also constitutes a prospectus of
MainStreet covering up to approximately 729,482 shares of MainStreet Common
Stock to be issued in connection with the Merger. This Proxy
Statement/Prospectus also constitutes a prospectus of MainStreet in respect of
any shares of MainStreet Common Stock that are issuable upon exercise of the
Regency Stock Options following consummation of the Merger.
MainStreet Common Stock is traded in the National Market System of the
Nasdaq Stock Market (the "Nasdaq Stock Market") under the symbol "MSBC." On
October 24, 1997, the last trading day prior to the public announcement of the
execution of the Merger Agreement, the last reported sale price of MainStreet
Common Stock on the Nasdaq Stock Market was $28.3125, and on January 20, 1998,
the last practicable date prior to the mailing of this Proxy
Statement/Prospectus, the last reported sale price was $28.53. Regency Common
Stock is not traded on any exchange but is quoted on the OTC Bulletin Board and
traded on a limited basis; no established public trading market exists for
Regency Common Stock.
This Proxy Statement/Prospectus is first being mailed to shareholders
of Regency on or about January ___, 1998.
THE SHARES OF MAINSTREET COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION ..................................................
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION.............
SUMMARY.................................................................
SELECTED FINANCIAL DATA.................................................
RECENT FINANCIAL RESULTS................................................
THE SPECIAL MEETING.....................................................
THE MERGER .............................................................
MARKET PRICES AND DIVIDENDS.............................................
REGENCY FINANCIAL SHARES, INC...........................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF REGENCY FINANCIAL SHARES, INC............
MAINSTREET BANKGROUP INCORPORATED.......................................
DESCRIPTION OF CAPITAL STOCK OF MAINSTREET..............................
COMPARATIVE RIGHTS OF SHAREHOLDERS......................................
RESALE OF MAINSTREET COMMON STOCK.......................................
EXPERTS
LEGAL OPINIONS
OTHER MATTERS
INDEX TO FINANCIAL STATEMENTS........................................... F-1
ANNEX A -- Agreement and Plan of Merger dated October 27, 1997;
ANNEX B -- Fairness Opinion of Wheat, First Securities, Inc.
ANNEX C -- Article 15 of the Virginia Stock Corporation Act Relating
to Dissenters' Rights
<PAGE>
AVAILABLE INFORMATION
MainStreet is subject to the reporting and informational requirements
of the Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Reports, proxy statements and
other information filed with the SEC can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its Regional Offices located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611-2511
or Seven World Trade Center (13th Floor), New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC
also maintains a web site that contains reports, proxy statements, information
statements and other information regarding registrants that file electronically,
including MainStreet, with the SEC at HTTP:\\www.SEC.GOV. Such reports, proxy
statements and other information also may be inspected at the offices of the
National Association of Securities Dealers, Inc. (the "NASD") located at 1735 K
Street, N.W., Washington, D.C. 20006 for MainStreet. As permitted by the Rules
and Regulations of the SEC, this Proxy Statement/Prospectus does not contain all
the information set forth in the Registration Statement on Form S-4, of which
this Proxy Statement/Prospectus is a part, and exhibits thereto (together with
the amendments thereto, the "Registration Statement"), which has been filed by
MainStreet with the SEC under the Securities Act of 1933 (the "1933 Act") with
respect to MainStreet Common Stock and to which reference is hereby made.
No person has been authorized to give any information or to make any
representation other than as contained herein in connection with the offer
contained in this Proxy Statement/Prospectus, and if given or made, such
information or representation must not be relied upon as having been authorized
by MainStreet or Regency. This Proxy Statement/Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities other than the
securities to which it relates, nor does it constitute an offer to or
solicitation of any person in any jurisdiction to whom it would be unlawful to
make such an offer or solicitation. Neither the delivery of this Proxy
Statement/Prospectus nor the distribution of any of the securities to which this
Proxy Statement/Prospectus relates shall, at any time, imply that the
information herein is correct as of any time subsequent to the date hereof.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS RELATING TO MAINSTREET THAT ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. MAINSTREET DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM
REBECCA J. JENKINS, EXECUTIVE VICE PRESIDENT AND SECRETARY, MAINSTREET BANKGROUP
INCORPORATED, 200 EAST CHURCH STREET, MARTINSVILLE, VIRGINIA 24112, (540)
666-3272. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS
SHOULD BE MADE BY ______________________ __, 1998.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the SEC by MainStreet are
incorporated by reference in this Proxy Statement/Prospectus: (i) MainStreet's
Annual Report on Form 10-K for the year ended December 31, 1996; (ii)
MainStreet's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997; (iii) the description of MainStreet
Common Stock in MainStreet's registration statement filed under the Exchange Act
with respect to MainStreet Common Stock, including all amendments and reports
filed for the purpose of updating such description; and (iv) MainStreet's
Current Reports on Form 8-K, filed on July 8, 1997, August 5, 1997, November 25,
1997 and December 5, 1997.
All documents filed by MainStreet pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to the date
of Regency Shareholder Meeting are hereby incorporated by reference in this
Proxy Statement/ Prospectus and shall be deemed a part hereof from the date of
filing of such documents. Any statement contained in any supplement hereto or in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of the Registration
Statement and this Proxy Statement/Prospectus to the extent that a statement
contained herein, in any supplement hereto or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement, this Proxy Statement/Prospectus or any supplement
hereto.
Also incorporated by reference is the Merger Agreement and Plan of
Merger between MainStreet and Regency, dated October 27, 1997, which is attached
to this Proxy Statement/Prospectus as Annex A.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This Proxy Statement/Prospectus (including information included or
incorporated by reference herein) contains certain forward-looking statements
with respect to the financial condition, results of operations, plans,
objectives, future performance and businesses of each of MainStreet and Regency.
These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities: (1) competitive pressure in the banking industry
increases significantly; (2) changes in the interest rate environment reduce
margins; (3) general economic conditions, either nationally or regionally, are
less favorable than expected, resulting in, among other things, a deterioration
in credit quality; (4) changes occur in the regulatory environment; (5) changes
occur in business conditions and inflation; and (6) changes occur in the
securities markets.
<PAGE>
SUMMARY
The following summary is not intended to be a complete description of
all material facts regarding MainStreet, Regency and the matters to be
considered at the Special Meeting and is qualified in all respects by the
information appearing elsewhere or incorporated by reference in this Proxy
Statement/Prospectus, the Annexes hereto and the documents referred to herein.
Shareholders and Option holders are urged to read carefully all such
information. As used in this Proxy Statement/Prospectus, the terms "MainStreet"
and "Regency" refer to such corporations, respectively, and their respective
subsidiaries where the context requires.
Parties to the Merger
MainStreet. MainStreet is a multi-bank holding company headquartered in
Martinsville, Virginia, with total assets of $1.5 billion and total
shareholders' equity of $120.7 million at September 30, 1997. Organized in 1977,
MainStreet through its nine affiliate banks (the "MainStreet Banks"), and
MainStreet Trust Company, National Association, a nationally chartered trust
company ("Trust Company"), engages in a general banking business and provides a
broad spectrum of full-service banking and trust services to consumers,
businesses, institutions and governments, including accepting demand, savings
and time deposits; making commercial, personal, installment, mortgage and
construction loans; issuing letters of credit; and providing discount brokerage,
trust services, bank-card services, mortgage banking and investment services.
MainStreet's principal executive offices are located at 200 East Church Street,
Martinsville, Virginia 24112 and its telephone number is (540) 666-6724. See
"Selected Financial Data" and "MainStreet BankGroup Incorporated."
MainStreet Common Stock is traded on Nasdaq Stock Market under the
symbol "MSBC."
Regency. Regency is a one bank holding company that serves as the
parent company for Regency Bank ("Regency Bank"). Regency Bank, which is a
state-chartered commercial bank and member of the Federal Reserve System
("Federal Reserve"), commenced its banking business in 1987 and provides
commercial and consumer banking services through three full-service banking
offices to customers in Richmond, Virginia. At September 30, 1997, Regency had
total assets of $75.0 million and total shareholders' equity of $7.2 million.
The principal executive offices of Regency are located at 1011 East Main Street,
Richmond, Virginia 23219 and its telephone number is (804) 783-8700. See
"Selected Financial Information" and "Regency Financial Shares, Inc."
The Special Meeting
Time, Place and Purpose. The Special Meeting will be held on
_________________, 1998 at 3:30 p.m. at The Capital Club, Fourth Floor, 1051
East Cary Street, Richmond, Virginia. At the Special Meeting, Regency
shareholders will be asked to consider and vote upon a proposal to approve the
Merger Agreement and such other business as may properly come before the Special
Meeting.
Record Date. Only holders of record of Regency Common Stock at the
close of business on December 31, 1997, will be entitled to notice of and to
vote at the Special Meeting. At the record date, there were approximately ____
holders of record of the 1,322,363 shares of Regency Common Stock then
outstanding and entitled to vote at the Special Meeting. See "The Special
Meeting."
Terms of the Merger
General. Under the terms of the Merger Agreement, Regency will merge
with and into MainStreet and the separate existence of Regency shall cease. Upon
consummation of the Merger, each outstanding share of Regency Common Stock,
other than shares as to which appraisal rights have been duly exercised, will
automatically be exchanged for shares of MainStreet Common Stock in accordance
with the Merger Agreement. Following consummation of the Merger, MainStreet will
serve as the parent bank holding company for Regency Bank.
The Merger Agreement further provides for the conversion upon
consummation of the Merger of all stock options held by employees (but not
directors) outstanding under the Regency Incentive Stock Plan (the "Regency
Stock Options") into options to acquire shares of MainStreet Common Stock,
appropriately adjusted to reflect the Exchange Ratio. The Merger Agreement
provides that stock options held by directors of Regency and Regency Bank under
the Regency Incentive Stock Plan and outstanding at consummation of the Merger
will cease to be outstanding and will be exchanged for shares of MainStreet
Common Stock in the manner described below under "The Option Ratio." A copy of
the Merger Agreement is included as Annex A. See "The Merger."
The Exchange Ratio. For the purpose of determining the Exchange Ratio,
each outstanding share of Regency Common Stock has been valued at $13.00. The
number of shares of MainStreet Common Stock to be delivered for each share of
Regency Common Stock will be determined by dividing $13.00 by the average of the
bid/ask price per share (the "Average MainStreet Share Price") for MainStreet
Common Stock as reported on the Nasdaq Stock Market for each of the 20 trading
days preceding the tenth calendar day prior to the Merger Effective Date. If
such quotient is less than 0.406, the Exchange Ratio shall be 0.406. If such
quotient is greater than 0.500, the Exchange Ratio shall be 0.500. The minimum
and maximum exchange ratios have no application unless the Average MainStreet
Share Price is below $26 or above $32 per share. The Exchange Ratio will be
adjusted to reflect any consolidation, split-up, other subdivisions or
combinations of MainStreet Common Stock, any dividend payable in MainStreet
Common Stock, or any capital reorganization involving the reclassification of
MainStreet Common Stock. See "The Merger -- Determination of Exchange Ratio."
The Option Ratio. Not less than thirty days prior to the closing of
the Merger as contemplated by the Merger Agreement (the "Merger Closing"),
each director of Regency then holding an outstanding stock option (a "Director
Option") shall have entered into a written agreement with Regency for the
express benefit of and reasonably satisfactory to MainStreet agreeing to
accept as of the Merger Effective Date in full satisfaction of the director's
rights under such Director Option that number of shares of MainStreet Common
Stock equal to a formula designed to pay to the director the fair value of
Director Options outstanding. Please see "The Merger -- Exchange of Director
Options."
Vote Required
Approval of the Merger Agreement requires the affirmative vote of the
holders of at least a majority of the outstanding shares of Regency Common
Stock. As of the record date, directors and executive officers of Regency and
their affiliates beneficially owned approximately 75,748 shares of Regency
Common Stock, or approximately 5.8% of the shares of Regency Common Stock
outstanding and entitled to vote on such date (exclusive of shares of Regency
Common Stock subject to outstanding options that are currently exercisable). The
directors and executive officers of Regency have indicated their intention to
vote their shares of Regency Common Stock in favor of the Merger Agreement. See
"The Special Meeting -- Vote Required."
A failure to vote, either by not returning the enclosed proxy or by
checking the "Abstain" box thereon, and broker "non-votes" will have the same
effect as a vote against approval of the Merger Agreement.
The Board of Directors of MainStreet has approved the Merger Agreement.
Approval of the Merger Agreement by MainStreet shareholders is not required by
applicable law or regulation.
<PAGE>
Recommendation of the Regency Board of Directors
The Board of Directors believes that the Merger is fair to and in the
best interests of the shareholders of Regency and has unanimously approved the
Merger Agreement and approved consummation of the transactions contemplated
therein. In deciding to adopt the Merger Agreement and approve the transactions
contemplated therein, the Regency Board considered a number of factors,
including the financial condition, results of operations, and future prospects
of Regency and MainStreet. See "The Merger -- Background of and Reasons for the
Merger," and "-- Interests of Certain Persons in the Merger."
THE REGENCY BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
THE MERGER AGREEMENT.
Opinion of Financial Advisor
The Board of Directors of Regency retained Wheat, First Securities,
Inc. ("Wheat First") to act as its financial advisor in connection with the
Merger, and Wheat has rendered its opinion to the Board of Directors of Regency
that the terms of the Merger are fair from a financial point of view to the
Regency shareholders. The full text of Wheat's opinion, updated to the date
hereof, is set forth as Annex B to this Proxy Statement/Prospectus and should be
read in its entirety with respect to the assumptions made and other matters
considered and limitations on the review undertaken. See "The Merger -- Opinion
of Financial Advisor."
Merger Effective Date
The Merger is expected to be consummated by early March or as soon
thereafter as practicable. Subject to the terms and conditions set forth herein,
including receipt of all required regulatory approvals, the Merger shall become
effective on the date and time the Virginia State Corporation Commission ("SCC")
issues a certificate of merger reflecting the Merger (the "Merger Effective
Date"). Regency and MainStreet each has the right, acting unilaterally, to
terminate the Merger Agreement should the Merger not be completed by June 30,
1998. See "The Merger -- Termination."
Distribution of Stock Certificates and Payment for Fractional Shares
As soon as practicable after the Effective Date, MainStreet shall cause
Registrar and Transfer Company, Post Office Box 1010, Cranford, New Jersey,
acting as the exchange agent (the "Exchange Agent"), to mail to each Regency
shareholder (other than dissenting shareholders) a letter of transmittal and
instructions for use in order to surrender the certificates representing shares
of Regency Common Stock in exchange for certificates representing shares of
MainStreet Common Stock. Cash (without interest) will be paid to Regency
shareholders in lieu of the issuance of any fractional shares in an amount equal
to the fraction of a share of MainStreet Common Stock to which such shareholder
would otherwise be entitled multiplied by the Average MainStreet Share Price.
See "The Merger -- Surrender of Stock Certificates."
Regulatory Approvals
The Merger is subject to the prior approval of the Board of Governors
of the Federal Reserve System (the "Federal Reserve") under the Bank Holding
Company Act of 1956, as amended (the "BHC Act") and the Virginia State
Corporation Commission (the "SCC"). Applications have been filed by MainStreet
with the Federal Reserve and the SCC. There can be no assurance that the
approval of the Federal Reserve or the SCC will be obtained or as to the timing
or conditions of such approvals. See "The Merger -- Regulatory Approvals."
<PAGE>
Conditions to Consummation; Termination
Consummation of the Merger is contingent upon the following unwaivable
conditions: (i) receipt of the approval of the shareholders of Regency solicited
hereby; (ii) receipt of an opinion of counsel as to the tax-free nature of the
Merger (except for cash received in lieu of fractional shares or upon the
exercise of dissenters' rights); and (iii) approval of the Federal Reserve and
the SCC. The receipt by MainStreet of an opinion from Coopers & Lybrand L.L.P.
that the Merger may be accounted for under the pooling of interests accounting
method is a condition to consummation of the Merger that may be waived by
MainStreet. The Merger is also subject to satisfaction or waiver of other
conditions. See "The Merger -- Representations and Warranties; Conditions to the
Merger" and "The Merger - Regulatory Approvals."
The Merger Agreement may be terminated and the Merger abandoned
notwithstanding shareholder approval (i) by mutual agreement of the Boards of
Directors of MainStreet and Regency or (ii) by either MainStreet or Regency if
the Merger Effective Date has not occurred by June 30, 1998 or if certain
specified events occur. See "The Merger -Waivers, Amendment and Termination."
Conduct of Business Pending the Merger
Pursuant to the terms of the Merger Agreement, Regency has agreed not
to take certain actions relating to the operation of its business pending
consummation of the Merger, without the prior approval of MainStreet, except as
otherwise permitted by the Merger Agreement. See "The Merger -- Business of
Regency Pending the Merger."
Interests of Certain Persons in the Merger
Certain members of Regency's management and Regency's Board have
interests in the Merger in addition to their interests as shareholders of
Regency generally. These include, among other things, indemnification and
directors' and officers' liability insurance for Regency directors and officers,
eligibility of Regency employees for certain MainStreet employee benefits,
exchange of Regency Directors Options in return for shares of MainStreet Common
Stock, and the conversion of Regency Employee Options into options to purchase
MainStreet Common Stock. In addition, one Regency director will be appointed to
serve on the MainStreet Board. See "The Merger--Interests of Certain Persons in
the Merger."
Resale of MainStreet Common Stock
Shares of MainStreet Common Stock received in the Merger will be freely
transferable by the holders thereof, except for those shares held by those
holders who may be deemed to be "affiliates" (generally including directors,
certain executive officers and 10% or greater shareholders) of MainStreet under
applicable federal securities laws. See "Resale of MainStreet Common Stock."
Certain Federal Income Tax Consequences of the Merger
The Merger is intended to qualify as a tax-free "reorganization" within
the meaning of section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), but the receipt of cash by a holder of Regency Common Stock for
any shares of Regency Common Stock, including cash received in connection with
the exercise of dissenters' rights or in lieu of a fractional share of
MainStreet Common Stock, will be a taxable transaction. A condition to
consummation of the Merger is the receipt by MainStreet and Regency of an
opinion from Flippin, Densmore, Morse, Rutherford & Jessee, as to the
qualification of the Merger as a tax-free reorganization and certain other
Federal income tax consequences of the Merger. See "The Merger -- Certain
Federal Income Tax Consequences."
Due to the individual nature of the tax consequences of the Merger, it
is recommended that each Regency shareholder consult his or her own tax advisor
concerning the tax consequences of the Merger with respect to his or her
particular tax situation.
<PAGE>
Combination of Regency Bank with Hanover Bank
MainStreet has an affiliate bank that operates in the Richmond,
Virginia market. Hanover Bank ("Hanover") was incorporated under the laws of
Virginia in 1988 and was acquired by MainStreet in 1996. At September 30, 1997,
it had assets of $144.6 million. Hanover's main office is located in
Mechanicsville, and it has four branches in Hanover and Henrico counties. Its
primary service area has a population of 305,000.
MainStreet contemplates that Hanover Bank will be combined with Regency
Bank following the Merger Effective Date in order to give MainStreet a larger
and more competitive presence in the Richmond, Virginia market. It is expected
that the combination will completed by June 30, 1998 and the surviving bank will
operate under the name, MainStreet Bank. See "The Merger -- Combination of
Regency Bank with Hanover Bank."
Option Agreement
As a condition of MainStreet entering into the Merger Agreement and to
increase the probability that the Merger will be consummated, Regency and
MainStreet entered into an Option Agreement, dated as of October 27, 1997 (the
"Option Agreement"). The Option Agreement provides for the acquisition by
MainStreet of up to 276,430 shares of Regency Common Stock (approximately 19.9%
of the Regency Common Stock), subject to adjustment, at an exercise price of
$10.00 per share (the "Regency Option").
Exercise of the Regency Option is permitted only upon the occurrence of
the events and subject to the limitations specified in the Option Agreement.
See "The Merger -- The Option Agreement."
Effect of the Merger on the Rights of Regency Shareholders
Upon consummation of the Merger, Regency shareholders will become
shareholders of MainStreet. While the rights of the former shareholders of
Regency will continue to be governed by the Virginia Stock Corporation Act (the
"Virginia SCA") since MainStreet is a Virginia corporation, the rights of
Regency shareholders will also be as provided for under the Articles of
Incorporation and Bylaws of MainStreet. The provisions of the Articles of
Incorporation and Bylaws of MainStreet differ in certain material respects from
the Articles of Incorporation and Bylaws of Regency. See "Comparative Rights of
Shareholders."
Accounting Treatment
It is intended that the Merger will be accounted for as a pooling of
interests. See "The Merger --Accounting Treatment."
Rights of Dissent and Appraisal
Each holder of Regency Common Stock may dissent from the Merger and is
entitled to the rights and remedies of dissenting shareholders provided in
Article 15 of the Virginia SCA, subject to compliance with the procedures set
forth therein, including the right to appraisal of his or her stock. A copy of
Article 15 is attached as Annex C to this Proxy Statement/Prospectus and a
summary thereof is included under "The Merger - Rights of Dissenting
Shareholders."
<PAGE>
Market Prices
MainStreet Common Stock is traded on the Nasdaq Stock Market under the
symbol "MSBC." There is currently no established public trading market for
Regency Common Stock. It is quoted on the OTC Bulletin Board under the symbol
"RGFN" and is traded on a limited basis. The last sale price of MainStreet
Common Stock on the Nasdaq Stock Market on October 24, 1997, the last trading
day prior to the public announcement of the execution of the Merger Agreement,
and January 20, 1998, the last practicable date prior to the mailing of this
Proxy Statement/Prospectus was $28.3125 and $28.53125 per share, respectively.
The last sale price of Regency Common Stock as quoted on the OTC Bulletin Board
on October 24, 1997 and January 20, 1998, the most recent trades of Regency
Common Stock that occurred prior to the public announcement of the Merger and
the mailing of this Proxy Statement/Prospectus, was $7.06 and $7.75 per share,
respectively.
If the Merger had been effective on January 20, 1998, the Exchange
Ratio would have been .456 shares of MainStreet Common stock per share of
Regency Common Stock, using the closing price for MainStreet Common Stock on the
Nasdaq Stock Market on January 20, 1998 ($28.53125) as the Average MainStreet
Share Price. Because the market price of MainStreet Common Stock, and therefore
the Average MainStreet Share Price, is subject to fluctuation and will likely
change prior to the time the Exchange Ratio is fixed, the number of shares of
MainStreet Common Stock that Regency shareholders will receive pursuant to the
Merger, and the per share value thereof, may increase or decrease prior to the
Effective Date, but the aggregate value of MainStreet Common Stock received by
Regency shareholders will equal $13.00, subject to maximum and minimum exchange
ratios of 0.500 and 0.406 shares of MainStreet Common Stock for each share of
Regency Common Stock. The maximum and minimum exchange ratios have no
application unless the Average MainStreet Share Price is below $26.00 or above
$32.00 per share. Regency shareholders are urged to obtain current market
quotations for MainStreet Common Stock. See "Market Prices and Dividends."
MainStreet's Acquisition Program
MainStreet has expanded its market area and increased its market share
through both internal growth and strategic acquisitions. Since the beginning of
September 30, 1996, MainStreet has acquired approximately $297.1 million in
assets and approximately $226.4 million in deposits through three bank
acquisitions. Management believes there are additional opportunities to acquire
financial institutions or to acquire assets and deposits that will allow
MainStreet to enter new markets or increase market share in existing markets.
Management intends to pursue acquisition opportunities in strategic markets
where its managerial, operational and capital resources will enhance the
performance of acquired institutions and may, after the date of this Proxy
Statement/ Prospectus, enter into agreements to acquire one or more financial
institutions. See "Business of MainStreet - MainStreet's Acquisition Program."
Comparative Per Share Data
The following table presents historical and pro forma per share data
for MainStreet, and historical and equivalent pro forma per share data for
Regency. The pro forma combined amounts give effect to an assumed Exchange Ratio
of .456 shares of MainStreet Common Stock for each share of Regency Common Stock
(based on the average of the bid/ask price of MainStreet Common Stock at the
close of business on September 30, 1997 of $28.50). The equivalent pro forma
Regency share amounts allow comparison of historical information about one share
of Regency Common Stock to the corresponding data about what one share of
Regency Common Stock will equate to in the combined corporation and are computed
by multiplying the pro forma combined amounts by an assumed Exchange Ratio of
.456. As discussed in "The Merger -- Determination of Exchange Ratio and
Exchange for MainStreet Common Stock," the final Exchange Ratio will be
determined based on the average of the bid/ask price per share for MainStreet
Common Stock as reported on the Nasdaq Stock Market for each of the 20 trading
days preceding the tenth calendar day prior to the Merger Effective Date. The
following table is based on the assumption that all issued and outstanding
shares of Regency Common Stock are converted into shares of MainStreet Common
Stock. The Merger is reflected under the pooling of interests method of
accounting and pro forma information is derived accordingly.
The pro forma combined amounts also give effect to: (i) the conversion
of the options of the employees of Regency to purchase Regency Common Stock into
options to purchase MainStreet Common Stock adjusted according to the Exchange
Ratio; and (ii) the agreement of the holders of Directors Options to exchange
their Directors Options as of the Merger Effective Date for that number of
shares of MainStreet Common Stock determined according to the Option Ratio.
The per share data included in the following table should be read in
conjunction with the consolidated financial statements of MainStreet
incorporated by reference herein and the financial statements of Regency
included herein and the notes accompanying all such financial statements. The
data presented below are not necessarily indicative of the results of operations
which would have been obtained if the Merger had been consummated in the past or
which may be obtained in the future.
<PAGE>
COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
As of or for nine
months ended As of or for years
September 30, ended December 31
---------------------------- -----------------------------------
<S> <C>
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
Book Value Per Share at Period End: (1)(2)
MainStreet Historical................................... $10.57 $9.20 $9.56 $8.69 $6.97
Regency Historical...................................... 5.17 5.24 5.40 5.45 5.06
Pro forma Combined per MainStreet Common
Share (3)............................................ 10.61 9.32 9.68 8.83 7.15
Equivalent Pro forma per Regency Common
Share............................................... 4.84 4.25 4.41 4.03 3.26
Cash Dividends Declared per Share: (1)(2)
MainStreet Historical.................................. $ 0.42 $0.35 $0.49 $0.37 $0.31
Regency Historical..................................... 0.14 - - - -
Pro forma Combined per MainStreet Common
Share (4)........................................... 0.41 0.33 0.47 0.33 0.30
Equivalent Pro forma per Regency Common
Share............................................... 0.19 0.15 0.21 0.15 0.14
Net Income per Share: (1)(2)(5)
MainStreet Historical.................................. $1.14 $1.03 $1.37 $1.21 $0.62
Regency Historical..................................... 0.05 0.44 0.56 0.59 0.45
Pro forma Combined per MainStreet Common
Share (6)........................................... 1.08 1.03 1.36 1.21 0.63
Equivalent Pro forma per Regency Common
Share............................................... 0.49 0.47 0.62 0.55 0.29
</TABLE>
- ---------------------------
(1) MainStreet's and Regency's fiscal years end December 31. Regency's book
value per share is as of the dates presented, and net income and
dividend data reflect results for the periods presented.
(2) All MainStreet share and per share data have been restated to reflect a
2-for-1 stock split in the form of a stock dividend to shareholders of
record on March 4, 1996. All Regency share and per share data have been
restated to reflect 10% stock dividends in 1996 and 1995.
(3) Pro forma combined book value per MainStreet common share represents
combined common shareholders' equity amounts, divided by pro forma
combined period-end common shares outstanding.
(4) Pro forma combined dividends per MainStreet common share represent
combined common dividends declared, divided by pro forma combined
average common shares outstanding.
(5) Net income per share data is based on fully diluted shares. Common
stock equivalents were utilized in the calculation of fully diluted
shares. The common stock equivalents for Regency and MainStreet were
common stock options.
(6) Pro forma combined net income per MainStreet common share represents
combined net income available to common shareholders, divided by pro
forma combined average common shares outstanding.
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth selected consolidated historical
financial data of MainStreet and Regency. This information is derived from and
should be read in conjunction with the historical financial consolidated
statements of MainStreet and the historical consolidated financial statements of
Regency and the respective notes thereto included elsewhere in the Proxy
Statement/Prospectus or in documents incorporated herein by reference. See
"Incorporation of Certain Information by Reference." Interim financial results,
in the opinion of MainStreet and Regency managements, reflect all adjustments
necessary for a fair presentation of the results of operations, including
adjustments related to completed acquisitions. All such adjustments are of a
normal recurring nature. The results of operations for an interim period are not
necessarily indicative of results that may be expected for a full year or any
other interim period.
<PAGE>
MAINSTREET BANKGROUP INCORPORATED
SELECTED FINANCIAL DATA
(In 000's except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
--------------------- ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C>
Earnings:
Interest Income $81,273 $68,240 $93,302 $81,169 $70,077 $67,592 $68,203
Interest Expense 41,248 30,943 42,855 36,757 29,197 28,948 33,200
-------- -------- -------- -------- -------- -------- ---------
Net Interest Income 40,025 37,297 50,447 44,412 40,880 38,644 35,003
Provision for Loan Losses 2,805 2,369 3,276 1,419 3,091 1,690 2,643
--------- --------- --------- --------- --------- --------- ----------
Net Interest Income
After Provision For
Loan Losses 37,220 34,928 47,171 42,993 37,789 36,954 32,360
Noninterest Income 9,996 8,229 11,028 8,526 1,724 6,991 7,050
Noninterest Expense 28,279 25,900 35,348 32,461 32,073 31,351 26,808
-------- -------- -------- -------- -------- -------- ---------
Income Before
Income Taxes 18,937 17,257 22,851 19,058 7,440 12,594 12,602
Income Taxes 5,955 5,401 7,118 5,566 843 3,407 3,486
--------- --------- --------- --------- ---------- --------- ----------
Net Income $ 12,982 $ 11,856 $15,733 $13,492 $ 6,597 $ 9,187 $ 9,116
======== ======== ======= ======= ======== ======== =========
Per Share Data: (1)
Net Income (Primary) $ 1.14 $1.03 $1.37 $1.26 $0.63 $0.89 $0.89
Net Income (Fully Diluted) 1.14 1.03 1.37 1.21 0.62 0.85 0.85
Dividends Declared 0.42 0.35 0.49 0.37 0.31 0.27 0.21
Book Value 10.57 9.20 9.56 8.69 6.97 7.43 6.78
Average Primary
Shares (Thousands) 11,421 11,476 11,460 10,744 10,410 10,287 10,158
Average Fully Diluted
Shares (Thousands) 11,424 11,477 11,463 11,450 11,416 11,317 11,202
Selected Period-End Balances:
Total Assets $1,455,531 $1,235,356 $1,288,837 $1,064,872 $942,385 $910,729 $860,006
Interest-Earning Assets 1,373,155 1,177,126 1,211,169 1,010,044 880,312 857,082 813,101
Loans (Net of
Unearned Income) 824,000 765,697 784,367 673,678 595,187 529,455 511,357
Allowance for Loan Losses 10,942 9,870 10,195 9,036 9,160 9,035 9,166
Total Deposits 930,494 878,492 886,519 845,577 830,597 796,775 753,137
Long-Term Debt 76,873 70,857 71,029 929 8,918 9,194 9,455
Total Shareholders' Equity 120,660 104,737 108,476 98,657 71,994 76,055 68,912
Average Balances:
Total Assets $1,384,637 $1,118,770 $1,154,019 $995,896 $929,298 $880,050 $818,780
Interest-Earning Assets 1,311,077 1,067,562 1,099,295 941,810 872,662 832,625 777,851
Loans (Net of Unearned
Income) 801,418 714,684 730,753 627,166 562,272 530,763 503,178
Allowance for Loan
Losses 10,707 9,509 9,648 9,176 9,106 9,498 9,700
Total Deposits 908,640 854,390 862,806 839,479 818,721 773,546 720,797
Long-Term Debt 64,812 54,607 58,678 7,398 9,167 9,394 9,463
Total Shareholders' Equity 115,214 103,327 104,793 83,960 75,617 73,560 66,205
</TABLE>
<PAGE>
MAINSTREET BANKGROUP INCORPORATED
SELECTED FINANCIAL DATA
(In 000's except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
----------------------- -------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C>
Ratios: (4)
Return on Average Assets 1.25% 1.41% 1.36% 1.35% 0.71% 1.04% 1.11%
Return on Average
Shareholders' Equity 15.07 15.29 15.01 16.07 8.72 12.49 13.77
Net Interest Margin (3) 4.17 4.77 4.68 4.86 4.85 4.82 4.69
Total Shareholders' Equity
to Total Assets at Period End 8.29 8.48 8.42 9.26 7.64 8.35 8.01
Credit Quality Ratios:
Net Charge-Offs to Average
Loans, Net of
Unearned Income (4) 0.38% 0.28% 0.29% 0.25% 0.53% 0.34% 0.50%
Allowance for Loan Losses
to Loans at Period
End, Net of Unearned Income 1.33 1.29 1.30 1.34 1.54 1.71 1.79
Allowance for Loan Losses
to Nonperforming
Loans at Period End 220.43 206.36 166.15 156.36 196.40 175.92 121.66
Allowance for Loan Losses
to Nonperforming
Assets at Period End (2) 179.85 173.13 141.40 117.81 127.03 88.52 67.80
Capital ratios at period end:
Tier I Risk-Adjusted Capital 13.68% 14.05% 13.58% 15.04% 13.19% 12.83% 12.34%
Total Risk-Adjusted Capital 14.94 15.30 14.83 16.29 15.93 15.65 15.29
Tier I Leverage 8.09 8.60 8.37 9.26 8.35 8.24 7.85
</TABLE>
<PAGE>
REGENCY FINANCIAL SHARES, INC.
SELECTED FINANCIAL DATA
(In 000's except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 30 Years ended December 31,
----------------- --------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C>
Earnings:
Interest Income $4,401 $3,983 $5,422 $4,997 $4,033 $3,461 $3,361
Interest Expense 2,067 1,746 2,387 2,193 1,650 1,477 1,755
---------- ---------- ----------- ---------- ---------- ----------- ----------
Net Interest Income 2,334 2,237 3,035 2,804 2,383 1,984 1,606
Provision for Loan Losses 625 41 59 88 60 99 171
---------- ---------- ----------- ---------- ---------- ----------- ----------
Net Interest Income After Provision for
Loan Losses 1,709 2,196 2,976 2,716 2,323 1,885 1,435
Noninterest Income 115 120 165 127 138 123 135
Noninterest Expense 1,715 1,439 2,028 1,776 1,750 1,604 1,461
---------- ---------- ----------- ---------- ---------- ----------- ----------
Income Before Income Taxes 109 877 1,113 1,067 711 404 109
Income Taxes 38 294 369 363 242 150 26
---------- ---------- ----------- ---------- ---------- ----------- ----------
Income Before Extraordinary Item and
Cumulative Effect Of Accounting Change 71 583 744 704 469 254 83
Extraordinary Item - - - - - - 26
Cumulative Effect Of Accounting Change - - - - - 212 -
---------- ---------- ----------- ---------- ---------- ----------- ----------
Net Income $ 71 $ 583 $ 744 $ 704 $ 469 $ 466 $ 109
========== ========== =========== ========== ========== =========== ==========
Per Share Data: (1)
Income Before Extraordinary Item and
Cumulative Effect Of Accounting
Change $ 0.05 $ 0.44 $ 0.56 $ 0.59 $ 0.45 $ 0.25 $ 0.09
Net Income 0.05 0.44 0.56 0.59 0.45 0.46 0.11
Common Dividends Declared 0.14 - - - - - -
Book Value 5.17 5.24 5.40 5.45 5.06 4.84 4.36
Average Primary Shares (Thousands) 1,334 1,282 1,336 1,184 1,017 1,011 1,011
Average Fully Diluted Shares (Thousands) 1,334 1,282 1,336 1,184 1,017 1,011 1,011
Selected Period-End Balances:
Total Assets $75,042 $67,576 $71,998 $62,798 $57,822 $57,968 $55,895
Interest-Earning Assets 69,127 62,037 67,211 59,296 56,270 56,400 53,140
Loans 47,324 47,450 48,181 42,018 40,081 38,115 34,227
Allowance for Loan Losses 583 576 593 524 468 438 344
Total Deposits 63,493 55,459 60,215 52,884 48,565 50,557 46,325
Total Shareholders' Equity 7,180 6,853 7,068 6,323 5,156 4,893 4,394
</TABLE>
<PAGE>
REGENCY FINANCIAL SHARES, INC.
SELECTED FINANCIAL DATA
(In 000's except per share data)
<TABLE>
<CAPTION>
<S> <C>
Average Balances:
Total Assets $72,796 $63,397 $64,684 $58,583 $54,973 $52,385 $48,709
Interest-Earning Assets 68,482 60,399 61,488 55,994 52,325 49,829 46,527
Loans 48,628 43,726 44,705 39,557 38,561 34,292 32,308
Allowance for Loan Losses 630 545 554 503 463 398 370
Total Deposits 61,320 51,964 53,207 48,758 49,615 47,483 44,032
Total Shareholders' Equity 7,025 6,581 6,696 5,769 4,955 4,580 4,334
Ratios: (4)
Return on Average Assets 0.13% 1.23% 1.15% 1.20% 0.85% 0.89% 0.22%
Return on Average Shareholders' Equity 1.34 11.82 11.11 12.21 9.46 10.18 2.52
Net Interest Margin (3) 4.56 4.93 4.94 5.01 4.55 3.98 3.45
Total Shareholders' Equity to Total
Assets at Period End 9.57 10.14 9.82 10.07 8.92 8.44 7.86
Credit Quality Ratios:
Net Charge-Offs (Recoveries) to Average
Loans 1.75% (0.03)% (0.02)% 0.08% 0.08% 0.02% 0.65%
Allowance for Loan Losses to Loans at
Period End 1.23 1.21 1.23 1.25 1.17 1.15 1.01
Allowance for Loan Losses to
Nonperforming Loans at Period End 244.96 662.07 681.93 2,493.66 - 3,651.63 36.24
Allowance for Loan Losses to
Nonperforming Assets at Period End (2) 244.96 662.07 681.93 2,493.66 - 3,651.63 29.46
Capital Ratios at period end:
Tier I Risk-Adjusted Capital 13.45% 13.73% 13.12% 13.60% 12.67% 12.18% 12.19%
Total Risk-Adjusted Capital 14.56 14.89 14.23 14.76 13.80 13.28 13.14
Tier I Leverage 9.47 10.10 9.78 9.80 9.13 8.33 7.89
</TABLE>
Notes to Selected Financial Data-
MainStreet BankGroup Incorporated and Regency Financial Shares, Inc.
(1) Per Share Data for MainStreet has been retroactively adjusted to
reflect a 2-for-1 stock split in the form of a stock dividend to
shareholders of record on March 4, 1996 and a 5-for-4 stock split in
the form of a stock dividend to shareholders of record on July 15,
1993. Per Share Data for Regency has been retroactively adjusted to
reflect a 10% stock dividend in 1996 and 1995.
(2) Nonperforming assets include nonaccrual loans, loans past due 90
days and greater, other real estate and other repossessed assets.
(3) Net interest margin is calculated on a taxable equivalent basis,
using a tax rate of 35% for 1997 and 1996, and 34% for all preceding
years for MainStreet. Regency did not have any nontaxable income for
the years presented.
(4) The ratios for the interim periods have been annualized for
presentation.
<PAGE>
RECENT FINANCIAL RESULTS
MainStreet
The following information represents the unaudited, preliminary
financial data for MainStreet BankGroup Incorporated as of December 31, 1997 and
for the periods then ended. This information has been restated for the
acquisition of Commerce Bank in December, 1997, which was treated for accounting
as a pooling of interests. The per share data has also been restated in
accordance with FASB 128, "Earnings per Share."
For the three months ended December 31, 1997, net income for MainStreet
was $3.7 million or $0.31 per diluted share, compared to $4.2 million or $0.35
per diluted share for the same period in 1996. For the twelve months ended
December 31, 1997, net income for MainStreet increased to $17.3 million or $1.44
per diluted share, from $16.7 million or $1.38 per diluted share for 1996. At
December 31, 1997 and 1996, MainStreet had total assets of $1.7 and $1.4
billion, respectively. Total loans, net of unearned, were $878.8 million at
December 31, 1997, compared to $830.0 million at year-end 1996. Deposits at
December 31, 1997 increased to $998.9 million, up from $940.7 million at
December 31, 1996.
Total nonperforming assets, which consist of nonaccrual loans, loans
past due 90 days and greater, repossessed and foreclosed properties, were $7.8
million at December 31, 1997, an increase of $.4 million, or 5.60% from the
prior year end. The ratio of nonperforming assets to period end loans, net of
unearned, at December 31, 1997 was .89%, consistent with .89% at December 31,
1996. At December 31, 1997, the ratio of the allowance for loan losses to period
end loans, net of unearned income, was 1.34% compared to 1.31% at December 31,
1996.
The following tables set forth certain unaudited financial data for
MainStreet. The 1996 financial data is unaudited due to the restatement of data
caused by the acquisition of Commerce Bank. These numbers will be audited prior
to the filing of the 1997 Form 10-K. In the opinion of the management of
MainStreet, all adjustments of a normal recurring nature which are necessary for
a fair presentation of the consolidated financial statements and results of
operations of such unaudited periods have been included.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
------------------------------------ -------------------------------------
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C>
(In Thousands)
Income Data:
Interest Income $ 30,407 $ 26,319 $ 115,425 $ 98,201
Interest Expense 16,091 12,383 58,779 44,775
-------------- ------------- --------------- -----------------
Net Interest Income 14,316 13,936 56,646 53,426
Provision for Loan Losses 1,086 907 4,011 3,451
Noninterest Income 3,205 2,963 13,726 11,617
Noninterest Expense 10,993 9,955 40,952 37,254
Income Taxes 1,738 1,867 8,152 7,685
-------------- ------------- --------------- ----------------
Net Income $ 3,704 $ 4,170 $ 17,257 $ 16,653
============ ============= ============== ==============
Per Share Data:
Net Income $ 0.31 $ 0.35 $ 1.44 $ 1.38
Cash Dividend 0.15 0.16 0.56 0.49
Book Value 10.72 9.57 10.72 9.57
Performance Ratios (Annualized):
Return on Average Assets 0.94% 1.25% 1.17% 1.37%
Return on Average Equity 11.30 14.41 13.98 15.11
</TABLE>
<PAGE>
Year Ended
December 31,
---------------------------------------
1997 1996
(Unaudited) (Unaudited)
(In Thousands)
Period End Balances:
Assets $ 1,716,410 $ 1,358,127
Loans, Net of Unearned Income 878,777 829,979
Securities 745,769 437,058
Deposits 998,862 940,691
Shareholders' Equity 128,652 114,069
Regency
[Text to follow when 1997 numbers available.]
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
------------------------------------ -------------------------------------
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited)
(In Thousands)
<S> <C>
Income Data:
Interest Income $ 1,439 $ 5,422
Interest Expense 641 2,387
------------- ----------------
Net Interest Income 798 3,035
Provision for Loan Losses 18 59
Noninterest Income 45 165
Noninterest Expense 589 2,028
Income Taxes 75 369
-------------- ---------------
Net Income $ 161 $ 744
============== ===============
Per Share Data:
Net Income $0.16 $0.56
Cash Dividend
Book Value 5.40 5.40
Performance Ratios (Annualized):
Return on Average Assets .93% 1.15%
Return on Average Equity 9.05 11.11
</TABLE>
Year Ended
December 31,
-----------------------------------------
1997 1996
(Unaudited)
(In Thousands)
Period End Balances:
Assets $ 71,998
Loans, Net of Unearned Income 48,181
Securities 14,262
Deposits 60,215
Shareholders' Equity 7,068
<PAGE>
THE SPECIAL MEETING
Date, Place and Time
The Special Meeting will be held at The Capital Club located on the
Fourth Floor, 1051 East Cary Street, Richmond, Virginia 23219 on _________,
_______________, 1998 at 3:30 p.m.
Record Date
Only shareholders of record at the close of business on December 31,
1997, (the "Record Date") are entitled to notice of and to vote at the Special
Meeting or any adjournment thereof. At the close of business on the Record Date,
Regency had 1,322,363 shares of Regency Common Stock outstanding and entitled to
vote held by approximately ______ shareholders of record. Regency has an
additional 80,691 shares outstanding that are not entitled to vote under
Virginia's Control Share Acquisition Statute. See "Regency Financial Shares --
Ownership of Regency Common Stock."
Vote Required
Each share of Regency Common Stock outstanding on the Record Date
(other than the 80,691 shares which do not have voting rights pursuant to the
Control Share Acquisition Statute as described above) entitles the holder to
cast one vote upon each matter properly submitted at the Special Meeting. The
affirmative vote of the holders of at least a majority of the shares of Regency
Common Stock outstanding and entitled to vote as of the Record Date, in person
or by proxy, is required to approve the Merger Agreement.
As of the Record Date, directors and executive officers of Regency and
their affiliates, persons and entities as a group owned of record and
beneficially a total of approximately 75,748 shares of Regency Common Stock, or
5.8% of the shares of Regency Common Stock outstanding and entitled to vote on
such date (exclusive of shares of Regency Common Stock subject to outstanding
options that are currently exercisable). Directors and executive officers of
Regency have indicated an intention to vote their shares of Regency Common Stock
in favor of the Merger Agreement.
A failure to vote, either by not returning the enclosed proxy or by
checking the "Abstain" box thereon, and broker "non-votes" will have the same
effect as a vote against approval of the Merger Agreement.
Voting and Revocation of Proxies.
Shareholders of Regency are requested to complete, date and sign the
accompanying form of proxy and return it promptly to Regency in the enclosed
envelope. If a proxy is properly executed and returned in time for voting, it
will be voted as indicated thereon. If a proxy is signed and returned without
indicating any voting instructions, shares of Regency Common Stock represented
by the proxy will be voted FOR the Merger Agreement.
A proxy may be revoked at any time before it is voted by giving written
notice of revocation to Regency by executing and delivering a substitute proxy
to Regency or by attending the Special Meeting and voting in person. If a
Regency shareholder desires to revoke a proxy by written notice, such notice
should be mailed for receipt or delivered, on or prior to the meeting date, to
Merlin E. Henkel, President, Regency Financial Shares, Inc., 1011 East Main
Street, Richmond, Virginia 23219.
<PAGE>
Solicitation of Proxies
Regency will bear the costs of its solicitation of proxies.
Solicitations may be made by mail, telephone, telegraph or personally by
directors, officers and employees at Regency, none of whom will receive
additional compensation for performing such services. MainStreet shall pay all
of the expenses of printing and mailing the Proxy Statement/Prospectus.
Recommendation
The Board of Directors of Regency has unanimously approved the Merger
Agreement and believes that the proposed transaction is fair to and in the best
interests of Regency and its shareholders. The Board of Directors of Regency
unanimously recommends that Regency shareholders VOTE FOR approval of the Merger
Agreement.
THE MERGER
The following is a summary description of the material terms of the
Merger, and is qualified in its entirety by reference to the Merger Agreement
which is attached as Annex A hereto. All holders of Regency Common Stock are
urged to read the Merger Agreement in its entirety.
Background of and Reasons for the Merger
Background of the Merger. The past several years have represented a
time of significant upheaval in the financial services industry, in general, and
in the Richmond, Virginia market served by Regency in particular. This period
has been marked by rapid consolidation, rapid changes in technology, and
intensified competition both from traditional sources and from non-bank
competitors, such as brokerage firms, mutual funds, insurance companies and
other lending institutions. Recently, several large regional commercial banking
institutions have entered the Richmond market which have substantially greater
financial and marketing resources available to them than Regency or MainStreet.
In this rapidly changing and increasingly competitive environment, and
as part of its effort to enhance shareholder value, the Board of Directors of
Regency has periodically reviewed and examined the ability of Regency to
continue to grow and successfully compete as an independent institution in a
manner that will maximize long term shareholder value. Among the strategic
alternatives which the Board periodically considered were a policy of internal
growth, a merger of equals transaction, and the affiliation of Regency with a
larger institution.
In late July and early August 1997, representatives of MainStreet met
with Merlin A. Henkel, President and Chief Executive Officer of Regency, to
discuss the possibility of a business arrangement between MainStreet Trust, a
subsidiary of MainStreet which conducts trust services, and Regency with respect
to MainStreet Trust providing outside trust services for Regency. On August 6,
1997, the Board of Directors of Regency held a meeting in which Mr. Henkel
advised the directors of the meetings with MainStreet. It was decided at that
meeting to invite Michael A. Brenan, President and Chief Executive Officer of
MainStreet, to meet with the Regency Board to discuss a possible affiliation
between MainStreet and Regency. A meeting was held on September 4, 1997, at
which the Regency Board and Mr. Brenan discussed their respective companies and
their philosophies, the competitive challenges faced by each, consolidation in
the banking industry generally and the possible strategic benefits of a business
affiliation between MainStreet and Regency.
During August and early September 1997, Mr. Henkel also had informal
discussions with representatives of Wheat, First Securities, Inc. ("Wheat
First"), a Richmond, Virginia based investment banking firm with expertise
regarding the evaluation of affiliations between financial institutions. On
September 12, 1997, the Regency Board met to discuss certain strategic matters
and it was decided to accept Wheat First's offer to provide an analysis of some
area financial institutions to determine a strategy for evaluating any
affiliation or purchase offer that Regency might consider in the future. Wheat
First was informed at that meeting that Regency would be interested only in
becoming a part of an organization which shared its philosophy of high quality
community banking and improved stock liquidity for shareholders. After the
meeting, Wheat First began and pursued a review of possible affiliation
candidates, making some general recommendations to Mr. Henkel. In late September
1997, Mr. Henkel, along with C. Leland Bassett, Chairman of Regency and Regency
Bank, met and held discussions with representatives of another regional
financial institution. Those discussions, and a preliminary review of the
institution, did not lead to further meetings.
<PAGE>
At a meeting of the Board of Directors of Regency on October 1, 1997,
the Board decided to advise MainStreet that Regency would be willing to commence
preliminary discussions to determine if there was any interest in an affiliation
between the two organizations. Regency also formally engaged Wheat First as its
financial advisor with respect to any affiliation discussions between Regency
and MainStreet.
Representatives of Regency and MainStreet held several telephone
conversations and meetings over the next couple of weeks in which the parties
continued to discuss the possible strategic benefits of a business affiliation,
as well as certain considerations related to the proposed management and
staffing of Regency upon such affiliation. On October 13, 1997, Regency received
a letter from Mr. Brenan formally indicating MainStreet's interest in
affiliating with Regency through a tax free stock exchange whereby Regency would
become a wholly-owned subsidiary of MainStreet. Additional telephone
conversations regarding the proposed affiliation were conducted through Wheat
First, on behalf of Regency, with MainStreet during the week of October 13th.
Based on these further discussions, on October 17, 1997, Wheat First met again
with the directors of Regency to discuss the offer of affiliation with
MainStreet and to present to the Regency Board the proposed exchange rate and
certain other terms of the proposed transaction. At the meeting, the Regency
Board discussed the reasons for, and the potential benefits of, the proposed
merger. The directors agreed upon an exchange rate and Wheat First was
instructed to convey their decision to MainStreet. On October 24, 1997, the
Regency Board met with representatives of MainStreet to negotiate the terms of a
definitive agreement. The Merger Agreement was completed and unanimously
approved by the Regency Board on October 27, 1997 and a public announcement
regarding the transaction was made after the market closed on October 27th.
The Regency Board relied upon the advice of Wheat First in analyzing
the Merger and recommending the Merger Agreement to the Regency shareholders.
Wheat First determined that the Merger is fair to the Regency shareholders from
a financial point of view. See "Opinion of Financial Advisor" below for a more
detailed analysis of the Merger from the point of view of Regency's financial
advisor.
Reasons for the Merger. In deciding to enter into the Merger Agreement
with MainStreet, the Regency Board considered a number of factors, but it did
not assign any relative or specific weight to the factors considered. The
factors considered included the following: the price offered was 75% higher than
the trading price per share of Regency Common Stock prior to the offer and
represented a significant multiple of both the book value and earnings per share
of Regency Common Stock; MainStreet Common Stock is traded on the Nasdaq Stock
Market and will provide a more liquid investment vehicle for Regency
shareholders; MainStreet pays a regular quarterly dividend; MainStreet has an
excellent reputation for effective management of its financial institutions and
a history of favorable and consistent financial results; the future prospects of
MainStreet and MainStreet Common Stock; Regency will be permitted initially to
designate a representative to serve on the MainStreet Board and Regency will be
allowed to continue its community-oriented philosophy; the market area of
MainStreet is broader and more diverse that Regency's, thus reducing the risks
associated with operating primarily in a single market such as Richmond; the
Merger will broaden the range of financial services and products which Regency
offers and will enhance its ability to provide credit and other financial
products in its market area; the Merger will strengthen Regency's operational
systems and allow economies of scale to be achieved in administrative and
related functions which will be shared with the other MainStreet affiliate
banks; and the transaction will be substantially tax-free to Regency
shareholders to the extent they receive MainStreet Common Stock in exchange for
their shares of Regency Common Stock. In summation, the Regency Board believes
that the banking industry will experience significant changes in the next few
years, and a larger institution with a management philosophy similar to
Regency's (and MainStreet's) will be better equipped to adjust to this
fast-changing and competitive industry.
<PAGE>
Pursuant to the Merger Agreement, the officers and employees of Regency
will not change as a result of the Merger. MainStreet, as the sole shareholder
of Regency after the Effective Date, will have the power to elect the directors
of Regency.
Based on the factors described above, the Board of Directors of Regency
unanimously approved the Merger Agreement because it determined that the Merger
was in the best interests of Regency and its shareholders. The Regency directors
have all committed to vote the shares of Regency Common Stock under their
control in favor of the Merger Agreement to the extent of their fiduciary duty
and to encourage other Regency shareholders to do likewise.
THE REGENCY DIRECTORS UNANIMOUSLY RECOMMEND THAT THE REGENCY
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
Opinion of Financial Advisor
Regency retained Wheat First to act as its financial advisor in
connection with the Merger and to render an opinion to the Regency Board of
Directors as to the fairness, from a financial point of view, to the holders of
Regency Common Stock of the Exchange Ratio. Wheat First is a nationally
recognized investment banking firm regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. Wheat First regularly publishes research reports
regarding the financial services industry and the businesses and securities of
publicly owned companies in that industry. The Regency Board of Directors
selected Wheat First to serve as its financial advisor in connection with the
Merger on the basis of such firm's expertise.
Representatives of Wheat First attended the meeting of the Regency
Board of Directors on October 27, 1997, at which the Merger Agreement was
considered and approved. At the meeting, Wheat First issued its oral opinion
that, as of such date, the Exchange Ratio was fair, from a financial point of
view, to the holders of Regency Common Stock. A written opinion dated as of this
Proxy Statement/Prospectus has been delivered to the Regency Board of Directors
to the effect that, as of such date, the Exchange Ratio is fair, from a
financial point of view, to the holders of Regency Common Stock.
The full text of the Wheat First opinion, dated as of the date of this
Proxy Statement/Prospectus, which sets forth certain assumptions made, matters
considered and limitations on review undertaken, is attached as Annex B to this
Proxy Statement/Prospectus, is incorporated herein by reference, and should be
read in its entirety in connection with this Proxy Statement/Prospectus. The
summary of the opinion of Wheat First set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the opinion.
Wheat First's opinion is directed only to the fairness, from a financial point
of view, of the Exchange Ratio to the holders of Regency Common Stock and does
not constitute a recommendation to any shareholder of Regency as to how such
shareholder should vote on the Merger.
In arriving at its oral opinion of October 27, 1997, Wheat First
reviewed certain publicly available business and financial information relating
to Regency and MainStreet and certain other information provided to it,
<PAGE>
including, among other things the following: (i) Regency's Annual Reports to
Stockholders and related financial information for the three fiscal years ended
December 31, 1996; (ii) Regency's quarterly reports to stockholders and related
financial information for the periods ended June 30, 1997, and March 31, 1997,
and certain financial data provided by management of Regency for the period
ended September 30, 1997; (iii) MainStreet's Annual Reports to Stockholders,
Annual Reports on Form 10-K and related financial information for the three
fiscal years ended December 31, 1996; (iv) MainStreet's Quarterly Reports on
Form 10-Q and related financial information for the periods ended June 30, 1997
and March 31, 1997, and certain financial data provided by management of
MainStreet for the period ended September 30, 1997; (v) certain publicly
available information with respect to historical market prices and trading
activities for Regency Common Stock and MainStreet Common Stock and for certain
publicly traded financial institutions which Wheat First deemed relevant; (vi)
certain publicly available information with respect to banking companies and the
financial terms of certain other mergers and acquisitions which Wheat First
deemed relevant; (vii) the Merger Agreement; (viii) certain estimates of the
cost savings and revenue enhancements and divestitures projected by Regency and
MainStreet for the combined company; (ix) other financial information concerning
the businesses and operations of Regency and MainStreet, including certain
audited and unaudited financial information and certain internal financial
analyses and forecasts for Regency and MainStreet prepared by the senior
managements of these companies; and (x) such financial studies, analyses,
inquiries and other matters as Wheat First deemed necessary. In addition, Wheat
First met with members of the senior managements of Regency and MainStreet to
discuss the business and prospects of each company.
In connection with its review, Wheat First relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it or
publicly available, including representations and warranties of Regency and
MainStreet included in the Merger Agreement, and Wheat First has not assumed any
responsibility for independent verification of such information. Wheat First
relied upon the managements of Regency and MainStreet as to the reasonableness
and achievability of their financial and operational forecasts and projections,
and the assumptions and bases therefor, provided to Wheat First, and assumed
that such forecasts and projections reflect the best currently available
estimates and judgments of such managements and that such forecasts and
projections will be realized in the amounts and in the time periods currently
estimated by such managements. Wheat First also assumed, without independent
verification, that the aggregate allowances for loan losses and other
contingencies for Regency and MainStreet are adequate to cover such losses.
Wheat First did not review any individual credit files of Regency or MainStreet,
nor did it make an independent evaluation or appraisal of the assets or
liabilities of Regency or MainStreet.
In connection with rendering its opinion dated as of the date of this
Proxy Statement/Prospectus, Wheat First performed a variety of financial
analyses. The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Moreover, the evaluation of the fairness, from a financial point of
view, of the Exchange Ratio to holders of Regency Common Stock (other than
MainStreet and its affiliates) was to some extent a subjective one based on the
experience and judgment of Wheat First and not merely the result of mathematical
analysis of financial data. Accordingly, notwithstanding the separate factors
summarized below, Wheat First believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered
by it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying its opinion. The ranges of valuations
resulting from any particular analysis described below should not be taken to be
Wheat First's view of the actual value of Regency or MainStreet.
<PAGE>
In performing its analyses, Wheat First made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Regency or MainStreet. The
analyses performed by Wheat First are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold. In rendering its opinion, Wheat First assumed
that, in the course of obtaining the necessary regulatory approvals for the
Merger, no conditions will be imposed that will have a material adverse effect
on the contemplated benefits of the Merger, on a pro forma basis, to MainStreet.
Wheat First's opinion is just one of the many factors taken into
consideration by the Regency Board of Directors in determining to approve the
Merger Agreement. Wheat First's opinion does not address the relative merits of
the Merger as compared to any alternative business strategies that might exist
for Regency, nor does it address the effect of any other business combination in
which Regency might engage.
The following is a summary of the analyses performed by Wheat First in
connection with its oral opinion delivered to the Regency Board of Directors on
October 27, 1997:
Comparison of Selected Companies. Wheat First compared the financial
performance and market trading information of MainStreet to that of a group of
regional bank holding companies (the "Group"). This Group included: CCB
Financial Corp., Centura Banks Inc., FCNB Corp., F&M Bancorp, F&M National
Corp., First Virginia Banks, Inc., James River Bankshares, Inc., Mason-Dixon
Bancshares, Inc., Provident Bankshares Corp., Triangle Bancorp, Inc. and Union
Bankshares Corp.
Based on financial data as of and for the three month period ended
September 30, 1997, MainStreet had ratios which included: (i) equity to assets
of 8.83% compared to an average of 8.99%, a minimum of 7.00% and a maximum of
11.17% for the Group; (ii) loans to deposits of 87.45% compared to an average of
81.57%, a minimum of 69.26% and a maximum of 97.90% for the Group; (iii)
nonperforming assets to total assets of 0.42% compared to an average of 0.52%, a
minimum of 0.22% and a maximum of 1.31% for the Group; (iv) reserves for loan
losses to nonperforming assets of 177.5% compared to an average of 202.3%, a
minimum of 71.8% and a maximum of 369.1% for the Group; (v) returns on average
assets before nonrecurring charges and extraordinary items of 1.26% compared to
an average of 1.20%, a minimum of 0.89% and a maximum of 1.48% for the Group;
and (vi) returns on average equity before nonrecurring charges and extraordinary
items of 15.06% compared to an average of 13.38%, a minimum of 9.59% and a
maximum of 16.72% for the Group.
Based on market values as of October 24, 1997, and financial data as of
September 30, 1997, MainStreet had: (1) a stock price to book value multiple of
249.6% compared to an average of 240.5%, a minimum of 164.1% and a maximum of
295.5% for the Group; (ii) a stock price to "First Call" (as hereinafter
defined) 1997 estimated earnings per share multiple of 17.6x compared to an
average of 18.5x, a minimum of 15.7x and a maximum of 20.6x for the Group; (iii)
a stock price to First Call 1998 estimated earnings per share multiple of 15.0x
compared to an average of 16.6x, a minimum of 13.8x and a maximum of 18.0x for
the Group; and (iv) an indicated dividend yield of 2.11% compared to an average
of 2.10%, a minimum of 1.79% and a maximum of 2.59% for the Group. "First Call"
is a data service that monitors and publishes a compilation of earnings
estimates produced by selected research analysts regarding companies of interest
to institutional investors.
Analysis of Selected Transactions. Wheat First performed an analysis of
premiums paid in twelve selected pending or recently completed community bank
acquisitions announced since June 1996 where the announced deal value was
between $10 million and $100 million and the target company located in North
Carolina, Maryland or Virginia (the "Selected Transactions"). Multiples of book
value, trailing twelve months earnings and estimated current year earnings paid
in the Selected Transactions were compared to the multiples and premiums implied
by the consideration offered by MainStreet in the Merger. The Selected
Transactions included the following pending transactions: Triangle Bancorp,
Inc./Guaranty State Bancorp; MainStreet BankGroup, Inc./Tysons Financial Corp.;
MainStreet BankGroup, Inc./Commerce Bank; First Charter Corp./Carolina State
Bank and Abigail Adams National Bancorp/Ballston Bancorp, Inc. The Selected
Transactions included the following completed transactions: Triangle Bancorp,
Inc./Bank of Mecklenburg; Fulton Financial Corporation/Peoples Bank of Elkton;
United Bankshares, Inc./First Patriot Bankshares; LSB Bancshares, Inc./Old North
State Bank; FCFT, Inc./Blue Ridge Bank and Mercantile Bankshares, Inc./Home
Bank.
<PAGE>
Based on the market value of MainStreet Common Stock on October 24,
1997, and financial data as of September 30, 1997 (normalized for the special
provision for loan losses taken during the quarter ended June 30, 1997), the
analysis yielded ratios of the implied consideration to be paid by MainStreet to
Regency: (i) to book value of 251.5% compared to an average of 239.0%, a minimum
of 180.0% and a maximum of 319.3% for the Selected Transactions; (ii) to
trailing twelve months earnings per share of 29.3x compared to an average of
21.8x, a minimum of 14.5x and a maximum of 33.4x for the Selected Transactions;
and (iii) to annualized latest quarter earnings per share of 25.0x compared to
an average of 21.7x, a minimum of 14.4x and a maximum of 37.6x for the Selected
Transactions.
The following comparisons were are based on financial data as of and
for the nine month period ended September 30, 1997 (normalized for the special
provision for loan losses taken during the quarter ended June 30, 1997), for
Regency and the twelve months reporting period prior to the announcement of each
transaction for each acquiree in the Selected Transactions; Regency had: (i)
equity to assets of 9.58% compared to an average of 9.66%, a minimum of 7.00%,
and a maximum of 12.04% for the Selected Transaction acquirees; (ii)
nonperforming assets to total assets of 0.05% compared to an average of 0.46%, a
minimum of 0.00%, and a maximum of 2.09% for the Selected Transaction acquirees;
(iii) returns on average assets of 0.59% compared to an average of 1.18%, a
minimum of 0.84%, and a maximum of 1.46% for the Selected Transaction acquirees;
and (iv) returns on average equity before extraordinary items of 6.15% compared
to an average of 12.54%, a minimum of 9.57%, and a maximum of 15.68% for the
Selected Transaction acquirees; and (v) an efficiency ratio of 69.82% compared
to an average of 61.88%, a minimum of 49.79%, and a maximum of 71.53% for the
Selected Transaction acquirees.
Contribution Analysis. Wheat First analyzed the relative contribution
to the pro forma combined company of Regency and MainStreet based on certain
balance sheet and income statement items including assets, deposits,
shareholders' equity and estimated earnings. This analysis included balance
sheet data as of September 30, 1997 (estimated pro forma for MainStreet's
pending acquisitions as of that date), market values as of October 24, 1997,
First Call consensus earnings estimates for MainStreet and management earnings
projections for Regency. Wheat First then compared the relative contribution of
such balance sheet and income statement items with the fully diluted ownership
percentage of the combined company of approximately 4.94% for Regency
shareholders based on an exchange ratio of 0.456 derived from MainStreet's fixed
offer price of $13.00 per Regency share and MainStreet's closing stock price of
$28.50 on October 24, 1997. The contribution analysis showed that under the
MainStreet proposal, Regency would contribute approximately 4.41% of the
combined assets, 4.77% of the combined shareholder's equity (before
Merger-related expenses) and 3.48% of the 1998 estimated earnings of the two
companies (before cost savings).
Discounted Dividends Analysis. Using discounted dividends analysis,
Wheat First estimated the present value of the future stream of dividends that
Regency Bank could produce over the next five years, under various
circumstances, assuming the company performed in accordance with the earnings
forecasts of management and an assumed level of expense savings was achieved.
Wheat First then estimated the terminal values for Regency Common Stock at the
end of the period by applying multiples ranging from 14x to 16x projected
earnings in year five. The dividend streams and terminal values were then
discounted to present values using different discount rates (ranging from 14% to
16%) chosen to reflect different assumptions regarding the required rates of
return to holders or prospective buyers of Regency Common Stock. This discounted
dividend analysis indicated reference ranges of between $11.85 and $14.41 per
share for Regency Common Stock. These values compare to the implied
consideration to be offered by MainStreet to Regency in the Merger of $13.00
based on the market value of MainStreet Common Stock on October 24, 1997.
<PAGE>
In connection with its written opinion as of the date hereof, Wheat
First confirmed the appropriateness of its reliance on the analyses used to
render its October 27, 1997, opinion by performing procedures to update certain
of such analyses and by reviewing the assumptions on which such analyses were
based and the factors considered in connection therewith.
No company or transaction used as a comparison in the above analysis is
identical to Regency, MainStreet or the Merger. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies used for comparison in the above analysis.
The Wheat First opinion is dated as of the date of this Proxy
Statement/Prospectus and is based solely upon the information available to us
and the economic, market and other circumstances as they existed as of such
date. Events occurring after that date could materially affect the assumptions
and conclusions contained in our opinion. We have not undertaken to reaffirm or
revise this opinion or otherwise comment on any events occurring after the date
hereof.
As compensation for Wheat First's services, the Company has agreed to
pay Wheat First advisory fees which aggregate to approximately $219,000. Regency
has agreed also to reimburse Wheat First for its out-of-pocket expenses incurred
in connection with the activities contemplated by its engagement, regardless of
whether the Merger is consummated. Regency has further agreed to indemnify Wheat
First against certain liabilities, including certain liabilities under federal
securities laws. The payment of the above fees is not contingent upon Wheat
First rendering a favorable opinion with respect to the Merger.
Determination of Exchange Ratio
Each share of Regency Common Stock issued and outstanding at the Merger
Effective Date, other than shares as to which appraisal rights have been duly
exercised, shall automatically, and without any action by the holder thereof be
converted into a number of shares of MainStreet Common Stock equal to the
quotient of $13.00 divided by the average of the bid/ask price for MainStreet
Common Stock as reported on the Nasdaq Stock Market for each of the 20 trading
days preceding the tenth calendar day prior to the Merger. If such quotient is
less than 0.406, the Exchange Ratio shall be 0.406. If such quotient is greater
than 0.500, the Exchange Ratio shall be 0.500. The minimum and maximum exchange
ratios have no application unless the average MainStreet share price is below
$26 or above $32 per share. All such shares of MainStreet Common Stock shall be
validly issued, fully paid and nonassessable.
The Exchange Ratio at the Merger Effective Date shall be adjusted to
reflect any consolidation, split-up, other subdivisions or combinations of
MainStreet Common Stock, any dividend payable in MainStreet Common Stock, or any
capital reorganization involving the reclassification of MainStreet Common Stock
subsequent to the date of the Merger Agreement.
As of the Merger Closing, all Employee Options to purchase shares of
Regency Common Stock which are then outstanding and unexercised shall
automatically be converted into and become options with respect to MainStreet
Common Stock adjusted to reflect the Exchange Ratio, and subject to the
MainStreet Stock Option Plan. In addition, all Directors Options outstanding at
the Merger Effective Date will be exchanged for MainStreet Common Stock as set
forth in the Agreement. See "The Merger -- Exchange of Directors' Options."
<PAGE>
Merger Effective Date
Subject to the terms and conditions set forth herein, including receipt
of all required regulatory approvals, the Merger shall become effective at the
time the SCC issues a certificate of merger reflecting the Merger (the "Merger
Effective Date"). The Merger Effective Date is expected to occur by early March,
or as soon thereafter as is practicable. Either Regency or MainStreet may
terminate the Merger Agreement if the Merger has not been consummated by June
30, 1998.
Until the Merger Effective Date, Regency shareholders will retain their
rights as shareholders to vote on matters submitted to them by Regency's Board.
Exchange of Regency Common Stock for MainStreet Common Stock
After the Merger Effective Date, each holder of a certificate
theretofore representing outstanding shares of Regency Common Stock, upon
surrender of such certificate to Registrar & Transfer Company, Post Office Box
1010, Cranford, New Jersey (which shall act as exchange agent) (the "Exchange
Agent"), accompanied by a Letter of Transmittal shall be entitled to receive in
exchange therefor a certificate or certificates representing the number of full
shares of MainStreet Common Stock for which shares of Regency Common Stock
theretofore represented by the certificate or certificates so surrendered shall
have been exchanged as provided plus cash in lieu of any fractional share. Until
so surrendered, each outstanding certificate which, prior to the Merger
Effective Date, represented Regency Common Stock will be deemed to evidence the
right to receive the number of full shares of MainStreet Common Stock into which
the shares of Regency Common Stock represented thereby may be converted, and,
after the Merger Effective Date, will be deemed for all corporate purposes of
MainStreet to evidence ownership of the number of full shares of MainStreet
Common Stock into which the shares of Regency Common Stock represented thereby
were converted. Until such outstanding certificates formerly representing
Regency Common Stock are surrendered, no dividend payable to holders of record
of MainStreet Common Stock for any period as of any date subsequent to the
Merger Effective Date shall be paid to the holder of such outstanding
certificates in respect thereof. After the Merger Effective Date there shall be
no further registry of transfer on the records of Regency of shares of Regency
Common Stock. If a certificate representing such shares is presented to the
Exchange Agent, it shall be canceled and exchanged for a certificate
representing shares of MainStreet Common Stock as herein provided. MainStreet
will also issue a certificate in exchange for shares evidenced by lost
certificate(s) provided the record owner thereof provides MainStreet with such
substantiation, indemnification and security as MainStreet may reasonably
require.
Upon surrender of certificates of Regency Common Stock in exchange for
MainStreet Common Stock, there shall be paid to the recordholder of the
certificates of MainStreet Common Stock issued in exchange thereof (i) the
amount of dividends theretofore paid with respect to such full shares of
MainStreet Common Stock as of any date subsequent to the Merger Effective Date
which have not yet been paid to a public official pursuant to abandoned property
laws and (ii) at the appropriate payment date the amount of dividends with a
record date after the Merger Effective Date, but prior to surrender, and payment
date subsequent to surrender. No interest shall be payable with respect to such
dividends upon surrender of outstanding certificates.
Lock-Up Option
In addition to the Merger Agreement, Regency and MainStreet have
entered into an agreement, dated as of October 27, 1997 providing for MainStreet
to have an option to purchase the Common Stock of Regency under certain
conditions (the "Lock-Up Option"). Specifically, the Lock-up Option provides
that MainStreet shall have the option to purchase up to 276,430 of the issued
and outstanding shares of Regency's Common Stock at a price of $10.00 per share.
The Lock-up Option is exercisable only under limited circumstances.
<PAGE>
The Lock-up Option provides that MainStreet has an option to purchase
Regency Common Stock only upon the occurrence of the following events: (i)
Regency enters into an agreement with a third party to engage in a merger,
consolidation, sale of substantially all of its assets, or sale of securities
representing 20% or more of the voting power of Regency; or (ii) a third party
acquires beneficial ownership or the right to acquire beneficial ownership of
25% or more of outstanding Regency Common Stock. MainStreet's right to exercise
the Lock-up Option has not been triggered as of the date of this Proxy
Statement/Prospectus.
Business of Regency Pending the Merger
Regency has agreed that prior to the Merger Effective Date, it will
operate its business substantially as presently operated and in the ordinary
course, and, consistent with such operation, will use its best efforts to
preserve intact its present business organization and relationships with persons
having business dealings with it. The Agreement contains a description of
certain specified actions to be taken or refrained from by Regency in satisfying
this undertaking.
Regency further has agreed that, prior to the Merger Effective Date, it
will consult and reasonably cooperate with MainStreet regarding credit,
investment, litigation and real estate valuation policies and practices
(including loan classifications and levels of reserves), all with the objective
of becoming consistent on a mutually satisfactory basis with MainStreet and
generally accepted accounting principles prior to the Merger Effective Date. See
Paragraph (K) of Article V of the Merger Agreement.
Conditions to Consummation of the Merger
Consummation of the Merger is conditioned upon the approval of the
holders of at least a majority of the outstanding Regency Common Stock entitled
to vote at the Special Meeting. The Merger must be approved by the Federal
Reserve Board and the SCC, applications for which have been or will be filed and
approvals for which are expected to be received. See "The Merger -- Interests of
Certain Persons in the Merger." The obligations of Regency and MainStreet to
consummate the Merger are further conditioned upon the satisfaction of terms and
conditions contained in the Merger Agreement usual for transactions of this
type, including continued accuracy of certain representations and warranties
made by Regency and MainStreet, the absence of material adverse change in
Regency's and MainStreet's businesses, the receipt of legal and accounting
opinions, and the transaction being accounted for as a pooling of interests. See
Article VI of the Merger Agreement.
Termination
The Agreement will be terminated, and the Merger abandoned, if
shareholders of Regency do not approve the Merger. Notwithstanding such approval
by such shareholders, the Merger Agreement also may be terminated at any time
prior to the Merger Effective Date by mutual consent, upon breach of the Merger
Agreement, if the Merger is not effective by June 30, 1998, and upon the
occurrence of certain other events specified in the Merger Agreement. See
Article VII of the Merger Agreement.
Accounting Treatment
MainStreet and Regency have agreed to use their best efforts to cause
the Merger to be accounted for as a "pooling of interests" and this accounting
treatment is a condition to MainStreet's obligation to complete the Merger.
<PAGE>
Interests of Certain Persons in the Merger
Certain members of the Regency Board and Regency management may be
deemed to have interests in the Merger in addition to their interests as
shareholders of Regency generally. These include, among other things,
indemnification and directors' and officers' liability insurance for Regency
directors and officers, eligibility of Regency employees for certain MainStreet
employee benefits, exchange of Regency Directors Options in return for shares of
MainStreet Common Stock and the conversion of Regency Employee Options into
options with respect to MainStreet Common Stock. In each case, Regency's Board
was aware of their potential interests, and considered them before approving the
Merger Agreement and the transactions contemplated thereby.
The Directors of the Bank are expected to continue to serve on the
Bank's Board and Board Committees. Such directors are expected to continue to
receive fees for serving as members of the Bank's Board of Directors and its
Committees. However, one present Regency Director selected by Regency (with
MainStreet's consent) will resign from the Regency Board and be appointed to the
MainStreet Board.
Other than as set forth above and elsewhere herein, no director or
executive officer of Regency or MainStreet has any direct or indirect material
interest in the Merger, except in the case of directors and executive officers
of Regency insofar as ownership of Regency Common Stock and Directors Options
might be deemed such an interest.
Combination of Regency with Hanover Bank
MainStreet has an affiliate bank that operates in the Richmond,
Virginia market. Hanover Bank ("Hanover") was incorporated under the laws of
Virginia in 1988 and was acquired in 1996. At September 30, 1997, it had assets
of $144.6 million. Hanover's main office is located in Mechanicsville, and it
has four branches in Hanover and Henrico counties.
Its primary service area has a population of 305,000.
MainStreet contemplates that Hanover Bank will be combined with Regency
Bank following the Merger Effective Date in order to give MainStreet a larger
and more competitive presence in the Richmond Virginia market. It is expected
that the combination will completed by June 30, 1998 and the surviving bank will
operate under the name, MainStreet Bank.
Indemnification; Liability Insurance
MainStreet agrees that for the period of the relevant statute of
limitations but in no event less than six years following the Merger Effective
Date, it shall cause Regency and any successor thereto to indemnify and hold
harmless any person who has rights to indemnification from Regency to the same
extent and on the same conditions as such person is entitled to indemnification
pursuant to Regency's Bylaws as in effect on the date of the Merger Agreement,
to the extent legally permitted to do so, with respect to matters occurring on
or prior to the Merger Effective Date (regardless of whether a claim is asserted
in connection therewith on or prior to the Merger Effective Date or thereafter),
as detailed in Paragraph K of Article VIII of the Merger Agreement. MainStreet
shall use its reasonable best efforts to provide coverage to the officers and
directors of Regency under MainStreet's policy or policies of directors' and
officers' liability insurance on the same or substantially similar terms then in
effect for the directors and officers of MainStreet as further detailed in
Paragraph K of Article VIII of the Merger Agreement.
Additionally, Regency shall have the power to indemnify its directors
and officers against liability for acts or omissions before the Merger Effective
Date to the extent permitted under Virginia law.
<PAGE>
Employee Benefits
Upon consummation of the Merger, as soon as administratively
practicable employees of Regency shall be entitled to participate in
MainStreet's pension, severance, benefit and similar plans on the same terms and
conditions as employees of MainStreet and its subsidiaries. Employees of Regency
shall be given full credit for past service with Regency for purposes of
eligibility and vesting in the MainStreet 401(k) plan. MainStreet shall cause
Regency to honor in accordance with their terms as in effect on the date hereof,
or as amended after the date hereof with the prior written consent of
MainStreet, all employment, severance, consulting and other compensation
contracts and agreements executed in writing by both Regency on the one hand and
any individual current or former director, officer or employee thereof on the
other hand.
Exchange of Directors Options
As of a date which is no later than 30 days before the Merger Closing,
Regency shall enter into a written agreement with each holder of a Directors
Option for the express benefit of and reasonably satisfactory to MainStreet to
exchange such Directors Options as of the Merger Closing, in full satisfaction
of the optionee's rights under such Directors Option for that number of shares
of MainStreet Common Stock equal to the quotient obtained by dividing (y) the
difference between $13.00 minus the price per share at which the director could
have exercised his option rights under the terms of his Director Option ("Strike
Price"), by (z) the Average MainStreet Share Price ("Option Ratio"). If the
Option Ratio computed in accordance with the immediately preceding sentence is
less than the ratio ("Bottom Ratio") obtained by dividing (y) the difference
between $13.00 minus the Strike Price, by (z) $32.00, the Option Ratio shall be
the Bottom Ratio; if the Option Ratio computed in accordance with the
immediately preceding sentence is greater than the ratio ("Top Ratio") obtained
by dividing (y) the difference between $13.00 minus the Strike Price, by (z)
$26.00, the Option Ratio shall be the Top Ratio. See "Summary -- Terms of the
Merger."
Certain Federal Income Tax Consequences
MainStreet and Regency have received an opinion from Flippin, Densmore,
Morse, Rutherford & Jessee, counsel for MainStreet, dated the date of this Proxy
Statement/Prospectus to the effect that, for federal income tax purposes:
1. The Merger will constitute a "reorganization" within the meaning of
Section 368 of the Code.
2. No gain or loss will be recognized by MainStreet or Regency as a
result of the Merger.
3. No gain or loss will be recognized by Regency shareholders as a
result of the exchange of Regency Common Stock for MainStreet Common Stock
pursuant to the Merger, except that gain or loss will be recognized on the
receipt of cash, if any, received in lieu of a fractional share of MainStreet
Common Stock.
4. A Regency shareholder who receives cash in lieu of a fractional
share of MainStreet Common Stock will be treated as if the fractional share of
MainStreet Common Stock had been issued and then redeemed by MainStreet. If the
deemed redemption distribution is not essentially equivalent to a dividend
within the meaning of Section 302(b)(1) of the Code, then the Regency
shareholder will be treated as receiving a distribution in redemption of such
fractional share, subject to the provisions and limitations of Section 302 of
the Code. If the deemed redemption distribution is essentially equivalent to a
dividend, then the Regency shareholder will be treated as receiving a dividend
distribution under Section 301(c)(1) of the Code, as provided in Section 302(d)
of the Code.
<PAGE>
5. A dissenting Regency shareholder who receives solely cash in
exchange for his Regency Common Stock will be treated as receiving a
distribution in redemption of his Regency Common Stock, subject to the
provisions and limitations of Section 302 of the Code.
6. The aggregate tax basis of MainStreet Common Stock received by
Regency shareholders who exchange their Regency Common Stock for MainStreet
Common Stock will be the same as the aggregate tax basis of Regency Common Stock
surrendered in exchange therefor reduced by any amount allocable to fractional
share interests for which cash is received if the receipt of cash is treated as
a distribution in redemption of a fractional share rather than as a receipt of a
dividend distribution.
7. The holding period of MainStreet Common Stock received by Regency
shareholders will include the period during which Regency Common Stock
surrendered in exchange therefor was held by such Regency shareholders, provided
the Regency Common Stock was held as a capital asset on the date of the
exchange.
The opinion is based on certain customary assumptions and
representations made by duly authorized officers of MainStreet and Regency
regarding, among other things, the lack of previous dealings between MainStreet
and Regency, the existing and future ownership of MainStreet and Regency Common
Stock and the future business plans of MainStreet. The opinion is not binding on
the Internal Revenue Service, any tax authority or any court. No assurance can
be given that a position contrary to that expressed in the opinion will not be
asserted by the Internal Revenue Service or any tax authority or that such
contrary position will not prevail. The opinion does not address all aspects of
Federal income taxation that may be relevant to particular holders of Regency
Common Stock and the opinion may not be applicable to holders of Regency Common
Stock that are not citizens or residents of the United States or to holders of
options or warrants. The opinion does not address the effect of any applicable
foreign, state, local or other tax laws. Receipt of substantially the same
opinion as of the Merger Effective Date is a condition to consummation of the
Merger.
The federal income tax consequences discussed above are necessarily
general as to the various shareholders of Regency. The tax consequences to any
particular shareholder may depend on the shareholder's circumstances. Regency
shareholders are urged to consult their own tax advisors with regard to federal,
foreign, state and local tax consequences.
Certain Differences in Rights of Shareholders
Both MainStreet and Regency are corporations subject to the provisions
of the Virginia SCA. Shareholders of Regency, whose rights are governed by
Regency's Articles of Incorporation and Bylaws, will, upon consummation of the
Merger, become shareholders of MainStreet. The rights of the former Regency
shareholders will then be governed by the Articles of Incorporation and Bylaws
of MainStreet.
There are no material differences between the rights of a Regency
shareholder under Regency's Articles of Incorporation and Bylaws, on the one
hand, and the rights of an MainStreet shareholder under the Articles of
Incorporation and Bylaws of MainStreet, on the other hand, except as disclosed
in the section "Comparative Rights of Shareholders."
Dissenters' Appraisal Rights
A shareholder of Regency Common Stock who objects to the Merger (a
"Dissenting Shareholder") and who complies with provisions of Article 15 of
Title 13.1 of the Virginia SCA ("Article 15") may demand the right to receive a
cash payment, if the Merger is consummated, for the fair value of his or her
stock immediately before the Merger Effective Date, exclusive of any
appreciation or depreciation in anticipation of the Merger unless such exclusion
would be inequitable. In order to receive payment, a Dissenting Shareholder must
deliver to Regency before the vote is taken at the Special Meeting a written
notice of intent to demand payment for his or her shares if the Merger is
effectuated (an "Intent to Demand Payment') and must not vote his or her shares
in favor of the Merger. The Intent to Demand Payment should be delivered to
Merlin A. Henkel, President, Regency Financial Shares, Inc., 1011 E. Main
Street, Richmond, Virginia 23219. A VOTE AGAINST THE MERGER WILL NOT ITSELF
CONSTITUTE SUCH WRITTEN NOTICE AND A FAILURE TO VOTE WILL NOT CONSTITUTE A
TIMELY WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT.
<PAGE>
A shareholder of record of Regency Common Stock may assert dissenters'
rights as to fewer than all the shares registered in his or her name only if the
shareholder dissents with respect to all shares beneficially owned by any one
person and notifies Regency in writing of the name and address of each person on
whose behalf he asserts dissenters' rights. The rights of such a partial
dissenter are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders. A beneficial
shareholder of Regency Common Stock may assert dissenters' rights as to shares
held on his behalf by a shareholder of record only if (i) he submits to Regency
the record shareholder's written consent to the dissent not later than the time
when the beneficial shareholder asserts dissenters' rights, and (ii) he dissents
with respect to all shares of which he is the beneficial shareholder or over
which he has power to direct the vote.
Within 10 days after the Effective Date, Regency is required to deliver
a notice in writing (a "Dissenter's Notice") to each Dissenting Shareholder who
has filed an Intent to Demand Payment and who has not voted such shares in favor
of the Merger. The Dissenter's Notice shall (i) state where the demand for
payment (the "Payment Demand") shall be sent and where and when stock
certificates shall be deposited; (ii) supply a form for demanding payment; (iii)
set a date by which Regency must receive the Payment Demand; and (iv) be
accompanied by a copy of Article 15. A Dissenting Shareholder who is sent a
Dissenter's Notice must submit the Payment Demand and deposit his or her stock
certificates in accordance with the terms of, and within the time frames set
forth in, the Dissenter's Notice. As a part of the Payment Demand, the
Dissenting Shareholder must certify whether he or she acquired beneficial
ownership of the shares before or after the date of the first public
announcement of the terms of the proposed Merger (the "Announcement Date"),
which was October 27, 1997. Regency will specify the Announcement Date in the
Dissenter's Notice.
Except with respect to shares acquired after the Announcement Date,
Regency shall pay a Dissenting Shareholder the amount Regency estimates to be
the fair value of his or her shares, plus accrued interest. Such payment shall
be made within 30 days of receipt of the Dissenting Shareholder's Payment
Demand. As to shares acquired after the Announcement Date, Regency is only
obligated to estimate the fair value of the shares, plus accrued interest, and
to offer to pay this amount to the Dissenting Shareholder conditioned upon the
Dissenting Shareholder's agreement to accept it in full satisfaction of his or
her claim.
If a Dissenting Shareholder believes that the amount paid or offered by
Regency is less than the fair value of his or her shares, or that the interest
due is incorrectly calculated, that Dissenting Shareholder may notify Regency of
his or her own estimate of the fair value of his shares and amount of interest
due and demand payment of such estimate (less any amount already received by the
Dissenting Shareholder) (the "Estimate and Demand"). The Dissenting Shareholder
must notify Regency of the Estimate and Demand within 30 days after the date
Regency makes or offers to make payment to the Dissenting Shareholder.
Within 60 days after receiving the Estimate and Demand, Regency must
either commence a proceeding in the appropriate circuit court to determine the
fair value of the Dissenting Shareholder's shares and accrued interest, or
Regency must pay each Dissenting Shareholder whose demand remains unsettled the
amount demanded. If a proceeding is commenced, the court must determine all
costs of the proceeding and must assess those costs against Regency, except that
the court may assess costs against all or some of the Dissenting Shareholders to
the extent the court finds that the Dissenting Shareholders did not act in good
faith in demanding payment of the Estimate and Demand.
<PAGE>
The foregoing discussion is a summary of the material provisions of
Article 15. Shareholders are strongly encouraged to review carefully the full
text of Article 15, which is included as Annex C to this Proxy
Statement/Prospectus. The provisions of Article 15 are technical and complex,
and a shareholder failing to comply strictly with them may forfeit his or her
Dissenting Shareholder's rights. Any shareholder who intends to dissent from the
Merger should review the full text of those provisions carefully and also should
consult with his or her attorney. No further notice of the events giving rise to
dissenters rights or any steps associated therewith will be furnished to Regency
shareholders, except as indicated above or otherwise required by law.
Any Dissenting Shareholder who perfects his right to be paid the fair
value of his or her shares will recognize gain or loss, if any, for federal
income tax purposes upon the receipt of cash for his or her shares. The amount
of gain or loss and its character as ordinary or capital gain or loss will be
determined in accordance with applicable provisions of the Internal Revenue
Code. See "The Merger - Certain Federal Income Tax Consequences."
REGENCY'S BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE AGREEMENT.
MARKET PRICES AND DIVIDENDS
Market Prices
MainStreet Common Stock is traded on the Nasdaq Stock Market under the
symbol "MSBC." The following table sets forth for the periods indicated the high
and low closing prices per share of MainStreet Common Stock as reported on the
Nasdaq Stock Market, and the cash dividends paid per share of MainStreet Common
Stock. Information in the table gives effect to a 2-for-1 stock split in the
form of a stock dividend effective March 4, 1996. Price Range
High Low Dividends
1996
First Quarter...................... $17.00 $12.75 $.11
Second Quarter..................... 17.00 15.50 .11
Third Quarter...................... 19.50 16.25 .13
Fourth Quarter..................... 19.50 16.75 .14
1997
First Quarter...................... 23.25 18.00 .14
Second Quarter .................... 28.00 18.75 .14
Third Quarter...................... 29.50 24.75 .14
Fourth Quarter..................... 30.25 26.375 .15
1998
First Quarter (through Jan. 20) 28.9375 26.75 --
As of September 30, 1997 there were approximately 3,524 holders of record of
the outstanding shares of MainStreet Common Stock.
On October 24, 1997, the last trading day before public announcement of
the Merger, the closing price per share of MainStreet Common Stock on the Nasdaq
Stock Market was $28.3125. On January 20, 1998, the latest practicable date
prior to the date of the Proxy Statement/Prospectus, the closing price per share
of MainStreet Common Stock on the Nasdaq Stock Market was $28.53.
<PAGE>
There is no established public market for Regency Common Stock.
It is quoted on the OTC Bulletin Board under the symbol "RGFN" and is
traded on a limited basis. The following table sets forth for the
periods indicated the high and low closing prices per share of Regency
Common Stock as reported on the OTC Bulletin Board, and the cash
dividends paid per share of Regency Common Stock, adjusted for the 10%
stock dividend paid in 1996.
Price Range
High Low Dividends
1996
First Quarter...................... $6.53 $ 5.68 --
Second Quarter .................... 6.563 5.75 --
Third Quarter...................... 6.50 5.75 --
Fourth Quarter..................... 6.50 5.875 --
1997
First Quarter...................... 6.75 5.875 $.14
Second Quarter .................... 7.25 6.00 --
Third Quarter...................... 7.375 6.75 --
Fourth Quarter..................... 11.50 6.75 --
1998
First Quarter (through Jan. 20)
Regulatory Restrictions on Dividends
The payment of future dividends will depend upon future earnings of
MainStreet, its financial condition and other relevant factors, including the
amount of dividends payable to MainStreet by the MainStreet Banks. Various
federal and state laws, regulations and policies limit the ability of
MainStreet's subsidiary banks to pay dividends to MainStreet, which affects
MainStreet's ability to pay dividends to shareholders.
MainStreet is a legal entity separate and distinct from its
subsidiaries, and its revenues depend primarily on the payment of dividends from
its affiliate banks. MainStreet's affiliate banks and Regency Bank are subject
to certain legal restrictions on the amount of dividends they are permitted to
pay to MainStreet (or shareholders in the case of Regency Bank). For example, a
Virginia chartered bank, of which there are eight within the MainStreet system,
is prohibited from paying a dividend that would impair its paid-in capital. In
addition, the SCC may limit the payment by any Virginia chartered bank if it
determines that the limitation is in the public interest and is necessary to
ensure the bank's financial soundness.
Under current federal law, insured depository institutions, such as
MainStreet's affiliate banks and Regency Bank, are prohibited from making
capital distributions, including the payment of dividends, if, after making such
distribution, the institution would become "undercapitalized" (as such term is
defined in federal law). Based on their current financial condition, MainStreet
does not expect that this provision will have any impact on its ability to
obtain dividends from its affiliate banks.
As a result of these legal restrictions, there can be no assurance that
dividends would be paid in the future by MainStreet affiliate banks. The final
determination of the timing, amount and payment of dividends on MainStreet
Common Stock is at the discretion of MainStreet's Board of Directors and will
depend upon the earnings of MainStreet and its subsidiaries, principally its
affiliate banks, the financial condition of MainStreet and other factors,
including general economic conditions and applicable governmental regulations
and policies. See "Comparative Rights of Shareholders -Dividends and Other
Distributions."
<PAGE>
REGENCY FINANCIAL SHARES, INC.
History and Business
Regency Bank was organized and chartered under the laws of the
Commonwealth of Virginia in 1986 and commenced operation on June 1, 1987. In
1989, Regency Bank reorganized into a one-bank holding company structure,
forming Regency Financial Shares Incorporated as Regency Bank's parent holding
company. Regency Bank is a Virginia-chartered bank and a member of the Federal
Reserve System. Its deposits are FDIC-insured, and Regency Bank is subject to
supervision, examination and regulation by the Federal Reserve and the Virginia
Bureau of Financial Institutions.
Regency is a locally-owned commercial bank oriented toward meeting the
financial needs of successful individuals. The targeted market includes private
investors and professionals and business owners, as well as their practices and
businesses. Regency Bank provides high quality, personal service and a broad
range of personal and commercial financial services including checking, savings,
time deposits, investment accounts and cash management. Regency Bank's lending
activities include time, term and demand loans for both commercial and consumer
clients, including equity lines of credit, home mortgages, and revolving credit
lines including Visa accounts. Merchant card services, trust services, access to
the HONOR/CIRRUS network, and a discount brokerage are also among the services
provided by Regency Bank.
Regency Bank has three banking offices; 1009 East Main Street and 6201
River Road in Richmond, Virginia, and 2500 Promenade Parkway in Chesterfield
County, Virginia.
As of September 30, 1997, Regency Bank had the equivalent of 27
full-time employees. None of its employees are represented by any collective
bargaining unit. Regency considers relations with its employees to be good.
Lending Activities
General. Regency Bank's lending activity extends across its primary
service area of metropolitan Richmond, Virginia. Regency Bank makes commercial
loans to small and medium-sized businesses and professional practices within its
primary service area. It also extends consumer loans to professionals and other
individuals in the Richmond market. Consistent with its focus on providing
community-based financial services, Regency Bank generally does not make loans
to borrowers outside its primary service area.
The principal economic risk associated with each of the categories of
loans in Regency Bank's portfolio is the creditworthiness of its borrowers.
Within each category, such risk is increased or decreased depending on
prevailing economic conditions. In an effort to manage the risk, Regency Bank's
policy gives loan amount approval limits to individual loan officers based on
their level of experience. The risk associated with consumer loans to
individuals varies based upon employment levels, consumer confidence,
fluctuations and value of collateral and other conditions that affect the
ability of consumers to repay indebtedness. The risk associated with commercial
loans varies based upon the strength and activity of the local economy of
Regency Bank's market area as well as trends within certain industries.
While Regency Bank does not monitor or track specific economic data
from any particular source, it does rely on information contained in local,
regional and national publications dealing with economic activity, consumer
confidence, employment trends, residential and commercial real estate sales,
business relocations and certain industry trends. In addition, Regency Bank's
directors, officers and staff members are involved in a wide variety of local
business, civic and charitable organizations which provide overall monitoring of
the general direction and developing trends that affect the business climate of
the region.
<PAGE>
Commercial Real Estate Lending. Regency Bank provides permanent
mortgage financing for a variety of commercial projects but attempts to
concentrate its efforts on owner-occupied projects. From time to time in the
normal course of business, Regency Bank will provide a limited amount of
financing for income producing, non-owner occupied projects which meet all the
guidelines established by loan policy. These loans generally do not exceed 75%
of current appraised or market value, whichever is lower, and are written on
terms which provide for a maturity provision or interest rate adjustment
available from three to five years from the note date.
Consumer Lending. Regency Bank currently offers most types of consumer
demand, time and installment loans, including automobile loans and home equity
lines of credit. Residential mortgage loans to individuals secured by their
primary residences are offered as well. Regency Bank also offers revolving lines
of credit secured by other assets with defined loan to collateral value ratios.
Commercial Business Lending. As a full-service community bank, Regency
Bank makes commercial loans to qualified small businesses and professional
groups in Regency Bank's market area. To manage the risks associated with such
loans, Regency Bank generally secures appropriate collateral and carefully
monitors the financial condition of its business borrowers and guarantors and
the concentration of such loans in Regency Bank's portfolio. Consumer loans
generally are made on the basis of the borrower's ability to make repayment from
employment and other income and are secured by real estate or other personal
assets whose value tends to be easily ascertainable. In contrast, commercial
business loans may be substantially dependent on the success of the business
itself. Further, the collateral for secured commercial business loans may
depreciate over time and cannot be appraised with as much precision as
residential real estate.
Credit Evaluation and Loan Underwriting. Regency Bank places priority
on meeting the borrowing requirements of its credit-worthy clients. Customers
are granted loans when their requests meet the established requirements, and
there are sufficient funds available to satisfy the demand. General economic
conditions in the trade area, loan demand and yield opportunities will be the
principal determinants of loan levels within the categories previously noted.
Regency Bank's underwriting practices, which are consistently applied, involve
investigation of sources of income, employment history, details of existing
debt, obtaining a credit report and compiling a summary of the borrower relative
to all of these areas. A loan application or financial statement is required on
all consumer borrowers and individual guarantors. A minimum of two years of
financial statements, which include balance sheets and profit and loss
statements, is required to evaluate the commercial applicant's cash flow and
ability to service debt. The primary source of repayment is always the ability
to pay from operations with the secondary sources usually being collateral and
guarantors. The debt service to gross income ratio acceptable for consumer loans
is generally 40%. Commercial loans require sufficient debt service coverage,
generally 1.25 times debt service.
Competition
The financial services industry is extremely competitive in Regency
Bank's market area. The Richmond metropolitan market is served by several large
superregional commercial banking institutions, as well as by several mid-sized
regional commercial banks, other community banks and savings institutions.
Additional competition for deposit products and investment services comes from
major brokerage firms and investment management companies.
<PAGE>
Management
The executive officer of Regency is Merlin A. Henkel,
President, Chief Executive Officer and Director. The following table
lists the principal officers of Regency Bank and the capacity in which
they serve.
<TABLE>
<CAPTION>
Name (and Age) Present Position
- ------------- ----------------
<S> <C>
Merlin A. Henkel (42) President and Chief Executive Officer, employed since 1989
Don S. Garber (58) Senior Vice President and Cashier, employed since 1994
</TABLE>
Ownership of Regency Common Stock
The following table sets forth, as of the record date, certain
information as to the shares of Regency Common Stock beneficially owned by (i)
the only persons or entities, who or which was known to Regency to be the
beneficial owner of more than 5% of the issued and outstanding Regency Common
Stock, (ii) each director of Regency, and (iii) all directors and executive
officers of Regency as a group.
Amount and Nature of
Beneficial Ownership Percent
Name of Beneficial Owner (1) of Class
------------------- --------
Myron H. Reinhart
Richmond, Virginia........................ 271,402 (2) 14.4%
Directors and Executive Officers:
C. Leland Bassett......................... 39,773 (3) 3.0%
Merlin A. Henkel.......................... 27,182 (4) 2.0%
Frank B. Miller........................... 10,320 *
Lee A. Putney............................. 25,171 (3) 1.9%
All directors and executive officers
of Regency as a group (5 persons)......... 102,446 (4) 7.6%
- -----------------
* Represents less than 1% of Regency Common Stock.
<PAGE>
(1) For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 of the Exchange Act under
which, in general, a person is deemed to be the beneficial owner of a
security if he has or shares the power to vote or direct the voting of the
security or the power to dispose of or direct the disposition of the
security, or if he has the right to acquire beneficial ownership of the
security within sixty days.
(2) Includes 80,691 shares that do not have voting rights in accordance with
Virginia's Control Share Acquisitions Statute. Under this statute, when
shares of a Virginia corporation with more than 300 shareholders are
acquired within certain ownership ranges (20% to 33 1/3%, 33 1/3% to 50%,
and 50% or more), the acquiring shareholder automatically loses the right
to vote any shares within that range, as well as any shares acquired within
90 days before crossing the threshold, unless voting rights are granted by
resolution adopted by shareholders.
(3) Includes shares held by or jointly with spouse.
(4) Includes 26,698 shares that may be acquired by Mr. Henkel pursuant
to currently exercisable options granted to him under the Regency
Incentive Stock Option Plan.
Beginning in October 1992, Myron H. Reinhart, a private investor in
Richmond, Virginia, began to acquire shares of Regency Common Stock on the open
market. Through February, 1996, the date of his last acquisition, Mr. Reinhart
had acquired 271,402 shares of Common Stock, or approximately 21% of Regency's
outstanding shares as of that date. Upon learning of Mr. Reinhart's holdings in
March 1996, Regency and Mr. Reinhart entered into discussions that resulted in
(i) Mr. Reinhart applying to, and securing the approval of, the Board of
Governors of the Federal Reserve System to exceed a 10% ownership interest in
Regency and (ii) Mr. Reinhart and Regency entering into a three-year Standstill
Agreement (the "Standstill Agreement"). The Standstill Agreement provides that
Mr. Reinhart will continue to remain a passive investor in Regency. In
particular, Mr. Reinhart agreed to vote his shares for the director nominees
designated by the Board, not to seek to exercise any control over the
management, Board of Directors (including the composition thereof), business or
policies of Regency. The Standstill Agreement further provides that Mr. Reinhart
will not make any proposal with respect to a merger or other business
combination, sale or transfer of assets or other extraordinary corporate
transaction involving Regency, or any other transaction designed to result in a
change of control of Regency, or solicit or encourage any other person to make
any such proposal. In addition, Mr. Reinhart agreed to certain voting and
transfer restrictions. The Standstill Agreement also prohibits Mr. Reinhart from
acquiring additional shares that, in the aggregate, exceed 3% of the then
outstanding shares of Regency Common Stock.
Regency has an employment agreement with Mr. Henkel that becomes
effective upon a change in control of Regency. Pursuant to the terms of the
agreement, Regency or its successor will continue Mr. Henkel's employment for a
term of 36 months beginning the month after the date of a "change in control" as
defined in the agreement. Mr. Henkel will retain commensurate authority and
responsibilities and compensation benefits during the contract term as he had
prior to the change in control. According to the agreement, he will receive a
base salary at least equal to the immediate prior year and bonuses at least
equal to the average of the bonuses paid for each of the two years prior to the
change in control.
If Mr. Henkel's employment is terminated during the 36-month period
following a change in control other than for cause or disability as defined in
the agreement, or if he should terminate employment because (i) a material term
of the contract is breached by Regency or its successor or (ii) Mr. Henkel
terminates the agreement during the 45-day period immediately following the
first anniversary of the date on which a change in control occurred, he is
entitled to certain compensation. The compensation includes a lump sum payment
of (a) his base salary through the date of termination, (b) the amount of any
incentive payment or bonus earned but not paid, if any, and (c) any benefits or
awards under certain compensation plans, that have been earned or become payable
but not paid, if any. In lieu of any further salary payments after the date of
termination, Mr. Henkel is entitled to an amount equal to 2.9 times the combined
sum of (i) his annual base salary in effect on the date of termination and (ii)
the average of the bonuses received by him for each of the two years prior to
the date of termination.
Mr. Henkel will also be entitled to the continuation of his medical,
insurance and other benefits for 24 months after the date of termination or
until he receives comparable benefits from a new employer.
Regency also has an agreement with Don S. Garber, Chief Financial
Officer of Regency, that contains similar features. The consummation of the
Merger will trigger the change of control provisions of the named officers'
agreements, however no termination of either of the officers is contemplated at
this time.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the major
components of the results of operations and financial condition, liquidity and
capital resources of Regency. This discussion and analysis should be read
in conjunction with the financial statements and notes thereto included
elsewhere in this Proxy Statement/Prospectus.
Years Ended December 31, 1996 and 1995
Overview
Net income for 1996 was $743,992 compared to $704,129 in 1995, an
increase of $39,863, or 5.7%. This 1996 income equates to a return on average
assets and a return on average equity of 1.15% and 11.11%, respectively. These
ratios for 1995 were 1.20% and 12.21% for the return on average assets and the
return on average equity, respectively. The earnings per share for 1996 was $.56
compared to $.59 for 1995. Net interest income increased over the prior year
which was the primary factor for the increase in net income. Noninterest income
increased slightly while noninterest expense also increased. Included in
noninterest expense were nonrecurring expenses associated with the opening of an
additional branch along with a one time charge of $29,114 from the FDIC for the
recapitalization of the Savings Association Insurance Fund ("SAIF"). Excluding
the one time SAIF fee, net income would have increased 8.4%, after tax, in 1996
over 1995.
Net Interest Income
Net interest income represents the principal source of earnings for
Regency. Net interest income equals the amount by which interest income exceeds
interest expense. Changes in the volume and mix of interest-earning assets and
interest bearing liabilities, as well as their respective yields and rates, have
a significant impact on the level of net interest income.
The general level of interest rates declined in the first quarter of
1996 as the Federal Reserve eased monetary policy. The prime rate decreased in
tandem with the drop in short-term interest rates. This drop in rates was the
primary cause of the decline in the net interest margin from 5.01% in 1995 to
4.94% in 1996. Average interest-earning assets for 1996 increased to $61.5
million from $56.0 million for 1995. This favorable growth in interest-earning
assets, partially offset by the compression in the net interest margin, caused
the increase in net interest income of $230,525 for the year ended December 31,
1996 in comparison to 1995.
Provision for Loan Losses
The provision for loan losses is charged to earnings for the purpose of
establishing an allowance for loan losses. Losses are, in turn, charged to this
allowance rather than being reported as a direct expense. In 1996, $58,697 was
expensed as a loan loss provision compared to $88,000 in 1995.
Noninterest Income
Noninterest income was $164,645 in 1996 compared to $127,197 in
1995, an increase of $37,448, or 29.4%. This increase was due to increases in
service charges on deposit accounts and other fees and commissions.
<PAGE>
Noninterest Expense
Total noninterest expense for 1996 was $2.0 million compared to $1.8
million in 1995, an increase of $.2 million, or 14.1%. Salaries and wages
expense for 1996 increased $128,239, or 14.24% over the same expenses in 1995
and other expenses increased $112,928, or 19.11% over the 1995 expenses. The
contributing factor to both increases was the opening of an additional branch in
1996. Also, there was a one time charge of $29,114 from the FDIC for
recapitalization of the SAIF fund.
BALANCE SHEET
Investment Portfolio
All securities at December 31, 1996 and December 31, 1995 are held in
the available for sale category. These securities are carried at market
value on the balance sheet. The market values at December 31, 1996 and 1995
were $14.3 and $14.5, respectively. Amortized costs at December 31, 1996 and
December 31, 1995 were $14.3 million. The primary investments are in U. S.
Governments and U. S. Agencies.
Loans and Credit Quality
Loans were $48.2 million at December 31, 1996 compared to $42.0 at
December 31, 1995. Average loans for 1996 were $44.7 million, up from the $40.0
million for 1995. Unfunded commitments were $11.3 million at December 31, 1996
and 1995. The loan portfolio consists predominantly of extensions to
professionals and small businesses. There is no concentration of credit nor any
reliance on a particular segment of the economy as a repayment source or
stimulus for loan demand. Diversification is reflected in the collateral taken
for loans, which includes liens taken on commercial real estate, marketable
securities and business assets.
Loans secured by real estate consist of a portfolio of predominately
1-4 single family residential loans, which are primarily purchase money loans or
revolving equity lines of credit to consumers for their primary residences. Such
loans at December 31, 1996 were 32.0% of the total loan portfolio. Commercial
loans and lines of credit were 57.72% of the total loan portfolio at December
31, 1996 while consumer loans were 10.28% of the loan portfolio at December 31,
1996.
Consistent with its focus on providing financial services to the local
community, Regency generally does not make loans outside its defined lending
area. Regency maintains a policy not to originate or purchase loans classified
by regulators as highly leveraged transactions or loans to foreign entities or
individuals.
<PAGE>
The following Table 1 describes the loan portfolio detail by category
for the periods presented:
<TABLE>
<CAPTION>
Table 1. Loan Portfolio
(dollars in thousands)
December 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------- ------------ ------------ -------------
<S><C>
Commercial $ 27,812 $ 23,253 $ 20,865 $ 29,784 $ 23,148
Real estate 15,416 14,702 15,676 5,409 7,434
Consumer/Installment 4,953 4,063 3,540 2,922 3,645
------------ ------------- ------------ ------------ -------------
Total loans $ 48,181 $ 42,018 $ 40,081 $ 38,115 $ 34,227
============ ============= ============ ============ =============
</TABLE>
The allowance for loan losses is an estimate of an amount adequate to
provide for potential losses in the loan portfolio. The level of loan losses is
affected by general economic trends as well as conditions affecting individual
borrowers. The allowance is also subject to regulatory examinations and
determinations as to adequacy, which may take into account such factors as the
methodology, experience, and economic trends.
At December 31, 1996 and 1995, the allowance for loan losses to loans,
was 1.23% and 1.25%, respectively. Net charge-offs (recoveries) to average loans
were (.02%) and .08% for the years ended December 31, 1996 and 1995,
respectively. The following Table 2 details the activity in the allowance for
loan losses for the periods presented:
<PAGE>
<TABLE>
<CAPTION>
Table 2. Allowance for Loan Losses
Year ended December 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ------------- ------------ ----------------
(dollars in thousands)
<S> <C>
Balance, beginning of
period $ 524 $ 468 $ 438 $ 344 $ 383
Loans charged-off:
Commercial 6 31 22 69 210
Real estate construction -- -- -- -- --
Real estate mortgage -- -- 9 -- --
Consumer 6 3 7 5 9
----------- ----------- ------------- ------------ ----------------
Total loans charged-off 12 34 38 74 219
Recoveries:
Commercial 22 2 -- 68 9
Real estate construction -- -- -- -- --
Real estate mortgage -- -- 8 -- --
Consumer -- -- -- 1 --
----------- ----------- ------------- ------------ ----------------
Total recoveries 22 2 8 69 9
----------- ----------- ------------- ------------ ----------------
Net charge-offs (10) 32 30 5 210
(recoveries)
Provision for loan losses 59 88 60 99 171
=========== =========== ============= ============ ================
Balance, end of period $ 593 $ 524 $ 468 $ 438 $ 344
=========== =========== ============= ============ ================
Ratio of allowance for
loan losses to loans
outstanding at period end 1.23% 1.25% 1.17% 1.15% 1.01%
Ratio of net charge-offs
(recoveries) to average
loans outstanding during
period (0.02)% 0.08% 0.08% 0.02% 0.65%
</TABLE>
<PAGE>
The following Table 3 shows the balance and percentage of Regency's
allowance for loan losses allocated to each major category of loans. Regency has
allocated the allowance according to the amount deemed to be reasonably
necessary to provide for the possibility of losses being incurred within each of
the below categories of loans. The allocation of the allowance as shown in the
table should not be interpreted as an indication that loan losses in future
years will occur in the same proportions or that the allocation indicates future
loan loss trends. Furthermore, the portion allocated to each loan category is
not the total amount available for future losses that might occur within such
categories since the total allowance is a general allowance applicable to the
entire portfolio.
<PAGE>
<TABLE>
<CAPTION
Table 3. Allocation of Allowance for Loan Losses
(dollars in thousands)
December 31, 1996 December 31, 1995 December 31, 1994
--------------------------------------------------------------------------------------
Allowance Percentage Allowance Percentage Allowance Percentage
for Loan of Total for Loan of Total for Loan of Total
Losses Allowance Losses Allowance Losses Allowance
------- ---------- --------- ----------- ---------- -----------
<S> <C>
Balance at end of period
applicable to:
Commercial $ 399 67.28 $ 357 68.10 $ 331 70.60
Real Estate Construction 16 2.70 26 5.00 0 0.10
Real Estate Mortgage 84 14.17 71 13.60 65 14.00
Consumer 94 15.85 70 13.30 72 15.30
------------------------ ---------------------------- ---------------------------
$ 593 100.00 $ 524 100.00 $ 468 100.00
======================== ============================ ===========================
</TABLE>
Nonperforming loans consist of loans 90 days past due and nonaccrual
loans. Nonperfoming loans at December 31, 1996 and December 31, 1995 were $87
thousand and $21 thousand, respectively. The allowance for loan losses to
nonperforming loans was 681.93% and 2,493.66% for December 31, 1996 and 1995,
respectively. There were $216 thousand of restructured loans at December 31,
1996 that were not past due and no restructured loans at December 31, 1995. The
following Table 4 details the nonperforming data for the years presented:
<TABLE>
<CAPTION>
Table 4. Nonperforming Assets
(dollars in thousands)
December 31,
---------- -------------------------------------------------------
1996 1995 1994 1993 1992
---------- ----------- ----------- ------------ ------------
<S> <C>
Nonaccrual loans $ - $ - $ - $ - $ -
Loans past due 90 days or more 87 21 - 12 952
---------- ----------- ----------- ------------ ------------
Total non-performing loans 87 21 - 12 952
---------- ----------- ----------- ------------ ------------
- - - - 219
Other real estate owned ---------- ----------- ----------- ------------ ------------
Total nonperforming assets $ 87 $ 21 $ - $ 12 $ 1,171
========== =========== =========== ============ ============
Allowance for loan losses
to period end loans 1.23 % 1.25 % 1.17 % 1.15 % 1.01 %
Allowance for loan losses
to nonaccrual loans N/A N/A N/A N/A N/A
Non-performing assets to
period end loans .18 % 0.05 % 0.00 % 0.03 % 3.42 %
Net charge-offs
(recoveries) to average loans (0.02) % 0.08 % 0.07 % 0.01 % 0.62 %
</TABLE>
Loans are placed on nonaccrual status when collection of interest and
principal is doubtful, generally when loans become 90 days past due. There are
three negative implications for earnings when a loan is placed on nonaccrual
status. All interest accrued but unpaid at the date the loan is placed on
nonaccrual status is either deducted from interest income or charged off as a
loss. Second, accruals of interest are discontinued until it becomes certain
that both principal and interest can be repaid. Third, there may be actual
losses which necessitate additional provisions for loan losses charged against
earnings. During 1996 and 1995, additional interest income would have been
recorded if nonaccrual loans had been current in accordance with their original
terms of $5,500 and $49,300, respectively.
Other Assets
Premises and equipment at December 31, 1996 were $1.1 million compared
to $.2 million at December 31, 1995. This increase of $.9 million dollars was
attributed to the opening of an additional branch in 1996.
Deposits
Deposits provide funding for Regency's investments in loans and
securities, and the interest paid for deposits must be managed carefully to
control the level of interest expense. Deposits at December 31, 1996 were $60.2
million, an increase of $7.3 million, or 13.9% over December 31, 1995 levels.
The greatest increase at December 31, 1996 were in certificates of deposit
$100,000 and over which rose $7.0 million, or 59.9% over the December 31, 1995
balance. The largest amount of Regency's deposits are higher yielding time
deposits because most of its customers are individuals who seek higher yields
than those offered on savings and demand accounts.
<PAGE>
Short-term debt
Short-term debt at December 31, 1996 was $4.2 million compared to $3.0
million at December 31, 1995, an increase of $1.2 million, or 40.2%. This
short-term debt consisted of overnight repurchase agreements to customers that
resulted from sweeping their demand deposit accounts.
Shareholders' Equity
Shareholders' equity, before unrealized gains (losses) on securities,
was $7.1 million at December 31, 1996 compared to $6.2 million at December 31,
1995. At year end 1996 and 1995, Tier I Capital to Average Assets was 9.76% and
9.78%, respectively.
Capital adequacy is reviewed by management on an ongoing basis with
reference to the size, composition, and quality of the asset and liability
levels and is consistent with regulatory requirements and industry standards.
The following Table 5 demonstrates Regency's actual capital amounts
and ratios at December 31, 1996 and December 31, 1995.
<PAGE>
<TABLE>
<CAPTION>
Table 5. Analysis of Capital
To Be Well
Minimum Capitalized
Requirements Under Prompt
For Capital Corrective
Actual Adequacy Action Provisions
-------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------
As of December 31, 1996:
Total Capital (to Risk-Weighted Assets) $ 7,611,000 14.23 % $4,279,000 8.00 % $5,349,000 10.00 %
Tier 1 Capital (to Risk-Weighted Assets) 7,018,000 13.12 2,140,000 4.00 3,209,000 6.00
Tier 1 Capital (to Average Assets) 7,018,000 9.76 2,877,000 4.00 3,596,000 5.00
As of December 31, 1995:
Total Capital (to Risk-Weighted Assets) $ 6,660,000 14.76 % $3,609,000 8.00 % $4,511,000 10.00 %
Tier 1 Capital (to Risk-Weighted Assets) 6,137,000 13.60 1,805,000 4.00 2,707,000 6.00
Tier 1 Capital (to Average Assets) 6,137,000 9.78 2,509,000 4.00 3,136,000 5.00
</TABLE>
Interest Sensitivity
An important element of both earnings performance and the maintenance
of sufficient liquidity is management of the interest sensitivity gap. The
interest sensitivity gap is the difference between interest sensitive assets and
interest sensitive liabilities in a specific time interval. The gap can be
managed by repricing assets or liabilities, by replacing an asset or liability
at maturity or by adjusting the interest rate during the life of an asset or
liability. Matching the amounts of assets and liabilities repricing in the same
time interval helps to hedge the risk and minimize the impact on net interest
income in periods of rising or falling interest rates.
<PAGE>
Regency evaluates interest sensitivity risk and then formulates
strategies regarding asset generation and pricing, funding sources and pricing,
and off-balance sheet commitments in order to decrease sensitivity risk. These
strategies are based on management's outlook regarding future interest rate
movements, the state of the regional and national economies and other financial
and business risk factors.
Regency establishes prices for deposits and loans based on local market
conditions and manages its securities portfolio in accordance with policies set
by Regency. Regency reviews its interest sensitivity position at least monthly.
Period Ended September 30, 1997 and 1996
Overview
Regency reported year-to-date earnings at September 30, 1997 of $70,624
in comparison to $583,416 at September 30, 1996, a decrease of $512,792, or
87.89%. This resulted in earnings per share of $0.05 and $0.44, for 1997 and
1996, respectively. The 1997 earnings resulted in an annualized return on
average assets and a return on average equity of 0.13% and 1.34%, respectively.
The 1996 earnings produced an annualized return on average assets and a return
on average equity of 1.23% and 11.82%, respectively. Net interest income
increased over prior year, but was offset by increases in noninterest expense
and provision for loan losses. The largest contributor to the variance from the
prior year was the provision for loan losses of $625,200 for year-to-date 1997
compared to the $40,697 provision for the same period in 1996. This provision
was the result of a charged-off loan in the amount of $714,000 during the second
quarter of 1997.
Net income for Regency in the third quarter of 1997 was $116,333 as
compared to $214,568 in the same quarter of 1996, a decrease of $98,235, or
45.78%. These quarterly earnings resulted in an annualized return on average
assets and a return on average equity of 0.63% and 6.62%, respectively. The 1996
quarterly earnings produced a return on average assets and a return on average
equity of 1.33% and 13.04%, respectively.
Net Interest Income
Net interest income was $2,334,229 for the nine months ended September
30, 1997 as compared to $2,236,772 for the same period in 1996, an increase of
$97,457 or 4.36%. Total interest income increased $418,045 over the equivalent
1996 period, while total interest expense increased $320,588. The net interest
margin for the year to date earnings was 4.56% and 4.93% for 1997 and 1996,
respectively.
Interest and dividends on securities and interest on fed funds sold
increased $48,003 and $97,367, respectively, in 1997 over the same period in
1996 due to increased average combined volume of approximately $3.2 million.
Interest and fees on loans increased approximately $272,675 due to increased
average volume on loans of approximately $3.3 million over the same period in
1996. Interest expense on deposits increased $333,946 over 1996 levels due to
increased levels of average savings and time deposits of approximately $3.1
million and $4.3 million, respectively.
Net interest income for the third quarter of 1997 declined $37,621 as
compared to the same period in 1996. Income on earning assets increased $78,420
over the prior year period, while interest expense increased $116,041 over the
same period. Average volume of interest earning assets increased approximately
$7.9 million for the third quarter of 1997 versus the third quarter of 1996. The
volume of interest bearing liabilities increased approximately $6.5 million
during the same time period.
<PAGE>
Provision for Loan Losses
The provision for loan losses for year-to-date 1997 was $625,200 as
compared to $40,697 for year-to-date 1996. This increase was due to a one-time
charge-off of $714,000 relating to one loan during the second quarter of 1997.
The additional provision was made to maintain an adequate allowance for loan
losses.
While the loss sustained in the second quarter of 1997 does not
indicate a general deterioration of asset quality in Regency's loan portfolio,
the event nonetheless prompted management to revise its credit policy to
strengthen the commercial underwriting process and incorporate additional
safeguards to prevent similar situations in the future.
Noninterest Income
Total noninterest income, excluding securities gains and losses, was
$114,948 and $111,484 for the year-to-date periods of 1997 and 1996,
respectively. The increase was $3,464 or 3.11% over the same period in 1996. The
increase was primarily attributable to credit card merchant fee income.
Noninterest income, excluding securities gains and losses, for
the third quarter of 1997, was $34,456, compared to $43,097 for the
third quarter of 1996. The largest components of this variance were
declines in insufficient funds charges and mortgage fee income from the
third quarter of 1996.
Securities Gains
There were no security gains during 1997. There were $9,084 in gains
on calls of securities available for sale during 1996.
Noninterest Expense
Total noninterest expense was $1,715,222 for 1997 year-to-date as
compared to $1,439,214 for 1996, an increase of $276,008, or 19.18%. Salaries
and employee benefits accounted for $82,747, or 29.98%, of the increase.
Furniture and equipment expense increased $53,920, or 19.54% of the increase.
Both of these increases were due to the opening of two new branches since
September 30, 1996. Other expenses increased $134,867 from the year-to-date
period 1996 to the same period in 1997. The largest variances within this
category can be attributed to stationery and supplies, data processing fees,
advertising expense, directors fees, and capital stock tax. The majority of
these variances relate to the two additional branches in operation.
Total noninterest expense for the third quarter of 1997 was $552,375,
compared to $493,038 for the same quarter in 1996, an increase of $59,337 or
12.03%. This increase was primarily due to the opening of a new branch during
1997.
Financial Condition
Total assets at September 30, 1997 were $75.0 million, an increase of
$3.0 million, or 4.23% over the year ended December 31, 1996. The largest
component of the increase was in securities available for sale, with an increase
of $5.1 million, an increase of 35.58% for that category over December 31,
1996.
Loans at September 30, 1997 were $47.3 million as compared to $48.2
million at December 31, 1996, a decrease of $858 thousand or 1.78%. The
following Tables 1, 2 and 3 detail the loan portfolio, the activity in the
allowance for loan losses and it's related allocation.
<PAGE>
Table 1. Loan Portfolio
September 30, December 31,
1997 1996
---------------- --------------------
Commercial $ 25,975 $ 27,812
Real Estate 16,690 15,416
Consumer 4,659 4,953
---------------- --------------------
Total loans $ 47,324 $ 48,181
================ ====================
Table 2. Allowance for Loan Losses (continued)
(dollars in thousands)
Nine Months Ended
September 30,
------------------------------
1997 1996
------------ -----------
Balance, beginning of period $ 593 $ 524
Loans charged-off
Commercial 779 -
Real estate construction - -
Real estate mortgage - -
Consumer 1 6
------------ -----------
Total loans charged-off 780 6
Recoveries:
Commercial 144 17
Real estate construction - -
Real estate mortgage - -
Consumer 1 -
------------ -----------
Total recoveries 145 17
------------ -----------
Net charge-offs (recoveries) 635 (11)
Provision for loan losses 625 41
------------ -----------
Balance, end of period $ 583 $ 578
============ ===========
Ratio of allowance for loan
losses to loans outstanding at
period end 1.23 % 1.23 %
Ratio of annualized net charge-offs
(recoveries) to average loans
outstanding during period 1.75 % (0.03)%
<TABLE>
<CAPTION>
Table 3. Allocation of Allowance for Loan Losses
(dollars in thousands)
September 30, 1997 December 31, 1996
-------------------------------------------------------------------
Percentage Percentage
Allowance for of Total Allowance for of Total
Loan Losses Allowance Loan Losses Allowance
------------ -------------- ------------- ---------------
<S> <C>
Balance at end of period
applicable to:
Commercial $ 381 65.20 $ 399 67.28
Real Estate Construction 9 1.60 16 2.70
Real Estate Mortgage 78 13.50 84 14.17
Consumer 115 19.70 94 15.85
-------------------------------- ---------------------------------
$ 583 100.00 $ 593 100.00
================================ =================================
</TABLE>
Total deposits at September 30, 1997 were $63.5 million as compared to
$60.2 million at December 31, 1996, an increase of $3.3 million or 5.40%.
Savings deposits increased $1.8 million, or 15.05%, over year-end 1996.
Certificates of deposit $100,000 and over declined $2.7 million, or 14.51%, from
year-end 1996. Other time deposits increased $4.0 million, or 29.88%, from
December 31, 1996. The balance of the variance was within the demand deposit
category.
Short-term borrowings, which consist of repurchase agreements and
treasury, tax and loan notes, declined $226 thousand, or 5.38% from December 31,
1996.
Asset Quality
Nonperforming assets were $238 thousand at September 30, 1997 as
compared to $87 thousand at December 31, 1996. Nonperforming assets at September
30, 1997 consisted of $198 thousand in nonaccrual loans and $40 thousand in
loans past due greater than ninety days. Nonperforming assets at December 30,
1996 consisted of $87 thousand in loans past due greater than ninety days.
At September 30, 1997, Regency had restructured loans of $236 thousand
as compared to $239 thousand at December 31, 1996. These loans were not past due
and were in compliance with their modified terms. At September 30, 1997,
potential problem loans were approximately $362 thousand. These loans are
subject to periodic management attention, and their status is reviewed on a
regular basis. Of the potential problem loans identified at September 30, 1997,
$130 thousand are secured by real estate with appraised values that exceed the
principal balance.
<PAGE>
Table 4. Nonperforming Assets
September December
30, 1997 31, 1996
--------------- ------------
(dollars in thousands)
Nonaccrual loans $ 198 $ -
Loans past due 90 days or more 40 87
----------- --------------
Total non-performing loans 238 87
----------- --------------
Other real estate owned - -
----------- --------------
Total nonperforming assets $ 238 $ 87
=========== ==============
Allowance for loan losses
to period end loans 1.23 % 1.23 %
Allowance for loan losses
to nonaccrual loans 294 % N/A
Non-performing assets to
period end loans 0.50 % 0.18 %
Annualized net charge-offs 1.75 % (0.02) %
(recoveries) to period
end loans
Total Shareholders' Equity
Total shareholders' equity, excluding unrealized gains (losses) on
securities, at September 30, 1997 was $7.2 million as compared to $7.1 million
at December 31, 1996. In 1997, Regency paid its first cash dividend, which
amounted to $0.14 per share. At September 30, 1997 the leverage and total
risk-based capital ratios were 9.47% and 14.56%, respectively. The same ratios
were 9.76% and 14.23% at year end December 31, 1996. The capital position
remains strong with ratios substantially above regulatory prescribed minimums.
Liquidity
Liquidity represents an institution's ability to meet present and
future financial obligations through either the sale or maturity of existing
assets or the acquisition of additional funds through liability management.
Liquid assets include cash, interest-bearing deposits with banks, federal funds
sold, investments in U.S. Treasury securities, and loans maturing within one
year. As a result of Regency's management of liquid assets and the ability to
generate liquidity through liability funding, management believes that Regency
maintains overall liquidity sufficient to satisfy its depositors' requirements
and meet its customers' credit needs.
At September 30, 1997, cash, interest-bearing bearing deposits with
banks, federal funds sold, investments in U.S. Treasury securities, and loans
maturing within one year were 62.2% of total earning assets. As of September 30,
1997, approximately 73.2% or $48.1 million of the loan portfolio would mature or
reprice within a one year period. Regency had no long-term debt at September 30,
1997.
Year 2000 Issues
Management is reviewing the implications of the Year 2000 to operating
activities and believes that the cost to be Year 2000 compliant will not be
material.
Recent Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," as amended by SFAS 127,
SFAS No. 128, "Earnings per Share," SFAS No. 130, "Reporting Comprehensive
Income," and SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information." Management believes there will be no material effect on the
consolidated financial statements resulting from the adoption of these
statements.
<PAGE>
MAINSTREET BANKGROUP INCORPORATED
General
MainStreet is a multi-bank holding company headquartered in
Martinsville, Virginia, with total assets of $1.5 billion at September 30, 1997.
Organized in 1977, MainStreet through its nine affiliate banks (the "MainStreet
Banks"), and MainStreet Trust Company, National Association, a nationally
chartered trust company ("Trust Company") engages in a general banking business
and provides a broad spectrum of full-service banking and trust services to
consumers, businesses, institutions and governments, including accepting demand,
savings and time deposits; making commercial, personal, installment, mortgage
and construction loans; issuing letters of credit; and providing discount
brokerage, trust services, bank-card services, mortgage banking and investment
services.
The MainStreet Banks seek customers whose total financial requirements
they can serve. As a result, most of the MainStreet Banks' business customers
are small and medium-sized entities. While MainStreet considers this middle
market to be its primary business market, MainStreet's lead bank, Piedmont Trust
Bank ("Piedmont"), has banking relationships with many of the larger textile and
furniture manufacturing companies located in its market area.
Principal markets served are the City of Martinsville and Henry County;
the Town of Hillsville and City of Galax, and Carroll and Grayson Counties; the
Towns of Ferrum and Rocky Mount and Franklin County; the Town of Forest, City of
Lynchburg, and Bedford, Campbell and Amherst Counties; the Town of Stuart and
Patrick County; the Towns of Saltville and Chilhowie and Smyth County, the Towns
of Mechanicsville and Ashland and Hanover and Henrico Counties; and the City of
Clifton Forge and Allegheny, Bath and northern Botetourt Counties, Virginia and
contiguous areas. MainStreet's affiliate Banks operate a total of 38 offices.
MainStreet continues to seek acquisition opportunities for banks and
bank related financial institutions. MainStreet's acquisition philosophy permits
the MainStreet Banks to operate as separately chartered banks with their
historical names and board of directors. MainStreet believes that this
philosophy maintains community loyalty at the Banks and has a positive effect on
operating performance. MainStreet seeks to capitalize on the local identity of
the MainStreet Banks while providing the services and efficiencies of a larger
bank holding company.
During 1994, MainStreet moved to a centralized approach in management,
providing direction to the MainStreet Banks and performing selected services in
the compliance, data processing, financial management, human resources,
investment, accounting, marketing, mortgage, trust and audit areas. The
MainStreet Banks are still permitted to approve loans up to a certain credit
limit, above which central credit administration must consent. The MainStreet
Banks also still must approve investments and other activities consistent with
past practices and the needs of their communities. To coordinate the activities
of the MainStreet Banks and to maintain internal controls, MainStreet utilizes a
planning and budgeting process which involves MainStreet officers, presidents of
the MainStreet Banks, and principal department heads. Performance targets and
budget goals are developed for each Bank on an annual basis, with financial and
operating results reported and reviewed periodically during the year.
<PAGE>
During 1997, MainStreet organized Trust Company to offer fiduciary
services in all the markets served by its affiliate banks and elsewhere. This
centralized approach to fiduciary services allows MainStreet affiliates to offer
to the customer a broader array of more sophisticated products more efficiently
and effectively than could otherwise be accomplished.
The MainStreet Banks
Piedmont Trust Bank. Piedmont was incorporated in 1921 under the laws
of Virginia. Piedmont's main office is in the City of Martinsville, a commercial
center in southwest Virginia, and it has five branches in Martinsville and Henry
County. Its primary service area has a population of approximately 72,400 and
its economy is oriented toward the textile, furniture and prebuilt housing
industries. Piedmont is insured by the FDIC and is supervised and examined by
the Federal Reserve Board and the SCC. It engages in a general commercial
banking business and offers the range of banking services that can be expected
of a banking organization of its size. Piedmont is the largest bank in the
Martinsville trade area with total assets of approximately $543.8 million,
deposits of approximately $322.2 million and loans, net of unearned income, of
approximately $348.0 million at September 30, 1997.
Bank of Carroll. Bank of Carroll ("Carroll"), incorporated in 1971
under the laws of Virginia, was acquired by MainStreet in 1977. At September 30,
1997, it had total assets of approximately $72.2 million. Its main office is
located in Hillsville, Carroll County, Virginia, and it has branches in Cana and
Galax, Virginia. Its primary service area has a population of approximately
34,000. Carroll is supervised and examined by the Federal Reserve Board and the
SCC and engages in a general commercial banking business.
Bank of Ferrum. Bank of Ferrum ("Ferrum"), incorporated in 1917 under
the laws of Virginia and converted during the 1920's to a national bank, was
acquired by MainStreet in 1981. As of June 1, 1995, Ferrum converted its charter
to a state bank under the laws of Virginia. When Ferrum converted to a state
charter on June 1, 1995, the name changed from First National Bank of Ferrum to
Bank of Ferrum. At September 30, 1997, it had total assets of approximately
$136.1 million. Its main banking office is located at Ferrum, Virginia, with
branches at Oak Level and two offices located in Rocky Mount, Virginia. Ferrum
currently has an office under construction in Franklin County at Smith Mountain
Lake. Its primary service area has a population of approximately 43,000. Ferrum
is supervised and examined by the Federal Reserve Board and the SCC and engages
in a general commercial banking business.
First Community Bank. First Community Bank ("Community"), incorporated
in 1978 under the laws of Virginia, was acquired by MainStreet in 1983. At
September 30, 1997, it had total assets of approximately $157.4 million.
Community's main office is located in Forest, Virginia, and it operates six
branches in the Lynchburg and Forest area. Its primary service area has a
population of approximately 130,000. Community is regulated by the Federal
Reserve Board and the SCC. Retail and commercial banking services are provided
for customers in Forest, Bedford, Campbell and Amherst Counties and the City of
Lynchburg, Virginia.
The First Bank of Stuart. The First Bank of Stuart ("Stuart") was
incorporated in 1920 as a national bank and acquired by MainStreet in 1986.
Stuart converted its charter to a state bank and began operating as a state
banking corporation on September 1, 1995. When Stuart was converted to a state
charter on September 1, 1995, the name changed from The First National Bank of
Stuart to The First Bank of Stuart. At September 30, 1997, it had total assets
of approximately $157.8 million. Its main office is located in Stuart, Virginia,
and it has five other offices all located in Patrick County, Virginia. It's
primary service area has a population of approximately 17,600. Stuart is the
largest bank in Patrick County. Stuart is regulated by the Federal Reserve Board
and the SCC.
<PAGE>
The First Community Bank of Saltville. The First Community Bank of
Saltville ("Saltville") was established in 1903 as a state bank under the laws
of Virginia and was incorporated in 1918 as a national bank and acquired by
MainStreet in 1986. As of August 1, 1995, Saltville completed its conversion
from a national bank to a Virginia banking corporation. When Saltville converted
to a state charter on August 1, 1995, the name changed from The First National
Bank of Saltville to First Community Bank of Saltville. At September 30, 1997,
it had total assets of approximately $136.3 million. Its main office is located
in Saltville, Virginia, and it has two other offices located in Smyth County.
Saltville is the third largest of the four banks in Smyth County. Its primary
service area has a population of approximately 33,300. Saltville engages in a
general commercial banking business and is regulated by the Federal Reserve
Board and the SCC.
The First National Bank of Clifton Forge. The First National Bank of
Clifton Forge ("Clifton Forge") was incorporated as a national bank in 1901 and
was acquired in 1996. At September 30, 1997, it had total assets of $127.0
million. Its primary service area has a population of 22,600 and includes the
city of Clifton Forge and Alleghany, Bath and northern Botetourt counties in
Virginia. Clifton Forge is supervised and examined by the OCC and engages in
general commercial banking business.
Hanover Bank. Hanover Bank ("Hanover") was incorporated under the laws
of Virginia in 1988 and was acquired in 1996. At September 30, 1997, it had
assets of $144.6 million. Hanover's main office is located in Mechanicsville,
and it has four branches in Hanover and Henrico counties. Its primary service
area has a population of 305,000. Hanover engages in general commercial banking
business and is supervised and examined by the Federal Reserve Board and the
SCC.
MainStreet Trust Company, National Association. Trust Company was
incorporated as a national banking association in 1997 with its business limited
to trust and related fiduciary services. At September 30, 1997, it had assets in
excess of $736.2 million under management including substantially all of the
trust assets of Piedmont which were transferred to Trust Company on January 1,
1997. Its primary service area includes the markets of all its affiliate banks.
Trust Company is supervised and examined by the OCC and engages solely in the
provision of trust and fiduciary services.
Commerce Bank Corporation. Commerce Bank Corporation ("Commerce") was
incorporated under the laws of Maryland in 1987, commenced business in 1989 and
was acquired in 1997. At September 30, 1997, it had assets of $90.1 million.
Commerce's main office and three branches are located in Prince George County,
Maryland. It's primary service area is Prince George's County, Maryland.
Commerce is supervised and examined by the Federal Reserve Board and the
Maryland Division of Financial Regulation.
Recent Developments
On July 25, 1997, MainStreet announced that it had reached agreement to
acquire Tysons Financial Corporation ("Tysons"), a Virginia corporation, located
in McLean, Virginia, subject to shareholder and regulatory approval and other
conditions. Under the terms of the agreement, MainStreet agreed to pay
shareholders of Tysons the equivalent of $14.50 per share for each share of
Tysons Common Stock outstanding. The transaction is valued at approximately
$17.2 million, which will be paid in MainStreet Common Stock. The exchange ratio
will be determined during a measurement period prior to consummation of the
transaction, which is expected to occur in February, 1998. The transaction will
be treated as a purchase.
In addition, it is a condition of the merger that Tysons' outstanding
228,250 directors' warrants be exercised prior to the closing for the difference
between the exercise price per warrant and $14.50 in the form of Tysons' common
stock. MainStreet has also agreed to redeem Tysons' outstanding Directors'
Options for the difference between the exercise price per Option and $14.50 in
the form of MainStreet Common Stock. It is a condition to the merger that the
holders of Tysons' outstanding Directors' Options agree to accept this
arrangement. It is also a condition to closing that every holder of an option
granted to employees and officers of Tysons to purchase Tysons Common Stock
("ISO") shall agree to accept the conversion of such ISO with respect to
MainStreet Common Stock as contemplated in the merger agreement between Tysons
and MainStreet.
<PAGE>
Tysons has one wholly owned banking subsidiary, Tysons National Bank
("TNB"), located in the county of Fairfax, Virginia. TNB's main officer and
three branches are located in Fairfax County, Virginia. At September 30, 1997,
Tysons reported total assets of $98.0 million.
After the execution of the Agreement and Plan of Merger, Tysons
reported to MainStreet the existence of borrower misconduct involving a small
portion of its loan portfolio. Relying substantially on assurances from Tysons'
management and statements by Tysons' outside auditors, MainStreet decided to
proceed with the transaction. Any statements made by the auditors were not based
on any procedures performed for purposes of the Merger, although the auditors
performed for their own purposes certain limited procedures with respect to
certain elements of Tysons' loan portfolio. Although the ultimate exposure which
may arise from these events cannot be predicted with certainty at this time,
Tysons and MainStreet believe that such exposure would not result in a material
adverse impact on their consolidated financial position.
DESCRIPTION OF CAPITAL STOCK OF MAINSTREET
MainStreet has authority to issue 1,000,000 shares of Preferred Stock,
of which no shares are issued and outstanding, and 20,000,000 shares of Common
Stock, of which 11,396,976 shares were issued and outstanding as of July 31,
1997 held by approximately 3,524 holders of record. MainStreet Common Stock is
traded in the over-the-counter market and quoted on The Nasdaq National Market
System under the symbol "MSBC".
The following summary description of capital stock of MainStreet is
qualified in its entirety by reference to MainStreet's Articles of
Incorporation, a copy of which has been incorporated by reference as an exhibit
to the Registration Statement.
Preferred Stock
The Board of Directors, without further action by the shareholders, is
authorized to designate and issue in series Preferred Stock and to fix as to any
series the dividend rate, redemption prices, preferences on dissolution, the
terms of any sinking fund, conversion rights, voting rights, and any other
preferences or special rights and qualifications. Holders of the Preferred
Stock, if and when issued, will be entitled to vote as required under applicable
Virginia law. Such law includes provisions for the voting of the Preferred Stock
in the case of any amendment to the Articles of Incorporation affecting the
rights of holders of Preferred Stock, the payment of certain stock dividends,
merger or consolidation, sale of all or substantially all of MainStreet's
assets, and dissolution. The Board of Directors without shareholder approval can
issue Preferred Stock with voting and conversion rights which would adversely
affect the voting power of the common shareholders. In addition, the Preferred
Stock could be used in a manner which would discourage or make more difficult an
attempt to acquire control of MainStreet. MainStreet's Board of Directors has
designated a series of 1,000,000 shares of Participating Convertible Preferred
Stock, Series A (the "Series A Preferred Stock"), no shares of which have been
issued. The Series A Preferred Stock was created in connection with the
shareholder rights plan described below.
<PAGE>
MainStreet Common Stock
Holders of MainStreet Common Stock are entitled to one vote per share
on each matter to be voted upon by the shareholders. Directors are elected by a
vote of the holders of MainStreet Common Stock. Dividends may be paid to the
holders of MainStreet Common Stock when, as and if declared by the Board of
Directors out of funds legally available for such purposes. The principal source
of funds for dividend payments is dividends received from the Banks. Payment of
dividends to MainStreet by the Banks and Trust Company, without prior regulatory
approval, is also subject to various state and federal regulatory limitations.
Holders of Common Stock have no conversion, redemption, cumulative voting or
preemptive rights. There is no sinking fund obligation with respect to the
MainStreet Common Stock. In the event of any liquidation, dissolution or winding
up of MainStreet, after payment or provision for payment of the debts and other
liabilities and the preferential amounts to which the holders of Preferred
Stock, if any, are entitled, the holders of MainStreet Common Stock will be
entitled to share ratably in any remaining assets.
All outstanding shares of MainStreet Common Stock are, and the shares
of MainStreet Common Stock to be issued in the Merger will be, when issued, duly
and validly issued, fully paid and nonassessable.
Rights
Pursuant to a Rights Agreement (the "Rights Agreement") dated as of
January 18, 1990, MainStreet distributed as a dividend one Right for each
outstanding share of MainStreet Common Stock. The number of Rights associated
with each share of MainStreet Common Stock outstanding as of June 30, 1993 was
adjusted proportionately for the five-for-four stock split effected in the form
of a stock dividend paid July 30, 1993 and the two-for-one stock split effected
in the form of a stock dividend paid March 15, 1996. Each Right entitles the
holder to buy fractional shares of Participating Cumulative Preferred Stock,
Series A, par value $5.00 per share, at an exercise price of $24, subject to
adjustment. The Rights will become exercisable only if a person or group
acquires or announces a tender offer for 15% or more of the outstanding
MainStreet Common Stock. When exercisable, MainStreet may issue a share of
MainStreet Common Stock in exchange for each Right other than those held by such
person or group. If a person or group acquires 30% or more of the outstanding
MainStreet Common Stock, each Right will entitle the holder, other than the
acquiring person, upon payment of the exercise price, to acquire Preferred Stock
or, at the option of MainStreet, MainStreet Common Stock, having a market value
equal to twice the Right's exercise price. If MainStreet is acquired in a merger
or other business combination or if 50% of its earnings power is sold, each
Right will entitle the holder, other than the acquiring person, to purchase
securities of the surviving company having a market value equal to twice the
Right's exercise price. The Rights will expire on January 18, 2000, and may be
redeemed by MainStreet at any time prior to the tenth day after an announcement
that a 10% position has been acquired, unless such time period has been extended
by the Board of Directors.
Until such time as a person or group acquires or announces a tender
offer for 15% or more of the MainStreet Common Stock, (i) the Rights will be
evidenced by the MainStreet Common Stock certificates and will be transferred
with and only with such MainStreet Common Stock certificates, and (ii) the
surrender for transfer of any certificate for MainStreet Common Stock will also
constitute the transfer of the Rights associated with the MainStreet Common
Stock represented by such certificate. Rights may not be transferred, directly
or indirectly (i) to any person or group that has acquired, or obtained the
right to acquire, beneficial ownership of 10% or more of the Rights (an
"Acquiring Person"), (ii) to any person in connection with a transaction in
which such person becomes an Acquiring Person or (iii) to any affiliate or
associate of any such person. Any Right that is the subject of a purported
transfer to any such person will be null and void.
The Rights can be expected to have certain anti-takeover effects if an
acquisition transaction not approved by the Board of Directors is proposed by a
person or group. In such event, the Rights will cause substantial dilution to
any person or group that acquires more than 15% of the outstanding shares of
Common Stock of MainStreet if certain events thereafter occur without the Rights
having been redeemed. For example, if thereafter such acquiring person acquires
30% of MainStreet's outstanding Common Stock, or effects a business combination
with MainStreet, the Rights permit shareholders to acquire securities having a
value equal to twice the amount of the purchase price specified in the Rights,
but rights held by such "acquiring person "are void to the extent permitted by
law and may not be exercised. Further, other shareholders may not transfer
rights to such "acquiring person" above his or her 15% ownership threshold.
Because of these provisions, it is unlikely that any person or group will
propose an acquisition transaction that is not approved by the Board of
Directors. Thus, the Rights could have the effect of discouraging acquisition
transactions not approved by the Board of Directors. The Rights do not interfere
with any merger or other business combination approved by the Board of Directors
and shareholders because the rights are redeemable with the concurrence of a
majority of the "Continuing Directors," defined as directors in office when the
Rights Agreement was adopted or any person added thereafter to the Board with
the approval of the Continuing Directors.
<PAGE>
Virginia Stock Corporation Act
The Virginia SCA contains provisions governing "Affiliated
Transactions." These provisions, with several exceptions discussed below,
require approval of material acquisition transactions between a Virginia
corporation and any holder of more than 10% of any class of its outstanding
voting shares (an "Interested Shareholder") by the holders of at least
two-thirds of the remaining voting shares. Affiliated Transactions subject to
this approval requirement include mergers, share exchanges, material
dispositions of corporate assets not in the ordinary course of business, any
dissolution of the corporation proposed by or on behalf of an Interested
Shareholder, or any reclassification, including reverse stock splits,
recapitalization or merger of the corporation with its subsidiaries which
increases the percentage of voting shares owned beneficially by an Interested
Shareholder by more than 5%.
For three years following the time that an Interested Shareholder
becomes an owner of more than 10% of the outstanding voting shares, a Virginia
corporation cannot engage in an Affiliated Transaction with such Interested
Shareholder without approval of two-thirds of the voting shares other than those
shares beneficially owned by the Interested Shareholder, and majority approval
of the "Disinterested Directors." A Disinterested Director means, with respect
to a particular Interested Shareholder, a member of MainStreet's Board of
Directors who was (1) a member on the date on which an Interested Shareholder
became an Interested Shareholder and (2) recommended for election by, or was
elected to fill a vacancy and received the affirmative vote of, a majority of
the Disinterested Directors then on the Board. At the expiration of the three-
year period, the statute requires approval of Affiliated Transactions by
two-thirds of the voting shares other than those beneficially owned by the
Interested Shareholder.
The principal exceptions to the special voting requirement apply to
transactions proposed after the three-year period has expired and require either
that the transaction be approved by a majority of the corporation's
Disinterested Directors or that the transaction satisfy the fair-price
requirements of the statute. In general, the fair-price requirement provides
that in a two-step acquisition transaction, the Interested Shareholder must pay
the shareholders in the second step either the same amount of cash or the same
amount and type of consideration paid to acquire the Virginia corporation's
shares in the first step.
None of the foregoing limitations and special voting requirements
applies to a transaction with an Interested Shareholder whose acquisition of
shares making such person an Interested Shareholder was approved by a majority
of the Virginia corporation's Disinterested Directors.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation can adopt an amendment to its articles of
incorporation or bylaws providing that the Affiliated Transactions provisions
shall not apply to the corporation. MainStreet has not "opted out" of the
Affiliated Transactions provisions.
<PAGE>
Virginia law also provides that shares acquired in a transaction that
would cause the acquiring person's voting strength to meet or exceed any of
three thresholds (20%, 33 and 1/3% or 50%) have no voting rights unless granted
by a majority vote of shares not owned by the acquiring person or any officer or
employee-director of the Virginia corporation. This provision empowers an
acquiring person to require the Virginia corporation to hold a special meeting
of shareholders to consider the matter within 50 days of its request.
Reports to Shareholders
MainStreet furnishes shareholders with written annual reports
containing consolidated financial statements audited by an independent certified
public accountant and with written quarterly reports containing an unaudited
balance sheet at the end of each of the first three quarterly periods and an
income statement for the period from the beginning of the current fiscal year to
the end of such quarterly period.
Transfer Agent
Registrar and Transfer Company, Post Office Box 1010, Cranford, New
Jersey 07016, is transfer agent for MainStreet Common Stock.
COMPARATIVE RIGHTS OF SHAREHOLDERS
At the Merger Effective Date, shareholders of Regency will become
shareholders of MainStreet, and their rights as shareholders will be determined
by MainStreet's Articles of Incorporation and Bylaws and the Virginia SCA. The
following is a summary of the material differences in the rights of shareholders
of MainStreet and Regency. This summary does not purport to be a complete
discussion of, and is qualified in its entirety by reference to, the governing
law and the Articles of Incorporation and Bylaws of each entity.
Capitalization
Regency. Regency's Articles of Incorporation authorize the issuance of
up to 8,000,000 shares of common stock, par value $2.50 per share, of which
1,403,054 were issued and outstanding as of December 31, 1997.
MainStreet. MainStreet's authorized capital is described under
"Description of MainStreet Capital Stock."
Amendment of Articles or Bylaws
Regency. Under the Virginia SCA, Regency's Articles may be amended if
an amendment is adopted by at least two-thirds of the members of the Regency
Board and approved by a vote of at least a majority of the vote entitled to be
cast on the amendment by each voting group entitled to vote thereon. If the
proposed amendment to the Articles is not approved by two-thirds of the
directors, then the amendment must receive the affirmative vote of at least 80%
of the outstanding shares entitled to vote on the matter.
Regency's Bylaws provide that such Bylaws may be altered, amended or
repealed by the Regency Board by affirmative vote of a majority of all directors
then holding office. Any Bylaws adopted by the Regency Board may be altered,
amended or repealed, and new Bylaws adopted, by the shareholders. The
shareholders may proscribe that any Bylaw or Bylaws adopted by them will not be
altered, amended or repealed by Regency's Board.
<PAGE>
MainStreet. As permitted by the Virginia SCA, MainStreet's Articles
provide that, unless a greater vote is required by law, by MainStreet's Articles
or by a resolution of the Board of Directors, MainStreet's Articles may be
amended if the amendment is adopted by the Board of Directors and approved by a
vote of the holders of a majority of the votes entitled to be cast on the
amendment by each voting group entitled to vote thereon.
MainStreet's Bylaws generally provide that the Board of Directors may,
by a majority vote, amend its Bylaws.
Required Shareholder Vote for Certain Actions
Regency. The Virginia SCA provides that, unless a corporation's
articles of incorporation provide for a higher or lower vote, certain
significant corporate actions must be approved by the affirmative vote of the
holders of more than two-thirds of the votes entitled to be cast on the matter.
Corporate actions requiring a two-thirds vote include amendments to a
corporation's articles of incorporation, adoption of plans of merger or
exchange, sales of all or substantially all of a corporation's assets other than
in the ordinary course of business and adoption of plans of dissolution
("Fundamental Actions"). The Virginia SCA provides that a corporation's articles
may either increase the vote required to approve Fundamental Actions or may
decrease the required vote to not less than a majority of the votes entitled to
be cast.
The Articles of Incorporation of Regency provide that a Fundamental
Action shall be approved by a vote of a majority of all votes entitled to be
cast on such transactions by each voting group entitled to vote on the
transaction, provided that the transaction has been approved and recommended by
at least two-thirds of the directors in office at the time of such approval and
recommendation. If the transaction is not so approved and recommended, then the
transaction shall be approved by the vote of 80% or more of all votes entitled
to be cast on such transactions by each voting group entitled to vote on the
transaction.
This provision could tend to make the acquisition of Regency more
difficult to accomplish without the cooperation or favorable recommendation of
the Regency Board.
MainStreet's Articles of Incorporation have no special provisions
changing shareholder voting requirements. The Virginia SCA generally requires
the approval of a majority of a corporation's Board of Directors and the holders
of more than two-thirds of all the votes entitled to be cast thereon by each
voting group entitled to vote on any plan of merger or consolidation, plan of
share exchange or sale of substantially all of the assets of a corporation not
in the ordinary course of business. The Virginia SCA also specifies additional
voting requirements for Affiliated Transactions and transactions that would
cause an acquiring person's voting power to meet or exceed specified thresholds.
The Virginia SCA is also applicable to MainStreet.
Director Nominations
Regency. Regency's Bylaws include no prior notice requirement for the
nomination of directors.
MainStreet. MainStreet's Bylaws provide that any nomination for
director made by a shareholder must be made in writing to the Secretary of
MainStreet not less than 90 days prior to the meeting of shareholders at which
directors are to be elected. Any such shareholder's notice shall include (i) the
name and address of the shareholder and of each person to be nominated, (ii) a
representation that the shareholder is a holder of record of stock of MainStreet
entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to nominate each person specified, (iii) a description of all
arrangements or understandings between the shareholder and each nominee and any
other person (naming such person) pursuant to which the nomination is made by
the shareholder, (iv) such other information regarding each nominee as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the SEC had the nominee been nominated by the Board, and (v) the consent of
each nominee to serve as a director of MainStreet if so elected.
<PAGE>
There is no requirement in the Articles or Bylaws that directors of
MainStreet own any capital stock of MainStreet. There are also no residency or
meeting attendance requirements applicable to directors of MainStreet.
Directors and Classes of Directors; Vacancies and Removal of Directors
Regency. All of Regency's directors are elected each year. Under
Regency's Articles of Incorporation, directors may only be removed for cause and
with the affirmative vote of at least two-thirds of the outstanding shares
entitled to vote.
MainStreet. The number of Directors is set forth in MainStreet's
Bylaws. The Board currently has fixed the number of directors at 12. Any vacancy
occurring on the Board of Directors, including a vacancy resulting from an
increase in the number of Directors, may be filled by the affirmative vote of a
majority of the remaining directors, though less than a quorum of the Board of
Directors. Directors so chosen shall hold office for a term expiring at the next
following annual meeting of shareholders at which directors are elected. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director. Subject to the rights of the holders
of preferred stock then outstanding, any director may be removed by the
affirmative vote of the holders of at least two-thirds of outstanding voting
shares.
Anti-Takeover Provisions
For a description of certain provisions of the Virginia SCA which may
be deemed to have an anti-takeover effect or MainStreet or Regency, see
"Description of MainStreet Capital Stock -- Virginia Stock Corporation Act."
Preemptive Rights
Neither the Shareholders of Regency nor the Shareholders of MainStreet
has preemptive rights. Thus, if additional shares of MainStreet Common Stock,
MainStreet preferred stock or Regency Common Stock are issued, holders of such
stock, to the extent they do not participate in such additional issuance of
shares, would own proportionately smaller interests in a larger amount of
outstanding capital stock.
Assessment
All outstanding shares of Regency Common Stock are fully paid and
nonassessable.
All shares of MainStreet Common Stock presently issued are, and those
to be issued pursuant to the Merger Agreement will be, fully paid and
nonassessable.
Conversion; Redemption; Sinking Fund
Neither Regency Common Stock nor MainStreet Common Stock is
convertible, redeemable or entitled to any sinking fund.
<PAGE>
Liquidation Rights
The Virginia SCA generally provides that a corporation's board of
directors may propose dissolution for submission to shareholders and that to be
authorized, the dissolution must be approved by the holders of more than
two-thirds of all votes entitled to be cast on the proposal, unless the articles
of incorporation of the corporation require a greater or lesser vote. There are
no provisions in MainStreet's or Regency's Articles of Incorporation,
respectively, which would modify the statutory requirements for dissolution
under the Virginia SCA.
Dividends and Other Distributions
The Virginia SCA generally provides that a corporation may make
distributions to its shareholders unless, after giving effect to the
distribution, (i) the corporation would not be able to pay its debts as they
become due in the usual course of business or (ii) the corporation's total
assets would be less than the sum of its total liabilities plus (unless the
articles of incorporation permit otherwise, which MainStreet's and Regency's
Articles of Incorporation, respectively, do not) the amount that would be
needed, if the corporation were to be dissolved at the time of the distribution,
to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the distribution. These
requirements are applicable to Regency and MainStreet as Virginia corporations.
In addition to the limitations set forth in the Virginia SCA, there are
various regulatory requirements which are applicable to distributions by bank
holding companies. MainStreet is a legal entity separate and distinct from its
subsidiary institutions. Most of MainStreet's revenues come from dividends paid
by the MainStreet Banks. Each of the Banks (with the exception of Clifton Forge)
is a state member bank of the Federal Reserve System. As a result, the Banks
(with the exception of Clifton Forge) are regulated by the Federal Reserve Board
and the SCC. Clifton Forge and Trust Company are national banking associations
and are regulated by the OCC, and in addition, Clifton Forge is a member bank of
the Federal Reserve System and regulated by the Federal Reserve Board. There are
various regulatory limitations applicable to the payment of dividends by the
MainStreet Banks as well as the payment of dividends by MainStreet to its
shareholders. Under laws of Virginia applicable to the MainStreet Banks (with
the exception of Clifton Forge), prior approval from the bank regulatory
agencies is required if cash dividends declared in any given year exceed net
income for that year plus net income for the prior two years less all dividends
paid during the current year and two prior years. National banking associations
like Clifton Forge and Trust Company are permitted to pay dividends out of
undivided profits but until their surplus equals their capital, dividends are
generally prohibited unless at least a tenth of their net income for the
preceding half year (if the dividend is a quarterly or semiannual dividend) or
for the preceding two consecutive half year periods (if the dividend is an
annual dividend) have been carried into surplus. In the case of Clifton Forge,
Trust Company and MainStreet, the payment of dividends may also be limited by
other factors, such as requirements to maintain capital above regulatory
guidelines. Under existing supervisory practices, at September 30, 1997, the
MainStreet Banks could have paid additional dividends of $23.7 million without
obtaining prior regulatory approval. The Trust Company began its operations in
1997 and is not in a position to pay a dividend without prior regulatory
approval. Bank regulatory agencies have authority to prohibit any MainStreet
Bank, Trust Company or MainStreet from engaging in an unsafe or unsound practice
in conducting their business. The payment of dividends, depending upon the
financial condition of the MainStreet Bank in question, Trust Company or
MainStreet, could be deemed to constitute such an unsafe or unsound practice.
The Federal Reserve has stated that, as a matter of prudent banking, a bank or
bank holding company should not maintain its existing rate of cash dividends on
common stock unless (1) the organization's net income available to common
shareholders over the past year has been sufficient to fund fully the dividends
and (2) the prospective rate of earnings retention appears consistent with the
organization's capital needs, asset quality, and overall financial condition.
<PAGE>
Under the FDICIA, insured depository institutions such as the
MainStreet Banks are prohibited from making capital distributions, including the
payment of dividends, if, after making such distribution, the institution would
become "undercapitalized" (as such term is used in the statute). Based on the
MainStreet Banks current financial condition, MainStreet does not expect that
this provision will have any impact on its ability to obtain dividends from the
MainStreet Banks.
In addition to limitations on dividends, the Banks are limited in the
amount of loans and other extensions of credit that may be extended to
MainStreet, and any such loans or extensions of credit are subject to collateral
security requirements. Generally, up to 10% of each Bank's regulatory capital,
surplus, undivided profits, allowance for loan losses and contingency reserves
may be loaned to MainStreet. As of September 30, 1997, approximately $13.0
million of credit was available to MainStreet under this limitation.
Indemnification
Regency and MainStreet. To the full extent permitted by the Virginia
SCA and any other applicable law, both Regency and MainStreet shall indemnify
their directors or officers who are or were a party to any proceeding by reason
of the fact that he is or was such a director or officer or is or was serving at
the request of the corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. The Board of Directors of both Regency and
MainStreet are empowered, by majority vote of a quorum of disinterested
directors, to contract in advance to indemnify any director or officer.
Shareholder Proposals
Regency. Regency's Bylaws contain no prior notice requirement for
shareholder proposals.
MainStreet. MainStreet's Bylaws provide that at any meeting of
shareholders of MainStreet, only business that is properly brought before the
meeting may be presented to and acted upon by the shareholders. To be properly
brought before the meeting, business must be brought (a) by or at the direction
of the Board of Directors or (b) by a shareholder who has given written notice
of business he expects to bring before the meeting to the Secretary of
MainStreet not less than 90 days prior to the meeting. A shareholder's notice to
the Secretary shall set forth as to each matter the shareholder proposes to
bring before the meeting (a) a brief description of the business to be brought
before the meeting and the reasons for conducting such business at the meeting,
(b) the name and address, as they appear on MainStreet's books, of the
shareholder proposing such business, (c) the class and number of shares of
MainStreet's stock beneficially owned by the shareholder, and (d) any material
interest of the shareholder in such business. No business shall be conducted at
a meeting of shareholders except in accordance with the procedures set forth in
MainStreet's Bylaws.
Shareholder Inspection Rights; Shareholder Lists
Regency and MainStreet. Under the Virginia SCA, the shareholder of a
Virginia corporation is entitled to inspect and copy certain books and records,
including the articles of incorporation and bylaws of the corporation if he
gives the corporation written notice of his or her demand at least five business
days before the date on which he wishes to inspect and copy. The shareholder of
a Virginia corporation is entitled to inspect and copy certain other books and
records, including a list of shareholders, minutes of any meeting of the board
of directors and accounting records of the corporation, if (i) the shareholder
has been a shareholder of record for at least 6 months immediately preceding his
or her written demand or is the holder of at least 5% of the corporation's
outstanding shares, (ii) the shareholder's demand is made in good faith and for
a proper purpose, (iii) the shareholder describes with reasonable particularity
the purpose of the request and the records desired to be inspected and (iv) the
records are directly connected with the stated purpose, and if he gives the
corporation written notice of his or her demand at least five business days
before the date on which he wishes to inspect and copy. The Virginia SCA also
provides that a corporation shall make available for inspection by any
shareholder during usual business hours, at least 10 days before each meeting of
shareholders, a complete list of the shareholders entitled to vote at such
meeting.
<PAGE>
Shareholder Rights Plan
Regency. Regency does not have a shareholder rights plan.
MainStreet. For a description of a shareholder rights plan which has
been adopted by MainStreet, see "Description of Capital Stock of MainStreet --
Rights."
Dissenters' Appraisal Rights
The provisions of Article 15 of the Virginia SCA which provide
shareholders of a Virginia corporation the right to dissent from, and obtain
payment of the fair value of their shares in the event of, mergers,
consolidations and certain other corporate transactions. However, because
MainStreet has more than 2,000 record shareholders, unlike Regency, shareholders
of MainStreet generally do not have rights to dissent from mergers,
consolidations and certain other corporate transactions to which MainStreet is a
party because Article 15 of the Virginia SCA provides that holders of shares of
a Virginia corporation which has shares listed on a national securities exchange
or which has at least 2,000 record shareholders are not entitled to dissenters'
rights unless certain requirements are met.
RESALE OF MAINSTREET COMMON STOCK
MainStreet Common Stock issuable in the Merger has been registered
under the 1933 Act, thereby allowing such shares to be traded freely and without
restriction by those holders of Regency Common Stock who receive such shares
following consummation of the Merger and who are not deemed to be "affiliates"
(as defined under the 1933 Act, but generally including directors, certain
executive officers and 10% or more shareholders) of MainStreet.
EXPERTS
The consolidated financial statements of MainStreet and its
subsidiaries for the years ended December 31, 1996 and 1995, and the combination
of the previously reported financial statements for the year ended December 31,
1994, incorporated in this Proxy Statement/Prospectus by reference to
MainStreet's Annual Report on Form 10-K for the year ended December 31, 1996
have been so incorporated in reliance upon the report of Coopers & Lybrand
L.L.P., independent accountants, incorporated herein by reference, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated statements of income, changes in shareholders' equity
and cash flows of MainStreet and its subsidiaries for the year ended December
31, 1994 (not presented herein) prior to their restatement to reflect the 1996
poolings of interests as described in Note 2 of the Notes to the December 31,
1996 consolidated financial statements, included in MainStreet's annual report
on Form 10-K for the year ended December 31, 1996, have been incorporated by
reference herein and in the registration statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.
<PAGE>
The consolidated financial statements of Hanover and subsidiary (prior
to their restatement to reflect the 1996 poolings of interests with MainStreet)
for the year ended December 31, 1994 included in this Prospectus and the
Registration Statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and elsewhere in the
Registration Statement, and are included in reliance upon the report of such
firm given their authority as experts in accounting and auditing.
The financial statements of Clifton Forge (prior to their restatement
to reflect the 1996 poolings of interests with MainStreet) for the year ended
December 31, 1994, have been incorporated by reference in this Proxy
Statement/Prospectus in reliance upon the report of Persinger & Company, L.L.C.,
independent auditors, incorporated herein by reference from MainStreet's 1996
Annual Report on Form 10-K given the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Regency Financial Shares, Inc.
and subsidiary as of December 31, 1996 and 1995 and for each of the years in the
three-year period ended December 31, 1996 included herein and in the
Registration Statement have been so included in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
LEGAL OPINIONS
The legality of MainStreet Common Stock to be issued in the Merger will
be passed on by Flippin, Densmore, Morse, Rutherford & Jessee, P.C., Roanoke,
Virginia. Certain legal matters will be passed on for Regency by LeClair Ryan, A
Professional Corporation, Richmond, Virginia. A condition to consummation of the
Merger is the delivery to MainStreet and Regency by Flippin, Densmore, Morse,
Rutherford & Jessee of an opinion concerning certain federal income tax
consequences of the Merger. See "The Merger -- Certain Federal Income Tax
Consequences."
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, Regency's Board does
not know of any other matters to be presented for action at the Regency
Shareholder Meeting other than procedural matters incident to the conduct of the
meeting. If any other matters not now known are properly brought before Regency
Shareholder Meeting, the persons named in the accompanying proxy will vote such
proxy in accordance with his or her judgment.
By Order of the Board of Directors,
-----------------------------------
Corporate Secretary
<PAGE>
INDEX TO FINANCIAL STATEMENTS
REGENCY FINANCIAL SHARES, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Annual Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of
December 31, 1996 and 1995
Consolidated Statements of Earnings for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Interim Financial Statements:
Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996
Consolidated Statements of Earnings for the nine and three month
periods ended September 30, 1997 and 1996
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements
<PAGE>
Independent Auditors' Report
The Board of Directors
Regency Financial Shares, Inc.:
We have audited the accompanying consolidated balance sheets of Regency
Financial Shares, Inc. and subsidiary as of December 31, 1996 and 1995 and the
related consolidated statements of earnings, changes in shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Regency Financial
Shares, Inc. and subsidiary as of December 31, 1996 and 1995 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
January 21, 1997
/s/ KPMG Peat Marwick
<PAGE>
REGENCY FINANCIAL SHARES, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Assets 1996 1995
<S> <C>
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents (notes 7 and 10) $ 3,370,650 $ 3,141,673
Interest-bearing deposits with other banks (note 10) 395,074 831,321
Federal funds sold, at cost (note 10) 4,373,000 1,948,841
Securities available for sale, at fair value (notes 2, 7 and 10) 14,262,000 14,498,000
Loans (notes 3 and 10) 48,181,435 42,018,029
Less allowance for loan losses (note 3) 593,276 523,669
- ----------------------------------------------------------------------------------------------------------
Net loans 47,588,159 41,494,360
- ----------------------------------------------------------------------------------------------------------
Premises and equipment, net (notes 4 and 5) 1,089,478 211,623
Interest and fees receivable 528,591 454,087
Income taxes receivable (note 6) 21,045 -
Deferred income taxes (note 6) 85,006 12,148
Other assets, net 285,170 205,666
- ----------------------------------------------------------------------------------------------------------
Total assets $ 71,998,173 $ 62,797,719
- ----------------------------------------------------------------------------------------------------------
(continued)
</TABLE>
<PAGE>
REGENCY FINANCIAL SHARES, INC.
AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Balance Sheets, Continued
- -------------------------------------------------------------------------------------------------------------------------
Liabilities 1996 1995
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
Deposits (note 10):
Demand $ 15,947,267 $ 14,262,455
Savings 12,172,997 12,235,134
Certificates of deposit $100,000 and over 18,661,370 11,666,521
Other time deposits 13,433,759 14,719,967
- -------------------------------------------------------------------------------------------------------------------------
Total Deposits 60,215,393 52,884,077
- -------------------------------------------------------------------------------------------------------------------------
Securities sold under repurchase agreements (note 10) 4,203,143 2,997,471
Accrued interest payable 357,034 242,645
Income taxes payable (note 6) - 225,809
Other liabilities 154,145 124,622
- -------------------------------------------------------------------------------------------------------------------------
Total Liabilities 64,929,715 56,474,624
- -------------------------------------------------------------------------------------------------------------------------
Shareholders' equity (notes 8 and 12)
- -------------------------------------------------------------------------------------------------------------------------
Common stock, $2.50 par value. Authorized 8,000,000 shares; issued
and outstanding 1,308,664 shares in 1996 and 1,161,108 shares
in 1995 3,271,660 2,902,770
Surplus 3,592,217 2,574,517
Retained earnings 228,811 741,331
Net unrealized gain (loss) on securities available for sale, net of income tax
benefit of $11,573 in 1996 and expense of $54,711 in 1995 (notes 2 and 6) (24,230) 104,477
- -------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 7,068,458 6,323,095
Commitments and contingencies (notes 5, 7 and 11)
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 71,998,173 $ 62,797,719
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
REGENCY FINANCIAL SHARES, INC.
AND SUBSIDIARY
<TABLE>
<CAPTION
Consolidated Statements of Earnings
Years ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
Income from earning assets:
Interest and fees on loans $ 4,400,891 4,003,135 3,362,763
Interest on federal funds sold 107,876 185,098 144,998
Interest and dividends on securities available for sale (note 2) 912,736 808,959 524,887
- --------------------------------------------------------------------------------------------------------------------------
Total income from earning assets 5,421,503 4,997,192 4,032,648
- --------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on savings and other time deposits 1,359,153 1,505,958 1,276,943
Interest on certificates of deposit $100,000
and over 816,306 491,155 256,190
Interest on federal funds purchased and securities
sold under repurchase agreements 211,319 195,879 116,660
- --------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,386,778 2,192,992 1,649,793
- --------------------------------------------------------------------------------------------------------------------------
Net interest income 3,034,725 2,804,200 2,382,855
Provision for loan losses (note 3) 58,697 88,000 60,000
- --------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,976,028 2,716,200 2,322,855
- --------------------------------------------------------------------------------------------------------------------------
Other operating income:
Service charges on deposit accounts 127,350 113,443 99,344
Other fees and commissions 37,295 13,754 38,508
- --------------------------------------------------------------------------------------------------------------------------
Total other operating income 164,645 127,197 137,852
- --------------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits (note 9) 1,028,584 900,345 959,171
Occupancy expense 158,900 154,095 142,438
Furniture and equipment expense 92,096 68,240 87,642
FDIC assessments 44,253 62,768 104,572
Other expenses 704,020 591,092 456,195
- --------------------------------------------------------------------------------------------------------------------------
Total other operating expenses 2,027,853 1,776,540 1,750,018
- --------------------------------------------------------------------------------------------------------------------------
(continued)
</TABLE>
<PAGE>
REGENCY FINANCIAL SHARES, INC.
AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Statements of Earnings, Continued
- --------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes $ 1,112,820 1,066,857 710,689
Income tax expense (note 6) 368,828 362,728 241,686
- --------------------------------------------------------------------------------------------------------------------------
Net earnings $ 743,992 704,129 469,003
- --------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 0.56 0.59 0.45
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
REGENCY FINANCIAL SHARES, INC.
AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------------------------------------------------
Net unrealized
gain (loss)
Retained on securities
Common stock earnings available for
Shares Amount Surplus (deficit) sale (note 2) Total
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 1,010,980 $ 2,527,450 2,509,721 (177,216) 32,787 4,892,742
Issuance of common stock 7,380 18,450 18,175 - - 36,625
Change in net unrealized gain (loss)
on securities available for sale,
net of income tax benefit of $124,946 - - - - (242,544) (242,544)
Net earnings - - - 469,003 - 469,003
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 1,018,360 2,545,900 2,527,896 291,787 (209,757) 5,155,826
Stock dividend 101,834 254,585 - (254,585) - -
Issuance of common stock 40,914 102,285 46,621 - - 148,906
Change in net unrealized gain (loss)
on securities available for sale,
net of income tax expense of $162,767 - - - - 314,234 314,234
Net earnings - - - 704,129 - 704,129
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 1,161,108 2,902,770 2,574,517 741,331 104,477 6,323,095
Stock dividend 116,111 290,277 507,982 (798,259) - -
Reclassification to record 1995 stock - - 458,253 (458,253) - -
dividend at market value
Issuance of common stock 31,445 78,613 51,465 - - 130,078
Change in net unrealized gain (loss) on
securities available for sale,
net of income tax benefit of $66,284 - - - - (128,707) (128,707)
Net earnings - - - 743,992 - 743,992
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 1,308,664 $ 3,271,660 3,592,217 228,811 (24,230) 7,068,458
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
REGENCY FINANCIAL SHARES, INC.
AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
- -----------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C>
- -----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 743,992 704,129 469,003
Adjustments to reconcile net earnings to net cash
and cash equivalents provided by operating activities:
Net amortization of premiums and accretion of
discounts on securities available for sale 47,714 29,515 170,478
Depreciation and amortization 77,789 56,766 75,847
Deferred income tax (benefit) expense (6,574) (44,942) 43,084
Provision for loan losses 58,697 88,000 60,000
Increase in interest and fees receivable (74,504) (23,932) (27,933)
Increase in income taxes receivable (21,045) - -
Decrease (increase) in other assets (79,504) 21,714 (101,914)
Increase (decrease) in accrued interest payable 114,389 87,690 (4,196)
Increase (decrease) in income taxes payable (225,809) 33,206 192,603
Increase (decrease) in other liabilities 29,523 (51,958) 24,381
Other (9,084) - (8,015)
- -----------------------------------------------------------------------------------------------------------------
Total adjustments (88,408) 196,059 424,335
- -----------------------------------------------------------------------------------------------------------------
Net cash and cash equivalents provided by
operating activities 655,584 900,188 893,338
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net (increase) decrease in interest-bearing deposits
with other banks 436,247 (627,450) 539,233
Net (increase) decrease in federal funds sold (2,424,159) 2,412,400 2,018,759
Purchases of securities available for sale (5,136,995) (6,926,626) (7,500,401)
Proceeds from sale of securities available for sale 1,639,374 - -
Proceeds from maturity of securities available for sale 3,500,000 4,500,000 6,500,000
Net increase in loans (6,152,496) (1,969,581) (1,987,477)
Purchases of premises and equipment (958,689) (91,747) (62,169)
Proceeds from disposal of premises and equipment 3,045 426 -
- -----------------------------------------------------------------------------------------------------------------
Net cash and cash equivalents used in
investing activities (9,093,673) (2,702,578) (492,055)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Continued
<PAGE>
REGENCY FINANCIAL SHARES, INC.
AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows, Continued
- -----------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C>
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in demand deposits and
savings accounts $ 1,622,675 (123,921) (2,139,669)
Net increase in certificates of deposit
$100,000 and over and other time deposits 5,708,641 4,443,364 147,377
Net increase (decrease) in securities sold under
repurchase agreements 1,205,672 (579,813) 1,370,584
Issuance of common stock 130,078 148,906 36,625
- -----------------------------------------------------------------------------------------------------------------
Net cash and cash equivalents provided by (used in)
financing activities 8,667,066 3,888,536 (585,083)
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 228,977 2,086,146 (183,800)
Cash and cash equivalents at beginning of year 3,141,673 1,055,527 1,239,327
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,370,650 3,141,673 1,055,527
- -----------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year
Interest $ 2,272,389 2,105,302 1,653,989
Income taxes 641,809 188,676 4,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Regency Financial Shares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Organization and Basis of Presentation
Regency Financial Shares, Inc. (the "Holding Company") is a bank
holding company that owns all of the outstanding common stock of its subsidiary,
Regency Bank ("Regency"). Regency focuses primarily on serving the needs of high
income, high net worth individuals and their businesses in the Richmond,
Virginia area. It provides most commercial banking services to its customers.
Regency is subject to competition from other financial institutions. It is also
subject to the regulations of the Federal Reserve System and the State
Corporation Commission of Virginia, and it is subject to periodic examinations
by the regulatory authorities. The most recent regulatory examination was
conducted as of June 30, 1996.
The consolidated financial statements include the accounts of the
Holding Company and Regency (together, "the Company"). All significant
intercompany balances and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and general practices within the
banking industry. In preparing the consolidated financial statements, management
is required to make estimates and judgments that affect reported amounts of
assets and liabilities and revenues and expenses. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans. In connection with the determination of the
allowances for loan losses and real estate owned, management obtains independent
appraisals for significant properties. These areas and other significant
accounting policies affecting the consolidated financial statements are
discussed below.
Cash and Cash Equivalents
Cash equivalents include cash on hand and amounts due from other banks.
Securities Available for Sale
The Company classifies its securities in one of three categories:
trading, available for sale or held to maturity. Trading securities are bought
and held principally for the purpose of selling them in the near-term. Held to
maturity securities are those securities in which the Company has the ability
and intent to hold until maturity. All other securities not included in trading
or held to maturity are classified as available for sale. All of the Company's
investment securities are classified as available for sale at December 31, 1996
and 1995.
Trading and available for sale securities are recorded at fair value.
Held to maturity securities are recorded at cost, adjusted for the amortization
or accretion of premiums or discounts. Unrealized holding gains and losses on
trading securities are included in earnings. Unrealized holding gains and losses
on available for sale securities, net of the related tax effect, are excluded
from earnings and are reported as a separate component of shareholders' equity
until realized. Transfers of securities between categories are recorded at fair
value at the date of transfer and unrealized gains and losses are included in
earnings or as a separate component of shareholders' equity depending on the
type of transfer.
(continued)
<PAGE>
Regency Financial Shares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
A decline in the market value of any available for sale or held to
maturity security below cost that is deemed other than temporary is charged to
earnings and results in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related available for sale or held to maturity security as an adjustment to
yield using a method that approximates the level yield method. Dividend and
interest income are recognized when earned. Realized gains and losses for
securities classified as available for sale and held to maturity are included in
earnings and are derived using the specific identification method for
determining the cost of securities sold.
Loans
Interest on loans is calculated by using the simple interest method
applied to the daily principal balances outstanding.
Nonaccrual loans are loans on which the accrual of interest ceases when
the collection of principal or interest payments is determined to be doubtful by
management. It is the general policy of the Company to discontinue the accrual
of interest when principal or interest payments are delinquent 91 days or more
unless the loan principal and interest are determined by management to be fully
collectible. Thereafter, interest is recognized only to the extent payments are
received.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loan losses are charged against the allowance
when management believes that the collectibility of the principal balance is
unlikely. Recoveries of amounts previously charged off are credited to the
allowance. The charge to operations is based on management's evaluation of the
loan portfolio, including such factors as the volume and character of loans
outstanding, past loan loss experience and general economic conditions.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions, particularly those affecting real estate values.
In addition, regulatory agencies, as an integral part of their
examination process, periodically review Regency's allowance for loan losses.
Such agencies may require Regency to recognize additions to the allowance based
on their judgments about information available to them at the time of their
examination.
Premises and Equipment
Premises and equipment are carried at cost, less accumulated
depreciation and amortization. Depreciation and amortization are calculated
principally using the straight-line method over the estimated useful lives of
the assets.
Income Taxes
The Company accounts for income taxes using the asset and liability
method as prescribed by Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (Statement No. 109). Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
(continued)
<PAGE>
Regency Financial Shares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
Earnings per Share
Earnings per share is computed by dividing net earnings by the weighted
average number of common shares outstanding during the year, including average
common equivalent shares attributable to dilutive stock options. Average shares
used in the determination of earnings per share for the years ended December 31,
1996, 1995 and 1994 were 1,336,420, 1,184,412 and 1,016,626, respectively.
(2) Securities Available for Sale
The Company has classified all securities as available for sale, and
has recorded a net unrealized loss on securities available for sale of
$(24,230), net of income taxes, at December 31, 1996 and a net unrealized gain
of $104,477, net of income taxes, at December 31, 1995 as a separate component
of shareholders' equity.
The amortized cost, gross unrealized gains and losses and estimated
fair value of securities available for sale at December 31, 1996 and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
1996
----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
- ---------------------------------------------------------------------------
U.S. Government and agencies $14,042,553 43,441 79,244 14,006,750
Federal Reserve Bank stock 192,500 - - 192,500
Virginia Banker's Bank stock 62,750 - - 62,750
- ---------------------------------------------------------------------------
$14,297,803 43,441 79,244 14,262,000
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
1995
----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
- ---------------------------------------------------------------------------
U.S. Government and agencies $13,940,862 182,676 23,488 14,100,050
Federal Reserve Bank stock 161,700 - - 161,700
Virginia Banker's Bank stock 62,750 - - 62,750
Federal Home Loan Bank stock 173,500 - - 173,500
- ---------------------------------------------------------------------------
$14,338,812 182,676 23,488 14,498,000
- ---------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of securities available for
sale at December 31, 1996, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
<S> <C>
Estimated
Amortized fair
cost value
- ----------------------------------------------------------------------------
Due in one year or less $ 3,003,384 3,009,062
Due after one year through five years 9,454,339 9,442,063
Due after five years 1,840,080 1,810,875
- ----------------------------------------------------------------------------
$ 14,297,803 14,262,000
- ----------------------------------------------------------------------------
</TABLE>
(continued)
<PAGE>
Regency Financial Shares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(2) Securities Available for Sale (continued)
Interest and dividends earned on securities available for sale by
security type for the years ended December 31, 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
<S> <C>
1996 1995 1994
- --------------------------------------------------------------------------
U.S. Treasury securities $ 357,378 443,815 290,169
Securities of U.S. Government agencies 532,916 338,222 213,507
Other 22,442 26,922 21,211
- --------------------------------------------------------------------------
$ 912,736 808,959 524,887
- --------------------------------------------------------------------------
</TABLE>
(3) Loans and Allowance for Loan Losses
The composition of loans at December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
<S> <C>
1996 1995
- --------------------------------------------------------------------------
Commercial $ 27,812,711 23,252,628
Real estate 15,415,889 14,702,264
Consumer 4,952,835 4,063,137
- --------------------------------------------------------------------------
$ 48,181,435 42,018,029
- --------------------------------------------------------------------------
</TABLE>
Loans have been made to certain directors of the Holding Company and
Regency and certain corporations and individuals related to such persons. These
loans were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other customers and did not involve more than the normal risk of collectibility.
Following is a summary of activity during 1996 and 1995 for such loans:
<TABLE>
<CAPTION>
<S> <C>
Balance Balance
Year January 1 Additions Repayments December 31
- ----------------------------------------------------------------------------------
1996 $ 4,567,379 1,157,000 1,165,000 4,559,379
- ----------------------------------------------------------------------------------
1995 $ 4,603,618 449,500 485,739 4,567,379
- ----------------------------------------------------------------------------------
</TABLE>
Activity in the allowance for loan losses for the years ended December
31, 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
<S> <C>
1996 1995 1994
- --------------------------------------------------------------------------
Balance, beginning of year $ 523,669 468,055 438,196
Provision charged to expense 58,697 88,000 60,000
Recoveries credited to allowance 21,948 2,066 8,089
Loans charged off (11,038) (34,452) (38,230)
- --------------------------------------------------------------------------
$ 593,276 523,669 468,055
- --------------------------------------------------------------------------
</TABLE>
On January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment of a
Loan (Statement No. 114), as amended by Statement of Financial Accounting
Standards No. 118, Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure (Statement No. 118). Statement No. 114, as amended
by Statement No. 118, requires that impaired loans within the scope of the
statements be presented in the financial statements at the present value of
expected future cash flows or at the fair value of the loan's collateral.
A valuation allowance is required to the extent that the measure of the
impaired loans is less than the recorded investment. Statement No. 114 does
not apply to larger groups of homogeneous loans such as real estate
mortgage, installment, home equity and credit card loans, which are collectively
evaluated for impairment.
(continued)
<PAGE>
Regency Financial Shares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(3) Loans and Allowance for Loan Losses (continued)
During the years ended December 31, 1996 and 1995, there were no loans
identified as impaired and, accordingly, Statement No. 114, as amended by
Statement No. 118, had no impact on the Company's consolidated financial
statements.
(4) Premises and Equipment
The composition of premises and equipment at December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
<S> <C>
Estimated
lives (years) 1996 1995
- ----------------------------------------------------------------------------------
Land - $ 163,697 -
Building 39 498,769 -
Furniture and equipment 5-7 869,051 795,648
Leasehold improvements 2-7 40,613 23,080
- ----------------------------------------------------------------------------------
1,572,130 818,728
Less accumulated depreciation and amortization 482,652 607,105
- ----------------------------------------------------------------------------------
Net premises and equipment $ 1,089,478 211,623
- ----------------------------------------------------------------------------------
</TABLE>
(5) Leases
Future minimum lease payments under noncancellable operating leases as
of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending Operating
December 31, leases
---------------------------------------------
1997 $ 149,889
1998 141,283
1999 59,222
---------------------------------------------
Total minimum lease payments $ 350,394
---------------------------------------------
</TABLE>
Total rental expense for operating leases for the years ended December
31, 1996, 1995 and 1994 was $145,662, $134,085 and $128,320, respectively. In
most cases, management expects that in the normal course of business leases that
expire will be renewed or replaced by other leases.
(continued)
<PAGE>
Regency Financial Shares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(6) Income Taxes
Income tax expense (benefit) for the years ended December 31, 1996,
1995 and 1994 consists of:
<TABLE>
<CAPTION>
<S> <C>
1996 1995 1994
- --------------------------------------------------------------------------
Current - Federal $ 375,402 407,670 198,602
Deferred - Federal (6,574) (44,942) 43,084
- --------------------------------------------------------------------------
$ 368,828 362,728 241,686
- --------------------------------------------------------------------------
</TABLE>
Income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rate of 34 percent to earnings before income taxes as a
result of the following:
<TABLE>
<CAPTION>
<S> <C>
1996 1995 1994
- --------------------------------------------------------------------------
Computed "expected" tax expense $ 378,359 362,732 241,634
Addition (reduction) in income taxes
resulting from other, net (9,531) (4) 52
- --------------------------------------------------------------------------
$ 368,828 362,728 241,686
- --------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995 are presented below.
<TABLE>
<CAPTION>
<S> <C>
1996 1995
- ----------------------------------------------------------------------
Deferred tax assets:
Loans, principally due to allowance
for loan losses $ 121,360 101,403
Securities available for sale,
due to unrealized losses 11,573 -
Other 6,622 3,748
- ----------------------------------------------------------------------
Total gross deferred tax assets 139,555 105,151
Less valuation allowance - -
- ----------------------------------------------------------------------
Net deferred tax assets 139,555 105,151
Deferred tax liabilities:
Premises and equipment, principally due
to differences in depreciation 28,334 25,957
Securities available for sale,
due to unrealized gains - 54,711
Prepaid expenses 14,005 4,933
Other 12,210 7,402
- ----------------------------------------------------------------------
Total gross deferred tax liabilities 54,549 93,003
- ----------------------------------------------------------------------
Net deferred tax asset $ 85,006 12,148
- ----------------------------------------------------------------------
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this assessment. Based upon recent levels of
taxable income and projections for future taxable income over the periods in
which the deferred tax assets are expected to become deductible, management
believes it is more likely than not that the Company will realize the benefits
of these deductible differences.
(continued)
<PAGE>
Regency Financial Shares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(7) Pledged and Restricted Assets
At December 31, 1996 and 1995, investment securities with a carrying
value of $9,619,000 and $6,500,000, respectively, were pledged as collateral to
secure deposits and for other purposes required or permitted by law.
As a member of the Federal Reserve System, Regency is required to
maintain certain average reserve balances. For the final weekly reporting period
in the years ended December 31, 1996 and 1995, the aggregate amounts of daily
average required balances were approximately $125,000 and $212,000,
respectively.
(8) Stock Options
As of December 31, 1996, 187,512 shares of common stock were reserved
for issuance to directors, original organizers and employees of the Holding
Company and Regency under a stock option plan. The options are exercisable at
prices ranging from $3.00 to $6.48 per share at varying dates not to exceed ten
years from the date of issuance.
Other information relating to the stock options is summarized below:
<TABLE>
<CAPTION>
<S> <C>
1996 1995 1994
--------------------------------------------------------------------------------
Aggregate Aggregate Aggregate
No. of option No. of option No. of option
shares price shares price shares price
- ----------------------------------------------------------------------------------------------------------
Options outstanding,
beginning of year 189,268 $ 865,378 212,638 $ 990,590 220,018 $ 1,013,590
Stock dividend 18,927 - 21,264 - - -
Granted during year 21,000 128,500 13,000 88,875 5,000 32,500
Exercised during year (31,445) (130,078) (40,914) (148,906) (7,380) (36,625)
Canceled during year (10,238) (51,732) (16,720) (65,181) (5,000) (18,875)
- ----------------------------------------------------------------------------------------------------------
Options outstanding,
end of year 187,512 $ 812,068 189,268 $ 865,378 212,638 $ 990,590
- ----------------------------------------------------------------------------------------------------------
Total exercisable at
end of year 152,718 $ 615,774 164,707 $ 729,502 202,266 $ 854,473
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Company applies Accounting Principles Board Opinion 25 and related
interpretations in accounting for stock-based compensation plans. Accordingly,
no compensation cost has been recognized for the Company's stock options. Had
compensation cost been determined based on the fair value at the grant dates
consistent with the alternative method of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, the Company's net
earnings and net earnings per share as reported in the accompanying consolidated
statements of earnings would not have been impacted by a material amount.
(9) Employee Benefit Plan
Effective January 1, 1992, the Company established a 401(k) savings
plan. The plan is open to all full-time employees who have completed at least
one year of service. The Company matches twenty-five percent of each employee's
contribution to the plan up to six percent of that employee's salary.
Additionally, the Company makes an annual contribution to the plan equal to
three percent of the salaries of eligible employees. The Company contributed
$26,838, $24,268 and $16,960 to the plan for the years ended December 31, 1996,
1995 and 1994, respectively.
(continued)
<PAGE>
Regency Financial Shares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that fair value.
Cash and Cash Equivalents, Interest-Bearing Deposits with Other Banks and
Federal Funds Sold
For cash and short-term investments, the carrying amount is a
reasonable estimate of fair value.
Securities Available for Sale
For securities available for sale, fair value is determined by quoted
market price. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Loans
The fair value of performing loans is estimated by discounting the
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining maturities.
Fair values for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are discounted
using a rate commensurate with the risk associated with the estimated cash
flows.
Deposits
The fair value of demand deposits, savings accounts and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated by discounting the
future cash flows using the rates currently offered for deposits of similar
terms and remaining maturities.
Securities Sold Under Repurchase Agreements
The carrying value of short-term borrowings is a reasonable estimate of
fair value. The fair value of long-term borrowings is estimated based on
interest rates currently available for debt with similar terms and remaining
maturities.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of letters of credit is based on fees currently charged for similar
agreements or on the estimated costs to terminate them or otherwise settle the
obligations with the counterparties at the reporting date. At December 31, 1996
and 1995, the carrying amounts and fair values of loan commitments and standby
letters of credit were immaterial.
The carrying amounts and estimated fair values of the Company's
financial instruments as of December 31, 1996 and 1995 are summarized as
follows:
(continued)
<PAGE>
Regency Financial Shares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(10) Disclosures About Fair Values of Financial Instruments (continued)
<TABLE>
<CAPTION>
<S> <C>
1996
- ------------------------------------------------------------------------------------------------------------
Carrying Fair
amount value
- ------------------------------------------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents $ 3,370,650 3,370,650
Interest-bearing deposits with other banks 395,074 395,074
Federal funds sold 4,373,000 4,373,000
Securities available for sale 14,262,000 14,262,000
Net loans 47,588,159 47,271,000
Accrued interest receivable 534,000 534,000
Loan commitments 11,312,000 11,312,000
Standby letters of credit 464,000 464,000
Financial liabilities:
Deposits 60,215,393 60,195,000
Securities sold under repurchase agreements 4,203,143 4,203,143
Accrued interest payable 355,000 355,000
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1995
- -------------------------------------------------------------------------------------------------------------
Carrying Fair
amount value
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Financial Assets:
Cash and cash equivalents $ 3,141,673 3,141,673
Interest-bearing deposits with other banks 831,321 831,321
Federal funds sold 1,948,841 1,948,841
Securities available for sale 14,498,000 14,498,000
Net loans 41,494,360 42,115,302
Accrued interest receivable 438,000 438,000
Loan commitments 11,341,000 11,341,000
Standby letters of credit 92,000 92,000
Financial liabilities:
Deposits 52,884,077 52,976,710
Securities sold under repurchase agreements 2,997,471 2,997,471
Accrued interest payable 241,000 241,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(11) Commitments and Contingent Liabilities
In the normal course of business, various commitments and contingent
liabilities are outstanding, such as commitments to extend credit and standby
letters of credit, that are not reflected in the consolidated financial
statements. The contractual amounts of these transactions represent the
Company's maximum loss exposure with respect to these items. Management does not
anticipate losses as a result of these transactions.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Regency evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by Regency, upon extension of credit is based on management's
credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued to
guarantee the performance of a customer to a third party. These guarantees are
primarily issued to support public and private borrowing arrangements.
(continued)
<PAGE>
Regency Financial Shares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(11) Commitments and Contingent Liabilities (continued)
At December 31, 1996 and 1995, the Company had approximately
$11,312,000 and $11,341,000 in outstanding commitments to extend credit,
respectively, and $464,000 and $92,000 in outstanding standby letters of credit,
respectively.
(12) Regulatory Requirements and Restrictions
Regency is subject to certain regulatory restrictions pertaining to the
amount of dividends that it may pay. The Federal Reserve restricts, without
prior approval, the total dividend payments of a member bank in any calendar
year to the total of the bank's net earnings of that year, as defined, combined
with its retained net earnings of the preceding two calendar years, less any
required transfers to surplus. The amount of dividends available to be paid by
Regency at December 31, 1996 and 1995 was approximately $406,000 and $926,000,
respectively.
The Holding Company's only significant asset is its investment in
Regency. The Holding Company's primary source of income is dividends from
Regency. The Holding Company's ability to pay dividends to its shareholders is
dependent on Regency's ability to pay dividends to the Holding Company.
Regency is subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, Regency
must meet specific capital guidelines that involve quantitative measures of
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Regency's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require Regency to maintain minimum amounts and ratios of total and
Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets.
Management believes, as of December 31, 1996, that Regency meets all capital
adequacy requirements to which it is subject. The most recent notification from
the Federal Reserve categorized Regency as "well capitalized" under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed Regency's
category.
Regency's actual regulatory capital amounts and ratios are presented
below.
(continued)
<PAGE>
Regency Financial Shares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(12) Regulatory Requirements and Restrictions (continued)
<TABLE>
<CAPTION>
<S> <C>
Minimum To Be Well
Requirements Capitalized Under
for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------- --------------------------------------------------
December 31, 1996 Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------
Total capital (to risk-
weighted assets) $ 7,611,000 14.23% $ 4,279,000 8.00% $ 5,349,000 10.00%
Tier 1 capital (to risk-
weighted assets) 7,018,000 13.12 2,140,000 4.00 3,209,000 6.00
Tier 1 capital (to average
assets) 7,018,000 9.76 2,877,000 4.00 3,596,000 5.00
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Minimum To Be Well
Requirements Capitalized Under
for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------ --------------------------------------------------
December 31, 1995 Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------
Total capital (to risk-
weighted assets) $ 6,660,000 14.76% $ 3,609,000 8.00% $ 4,511,000 10.00%
Tier 1 capital (to risk-
weighted assets) 6,137,000 13.60 1,805,000 4.00 2,707,000 6.00
Tier 1 capital (to average
assets) 6,137,000 9.78 2,509,000 4.00 3,136,000 5.00
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
REGENCY FINANCIAL SHARES, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> (Unaudited)
September 30, December 31,
Assets 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 4,481,071 $ 3,370,650
Interest-bearing deposits with banks
- 395,074
Federal funds sold 2,467,000 4,373,000
Securities available-for-sale, at fair value 19,336,462 14,262,000
Loans 47,323,910 48,181,435
Less allowance for loan losses
583,139 593,276
- -----------------------------------------------------------------------------------------------------------------------
Net loans 46,740,771 47,588,159
Premises and equipment, net 1,096,079 1,089,478
Other assets, net
920,966 919,812
- -----------------------------------------------------------------------------------------------------------------------
Total assets $ 75,042,349 $ 71,998,173
=======================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Deposits:
Demand $ 16,086,202 $ 15,947,267
Savings 14,005,286 12,172,997
Certificates of deposit $100,00 and over 15,953,282 18,661,370
Other time deposits 17,447,970 13,433,759
- -----------------------------------------------------------------------------------------------------------------------
Total deposits 63,492,740 60,215,393
Short-term borrowings 3,977,214 4,203,143
Other liabilities
392,109 511,179
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 67,862,063 64,929,715
Shareholders' equity
- -----------------------------------------------------------------------------------------------------------------------
Common stock, par value $2.50 per share, 8,000,000 shares authorized; 1,389,096
shares issued and outstanding at September 30, 1997 and
1,308,664 shares issued and outstanding at December 31, 1996 3,472,741 3,271,660
Surplus 3,660,666 3,592,217
Retained earnings
22,982 228,811
Net unrealized gains (losses) on securities available-for-sale
23,897 (24,230)
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 7,180,286 7,068,458
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 75,042,349 $ 71,998,173
=======================================================================================================================
</TABLE>
<PAGE>
REGENCY FINANCIAL SHARES, INC.
AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,September 30, September 30,
1997 1996 1997 1996
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
Income from earning assets:
Interest and fees on loans $ 1,134,834 $ 1,146,618 $ 3,492,847 $ 3,220,172
Interest and dividends on available for sale
securities 256,358 218,054 746,274 698,271
Interest on federal funds sold 63,039 11,139 161,650 64,283
- --------------------------------------------------------------------------------------------------------------------------
Total income from earning assets 1,454,231 1,375,811 4,400,771 3,982,726
- --------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 647,202 519,288 1,909,074 1,575,128
Interest on short-term borrowings 57,806 69,679 157,468 170,826
- --------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 705,008 588,967 2,066,542 1,745,954
- --------------------------------------------------------------------------------------------------------------------------
Net interest income 749,223 786,844 2,334,229 2,236,772
Provision for loan losses 26,500 18,000 625,200 40,697
- --------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 722,723 768,844 1,709,029 2,196,075
Other operating income:
Service charges on deposit accounts 27,268 31,461 89,495 88,451
Other fees and commissions 7,188 11,636 25,453 23,033
Securities gains (losses) - - - 9,084
- --------------------------------------------------------------------------------------------------------------------------
Total other operating income 34,456 43,097 114,948 120,568
- --------------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 256,355 252,168 832,206 749,459
Occupancy expense 41,706 41,576 131,530 121,402
Furniture and equipment expense 40,595 23,348 117,391 63,471
FDIC assessments 2,668 3,654 5,310 10,964
Other expenses 211,051 172,292 628,785 493,918
- --------------------------------------------------------------------------------------------------------------------------
Total other operating expenses 552,375 493,038 1,715,222 1,439,214
- --------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 204,804 318,903 108,755 877,429
Income tax expense 88,471 104,335 38,131 294,013
- --------------------------------------------------------------------------------------------------------------------------
Net earnings $ 116,333 $ 214,568 $70,624 $ 583,416
==========================================================================================================================
Net earnings per share $ 0.12 0.16 0.05 $ 0.44
==========================================================================================================================
</TABLE>
<PAGE>
REGENCY FINANCIAL SHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------------------------------------------
September 30, September 30,
1997 1996
- --------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 70,624 $ 583,416
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 95,221 54,076
Provision for loan losses 625,200 40,697
Provision for deferred income taxes 24,793 (94,310)
Net amortization of securities premiums and discounts 49,822 32,963
Gain on sale of securities, net 0 (9,084)
Amortization of intangibles 20,522 17,996
Increase in other assets (71,262) (137,020)
Decrease in accrued interest and other liabilities (119,070) (150,663)
- -----------------------------------------------------------------------------------------------------------------
Total adjustments 625,226 (245,345)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 695,850 338,071
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net decrease in federal funds sold 1,906,000 1,704,841
Decrease in interest-earning deposits 395,074 831,321
Purchases of securities available for sale (9,551,364) (3,612,441)
Proceeds from sale of securities available for sale - 1,466,008
Proceeds from calls, maturities and principal payments
of securities available for sale 4,500,000 2,000,000
Purchases of bank premises and equipment (101,822) (301,081)
Net (increase) decrease in loan portfolio 222,188 (5,420,356)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,629,924) (3,331,708)
- -----------------------------------------------------------------------------------------------------------------
(continued)
</TABLE>
<PAGE>
REGENCY FINANCIAL SHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------
September 30, September 30,
1997 1996
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 176,290 130,046
Net increase in deposits 3,277,347 2,574,511
Net increase (decrease) in other borrowed funds (225,929) 1,824,179
Cash dividends (183,213) -
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,044,495 4,528,736
- -----------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,110,421 1,535,099
Cash and cash equivalents at beginning of year 3,370,650 3,141,673
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4,481,071 4,676,772
- -----------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 2,100,528 1,696,544
Income taxes $ 144,161 504,236
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
REGENCY FINANCIAL SHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. The consolidated financial statements of Regency Financial Shares, Inc.
conform to generally accepted accounting principles and to general
banking industry practices. The interim period consolidated financial
statements are unaudited; however, in the opinion of management, all
adjustments of a normal and recurring nature which are necessary for a
fair presentation of the consolidated financial statements herein have
been included. The financial statements herein should be read in
conjunction with the notes to annual consolidated financial statements
included within this registration statement.
2. Contingencies and Other Matters
Regency has entered into a merger agreement with MainStreet BankGroup
Incorporated. At the time of the merger, Regency will merge with and
into MainStreet, subject to shareholder and regulatory approval and
other conditions. See "The Merger" for specific details of the
agreement.
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
among
MAINSTREET BANKGROUP INCORPORATED
and
REGENCY FINANCIAL SHARES, INC.
October 27, 1997
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 27th day of October, 1997
(this "Plan"), by and among MainStreet BankGroup Incorporated, a Virginia
corporation ("MSBC"), and Regency Financial Shares, Inc., a Virginia corporation
("Regency").
RECITALS:
(A) MSBC. MSBC is a corporation duly organized and existing in good
standing under the laws of the Commonwealth of Virginia, with its principal
executive offices located in Martinsville, Virginia. As of the date hereof, MSBC
has 20,000,000 authorized shares of Common Stock, each of $5.00 par value ("MSBC
Common Stock"), and 1,000,000 authorized shares of Preferred Stock, each of
$5.00 par value ("MSBC Preferred Stock") (no other class of capital stock being
authorized), of which 11,411,434 shares of MSBC Common Stock and no shares of
MSBC Preferred Stock, respectively, are issued and outstanding as of September
30, 1997. MSBC has eight (8) wholly owned bank subsidiaries: Piedmont Trust
Bank, a Virginia bank; Bank of Ferrum, a Virginia bank; Bank of Carroll, a
Virginia bank; First Community Bank, a Virginia bank; The First Bank of Stuart,
a Virginia bank; First Community Bank of Saltville, a Virginia bank; Hanover
Bank, a Virginia bank; and First National Bank of Clifton Forge, a national
banking association (each of which is referred to as a "MSBC Bank Subsidiary"
and all of which are referred to as "MSBC Bank Subsidiaries"). In addition, MSBC
has two wholly owned nonbanking subsidiaries, MainStreet Trust Company,
chartered as a limited purpose national banking association to engage in the
business of a trust company and businesses incidental thereto ("MSBC Trust
Subsidiary"), and MB Corp., incorporated under Virginia law ("MB Corp.") in
connection with the pending Agreement and Plan of Merger dated as of July 25,
1997 with Tysons Financial Corporation. MSBC will form a corporation, JAA Corp.
(the "Holding Company"), under Virginia law, as a wholly owned subsidiary of
MSBC for the purpose of consummating the Merger (as hereinafter defined). The
MSBC Bank Subsidiaries, MSBC Trust Subsidiary, MB Corp. and the Holding Company
(upon formation) are individually referred to as an "MSBC Subsidiary" and
collectively as "MSBC Subsidiaries".
(B) Regency. Regency is a corporation duly organized and existing in
good standing under the laws of the Commonwealth of Virginia, with its principal
executive offices located at 1011 East Main Street, Richmond, Virginia 23219,
and is authorized to do business as a bank holding company under the federal
Bank Holding Company Act of 1956, as amended, and Chapter 13 of the Virginia
Banking Act. Regency's only subsidiary is Regency Bank ("RB"). As of the date
hereof, Regency has 8,000,000 authorized shares of Common Stock, each of $2.50
par value ("Regency Common Stock"), of which 1,389,096 shares were issued and
outstanding as of September 30, 1997, (no other class of capital stock being
authorized). The holders of Regency Common Stock have no preemptive rights.
Regency Common Stock is not subject to the provisions of Section 12, 13, 14(a),
14(c), 14(d), 15(d) and 16 of the Securities Exchange Act of 1934, as amended,
(together with the rules and regulations of the Securities and Exchange
Commission ("SEC") promulgated thereunder, the "Exchange Act"). Regency has
granted options to purchase Regency Common Stock to Regency employees ("Employee
Options") and to Regency directors ("Directors Options"). The Employee Options
and Directors Options are collectively referred to as "Regency Options". The
names of the Regency Option holders, the respective number of Employee and
Directors Options held, the total number of Regency Options granted, and the
respective strike price for each Regency Option ("Strike Price") have been
Previously Disclosed.
(C) The Holding Company. The Holding Company, when formed, will be a
corporation duly organized and existing in good standing under the laws of the
Commonwealth of Virginia, having 5,000 authorized shares of common stock, no par
value ("Holding Company Common Stock") (no other class of capital stock being
authorized) of which as of the Merger Closing (as hereinafter defined) 1,000
shares will be issued and outstanding, all of which shall be held of record and
beneficially by MSBC.
<PAGE>
(D) RB. RB is a corporation duly organized and existing in good
standing under the laws of the Commonwealth of Virginia, is qualified to do
business as a bank in Virginia and is a member bank of the Federal Reserve
System. RB's headquarters are located at 1011 East Main Street, Richmond,
Virginia 23219. RB has 2,000,000 shares of common stock, $5.00 par value per
share ("RB Common Stock") authorized (no other class of capital stock being
authorized), of which 505,490 shares are issued and outstanding as of September
30, 1997, all of which are held of record and beneficially by Regency. There are
no shares of RB Common Stock authorized and reserved for issuance and there is
no commitment to authorize, issue or sell any such shares or any other
securities, warrants or obligations convertible into or exchangeable for, or
giving any right to subscribe for or acquire any such shares and no securities,
warrants or obligations representing any such rights are outstanding. There are
no options or share appreciation rights authorized or granted for RB Common
Stock and no commitment to grant any such options or share appreciation rights.
With respect to Regency, any reference herein to "Subsidiary" or
"Subsidiaries" refers to RB and, with respect to MSBC, any reference to
"Subsidiary" refers to any MSBC Subsidiary and any reference to "Subsidiaries"
refers to the MSBC Subsidiaries, jointly and severally (unless the context
otherwise requires).
(E) Rights, Etc. Except as Previously Disclosed or except in connection
with the transactions contemplated by this Plan, there are no shares of MSBC
Common Stock or MSBC Preferred Stock authorized and reserved for issuance, and
MSBC has no commitment to authorize, issue or sell any such shares or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire from MSBC, any such shares and no
securities or obligations representing any such rights are outstanding. Except
as Previously Disclosed, MSBC has not granted or made any commitment to grant
any options or share appreciation rights with respect to the MSBC Common Stock
or MSBC Preferred Stock. Except as Previously Disclosed and except for shares
reserved pursuant to the Stock Option Agreement (as hereinafter defined), there
are no shares of Regency Common Stock authorized and reserved for issuance and
Regency has no commitment to authorize, issue or sell any such shares, or any
other securities, warrants or obligations convertible into or exchangeable for,
or giving any right to subscribe for or acquire from Regency any such shares,
and no securities, warrants or obligations representing any such rights are
outstanding. Except for the Regency Options Previously Disclosed, Regency has
not granted or made any commitment to grant any options or share appreciation
rights with respect to Regency Common Stock.
(F) This Transaction. The Boards of Directors of MSBC and Regency,
respectively, deem it advisable and in the best interests of MSBC and Regency
and their stockholders that Regency be acquired by MSBC through a merger of
Holding Company into Regency pursuant to this Agreement and Plan of Merger.
(G) Stock Option Agreement. As a condition and inducement to MSBC's
willingness to enter into this Plan, Regency has agreed that prior to 5:00 p.m.,
on October 28, 1997, Regency shall enter into a Stock Option Agreement with MSBC
("Stock Option Agreement") in the form attached hereto as Exhibit E pursuant to
which Regency shall grant to MSBC an option ("Option") to purchase, under
certain circumstances, shares of Regency Common Stock.
(H) Approvals. The Board of Directors of each of MSBC and Regency has
approved and adopted, at meetings of each of such Board of Directors, this Plan
and the Stock Option Agreement and has authorized the execution of such
instruments in counterparts by a member of the Office of the Chairman of MSBC
and by the President of Regency, respectively, and any further modifications to
such instruments as may be agreed by an officer authorized to execute this Plan
and the Stock Option Agreement and not inconsistent with the authorizations of
their respective Board of Directors. At the meeting of the Regency Board of
Directors, the Board of Directors of Regency recommended the Plan as so executed
to its shareholders.
<PAGE>
(I) NASDAQ. Trading of the MSBC Common Stock is presently reported on
the National Association of Securities Dealers ("NASD") Quotations System
National Market System("NASDAQ/NMS"). Regency Common Stock and the Regency
Options are not traded on any established exchange.
(J) Benefits of Plan. MSBC and Regency believe the Plan and its
consummation are in the respective best interests of each corporation and its
shareholders for the following reasons, among others: (1) the Merger (as
hereinafter defined) will allow them to provide banking and related financial
services more effectively and efficiently; (2) the Merger will expand the range
of banking and related financial services which they can provide; (3) the Merger
will enhance the safety and soundness of their operations; (4) the Merger will
enable them to expand the market for their banking and related financial
services; (5) Regency, as a wholly owned subsidiary of MSBC, will benefit from
the larger and more diverse shareholder base of MSBC and the liquidity of the
equity investments of former Regency shareholders as a result of receiving MSBC
Common Stock in connection with the Merger will be enhanced; and (6) no gain or
loss generally will be recognized by stockholders of Regency who receive shares
of MSBC Common Stock in exchange for their shares of Regency Common Stock.
(K) Other. It is the intention of the parties to this Plan that, on or
after the Merger Effective Date (as hereinafter defined), MSBC may (but shall
not be obligated to) cause the transfer of all of the assets and liabilities of
RB to Hanover Bank, a wholly owned subsidiary of MSBC, including by means of a
statutory merger, and may, but shall not be obligated to, terminate the separate
corporate existence of the Continuing Corporation (as hereinafter defined).
NOW, THEREFORE, in consideration of their mutual promises and
obligations, the parties hereto adopt and make this Plan and prescribe the terms
and conditions thereof and the manner and basis of carrying it into effect,
which shall be as follows:
I. THE MERGER
(A) The Continuing Corporation. On the Merger Effective Date the
Holding Company shall merge into Regency (the "Merger"), the separate existence
of the Holding Company shall cease and Regency (the "Continuing Corporation")
shall survive.
(B) Rights, Etc. Upon consummation of the Merger, the Continuing
Corporation shall thereupon and thereafter possess all of the rights,
privileges, immunities and franchises, of a public as well as of a private
nature, of each of the merging corporations; and all property, real, personal
and mixed, and all debts due on whatever account, and all other choses in
action, and all and every other interest, of or belonging to or due to each of
the corporations so merged, shall be deemed to be vested in the Continuing
Corporation without further act or deed; and the title to any real estate or any
interest therein, vested in any of such corporations, shall not revert or be in
any way impaired by reason of the Merger as provided by the laws of the
Commonwealth of Virginia.
(C) Liabilities. Upon consummation of the Merger, the Continuing
Corporation shall thenceforth be responsible and liable for all the liabilities,
obligations and penalties of each of the corporations so merged.
(D) Articles of Incorporation; Bylaws; Directors; Officers of
Continuing Corporation. The Articles of Incorporation of the Continuing
Corporation shall be those of the Holding Company, and the Bylaws of the
Continuing Corporation shall be those of the Holding Company. The officers and
directors of Holding Company in office immediately prior to the Merger becoming
effective shall be the officers and directors of the Continuing Corporation, who
shall hold office until such time as their successors are elected and qualified
in accordance with the Articles and Bylaws of the Continuing Corporation.
<PAGE>
(E) Merger Closing; Merger Effective Date. The Merger shall become
effective on the date and time the Virginia State Corporation Commission
("Virginia Corporation Authority") issues a certificate of merger reflecting the
Merger (the "Merger Effective Date"). Unless otherwise agreed upon in writing by
the chief executive officers of MSBC and Regency, subject to the conditions to
the obligations of the parties to effect the Merger as set forth in Article VI,
the parties shall use their best efforts to cause the Merger Effective Date to
occur as soon as practicable following the satisfaction of the conditions set
forth in Paragraphs (A), (B) and (C) of Article VI but in no event later than
June 30, 1998. All documents required by the terms of this Agreement to be
delivered at or prior to consummation of the Merger will be exchanged by the
parties at the closing of the Merger (the "Merger Closing"), which shall be held
on such date as MSBC shall designate to Regency and which is reasonably
acceptable to Regency after the satisfaction of the condition set forth in
Paragraphs (A), (B) and (C) of Article VI but no later than the Merger Effective
Date. Prior to the Merger Closing, Holding Company and Regency shall execute and
deliver to the Virginia Corporation Authority, Articles of Merger containing a
Plan of Merger in substantially the form of Exhibit A hereto (the "Plan of
Merger") for approval.
II. MERGER CONSIDERATION
(A) Outstanding Holding Company Common Stock. The shares of Holding
Company Common Stock issued and outstanding immediately prior to the Merger
Effective Date, on and after the Merger Effective Date, shall be converted
automatically into that number of shares of common stock of Regency issued and
outstanding immediately prior to the Merger Effective Date and shall constitute
the only issued and outstanding shares of common stock of the Continuing
Corporation.
(B) Outstanding MSBC Common Stock. The shares of MSBC Common Stock
issued and outstanding immediately prior to the Merger Effective Date shall, on
and after the Merger Effective Date, remain issued and outstanding shares of
MSBC Common Stock.
(C) Outstanding Regency Common Stock. Each share (excluding shares held
by Regency, RB or by MSBC or by any of the MSBC Subsidiaries, in each case other
than in a fiduciary capacity or as a result of debts previously contracted (the
"Excluded Shares")) of Regency Common Stock issued and outstanding immediately
prior to the Merger Effective Date shall, by virtue of the Merger, automatically
and without any action on the part of the holder thereof on the Merger Effective
Date, become and be converted into the right to receive that number of shares of
MSBC Common Stock obtained by dividing the Negotiated Price per Regency Common
Share by the average of the bid/asked price per share for MSBC Common Stock
("Average MSBC Share Price") as reported on the NASDAQ/NMS for each of the
twenty (20) trading days preceding the tenth calendar day prior to the Merger
Effective Date. If the Exchange Ratio computed in accordance with the
immediately preceding sentence is less than .406, the Exchange Ratio shall be
.406, and if the Exchange Ratio computed in accordance with the immediately
preceding sentence is greater than .500, the Exchange Ratio shall be .500
("Exchange Ratio"). The Negotiated Price per Regency Common Share is $13.00.
(D) Stockholder Rights; Stock Transfers. On the Merger Effective Date,
holders of Regency Common Stock shall cease to be, and shall have no rights as,
stockholders of Regency other than to receive the Merger consideration provided
under Paragraph (C) above. After the Merger Effective Date, there shall be no
transfers on the stock transfer books of Regency or the Continuing Corporation
of the shares of Regency Common Stock which were issued and outstanding
immediately prior to the Merger becoming effective.
(E) Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of MSBC Common Stock and no certificates or scrip therefor, or
other evidence of ownership thereof, will be issued in the Merger; instead, MSBC
shall pay to each holder of Regency Common Stock who would otherwise be entitled
to a fractional share an amount in cash determined by multiplying such
fractional share by the Average MSBC Share Price.
<PAGE>
(F) Exchange Procedures. As promptly as practicable after the Merger
Effective Date, MSBC shall send or cause to be sent to each former stockholder
of Regency of record immediately prior to the Merger Effective Date transmittal
materials for use in exchanging such stockholder's certificates of Regency for
the consideration set forth in Paragraph (C) above. Any fractional share checks
which a Regency stockholder shall be entitled to receive in exchange for such
stockholder's shares of Regency Common Stock, and any dividends paid on any
shares of MSBC Common Stock, that such stockholder shall be entitled to receive
prior to the delivery to MSBC of such stockholder's certificates representing
all of such stockholder's shares of Regency Common Stock will be delivered to
such stockholder only upon delivery to MSBC of the certificates representing all
of such shares (or indemnity satisfactory to MSBC, in its judgment, if any of
such certificates are lost, stolen or destroyed). No interest will be paid on
any such fractional share checks or dividends which the holder of such shares
shall be entitled to receive upon such delivery. After the Merger Effective
Date, to the extent permitted by law, former stockholders of record of Regency
shall be entitled to vote at any meeting of holders of MSBC Common Stock, the
number of whole shares of MSBC Common Stock into which their respective shares
of Regency Common Stock are converted, regardless of whether such holders have
exchanged their certificates representing Regency Common Stock for certificates
representing MSBC Common Stock in accordance with the provisions of this Plan.
(G) Shares Held by Regency or MSBC. Each of the shares of Regency
Common Stock held by Regency, RB, MSBC or any MSBC Subsidiary, in each case
other than in a fiduciary capacity or as a result of debts previously
contracted, shall be canceled and retired at the Merger Effective Date and no
consideration shall be issued in exchange therefor.
(H) Anti-Dilution Provisions. In the event MSBC changes the number of
shares of MSBC Common Stock issued and outstanding prior to the Merger Effective
Date as a result of a stock split, stock dividend, recapitalization or similar
transaction with respect to the outstanding MSBC Common Stock (but not including
shares issued in connection with a merger, share exchange or similar
transaction) and the record date therefor shall be prior to the Merger Effective
Date, the Exchange Ratio and Option Ratio shall be proportionately adjusted.
(I) Dividends. Regency shareholders shall not under any circumstances
be entitled to any dividend (cash or otherwise) declared by MSBC with a record
date prior to the Merger Effective Date.
III. ACTIONS PENDING MERGER
A. Regency Actions. Without the prior written consent or approval of a
proper officer of MSBC, Regency will not and will cause its Subsidiary not to:
(1) Stock Distributions. Make, declare or pay any dividend other than
cash dividends on Regency Common Stock or RB Common Stock, as the case may be,
consistent with past practice and in an amount not greater than the last
previous cash dividend paid prior hereto by Regency or RB, respectively, or
declare or make any distribution on, or directly or indirectly combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its capital stock
(other than in a fiduciary capacity in the ordinary course of its business and
consistent with past practice or in connection with stock received on a debt
previously contracted basis) or authorize the creation or issuance of, or issue
(except as may be required to comply with Regency's obligations under the
Regency Options), any additional shares of it capital stock, or any options,
calls, warrants or commitments relating to its capital stock or any securities
or obligations convertible into or exchangeable for, or giving any person any
right to subscribe for or acquire from its shares of its capital stock or any
securities or obligations convertible into or exchangeable for shares of its
capital stock, or issue any long-term debt;
<PAGE>
(2) Employment Contracts. Enter into any employment contracts with,
increase the rate of compensation of (except in accordance with existing policy
consistent with past practice or pursuant to any agreement existing and as in
effect on the date hereof and Previously Disclosed), or pay or agree to pay any
bonus to, any of its directors, officers or employees, except in accordance with
plans or agreements existing and as in effect on the date hereof and Previously
Disclosed;
(3) Employee Benefit Plans. Enter into or modify (except as may be
required by applicable law) any pension, retirement, stock option, stock
purchase, savings, profit sharing, deferred compensation, consulting, bonus,
group insurance or other employee benefit, incentive or welfare contract, plan
or arrangement, or any trust agreement related thereto, in respect of any of its
directors, officers or other employees, including without limitation taking any
action that accelerates (1) the vesting or exercise of any benefits payable
thereunder, or (2) the right to exercise any employee stock options or stock
appreciation rights outstanding thereunder;
(4) Asset Disposition. Dispose of, grant an encumbrance against or
discontinue any portion of its assets, business, operations or properties, which
is material to Regency or RB or merge or consolidate with, or acquire all or any
substantial portion of, the business or property of any other entity (except
foreclosures, acquisitions of control in its fiduciary capacity or
securitization transactions, in each case in the ordinary course of business
consistent with past practice);
(5) Constituent Documents. Amend its Articles of Incorporation or
Bylaws as delivered to MSBC in connection with this Plan;
(6) Material Transactions. (a) Settle any material litigation or legal
proceeding brought by or against it or material claim of or against it or (b)
enter into any material transaction or make any material commitment relating to
its assets, business, operations or properties (including but not limited to any
acquisition thereof), otherwise than as contemplated hereby or in the ordinary
course of business consistent with past practice;
(7) Actions Not in Ordinary Course. Take any action not in the
ordinary course of business consistent with past practice; or
(8) Agreements. Agree to take any of the foregoing actions.
IV. REPRESENTATIONS AND WARRANTIES
Regency hereby represents and warrants to MSBC and MSBC hereby
represents and warrants to Regency as follows:
(A) Recitals. The facts set forth in the Recitals of this Plan with
respect to it and its respective Subsidiaries are true and correct.
(B) Capitalization. The outstanding shares of it and its respective
Subsidiaries are validly issued and outstanding, fully paid and nonassessable,
and subject to no preemptive rights.
(C) General Corporate Power and Ownership of Properties. It and its
respective Subsidiaries have the corporate power and authority to carry on their
respective business as now being conducted and to own all of their respective
material properties and assets and have good and marketable title to or a valid
leasehold interest in all of the material properties and assets thereof
reflected as owned or leased in its balance sheet as of December 31, 1996, and
included in the MSBC Reports and Regency Reports (as hereinafter defined) and in
all material properties and assets acquired or leased by it or its respective
Subsidiaries, since December 31, 1996. In the case of Regency and its Subsidiary
only, none of such properties is subject to any mortgage, pledge, lien, security
interest, encumbrance, restriction or charge of any kind except: (1) mechanic's,
carrier's, worker's or similar liens arising in the ordinary course of business;
(2) as Previously Disclosed; (3) imperfections of title, if any, none of which
is material in amount or materially detracts from the value or impairs the
existing use of the property subject thereto or the operations of Regency or its
Subsidiary; and (4) liens of current taxes not due and payable.
<PAGE>
(D) Specific Corporate Authority. Subject to any necessary receipt of
approval by its stockholders and the regulatory approvals referred to in
Paragraphs (B) and (C) of Article VI, this Plan has been authorized by all
necessary corporate action of it and is a valid and binding agreement of it
enforceable against it in accordance with its terms, subject to (1) bankruptcy,
insolvency and other laws of general applicability relating to or affecting
creditors' rights; and (2) general equity principles. In the case of Regency, it
represents and warrants to MSBC that the Stock Option Agreement has been
authorized by all necessary corporate action of it and is a valid and binding
agreement of it enforceable against it in accordance with its terms subject only
to conditions (1) and (2) in the immediately preceding sentence.
(E) No Default. The execution, delivery and performance of this Plan
and, in the case of Regency, the Stock Option Agreement and the consummation of
the transactions contemplated hereby and thereby by it, will not constitute: (1)
a breach of violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, franchise or agreement,
indenture, instrument or authorization applicable to, of or held by it or its
Subsidiaries, or to which it, its Subsidiaries or its or its Subsidiaries'
respective properties are subject or bound, which breach, violation or default
is reasonably likely to have a Material Adverse Effect on it; or (2) a breach or
violation of, or a default under, its or its Subsidiaries' respective Articles
of Incorporation or Bylaws.
(F) MSBC Reports. Except as Previously Disclosed, (1) MSBC's Annual
Report on Form 10-K, for the fiscal year ended December 31, 1996, and all other
documents filed or to be filed subsequent to December 31, 1996 under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act in the form filed with the SEC,
all of which have been Previously Disclosed (all of the foregoing reports and
documents of MSBC are hereinafter referred to as its "MSBC Reports") did not and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading; and each of the balance sheets in or incorporated by reference into
the MSBC Reports (including the related notes and schedules thereto) fairly
presents and will fairly present the financial position of the entity or
entities to which it relates as of its date and each of the statements of income
and changes in stockholders' equity and cash flows or equivalent statements in
the MSBC Reports (including any related notes and schedules thereto) fairly
presents and will fairly present the results of operations, changes in
stockholders' equity and changes in cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein, in
each case in accordance with generally accepted accounting principles
consistently applied, except as may be noted therein, subject to normal and
recurring year-end audit adjustments in the case of unaudited statements.
(G) Regency Reports. In the case of Regency only, it has Previously
Disclosed to MSBC copies of (1) Regency's Consolidated Financial Statements, for
the years ended December 31, 1994, 1995 and 1996; (2) RB's "Consolidated Report
of Condition and Income" on Form FFIEC 034, as delivered to the appropriate bank
regulatory authority for the years ended December 31, 1994, December 31, 1995,
and December 31, 1996 and for the periods ending March 31, 1997 and June 30,
1997; (3) all other reports and documents filed with or sent to any federal or
state regulatory authority by it or RB during 1995, 1996 and 1997; and (4) to
the extent not prohibited by law, all reports of any state or federal regulatory
authority relating to it or RB and received during or relating to matters in
1995, 1996 or 1997 (all of the foregoing reports and documents are hereinafter
referred to as "Regency Reports"). Regency represents and warrants to MSBC that,
as of their respective dates, the Regency Reports referred to in (1) and (2)
above fairly present the financial position of the entity or entities to which
they relate and each of the statements of income and changes in stockholders'
equity and cash flows or equivalent statements (including any related notes and
schedules thereto) fairly present the results of operations, changes in
stockholders equity and changes in cash flows, as the case may be, of the entity
or entities to which it relates for the periods set forth therein and, in the
case of the Regency Statements referred to in (1) in accordance with generally
accepted accounting principles, consistently applied, and that, as of their
respective dates the Regency Reports referred to in (2) and (3) above complied
in all material respects with all legal and regulatory requirements applicable
thereto.
<PAGE>
(H) Material Events. Except as Previously Disclosed, no event(s),
occurrence(s), condition(s), or circumstance(s), whether known or unknown, has
or have occurred which has or is reasonably likely to have at any future time a
Material Adverse Effect on it.
(I) Litigation. Except as Previously Disclosed, no litigation,
proceeding or controversy before any court or governmental agency and no
mediation or arbitration is pending which has or is reasonably likely to have at
any future time a Material Adverse Effect on it and, to the best of its
knowledge, no such litigation, proceeding, controversy, mediation or arbitration
has been threatened.
(J) Material Contracts. Except as Previously Disclosed and except for
this Plan and the Stock Option Agreement, neither it nor any Subsidiary is bound
by any material contract (as to it and its Subsidiaries taken as a whole) to be
performed in whole or part after the date hereof.
(K) Commissions. All negotiations relative to this Plan and the
transactions contemplated hereby have been carried on by it directly with the
other parties hereto and no action has been taken by it that would give rise to
any valid claim against any party hereto for a brokerage commission, finder's
fee or other like payment, excluding a fee in an amount Previously Disclosed to
Wheat, First Securities, Inc. who has acted as financial advisor to Regency.
(L) ERISA. Except as Previously Disclosed:
(1) all "employee benefit plans" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), covering employees or former employees of it and/or its Subsidiaries
(the "Employees") are Previously Disclosed, true and complete copies of which
have been made available to the other party;
(2) all employee benefit plans covering Employees, to the
extent subject to ERISA (the "ERISA Plans"), are in compliance with ERISA,
except for failure to so comply which are not reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect on it; each ERISA Plan which
is an "employee pension benefit plan" within the meaning of Section 3(2) of
ERISA ("Pension Plan") and which is intended to be qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), has either
(a) received a favorable determination letter from the Internal Revenue Service,
or (b) is or will be the subject of an application for a favorable determination
letter, and it is not aware of any circumstances likely to result in the
revocation or denial of any such favorable determination letter; there is no
pending or, to the best of its knowledge, threatened litigation relating to the
ERISA Plans which is reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on it; and neither it nor any Subsidiary has
engaged in a transaction with respect to any ERISA Plan that, assuming the
taxable period of such transaction expired as of the date hereof, would subject
it or the Subsidiary to a tax or penalty imposed by either Section 4975 of the
Code or Section 502(i) of ERISA in an amount which is reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on it;
<PAGE>
(3) no liability under Subtitle C or D of Title IV of ERISA
has been or is expected to be incurred by it or any Subsidiary with respect to
any ongoing, frozen or terminated "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them or
any entity which is considered one "employer" with it or any Subsidiary under
Section 4001(a)(14) of ERISA or Section 414 of the Code (an "ERISA Affiliate"),
which liability is reasonably likely to have a Material Adverse Effect on it;
neither it nor any Subsidiary has incurred and does not expect to incur any
withdrawal liability with respect to a multiemployer plan under Subtitle E of
Title IV of ERISA; and to its knowledge no notice of a "reportable event" within
the meaning of Section 4043 of ERISA for which the 30-day reporting requirement
has not been waived, has been required to be filed for any Pension Plan or the
Pension Plan of an ERISA Affiliate within the 12-month period ending on the date
hereof;
(4) during the current plan year and the immediately preceding
three plan years of such ERISA Plan, all contributions required to be made under
the terms of any ERISA Plan of it or an ERISA Affiliate have been timely made;
and no pension plan of it or an ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA which is reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on it;
(5) under each Pension Plan which is a single-employer plan,
as of the last day of the most recent plan year ended prior to the date hereof,
the actuarially determined present value of all "benefit liabilities", within
the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the ERISA Plan's most recent actuarial
valuation) did not exceed the then current value of the assets of such ERISA
Plan, and there has been no material adverse change in the financial position of
such ERISA Plan since the last day of the most recent plan year; and
(6) there are no material current or projected
liabilities for retiree health or life insurance benefits.
(M) Regulatory Approvals. It knows of no reason why the regulatory
approvals referred to in Paragraphs (B) and (C) of Article VI should not be
obtained without the imposition of any condition of the type referred to in the
proviso following such Paragraph (C).
(N) Agreements with Bank Regulators. Except as Previously Disclosed
neither MSBC nor Regency nor any Subsidiary, respectively, is a party to any
written agreement or memorandum of understanding with, or a party to any
commitment letter or similar undertaking to, or is subject to any order or
directive by, or a recipient of any extraordinary supervisory letter from, any
bank regulator which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its credit or reserve policies or its
management, nor has it been advised by any bank regulator that it is
contemplating issuing or requesting any such order, decree, agreement,
memorandum of understanding, extraordinary supervisory letter, commitment letter
or similar submission.
(O) Subsidiaries. In the case of Regency only, it has no subsidiaries
other than RB, all of the outstanding shares of which are validly issued, fully
paid and nonassessable (except pursuant to 12 USC ss. 55) and are owned by it
free and clear of all liens, claims, encumbrances and restrictions on transfer
whatsoever. In the case of MSBC only, its only Subsidiaries are the MSBC
Subsidiaries, all of the outstanding shares of which (with the exception of MB
Corp. and the Holding Company as of the date hereof) are validly issued, fully
paid and nonassessable (except pursuant to 12 USC ss. 55 or comparable state
law) and are owned by it free and clear of all liens, claims, encumbrances and
restrictions on transfer whatsoever.
<PAGE>
(P) Collective Bargaining Contracts. Neither it nor any Subsidiary is a
party to or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization or is the
subject of a proceeding asserting that it or the Subsidiary has committed an
unfair labor practice (within the meaning of the National Labor Relations Act)
or seeking to compel it or the Subsidiary to bargain with any labor organization
as to wages and conditions of employment. There is not any strike or other labor
dispute involving it or any Subsidiary and to the best of its knowledge none is
threatened. It is not aware of any activity involving the employees of it or any
Subsidiary seeking to certify a collective bargaining unit or engaging in any
other organization activity.
(Q) Classified Assets and Loan and Lease Loss Reserve. Regency has
Previously Disclosed a list of the loans, extensions of credit or other assets
of RB that were classified by the examiners of the Federal Reserve Board ("FRB")
or by the Bureau of Financial Institutions of the Virginia State Corporation
Commission ("Virginia Bank Regulator") in its last respective preceding
examination ("RB Asset Classification") and has Previously Disclosed a list of
its loans and extensions of credit by RB in the respective initial principal
amount of $10,000 or more, any payment of which is, as of the date so disclosed,
delinquent ("RB Delinquent Loan List"). The RB Asset Classification and the RB
Delinquent Loan List are, respectively, accurate and complete in all material
respects and no loans, extensions of credit or other assets (or portions
thereof) that have been classified as of the respective date of the RB Asset
Classification by any regulatory examiner as "Other Loans Specially Mentioned",
"Substandard", "Doubtful", "Loss", or words of similar import are excluded from
the amounts disclosed in the RB Asset Classification other than amounts of
loans, extensions of credit or other assets that were charged off by RB prior to
the respective date of the RB Asset Classification. RB's loan and lease loss
reserve as Previously Disclosed to MSBC and MSBC's consolidated loan and lease
loss reserve as Previously Disclosed to Regency are reasonably believed by the
disclosing party to be adequate as of the date thereof and no event(s),
occurrence(s), condition(s) or circumstance(s) has or have occurred which have
had, will have, or are reasonably likely (separately or collectively) to have
the effect of rendering such loan and lease loss reserve materially inadequate
or causing a material addition to the reserve to be made.
(R) Affiliates. In the case of Regency only, except as Previously
Disclosed, to the best of its knowledge, there is no person who, as of the date
of this Plan, may be deemed to be an "affiliate" of it as that term is used in
Rule 145 under the Securities Act of 1933, as amended (together with the rules
and regulations thereunder, the "Securities Act"; hereinafter the Securities Act
and the Exchange Act are referred to as the "Federal Securities Laws").
(S) Insurance Policies. In the case of Regency only, it has made
available to MSBC correct and complete copies of all of its or its Subsidiary's
insurance policies respecting the properties, operations, liabilities, officers,
directors and employees thereof, all of which are in full force and effect or
provide coverage to it or its Subsidiary and their respective officers,
directors and employees.
(T) MSBC Stock. In the case of MSBC only, the shares of MSBC Common
Stock to be issued in exchange for shares of Regency Common Stock and Directors
Options upon consummation of the Merger will have been duly authorized and, when
issued in accordance with the terms of this Plan, will be validly issued, fully
paid and nonassessable and subject to no preemptive rights.
(U) Takeover Laws. In the case of Regency only, it has taken all
necessary action to exempt the transactions contemplated by this Plan and the
Stock Option Agreement from, or the transactions contemplated by this Plan and
the Stock Option Agreement are otherwise exempt from, any applicable state
takeover laws in effect as of the date of this Plan, including, without
limitation, Articles 14 and 14.1 of the Virginia Stock Corporation Act.
<PAGE>
(V) Approval of This Transaction. In the case of Regency only, it has
taken all action so that the entering into of this Plan and the Stock Option
Agreement and the consummation of the transactions contemplated hereby and
thereby (including without limitation the Merger) or any other action or
combination of actions, or any other transactions, contemplated hereby or
thereby do not and will not (1) require a vote of stockholders (other than as
set forth in Paragraph (A) of Article VI); or (2) result in the grant of any
rights to any person under its Articles of Incorporation or Bylaws or, except as
Previously Disclosed, under any agreement; or (3) except as set forth in
Paragraphs (B) and (C) of Article VI, and Section 8 of the Stock Option
Agreement and except for consents required to be obtained from the holders of
Regency Options, require any consent or approval under any law, rule,
regulation, judgment, decree, order, governmental permit or license or, except
as Previously Disclosed, the consent or approval of any other party to any
agreement, indenture or instrument; or (4) restrict or impair in any way the
ability of MSBC to exercise the rights granted hereunder or under the Stock
Option Agreement.
(W) Environmental Laws. As to Regency only, (1) To its knowledge, it,
its Subsidiary, the Participation Facilities and the Loan Properties (each as
defined below) are, and have been, in compliance with all Environmental Laws (as
defined below), except for instances of noncompliance which are not reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect on
it;
(2) there is no proceeding pending or, to its knowledge,
threatened before any court, governmental agency or board or other forum in
which it, its Subsidiary, or any Participation Facility has been, or with
respect to threatened proceedings, reasonably would be expected to be, named as
a defendant or potentially responsible party (a) for alleged noncompliance
(including by any predecessor) with any Environmental Law or (b) relating to the
release or threatened release into the environment of any Hazardous Material (as
defined below), whether or not occurring at or on a site owned, leased or
operated by it, its Subsidiary or any Participation Facility, except for such
proceedings pending or threatened that are not reasonably likely, individually
or in the aggregate, to have a Material Adverse Effect on it;
(3) to its knowledge, there is no proceeding pending or
threatened before any court, governmental agency or board or other forum in
which any Loan Property, it or its Subsidiary is or with respect to threatened
proceedings, reasonably would be expected to be, named as a defendant or
potentially responsible party (a) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (b) relating to the release or
threatened release into the environment of any Hazardous Material, except for
such proceedings pending or threatened that are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on it;
(4) to its knowledge, there is no reasonable basis for
any proceeding of a type described in subparagraphs (2) or (3) above;
(5) to its knowledge, during the period of its or its
Subsidiary's (a) ownership or operation of any of their respective current
properties, (b) participation in the management of any Participation Facility,
or (c) holding of a security interest in a Loan Property, there have been no
releases of Hazardous Material in, on, under or affecting any such property,
Participation Facility or Loan Property, except for such releases that are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on it;
(6) to its knowledge, prior to the period of its or its
Subsidiary's: (a) ownership or operation of any of their respective current
properties, (b) participation in the management of any Participation Facility,
or (c) holding of a security interest in a Loan Property, there were no releases
of Hazardous Material in, on, under or affecting any such property,
Participation Facility or Loan Property, except for such releases that are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on it;
<PAGE>
(7) the following definitions apply for purposes of this
Paragraph (W): "to its knowledge" means the actual knowledge of any officer of
Regency, any information contained in the business records of Regency and, with
respect to any "Loan Property", any information contained in a Phase I or Phase
II environmental assessment furnished to Regency; "Loan Property" means any
property owned by it or its Subsidiary or in which it or its Subsidiary 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;
"Participation Facility" means any facility in which it or its Subsidiary
participates in the management and, where required by the context, includes the
owner or operator or such property, but only with respect to such property;
"Environmental Law" means (a) any federal, state and local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, legal doctrine, order, judgment, decree, injunction, requirement or
agreement with any governmental entity, relating to (i) the protection,
preservation or restoration of the environment (including, without limitation,
air, water vapor, surface water, groundwater, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, or (ii) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Material, in each case as
amended and as now in effect and includes, without limitation, the federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, 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 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal Act and
the Federal Toxic Substances Control Act, and the Federal Insecticide, Fungicide
and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970,
each as amended and as now in effect, and (b) any common law or equitable
doctrine (including, without limitation, injunctive relief and tort doctrines
such as negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Material; "Hazardous
Material" means any substance presently listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law, whether by type or quantity, and
includes, without limitation, any oil or other petroleum product, toxic waste,
pollutant, contaminant, hazardous substance, toxic substance, hazardous waste,
special waste or petroleum or any derivative or by-product thereof, radon,
radioactive material, asbestos, asbestos containing material, urea formaldehyde
foam insulation, lead and polychlorinated biphenyl.
(X) Taxes. Except as Previously Disclosed, to the best of its knowledge
(1) all reports and returns with respect to Taxes (as defined below) that are
required to be filed by or with respect to it or its Subsidiaries, including
without limitation consolidated federal income tax returns of it and its
Subsidiaries (collectively, the "Tax Returns"), have been duly filed, or
requests for extensions have been timely filed and have not expired, for periods
ended on or prior to September 30, 1997, and on or prior to the date of the most
recent fiscal year end immediately preceding the Merger Effective Date, except
to the extent all such failures to file, taken together, are not reasonably
likely to have a Material Adverse Effect on it, and such Tax Returns were true,
complete and accurate in all material respects, (2) all material taxes (which
shall mean federal, state, local or foreign income, gross receipts, windfall
profits, severance, property, production, sales, use, license, excise,
franchise, employment, withholding or similar taxes imposed on the income,
properties or operations of it and its Subsidiaries, together with any interest,
additions, or penalties with respect thereto and any interest in respect of such
additions or penalties, collectively the "Taxes") shown to be due on the Tax
Returns have been paid in full, (3) all Taxes due with respect to completed and
settled examinations have been paid in full, (4) no issues have been raised by
the relevant taxing authority in connection with the examination of any of the
Tax Returns which are reasonably likely to result in a determination that would
have a Material Adverse Effect on it, except as reserved against in the Regency
Reports, and (5) no waivers of statutes of limitations (excluding such statutes
that relate to years currently under examination by the Internal Revenue
Service) have been given by or requested with respect to any Taxes of it or its
Subsidiaries.
<PAGE>
(Y) Legal Compliance. Except as Previously Disclosed, it and its
Subsidiaries are in compliance with all applicable laws, ordinances, orders,
decrees, or resolutions of any governmental entity relating or applicable to the
conduct of their respective businesses, operations, employment practices or
relating to the ownership or use of their respective properties which either
alone or in the aggregate have or are reasonably likely to have a Material
Adverse Effect on it.
(Z) Certain Interests. Except in arm's length transactions pursuant to
normal commercial terms and conditions, no executive officer or director of it
or its Subsidiaries has any material interest in any property, real or personal,
tangible or intangible, used in or pertaining to the business of it and its
Subsidiaries, except for the usual rights of a shareholder in it; no such person
is indebted to it, except for normal business expense advances and for loans
made, in the case of MSBC, by an MSBC Bank Subsidiary, and in the case of
Regency, by RB, in each case in full compliance with the law, including but not
limited to, Regulation O of the FRB and in the ordinary course of business; and
it is not indebted to such person except for amounts due under normal and
disclosed compensation arrangements or reimbursement of ordinary business
expenses.
(AA) Licenses. It and its Subsidiaries have in effect all approvals,
authorizations, consents, licenses, clearances, and orders of and registrations
with all governmental and regulatory authorities the failure to have and comply
with which either alone or in the aggregate would have a Material Adverse Effect
on it.
(BB) Liabilities. Except to the extent reflected or reserved against in
the MSBC Reports, as to MSBC and its Subsidiaries, and in the Regency Reports,
as to Regency and RB, and except as Previously Disclosed, it and its
Subsidiaries have no material liability or obligation of any nature whether
accrued, absolute, contingent or otherwise and whether due or to become due.
(CC) Ten Percent Shareholders. Except as Previously Disclosed, it has
no shareholder who owns of record or beneficially 10% or more of the outstanding
shares of Regency Common Stock, or MSBC Common Stock, as the case may be, and
there is no person known to it who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise has or shares
(1) voting power which includes the power to vote or to direct the voting of,
such shares and/or (2) investment power, which includes the power to dispose or
to direct the disposition, of 10% or more of the outstanding shares of Regency
Common Stock or MSBC Common Stock, as the case may be (all of the foregoing,
"10% Ownership"). There is no person to its knowledge who, directly or
indirectly, has created or uses a trust, proxy, power of attorney, pooling
arrangement or any other contract, arrangement or device with the purpose or
effect of divesting such person of 10% Ownership or preventing the vesting of
10% Ownership. A person shall also be deemed to be a beneficial owner for
purposes of the foregoing if that person has the right to acquire beneficial
ownership of such shares within 60 days.
(DD) Option Shares. In the case of Regency only, the Option Shares (as
defined in the Stock Option Agreement) when issued upon exercise of the Option,
will be validly issued, fully paid and nonassessable and subject to no
preemptive rights.
(EE) Articles and Bylaws. In the case of Regency only, true, correct
and current copies of its and its Subsidiary's Articles of Incorporation (or
Association) and bylaws have been delivered to MSBC.
(FF) MSBC Shareholder Approval. In the case of MSBC, the approval of
the Merger by the holders of shares of MSBC Common Stock is not required.
<PAGE>
(GG) Pooling of Interests. It has taken no action that would cause the
Merger to fail to qualify for pooling of interests accounting treatment.
V. COVENANTS
Regency hereby covenants to MSBC, and MSBC hereby covenants to Regency,
that:
(A) Best Efforts to Complete Merger. Subject to the terms and
conditions of this Plan, it shall use its best efforts in good faith to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or desirable, or advisable under applicable laws, as promptly
as practicable so as to permit consummation of the Merger within the time
contemplated by this Agreement and to otherwise enable consummation of the
transactions contemplated hereby and by the Stock Option Agreement and shall
cooperate fully with the other parties hereto to that end (it being understood
that any amendments to the Registration Statement (as hereinafter defined) or a
resolicitation of proxies as a consequence of an acquisition agreement by MSBC
shall not violate this covenant), including (1) using its best efforts to lift
or rescind any order adversely affecting its ability to consummate the
transactions contemplated herein and in the Stock Option Agreement and to cause
to be satisfied the conditions referred to in Article VI and in the Stock Option
Agreement, and each of Regency and MSBC shall use, and shall cause their
respective Subsidiaries to use, their respective best efforts to obtain all
consents (governmental or other) necessary or desirable for the consummation of
the transactions contemplated by this Plan and the Stock Option Agreement; and
(2) in the case of Regency, cooperating with MSBC in supplying such information
as MSBC may reasonably request in connection with any public offerings of
securities by MSBC prior to the Merger Effective Date. Notwithstanding the
foregoing, in the event that one party hereto notifies the other party pursuant
to Paragraph (B) of Article VIII that a breach has occurred in this Plan, either
party shall have the option of suspending its obligations under this Paragraph
or Paragraph (O) of this Article until such time as the breach has been cured.
(B) Regency Proxy Statement. In the case of Regency only, (1) it shall
promptly prepare and provide to MSBC prior to its filing and mailing a proxy
statement (the "Proxy Statement") to be mailed to the holders of Regency Common
Stock in connection with the Merger and to be filed by MSBC in a registration
statement (the "Registration Statement") with the SEC, which shall conform to
all applicable legal requirements; (2) without limiting the foregoing, at the
time such Proxy Statement or any amendment or supplement thereto is mailed to
holders of Regency Common Stock and at all times thereafter up to and including
the meeting of Regency shareholders referred to in Subparagraph (3) of this
Paragraph (B), the Proxy Statement and such amendments and supplements will
comply in all material respects with the provisions (to the extent applicable)
of the Exchange Act and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading; provided, however, in no
event shall any party hereto be liable for any untrue statement of a material
fact or omission to state a material fact in the Proxy Statement made in
reliance upon, and in conformity with, written information concerning another
party furnished by such other party specifically for use in the Proxy Statement;
(3) it shall hold a special meeting (the "Meeting") of the holders of Regency
Common Stock as soon as practicable after the Registration Statement has become
effective for purposes of voting upon this Plan, the Plan of Merger and the
Merger contemplated hereby and thereby, and (4) it shall use its best efforts to
solicit and obtain votes of the holders of Regency Common Stock in favor of the
above proposals and shall once, at MSBC's request, recess or adjourn the Meeting
for a period not exceeding ten days (unless Regency consents to a longer period)
if such recess or adjournment is deemed by MSBC to be necessary or desirable.
(C) Registration Statement Contents. When the Registration Statement or
any post-effective amendment or supplement thereto shall become effective, and
at all times subsequent to such effectiveness, up to and including the date of
the Meeting, such Registration Statement and all amendments or supplements
thereto, with respect to all information set forth therein furnished or to be
furnished by Regency relating to Regency and its Subsidiary and by MSBC relating
to MSBC and the MSBC Subsidiaries (1) will comply in all material respects with
the provisions of the Securities Act and any other applicable statutory or
regulatory requirements, and (2) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading; provided,
however, in no event shall any party hereto be liable for any untrue statement
of a material fact or omission to state a material fact in the Registration
Statement made in reliance upon, and in conformity with, written information
concerning another party furnished by such other party specifically for use in
the Registration Statement. In connection with the preparation of the
Registration Statement and related Prospectus/Proxy Statement, each will
cooperate with the other and will furnish the information concerning itself
required by law to be included therein.
<PAGE>
(D) Effectiveness of Registration Statement. MSBC will advise Regency,
promptly after MSBC receives notice thereof, of the time when the Registration
Statement has become effective or any supplement or amendment has been filed and
becomes effective or of the issuance of any stop order or the suspension of the
qualification of the MSBC Common Stock for offering or sale in any jurisdiction,
of the initiation or threat of any proceeding for any such purpose, or of any
request by the SEC for the amendment or supplement of the Registration Statement
or for additional information.
(E) Public Announcements. It agrees that, unless approved by the other
party hereto in advance, it will not issue any press release or written
statement for general circulation relating to the transactions contemplated
hereby, except as otherwise required by law or applicable NASD or stock exchange
rule.
(F) Review of Information.
(1) Upon reasonable notice, it shall afford the other party
hereto, and its officers, employees, counsel, accountants and other authorized
representatives, access, during normal business hours throughout the period
prior to the Merger Effective Date, to all of its properties, books, contracts,
commitments, properties and records to the extent permitted by law and to its
officers, employees, counsel and accountants, authorizing each of them to
discuss fully with the other party's representatives all matters related to this
Plan, the transactions contemplated hereby and the condition, operations,
business, assets or properties of such party. During such period, it shall also
furnish promptly to the other party hereto (a) a copy of each material report,
schedule and other document filed by it pursuant to the requirements of the
Federal Securities Laws or any state laws, rules and regulations regulating the
issuance, sale or exchange of securities or the markets in which any of the
foregoing occurs ("Blue Sky Law(s)" which together with the Federal Securities
Laws are hereinafter referred to as the "Securities Laws") or banking laws, and
(b) all other information concerning its business, properties and personnel as
the other parties hereto may reasonably request. No investigation pursuant to
this Paragraph (F) by any party shall affect or be deemed to modify or waive any
representation or warranty made by any other party hereto or the conditions to
the obligation of the first party to consummate the transactions contemplated by
the Plan.
(2) Each party hereto agrees not to use any information
obtained pursuant to this Paragraph (F) for any purpose unrelated to its
evaluation of the transactions contemplated by this Plan and the Stock Option
Agreement. If the Merger is not consummated, each party will hold all
information and documents obtained pursuant to this Paragraph in confidence (as
provided in Paragraph (F) of Article VIII) except to the extent that disclosure
to a third party is for the purpose of assisting in the assessment of such
information or documents for purposes of evaluating this Plan and its
consummation (in which case reasonable steps shall be taken to preserve the
confidentiality thereof) and in any event unless and until such time as such
information or documents become publicly available other than by reason of any
action or failure to act by such party or as it is advised by counsel that any
such information or document is required by law or applicable NASD or stock
exchange rule to be disclosed. In the event of the termination of this Plan,
each party will, upon request by the other party, deliver to the other all
documents so obtained by it or destroy such documents.
<PAGE>
(G) No Solicitation. In the case of Regency only, (1) it shall not, and
shall direct the officers, directors, employees and other persons affiliated
with it or any investment banker, attorney, accountant or other representative
of it, not to, directly or indirectly, solicit or encourage inquiries or
proposals with respect to, or (except as required by the fiduciary duties of its
Board of Directors as advised in writing by its counsel) furnish any nonpublic
information relating to or participate in any negotiations or discussion
concerning, any acquisition or purchase of all or a substantial portion of the
assets of, or a substantial equity interest in, it or any merger or other
business combination with it other than as contemplated by this Plan,; (2) shall
notify MSBC immediately if any such inquiries or proposals are received by, or
any such negotiations or discussions are sought to be initiated with, it; and
(3) shall instruct its officers, directors, agents, advisors and affiliates to
refrain from doing any of the foregoing.
(H) Filing of Registration Statement. In the case of MSBC only, it
shall, as promptly as practicable following the date of this Plan, prepare and
file the Registration Statement with the SEC and MSBC shall use its best efforts
to cause the Registration Statement to be declared effective as soon as
practicable after the filing thereof.
(I) Blue Sky. In the case of MSBC only, it shall use its best efforts
to obtain, prior to the effective date of the Registration Statement, all
necessary Blue Sky Law permits and approvals, provided that MSBC shall not be
required by virtue thereof to submit to general jurisdiction in any state.
(J) Affiliates. In the case of Regency only, it will cause each person
who may be deemed to be an "affiliate" of it for purposes of Rule 145 under the
Securities Act to execute and deliver to in the form attached hereto as Exhibit
B restricting the disposition of such affiliate's shares of Regency Common Stock
and the shares of MSBC Common Stock to be received by such person in exchange
for such person's shares of Regency Common Stock.
(K) Regency's Policies and Practices. In the case of Regency only:
Regency shall and shall cause its Subsidiary to use its best efforts to modify
and change its credit, investment, litigation, and real estate valuation
policies and practices (including loan classifications and levels of reserves)
prior to the Merger Closing so as to be consistent on a mutually satisfactory
basis with those of MSBC and generally accepted accounting principles. Regency
shall not be required to modify or change any policies or practices, however,
until (x) satisfaction of the conditions set forth in Paragraphs (A), (B) and
(C) of Article VI, (y) such time as Regency and MSBC shall reasonably agree that
the Merger Closing will occur prior to public disclosure of such modifications
or changes in regular periodic earnings releases or periodic reports filed with
the SEC or other applicable governmental authority available to the public, and
(z) such time as MSBC acknowledges in writing that all conditions to MSBC's
obligation to consummate the Merger (and MSBC's rights to terminate this Plan)
have been waived or satisfied; provided, however, that in all circumstances
Regency shall and shall cause its Subsidiary to make such modifications and
changes not later than immediately prior to the Merger Effective Date. Regency's
representations, warranties and covenants and contained in the Plan shall not be
deemed to be untrue or breached in any respect for any purpose as a consequence
of any modifications or changes undertaken solely on account of this Paragraph
(K).
(L) State Takeover Laws. In the case of Regency only, it shall not take
any action that would cause the transactions contemplated by this Plan and/or
the Stock Option Agreement to be subject to any applicable state takeover
statute in effect as of the date of this Plan and shall take all necessary steps
to exempt (or ensure the continued exemption of) the transactions contemplated
by this Plan and the Stock Option Agreement from, or if necessary challenge the
validity or applicability of, any applicable state takeover law, as now or
hereafter in effect, including, without limitation, Articles 14 and 14.1 of the
Virginia Stock Corporation Act.
<PAGE>
(M) Regency Special Shareholder Rights. In the case of Regency only:
(1) it shall take all necessary steps to ensure that the entering into of this
Plan and the Stock Option Agreement and the consummation of the transactions
contemplated hereby and thereby (including without limitation the Merger and the
exercise of the Option) and any other action or combination of actions, or any
other transactions contemplated hereby or thereby do not and will not result in
the grant of any rights to any person under the Articles of Incorporation of
Bylaws of Regency or under any agreement to which Regency is a party (other than
as Previously Disclosed); or (2) it shall not restrict or impair in any way the
ability of MSBC to exercise the rights granted hereunder or under the Stock
Option Agreement.
(N) Shareholder Approval. In the case of Regency, only, it shall not
adopt any plan or other arrangement granting any rights to any shareholders that
would adversely affect in any way MSBC's rights under this Plan or the Stock
Option Agreement and, in the case of MSBC only, it shall not amend the terms of
its Participating Cumulative Preferred Stock, Series A, of which 100,000 shares
are authorized but unissued as of September 30, 1997, in a manner that affects
holders of Regency Common Stock in a disproportionate manner.
(O) Best Efforts for Merger. Subject to the terms of this Agreement, it
undertakes and agrees to use its best efforts to cause the Merger to be
effected.
(P) Notice of Adverse Events. It shall promptly (but in any event
within ten days after discovering the same) notify the other party hereto in
writing of any event(s), occurrence(s), condition(s) or circumstance(s) which
alone or in the aggregate results or is reasonably likely to result in the
inaccuracy of any warranty or representation or the material breach of any
covenant or agreement in this Plan of the party discovering the same.
(Q) Government Applications. In the case of MSBC only, it shall
promptly prepare and submit an application to the FRB and the Virginia Bank
Regulator for approval of the Merger and promptly make all appropriate filings
to secure all other approvals, consents and rulings which are necessary for the
consummation of the Merger by MSBC. Both MSBC and Regency will use their best
efforts to obtain and will cooperate with each other in making applications for
such approvals or other actions advisable in the reasonable judgment of MSBC,
with the consent of Regency, such consent not to be unreasonably withheld, to
consummate the Merger including, but not limited to, promptly furnishing
information relating to it and its Subsidiaries required to be set forth
therein; provided, however, that any approval shall not require a change which
materially adversely impacts the economic or business benefits to either MSBC or
Regency of the transactions contemplated by this Plan so as to render
inadvisable the consummation of the Merger in the reasonable opinion of the
Board of Directors of either MSBC or Regency.
(R) Environmental Tests. Regency and its Subsidiary will allow MSBC to
conduct, through designated representatives, environmental and engineering tests
provided that no test or information discovered pursuant thereto shall be deemed
to affect or modify or waive any representation or warranty made by Regency.
(S) Listing of MSBC Common Stock. MSBC will use its best efforts, prior
to the Merger Effective Date, to cause the shares of the MSBC Common Stock to be
issued to Regency shareholders in connection with the consummation of the Plan,
to be listed on the NASDAQ/NMS, upon official notice of issuance.
(T) Execution of Plan by Holding Company. Upon the incorporation of the
Holding Company and its due organization subsequent to the date of this
Agreement and prior to Merger Closing, MSBC shall cause the Holding Company by a
duly authorized officer to execute this Plan.
(U) Directors Options. Not less than thirty days prior to the Merger
Closing each holder of a Directors Option shall have entered into a written
agreement with Regency for the express benefit of and reasonably satisfactory to
MSBC agreeing to accept as of the Merger Closing in full satisfaction of the
optionee's rights under such Directors Option that number of shares of MSBC
Common Stock equal to the quotient obtained by dividing (y) the difference
between $13.00 minus the respective Strike Price for such Option by (z) the
Average MSBC Share Price ("Option Ratio"). If the Option Ratio computed in
accordance with the immediately preceding sentence is less than the ratio
("Bottom Ratio") obtained by dividing (aa) the difference between $13.00 minus
the respective Strike Price, by (bb) $32.00, the Option Ratio shall be the
Bottom Ratio; if the Option Ratio computed in accordance with the immediately
preceding sentence is greater than the ratio ("Top Ratio") obtained by dividing
(i) the difference between $13.00 minus the respective Strike Price, (ii) by
$26.00, the Option Ratio shall be the Top Ratio. As of the Merger Closing, the
optionees with respect to all outstanding Directors Options shall by agreement
be entitled to receive from MSBC only the shares of MSBC Common Stock as
provided in the agreements executed in accordance with this Paragraph and shall
have no further rights under the terms of their Directors Options.
<PAGE>
(V) Pooling Letter. MSBC and Regency shall have received a letter,
dated as of the Merger Effective Date, in a form and substance reasonably
acceptable to MSBC and Regency, from Coopers & Lybrand to the effect that the
acquisition of Regency Common Stock by MSBC and the Merger will qualify for
pooling of interests accounting treatment.
(W) Transactions in MSBC Common Stock. Other than transactions in MSBC
Common Stock in connection with employee benefit plans of MSBC or in connection
with the operation in the ordinary course of MSBC's dividend reinvestment plan,
neither MSBC or any MSBC Subsidiary or Regency or any Regency subsidiary will
purchase, sell or otherwise acquire or dispose of any shares of MSBC Common
Stock during the period of calculation of the Average MSBC Share Price.
VI. CONDITIONS TO CONSUMMATION OF THE MERGER.
Consummation of the Merger is conditioned upon:
(A) Shareholder Approval. Approval of the Merger and the other
transactions contemplated hereby (including any actions contemplated by
Paragraph (L) of Article VIII) by the requisite vote of the stockholders of
Regency.
(B) Specific Regulatory Approval. Procurement of the approval by the
FRB and the Virginia Bank Regulator of the Merger and procurement of all other
regulatory consents and approvals applicable to financial institutions and their
holding companies and satisfaction of all other regulatory requirements
applicable to financial institutions and their holding companies necessary for
consummation of the Merger, and the expiration of the statutory waiting periods
relating thereto.
(C) General Governmental Approval. Procurement of all other
governmental consents and approvals (including but not limited to approval of
Articles of Merger by the Virginia Corporation Authority) and satisfaction of
all other requirements prescribed by law which are necessary to the consummation
of the Merger; provided, however, that no approval or consent in Paragraph (B)
or (C) of this Article VI shall have imposed any condition or requirement which
would materially adversely impact the economic or business benefits to either
MSBC or Regency of the transactions contemplated by this Plan so as to render
inadvisable the consummation of the Merger.
(D) No Countervening Orders. There shall not be in effect any order,
decree or injunction of any court or agency of competent jurisdiction that
enjoins or prohibits consummation of the Merger.
(E) Accountants' Reports as to MSBC. Regency and its directors shall
have received from Coopers & Lybrand letters, dated the date of or shortly prior
to (i) the mailing of the Proxy Statement, and (ii)
<PAGE>
the Merger Effective Date, in form and substance satisfactory to Regency with
respect to MSBC's consolidated financial position and results of operations,
which letters shall be based upon customary specified procedures undertaken by
such firm.
(F) Accountants' Reports as to Regency. MSBC shall have received from
KPMG Peat Marwick LLP, dated the date of or shortly prior to (1) the mailing of
the Proxy Statement, (2) the public offerings of any securities by MSBC prior to
the Merger Effective Date, and (3) the Merger Effective Date, in form and
substance satisfactory to MSBC with respect to Regency's financial position and
results of operations, which letters shall be based upon customary specified
procedures undertaken by such firm.
(G) MSBC Legal Opinion. Regency shall have received an opinion, dated
the Merger Effective Date, of Flippin, Densmore, Morse, Rutherford & Jessee,
P.C., counsel for MSBC and the Holding Company, in form reasonably satisfactory
to Regency, which shall cover the matters contained in Exhibit C hereto.
(H) Regency Legal Opinion. MSBC and its directors and officers who sign
the Registration Statement shall have received an opinion, dated the Merger
Effective Date of LeClair Ryan, a professional corporation, in form reasonably
satisfactory to MSBC, which shall cover the matters contained in Exhibit D
hereto.
(I) MSBC Representations and Warranties. (1) Each of the
representations and warranties contained herein of MSBC shall be true and
correct as of the date of this Plan and upon the Merger Effective Date with the
same effect as though all such representations and warranties had been made on
the Merger Effective Date, except for any such representations and warranties
made as of a specified date, which shall be true and correct as of such date;
and (2) each and all of the agreements and covenants of MSBC to be performed and
complied with pursuant to this Plan and the other agreements contemplated hereby
prior to the Merger Effective Date shall have been duly performed and complied
with in all material respects, and Regency shall have received a certificate or
certificates signed by the Chief Executive Officer and Chief Financial Officer
of MSBC dated the Merger Effective Date, to such effect.
(J) Regency Representations and Warranties. (1) Each of the
representations and warranties contained herein of Regency shall be true and
correct as of the date of this Plan and upon the Merger Effective Date with the
same effect as though all such representations and warranties had been made on
the Merger Effective Date, except for any such representations and warranties
made as of a specified date, which shall be true and correct as of such date;
and (2) each and all of the agreements and covenants of Regency to be performed
and complied with pursuant to this Plan and the other agreements contemplated
hereby prior to the Merger Effective Date shall have been duly performed and
complied with in all material respects, and MSBC shall have received a
certificate signed by the Chief Executive Officer and the Chief Financial
Officer of Regency dated the Merger Effective Date, to such effect.
(K) Registration Statement Effectiveness. The Registration Statement
shall have become effective and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC or any other
regulatory authority.
(L) Blue Sky Approvals. MSBC shall have received all Blue Sky Law
approvals, permits and other authorizations necessary to consummate the Merger.
(M) Tax Free Reorganization Opinion. MSBC and Regency shall have
received an opinion from Flippin, Densmore, Morse, Rutherford & Jessee, PC to
the effect that (1) the acquisition of Regency Common Stock by MSBC and the
Merger constitutes a reorganization under Section 368 of the Code, and (2) no
gain or loss will be recognized by stockholders of Regency who receive shares of
MSBC Common Stock in exchange for
<PAGE>
their shares of Regency Common Stock except that gain or loss may be recognized
as to cash received in lieu of fractional share interests and, in rendering
their opinion, may require and rely upon representations contained in
certificates of officers of MSBC, Regency and others.
(N) Listing of MSBC Common Stock. The shares of MSBC Common Stock
issuable pursuant to the Merger shall have been approved for listing on the
NASDNAQ/NMS, subject to official notice of issuance.
(O) Affiliate Letters. MSBC shall have received from each affiliate of
Regency the affiliates letter referred to in Paragraph (J) of Article V.
(P) Regency Fairness Opinion. At the time the Proxy Statement is mailed
to the holders of shares of Regency Common Stock, the Board of Directors of
Regency shall have received an opinion from Wheat, First Securities, Inc. that
the Exchange Ratio is fair to the shareholders of Regency from a financial point
of view.
(Q) Employee Options. As of a date which is no later than 30 days
before the Merger Closing, each and every holder of an Employee Option to
purchase shares of Regency Common Stock, to the extent legally necessary to
allow such conversion, shall have entered into a written agreement with Regency
for the express benefit of and reasonably acceptable to MSBC obligating such
holder to accept the conversion of such Employee Options with respect to MSBC
Common Stock as contemplated by Paragraph (M) of Article VIII.
(R) Directors Options. Each optionee with respect to each Regency
Directors Option shall by written agreement with Regency for the express benefit
of MSBC be entitled to receive from MSBC only the shares of MSBC Common Stock
provided in Paragraph U of Article V provided, however, that a failure to
satisfy any of the conditions set forth in the proviso following Paragraph (C)
or in Paragraph (F), (H), (J), (L), (M), (O), (Q) or (R) of this Article VI
shall only constitute conditions if asserted by MSBC and a failure to satisfy
any of the conditions set forth in the proviso following Paragraph (C),
Paragraph (E), (G), (I), (M), (N) or (P) of this Article VI shall only
constitute conditions if asserted by Regency.
VII. TERMINATION.
This Plan may be terminated prior to the Merger Effective Date, either
before or after receipt of required stockholder approval:
(A) Mutual Consent. By the mutual consent of MSBC and Regency , if the
Board of Directors of each so determines by vote of a majority of the members of
its entire Board.
(B) On Breach. By MSBC or Regency, if its Board of Directors so
determines by vote of a majority of the members of its entire Board, in the
event (1) any representation or warranty contained herein made by the other
party is breached and the breach cannot be or has not been cured within thirty
(30) days after the giving of written notice to the breaching party of such
breach, or (2) a material breach by the other party of any of the covenants or
agreements contained herein, which breach cannot be or has not been cured within
thirty (30) days after the giving of written notice to the breaching party of
such breach; provided, however, that a breach can only be asserted as a basis
for termination pursuant to this paragraph (B) by a party who is not itself at
such time in breach hereof.
(C) Failure to Consummate on Time. By MSBC or Regency, if its Board of
Directors so determines by vote of a majority of the members of its entire
Board, in the event that the Merger is not consummated by June 30, 1998.
<PAGE>
(D) Failure to Obtain Certain Approvals. By MSBC or Regency, if its
Board of Directors so determines by a vote of a majority of the members of its
entire Board, in the event that (1) any common stockholder approval contemplated
by Paragraph (A) of Article VI is not obtained at a meeting or meetings called
for the purpose of obtaining such approval; (2) if any regulatory approval
contemplated by Paragraph (B) of Article VI to the extent necessary to
consummate the Merger legally, is finally and unconditionally denied.
(E) Failure to Execute Stock Option Agreement. By MSBC if, prior to
5:00 p.m. on October 28, 1997, Regency does not execute and deliver to MSBC the
Stock Option Agreement.
(F) Possible Adjustment in Exchange Ratio and Option Ratio. By Regency
by vote of a majority of the members of its entire Board during the ten (10) day
period commencing on the Determination Date if both of the following conditions
are satisfied:
(1) if the Average MSBC Determination Price
for MSBC Common Stock on the Determination Date is
less than $26.00; and
(2) if the First Percentage exceeds the
Second Percentage by at least ten (10) percentage
points;
subject, however, to the immediately following four sentences. If Regency elects
to exercise its termination right pursuant to Paragraph (F) of Article VII, it
shall give prompt written notice to MSBC (provided that such notice of election
to terminate may be withdrawn at any time within the aforementioned ten (10) day
period). During the seven (7) day period commencing with its receipt of such
notice, MSBC shall have the option of increasing the consideration to be
received by the holders of Regency Common Stock (including shares to be acquired
pursuant to Employee Options)and by optionees with respect to Directors Options
by adjusting the Exchange Ratio and Option Ratio, respectively, to equal a
quotient, the numerator of which is $26.00 multiplied by the Exchange Ratio (as
then in effect) with respect to Regency Common Stock and the Option Ratio (as
then in effect) with respect to the Directors Options and in either case the
denominator of which is the Average MSBC Determination Price. If MSBC makes the
election contemplated by the immediately preceding sentence, it shall give
prompt written notice to Regency of such election and the revised Exchange Ratio
and Option Ratio, whereupon no termination shall have accrued pursuant to this
Paragraph (F) and the Plan shall remain in effect in accordance with its terms
(except as the Exchange Ratio or Option Ratio shall have been so modified) and
any references in this Plan to "Exchange Ratio" or "Option Ratio" shall
thereafter be deemed to refer to the Exchange Ratio or Option Ratio as adjusted
pursuant to this Paragraph (F).
For purposes of this Paragraph (F) the following terms shall have the
meanings indicated:
"Average MSBC Determination Price" means the average of the bid/asked
price for MSBC Common Stock as reported on the NASDAQ/NMS for the 20 consecutive
full trading days preceding the Determination Date.
"Determination Date" means the tenth calendar day prior to the Merger
Closing.
"First Percentage" means the percentage resulting from: (a) taking the
remainder ("First Remainder") obtained by subtracting the Average MSBC
Determination Price from $29.75 (the average of the bid and asked prices of MSBC
Common Stock as reported on the NASDAQ/NMS on October 15, 1997; and (b) dividing
the First Remainder by the Average MSBC Determination Price.
"Second Percentage" means the percentage resulting from: (a) taking the
remainder ("Second Remainder") obtained by subtracting the SNL Southeast Bank
Index reported most recently prior to the last
<PAGE>
trading day in the measuring period for calculating the Average MSBC
Determination Price ("Recent SNL Bank Index") from the SNL Southeast Bank Index
at October 15, 1997; and (b) dividing the Second Remainder by the Recent SNL
Bank Index.
VIII. OTHER MATTERS.
(A) Survival. If the Merger Effective Date occurs, the agreements of
the parties in Paragraph (F) of Article II, and Paragraphs (A), (D), (F), (I),
(J) and (K) of this Article VIII shall survive the Merger Effective Date; all
other representations, warranties, agreements and covenants contained in this
Plan shall be deemed to be conditions of the Merger and shall not survive the
Merger Effective Date. If this Plan is terminated prior to the Merger Effective
Date, the agreements and representations of the parties in Paragraph (K) of
Article IV, Paragraphs (F)(2) of Article V and Paragraphs (A), (D), (E), (F) and
(I) of this Article VIII shall survive such termination. In the event of the
termination and abandonment of this Plan pursuant to the provisions of Article
VII, this Plan shall become void and have no effect, except (1) as provided in
the immediately preceding sentence; and (2) no party shall be relieved or
released from any liability arising out of a breach of any provisions of this
Plan except as provided in Paragraph (E) of this Article.
(B) Waiver, Amendment. Prior to the Merger Effective Date, any
provision of this Plan may be (1) waived by the party benefited by the
provision, or (2) amended or modified at any time (including the structure of
the transaction), by an agreement in writing among the parties hereto approved
by or approved in the manner authorized by their respective Boards of Directors
and executed in the same manner as this Plan, except that, after the vote by the
stockholders of Regency, the consideration to be received by the stockholders of
Regency for each share of Regency Common Stock shall not be decreased (except in
accordance with Section 4 of the Plan of Merger).
(C) Counterparts. This Plan may be executed in one or more
counterparts, each of which shall be deemed to constitute an original. This Plan
shall become effective when one counterpart has been signed by each party
hereto.
(D) Governing Law. This Plan shall be governed by, and interpreted in
accordance with, the laws of the State of Virginia.
(E) Fees and Expenses. In the event that the Plan is terminated in
accordance with the provisions of Article VII otherwise than on account of a
breach by Regency, each party shall bear its own costs, expenses and fees in
connection with and arising out of the Merger and the other transactions
contemplated by this Plan (including, without limitation, amounts paid or
payable to investment bankers, to counsel and accountants, and to governmental
and regulatory agencies). In the event that the Plan is terminated in accordance
with the provisions of Article VII on account of a breach by one party, the
total documented out-of-pocket costs, expenses, and fees (excluding only
investment banking fees) incurred by the other party (regardless of whether
incurred before or after the execution of this Plan), so long as such other
party shall not also be in breach, in connection with and arising out of the
Merger and other transactions contemplated by this Plan shall be paid by the
breaching party and shall promptly make such reimbursement to the breaching
party as is necessary to effectuate the same.
(F) Confidentiality. Except as otherwise provided in Paragraph (F)(2)
of Article V, each of the parties hereto and their respective agents, attorneys
and accountants will maintain the confidentiality of all information provided in
connection herewith which has not been publicly disclosed.
(G) Notices. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed to have been duly given when
delivered by hand, telegram or facsimile (confirmed in writing) to such party at
its address set forth below or such other address as such party may specify by
notice to the parties hereto.
<PAGE>
If to MSBC or Holding Company, to:
MainStreet BankGroup Incorporated
200 E. Church Street
Martinsville, VA 24112-5409
Attn: Michael Brenan,
Chief Executive Officer
Copy to:
Douglas W. Densmore, Esq.
Flippin, Densmore, Morse, Rutherford & Jessee
300 First Campbell Square
Drawer 1200
Roanoke, Virginia 24006
If to Regency, to:
Regency Financial Shares, Inc.
1011 East Main Street
Richmond, Virginia 23219
Attn: Merlin A. Henkel
President
Copy to:
George P. Whitley
LeClair Ryan
707 East Main Street, 11th Floor
Richmond, Virginia 23219
(H) Definitions. Any term defined anywhere in this Plan shall have the
meaning ascribed to it for all purposes of this Plan (unless expressly noted to
the contrary). In addition:
(1) the term "knowledge" when used with respect to a party
shall mean the actual knowledge or constructive knowledge assuming due inquiry
after notice, of any Vice President or equivalent or superior officer;
(2) the term "Material Adverse Effect," when applied to a
party, shall mean an event, occurrence, condition or circumstance (including
without limitation (a) the making of any provisions for possible loan and lease
losses, classification of assets, loan or credit problems, investment losses or
write-downs, legal proceedings, violations of law, assertions of claims,
write-downs of other real estate and taxes) which, in any case, (i) has or is
reasonably likely at any future time to have a material adverse effect on the
financial condition, assets, results of operations, liquidity, or business of
the party and its Subsidiaries, taken as a whole, or (ii) has impaired or is
reasonably likely to impair materially the party's ability to perform its
obligations under this Plan or the consummation of the Merger and the other
transactions contemplated by this Plan; and provided that material adverse
effect and material impairment shall not be deemed to include the impact of (x)
changes in banking and similar laws of general applicability or interpretations
thereof by courts or governmental authorities,
<PAGE>
(y) changes in generally accepted accounting principles or regulatory accounting
requirements applicable to banks and bank holding companies generally and (z)
the effects of Merger on the operating performance of the parties to this Plan;
(3) the term "Previously Disclosed" by a party shall mean
information set forth in a written disclosure that is delivered by that party to
the other party contemporaneously with the execution of this Plan and
specifically designated as information "Previously Disclosed" pursuant to this
Plan; provided, further, the mere inclusion of an item in a disclosure letter
shall not be deemed an admission by a party that such item represents a material
exception of fact, event or circumstances or that such item is reasonably likely
to result in a Material Adverse Effect.
(I) Entire Understanding. This Plan represents the entire understanding
of the parties hereto with reference to the transactions contemplated hereby and
supersede any and all other oral or written agreements heretofore made. Nothing
in this Plan expressed or implied, is intended to confer upon any person, other
than the parties hereto or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Plan, other than as
provided in Paragraph (K) below.
(J) Benefit Plans. Upon consummation of the Merger, as soon as
administratively practicable employees of Regency shall be entitled to
participate in MSBC's pension, severance, benefit and similar plans on the same
terms and conditions as employees of MSBC and its Subsidiaries. With respect to
the MSBC 401(k) plan only, employees of Regency shall be given full credit for
prior service with Regency with respect to eligibility for and vesting in such
plan. MSBC shall cause the Continuing Corporation to honor in accordance with
their terms as in effect on the date hereof, or as amended after the date hereof
with the prior written consent of MSBC, all employment, severance, consulting
and other compensation contracts and agreements Previously Disclosed to MSBC and
executed in writing by both Regency or RB on the one hand and any individual
current or former director, officer or employee thereof on the other hand,
copies of which have previously been delivered by Regency to MSBC.
(K) Indemnification. (1) In the case of MSBC only, it agrees that for
the period of the relevant statute of limitations but in no event less than
six-years following the Merger Effective Date, it shall cause the Continuing
Corporation and any successor thereto to indemnify and hold harmless any person
who has rights to indemnification from Regency to the same extent and on the
same conditions as such person is entitled to indemnification pursuant to
Regency's Articles of Incorporation as in effect on the date of this Plan, to
the extent legally permitted to do so, with respect to matters occurring on or
prior to the Merger Effective Date (regardless of whether a claim is asserted in
connection therewith on or prior to the Merger Effective Date or thereafter).
Without limiting the foregoing, in any case in which approval by the Continuing
Corporation may be required to effectuate any such indemnification, MSBC shall
cause the Continuing Corporation to direct, at the election of the party to be
indemnified, that the determination of any such approval shall be made by
independent counsel mutually agreed upon between MSBC and the indemnified party.
MSBC shall use its reasonable best efforts to provide coverage to the officers
and directors of the Continuing Corporation under MSBC policy or policies of
director and officers liability insurance on the same or substantially similar
terms then in effect for the directors and officers of MSBC and the Continuing
Corporation shall reimburse MSBC for the additional premium incurred by it in
connection with providing such coverage; (2) If MSBC or any of its successors or
assigns shall consolidate with or merge into any other entity and shall not be
the continuing or surviving entity of such consolidation or merger or shall
transfer all or substantially all of its assets to any entity, then and in each
case, proper provisions shall be made so that the successors and assigns of MSBC
shall assume the obligations set forth in this Paragraph (K)(1). MSBC shall pay
all reasonable costs, including attorneys' fees, that may be incurred by any
Indemnified Party in enforcing the indemnity and other obligations provided for
in this Paragraph (K)(1).
<PAGE>
(L) Acquisition of MSBC. In the event that MSBC is acquired through a
merger, share exchange or other business combination in which it is not the
surviving entity, MSBC agrees that it shall make provision by which the acquirer
shall assume this Agreement and the holders of Regency Common Shares shall be
entitled to receive the same consideration for such shares as the holders of
MainStreet Common Stock received, giving effect to the Exchange Ratio and
appropriate provision shall be made for the holders of Regency Options.
(M) Employee Options and Stock Appreciation Rights. From and after the
Merger Effective Date, all Employee Options to purchase shares of Regency Common
Stock which are then outstanding and unexercised, shall be converted into and
become options with respect to MSBC Common Stock, and MSBC shall assume each
such option and right, in accordance with the terms of the plan and agreement by
which it is evidenced. From and after the Merger Effective Date, (i) each such
Employee Option assumed by MSBC may be exercised solely for shares of MSBC
Common Stock, (ii) the number of shares of MSBC Common Stock subject to each
Employee Option shall be equal to the number of shares of Regency Common Stock
subject to such Employee Option immediately prior to the Merger Effective Date
multiplied by the Exchange Ratio, and (iii) the per share exercise price under
each such Employee Option shall be adjusted by dividing the per share exercise
price of each such Employee Option by the Exchange Ratio, and rounding to the
nearest cent. The maximum number of shares of Regency Common Stock which are
issuable upon exercise of such Employee Options as of the date hereof are
Previously Disclosed. No stock appreciation rights are outstanding and
unexercised as of the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
MainStreet BankGroup Incorporated
By:_______________________________
Michael Brenan
Chief Executive Officer
Regency Financial Shares, Inc.
By:_______________________________
Merlin A. Henkel
President/Chief Executive Officer
JAA Corp.
By:_______________________________
____________________________
President
<PAGE>
ANNEX B
January ____, 1998
Board of Directors
Regency Financial Shares, Inc.
1101 East Main Street
Richmond, Virginia 23285
Members of the Board:
Regency Financial Shares, Inc. ("Regency") and MainStreet BankGroup,
Inc. ("MainStreet") have entered into a Merger Agreement and a Plan of Merger,
dated as of October 27, 1997 (the "Merger Agreement"), pursuant to which Regency
will combine with MainStreet by means of the merger (the "Merger") of Regency
with and into MainStreet. Upon consummation of the Merger, each of the
outstanding shares of the common stock, $2.50 par value, of Regency ("Regency
Stock") (other than shares held by dissenting shareholders) will be converted
into shares of the common stock of MainStreet ("MainStreet Stock") having a
market value of $13.00, as adjusted in accordance with the terms of the Merger
Agreement (the "Exchange Ratio").
Wheat, First Securities, Inc. ("Wheat First") as part of its investment
banking business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. In the ordinary course of our business as a broker-dealer, we
may, from time to time, have a long or short position in, and buy or sell, debt
or equity securities of Regency or MainStreet for our own account or for the
accounts of our customers. Wheat First will also receive a fee from Regency for
our financial advisory services, which include rendering this opinion.
You have asked us whether, in our opinion, the Exchange Ratio is fair,
from a financial point of view, to the holders of Regency Stock (other than
MainStreet and its affiliates).
In arriving at the opinion set forth below, we have conducted
discussions with members of senior management of Regency and MainStreet
concerning their businesses and prospects and have reviewed certain publicly
available business and financial information and certain other information
prepared or provided to us in connection with the Merger, including, among other
things, the following:
(1) Regency's Annual Reports to Stockholders and related financial
information for the three fiscal years ended December 31,
1996;
(2) Regency's Quarterly Reports to Stockholders and related
financial information for the periods ended September 30,
1997, June 30, 1997 and March 31, 1997, and certain financial
data provided by management of Regency for the period ended
September 30, 1997;
(3) MainStreet's Annual Reports to Stockholders, Annual Reports on
Form 10-K and related financial information for the three
fiscal years ended December 31, 1996;
<PAGE>
(4) MainStreet's Quarterly Reports on Form 10-Q and related
financial information for the periods ended September 30,
1997, June 30, 1997 and March 31, 1997, and certain financial
data provided by management of MainStreet for the period ended
September 30, 1997;
(5) Certain publicly available information with respect to
historical market prices and trading activities for Regency
Stock and MainStreet Common Stock and for certain publicly
traded financial institutions which Wheat First deemed
relevant;
(6) Certain publicly available information with respect to banking
companies and the financial terms of certain other mergers and
acquisitions which Wheat First deemed relevant;
(7) The Merger Agreement;
(8) Certain estimates of the cost savings and revenue enhancements
projected by Regency and MainStreet for the combined company;
(9) Other financial information concerning the businesses and
operations of Regency and MainStreet, including certain
audited and unaudited financial information and certain
internal financial analyses and forecasts for Regency and
MainStreet prepared by the senior managements of those
companies; and
(10) Such financial studies, analyses, inquiries and other matters
as we deemed necessary.
In preparing our opinion, we have relied on and assumed the accuracy
and completeness of all information provided to us or publicly available,
including the representations and warranties of Regency and MainStreet included
in the Merger Agreement, and we have not assumed any responsibility for
independent verification of such information. We have relied upon the
managements of Regency and MainStreet as to the reasonableness and achievability
of their financial and operational forecasts and projections, including the
estimates of cost savings and revenue enhancements expected to result from the
Merger, and the assumptions and bases therefor, provided to us, and, with your
consent, we have assumed that such forecasts and projections reflect the best
currently available estimates and judgments of such managements, and that such
forecasts and projections will be realized in the amounts and in the time
periods currently estimated by such managements. We also assumed, without
independent verification, that the aggregate allowances for loan losses and
other contingencies for Regency and MainStreet are adequate to cover such
losses. Wheat First did not review any individual credit files of Regency or
MainStreet, nor did it make an independent evaluation or appraisal of the assets
or liabilities of Regency or MainStreet. We also assumed that, in the course of
obtaining the necessary regulatory approvals for the Merger, no conditions will
be imposed that will have a material adverse effect on the contemplated benefits
of the Merger, on a pro forma basis, to MainStreet.
Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated on the date hereof and the
information made available to us through the date hereof. Events occurring after
that date could materially affect the assumptions and conclusions contained in
our opinion. We have not undertaken to reaffirm or revise this opinion or
otherwise comment on any events occurring after the date hereof. Wheat First's
opinion is directed to the Board of Directors of Regency and relates only to the
fairness, from a financial point of view, of the Exchange Ratio to the holders
of Regency Stock (other than MainStreet and its affiliates) and does not address
any other aspect of the Merger or constitute a recommendation to any shareholder
of Regency as to how such shareholder should vote with respect to the Merger.
Wheat First's opinion does not address the relative merits of the Merger as
compared to any alternative business strategies that might exist for Regency,
nor does it address the effect of any other business combination in which
Regency might engage.
<PAGE>
It is understood that this opinion may be included in its entirety in
the Proxy Statement/Prospectus. This opinion may not, however, be summarized,
excerpted from or otherwise publicly referred to without our prior written
consent.
On the basis of and subject to the foregoing, we are of the opinion
that as of the date hereof the Exchange Ratio is fair, from a financial point of
view, to the holders of Regency Stock (other than MainStreet and its
affiliates).
Very truly yours,
WHEAT, FIRST SECURITIES, INC.
<PAGE>
ANNEX C
VIRGINIA STOCK CORPORATION ACT
ARTICLE 15.
DISSENTERS' RIGHTS
ss.13.1-729. Definitions.--In this article:
"Corporation" means the issuer of the shares held by a dissenter before
the corporate action, except that (i) with respect to a merger, "corporation"
means the surviving domestic or foreign corporation or limited liability company
by merger of that issuer, and (ii) with respect to a share exchange,
"corporation" means the acquiring corporation by share exchange, rather than the
issuer, if the plan of share exchange places the responsibility for dissenters'
rights on the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent from
corporate action under ss. 13.1-730 and who exercises that right when and in the
manner required by ss.13.1-732 through ss.13.1-739.
"Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
"Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
"Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial
shareholder.
ss.13.1-730. Right to Dissent.--A. A shareholder is entitled to
dissent from, and obtain payment of the fair value of his shares in the event
of, any of the following corporate actions:
1. Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by ss.13.1-718 or the
articles of incorporation and the shareholder is entitled to vote on the merger
or (ii) if the corporation is a subsidiary that is merged with its parent under
ss.13.1-719;
2. Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation if the shareholder was entitled to vote on the
sale or exchange or if the sale or exchange was in furtherance of a dissolution
on which the shareholder was entitled to vote, provided that such dissenter's
rights shall not apply in
<PAGE>
the case of (i) a sale or exchange pursuant to court order, or (ii) a sale for
cash pursuant to a plan by which all or substantially all of the net proceeds of
the sale will be distributed to the shareholders within one year after the date
of sale;
4. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. Notwithstanding any other provision of this article, with respect to
a plan of merger or share exchange or a sale or exchange of property there shall
be no right of dissent in favor of holders of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
share exchange or the sale or exchange of property is to be acted on, were (i)
listed on a national securities exchange or (ii) held by at least 2,000 record
shareholders, unless in either case:
1. The articles of incorporation of the corporation issuing such shares
provide otherwise;
2. In the case of a plan of merger or share exchange, the holders of
the class or series are required under the plan of merger or share exchange to
accept for such shares anything except:
a. Cash;
b. Shares or membership interests, or shares or membership
interests and cash in lieu of fractional shares (i) of the surviving or
acquiring corporation or limited liability company or (ii) of any other
corporation or limited liability company which, at the record date fixed to
determine the shareholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or share exchange is to be acted on, were
either listed subject to notice of issuance on a national securities exchange or
held of record by at least 2,000 record shareholders or members; or
c. A combination of cash and shares or membership interests
as set forth in subdivisions 2a and 2b of this subsection; or
3. The transaction to be voted on is an "affiliated transaction" and is
not approved by a majority of "disinterested directors" as such terms are
defined in ss.13.1-725.
D. The right of a dissenting shareholder to obtain payment of the fair
value of his shares shall terminate upon the occurrence of any one of the
following events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
3. His demand for payment is withdrawn with the written consent of the
corporation.
ss.13.1-731. Dissent by Nominees and Beneficial Owners.--A. A record
shareholder may assert dissenters' rights as to fewer than all the shares
<PAGE>
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
1. He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
2. He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
ss.13.1-732. Notice of Dissenters' Rights.--A. If proposed corporate
action creating dissenters' rights under ss. 13.1-730 is submitted to a vote at
a shareholders' meeting, the meeting notice shall state that shareholders are or
may be entitled to assert dissenters' rights under this article and be
accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under ss.13.1-730 is
taken without a vote of shareholders, the corporation, during the ten-day period
after the effectuation of such corporate action, shall notify in writing all
record shareholders entitled to assert dissenters' rights that the action was
taken and send them the dissenters' notice described in ss.13.1-734.
ss.13.1-733. Notice of Intent to Demand Payment.--A. If proposed
corporate action creating dissenters' rights under ss.13.1-730 is submitted to a
vote at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights (i) shall deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effectuated and (ii) shall not vote such shares in favor of the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A
of this section is not entitled to payment for his shares under this article.
ss.13.1-734. Dissenters' Notice.--A. If proposed corporate action
creating dissenters' rights under ss.13.1-730 is authorized at a shareholders'
meeting, the corporation, during the ten-day period after the effectuation of
such corporate action, shall deliver a dissenters' notice in writing to all
shareholders who satisfied the requirements of ss.13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and
when certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
3. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before or
after that date;
4. Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the date
of delivery of the dissenters' notice; and
<PAGE>
5. Be accompanied by a copy of this article.
ss.13.1-735. Duty to Demand Payment.--A. A shareholder sent a
dissenters' notice described in ss.13.1-734 shall demand payment, certify that
he acquired beneficial-ownership of the shares before or after the date required
to be set forth in the dissenters' notice pursuant to paragraph 3 of subsection
B of ss. 13.1-734, and, in the case of certificated shares, deposit his
certificates in accordance with the terms of the notice.
B. The shareholder who deposits his shares pursuant to subsection A of
this section retains all other rights of a shareholder except to the extent that
these rights are canceled or modified by the taking of the proposed corporate
action.
C. A shareholder who does not demand payment and deposits his share
certificates where required each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
ss.13.1-736. Share Restrictions.--A. The corporation may restrict
the transfer of uncertificated shares from the date the demand for their
payment is received.
B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder except to the
extent that these rights are canceled or modified by the taking of the proposed
corporate action.
ss.13.1-737. Payment.--A. Except as provided in ss.13.1-738, within
thirty days after receipt of a payment demand made pursuant to ss.13.1-735, the
corporation shall pay the dissenter the amount the corporation estimates to be
the fair value of his shares, plus accrued interest. The obligation of the
corporation under this paragraph may be enforced (i) by the circuit court in the
city or county where the corporation's principal office is located, or, if none
in this Commonwealth, where its registered office is located or (ii) at the
election of any dissenter residing or having its principal office in the
Commonwealth, by the circuit court in the city or county where the dissenter
resides or has its principal office. The court shall dispose of the complaint on
an expedited basis.
<PAGE>
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the effective date of the corporate
action creating dissenters' rights, an income statement for that year, a
statement of changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
2. An explanation of how the corporation estimated the fair value of
the shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand payment under
ss.13.1-739; and
4. A copy of this article.
ss.13.1-738. After-Acquired Shares.--A. A corporation may elect to
withhold payment required by ss. 13.1-737 from a dissenter unless he was the
beneficial owner of the shares on the date of the first publication by news
media or the first announcement to shareholders generally, whichever is earlier,
of the terms of the proposed corporate action, as set forth in the dissenters'
notice.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount of each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under ss.13.1-739.
ss.13.1-739. Procedure if Shareholder Dissatisfied with Payment or
Offer.--A. A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and the amount of interest due, and demand
payment of his estimate (less any payment under ss. 13.1-737), or reject the
corporation's offer under ss. 13.1-738 and demand payment of the fair value of
his shares and interest due, if the dissenter believes that the amount paid
under ss.13.1-737 or offered under ss. 13.1-738 is less than the fair value of
his shares or that the interest due is incorrectly calculated.
B. A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection A
of this section within thirty days after the corporation made or offered payment
for his shares.
ss.13.1-740. Court Action.--A. If a demand for payment under
ss.13.1-739 remains unsettled, the corporation shall commence a proceeding
within sixty days after receiving the payment demand and petition the circuit
court in the city or county described in subsection B of this section to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
B. The corporation shall commence the proceeding in the city or county
where its principal office is located, or, if none in this Commonwealth, where
its registered office is located. If the corporation is a foreign corporation
without a registered office in this Commonwealth, it shall commence the
proceeding in the city or county in this Commonwealth were the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
C. The corporation shall make all dissenters, whether or not residents
of this Commonwealth, whose demands remain unsettled parties to the proceeding
as in an action against their shares and all parties shall be served with a copy
of the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.
D. The corporation may join as a party to the proceeding any
shareholder who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this article. If the court
determines that such shareholder has not complied with the provisions of this
article, he shall be dismissed as a party.
E. The jurisdiction of the court in which the proceeding is commenced
under subsection B of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
F. Each dissenter made a party to the proceeding is entitled to
judgment (i) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation or (ii)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under ss.13.1-738.
<PAGE>
ss.13.1-741. Court Costs and Counsel Fees.--A. The court in an
appraisal proceeding commenced under ss.13.1-740 shall determine all costs of
the proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters did not act in good faith in demanding payment under ss.13.1-739.
B. The court may also assess the reasonable fees and expenses of
experts, excluding those of counsel, for the respective parties, in amounts the
court finds equitable:
1. Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of ss. 13.1-732 through ss. 1 3.1-739; or
2. Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed did not act in good faith with respect to the rights provided by this
article.
C. If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, the court
may award to these counsel reasonable fees to be paid out of the amounts awarded
the dissenters who were benefited.
D. In a proceeding commenced under subsection A of ss. 13.1-737 the
court shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceedings, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
MainStreet's Articles of Incorporation implement the provisions of the
Virginia SCA, which provide for the indemnification of MainStreet's directors
and officers in a variety of circumstances, which may include indemnification
for liabilities under the Securities Act of 1933. Under sections 13.1-697 and
13.1-702 of the Virginia SCA, a Virginia corporation generally is authorized to
indemnify its directors and officers in civil or criminal actions if they acted
in good faith and believed their conduct to be in the best interests of the
corporation and, in the case of criminal actions, had no reasonable cause to
believe that the conduct was unlawful. MainStreet's Articles of Incorporation
require indemnification of directors and officers with respect to certain
liabilities, expenses and other amounts imposed upon them be reason of having
been a director or officer, except in the case of willful misconduct or a
knowing violation of criminal law. MainStreet also carries insurance on behalf
of directors, officers, employees or agents that may cover liabilities under the
Securities Act of 1933. In addition, the Virginia SCA and MainStreet's Articles
of Incorporation eliminate the liability of a director or officer of MainStreet
in a shareholder or derivative proceeding. This elimination of liability will
not apply in the event of willful misconduct or a knowing violation of the
criminal law or any federal or state securities law. Sections 13.1-692.1 and
13.1-696 to -704 of the Virginia SCA are hereby incorporated herein by
reference.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
2(a) Agreement and Plan of Merger dated as of October 27, 1997, between
MainStreet and Regency (attached to the Proxy Statement/Prospectus as
Annex A)
3(i) Articles of Incorporation of MainStreet (incorporated herein by
reference to Form 8-A filed electronically on March 18, 1996)
3(ii) Bylaws of MainStreet (incorporated herein by reference to Form 8-A
filed electronically on March 18, 1996)
5 and Opinion and consent of Flippin, Densmore, Morse, Rutherford & Jessee
23(h)
8 Form of Opinion of Flippin, Densmore, Morse, Rutherford & Jessee with
respect to tax consequences of the Merger
21 Statement of subsidiaries of MainStreet (incorporated herein by
reference to Registrant's Form 10-K for the fiscal year ended December
31, 1996)
23(a) Consent of Coopers & Lybrand L.L.P.
23(b) Consent of KPMG Peat Marwick LLP
23(c) Consent of Wheat, First Securities, Inc.
23(d) Consent of Flippin, Densmore, Morse, Rutherford & Jessee (included in
Exhibit 8)
<PAGE>
23(e) Consent of KPMG Peat Marwick LLP
23(f) Consent of Deloitte & Touche, LLP
23(g) Consent of Persinger & Company, L.L.C.
23(h) Consent of Flippin, Densmore, Morse, Rutherford & Jessee, included at
Exhibit 5 herein
24 Power of Attorney of Officers and Directors of MainStreet
99 Form of Proxy
(a) Form of Proxy
(b) Financial Statement Schedules -- Not Applicable
(c) Report, Opinion or Appraisal -- (Opinion of Wheat, First
Securities, Inc. attached to the Proxy Statement/Prospectus as
Annex B)
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes as follows:
1 That prior to any public reoffering of the securities
registered hereunder through the use of a prospectus which is
a part of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule
145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the
applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable
form.
2 That every prospectus (i) that is filed pursuant to the
paragraph immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and
is used in connection with an offering of securities
subject to Rule 415, will be filed as part of an amendment to
the registration statement and will not be used until such
amendment is effective, and that, for the purposes of
determining any liability under the Securities Act of 1933,
each such post-effective amendment will be deemed to be a
new registration statement relating to the securities
offered therein, and the offering of such securities at that
time will be deemed to be the initial bona fide offering
thereof.
3 Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection
with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the
<PAGE>
question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
this form, within one business day of receipt of such request,
and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information
contained in documents filed subsequent to the effective date
of the registration statement through the date of responding
to the request.
(c) The undersigned Registrant hereby undertakes to supply by
means of the post-effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in
the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Martinsville, Commonwealth of Virginia, on January 23, 1998.
MAINSTREET BANKGROUP INCORPORATED
(Registrant)
By: /s/ Michael R. Brenan
---------------------------------------------
Michael R. Brenan, President, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on January 23, 1998.
Signature Title
/s/ Michael R. Brenan President, Chairman of the Board and Chief
- ----------------------------------- Executive Officer
Michael R. Brenan (Principal Executive Officer)
/s/ James E. Adams Executive Vice President, Chief Financial
- ----------------------------------- Officer and Treasurer (Principal Financial
James E. Adams and Accounting Officer)
<PAGE>
/s/ W. Christopher Beeler, Jr. Director*
- -----------------------------------
W. Christopher Beeler, Jr.
/s/ Thomas B. Bishop Director*
- -----------------------------------
Thomas B. Bishop
/s/ William L. Cooper, III Director*
- -----------------------------------
William L. Cooper, III
/s/ Billy P. Craft Director*
- -----------------------------------
Billy P. Craft
/s/ I. Patricia Henry Director*
- -----------------------------------
I. Patricia Henry
/s/ Larry E. Hutchens Director*
- -----------------------------------
Larry E. Hutchens
/s/ William O. McCabe, Jr., MD Director*
- -----------------------------------
William O. McCabe, Jr., MD
/s/ Albert L. Prillaman Director*
- -----------------------------------
Albert L. Prillaman
/s/ Phillip W. Dean Director*
- -----------------------------------
Phillip W. Dean
/s/ George J. Kostel Director*
- -----------------------------------
George J. Kostel
/s/ Alfred J. T. Byrne Director*
- -----------------------------------
Alfred J. T. Byrne
*By Rebecca J. Jenkins, Attorney-in-Fact
/s/ Rebecca J. Jenkins
- -------------------------------------
Rebecca J. Jenkins
Date: January 23, 1998
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
(a) Exhibits
2(a) Agreement and Plan of Merger dated as of October 27, 1997, between
MainStreet and Regency (attached to the Proxy Statement/Prospectus as
Annex A)
3(i) Articles of Incorporation of MainStreet (incorporated herein by
reference to Form 8-A filed electronically on March 18, 1996)
3(ii) Bylaws of MainStreet (incorporated herein by reference to Form 8-A
filed electronically on March 18, 1996)
5 and Opinion of Flippin, Densmore, Morse, Rutherford & Jessee with respect
23(h) to legality
8 Form of Opinion of Flippin, Densmore, Morse, Rutherford & Jessee with
respect to tax consequences of the Merger
21 Statement of subsidiaries of MainStreet (incorporated herein by
reference to Registrant's Form 10-K for the fiscal year ended December
31, 1996)
23(a) Consent of Coopers & Lybrand L.L.P.
23(b) Consent of KPMG Peat Marwick LLP
23(c) Consent of Wheat, First Securities, Inc.
23(d) Consent of Flippin, Densmore, Morse, Rutherford & Jessee (included in
Exhibit 8)
23(e) Consent of KPMG Peat Marwick LLP
23(f) Consent of Deloitte & Touche, LLP
23(g) Consent of Persinger & Company, L.L.C.
23(h) Consent of Flippin, Densmore, Morse, Rutherford & Jessee, included in
Exhibit 5 herein
24 Power of Attorney of Officers and Directors of MainStreet
99 Form of Proxy
(a) Form of Proxy
(b) Financial Statement Schedules -- Not Applicable
(c) Report, Opinion or Appraisal -- (Opinion of Wheat First
Securities, Inc. attached to the Proxy Statement/Prospectus as
Annex B)
Exhibits 5 and 23(h)
Flippin, Densmore, Morse, Rutherford & Jessee
300 First Campbell Square
Roanoke, Virginia 24011
(540) 510-3000
January _____, 1998
Board of Directors
MainStreet BankGroup Incorporated
200 East Church Street
Martinsville, Virginia 24112
MainStreet BankGroup Incorporated
Registration Statement on Form S-4
Ladies and Gentlemen:
We are acting as counsel to MainStreet BankGroup Incorporated (the
"Company") in connection with the registration under the Securities Act of 1933
of 702,048 shares of its common stock ("Common Stock") pursuant to that certain
Agreement and Plan of Merger dated October 27, 1997 (the "Merger Agreement")
between the Company and Regency Financial Shares, Inc. ("Regency"). The
transaction in which the Common Stock will be issued is described in the
Company's Registration Statement on Form S-4 filed with the Securities and
Exchange Commission and relating to the Company's acquisition of Regency. In
connection with the filing of the Registration Statement you have requested our
opinion concerning certain corporate matters.
In rendering this opinion, we have relied upon, among other things, our
examination of such records of the Company and certificates of its officers and
of public officials as we have deemed necessary.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the Commonwealth of Virginia.
2. The Common Stock has been duly authorized and, when shares of Common
Stock have been issued as described in the Registration Statement, they will be
legally issued, fully paid and nonassessable.
<PAGE>
We consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the references to us in the
Prospectus included therein.
Very truly yours,
FLIPPIN, DENSMORE, MORSE,
RUTHERFORD & JESSEE
Exhibit 8
[FORM OF OPINION]
[FDMRJ Letterhead]
January 2_, 1998
Regency Financial Shares, Inc.
1011 East Main Street
Richmond, Virginia 23219
MainStreet BankGroup Incorporated
200 E. Church Street
Martinsville, VA 24112-5409
Re: Opinion with Respect to Certain Federal Income Tax Consequences
of the Merger of Regency Financial Shares, Inc. into
MainStreet BankGroup Incorporated
Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the proposed merger of Regency Financial Shares, Inc., a
Virginia corporation ("Regency"), with and into MainStreet BankGroup
Incorporated, a Virginia corporation ("MainStreet") pursuant to an Agreement and
Plan of Merger dated as of October 27, 1997 by and between MainStreet and
Regency as amended by that certain letter by Regency to MainStreet dated as of
January 5, 1998 (as amended, the "Agreement").
Pursuant to the Agreement and the Plan of Merger (the "Plan") attached
as Annex 1 to Exhibit A to the Agreement, and subject to various regulatory
approvals, Regency will be merged with and into MainStreet in accordance with
the provisions of, and with the effect provided in, the Virginia Stock
Corporation Act (the "Merger"). As a result of the Merger, MainStreet will
become the parent holding company of Regency Bank, the banking subsidiary of
Regency, as well as MainStreet's current subsidiary banks, all of which will
continue to conduct their businesses in substantially the same manner as prior
to the Merger. At the effective date of the Merger, and pursuant to the Plan,
each share of common stock of Regency ("Regency Common Stock") will be exchanged
for and converted into that number of shares of common stock of MainStreet
("MainStreet Common Stock") having an aggregate market value equal to $13.00,
plus cash in lieu of issuing fractional shares of MainStreet Common Stock.
In connection with the preparation of this opinion, we have examined
such documents concerning the Merger as we have deemed necessary. We have based
our conclusions on the Internal Revenue Code of 1986 (the "Code") and the
regulations promulgated pursuant thereto, each as amended from time to time and
in effect as of the date hereof, as well as existing judicial and administrative
interpretations thereof. As to various questions of fact material to our
opinion, we have relied upon the representations made in the Agreement as well
as the additional representations made to us by duly authorized officers of
MainStreet and Regency set forth below. In particular, we have assumed that
there is no plan or intention on the part of the shareholders of Regency to sell
or otherwise dispose of the MainStreet Common Stock received by them in the
Merger which would have the effect set forth in paragraph B of the "Additional
Representations" below.
<PAGE>
In connection with the proposed Merger, the following additional
representations have been made to us by duly authorized officers of MainStreet
and Regency and relied upon by us in the preparation of this opinion:
A. The fair market value of MainStreet Common Stock received by Regency
shareholders will be approximately equal to the fair market value of Regency
Common Stock surrendered in exchange therefor, and the exchange ratio used in
such exchange is the result of arm's length negotiations.
B. To the best knowledge of the management of Regency, there is no plan
or intention on the part of Regency's shareholders to sell or otherwise dispose
of MainStreet Common Stock received by them in the Merger that will reduce their
holdings of MainStreet Common Stock to a number of shares having in the
aggregate a fair market value of less than 50 percent of the fair market value
of all of the Regency Common Stock held by Regency shareholders on the effective
date of the Merger. For purposes of this representation, shares of Regency
Common Stock surrendered by dissenters or exchanged for cash in lieu of
fractional shares of MainStreet Common Stock will be treated as outstanding
Regency Common Stock on the effective date of the Merger. In addition, shares of
Regency Common Stock and shares of MainStreet Common Stock held by Regency
shareholders and otherwise sold, redeemed, or disposed of prior or subsequent to
the Merger will be considered in making this representation.
C. MainStreet has no plan or intention to sell or otherwise dispose of
any of the assets of Regency to be transferred to MainStreet in the Merger,
except for dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C) of the Code.
D. Each party to the Merger will pay its own expenses, if any, incurred
in connection with the Merger.
E. Following the Merger, MainStreet will continue the historic business
of Regency or use a significant portion of Regency's historic business assets in
a business.
F. MainStreet has no plan or intention to redeem or reacquire any of
its stock to be issued in the Merger.
G. The liabilities of Regency that will be assumed by MainStreet as a
result of the Merger and the liabilities to which Regency's assets are subject
were incurred in the ordinary course of business and are associated with the
assets to be transferred in the Merger.
H. There is no intercorporate indebtedness existing between MainStreet
and Regency that was issued, acquired or will be settled at a discount.
I. On the effective date of the Merger, the fair market value and
adjusted basis of the assets of Regency to be transferred to MainStreet in the
Merger will equal or exceed the sum of Regency's liabilities assumed by
MainStreet plus the amount of liabilities to which the Regency assets are
subject.
J. No Regency Common Stock has been or will be redeemed in anticipation
of the Merger, and no dividends or other distributions will be made with respect
to any Regency Common Stock immediately before the proposed Merger, except for
regular, normal distributions.
K. None of the shares of MainStreet Common Stock, cash in lieu of
fractional shares or other property received by any shareholder-employee in
exchange for Regency Common Stock pursuant to the Merger constitutes or is
intended as compensation for services rendered, nor is considered separate
consideration for, or
<PAGE>
allocable to, any employment agreement or relationship. None of the compensation
to be received by any shareholder-employee of Regency after the effective date
of the Merger will be separate consideration for, or allocable to, any of such
shareholder-employee's Regency Common Stock. In addition, any compensation paid
to any shareholder-employee of Regency will constitute and be intended as
compensation for services actually rendered and bargained for at arm's length,
and will be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
L. No two parties to the Merger are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code, and for each of MainStreet and
Regency, less than 50 percent of the fair market value of its total assets
(excluding cash, cash items, government securities, and stock and securities in
any 50 percent or greater subsidiary) consists of stock and securities.
M. Regency is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
N. Cash paid to Regency shareholders in lieu of issuing fractional
shares of MainStreet Common Stock will be paid solely for the purpose of
avoiding the expense and administrative inconvenience of issuing fractional
shares, will not be separately bargained for consideration and will represent
only a mechanical rounding off of the number of shares of MainStreet Common
Stock to be issued to Regency shareholders.
O. Except in the Merger, neither MainStreet nor any subsidiary of
MainStreet has acquired or prior to the Merger will acquire, or has owned in the
last five years, any shares of Regency Common Stock.
Based upon the foregoing and subject to the limitations expressed
herein, we are of the opinion that for federal income tax purposes:
1. The Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code.
2. No gain or loss will be recognized by MainStreet or Regency as a
result of the Merger.
3. No gain or loss will be recognized by Regency shareholders as a
result of the exchange of Regency Common Stock for MainStreet Common Stock
pursuant to the Merger, except that gain or loss will be recognized on the
receipt of cash, if any, received in lieu of a fractional share of MainStreet
Common Stock.
4. A Regency shareholder who receives cash in lieu of a fractional
share of MainStreet Common Stock will be treated as if the fractional share of
MainStreet Common Stock had been issued and then redeemed by MainStreet. If the
deemed redemption distribution is not essentially equivalent to a dividend
within the meaning of Section 302(b)(1) of the Code, then the Regency
shareholder will be treated as receiving a distribution in redemption of such
fractional share, subject to the provisions and limitations of Section 302 of
the Code. If the deemed redemption distribution is essentially equivalent to a
dividend, then the Regency shareholder will be treated as receiving a dividend
distribution under Section 301(c)(1) of the Code, as provided in Section 302(d)
of the Code.
5. A dissenting Regency shareholder who receives solely cash in
exchange for his Regency Common Stock will be treated as receiving a
distribution in redemption of his Regency Common Stock, subject to the
provisions and limitations of Section 302 of the Code.
<PAGE>
6. The aggregate tax basis of MainStreet Common Stock received by
Regency shareholders who exchange their Regency Common Stock for MainStreet
Common Stock will be the same as the aggregate tax basis of Regency Common Stock
surrendered in exchange therefor reduced by any amount allocable to fractional
share interests for which cash is received if the receipt of cash is treated as
a distribution in redemption of a fractional share rather than as a receipt of a
dividend distribution.
7. The holding period of MainStreet Common Stock received by Regency
shareholders will include the period during which Regency Common Stock
surrendered in exchange therefor was held by such Regency shareholders, provided
the Regency Common Stock was held as a capital asset on the date of the
exchange.
This opinion is based upon the provisions of the Code, as interpreted
by regulations, administrative rulings, and case law, in effect as of the date
hereof. Our opinion is limited to certain Federal income tax consequences of the
Merger. This opinion does not address all aspects of Federal income taxation
that may be relevant to particular holders of Regency Common Stock and may not
be applicable to holders of Regency Common Stock that are not citizens or
residents of the United States or to holders of options or warrants, nor does
this opinion address the effect of any applicable foreign, state, local or other
tax laws. This opinion is limited to the matters expressly stated; no opinion is
implied or may be inferred beyond such matters. This opinion is not binding upon
the Internal Revenue Service, any tax authority or any court. No assurance can
be given that a position contrary to that expressed herein will not be asserted
by the Internal Revenue Service or any other tax authority. Because income tax
consequences can vary among shareholders due to each party's unique
circumstances, each shareholder should consult his or her own tax advisor as to
the particular tax consequences for him or her of the Merger.
This opinion is provided in connection with the Merger as required by
Section VI(M) of the Agreement, is solely for the benefit of MainStreet, Regency
and Regency shareholders, and may not be relied upon in any other manner or by
any other person. This opinion may not be disclosed to any other person or used
in any other manner without the prior written consent of the undersigned. We
consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
FLIPPIN, DENSMORE, MORSE, RUTHERFORD & JESSEE
Exhibit 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
MainStreet BankGroup Incorporated on Form S-4 of our report dated January 17,
1997, on our audits of the consolidated financial statements of MainStreet
BankGroup Incorporated as of December 31, 1996 and 1995, and for the years then
ended and the combination of the separate financial statements for the year
ended December 31, 1994, which report is included in the Annual Report on Form
10-K. We also consent to the reference to our firm under the captions
"Conditions to Consummation; Termination" and "Experts."
COOPERS & LYBRAND L.L.P.
Greensboro, North Carolina
January 26, 1998
Exhibit 23(b)
CONSENT OF KPMG PEAT MARWICK LLP
We consent to the use in this Registration Statement of our report dated January
21, 1997, with respect to the consolidated financial statements of Regency
Financial Shares, Inc. and subsidiary as of December 31, 1996 and 1995 and for
each of the years in the three-year period ended December 31, 1996 and to the
reference to our firm under the heading "Experts" in the Proxy
Statement/Prospectus.
KPMG PEAT MARWICK LLP
Richmond, Virginia
January 27, 1998
Exhibit 23(c)
CONSENT OF FINANCIAL ADVISOR
[WHEAT FIRST LETTERHEAD]
Douglas W. Densmore, Esquire
Flippin, Densmore, Morse, Rutherford & Jessee
300 First Campbell Square
Roanoke, Virginia 24011
Gentlemen:
We hereby consent to the use in this Registration Statement on Form S-4
of our letter to the Board of Directors of Regency Financial Shares included as
Annex B to the Proxy Statement/Prospectus that is a part of this Registration
Statement, and to the references to such letters and to our firm in such Proxy
Statement/Prospectus. In giving such consent we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder.
Sincerely,
WHEAT, FIRST SECURITIES, INC.
Richmond, Virginia
Date: January 23, 1998
Exhibit 23(e)
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
MainStreet BankGroup Incorporated:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the Proxy Statement/
Prospectus.
KPMG PEAT MARWICK LLP
Roanoke, Virginia
January 26, 1998
Exhibit 23(f)
INDEPENDENT AUDITORS' CONSENT
We consent to the use and incorporation by reference in this Registration
Statement of MainStreet BankGroup Incorporated on Form S-4 of our report dated
January 12, 1995 relating to the consolidated financial statements of Hanover
Bank and subsidiary, which report is included in the Annual Report on Form 10-K
of MainStreet BankGroup Incorporated for the fiscal year ended December 31, 1994
appearing in the Prospectus, which is a part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Richmond, Virginia
January 26, 1998
Exhibit 23(g)
INDEPENDENT AUDITORS' CONSENT
We consent to the use and incorporation by reference in this Registration
Statement of MainStreet BankGroup Incorporated on Form S-4 of our report dated
January 5, 1996 relating to the consolidated financial statements of The First
National Bank of Clifton Forge, which report is included in the Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
PERSINGER & COMPANY, LLC
Covington, Virginia
January 27, 1998
Exhibit 24
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers
and/or directors of MainStreet BankGroup Incorporated, a Virginia corporation
(the "Corporation"), does hereby constitute and appoint Michael R. Brenan, James
E. Adams and Rebecca J. Jenkins, and each of them (with full power to each of
them to act alone), his true and lawful Attorneys in Fact and Agents for him and
on his behalf and in his name, place and stead in any and all capacities and
particularly as an officer and/or director of the Corporation to sign, execute
and affix his seal thereto and file any of the documents referred to below
relating to the registration in connection with the Agreement and Plan of Merger
dated as of October 27, 1997, by and among the Corporation and Regency Financial
Shares, Inc., a Virginia corporation, 702,048 shares of its Common Stock and
make changes to any of the documents referred to below and generally to do all
such things in their behalf in their capacities as officers and directors to
enable MainStreet BankGroup Incorporated to comply with the provisions of the
Securities Act of 1933 and all requirements of the Securities and Exchange
Commission.
A Registration Statement of the Corporation respecting 702,048
shares of Corporation Common Stock, on Form S-4, under the
Securities Act of 1933, as amended, and any and all amendments
to the Registration Statement, including post-effective
amendments, with all exhibits and any and all documents
required to be filed with respect thereto with the Securities
and Exchange Commission and/or any regulatory authority for
any State in the United States of America.
WITNESS the signatures and seals of the undersigned this 17th day of
December, 1997.
/s/ James E. Adams (SEAL)
James E. Adams
/s/ W. Christopher Beeler, Jr. (SEAL)
------------------------------
W. Christopher Beeler, Jr.
/s/ Thomas B. Bishop (SEAL)
------------------------------
Thomas B. Bishop
/s/ Michael R. Brenan (SEAL)
------------------------------
Michael R. Brenan
/s/ William L. Cooper, III (SEAL)
------------------------------
William L. Cooper, III
/s/ Billy P. Craft (SEAL)
------------------------------
Billy P. Craft
/s/ Phillip W. Dean (SEAL)
------------------------------
Phillip W. Dean
/s/ I. Patricia Henry (SEAL)
------------------------------
I. Patricia Henry
/s/ Larry E. Hutchens (SEAL)
------------------------------
Larry E. Hutchens
/s/ George J. Kostel (SEAL)
------------------------------
George J. Kostel
/s/ Dr. William O. McCabe, Jr. (SEAL)
------------------------------
Dr. William O. McCabe, Jr.
/s/ Albert L. Prillaman (SEAL)
------------------------------
Albert L. Prillaman
/s/ Alfred J. T. Byrne (SEAL)
------------------------------
Alfred J. T. Byrne
<PAGE>
COMMONWEALTH OF VIRGINIA )
) to-wit:
CITY OF MARTINSVILLE )
I, Gayle F. Gilley, a Notary Public in and for the City of
Martinsville, in the State of Virginia, do hereby certify that James E. Adams,
W. Christopher Beeler, Jr., Thomas B. Bishop, Michael R. Brenan, William L.
Cooper, III, Billy P. Craft, Phillip W. Dean, I. Patricia Henry, Larry E.
Hutchens, George J. Kostel, Dr., William O. McCabe, Jr., Albert L. Prillaman and
Alfred J. T. Byrne whose names are signed to the foregoing writing bearing date
the 17th day of December, 1997, this day personally appeared before me and
acknowledge the same in my City and State aforesaid.
GIVEN under my hand and seal this 17th day of December, 1997.
/s/ Gayle F. Gilley
-------------------
Notary Public
My Commission Expires:
12/31/2000
Exhibit 99(a)
REGENCY FINANCIAL SHARES, INC.
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints _____________________ and
_________________, either one of whom may act individually and with full power
of substitution, to act as proxies for the undersigned and to vote all shares of
Common Stock of Regency Financial Shares, Inc. ("Regency") which the undersigned
is entitled to vote at the Special Meeting of Shareholders (the "Special
Meeting") to be held on January 30, 1998, at 3:30 p.m., Eastern Time, at The
Capital Club, 1051 East Cary Street, Richmond, Virginia, and at any and all
adjournments thereof.
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED.
This proxy, when properly executed, will be voted as directed on the
reverse side. If no direction is made, this proxy will be voted FOR each of the
proposals listed. If any other business is properly presented at the Special
Meeting, this proxy will be voted by the proxies in their discretion.
The Board of Directors recommends that shareholders vote FOR Proposal
1.
1 FOR [ ] AGAINST [ ] ABSTAIN [ ]
Approval and adoption of the Agreement and Plan of Merger dated October
27, 1997 (the "Agreement"), between MainStreet BankGroup Incorporated
("MainStreet), and Regency, providing for the acquisition of Regency by
MainStreet as described in the Proxy Statement/Prospectus.
2 In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any
adjournment thereof.
The undersigned acknowledges receipt prior to the execution of this proxy of a
Notice of Special Meeting of Shareholders dated ________________, and of a Proxy
Statement/Prospectus dated _______________________.
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 may sign, but only one signature is
required.
Dated ____________________, 199__ ____________________________________
Signature
____________________________________
Signature
Please Mark, Sign, Date and Return the Proxy
Card Promptly Using the Enclosed Envelope
or Via Facsimile.
