AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON November 26, 1999
REGISTRATION NO. 333 -
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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VIRGINIA 6022 54-1542438
(State or other jurisdiction of (Primary Standard Industrial (I.R.S.
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
102 South Main Street
Culpeper, VA 22701
Phone (540) 825-4800
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
O.R. Barham, Jr.
102 South Main Street
Culpeper, VA 22701
Phone (540) 825-4800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
FRED W. PALMORE, III, ESQ. GEORGE P. WHITLEY, ESQ.
SCOTT M. J. ANDEREGG, ESQ. LECLAIR RYAN, A PROFESSIONAL CORPORATION
MAYS & VALENTINE, L.L.P. 707 E. MAIN STREET,
BANKAMERICA CENTER 11TH FLOOR
1111 E. MAIN STREET RICHMOND, VA 23219
P.O. BOX 1122 (804) 343-4089
RICHMOND, VA 23218-1122 FAX: (804) 783-7628
(804) 697-1396
FAX: (804) 697-1339
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Approximate date of commencement of proposed sale to the public: As soon as
practicable following the effectiveness of this Registration Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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- ---------------------------- ---------------------- ------------------------ -------------------- --------------------
Title of Each Class of Proposed Maximum Proposed Maximum Aggregate Offering Amount of
Securities to be Amount to be Offering Price Per Price (2) Registration Fee
Registered Registered (1) Share (2)
- ---------------------------- ---------------------- ------------------------ -------------------- --------------------
Common Stock, $2.50 par 310,246 N/A $4,399,288 $1,223.00
value
- ---------------------------- ---------------------- ------------------------ -------------------- --------------------
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(1) Based upon an assumed number of shares that may be issued in the
affiliation described in this Registration Statement.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2), based on $14.18, the book value per share
of the common stock of Caroline Savings Bank, on October 31, 1999.
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 this Registration Statement
shall thereafter become effective in accordance with Section 5(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
AFFILIATION PROPOSED - YOUR VOTE IS VERY IMPORTANT
Dear Fellow Shareholders:
The Boards of Directors of Caroline Savings Bank and Virginia
Commonwealth Financial Corporation have agreed to affiliate the two companies
and we have entered into an Agreement and Plan of Reorganization pursuant to
which Caroline Savings Bank will become a wholly-owned subsidiary of Virginia
Commonwealth Financial Corporation.
If shareholders of Caroline approve the affiliation, you will receive
0.7959 shares of Virginia Commonwealth common stock for each share of Caroline
common stock you own. Virginia Commonwealth shareholders will continue to hold
their existing shares of Virginia Commonwealth common stock after the
affiliation. We estimate that upon completion of the affiliation, approximately
[13%] of the outstanding Virginia Commonwealth common stock will be owned by
current Caroline shareholders and approximately [87%] will be owned by persons
who are Virginia Commonwealth shareholders just before the affiliation is
completed.
We cannot complete the affiliation unless holders of more than
two-thirds of Caroline common stock approve the Agreement and Plan of
Reorganization. We have scheduled a special meeting of the shareholders of
Caroline to vote on the proposed affiliation. Whether or not you plan to attend
the shareholders' meeting, please take the time to vote by completing and
mailing the enclosed proxy card to us. If you sign, date and mail your proxy
card without indicating how you want to vote, your proxy will be counted as a
vote in favor of the transaction. If you do not return your card, the effect
will be a vote against the affiliation. If your shares are held in "street
name," you must instruct your broker in order to vote.
The date, time and place of the special meeting is:
_______________ ____, 2000 a.m./p.m.
--------------------
--------------------
--------------------
The document accompanying this letter contains additional information
regarding the Agreement and Plan of Reorganization, the proposed affiliation and
the two companies. We encourage you to read this entire document carefully.
Your Board of Directors has approved the affiliation of Caroline with
Virginia Commonwealth and believes it is in the best interests of Caroline and
you, our shareholders. Accordingly, your Board of Directors unanimously
recommends that you vote "FOR" the affiliation. We appreciate your prompt
attention to this very important matter.
William R. Southworth
President and Chief Executive Officer
Caroline Savings Bank
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- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this document. Any representation to the contrary is a
criminal offense. The securities offered hereby are not savings accounts,
deposits or other obligations of a bank or savings association and are not
insured by the Federal Deposit Insurance Corporation or any other government
agency.
- --------------------------------------------------------------------------------
The date of this proxy statement/prospectus is ________ __, 1999 and it is
first being mailed to shareholders on or about
________ __, 1999.
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CAROLINE SAVINGS BANK
268 North Main Street
Bowling Green, Virginia 22427
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ________ __, 2000
A special meeting of shareholders of Caroline Savings Bank ("Caroline")
will be held at _____ __.m. on ________ __, 2000 at the
_______________________________________ to consider the following matters:
(1) The proposal to approve the Agreement and Plan of
Reorganization, dated September 15, 1999, by and between
Caroline and Virginia Commonwealth Financial Corporation
("Virginia Commonwealth"), and a related plan of share
exchange, providing for the affiliation of Caroline with
Virginia Commonwealth upon the terms and conditions therein,
including, among other things, that each issued and
outstanding share of Caroline common stock will be exchanged
for 0.7959 shares of Virginia Commonwealth common stock, with
cash being paid instead of issuing fractional shares. The
Agreement and Plan of Reorganization is enclosed as Appendix
A. Shareholders are entitled to assert dissenters' rights
under Article 15 of the Virginia Stock Corporation Act, a copy
of which is attached as Appendix E; and
(2) Any other business properly brought before the special meeting
or any adjournments or postponements thereof.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION.
Only Caroline shareholders of record at the close of business on
________ __, 1999 are entitled to notice of, and to vote at, this special
meeting and any adjournments or postponements thereof.
Your attention is directed to the proxy statement/prospectus delivered
with this Notice.
By Order of the Board of Directors
William R. Southworth
President and Chief Executive Officer
Bowling Green, Virginia
________ __, 1999
REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON,
YOU ARE URGED TO VOTE PROMPTLY BY DATING, SIGNING AND RETURNING THE ENCLOSED
PROXY IN THE ACCOMPANYING ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR
TO ITS EXERCISE IN THE MANNER PROVIDED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS.
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TABLE OF CONTENTS
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Page
CHAPTER I
GENERAL
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QUESTIONS AND ANSWERS ABOUT THE AFFILIATION.....................................
WHO CAN HELP ANSWER YOUR QUESTIONS..............................................
SUMMARY.........................................................................
SELECTED HISTORICAL FINANCIAL DATA.........................................
SELECTED PRO FORMA FINANCIAL DATA..........................................
COMPARATIVE PER SHARE DATA.................................................
THE AFFILIATION
Background of the Affiliation..............................................
Caroline's Reasons for the Affiliation.....................................
Accounting Treatment.......................................................
Material Federal Income Tax Consequences of the Affiliation................
Rights of Dissenting Shareholders..........................................
OPINION OF CAROLINE'S FINANCIAL ADVISOR
General....................................................................
Contribution Analysis......................................................
Analysis of Selected Publicly Traded Companies.............................
Analysis of Comparable Acquisition Transactions............................
i
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Discounted Dividend Analysis...............................................
INTERESTS OF CERTAIN PERSONS IN THE AFFILIATION.................................
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS...................................
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
Representations and Warranties; Conditions to the Affiliation..............
Regulatory Approvals.......................................................
Business Pending the Affiliation...........................................
Stock Option Agreement.....................................................
Effective Date.............................................................
Surrender of Stock Certificates............................................
Waiver, Amendment and Termination..........................................
Resales of Virginia Commonwealth Common Stock..............................
Expenses of the Affiliation................................................
MARKET PRICES AND DIVIDENDS
Market Prices..............................................................
Dividends..................................................................
CHAPTER II
INFORMATION ABOUT THE MEETING AND VOTING
General....................................................................
Caroline Shareholder's Meeting.............................................
Other Matters..............................................................
CHAPTER III
DESCRIPTION OF VIRGINIA COMMONWEALTH
BUSINESS
History and Business.......................................................
Competition................................................................
CHAPTER IV
DESCRIPTION OF CAROLINE
BUSINESS
General....................................................................
History and Business.......................................................
Competition................................................................
ii
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CHAPTER V
LEGAL MATTERS
DESCRIPTION OF VIRGINIA COMMONWEALTH CAPITAL STOCK
Common Stock...............................................................
COMPARATIVE RIGHTS OF SHAREHOLDERS
General....................................................................
Authorized Capital.........................................................
Amendment of Articles of Incorporation or Bylaws...........................
Affiliations, Consolidations and Sales of Assets...........................
Size and Classification of Board of Directors..............................
Vacancies and Removal of Directors.........................................
Director Liability and Indemnification.....................................
Special Meetings of Shareholders...........................................
Shareholder Nominations and Proposals......................................
Shareholder Voting Rights in General.......................................
State Anti-Takeover Statutes...............................................
REGULATION
General....................................................................
FDIC Regulations...........................................................
Regulatory Capital Requirement.............................................
Deposit Insurance..........................................................
Federal Reserve System.....................................................
RESALES OF VIRGINIA COMMONWEALTH COMMON STOCK...................................
iii
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CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS..................................................
EXPERTS.........................................................................
LEGAL OPINIONS..................................................................
WHERE YOU CAN FIND MORE INFORMATION.............................................
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APPENDICES
A. Agreement and Plan of Reorganization, dated as of September 15, 1999, and
related Plan of Share Exchange by and between Virginia Commonwealth
Financial Corporation and Caroline Savings Bank.
B. Caroline Savings Bank's Annual Report on Form 10-KSB for the Year Ended
December 31, 1998.
C. Caroline Savings Bank's Quarterly Report on Form 10-QSB for the Quarter
Ended September 30, 1999.
D. Opinion of Crestar Securities Corporation.
E. Article 15 of the Virginia Code.
iv
<PAGE>
CHAPTER I
GENERAL
QUESTIONS AND ANSWERS ABOUT THE AFFILIATION
Q: Why is Caroline affiliating with Virginia Commonwealth?
A: Both the Caroline board of directors and the Virginia Commonwealth board of
directors believe the affiliation is in the best interests of their respective
companies and will provide significant benefits to their respective
shareholders, customers and employees. The boards believe the affiliation will
create a company with enhanced financial performance which will be better
positioned to be a strong competitor in the rapidly changing and consolidating
financial services industry in Virginia. To review the background and reasons
for the affiliation in greater detail, see pages 12 through 16.
Q: What will I receive in the affiliation?
A: Caroline shareholders will receive 0.7959 shares of Virginia Commonwealth
common stock in exchange for each share of Caroline common stock they hold. This
is the "exchange ratio." Virginia Commonwealth will not issue fractional shares
in the affiliation. Instead, Caroline shareholders will receive a cash payment,
without interest, for the value of any fraction of a share of Virginia
Commonwealth common stock that they would otherwise be entitled to receive based
upon the market value of a share of Virginia Commonwealth common stock at the
time of the affiliation.
FOR EXAMPLE:
o IF YOU OWN 100 SHARES OF CAROLINE COMMON STOCK, AFTER THE AFFILIATION YOU
WILL RECEIVE 79 SHARES OF VIRGINIA COMMONWEALTH COMMON STOCK AND A CHECK
FOR 0.0059 TIMES THE MARKET VALUE OF ONE SHARE OF VIRGINIA COMMONWEALTH
COMMON STOCK.
Q: What will my dividends be after the affiliation?
A: Virginia Commonwealth currently pays a quarterly dividend of $.25 per share.
Virginia Commonwealth expects it will continue to pay at least that amount in
quarterly dividends after the affiliation. The Virginia Commonwealth board will
use its discretion to decide whether and when to declare dividends and in what
amount, and it will consider all relevant factors in doing so.
Q: What happens as the market price of Virginia Commonwealth common stock
fluctuates?
A: The exchange ratio is fixed at 0.7959 shares of Virginia Commonwealth common
stock for each share of Caroline common stock. Since the market value of
Virginia Commonwealth common stock will fluctuate before and after the closing
of the affiliation, the value of the Virginia Commonwealth common stock that
Caroline shareholders will receive in the affiliation will fluctuate as well and
could increase or decrease. Virginia Commonwealth common stock is traded on The
Nasdaq SmallCap Market under the symbol "VCFC."
Q: When is the affiliation expected to be completed?
1
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A: We are working to complete the affiliation during the first quarter of
2000.
Q: What are the tax consequences of the affiliation to me?
A: We expect that the exchange of shares by you generally will be tax-free
to you for U.S. federal income tax purposes. You will, however, have to pay
taxes on cash received for fractional shares. To review the tax consequences
to you in greater detail, see page 15. Your tax consequences may depend on
your personal situation. You should consult your tax advisor for a full
understanding of the tax consequences of the affiliation to you.
Q: What am I being asked to vote upon?
A: You are being asked to approve the Agreement and Plan of Reorganization, and
a related Plan of Share Exchange, which provides for the affiliation of Caroline
with Virginia Commonwealth pursuant to which Caroline will become a wholly-owned
subsidiary of Virginia Commonwealth and you will receive 0.7959 shares of
Virginia Commonwealth common stock for each outstanding share of Caroline common
stock you own. Approval of the proposal requires the affirmative vote of more
than two-thirds of the outstanding shares of Caroline common stock.
The Caroline board has unanimously approved and adopted the Agreement and Plan
of Reorganization. The Caroline board recommends voting for the approval of the
Agreement and Plan of Reorganization.
Q: What should I do now?
A: Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed envelope as soon as possible, so that your shares will be
represented at the meeting.
If you sign and send in your proxy and do not indicate how you want to vote,
your proxy will be voted in favor of the proposal to approve and adopt the
Agreement and Plan of Reorganization. If you do not sign and send in your proxy
or you abstain, it will have the effect of a vote against the affiliation.
You may attend the shareholders' meeting and vote your shares in person, rather
than voting by proxy. In addition, you may withdraw your proxy up to and
including the day of the special shareholders' meeting by following the
directions on pages 31 through 33 and either change your vote or attend the
shareholders' meeting and vote in person.
Q: If my shares are held in "street name" by my broker, will my broker
vote my shares for me?
A: Your broker will vote your shares of Caroline common stock only if you
provide instructions on how to vote. You should instruct your broker how to vote
your shares, following the directions your broker provides. If you do not
provide instructions to your broker, your shares will not be voted and this will
have the effect of voting against the affiliation.
Q: Should I send in my stock certificates now?
A: No. After the affiliation is completed we will send you written instructions
for exchanging your Caroline common stock certificates for Virginia Commonwealth
common stock certificates.
2
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WHO CAN HELP ANSWER YOUR QUESTIONS
If you want additional copies of this document, or if you want to ask
any questions about the affiliation, you should contact:
William R. Southworth, President and Chief Executive Officer
Caroline Savings Bank
P.O. Box 860
268 North Main Street
Bowling Green, Virginia 22427
(804) 633-9883
3
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SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. For a more complete
understanding of the affiliation and for a more complete description of the
legal terms of the affiliation, you should read this entire document carefully,
as well as the additional documents to which we refer you, including the
Agreement and Plan of Reorganization. See "Where You Can Find More Information"
(page ).
EXCHANGE RATIO IS 0.7959 SHARES OF VIRGINIA COMMONWEALTH COMMON STOCK
FOR EACH SHARE OF CAROLINE COMMON STOCK
The Agreement and Plan of Reorganization provides that each share of
Caroline common stock will be converted into 0.7959 shares of Virginia
Commonwealth common stock on the effective date of the affiliation. Accordingly,
the 389,806 shares of Caroline common stock outstanding will be converted into
approximately 310,246 shares of Virginia Commonwealth common stock. Fractional
shares of Virginia Commonwealth common stock will not be issued, and you will
receive a cash payment, without interest, for the value of any fraction of a
share of Virginia Commonwealth common stock that you would otherwise be entitled
to receive based upon the market value of a share of Virginia Commonwealth
common stock at the time of the affiliation.
THE COMPANIES
Virginia Commonwealth Financial Corporation
102 South Main Street
Culpeper, Virginia 22701
Virginia Commonwealth, formerly Second National Financial Corporation,
is a Virginia bank holding company that began operations in 1990. Virginia
Commonwealth owns two banks, Second Bank & Trust headquartered in Culpeper and
Virginia Heartland Bank headquartered in Fredericksburg. Through its subsidiary
banks, Virginia Commonwealth offers a full array of banking and investment
services through ten retail offices serving the counties of Culpeper, Madison,
4
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Orange, Rockingham, Spotsylvania and the City of Fredericksburg. Each of Second
Bank & Trust and Virginia Heartland Bank is a member of the Federal Reserve
System and its deposits are insured by the Federal Deposit Insurance
Corporation. At September 30, 1999, Virginia Commonwealth had total assets of
$366 million, total deposits of $320.8 million, total loans of $228 million and
shareholders' equity of $41.7 million.
Caroline Savings Bank
268 North Main Street
Bowling Green, Virginia 22427
Caroline is a Virginia savings bank that was chartered in 1972.
Caroline is headquartered in Bowling Green, Virginia and operates three banking
offices serving the counties of Caroline and Spotsylvania, and the City of
Fredericksburg. Its deposits are insured by the Federal Deposit Insurance
Corporation. At September 30, 1999, Caroline had total assets of $47.6 million,
total deposits of $38.3 million, total loans of $34.9 million, and shareholders'
equity of $5.5 million.
RECOMMENDATION (page 32)
The Caroline and Virginia Commonwealth boards of directors have each
unanimously approved and adopted the Agreement and Plan of Reorganization. The
Caroline board unanimously recommends a vote FOR approval of the Agreement and
Plan of Reorganization and the transactions relating to the affiliation.
REASONS FOR THE AFFILIATION
The Caroline board carefully considered the affiliation decision. The
board had several reasons for approving the affiliation. A few of the reasons
are set forth below. For a complete discussion, see pages 14 through 15.
o The terms of the Agreement and Plan of Reorganization, including
the exchange ratio.
o Virginia Commonwealth common stock is more liquid since it is
traded on The Nasdaq SmallCap Market while Caroline common stock
is not listed on an exchange, traded in the over-the-counter
market, or quoted by the NASDAQ stock market.
o The fact that Virginia Commonwealth has consistently paid cash
dividends to its shareholders in the past.
o The compatibility of Caroline's and Virginia Commonwealth's
community bank operating philosophies and the similarity of
customer orientation.
5
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o The opportunities for growth and diversification through
affiliation with Virginia Commonwealth, a well-capitalized
institution with a broader geographical market area.
o The opinion of Crestar Securities Corporation to the board
that the exchange ratio is fair from a financial point of view to
the Caroline shareholders.
o The expectation that the affiliation will be tax-free for federal
income tax purposes to Caroline and its shareholders, except for
cash paid instead of fractional shares.
THE MEETING (page 31)
The special meeting of Caroline shareholders will be held at the
[____________________], at ____ _.m., local time, on ________ __, 2000. At the
meeting, you will be asked to consider and vote upon a proposal to approve
the Agreement and Plan of Reorganization.
VOTE REQUIRED (page 32)
Approval by the Caroline shareholders of the proposal to approve the
Agreement and Plan of Reorganization will require the affirmative vote
of more than two-thirds of the shares of Caroline common stock outstanding.
RECORD DATE; VOTING POWER (page 32)
You are entitled to vote at the special meeting if you owned shares on
________ __, 1999, the record date. On that date, there were [______________]
issued and outstanding shares of Caroline common stock held by approximately
_____ holders of record. You are entitled to one vote per share on any matter
that may properly come before the special meeting.
EXCHANGE RATIO IS FAIR TO SHAREHOLDERS ACCORDING TO CAROLINE'S FINANCIAL
ADVISOR (pages 18 through 22)
At the September 14, 1999 meeting of the Caroline board, Crestar
Securities Corporation, financial advisor to the Caroline board, gave its
opinion to the Caroline board that as of that date, the exchange ratio was fair
6
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to the Caroline shareholders from a financial point of view. Crestar Securities
Corporation subsequently confirmed its September 14, 1999 opinion by delivery to
the Caroline board of a written opinion dated as of the date of this document. A
copy of the fairness opinion, setting forth the information reviewed,
assumptions made and matters considered, is attached to this document as
Appendix D. You should read the fairness opinion of Crestar Securities
Corporation in its entirety.
RIGHTS OF DISSENTING SHAREHOLDERS (pages 16 through 18)
Each holder of Caroline common stock who dissents from the affiliation
is entitled to the rights and remedies of dissenting shareholders provided in
Article 15 of the Code of Virginia, subject to compliance with the procedures
set forth in the Article. A copy of Article 15 of the Code of Virginia is
attached as Appendix E to this document.
Under Virginia law, if you follow the applicable procedures, you have
the right to an appraisal of the fair value of your shares in connection with
the affiliation.
VIRGINIA COMMONWEALTH TO USE POOLING-OF-INTEREST ACCOUNTING TREATMENT
We expect that the affiliation will be accounted for as a pooling of
interests. This will avoid the creation of goodwill relating to the affiliation
and enable Virginia Commonwealth to avoid charges against future earnings
resulting from amortizing goodwill. This accounting method also means that after
the affiliation Virginia Commonwealth will report financial results as if
Caroline had always been consolidated with Virginia Commonwealth.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Caroline common stock has periodically been sold in a limited number of
privately negotiated transactions. To Caroline management's knowledge, the last
sale of Caroline common stock took place on September 15, 1999 at a price of
$20.00 per share.
Virginia Commonwealth common stock is traded on The Nasdaq SmallCap
Market under the symbol "VCFC." Virginia Commonwealth common stock averages 1100
shares traded on a daily basis. On September 14, 1999, the last trading day
before Caroline and Virginia Commonwealth issued a joint press release
announcing the affiliation, Virginia Commonwealth common stock closed at $27.25.
On ________ __, 1999, Virginia Commonwealth common stock closed at $_____.
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STOCK OPTION AGREEMENT (page 26)
Virginia Commonwealth has the option, exercisable only in certain
circumstances that have not yet occurred, to acquire up to 19.9% of the
aggregate shares of Caroline's common stock at a price of $20.00 per share,
pursuant to a Stock Option Agreement dated as of September 15, 1999 by and
between Virginia Commonwealth and Caroline.
This agreement is intended to discourage another party from interfering
with the Agreement and Plan of Reorganization by and between Virginia
Commonwealth and Caroline.
SHARE OWNERSHIP OF MANAGEMENT
On __________, the executive officers and directors of Caroline,
including their affiliates, had voting power with respect to an aggregate of
[61,489] shares of Caroline common stock, or approximately [16%] of the shares
of Caroline common stock then outstanding.
We currently expect that the directors and executive officers of
Caroline will vote their shares of Caroline common stock FOR the affiliation.
BENEFITS TO MANAGEMENT IN THE AFFILIATION (page 23)
When considering the recommendation of the Caroline board, you should
be aware that some Caroline directors and officers have interests in the
affiliation that differ from the interests of other Caroline shareholders. In
addition to remaining on the Caroline board, William R. Southworth and E. Page
Butler will become directors of Virginia Commonwealth. Mr. Butler will receive
$600 for attendance at each Virginia Commonwealth board meeting.
William R. Southworth will remain President and Chief Executive Officer
of Caroline, pursuant to an employment and consultation agreement which provides
for him receiving a salary of $85,000 through June 30, 2001. Beginning July 1,
2001, Mr. Southworth will be a consultant paid $50,000 per year, through June
30, 2002. The agreement further provides Mr. Southworth with enhanced retirement
benefits.
The Caroline board was aware of these and other interests and
considered them before approving and adopting the Agreement and Plan of
Reorganization.
CONDITIONS THAT MUST BE SATISFIED FOR THE AFFILIATION TO OCCUR (pages 24 and 25)
The following conditions must be met for us to complete the
affiliation:
o approval by Caroline shareholders of the Agreement and Plan of
Reorganization;
o the continuing effectiveness of Virginia Commonwealth's
registration statement filed with the Securities and Exchange
Commission;
o receipt by Virginia Commonwealth of a letter from its accountants
stating that the affiliation qualifies for pooling-of-interests
accounting treatment; and
8
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o receipt of an opinion of Virginia Commonwealth's counsel that the
affiliation will be treated for U.S. federal income tax purposes
as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986.
We cannot complete the affiliation unless we obtain the approval of the
Board of Governors of the Federal Reserve System and the Virginia State
Corporation Commission. On November ___, 1999, Virginia Commonwealth filed
applications with the Federal Reserve Board and the Virginia State Corporation
Commission. While we cannot predict whether or when we will obtain all required
regulatory approvals, we see no reason why the approvals will not be obtained in
a timely manner.
Unless prohibited by law, either Caroline or Virginia Commonwealth
could elect to waive a condition that has not been satisfied and complete the
affiliation anyway.
TERMINATION OF THE AGREEMENT AND PLAN OF REORGANIZATION (pages 27 and 28)
We can agree to terminate the Agreement and Plan of Reorganization at
any time without completing the affiliation. Either company may also terminate
the Agreement and Plan of Reorganization if:
o the affiliation is not completed on or before July 31, 2000; or
o any event occurs which renders impossible, in a material way,
the satisfaction by one company of one or more of the conditions
described above, unless the other company waives such satisfaction.
In addition, there are other situations in which one or both parties may
terminate the affiliation.
EFFECTIVE DATE EXPECTED: FIRST QUARTER OF 2000 (page 27)
The affiliation will become effective at the date and time stated on
the certificate issued by the Virginia State Corporation Commission. We
anticipate the affiliation will take place in the first quarter of 2000.
9
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SELECTED HISTORICAL FINANCIAL DATA
We are providing the following information to help you analyze the
financial aspects of the affiliation. We derived this information from audited
financial statements for 1994 through 1998 and unaudited financial statements
for the nine months ended September 30, 1999 and 1998. This information is only
a summary, and you should read it in conjunction with the historical financial
statements and related notes contained in its annual and quarterly reports and
other documents that Virginia Commonwealth has filed with the Securities and
Exchange Commission, and Caroline has filed with the FDIC. The results of
operations for the interim period are not necessarily indications of the results
expected for the entire year.
VIRGINIA COMMONWEALTH - HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
-------------------------------- --------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
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Net interest income $11,130 $10,325 $13,959 $12,840 $11,451 $10,457 $ 9,888
Net income 3,347 3,243 4,191 4,150 3,710 3,386 3,128
Earnings per share, basic 1.64 1.59 2.06 2.05 1.82 1.69 1.57
Earnings per share, diluted 1.64 1.59 2.06 2.05 1.82 1.69 1.57
Cash dividends per share 0.75 0.72 0.78 0.77 0.69 0.52 0.51
Book value per share 20.40 20.04 20.08 18.57 17.14 16.09 14.55
Total assets 366,471 343,917 352,813 315,707 294,654 274,417 259,782
</TABLE>
CAROLINE - HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
------------------------------- --------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C>
Net interest income $ 1,355 $ 1,373 $ 1,928 $ 1,719 $ 1,499 $ 1,503 $ 1,339
Net income 244 267 356 299 32 386 361
Earnings per share, basic* 0.63 0.69 0.92 0.77 0.08 1.01 1.13
Earnings per share, diluted* 0.62 0.68 0.91 0.77 0.08 1.01 1.13
Cash dividends per share* - - - - 0.12 0.08 0.08
Book value per share* 14.10 14.24 13.92 12.70 11.63 11.58 10.29
Total assets 47,634 43,542 43,740 41,957 40,108 38,287 37,724
</TABLE>
* Restated to reflect 5% stock dividends in February 1999 and 1998, a 10% stock
dividend in February 1997 and a 3-for-1 stock split in October 1994.
10
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
The following table sets forth certain unaudited pro forma consolidated
financial data for Virginia Commonwealth giving effect to the affiliation
accounted for as a pooling of interests. This information should be read in
conjunction with the separate historical financial statements of Virginia
Commonwealth contained in reports filed with the Securities and Exchange
Commission and those of Caroline filed with the Federal Deposit Insurance
Corporation. The pro forma financial data may not be indicative of the results
that actually would have occurred had the affiliation been consummated on the
dates indicated or that may be obtained in the future.
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
----------------------------------- ----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C>
Net interest income $ 12,485 $ 11,698 $ 15,887 $ 14,559 $ 12,950 $ 11,960 $ 11,227
Net income 3,591 3,510 4,547 4,449 3,742 3,772 3,489
Earnings per share, basic 1.52 1.50 1.94 1.90 1.60 1.63 1.55
Earnings per share, diluted 1.52 1.49 1.93 1.90 1.60 1.63 1.55
Cash dividends per share 0.76 0.72 0.78 0.77 0.69 0.52 0.51
Book value per share 20.05 19.77 19.74 18.23 16.80 15.89 14.14
Total assets 414,105 387,450 396,553 357,664 334,762 312,704 297,506
</TABLE>
COMPARATIVE PER SHARE DATA
The following unaudited financial information reflects certain
comparative per share data relating to (i) net income, cash dividends, and book
value per common share for both Virginia Commonwealth and Caroline on a
historical basis, (ii) net income and book value per common share on a pro forma
basis for Virginia Commonwealth assuming the Caroline affiliation had been
effected for the periods presented, and (iii) net income and book value per
common share on a pro forma equivalent basis per common share for Caroline
assuming the Caroline affiliation has been effected for the periods indicated
and accounted for as a pooling-of-interests. See "The Affiliation - Accounting
Treatment" on page 15. The pro forma data reflects the conversion of each share
of Caroline common stock into 0.7959 shares of Virginia Commonwealth common
stock. The information shown below should be read in conjunction with the
historical financial statements of Virginia Commonwealth contained in reports
filed with the Securities and Exchange Commission and those of Caroline filed
with the Federal Deposit Insurance Corporation. See "Selected Pro Forma
Financial Data" above.
11
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
--------------------------------- ------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------------- --------------- ----------- ---------- ---------- ---------- ---------
<S> <C>
PER COMMON SHARE:
Net Income Basic
Virginia Commonwealth - $1.64 $1.59 $2.06 $2.05 $1.82 $1.69 $1.57
historical
Caroline - historical 0.63 0.69 0.92 0.77 0.08 1.01 1.13
Pro forma combined 1.52 1.50 1.94 1.90 1.60 1.63 1.55
Caroline pro forma equivalent 1.21 1.19 1.54 1.52 1.27 1.30 1.24
Net Income Diluted
Virginia Commonwealth - $1.64 $1.59 $2.06 $2.05 $1.82 $1.69 $1.57
historical
Caroline - historical 0.62 0.68 0.91 0.77 0.08 1.01 1.13
Pro forma combined 1.52 1.49 1.93 1.90 1.60 1.63 1.55
Caroline pro forma equivalent 1.21 1.19 1.54 1.52 1.27 1.30 1.24
CASH DIVIDEND DECLARED:
Virginia Commonwealth - $0.75 $0.72 $0.78 $0.77 $0.69 $0.52 $0.51
historical
Caroline - historical - - - - 0.12 0.08 0.08
Pro forma combined (1) 0.75 0.72 0.78 0.77 0.69 0.52 0.51
Caroline pro forma equivalent 0.60 0.57 0.62 0.61 0.55 0.41 0.41
BOOK VALUE:
Virginia Commonwealth - $20.40 $20.04 $20.08 $18.57 $17.14 $16.09 $14.55
historical
Caroline - historical 14.10 14.24 13.92 12.70 11.63 11.58 10.29
Pro forma combined 20.05 19.77 19.74 18.23 16.80 15.89 14.14
Caroline pro forma equivalent 15.95 15.74 15.71 14.51 13.37 12.64 11.25
</TABLE>
(1) Pro forma combined cash dividends declared represent historical cash
dividends declared by Virginia Commonwealth.
12
<PAGE>
THE AFFILIATION
BACKGROUND OF THE AFFILIATION
In recent years, several interested parties, including Virginia
Commonwealth, informally approached Caroline management to explore the
possibility of a merger or affiliation. Other than Virginia Commonwealth, no
formal affiliation proposals ever resulted from these preliminary expressions of
interests.
During early 1999, O.R. Barham, President of Virginia Commonwealth,
expressed an interest on several occasions to his counterpart at Caroline,
William R. Southworth, in exploring the possibility of a business combination of
Virginia Commonwealth and Caroline. The discussions were general and exploratory
in nature and did not result in any specific offers or proposals being made. In
late June 1999, Mr. Barham reiterated the interest of Virginia Commonwealth in
exploring the possibility of a potential business combination with Caroline.
On July 14, 1999, Mr. Southworth and James S. Day, Jr., Chairman of
Caroline, met with Mr. Barham and William B. Young, Chairman and Chief Executive
Officer of Virginia Commonwealth, to discuss a possible affiliation of Caroline
and Virginia Commonwealth. The respective parties also discussed Virginia
Commonwealth having its financial advisor, Carson Medlin & Company, perform a
strategic analysis with respect to a potential business combination with
Caroline. At the meeting, Mr. Southworth indicated to Mr. Barham that he would
advise the Caroline board of their discussion and that Caroline would be in a
better position to respond to Virginia Commonwealth after the next regular
meeting of the Caroline board of directors.
At its July 20, 1999 meeting, the Caroline board discussed the
strategic options available to Caroline, including the possibility of pursuing
discussions with Virginia Commonwealth concerning a possible business
combination. At the meeting, the board authorized Messrs. Day and Southworth to
continue discussions and further develop relationships with Virginia
Commonwealth. The Caroline board also approved Virginia Commonwealth's request
to have Carson Medlin strategically analyze the potential business combination
with Caroline.
On July 26, 1999, Messrs. Day and Southworth met with Messrs. Barham
and Young, and at the meeting Virginia Commonwealth delivered to Caroline a
written affiliation proposal.
On August 2, 1999, the Caroline board held a special meeting at which
the formal affiliation proposal from Virginia Commonwealth was presented.
Virginia Commonwealth expressed an interest in affiliating with Caroline based
on either of the following two scenarios:
o Virginia Commonwealth would affiliate with Caroline in a cash
transaction by paying $25.03 for each share of Caroline common
stock; or
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<PAGE>
o Virginia Commonwealth would affiliate with Caroline in a stock
for stock transaction at fixed ratio of 0.7422 shares of Virginia
Commonwealth common stock for each share of Caroline common
stock.
The Caroline board determined that the cash transaction option was not in the
best interests of its shareholders based on, among other reasons, the most
recent sales prices of Caroline common stock and on the structure resulting in a
taxable transaction for federal income tax purposes to its shareholders. The
fixed ratio offer also was determined not to be in the best interests of its
shareholders based on recent sales prices of Caroline stock. On August 4, 1999,
Messrs. Day and Southworth informed Messrs. Barham and Young of the Caroline
board's determination.
On August 16, 1999, Messrs. Day and Southworth met again with Messrs.
Barham and Young. At the meeting, Virginia Commonwealth presented a non-binding
affiliation proposal in which Caroline shareholders would receive 0.7959 shares
of Virginia Commonwealth common stock for each share of Caroline common stock.
On August 17, 1999, the Caroline board met to review and discuss
Virginia Commonwealth's August 16 proposal. After considering the revised fixed
share exchange offer, and various other factors, including the prospect of
remaining independent in view of the likelihood of further consolidation in the
banking industry, the Caroline board concluded that it would be in the best
interests of Caroline, its shareholders and employees to agree to the presented
business combination with Virginia Commonwealth involving a tax-free exchange of
Caroline common stock. The Caroline board believed that Virginia Commonwealth
had the financial capacity and desire to complete a proposal which would be
attractive to Caroline stockholders from a financial point of view. In addition,
the Caroline board believed Virginia Commonwealth had a banking culture that
would be compatible with that of Caroline, particularly since Caroline would be
able to operate as a separate bank within the holding company system.
Based on the affiliation discussions between the managements of
Virginia Commonwealth and Caroline, and on the Caroline board approving the
proposal in general, the parties determined to negotiate the terms of the
transaction and to arrive at a definitive agreement. Over the course of the next
several weeks, the managements of Virginia Commonwealth and Caroline, with the
assistance of their respective legal advisors and Caroline's financial advisor,
negotiated the terms of the transaction as set forth in the Agreement and the
Option Agreement. In addition, at a meeting on September 3, 1999, Caroline's
financial advisor, Crestar Securities Corporation, and Caroline management
generally discussed the economic and competitive conditions in Caroline's market
area, changes in the banking industry, the trend of consolidation among
federally insured depository institutions, merger market prices paid for
federally insured depository institutions and the effects that rising interest
rates and cyclical trends could have on bank stock prices in the coming years.
On September 14, 1999, the Caroline board of directors held a meeting
at which the management of Caroline, as well as Caroline's financial and legal
advisors, reviewed for the Caroline board, among other things, a summary of the
terms of the Agreement and Plan Reorganization and the Option Agreement. Crestar
14
<PAGE>
Securities presented its analysis of the Virginia Commonwealth offer and
delivered its opinion, updated to the date of this proxy statement/prospectus,
that the terms of the offer are fair to the Caroline stockholders from a
financial point of view. Based upon its review, and after receiving the advice
of Crestar Securities Corporation and considering various other factors, the
Caroline board of directors unanimously approved and authorized the execution
and adoption of the Agreement and Plan Reorganization and the Option Agreement.
The terms and the execution of the Agreement and Plan of Reorganization and the
Option Agreement were announced in a joint press release on September 15, 1999.
CAROLINE'S REASONS FOR THE AFFILIATION
In deciding to enter into the Agreement and Plan of Reorganization with
Virginia Commonwealth, the Caroline board of directors considered a number of
factors. The board did not assign any relative or specific weights to the
factors considered. The principal factors that led the Caroline board of
directors to approve the affiliation with Virginia Commonwealth were:
o The terms of the Agreement and Plan of Reorganization, including
the exchange ratio of 0.7959 shares of Virginia Commonwealth stock
or each share of Caroline stock.
o The fact that Virginia Commonwealth common stock is more liquid as
it is traded on The Nasdaq SmallCap Market while Caroline common
stock has periodically been sold in a limited number of privately
negotiated transactions.
o The compatibility of Caroline's and Virginia Commonwealth's
community bank operating philosophies and similarity of customer
orientation.
o The opinion of Crestar Securities Corporation to the Caroline
board that the exchange ratio is fair from a financial point of
view to the Caroline shareholders.
o The expectation that the affiliation will be tax-free for federal
income tax purposes to Caroline and its shareholders, except for
cash paid instead of fractional shares.
o The historical dividends paid by Virginia Commonwealth on its
common stock when compared to the dividends paid on Caroline
common stock.
o The enhanced products and services that Caroline can offer to its
customers as a result of affiliating with Virginia Commonwealth.
o The terms of the Agreement and Plan of Reorganization with respect
to the retention of valued Caroline employees.
15
<PAGE>
Based upon the above, the Caroline board of directors concluded that a
affiliation with Virginia Commonwealth would be in the best interests of
Caroline and its shareholders and would further its goal of enhancing
shareholder value.
The above discussion of the information and factors considered by the
Caroline board is not exhaustive but constitutes the material factors
considered. You are encouraged to read the "Background" section above for a more
full understanding of the process the Caroline board went through in reaching
its decision.
THE CAROLINE BOARD RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE
AFFILIATION.
ACCOUNTING TREATMENT
We anticipate that the affiliation will be accounted for as a
pooling-of-interests for accounting and financial reporting purposes. Under this
method of accounting, recorded assets and liabilities of Virginia Commonwealth
and Caroline are carried forward at their previously recorded amounts, income of
the consolidated corporations will include income of Virginia Commonwealth and
Caroline for the entire fiscal year in which the affiliation occurs, and the
reported income of the separate companies for prior periods will be
consolidated. No recognition of goodwill in the combination is required of any
party to the affiliation.
For the affiliation to qualify as a pooling-of-interests, it must
satisfy a number of conditions. If any of the conditions to pooling-of-interests
accounting is not satisfied, then the affiliation would not qualify for
pooling-of-interests accounting treatment, and a condition to the obligation of
Virginia Commonwealth to consummate the affiliation would not be satisfied.
Virginia Commonwealth and Caroline have agreed that they will use their
respective best efforts to ensure that the affiliation will qualify for
pooling-of-interests accounting treatment. In addition, certain affiliates of
Virginia Commonwealth and Caroline have agreed that they will not sell any
Virginia Commonwealth common stock or Caroline common stock within 30 days
before the effective date of the affiliation, nor sell any Virginia Commonwealth
common stock until such time as Virginia Commonwealth has published financial
results covering at least 30 days of the consolidated operations of Virginia
Commonwealth and Caroline after the affiliation.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE AFFILIATION
The following is a discussion of all material federal income tax
consequences of the affiliation under the Internal Revenue Code of 1986 to
Caroline shareholders who receive Virginia Commonwealth common stock solely in
exchange for Caroline common stock and cash instead of fractional shares. The
discussion does not deal with all aspects of federal taxation that may be
relevant to particular Caroline shareholders. Certain tax consequences of the
affiliation may vary depending upon the particular circumstances of each
Caroline shareholder and other factors.
You are urged to consult with your tax advisor to determine the
particular tax consequences of the affiliation to you.
16
<PAGE>
This summary is based on current law and the advice of Mays &
Valentine, L.L.P., legal counsel to Virginia Commonwealth. The advice in this
summary is based on, among other things, certain customary assumptions and
representations relating to certain facts and circumstances of, and the
intentions of the parties to the affiliation. Neither Virginia Commonwealth nor
Caroline has requested a ruling from the Internal Revenue Service in connection
with the affiliation. To meet a condition to consummation of the affiliation,
Virginia Commonwealth and Caroline will receive from Mays & Valentine, L.L.P. an
opinion as to certain federal income tax consequences of the affiliation. Such
opinion is not binding on the Internal Revenue Service.
In the opinion of counsel, the affiliation will constitute a tax-free
reorganization under Section 368(a) of the Internal Revenue Code, if consummated
in the manner set forth in the Agreement and Plan of Reorganization.
Accordingly, among other things, in the opinion of counsel:
o The affiliation will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code;
o No gain or loss will be recognized by Virginia Commonwealth or
Caroline as a result of the affiliation;
o No gain or loss will be recognized by a Caroline shareholder
to extent he or she receives Virginia Commonwealth common
stock solely in exchange for his or her Caroline common stock
pursuant to affiliation;
o The tax basis of the Virginia Commonwealth common stock
received by each Caroline shareholder will be the same as the
tax basis of the Caroline common stock surrendered in exchange
therefor; and
o The holding period for each share of Virginia Commonwealth
common stock received by each Caroline shareholder in exchange
for Caroline common stock will include the period for which
the shareholder held the Caroline common stock exchanged,
provided the Caroline common stock is a capital asset in the
hands of the holder at the effective date of the affiliation.
Any cash received by you instead of fractional shares could result in
taxable income to you. The receipt of that cash will generally be treated as a
sale or exchange of the stock resulting in capital gain or loss measured by the
difference between the cash received and an allocable portion of the basis of
the stock relinquished. The receipt of the cash may be treated as a dividend and
taxed as ordinary income in certain limited situations.
RIGHTS OF DISSENTING SHAREHOLDERS
A shareholder of Caroline who objects to the affiliation (a "Dissenting
Shareholder") and who complies with provisions of Article 15 of Title 13.1 of
the Virginia Code ("Article 15") may demand the right to receive a cash payment,
if the affiliation is consummated, for the fair value of his or her stock
immediately before the effective date of the affiliation, exclusive of any
appreciation or depreciation in anticipation of the affiliation unless such
exclusion would be inequitable. In order to receive payment, a Dissenting
17
<PAGE>
Shareholder must deliver to Caroline prior to the special meeting a written
notice of intent to demand payment for his or her shares if the affiliation is
consummated (an "Intent to Demand Payment") and must not vote his or her shares
in favor of the affiliation. The Intent to Demand Payment should be addressed to
William R. Southworth, President and Chief Executive Officer, Caroline Savings
Bank, P.O. Box 860, 268 North Main Street, Bowling Green, Virginia 22427. A VOTE
AGAINST THE AFFILIATION WILL NOT ITSELF CONSTITUTE SUCH WRITTEN NOTICE AND A
FAILURE TO VOTE WILL NOT CONSTITUTE A TIMELY WRITTEN NOTICE OF INTENT TO DEMAND
PAYMENT.
A Caroline shareholder of record may assert dissenters' rights as to
fewer than all the shares registered in his name only if the shareholder
dissents with respect to all shares beneficially owned by any one person and
notifies Caroline 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 to which he dissents and his other shares were
registered in the names of different shareholders. A beneficial shareholder may
assert dissenters' rights as to shares held on his behalf by a shareholder of
record only if (i) he submits to Caroline, 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 of the affiliation, Caroline 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 affiliation. The Dissenter's Notice shall (i)
state where the demand for payment (the "Payment Date") 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 Caroline 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 affiliation (the "Announcement Date"),
which was September 15, 1999. Caroline will specify the Announcement Date in the
Dissenter's Notice.
Except with respect to shares acquired after the Announcement Date,
Caroline shall pay a Dissenting Shareholder the amount Caroline 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, Caroline is only
obligated to estimate the fair market 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
Caroline is less than the fair value of his or her shares, or that the interest
due is incorrectly calculated, that Dissenting Shareholder may notify Caroline
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
18
<PAGE>
Dissenting Shareholder must notify Caroline of the Estimate and Demand within 30
days after the date Caroline makes or offers to make payment to the Dissenting
Shareholder.
Within 60 days after receiving the Estimate and Demand, Caroline 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
Caroline 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 Caroline, 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 Dissenting Shareholder's
Estimates.
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 Appendix E 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
Dissenting Shareholder's rights. Any shareholder who intends to dissent from the
affiliation should review the text of those provisions carefully and also should
consult with his attorney. NO FURTHER NOTICE OF THE EVENTS GIVING RISE TO
DISSENTERS' RIGHTS OR ANY STEPS ASSOCIATED THEREWITH WILL BE FURNISHED TO
CAROLINE 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 shares will recognize gain or loss, if any, for federal income tax
purposes upon the receipt of cash for his 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.
OPINION OF CAROLINE'S FINANCIAL ADVISOR
GENERAL
The Caroline board of directors retained Crestar Securities Corporation
to act as its financial advisor in connection with the affiliation and to render
an opinion as to the fairness, from a financial point of view, of the exchange
ratio to the holders of Caroline common stock. Crestar Securities Corporation is
an investment banking and brokerage firm headquartered in Richmond, Virginia,
that provides a broad array of services to corporations, financial institutions
and state and local governments. The Investment Banking Division of Crestar
Securities Corporation actively works with community banks in the Mid-Atlantic
region and has extensive experience with the Virginia banking market and banking
organizations operating in the Virginia market. As part of its investment
banking business, Crestar Securities Corporation is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions and for other purposes. Crestar Securities Corporation was selected
by the board of directors of Caroline based upon its experience and expertise in
providing valuation, merger and acquisition, and advisory services to banks and
bank holding companies. No limitations were imposed by the Caroline board of
directors upon Crestar Securities Corporation with respect to the investigations
made or procedures followed by it in arriving at its opinion.
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<PAGE>
A representative of Crestar Securities Corporation attended the meeting
of the Caroline board of directors held on September 14, 1999, at which the
Agreement and Plan of Reorganization was considered and approved. At that
meeting, Crestar Securities Corporation delivered its oral opinion to the
Caroline board that as of such date, the exchange rate, which is used to
calculate the consideration to be received by Caroline shareholders in the form
of Virginia Commonwealth stock or in cash (subject to limitations on the cash
component of the consideration), was fair to the Caroline shareholders from a
financial point of view. Crestar Securities Corporation has delivered a written
opinion to the Caroline board dated as of the date of this proxy
statement/prospectus to the effect that, as of such date, the exchange ratio is
fair, from a financial point of view, to the holders of Caroline common stock.
THE FULL TEXT OF THE OPINION OF CRESTAR SECURITIES CORPORATION WHICH
SETS FORTH ASSUMPTIONS MADE AND MATTERS CONSIDERED, IS ATTACHED AS APPENDIX D TO
THIS PROXY STATEMENT/PROSPECTUS. CAROLINE SHAREHOLDERS ARE URGED TO READ THIS
OPINION IN ITS ENTIRETY. THE OPINION OF CRESTAR SECURITIES CORPORATION IS
DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE EXCHANGE
RATIO TO THE HOLDERS OF CAROLINE COMMON STOCK AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE
SPECIAL MEETING. THE SUMMARY OF THE OPINION OF CRESTAR SECURITIES CORPORATION
SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
The opinion of Crestar Securities Corporation is just one of the many
factors taken into consideration by the Caroline board of directors in
determining to approve the Agreement and Plan of Reorganization. The opinion of
Crestar Securities Corporation does not address the relative merits of the
affiliation as compared to any alternative business strategies that might exist
for Caroline, nor does it address the effect of any other business combination
in which Caroline might engage.
In arriving at its opinion, Crestar Securities Corporation reviewed and
analyzed: (i) the Agreement and Plan of Reorganization (ii) the Form S-4
Registration Statement filed with the Securities and Exchange Commission in
connection with the affiliation; (iii) Caroline's annual report to shareholders,
audited financial statements, and annual proxy statements to shareholders for
the three years ended December 31, 1998; (iv) Caroline's annual report on Form
10-KSB for the year ended December 31, 1998 (v) Caroline's unaudited financial
statements for the three months ended March 31, 1999 and 1998; (vi) other
information related to Caroline prepared by Caroline's management, including but
not limited to asset quality, reserve adequacy, margin analysis, interest rate
sensitivity, internal controls, loan policies, regulatory matters and legal
matters; (vii) Virginia Commonwealth's annual report to shareholders, annual
reports on Form 10-K, and annual proxy statements to shareholders for the three
years ended December 31, 1998; (viii) Virginia Commonwealth's unaudited
financial statements for the three months ended March 31, 1998 and 1999; (ix)
other information related to Virginia Commonwealth prepared by Virginia
Commonwealth's management, including but not limited to asset quality, reserve
adequacy, margin analysis, interest rate sensitivity, internal controls, loan
policies, regulatory matters and legal matters; (x) information regarding the
trading market for the common stocks of Caroline and Virginia Commonwealth and
the price range within which the respective stocks have traded; (xi) the
relationship of prices paid to relevant financial data such as net worth, loans,
deposits and earnings in certain bank and bank holding company mergers and
acquisitions in recent years; and (xii) such other financial studies, analyses,
inquiries, and other matters as Crestar Securities Corporation deemed necessary.
Crestar Securities Corporation has discussed with senior management of Caroline
and Virginia Commonwealth the background of the affiliation, the reasons and
20
<PAGE>
basis for the affiliation, and the business and future prospects of Caroline and
Virginia Commonwealth individually and as a consolidated entity. Crestar
Securities Corporation also took into account its assessment of general
economic, market and financial conditions and its expertise in other
transactions, as well as its experience in securities valuations and knowledge
of the commercial banking industry generally.
In connection with its review, Crestar Securities Corporation relied
upon and assumed, without independent verification, the accuracy and
completeness of the financial and other information regarding Caroline and
Virginia Commonwealth provided to Crestar Securities Corporation by both
companies and their representatives. Crestar Securities Corporation also did not
independently verify and has relied on and assumed that the allowances for
possible loan losses set forth in the balance sheets of Caroline and Virginia
Commonwealth at March 31, 1999 were adequate and complied fully with applicable
law, regulatory policy and sound banking practice as of the date of such
financial statements. Crestar Securities Corporation was not retained to conduct
a physical inspection of any of the properties or facilities of Caroline and
Virginia Commonwealth nor did Crestar Securities Corporation make any
independent evaluation or appraisal of the assets or liabilities of Caroline or
Virginia Commonwealth. Crestar Securities Corporation also assumed that the
affiliation in all respects is, and will be, in compliance with all laws and
regulations that are applicable to Caroline and Virginia Commonwealth.
In rendering its opinion, Crestar Securities Corporation assumed that
in the course of obtaining the necessary regulatory approvals for the
affiliation and in the preparation of this proxy statement/prospectus, no
conditions will be imposed that will have a material adverse effect on the
contemplated benefits of the affiliation to either Caroline or, on a pro forma
basis, to Virginia Commonwealth.
In arriving at its opinion, Crestar Securities Corporation performed a
variety of financial analyses. Crestar Securities Corporation believes that its
analyses must be considered as a whole and that consideration of portions of
such analyses and the factors considered therein, without considering all
factors and analyses, could create an incomplete view of the analyses and the
process underlying the opinion of Crestar Securities Corporation. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis and summary
description.
In its analyses, Crestar Securities Corporation made numerous
assumptions with respect to industry performance, business and economic
conditions, and other matters, many of which are beyond the control of Caroline
or Virginia Commonwealth. Any estimates contained in Crestar Securities
Corporation's analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than such estimates.
Estimates of values of companies do not purport to be appraisals or necessarily
reflect the prices at which companies or their securities may actually be sold.
The following is a brief summary of the analyses and procedures
performed by Crestar Securities Corporation in the course of arriving at its
opinion:
CONTRIBUTION ANALYSIS. Crestar Securities Corporation analyzed the
contribution as of December 31, 1998 of Caroline to, among other things, the
total assets, total equity and net income of Virginia Commonwealth on a pro
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forma basis and determined Caroline's contribution to be 11.06%, 11.66%, and
7.83%, respectively. This analysis did not include any assumed cost savings from
the affiliation. Upon consummation of the affiliation and after giving effect to
the exchange ratio, Caroline's existing shareholders would own approximately
13.15% of Virginia Commonwealth's common stock.
The affiliation provides for the exchange of each outstanding share of
Caroline common stock for 0.7959 shares of Virginia Commonwealth common stock.
Crestar Securities Corporation analyzed the changes in the amount of earnings,
book value, and dividends represented by one share of Caroline common stock
before the affiliation and 0.7959 shares of Virginia Commonwealth common stock
after the affiliation. This analysis indicated that, based on internal estimates
of Caroline and Virginia Commonwealth and assuming annual cost savings of
$140,000 resulting from the affiliation, current holders of Caroline common
stock would realize a 78.5% increase in per share earnings, and a 15.0% increase
in book value per share in 1999 from the affiliation on a pro forma basis.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. In preparing its
opinion, Crestar Securities Corporation, using publicly available information,
reviewed and compared selected financial information of Caroline and Virginia
Commonwealth, on a pro forma basis, relative to a group of twenty-four
Virginia-based financial institutions (the "Peer Group") with total assets
ranging from $61 million to $780 million. These financial institutions included
American National Bankshares, Atlantic Financial Corporation, Bank of Essex, C&F
Financial Corporation, Cardinal Financial Corporation, Central Virginia
Bankshares, Commonwealth Bankshares, Community Bankshares, Eastern Virginia
Bankshares, F&M Bank Corporation, FNB Corporation, Guaranty Financial
Corporation, Heritage Bancorp, James River Bankshares, Marathon Financial
Corporation, National Bankshares, Resource Bankshares, Rockingham Heritage Bank,
Shore Financial Corporation, Southern Financial Bancorp, Union Bankshares
Corporation, Valley Financial Corporation, Virginia Commerce Bank, and Virginia
Financial Corporation. Data reviewed by Crestar Securities Corporation included,
among other things, return on assets, return on equity, and equity to assets.
Historical financial information used in computing the preceding ratios was as
of December 31, 1998. The median ratio of equity-to-assets, return on assets,
and return on equity was: 10.5%, 1.13% and 10.6%, respectively, for the Peer
Group; 12.3%, .83% and 6.7%, respectively, for Caroline; and 11.6%, 1.64% and
13.1%, respectively, for Virginia Commonwealth, on a pro forma basis.
Crestar Securities Corporation also analyzed the relative performance
and value of Caroline and Virginia Commonwealth by comparing certain market
trading statistics for Caroline and Virginia Commonwealth with the Peer Group.
The market trading information used in the valuation analysis was as of
September 13, 1998 and included market price to book value per share and market
price to trailing twelve months earnings per share. The multiple of price to
stated book value per share and price to trailing twelve months earnings per
share was: 1.5x and 15.9x, respectively, for the Peer Group; 1.5x and 23.0x,
respectively, for Caroline; and 1.5x and 14.2x, respectively, for Virginia
Commonwealth.
ANALYSIS OF COMPARABLE ACQUISITION TRANSACTIONS. Crestar Securities
Corporation reviewed all known merger and acquisition transactions, completed,
pending, and non-binding since the beginning of 1998, of banks with total assets
less than $300 million. Crestar Securities Corporation determined the median
acquisition price paid to book value, latest twelve months earnings, assets, and
deposits to be 2.3x, 20.1x, 22.0%, and 25.7%, respectively, for all such
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transactions nationally. For transactions completed, pending, or non-binding for
banks of all asset sizes in Virginia, North Carolina, West Virginia, and
Maryland, Crestar Securities Corporation determined the median acquisition price
paid to book value, latest twelve months earnings, assets, and deposits to be
2.9x, 28.4x, 27.9%, and 34.6%, respectively. Equally weighting the median
multiples of price to stated book, latest twelve months earnings, assets and
deposits and applying these to Caroline, Crestar Securities Corporation
calculated the implied per share merger value of Caroline common stock to be
$22.13 to $24.91.
DISCOUNTED DIVIDEND ANALYSIS. Using a discounted cash flow analysis,
Crestar Securities Corporation determined the present values per share of
Caroline common stock assuming Caroline continued to operate as a stand alone
entity and assuming varying operating assumptions. This range was determined by
adding (i) the present value of the future stream of dividends that Caroline
could produce over a five-year period, and (ii) the present value of a share of
Caroline common stock at the end of five years. The value of Caroline at the end
of five years was calculated by applying price/earnings multiples to Caroline's
projected earnings in the fifth year. The range of price/earnings multiples
considered was 17.0x to 21.0x. Crestar Securities Corporation calculated the
implied multiples of book value in the fifth year to be 2.2x to 2.8x. The
discount rates used ranged from 12.0% to 16.0%, which reflect different
assumptions regarding the required rates of return of holders and prospective
buyers of Caroline common stock. On the basis of such varying assumptions,
Crestar Securities Corporation calculated a present value of Caroline common
stock on a stand-alone basis ranging from $19.09 to $26.58.
No company or transaction used as a comparison in the above analyses is
identical to Caroline or Virginia Commonwealth or the affiliation. Accordingly,
evaluating the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of Caroline and Virginia Commonwealth and other factors that
could affect the public trading value of the companies used for comparative
purposes in the above analyses.
In connection with its written opinion as of the date of this proxy
statement/prospectus, Crestar Securities Corporation confirmed the
appropriateness of its reliance on the analyses used to render its oral opinion
to the Caroline board of directors on September 14, 1999, 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.
The opinion of Crestar Securities Corporation was based solely upon the
information available to it and the economic, market and other circumstances as
they existed as of the date of such opinion. Events occurring after that date,
could materially affect the assumptions and conclusions contained in its
opinion. Crestar Securities Corporation has not undertaken to reaffirm or revise
its opinion or otherwise comment upon any events occurring after the date
thereof.
Pursuant to an engagement letter dated September 8, 1999 and in
exchange for its services, Caroline has agreed to pay Crestar Securities
Corporation an advisory fee of $40,000, which is payable upon issuance of its
written opinion. Caroline has further agreed to indemnify Crestar Securities
Corporation against certain liabilities, including certain liabilities under
federal securities laws.
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INTERESTS OF CERTAIN PERSONS IN THE AFFILIATION
Certain members of Caroline's management have interests in the
affiliation in addition to their interests as shareholders of Caroline. These
interests are described below. In each case, the Caroline board was aware of
these potential interests, and considered them, among other matters, in
approving the Agreement and Plan of Reorganization and the transactions
contemplated thereby.
INDEMNIFICATION. Virginia Commonwealth has generally agreed to
indemnify the officers and directors of Caroline after the affiliation to the
same extent and on the same conditions as they are entitled to from Caroline
before the affiliation. Virginia Commonwealth also has agreed to provide
directors' and officers' liability insurance for the present officers and
directors of Caroline comparable to the coverage currently provided by Caroline
before the affiliation.
DIRECTORS AND OFFICERS OF CAROLINE. The directors, officers and
employees of Caroline will not change as a result of the affiliation. The
members of Caroline's board of directors will remain in place for their existing
terms of office and thereafter will be subject to reelection at the discretion
of Virginia Commonwealth.
On the effective date of the affiliation, Virginia Commonwealth will
increase the size of its board of directors by two members, and William R.
Southworth and E. Page Butler will be appointed to fill the vacancies so
created. At the next annual meeting of shareholders of Virginia Commonwealth,
management of Virginia Commonwealth will recommend to shareholders that Mr.
Southworth be elected as a member of the class of directors whose terms expire
in 2001, and that Mr. Butler be elected as a member of the class of directors
whose terms expire in 2002. Mr. Southworth will remain a director of Virginia
Commonwealth until his term expires or he no longer serves as President and
Chief Executive Officer of Caroline, after which time the size of the board of
directors of Virginia Commonwealth will be decreased by one member.
EMPLOYMENT AGREEMENT. William R. Southworth will remain as the
President and Chief Executive Officer of Caroline in accordance with an
employment and consultation agreement pursuant to which Mr. Southworth will be
paid $85,000 a year until June 30, 2001. Beginning on July 1, 2001 and
continuing until June 30, 2002, Mr. Southworth will be consultant to Virginia
Commonwealth and for such service he will be paid $50,000 a year. Also during
his employment, Mr. Southworth will be eligible to participate in any plans,
programs or benefits Caroline provides to its executives after the affiliation.
Further, Virginia Commonwealth has agreed to supplement Mr. Southworth's
retirement benefits by paying to him, at Mr. Southworth's option, either annual
payments of $20,000 per year for 5 years or annual payments of $10,000 a year
for 10 years, commencing at his retirement. These supplemental retirement
payments will be made to Mr. Southworth or, in the event of his death, to his
beneficiary.
EMPLOYEE BENEFIT PLAN. Upon consummation of the affiliation, Virginia
Commonwealth will make available participation in its employee benefit plans and
programs to Caroline's employees. Virginia Commonwealth plans to continue the
plans and programs of Caroline that currently provides. When Caroline's
employees become eligible to participate in Virginia Commonwealth's employee
benefit plans and programs, they will do so on substantially the same basis as
Virginia Commonwealth's employees. Subject to restrictions and limitations that
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applicable law may impose, Virginia Commonwealth will treat the service of a
Caroline employee with Caroline as service with Virginia Commonwealth for
purposes of all employee benefit plans and programs. Virginia Commonwealth will
also honor Caroline's obligations for all accrued and unused vacation, sick
leave and personal leave and all deferred compensation contracts and agreements
that Caroline has previously disclosed to Virginia Commonwealth.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Both Virginia Commonwealth and Caroline are corporations subject to the
provisions of the Virginia Stock Corporation Act. Caroline's shareholder's
rights are presently governed by Caroline's articles of incorporation and
bylaws. Upon consummation of the affiliation and Caroline's shareholders
becoming shareholders of Virginia Commonwealth, your shareholder's rights will
be governed by the articles of incorporation and bylaws of Virginia
Commonwealth.
There are a few material differences between the rights of a Caroline
shareholder under Caroline's articles of incorporation and bylaws, on the one
hand, and the rights of a Virginia Commonwealth shareholder under the articles
of incorporation and bylaws of Virginia Commonwealth, on the other hand, which
are disclosed in the section "Comparative Rights of Shareholders" on page .
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
The following is a summary description of the material aspects of the
Agreement and Plan of Reorganization. This description does not purport to be
complete and is qualified in its entirety by reference to Appendix A that
contains the Agreement and Plan of Reorganization. We urge you to read the
Agreement and Plan of Reorganization in its entirety.
TERMS OF THE AFFILIATION
The Agreement and Plan of Reorganization provides for the exchange of each
outstanding share of Caroline common stock for 0.7959 shares of Virginia
Commonwealth common stock. Virginia Commonwealth will then serve as the parent
bank holding company for Caroline, which will commence to carry on its banking
business in substantially the same manner as before the affiliation.
No financial shares of Virginia Commonwealth common stock will be issued.
Rather, cash, without interest, will be paid instead of any financial share
interest based on the exchange ratio. The exchange ratio will be adjusted to
reflect any stock split, stock dividend, recapitalization or similar transaction
with respect to Virginia Commonwealth common stock.
The Agreement and Plan of Reorganization further provides for the
conversion upon consummation of the affiliation of all stock options held by
employees and decreases under Caroline's 1999 Stock I Plans into options to
acquire shares of Virginia Commonwealth common stock, appropriately adjusted to
reflect the exchange ratio.
Shareholders of Caroline are entitled to exercise their dissenters'
rights with respect to the affiliation. See "--Dissenters' Rights."
REPRESENTATIONS AND WARRANTIES; CONDITIONS TO THE AFFILIATION
The Agreement and Plan of Reorganization contains representations and
warranties by Virginia Commonwealth and Caroline, including representations and
warranties with respect to their individual organizations, authorizations to
enter into the Agreement and Plan of Reorganization, capitalization, financial
statements and pending and threatened litigation. These representations and
warranties, except as otherwise provided in the Agreement and Plan of
Reorganization, will not survive the effective date of the affiliation.
The obligations of Virginia Commonwealth and Caroline to consummate the
affiliation are subject to the following conditions, among others:
o approval of the Agreement and Plan of Reorganization by the
requisite shareholder vote of the Caroline shareholders;
o receipt of all necessary regulatory approvals not conditioned or
restricted in a manner that, in the judgment of the boards of
directors of Virginia Commonwealth or Caroline, materially
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adversely affects the economic or business benefits of the
affiliation so as to render inadvisable or unduly burdensome
consummation of the affiliation;
o the absence of certain actual or threatened proceedings before a
court or other governmental body relating to the affiliation;
o the receipt of an opinion of counsel as to certain federal income
tax consequences of the affiliation;
o the receipt of a letter from Virginia Commonwealth's accountants
to the effect that the affiliation will qualify for
pooling-of-interests accounting treatment under generally accepted
accounting principles;
o performance by the other company of its obligations under the
Agreement and Plan of Reorganization;
o the accuracy, in all material respects, of the representations
and warranties of the other company contained in the Agreement and
Plan of Reorganization;
o the receipt of certain opinions and certificates from the other
company; and
o the receipt by Caroline of a final fairness opinion from Crestar
Securities Corporation dated as of the date of this proxy
statement/prospectus.
REGULATORY APPROVALS
As indicated above, the affiliation is conditioned on the prior
approval of the affiliation by the Board of Governors of the Federal Reserve
System and the Virginia State Corporation Commission. On November __, 1999,
applications were filed with the Federal Reserve and the Virginia State
Corporation Commission. The applications were accepted but no approvals have
been obtained. While we cannot predict whether or when we will obtain all
required regulatory approvals, we see no reason why the approvals will not be
obtained in a timely manner. However, there can be no assurance that the
necessary approvals will be obtained, or that any approval will not be
conditioned in a manner which makes consummation of the affiliation, in the
judgment of the boards of directors of Virginia Commonwealth or Caroline,
inadvisable or unduly burdensome.
BUSINESS PENDING THE AFFILIATION
Until the effective date of the affiliation, each of Virginia
Commonwealth and Caroline has agreed that it will operate its business
substantially as presently operated, in the ordinary course of business, and
will use its best efforts to preserve intact its relationships with persons
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having business dealings with it. In addition, until the effective date,
Caroline has agreed not to take, without Virginia Commonwealth's consent,
certain specific actions in connection with the ongoing operation of its
business. Specifically, Caroline may not:
o make any change in its authorized capital stock, or issue or sell
any additional shares;
o make any changes in the composition, level of compensation or
title of its officers, directors or other key management
personnel, except in the ordinary course of business;
o enter into any bonus, incentive compensation, stock option,
deferred compensation or other benefit plan or employment or
consulting agreement, except in the ordinary course of
business;
o solicit or encourage inquiries or proposals with respect to,
furnish any information relating to, any acquisition of
Caroline or combination with Caroline other than the
affiliation with Virginia Commonwealth;
o amend its bylaws or articles of incorporation;
o pay any dividends on its capital stock;
o change its lending, investment or other material policies; or
o incur any obligation or liability except in the ordinary course of
its business.
STOCK OPTION AGREEMENT
Virginia Commonwealth has the option (the "Option"), exercisable only
in certain circumstances that have not yet occurred, to acquire up to 19.9% of
the aggregate shares of Caroline common stock that would be outstanding
immediately after the issuance of shares in respect of the Option, at a price of
$20.00 per share, pursuant to a Stock Option Agreement dated as of September 15,
1999 by and between Virginia Commonwealth and Caroline (the "Option Agreement").
The Option is exercisable in whole or in part, but subject to any
required regulatory approvals, at any time after a "Purchase Event" shall occur.
A Purchase Event, as defined in the Option Agreement, is any of the following:
(1) Caroline, without having received Virginia Commonwealth's prior written
consent, shall have entered into an agreement with any person to (a) acquire,
merge or consolidate, or enter into any similar transaction, with Caroline, (b)
purchase, lease or otherwise acquire all or substantially all of the assets of
Caroline, or (c) purchase or otherwise acquire directly from Caroline securities
representing 10% or more of the voting power of Caroline; (2) any person shall
have acquired beneficial ownership or the right to acquire beneficial ownership
of 15% or more of the outstanding shares of Caroline common stock after the date
hereof (the term "beneficial ownership" for purposes of the Option Agreement has
the meaning assigned thereto in Section 13(d) of the Securities Exchange Act of
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1934, and the regulations promulgated thereunder); or (3) any person shall have
made a bona fide proposal to Caroline by public announcement or written
communication that is or becomes the subject of public disclosure to acquire
Caroline by affiliation, share exchange, consolidation, purchase of all or
substantially all of its assets or any other similar transaction, and following
such bona fide proposal the shareholders of Caroline vote not to approve the
Agreement and Plan of Reorganization.
EFFECTIVE DATE
If the affiliation is approved by the shareholders of Caroline, all
required governmental and other consents are obtained and the other conditions
to the affiliation are satisfied or waived, the affiliation will be consummated
and made effective on the date and at the time indicated on the certificate
issued by the Virginia State Corporation Commission pursuant to the Virginia
Stock Corporation Act. See "Representations and Warranties; Conditions to the
Affiliation" on page 27.
It is anticipated that the effective date of the affiliation will occur
in the first quarter of 2000.
SURRENDER OF STOCK CERTIFICATES
As soon as practicable after the affiliation, Virginia Commonwealth
will cause Registrar and Transfer Company, its exchange agent, to mail to you a
letter of transmittal and instructions for use to surrender the certificates
representing shares of Caroline common stock in exchange for certificates
representing shares of Virginia Commonwealth common stock.
Caroline shareholders should not send in their certificates until they
receive such instructions.
Promptly after surrender of one or more certificates for Caroline
common stock, together with a properly completed letter of transmittal, you will
receive a certificate or certificates representing the number of shares of
Virginia Commonwealth common stock to which you are entitled and, where
applicable, a check for the amount payable in cash instead of issuing a
fractional share. Lost, stolen, mutilated or destroyed certificates will be
treated in accordance with the existing procedures of Virginia Commonwealth.
After the affiliation, you will be entitled to vote the number of
shares of Virginia Commonwealth common stock into which your Caroline common
stock has been converted, regardless of whether you have surrendered your
Caroline certificates. The Agreement and Plan of Reorganization provides,
however, that no dividend or distribution payable to the holders of record of
Virginia Commonwealth common stock at or as of any time after the effective date
of the affiliation will be paid to the holder of any Caroline certificate until
such holder physically surrenders such certificate, promptly after which time
all such dividends or distributions will be paid, without interest.
WAIVER, AMENDMENT AND TERMINATION
At any time on or before the effective date of the affiliation, any
term or condition of the affiliation may be waived by the party which is
entitled to the benefits thereof and without shareholder approval. The Agreement
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and Plan of Reorganization may be amended at any time before the affiliation by
agreement of the parties whether before or after the shareholder meetings.
However, any material change in a material term of the Agreement and Plan of
Reorganization would require a resolicitation of Caroline's shareholders. Such a
material change would include, but not be limited to, a decrease in the exchange
ratio or a change in the tax consequences to Caroline's shareholders.
The Agreement and Plan of Reorganization may be terminated by Virginia
Commonwealth or Caroline, whether before or after the approval of the
affiliation by the shareholders of Caroline:
o by mutual consent of Caroline and Virginia Commonwealth;
o unilaterally by Caroline or Virginia Commonwealth, if the
affiliation has not occurred on or before July 31, 2000; or
o unilaterally by Caroline or Virginia Commonwealth if the
satisfaction in any material respect of one or more conditions
to the obligation of that party is rendered impossible of
satisfaction. In the event of termination, the Agreement and
Plan of Reorganization shall become null and void, except that
certain provisions thereof relating to expenses and
confidentiality of information exchanged between the parties
shall survive any such termination.
RESALES OF VIRGINIA COMMONWEALTH COMMON STOCK
All shares of Virginia Commonwealth common stock received by Caroline
shareholders in connection with the affiliation will be freely transferable,
except that Virginia Commonwealth common stock received by persons who are
deemed to be "affiliates" of Caroline for purposes of Rule 145 under the
Securities Act of 1933, will be restricted. To the best knowledge of Caroline
and Virginia Commonwealth, the only persons who may be deemed to be affiliates
of Caroline subject to these limitations are the directors and executive
officers of Caroline.
EXPENSES OF THE AFFILIATION
In general, whether or not the affiliation is consummated, Caroline and
Virginia Commonwealth will pay their own expenses incident to preparing,
entering into and carrying out the Agreement and Plan of Reorganization, and
preparing and filing the registration statement of which this proxy
statement/prospectus is a part.
If either party willfully and materially breaches the Agreement and
Plan of Reorganization, that party must pay the costs associated with this
transaction incurred by the non-breaching party. If the Agreement and Plan of
Reorganization is terminated because Caroline shareholders did not approve the
Agreement and Plan of Reorganization, then Caroline will reimburse Virginia
Commonwealth for one-half of its reasonable out-of-pocket expenses, except that
such reimbursement will not exceed a total of $25,000.
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MARKET PRICES AND DIVIDENDS
MARKET PRICES
Caroline common stock is not registered on any exchange, traded in the
over-the-counter market, or quoted by The Nasdaq Stock Market. Caroline common
stock has periodically been sold in a limited number of privately negotiated
transactions. To Caroline management's knowledge, the last sale of Caroline
common stock took place on September 15, 1999 at a price of $20.00 per share.
There may, however, have been other transactions at other prices not known to
Caroline.
Virginia Commonwealth common stock is listed and traded on The Nasdaq
SmallCap Market under the symbol "VCFC."
The following table sets forth the high, low, and closing sales prices
of the common stock as reported by The Nasdaq SmallCap Market for the periods
listed.
Virginia Commonwealth
- -------------------------------------------- ------------- -------------
High Low Closing
- -------------------------------------------- ------------- -------------
1999
- -------------------------------------------- ------------- -------------
4th Quarter (through 11/15/99) $28.75 $26.00 $26.00
- ------------------------------------------------------------------------
3rd Quarter $31.00 $26.50 $28.50
- ------------------------------------------------------------------------
2nd Quarter 31.00 26.00 28.75
- ------------------------------------------------------------------------
1st Quarter 34.00 29.00 29.00
- -------------------------------------------- ------------- -------------
1998
- -------------------------------------------- ------------- -------------
4th Quarter 38.50 33.50 33.50
- -------------------------------------------- ------------- -------------
3rd Quarter 41.50 38.75 40.00
- -------------------------------------------- ------------- -------------
2nd Quarter 46.50 34.00 40.75
- -------------------------------------------- ------------- -------------
1st Quarter 35.50 32.75 33.50
- -------------------------------------------- ------------- -------------
1997
- -------------------------------------------- ------------- -------------
4th Quarter 33.50 27.00 33.00
- -------------------------------------------- ------------- -------------
3rd Quarter 30.00 25.50 28.00
- -------------------------------------------- ------------- -------------
2nd Quarter 23.00 22.00 N/A
- -------------------------------------------- ------------- -------------
1st Quarter 22.00 20.00 N/A
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The closing price of Virginia Commonwealth common stock on The Nasdaq
SmallCap Market on September 14, 1999, the last full trading day preceding the
public announcement of the proposed affiliation, was $27.25 per share. The
closing price of Virginia Commonwealth common stock on The Nasdaq SmallCap
Market on ________ __, 1999, the latest practicable date before the date of this
proxy statement prospectus was $_____ per share.
As of September 30, 1999, there were _____ record holders of Caroline
common stock. As of _____, the record date, there were approximately ______
record holders of Caroline.
DIVIDENDS
The following table reflects the dividends declared per share during
each quarter on Virginia Commonwealth's common stock for the periods indicated.
Virginia Commonwealth
- ------------------- -------------- -------------- ---------------------------
1999 1998 1997
- ------------------- -------------- -------------- ---------------------------
4th Quarter $.25 $.25 $.24
- ------------------- -------------- -------------- ---------------------------
3rd Quarter .25 .24 .22
- ------------------- -------------- -------------- ---------------------------
2nd Quarter .25 .24 .22
- ------------------- -------------- -------------- ---------------------------
1st Quarter .25 .24 .22
- ------------------- -------------- -------------- ---------------------------
Caroline paid dividends in stock in the first quarter of 1997, 1998
and 1999, in the amount of 10%, 5% and 5%, respectively.
Certain state law restrictions are imposed on distributions of
dividends to shareholders of Virginia Commonwealth. Virginia Commonwealth
shareholders are entitled to receive dividends as declared by the Virginia
Commonwealth board of directors. However, no such distribution may be made if,
after giving effect to the distribution, it would not be able to pay its debts
as they become due in the usual course of business or its total assets would be
less than its total liabilities. There are similar restrictions with respect to
stock repurchases and redemptions.
Banks have limitations imposed upon all "capital distributions,"
including cash dividends, payments to repurchase or otherwise acquire its
shares, payments to shareholders of another institution in a cash-out
affiliation, and other distributions charged against capital. As of September
30, 1999, Virginia Commonwealth's banks, Virginia Heartland Bank and Second Bank
& Trust, had the capacity to pay dividends to its sole shareholder, Virginia
Commonwealth, and Caroline had the capacity to pay dividends to its shareholders
each in accordance with its historic practices.
Similarly, Virginia Commonwealth and Caroline each are subject to legal
limitations on 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). For all state member banks of the Federal
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Reserve seeking to pay dividends, the prior approval of the applicable Federal
Reserve Bank is required if the total of all dividends declared in any calendar
year will exceed the sum of the bank's net profits for that year and its
retained net profits for the preceding two calendar years. Federal law also
generally prohibits a depository institution from making any capital
distribution (including payment of a dividend or payment of a management fee to
its holding company) if the depository institution would thereafter fail to
maintain capital above regulatory minimums. Federal Reserve Banks are also
authorized to limit the payment of dividends by any state member bank if such
payment may be deemed to constitute an unsafe or unsound practice. In addition,
under Virginia law no dividend may be declared or paid that would impair a
Virginia chartered bank's paid-in capital. The Virginia State Corporation
Commission has general authority to prohibit payment of dividends by a Virginia
chartered bank if it determines that the limitation is in the public interest
and is necessary to ensure the bank's financial soundness.
Following the consummation of the affiliation, most of the revenues of
Virginia Commonwealth and Virginia Commonwealth's ability to pay dividends to
its shareholders will depend on dividends paid to it by Second Bank & Trust,
Virginia Heartland Bank and Caroline. Based on the current financial condition
of Second Bank & Trust, Virginia Heartland Bank and Caroline, Virginia
Commonwealth expects that the above-described provisions will have no impact on
Virginia Commonwealth's ability to obtain dividends from its other banks and
Caroline or on Virginia Commonwealth's ability to pay dividends to its
shareholders.
CHAPTER II
INFORMATION ABOUT THE MEETING AND VOTING
GENERAL
We are furnishing this document in connection with the solicitation of
proxies by the board of directors of Caroline for use at the special meeting of
Caroline shareholders including any adjournments or postponements thereof, to be
held at ___:___ _.m. on ____________ __, 2000, located at __________________,
Bowling Green, Virginia.
The purpose of the special meeting is to consider and vote upon the
Agreement and Plan of Reorganization, dated September 15, 1999, by and between
Caroline and Virginia Commonwealth and a related Plan of Share Exchange. Copies
are attached to this proxy statement/prospectus as Appendix A. For a description
of the Agreement and Plan of Reorganization, see "Terms of the Agreement and
Plan of Reorganization" on page 24.
The Agreement and Plan of Reorganization provides that Caroline will
become a wholly-owned subsidiary of Virginia Commonwealth. In the affiliation,
each share of Caroline common stock, then outstanding will be converted into the
right to receive 0.7959 shares of Virginia Commonwealth. Virginia Commonwealth
will pay cash in lieu of fractional shares.
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CAROLINE SHAREHOLDERS' MEETING
GENERAL. The Caroline shareholders' meeting will be held on ________
__, 2000 at ____ _.m., local time, at the
__________________________________________. At the special meeting, holders of
Caroline common stock will be asked to consider and vote upon a proposal to
approve the Agreement and Plan of Reorganization. Caroline shareholders may also
be asked to vote upon a proposal to adjourn or postpone the special meeting for
the purpose of, among other things, allowing additional time for the
solicitation of proxies from Caroline shareholders to approve the Agreement and
Plan of Reorganization.
RECORD DATE; VOTING POWER. Only holders of record of shares of Caroline
common stock at the close of business on ________ __, 1999 are entitled to
notice of and to vote at the special meeting. As of such date, there were
____________ issued and outstanding shares of Caroline common stock held by
approximately _____ holders of record. Holders of record of Caroline common
stock on ____________ are entitled to one vote per share on any matter that may
properly come before the special meeting. Brokers who hold shares of Caroline
common stock as nominees will not have discretionary authority to vote such
shares in the absence of instructions from the beneficial owners thereof. Any
such shares of Caroline common stock for which a broker has submitted an
executed proxy but for which the beneficial owner thereof has not given
instructions on voting to such broker are referred to as "broker non-votes."
VOTE REQUIRED. The presence in person or by proxy of the holders of a
majority of the shares of Caroline common stock outstanding on the Caroline
record date will constitute a quorum for the transaction of business at the
special meeting. Abstentions and broker non-votes will be counted for purposes
of establishing the presence of a quorum at the special meeting. The approval
of the proposal to approve the Agreement and Plan of Reorganization requires the
affirmative vote of holders of more than two-thirds of the shares of Caroline
common stock outstanding on _____________. Broker non-votes and abstentions will
be counted and will have the effect of a vote against the proposal to approve
the Agreement and Plan of Reorganization.
On __________, 1999, the executive officers and directors of Caroline,
including their affiliates, had voting power with respect to an aggregate of
[61,489] shares of Caroline common stock or approximately [16%] of the shares of
Caroline common stock then outstanding. We currently expect that such directors
and officers will vote all of such shares in favor of the proposal to approve
the Agreement and Plan of Reorganization. In addition, on __________, 1999, the
directors and executive officers of Virginia Commonwealth did not beneficially
own any shares of Caroline common stock.
RECOMMENDATION OF THE CAROLINE BOARD. The Caroline board has
unanimously approved and adopted the Agreement and Plan of Reorganization. The
Caroline board believes that the affiliation is fair to and in the best
interests of Caroline and the Caroline shareholders and recommends that the
Caroline shareholders vote "FOR" approval of the Agreement and Plan of
Reorganization and the transactions contemplated thereby. See "The Affiliation -
Caroline's Reasons for the Affiliation" on page 14.
SOLICITATION AND REVOCATION OF PROXIES. A form of proxy is enclosed
with this document. All shares of Caroline common stock represented by properly
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executed proxies (whether through the return of the enclosed proxy card) will,
unless such proxies have been previously revoked, be voted in accordance with
the instructions indicated on such proxies. If no instructions are indicated,
such shares will be voted FOR approval of the Agreement and Plan of
Reorganization and in the discretion of the proxy holder as to any other
matter which may properly come before the special meeting.
YOU ARE REQUESTED TO VOTE BY COMPLETING, DATING AND SIGNING THE
ACCOMPANYING PROXY CARD AND RETURNING IT PROMPTLY TO CAROLINE IN THE ENCLOSED,
POSTAGE-PAID ENVELOPE. YOU SHOULD NOT SEND STOCK CERTIFICATES WITH YOUR PROXY
CARDS.
Any Caroline shareholder that has previously delivered a properly
executed proxy may revoke such proxy at any time before its exercise. A proxy
may be revoked either by (i) filing with the Secretary of Caroline prior to the
special meeting, at Caroline's principal executive offices, either a written
revocation of such proxy or a duly executed proxy bearing a later date or (ii)
attending the special meeting and voting in person. Presence at the special
meeting will not revoke a shareholder's proxy unless such shareholder votes in
person.
The cost of soliciting proxies will be borne by Caroline. Proxies may
be solicited by personal interview, mail or telephone. In addition, Caroline may
reimburse brokerage firms and other persons representing beneficial owners of
shares of Caroline common stock for their expenses in forwarding solicitation
materials to beneficial owners. Proxies may also be solicited by certain of
Caroline's executive officers, directors and regular employees, without
additional compensation, personally or by telephone or facsimile transmission.
OTHER MATTERS
Caroline is unaware of any matter to be presented at the special
meeting other than the proposal to approve the Agreement and Plan of
Reorganization. If other matters are properly presented at the special meeting,
the persons named in the enclosed form of proxy will have authority to vote all
properly executed proxies in accordance with their judgment on any such matter,
including, without limitation, any proposal to adjourn or postpone the special
meeting, provided that no proxy that has been designated to vote against
approval of the Agreement and Plan of Reorganization will be voted in favor of
any proposal to adjourn or postpone the special meeting for the purpose of
soliciting additional proxies to approve the Agreement and Plan of
Reorganization.
CHAPTER III
DESCRIPTION OF VIRGINIA COMMONWEALTH
BUSINESS
HISTORY AND BUSINESS
Virginia Commonwealth, formerly Second National Financial Corporation,
is a bank holding company incorporated under the laws of the Commonwealth of
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Virginia on July 2, 1990. Virginia Commonwealth owns all of the stock of two
banking subsidiaries, Second Bank & Trust which was chartered in 1900 and
acquired by Virginia Commonwealth on July 2, 1990, pursuant to the formation of
the holding company; and Virginia Heartland Bank, which affiliated with Virginia
Commonwealth on October 8, 1998. Virginia Commonwealth's primary asset is its
stock investment in the subsidiary banks, with cash and short-term investments
accounting for the remainder of assets. Second Bank & Trust owns one subsidiary,
Second Service Company, which owns a 12% limited liability interest in Bankers
Title of Fredericksburg, a title insurance company. Virginia Heartland Bank also
owns a subsidiary, Virginia Heartland Service Corporation, which owns a 5%
limited liability interest in Banker's Title of Fredericksburg. In addition,
Second Bank & Trust and Virginia Heartland Bank each own a 50% interest in VHB
Mortgage LLC, a mortgage company serving the greater Fredericksburg, Virginia
area.
Virginia Commonwealth is headquartered in Culpeper, Virginia, and,
through its subsidiary banks, offers a full array of banking and investment
services through 10 retail offices serving the counties of Culpeper, Madison,
Orange, Rockingham, Spotsylvania and the City of Fredericksburg. The subsidiary
banks' primary business is the granting of residential real estate loans,
commercial real estate loans, commercial business and consumer loans, funded
through solicitation of deposits. The subsidiary banks consider themselves to be
community-oriented institutions servicing the banking needs of their respective
markets.
In May 1999, Virginia Commonwealth formed a wholly owned trust
subsidiary, Virginia Commonwealth Trust Company. The trust company purchased the
existing trust division of Second Bank & Trust. The trust subsidiary provides
investment management, trust, estate administration and financial planning
services through offices located in Culpeper, Harrisonburg and Fredericksburg.
The trust subsidiary also provides brokerage services in these markets through a
partnership with Raymond James Financial Services. The trust subsidiary
currently has eleven employees and has under management a total of approximately
$115 million in trust assets with approximately $6 million in brokerage
services.
The principal sources of funds for Virginia Commonwealth's subsidiary
banks' lending and investment activities are deposits, amortization and
repayment of loans, prepayments from mortgage-backed securities, repayments of
maturing investment securities, Federal Home Loan Bank advances and other
borrowed money.
Principal sources of revenue are interest and fees on loans and
investment securities, as well as fee income derived from the maintenance of
deposit accounts and dividends paid at the option of Virginia Commonwealth Trust
Company. The principal expenses include interest paid on deposits and advances
from the Federal Home Loan Bank and other borrowings, and operating expenses.
COMPETITION
Virginia Commonwealth, through its subsidiary banks, experiences
substantial competition in attracting and retaining savings deposits and in
lending funds. The primary factors in competing for savings deposits are
convenient office locations and rates offered. Direct competition for savings
deposits comes from other commercial banks, credit unions and thrift
institutions. Additional significant competition for savings deposits comes from
money market mutual funds and corporate and government securities which may
yield more attractive interest rates than insured depository institutions are
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willing to pay. The primary factors in competing for loans are interest rate and
loan origination fees and the range of services offered. Competition for
origination of real estate loans normally comes from other commercial banks,
thrift institutions, mortgage bankers, mortgage brokers and insurance companies.
For additional information about Virginia Commonwealth's business, See
"Where You Can Find More Information" on page .
CHAPTER IV
DESCRIPTION OF CAROLINE
BUSINESS
GENERAL
Financial and other information relating to Caroline is included in
Caroline's Annual Report on Form 10-KSB for each of the years ended December 31,
1997 and 1998 and its Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1999. The audited financial statements of Caroline as of December
31, 1996, 1997 and 1998 and for each of the two years in period ended December
31, 1998 are included in Caroline's Annual Report on Form 10-KSB for each of the
years ended December 31, 1997 and 1998. See "Where You Can Find More
Information" on page .
HISTORY AND BUSINESS
Caroline commenced business in 1973 as a Virginia chartered stock
savings and loan association. On April 19, 1994, stockholders voted to convert
to a Virginia stock savings bank charter under the name Caroline Savings Bank.
Effective September 14, 1994, the conversion was completed and Caroline became a
state chartered stock savings bank. Caroline maintains its corporate
headquarters and home office in the town of Bowling Green, Virginia, and
operates additional branch offices in Fredericksburg and Ladysmith, Virginia.
Caroline's principal business consists of attracting FDIC-insured
deposits from the general public and using such deposits to originate mortgage
loans secured primarily by first liens on residential real estate in the
communities it serves, and to a lesser extent in consumer loans. Caroline's
income is derived from interest income on its loans and other investments,
including mortgage-backed securities and investment securities, and non-interest
income such as loan and origination fees and service charges. At September 30,
1998, Caroline had total assets of $47.6 million, deposits of $38.4 million,
loans receivable of $34.9 million and stockholders' equity of $5.5 million.
Caroline is a member of the Federal Home Loan Bank of Atlanta, one of
the 12 regional banks comprising the Federal Home Loan Bank System. Caroline is
subject to regulation by the FDIC and the Virginia State Corporation Commission,
and to certain requirements of the Board of Governors of the Federal Reserve
System.
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COMPETITION
Caroline experiences substantial competition in attracting and
retaining deposits and in lending funds. The primary factors in competing for
deposits are convenient office locations and rates offered. Direct competition
for deposits comes from other commercial banks and thrift institutions.
Additional significant competition for deposits comes from money market mutual
funds and corporate and government securities which may yield more attractive
interest rates than insured depository institutions are willing to pay. The
primary factors in competing for loans are interest rate and loan origination
fees and the range of services offered. Competition for origination of real
estate loans normally comes from other commercial banks, thrift institutions,
credit unions, mortgage bankers, mortgage brokers and insurance companies.
CHAPTER V
LEGAL MATTERS
DESCRIPTION OF VIRGINIA COMMONWEALTH CAPITAL STOCK
COMMON STOCK
VOTING RIGHTS. Each share of Virginia Commonwealth common stock
entitles the holder thereof to one vote on all matters voted on by shareholders.
The shares of Virginia Commonwealth common stock do not have cumulative voting
rights, which means that the holders of more than 50% of the shares of Virginia
Commonwealth common stock voting for the election of directors can elect all of
the directors, in which event the holders of the remaining shares of Virginia
Commonwealth common stock will not be able to elect any of the directors.
DIVIDEND RIGHTS. Holders of Virginia Commonwealth common stock are
entitled to receive dividends when, as and if declared by the board of directors
out of funds legally available for the payment of dividends.
LIQUIDATION RIGHTS. Subject to the rights of holders of Virginia
Commonwealth preferred stock, upon any liquidation, dissolution or winding up of
the affairs of the Virginia Commonwealth, holders of Virginia Commonwealth
common stock are entitled to receive pro rata all of the assets of the Virginia
Commonwealth for distribution to shareholders.
ASSESSMENT AND REDEMPTION. Shares of Virginia Commonwealth common stock
presently outstanding are validly issued, fully paid and nonassessable. There is
no provision for any voluntary redemption of the Virginia Commonwealth common
stock.
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OTHER. Virginia Commonwealth adopted a Rights Agreement, dated as of
and to be effective on September 10, 1998 (the "Rights Agreement") between
Virginia Commonwealth and Registrar and Transfer Company, as Rights Agent. In
accordance with the Rights Agreement, Virginia Commonwealth also declared a
dividend distribution of one right for each outstanding share of common stock of
Virginia Commonwealth to shareholders of record at the close of business on
September 28, 1998.
Each right entitles the registered holder to purchase from Virginia
Commonwealth one one-thousandth of a share of Virginia Commonwealth's Series A
Junior Participating Preferred Stock. Each one one-thousandth of a share (a
"Unit") of Preferred Stock is structured to be the equivalent of one share of
Common Stock of Virginia Commonwealth. Shareholders received a one Right per
share of common stock held of record at the close of business on the record
date. The exercise price of each Right is $120.00 subject to adjustment (the
"Purchase Price"). Rights owned by any Acquiring Person, as defined below, or by
persons who have acquired Rights from an Acquiring Person, are not exercisable,
with certain exceptions. Rights will also attach to shares of Common Stock
issued after the Record Date but prior to the Distribution Date unless the Board
of Directors determines otherwise at the time of issuance.
The Rights are evidenced by Common Stock certificates, and no separate
certificates evidencing the Rights (the "Rights Certificates") will be
distributed unless there is a Distribution Date, described below. The Rights
will separate from the Common Stock and a distribution of the Rights
Certificates will occur on a date (the "Distribution Date") that is the earlier
of (i) 10 days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of Common Stock (the "Stock Acquisition Date"), or (ii) 10
business days following the commencement of a tender offer or exchange offer
that would result in a person or group beneficially becoming an Acquiring
Person. Until the Distribution Date, (i) the Rights will be evidenced by the
Common Stock certificates and will be transferred with and only with such Common
Stock certificates, (ii) any Common Stock certificates issued will contain a
notation incorporating the Rights Agreement by reference and (iii) the surrender
for transfer of any certificates for Common Stock outstanding will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificates.
The Rights are not exercisable until the Distribution Date and will
expire at the Close of Business on September 9, 2008, unless earlier redeemed or
exchanged by Virginia Commonwealth as described below. As soon as practicable
after the Distribution Date, Rights Certificates will be mailed to holders of
record of the Common Stock as of the Close of Business on the Distribution Date,
and thereafter such separate Rights Certificates alone will represent the
Rights.
While each Right provides for the acquisition of one Unit of Preferred
Stock at the Purchase Price, the Rights Agreement provides that if any person
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right (except as described below) will thereafter have the right to
receive, upon exercise and payment of the Purchase Price, Preferred Stock or, at
the option of Virginia Commonwealth, Common Stock (or, in certain circumstances,
cash, property or other securities of Virginia Commonwealth) having a value
equal to twice the amount of the Purchase Price.
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In the event that, at any time following the Stock Acquisition Date,
(i) Virginia Commonwealth is acquired in a affiliation, statutory share
exchange, or other business combination in which Virginia Commonwealth is not
the surviving corporation, or (ii) 50% or more of Virginia Commonwealth's assets
or earning power is sold or transferred, each holder of a Right (except as
described below) shall thereafter have the right to receive, upon exercise and
payment of the Purchase Price, common stock of the acquiring company having a
value equal to twice the Purchase Price. The events set forth in this paragraph
and in the immediately preceding paragraph are referred to as the "Triggering
Events." If there is a Triggering Event, Rights that are or were owned by the
Acquiring Person, or any affiliate or associates of such Acquiring Person, on or
after such Acquiring Person's Stock Acquisition Date shall be null and void and
shall not thereafter be exercised by any person (including subsequent
transferees).
The Purchase Price payable, and the number of shares of Preferred
Stock, Common Stock or other securities or property issuable upon exercise of
the Rights are subject to adjustment from time to time to prevent dilution.
At any time (including a time after any person becomes an Acquiring
Person), Virginia Commonwealth may exchange all or part of the Rights (except as
set forth below) for shares of Common Stock (an "Exchange") at an exchange ratio
of one share per Right, as appropriately adjusted to reflect any stock split or
similar transaction.
At any time until ten days following the Stock Acquisition Date,
Virginia Commonwealth may redeem the Rights in whole, but not in part, at a
price of $.01 per Right (the "Redemption Price"). Under certain circumstances
set forth in the Rights Agreement, the decision to make an Exchange or to redeem
the Rights shall require the concurrence of a majority of the Continuing
Directors (as defined below). Additionally, Virginia Commonwealth may thereafter
but prior to the occurrence of a Triggering Event redeem the Rights in whole,
but not in part, at the Redemption Price provided that such redemption is
incidental to a affiliation or other business combination transaction involving
Virginia Commonwealth that is approved by a majority of the Continuing
Directors, does not involve an Acquiring Person, and in which all holders of
Common Stock are treated alike. After the redemption period has expired,
Virginia Commonwealth's right of redemption may be reinstated if an Acquiring
Person reduces his beneficial ownership to less than 10% of the outstanding
shares of Common Stock in a transaction or series of transactions not involving
Virginia Commonwealth. Immediately upon the action of the Board ordering
redemption of the Rights, with, where required, the concurrence of the
Continuing Directors, the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
The term "Continuing Directors" means any members of the Board who was
a member of the Board immediately before the adoption of the Rights Agreement,
and any person who is subsequently elected to the Board if such person is
recommended or approved by a majority of the Continuing Directors, but does not
include an Acquiring Person, or an affiliate or associate of an Acquiring
Person, or any representative of the foregoing entities.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of Virginia Commonwealth, including, without limitation,
the right to vote or to receive dividends. While the distribution of the rights
will not be taxable to shareholders or to Virginia Commonwealth, shareholders
may, depending on the circumstances, recognize taxable income in the event that
the Rights become exercisable for Preferred Stock (or other consideration) of
Virginia Commonwealth or for common stock of the acquiring company as set forth
above.
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Other than certain provisions relating to the principal economic terms
of the Rights, any of the provisions of the Rights Agreement may be amended by
the Board prior to the Distribution Date. After the Distribution Date, the
provisions of the Rights Agreement may be amended by the Board (in certain
circumstances, only with the concurrence of the Continuing Directors) in order
to cure any ambiguity, to make certain other changes that do not adversely
affect the interests of holders of Rights (excluding the interest of any
Acquiring Person), or to shorten or lengthen any time period under the Rights
Agreement; provided, however, no amendment to adjust the time period governing
redemption may be made during the time that the Rights are not redeemable.
COMPARATIVE RIGHTS OF SHAREHOLDERS
GENERAL
Virginia Commonwealth and Caroline are corporations subject to the
provisions of the Virginia Stock Corporation Act. Rights as a shareholder of
Caroline are governed by Caroline's articles of incorporation and bylaws and by
the Virginia Stock Corporation Act. Upon consummation of the affiliation,
Caroline shareholders will become shareholders of Virginia Commonwealth, and as
such shareholder rights will then be governed by the articles of incorporation
and bylaws of Virginia Commonwealth and by the Virginia Stock Corporation Act.
The following is a summary of the material differences in the rights of
shareholders of Caroline and Virginia Commonwealth. This summary is qualified in
its entirety by reference to the articles of incorporation and bylaws of
Virginia Commonwealth and Caroline and to the Virginia Stock Corporation Act.
AUTHORIZED CAPITAL
Caroline. Caroline's articles of incorporation authorize the issuance
of up to 5,000,000 shares of Caroline common stock, par value $4.00 per share,
of which 389,806 shares were issued and outstanding as of October 31, 1999.
Virginia Commonwealth. Virginia Commonwealth's articles of
incorporation authorize the issuance of up to 3,000,000 shares of Virginia
Commonwealth common stock, par value $2.50 per share, of which 2,046,487 shares
were issued and outstanding as of October 31, 1999, and 1,000,000 shares of
preferred stock, no par value, of which no shares were issued and outstanding.
AMENDMENT OF ARTICLES OF INCORPORATION OR BYLAWS
CAROLINE. There are no specific provisions under Caroline's articles
concerning the amending of Caroline's articles, therefor amendments are governed
by the Virginia Stock Corporation Act which generally requires that any
amendment to a Virginia corporation's articles of incorporation be approved by
more than two-thirds of the votes entitled to be cast by each voting group
entitled to vote on such amendment, unless the articles of incorporation provide
for a greater or lesser vote, but in no event less than a majority of all of the
votes cast by each such voting group at a meeting at which a quorum of the
voting group exists.
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There are no specific provisions under Caroline's bylaws concerning
the amending of Caroline's bylaws, therefor amendments are governed by the
Virginia Stock Corporation Act which provides generally that a Virginia
corporation's board of directors may amend or repeal the corporation's bylaws
except to the extent that (a) such power is reserved to the shareholders by the
articles of incorporation, (b) the shareholders in adopting or amending a
particular bylaw provided expressly that the board of directors could not amend
or repeal such bylaw and (c) the corporation's shareholders may amend or repeal
the bylaws even though the bylaws may be amended or repealed by the board of
directors.
VIRGINIA COMMONWEALTH. Virginia Commonwealth's articles of
incorporation provide that amendments must be approved by a majority of the
votes entitled to be cast by each voting group entitled to vote.
Virginia Commonwealth's bylaws generally may be amended by either the
board of directors or the shareholders by a majority vote.
AFFILIATIONS, CONSOLIDATIONS AND SALES OF ASSETS
CAROLINE. There are no specific provisions under Caroline's articles
concerning affiliations, consolidations or sales of assets, therefor the
approval process is governed by the Virginia Stock Corporation Act which
generally requires that any merger, share exchange or sale of all or
substantially all of the assets of a corporation not in the ordinary course of
business be approved by more than two-thirds of the votes entitled to be cast by
each voting group entitled to vote, unless the articles of incorporation provide
for a greater or lesser vote, but in no event less than a majority of votes cast
by each such voting group at a meeting at which a quorum of the voting group
exists. The Virginia Stock Corporation Act does permit such an amendment or
transaction to be approved by as few as a majority of the votes cast, if the
articles of incorporation so state. Caroline is also subject to certain
statutory anti-takeover provisions. See "State Anti-Takeover Statutes" on page
.
VIRGINIA COMMONWEALTH. Virginia Commonwealth's articles of
incorporation provide that a plan of affiliation or share exchange or a direct
or indirect sale, lease, exchange or other disposition of all or substantially
all of the property of Virginia Commonwealth not in the ordinary course of
business may be approved by the same vote that is required in order to amend the
articles of incorporation. Additionally, consistent with Virginia law, the board
of directors of Virginia Commonwealth may condition its submission of such plan
of affiliation or share exchange or such a sale or disposition of assets to the
shareholders on any basis, including the requirement of a greater vote than the
required vote described above.
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A proposed affiliation, share exchange or sale of substantially all
assets of Virginia Commonwealth that is favored by two-thirds of the directors
could be adopted as long as two-thirds of the outstanding shares entitled to
vote in each voting group entitled to vote are voted in favor of the proposed
action. In addition to requiring the affirmative vote of two-thirds of the
shares entitled to vote in each voting group entitled to vote, Virginia
Commonwealth's articles of incorporation would require that, unless a proposed
action is approved by at least two-thirds of the directors, holders of at least
eight (80%) of the issued and outstanding shares of Virginia Commonwealth common
stock must vote in favor of the proposed action. The purpose of such additional
requirement is to ensure that if a proposed major corporate action does not have
the support of a board of directors who can provide continuity to and an
in-depth knowledge of the business of Virginia Commonwealth, the action must be
supported by a large majority of the holders of Virginia Commonwealth common
stock.
As with amendments to the articles of incorporation, however, if at
least two-thirds of the directors of Virginia Commonwealth do not approve such
corporate action upon which shareholders are voting, the additional requirement
would permit a minority of the holders of Virginia Commonwealth common stock to
defeat the proposed action.
SIZE AND CLASSIFICATION OF BOARD OF DIRECTORS
CAROLINE. Caroline's bylaws provide that the board of directors shall
consist of 10 directors, all of whom shall be residents of the primary service
area of Caroline. The Caroline board is divided into three classes, consisting,
as nearly as may be possible, of one-third of the total number of directors
constituting the entire board of directors with directors serving staggered
three year terms.
VIRGINIA COMMONWEALTH. Virginia Commonwealth's bylaws provide that its
board of directors shall consist of a minimum of four and a maximum of 25
individuals. Virginia Commonwealth's bylaws provide further for the division of
the directors into three classes, consisting, as nearly as may be possible, of
one-third of the total number of directors constituting the entire board of
directors. At each annual meeting of shareholders, successors to the class of
directors whose term expires at that annual meeting are elected for a three-year
term. If the number of directors has changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, but in no case will a decrease in the number
of directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
A classified board of directors makes it more difficult for
shareholders, including those holding a majority of shares, to force an
immediate change in the composition of a majority of the board of directors,
even when the reason for a proposed removal is poor performance Since the terms
of only approximately one-third of Virginia Commonwealth's directors expire each
year, it requires at least two annual elections for the shareholders to change a
majority, whereas a majority of a non-classified board may be changed in one
year.
VACANCIES AND REMOVAL OF DIRECTORS
CAROLINE. Caroline's bylaws provide that any vacancy on the board of
directors may be filled for the unexpired term by the remaining members of the
board. Caroline's articles of incorporation and bylaws do not address the
removal of directors. Because the Virginia Stock Corporation Act provides that a
director may be removed only at a special meeting of the shareholders, Caroline
shareholders could not remove a director unless a special meeting was called for
that purpose.
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VIRGINIA COMMONWEALTH. Under Virginia Commonwealth's articles of
incorporation, newly created directorships resulting from any increase in the
number of directors and any vacancies on the board of directors resulting from
death, resignation, disqualification, removal or other cause, can be filled only
by the affirmative vote of the majority of the remaining directors then in
office, even if that number is less than a quorum of the board of directors.
This provision would enable incumbent directors to fill vacancies on the board
of directors of Virginia Commonwealth to the exclusion of Virginia
Commonwealth's shareholders, regardless of the reason for the vacancy.
Virginia Commonwealth's articles of incorporation allow removal of
director from office, with cause, only if at least two-thirds of the votes cast
are cast in favor of removal. Shareholders of Virginia Commonwealth may not call
a special meeting for the purpose of removing a director. In the context of a
takeover attempt these provisions likely would require a hostile party to
prevail at two consecutive annual meetings of Virginia Commonwealth in order to
acquire control of the board of directors.
The provisions of Virginia Commonwealth's articles of incorporation
relating to the removal of directors and the filling of vacancies would preclude
a holder of a majority of the voting stock from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
vacancies so created with its own nominees. Accordingly, except with the
concurrence of a majority of the directors remaining in office, persons seeking
representation either by enlarging the board of directors or by filling the
newly created directorships with their own nominees. Since only approximately
one-third of Virginia Commonwealth's directors are elected at any one annual
meeting, any hostile bidder, in the context of a takeover attempt, would have to
prevail at two consecutive annual meetings in connection with director elections
in order to replace a majority of the directors of Virginia Commonwealth.
DIRECTOR LIABILITY AND INDEMNIFICATION
The Virginia Stock Corporation Act provides that in any proceeding
brought by or in the right of a corporation or brought by or on behalf of
shareholders of the corporation, the damages assessed against an officer or
director arising out of a single transaction, occurrence or course of conduct
may not exceed the lesser of (1) the monetary amount, including the elimination
of liability, specified in the articles of incorporation or, if approved by the
shareholders, in the bylaws as a limitation on or elimination of the liability
of the officer or director; or (2) the greater of (a) $100,000 or (b) the amount
of cash compensation received by the officer or director from the corporation
during the twelve months immediately preceding the act or omission for which
liability was imposed. The liability of an officer or director is not limited
under the Virginia Stock Corporation Act or a corporation's articles of
incorporation and bylaws if the officer or director engaged in willful
misconduct or a knowing violation of the criminal law or of any federal or state
securities law.
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In addition, the Virginia Stock Corporation Act permits a Virginia
corporation to indemnify any director or officer for reasonable expenses
incurred in any legal proceeding in advance of final disposition of the
proceeding, if the director or officer furnishes the corporation a written
statement of his good faith belief that he has conducted himself in good faith
and that he believed that his conduct was in the best interests of the
corporation, and a determination is made by the board of directors that such
standard has been met. In a proceeding by or in the right of the corporation, no
indemnification shall be made in respect of any matter as to which an officer or
director is adjudged to be liable to the corporation, unless the court in which
the proceeding took place determines that, despite such liability, such person
is reasonably entitled to indemnification in view of all the relevant
circumstances. In any other proceeding, no indemnification shall be made if the
director or officer is adjudged liable to the corporation on the basis that
personal benefit was improperly received by him. Corporations are given the
power to make any other or further indemnity, including advancement of expenses,
to any director or officer that may be authorized by the articles of
incorporation or any bylaw made by the shareholders, or by any resolution
adopted, before or after the event, by the shareholders, except an indemnity
against willful misconduct or a knowing violation of the criminal law. Unless
limited by its articles of incorporation, indemnification of a director or
officer is mandatory when he entirely prevails in the defense of any proceeding
to which he is a party because he is or was a director or officer.
CAROLINE. Caroline's articles of incorporation provide that any
director of Caroline shall be indemnified by Caroline for his actions, and in
the case of an officer, he may be indemnified by Caroline for his actions,
unless the officer or director is adjudged liable for willful misconduct or a
knowing violation of criminal law. The rights of indemnification provided in
Caroline's articles of incorporation are not exclusive of any other rights of
the officer or director, including without limitation rights conferred by
applicable law and any right under insurance policies which may be purchased and
maintained by Caroline or others, even as to liabilities against which Caroline
would not have the power to indemnify.
VIRGINIA COMMONWEALTH. To the fullest extent permitted by Virginia law,
Virginia Commonwealth's articles of incorporation require it to indemnify any
director or officer of Virginia Commonwealth who is made a party to any
proceeding because he was or is a director or officer of Virginia Commonwealth
against any liability, including reasonable expenses and legal fees, incurred in
the proceeding. Under Virginia Commonwealth's articles of incorporation,
"liability" is defined to include, not only judgments, but also settlements,
penalties, fines and certain excise taxes. Virginia Commonwealth's articles of
incorporation also provide that Virginia Commonwealth may, but is not obligated
to, indemnify its other employees or agents. The indemnification provisions also
require Virginia Commonwealth to pay reasonable expenses incurred by a director
or officer of Virginia Commonwealth in a proceeding in advance of the final
disposition of any such proceeding, Virginia Commonwealth's articles of
incorporation does not permit indemnification against willful misconduct or a
knowing violation of the criminal law.
The rights of indemnification provided in Virginia Commonwealth's
articles of incorporation are not exclusive of any other rights which may be
available under any insurance or other agreement, by vote of shareholders or
disinterested directors or otherwise. In addition, the articles of incorporation
authorize Virginia Commonwealth to maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of Virginia Commonwealth,
whether or not Virginia Commonwealth would have the power to provide
indemnification to such person. The rights of indemnification provided to
directors of Virginia Commonwealth could reduce the likelihood of shareholder
derivative actions and may discourage other third party claims against the
directors, even if such actions otherwise would be beneficial to shareholders of
Virginia Commonwealth.
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Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Virginia
Commonwealth pursuant to the foregoing provisions, Virginia Commonwealth has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefor unenforceable.
SPECIAL MEETINGS OF SHAREHOLDERS
CAROLINE. Caroline's bylaws provide that special meetings of
shareholders may be held on the dates and times fixed by the board of directors.
A special meeting may also be called by the President, the board or by holders
of not less than 20% of Caroline's issued and outstanding common stock.
VIRGINIA COMMONWEALTH. Virginia Commonwealth's bylaws provide that
special meetings of shareholders may be held whenever called by the president,
chairman of the board of directors or by the board of directors, itself, which
means that the shareholders of Virginia Commonwealth do not have the right to
call special meetings. The inability of shareholders to call a special meeting
could affect changes in control of Virginia Commonwealth by delaying the
presentation to shareholders of proposals relating to, or facilitating, such a
change in control until the annual meeting.
SHAREHOLDER NOMINATIONS AND PROPOSALS
CAROLINE. Caroline's bylaws do not prescribe procedures for directors'
nominations. In addition, Caroline's articles of incorporation and bylaws do not
contain any requirements relating to the timing or content of shareholder
proposals for shareholder vote.
VIRGINIA COMMONWEALTH. Under Virginia Commonwealth's bylaws, notice of
a proposed nomination or a shareholder proposal meeting certain specified
requirements must be received by Virginia Commonwealth not less than 30 nor more
than 90 days prior to any meeting of shareholders called for the election of
directors.
Virginia Commonwealth's bylaws require that the shareholder's notice
set forth as to each nominee (i) the name and address of such nominee, (ii) a
description of all arrangements or understandings between the shareholder and
the proposed nominee and any other person, and (iii) any other information
relating to such nominee that is required under federal securities laws to be
disclosed in solicitations of proxies for the election of directors, or is
otherwise required (including, without limitation, such nominee's written
consent to being named in a proxy statement as nominee and to serving as a
director if elected). Virginia Commonwealth's bylaws further require that the
shareholder's notice set forth as to the shareholder giving the notice (i) the
name and address of such shareholder and (ii) a representation that the
shareholder is owner of stock of Virginia Commonwealth entitled to vote at such
meeting and intends to attend the meeting in person or by proxy to nominate the
proposed director. If the information supplied by a shareholder is deficient in
any material aspect or if the foregoing procedure is not followed, the chairman
of the annual meeting may determine that such shareholder's nomination should
not be brought before the annual meeting and that such nominee shall not be
eligible for election as a director of Virginia Commonwealth.
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The advance notice procedure of Virginia Commonwealth's bylaws affords
the board of directors the opportunity to consider the qualifications of the
proposed nominees and to inform shareholders about such qualifications. Although
such procedure does not give the board of directors of Virginia Commonwealth any
power to approve or disapprove of shareholder nominations for election of
directors, it may have the effect of precluding surprise nominations and a
contest for the election if directors if such procedure established by it is not
followed. Furthermore, such procedure may discourage or deter a third party from
conducting a solicitation of proxies to elect its own slate of directors.
The procedures regarding shareholder proposals and nominations provide
the board of directors of Virginia Commonwealth with the information which will
be necessary to evaluate a shareholder proposal or nomination and other relevant
information, such as existing shareholder support, as well as the time necessary
to consider and evaluate such information in advance of the applicable meeting.
The proposed procedures, however, will give incumbent directors advance notice
of a business proposal or nomination. This may make it easier for the incumbent
directors to defeat a shareholder proposal or nomination, even when certain
shareholders view such proposal or nomination as in the best interests of
Virginia Commonwealth or its shareholders. Virginia Commonwealth's articles of
incorporation and bylaws do not prevent shareholders from making proposals under
the Securities and Exchange Commission's rules and regulations.
SHAREHOLDER VOTING RIGHTS IN GENERAL
The Virginia Stock Corporation Act generally provides that shareholders
do not have cumulative voting rights unless those rights are provided in the
corporation's articles of incorporation. The Virginia Stock Corporation Act also
specifies additional voting requirements for Affiliated Transactions which are
discussed below under "State Anti-Takeover Statutes."
CAROLINE. Caroline's articles of incorporation and bylaws do not
provide shareholders cumulative voting rights for the election of directors.
Therefore, the holders of a majority of the shares voted in the election of
directors can elect all of the directors then standing for election. The holders
of common stock are entitled to one vote per share on all matters submitted to a
vote of shareholders.
VIRGINIA COMMONWEALTH. Virginia Commonwealth's articles of
incorporation do not provide shareholders cumulative rights for the election of
directors. Therefore, the holders of a majority of the shares voted in the
election of directors can elect all of the directors then standing for election.
The holders of Virginia Commonwealth common stock are entitled to one vote per
share on all matters submitted to a vote of shareholders. Except to the extent
to which the board of directors shall have specified voting power with respect
to any other class of stock and except as otherwise provided by law, the
exclusive voting power shall be vested in the holders of Virginia Commonwealth
common stock.
STATE ANTI-TAKEOVER STATUTES
The Virginia Stock Corporation Act restricts transactions between a
corporation and its affiliates and potential acquirors. The summary below is
necessarily general and is not intended to be a complete description of all the
features and consequences of those provisions, and is qualified in its entirety
by reference to the statutory provisions contained in the Virginia Stock
Corporation Act. Because both Caroline and Virginia Commonwealth are Virginia
corporations, the provisions of the Virginia Stock Corporation Act described
below apply to Caroline and Virginia Commonwealth and will continue to apply to
Caroline after the affiliation.
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AFFILIATED TRANSACTIONS. The Virginia Stock Corporation Act contains
provisions governing "Affiliated Transactions," found at Sections 13.1-725 -
727.1 of the Virginia Stock Corporation Act. Affiliated Transactions include
certain affiliations and share exchanges, certain material dispositions of
corporate assets not in the ordinary course of business, any dissolution of a
corporation proposed by or on behalf of an Interested Shareholder (as defined
below), and reclassifications, including reverse stock splits, recapitalizations
or affiliations of a corporation with its subsidiaries, or distributions or
other transactions which have the effect of increasing the percentage of voting
shares beneficially owned by an Interested Shareholder by more than 5%. For
purposes of the Virginia Stock Corporation Act, an "Interested Shareholder" is
defined as any beneficial owner of more than 10% of any class of the voting
securities of a Virginia corporation.
Subject to certain exceptions discussed below, the provisions governing
Affiliated Transactions require that, for three years following the date upon
which any shareholder becomes an Interested Shareholder, any Affiliated
Transaction must be approved by the affirmative vote of holders of two-thirds of
the outstanding shares of the corporation entitled to vote, other than the
shares beneficially owned by the Interested Shareholder, and by a majority (but
not less than two) of the Disinterested Directors (as defined below). A
"Disinterested Director" is defined in the Virginia Stock Corporation Act as a
member of a corporation's board of directors who (i) was a member before the
later of January 1, 1988 or the date on which an Interested Shareholder became
an Interested Shareholder and (ii) was recommended for election by, or was
elected to fill a vacancy and received the affirmative vote of, a majority of
the Disinterested Directors then on the corporation's board of directors. At the
expiration of the three year period after a shareholder becomes an Interested
Shareholder, these provisions require approval of the Affiliated Transaction by
the affirmative vote of the holders of two-thirds of the outstanding shares of
the corporation entitled to vote, other than those beneficially owned by the
Interested Shareholder.
The principal exceptions to the special voting requirement apply to
Affiliated Transactions occurring after the three year period has expired and
require either that the transaction be approved by a majority of the
corporation's Disinterested Directors or that the transaction satisfy certain
fair price requirements of the statute. In general, the fair price requirements
provide that the shareholders must receive the higher of: the highest per share
price for their shares as was paid by the Interested Shareholder for his or its
shares, or the fair market value of the shares. The fair price requirements also
require that, during the three years preceding the announcement of the proposed
Affiliated Transaction, all required dividends have been paid and no special
financial accommodations have been accorded the interested Shareholder, unless
approved by a majority of the Disinterested Directors.
None of the foregoing limitations and special voting requirements
applies to a transaction with an Interested Shareholder who has been an
Interested Shareholder continuously since the effective date of the statute
(January 26, 1988) or who became an Interested Shareholder by gift or
inheritance from such a person or whose acquisition of shares making such person
an Interested Shareholder was approved by a majority of the Disinterested
Directors of the corporation.
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These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the Virginia Stock Corporation Act provides that by
affirmative vote of a majority of the voting shares other than shares owned by
any Interested Shareholder, a corporation may adopt by meeting certain voting
requirements, an amendment to its articles of incorporation or bylaws providing
that the Affiliated Transactions provisions shall not apply to the corporation.
Neither Caroline nor Virginia Commonwealth has adopted such an amendment.
Currently, no shareholder of Caroline owns or controls 10% or more of Caroline
common stock, and there are no Interested Shareholders of Caroline or Virginia
Commonwealth as defined by the Virginia Stock Corporation Act.
CONTROL SHARE ACQUISITIONS. The Virginia Control Share Acquisitions
statute, found at Sections 13.1-728 - 728.8 of the Virginia Stock Corporation
Act, also is designed to afford shareholders of a public company incorporated in
Virginia protection against certain types of non-negotiated acquisitions in
which a person, entity or group ("Acquiring Person") seeks to gain voting
control of that corporation. With certain enumerated exceptions, the statute
applies to acquisitions of shares of a corporation which would result in an
Acquiring Person's ownership of the corporation's shares entitled to vote in the
election of directors falling within any one of the following ranges: 20% to
33-13%, 33-13% to 50% or 50% or more (a "Control Share Acquisition"). Shares
that are the subject of a Control Share Acquisition ("Control Shares") will not
be entitled to voting rights unless the holders of a majority of the
"Disinterested Shares" vote at an annual or special meeting of shareholders of
the corporation to accord the Control Shares with voting rights. Disinterested
Shares do not include shares owned by the Acquiring Person or by officers and
inside directors of the target company. Under certain circumstances, the statute
permits an Acquiring Person to call a special shareholders' meeting for the
purpose of considering granting voting rights to the holders of the Control
Shares. As a condition to having this matter considered at either an annual or
special meeting, the Acquiring Person must provide shareholders with detailed
disclosures about his identity, the method and financing of the Control Share
Acquisition and any plans to engage in certain transactions with, or to make
fundamental changes to, the corporation, its management or business. Under
certain circumstances, the statute grants dissenters' rights to shareholders who
vote against granting voting rights to the Control Shares. The Virginia Control
Share Acquisitions Statute also enables a corporation to make provisions for
redemption of Control Shares with no voting rights. A corporation may opt-out of
the statute, which Caroline has not done, by so providing in its articles of
incorporation or bylaws. Virginia Commonwealth, however, has opted out of the
statute by so providing in its bylaws. Among the acquisitions specifically
excluded from the statute are acquisitions which are a part of certain
negotiated transactions to which the corporation is a party and which, in the
case of affiliations or share exchanges, have been approved by the corporation's
shareholders under other provisions of the Virginia Stock Corporation Act.
REGULATION
Set forth below is a brief description of certain laws and regulations
that relate to the regulation of Virginia Commonwealth and Caroline. The
description of these laws and regulations, as well as descriptions of laws and
regulations contained elsewhere herein, does not purport to be complete and is
qualified in its entirety by reference to applicable laws and regulations.
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GENERAL
Virginia Commonwealth is a bank holding company within the meaning of
the Bank Holding Act of 1956. As such, Virginia Commonwealth is supervised by
the Board of Governors of the Federal Reserve System (the "Federal Reserve") and
is required to file reports with the Federal Reserve and provide such additional
information as the Federal Reserve may require. In addition, the two subsidiary
banks of Virginia Commonwealth, Second Bank & Trust and Virginia Heartland Bank,
are each a Virginia state-chartered commercial bank which is regulated and
supervised by the Federal Reserve Bank of Richmond and by the Bureau of
Financial Institutions of the Virginia State Corporation Commission ("SCC").
Caroline is a Virginia state-chartered savings bank. As such, it is regulated
and supervised by the Federal Deposit Insurance Corporation ("FDIC") and the
SCC. The SCC, the Federal Reserve Bank of Richmond, and the FDIC conduct regular
examinations of the banks that they supervise, reviewing such matters as the
adequacy of loan loss reserves, quality of loans and investments, management
practices, compliance with laws, and other aspects of their operations. In
addition to these regular examinations, supervised banks must furnish the SCC,
the Federal Reserve Bank of Richmond, and the FDIC with periodic reports
containing a full, accurate statement of their affairs. Supervision, regulation
and examination of banks by these agencies are intended primarily for the
protection of depositors rather than shareholders. The various laws and
regulations administered by the regulatory agencies affect corporate practices,
expansion of business, and provisions of services. Also, monetary and fiscal
policies of the United States directly affect bank loans and deposits and thus
may affect Virginia Commonwealth's and Caroline's earnings. The future impact of
these policies and of the continuing regulatory changes in the financial
services industry cannot be predicted.
FDIC REGULATIONS
The Federal Deposit Insurance Corporation Act of 1991 ("FDICIA"), which
became law in December 1991, required each federal banking agency to revise its
risk-based capital standards to ensure that those standards take adequate
account of interest rate risk, concentration of credit risk and the risks of
non-traditional activities. In addition, pursuant to FDICIA, each federal
banking agency has promulgated regulations, specifying the levels at which a
financial institution would be considered "well capitalized", "adequately
capitalized", "under capitalized", "significantly under capitalized", or
"critically under capitalized", and to take certain mandatory and discretionary
supervisory actions based on the capital level of the institution.
Under the regulations implementing the prompt corrective action
provisions, an institution shall be deemed to be (i) "well capitalized" if it
has total risk-based capital of 10% or more, has a Tier I risk-based capital
ratio of 6% or more, has a leverage capital ratio of 5% or more and is not
subject to any order or final capital directive to meet and maintain a specific
capital level for any capital measure, (ii) "adequately capitalized" if it has a
total risk-based capital ratio of 8% or more, a Tier I risk-based ratio of 4% or
more and a leverage capital ratio of 4% or more (3% under certain circumstances)
and does not meet the definition of "well capitalized", (iii) "undercapitalized"
if it has a total risk-based capital ratio that is less than 8%, a Tier I
risk-based capital ratio that is less than 4% or a leverage capital ratio that
is less than 4% (3% in certain circumstances), (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is less than
6%, a Tier I risk-based capital ratio that is less than 3% or a leverage capital
ratio that is less than 3% and (v) "critically undercapitalized" if it has a
ratio of tangible equity to total assets that is equal to or less than 2%. In
addition, under certain circumstances, a federal banking agency may reclassify a
well capitalized institution as adequately capitalized and may require an
adequately capitalized institution or an undercapitalized institution to comply
with supervisory actions as if it were in the next lower category (except that
the FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized). Immediately upon becoming undercapitalized, or
upon failing to submit or implement a capital plan as required, an institution
shall become subject to various regulatory restrictions.
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FDICIA also contained the Truth in Savings Act, which requires certain
disclosures to be made in connection with deposit accounts offered to consumers.
The regulations have been adopted implementing the provisions of the Truth in
Savings Act.
In addition, significant provisions of FDICIA required federal banking
regulators to draft standards in a number of other important areas to assure
bank safety and soundness, including internal controls, information systems and
internal audit systems, credit underwriting, asset growth, compensation, loan
documentation and interest rate exposure. FDICIA also required the regulators to
establish maximum ratios of classified assets to capital, and minimum earnings
sufficient to absorb losses without impairing capital. The legislation also
contained other provisions which restricted the activities of state-chartered
banks, amended various consumer banking laws, limited the ability of "under
capitalized" banks to borrow from the Federal Reserve's discount window, and
required federal banking regulators to perform annual onsite bank examinations
and set standards for real estate lending.
REGULATORY CAPITAL REQUIREMENT
All depository institutions are required to maintain minimum levels of
regulatory capital. The federal bank regulatory agencies have established
substantially similar risked based and leverage capital standards for financial
institutions that they regulate. These regulatory agencies also may impose
capital requirements in excess of these standards on a case-by-case basis for
various reasons, including financial condition or actual or anticipated growth.
Under the risk-based capital requirements of these regulatory agencies, the bank
subsidiaries of Virginia Commonwealth and Caroline are each required to maintain
a minimum ratio of total capital to risk-weighted assets of at least 8%. At
least half of the total capital is required to be "Tier 1 capital," which
consists principally of common and certain qualifying preferred shareholders'
equity, less certain intangibles and other adjustments. The remainder ("Tier 2
capital") consists of a limited amount of subordinated and other qualifying debt
(including certain hybrid capital instruments) and a limited amount of the
general loan loss allowance. Based upon the applicable Federal Reserve
regulations, at September 30, 1999, Second Bank & Trust, Virginia Heartland Bank
and Caroline each is considered to be "well capitalized."
In addition, the federal regulatory agencies have established a minimum
leverage capital ratio (Tier 1 capital to tangible assets). These guidelines
provide for a minimum leverage capital ratio of 3% for banks and their
respective holding companies that meet certain specified criteria, including
that they have the highest regulatory examination rating and are not
contemplating significant growth or expansion. All other institutions are
expected to maintain a leverage ratio of at least 100 to 200 basis points above
that minimum. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets.
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DEPOSIT INSURANCE
The deposits of each of Virginia Commonwealth's subsidiary banks and
Caroline are currently insured to a maximum of $100,000 per depositor, subject
to certain aggregation rules. The FDIC has implemented a risk-related assessment
system for deposit insurance premiums. All depository institutions have been
assigned to one of nine risk assessment classifications based on certain capital
and supervisory measures. All deposits in Virginia Commonwealth's subsidiary
banks are subject to the rates of the Bank Insurance Fund and Caroline's
deposits are subject to the rates of the Savings Association Insurance Fund.
Based on their current risk classifications, the subsidiary banks of Virginia
Commonwealth and Caroline are each required to pay the minimum BIF and SAIF
assessments.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board requires all depository institutions to
maintain reserves against their transaction accounts (primarily NOW and Super
NOW checking accounts) and non-personal time deposits. Because required reserves
must be maintained in the form of vault cash or a noninterest-bearing account at
a Federal Reserve Bank, the effect of this reserve requirement is to reduce the
earning assets of each of Virginia Commonwealth's subsidiary banks.
RESALES OF VIRGINIA COMMONWEALTH COMMON STOCK
CAROLINE SHAREHOLDERS. The shares of Virginia Commonwealth common stock
to be issued to Caroline shareholders in the affiliation have been registered
under the Securities Act. These shares may be traded freely and without
restriction by those shareholders not deemed to be "affiliates" of Caroline as
that term is defined under the Securities Act. An affiliate of a corporation, as
defined by the rules promulgated under the Securities Act, is a person who
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, that corporation. Any subsequent
transfer by an affiliate of Caroline must be one permitted by the resale
provisions of Rule 145 promulgated under the Securities Act or as otherwise
permitted under the Securities Act.
AFFILIATES OF VIRGINIA COMMONWEALTH AND CAROLINE. Securities and
Exchange Commission guidelines regarding qualifying for the pooling-of-interests
method of accounting also limit sales of shares of the acquiring company and
acquired company by affiliates of either company in a business combination such
as the affiliation. These guidelines indicate that the pooling-of-interests
method of accounting will generally not be challenged on the basis of sales by
such affiliates if these persons do not dispose of any of the shares of the
corporation they own or any shares of the corporation they receive in connection
with a affiliation during the period beginning 30 days prior to the affiliation
and ending when financial results covering at least 30 days of post-affiliation
operations of the consolidated entity have been published (the "Pooling
Restricted Period").
Caroline has agreed to deliver to Virginia Commonwealth not less than
30 days prior to the effective date, for each of its affiliates, an agreement
that such person will not dispose of (i) any Virginia Commonwealth common stock
in violation of the Securities Act or (ii) any Caroline common stock or Virginia
Commonwealth common stock during the Pooling Restricted Period.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
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 Virginia Commonwealth
and Caroline. 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:
o competitive pressure from banks and other financial service
o providers increases significantly;
o changes in the interest rate environment reduce margins;
o general economic conditions, either nationally or regionally, are
o less favorable than expected, resulting in, among other things, a
o deterioration in credit quality;
o changes occur in the regulatory environment;
o changes occur in business conditions and inflation;
o changes occur in the securities markets; and
o any business disruptions that may result from Year 2000 issues.
EXPERTS
The financial statements of Virginia Commonwealth Financial Corporation
as of December 31, 1998 and 1997 and for each of the three years then ended have
been included herein and in the registration statement in reliance upon the
report of Yount, Hyde & Barbour, P.C., independent certified public accountants,
which has been filed with the Securities and Exchange Commission, and upon the
authority of said firm as experts in accounting and auditing.
The financial statements of Caroline Savings Bank as of December 31,
1998 and for the year then ended have been included herein and in the
registration statement in reliance upon the report of McGladrey & Pullen, LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements of Caroline Savings Bank as of December 31,
1997 and 1996 and for the years then ended have been included herein and in the
registration statement in reliance upon the report of Cherry, Bekaert & Holland,
L.L.P., independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
LEGAL OPINIONS
The validity of the shares of Virginia Commonwealth common stock
offered hereby is being passed upon for Virginia Commonwealth by Mays &
Valentine, L.L.P., Richmond, Virginia. Mays & Valentine, L.L.P. will deliver an
opinion to Virginia Commonwealth and Caroline concerning certain federal income
tax consequences of the affiliation. See "The Affiliation -- Material Federal
Income Tax Consequences of the Affiliation" on page 15.
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Certain matters relating to the affiliation will be passed upon for
Caroline by LeClair Ryan, A Professional Corporation, Richmond, Virginia.
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WHERE YOU CAN FIND MORE INFORMATION
Virginia Commonwealth files annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any document that Virginia Commonwealth files
at the Commission's public reference room facility located at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices at 7 World
Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Please call
the Commission at 1-800-SEC-0330 for further information on the public reference
room. The Commission maintains an Internet site at www.sec.gov that contains
reports, proxy and information statements and other information regarding
issuers, including Virginia Commonwealth, that file documents with the
Commission electronically through the Commission's electronic data gathering,
analysis and retrieval system known as EDGAR. Virginia Commonwealth's reports,
proxy and information statements may also be reviewed at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington D.C. 20006.
Caroline files annual, quarterly and current reports, proxy statements
and other information with the Federal Deposit Insurance Corporation and may be
inspected and copied without charge at the FDIC's Registration, Disclosure and
Securities Operation Unit, 550 17th Street, N.W., Room F-6043, Washington, D.C.
20429, and may also be obtained from the FDIC by writing to the referenced
address, by calling (202) 895-8913 or by facsimile at (202) 898-3909.
This proxy statement/prospectus is part of a registration statement
filed by Virginia Commonwealth with the Commission. Because the rules and
regulations of the Commission allow the omission of certain portions of the
registration statement from this document, this proxy statement/prospectus does
not contain all the information contained in the registration statement. You may
review the registration statement and the exhibits filed with the registration
statement for further information regarding Virginia Commonwealth. The
registration statement and its exhibits may be inspected at the public reference
facilities of the Commission at the addresses and Internet site mentioned above.
The Commission allows Virginia Commonwealth and Caroline to
"incorporate by reference" information into this proxy statement/prospectus,
which means that the companies can disclose important information to you by
referring you to another document filed separately with the Commission and the
FDIC. The information incorporated by reference is deemed to be a part of this
proxy statement/prospectus, except for any information superseded by information
contained directly in this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents
set forth below that Virginia Commonwealth and Caroline have previously filed
with the Commission and the FDIC. These documents contain important business
information about Virginia Commonwealth and Caroline.
VIRGINIA COMMONWEALTH'S COMMISSION FILINGS PERIOD
(FILE NO. 000-22747)
Annual Report on Form 10-K..................... Year ended December 31, 1998
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<TABLE>
<CAPTION>
<S> <C>
Quarterly Reports on Form 10-Q.......................................... Quarters ended March 31, June 30, and
September 30, 1999
CAROLINE'S FDIC FILINGS PERIOD
Annual Report on 10-KSB................................................. Year ended December 31, 1997
Annual Report on 10-KSB................................................. Year ended December 31, 1998
Quarterly Reports on Form 10-QSB........................................ Quarters ended March 31, June 30, and
September 30, 1999
</TABLE>
Virginia Commonwealth and Caroline also incorporate by reference
additional documents that either may file with the Commission or the FDIC
between the date of this document and the date of the special meeting. These
include periodic reports, such as annual reports, quarterly reports and current
reports, as well as proxy statements.
Virginia Commonwealth has supplied all information contained or
incorporated by reference in this document relating to Virginia Commonwealth and
Caroline has supplied all such information relating to Caroline.
Caroline may have sent you some of the documents incorporated by
reference by Caroline, but you can obtain any of them through Caroline or the
FDIC. Documents incorporated by reference by Virginia Commonwealth are available
through the Commission or the Commission's website stated above or from Virginia
Commonwealth without charge, excluding all exhibits unless specifically
incorporated by reference as an exhibit to this document. Shareholders of
Virginia Commonwealth or Caroline may obtain documents incorporated by reference
in this document by requesting them in writing or by telephone from Virginia
Commonwealth or Caroline at the following addresses:
Virginia Commonwealth Financial Corporation
Attn: Jeffrey W. Farrar
P.O. Box 71
Culpeper, Virginia 22701
Caroline Savings Bank
Attn: Janet L. Moss
P.O. Box 860
268 North Main Street
Bowling Green, Virginia 22427
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM EITHER VIRGINIA
COMMONWEALTH OR CAROLINE, PLEASE DO SO BY ______________, 2000 IN ORDER TO
RECEIVE TIMELY DELIVERY OF THE DOCUMENTS BEFORE THE SPECIAL MEETING.
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You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus to vote your shares at the special
meeting. Virginia Commonwealth and Caroline have not authorized anyone to
provide you with information that is different from what is contained in this
proxy statement/prospectus. This proxy statement/prospectus is dated
______________, 1999. You should not assume that the information contained in
this proxy statement/prospectus is accurate as of any date other than that date,
and neither the mailing of this proxy statement/prospectus to shareholders nor
the issuance of Virginia Commonwealth common stock in the affiliation creates
any implication to the contrary.
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Appendix A
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
CAROLINE SAVINGS BANK
AND
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION
A-1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
ARTICLE 1. THE AFFILIATION AND RELATED MATTERS............................................ 4
1.1 The Affiliation................................................................ 4
1.2 Conversion of Caroline Stock................................................... 4
1.3 Directors, Officers and Employees of Caroline.................................. 5
1.4 Management of VCFC............................................................. 5
1.5 Caroline Stock Options......................................................... 5
1.6 The Closing and Effective Date................................................. 6
1.7 Definitions.................................................................... 6
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF CAROLINE..................................... 6
2.1 Organization, Standing and Power............................................... 7
2.2 Authorized and Effective Agreement............................................. 7
2.3 Capital Structure.............................................................. 8
2.4 Subsidiaries................................................................... 8
2.5 Financial Statements; Minute Books............................................. 8
2.6 Absence of Undisclosed Liabilities............................................. 9
2.7 Legal Proceedings; Compliance with Laws........................................ 9
2.8 Regulatory Approvals........................................................... 9
2.9 Labor Relations................................................................ 10
2.10 Tax Matters.................................................................... 10
2.11 Property....................................................................... 10
2.12 Reports........................................................................ 11
2.13 Employee Benefit Plans......................................................... 11
2.14 Investment Securities.......................................................... 11
2.15 Certain Contracts.............................................................. 12
2.16 Insurance...................................................................... 12
2.17 Absence of Material Changes and Events......................................... 13
2.18 Loans, OREO and Allowance for Loan Losses...................................... 13
2.19 Statements True and Correct.................................................... 14
2.20 Brokers and Finders............................................................ 14
2.21 Pooling of Interests Conditions................................................ 15
2.22 Environmental Matters.......................................................... 15
2.23 Year 2000...................................................................... 17
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF VCFC......................................... 17
3.1 Organization, Standing and Power............................................... 17
3.2 Organization, Standing and Power of VCFC Subsidiaries.......................... 17
3.3 Authorized and Effective Agreement............................................. 18
3.4 Capital Structure.............................................................. 18
3.5 Financial Statements........................................................... 19
3.6 Material Adverse Change........................................................ 19
3.7 Absence of Undisclosed Liabilities............................................. 19
3.8 Legal Proceedings; Compliance with Laws........................................ 19
3.9 Tax Matters.................................................................... 20
3.10 Employee Benefit Plans......................................................... 20
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3.11 Allowance for Loan Losses...................................................... 20
3.12 Statements True and Correct.................................................... 20
3.13 Year 2000...................................................................... 21
ARTICLE 4. COVENANTS AND AGREEMENTS....................................................... 21
4.1 Investigation and Confidentiality.............................................. 21
4.2 Registration Statement; Shareholder Approval................................... 22
4.3 Operation of the Business of Caroline.......................................... 22
4.4 Operation of the Business of VCFC.............................................. 23
4.5 Regulatory Filings............................................................. 24
4.6 Public Announcements........................................................... 24
4.7 Accounting Treatment........................................................... 24
4.8 Affiliates..................................................................... 24
4.9 Benefit Plans; Employment Agreement............................................ 24
4.10 Indemnification................................................................ 25
4.11 Stock Option Agreement......................................................... 25
ARTICLE 5. CONDITIONS TO THE AFFILIATION.................................................. 25
5.1 General Conditions............................................................. 25
5.2 Conditions to Obligations of VCFC.............................................. 26
5.3 Conditions to Obligations of Caroline.......................................... 27
ARTICLE 6. TERMINATION.................................................................... 27
6.1 Termination.................................................................... 27
6.2 Effect of Termination.......................................................... 29
6.3 Survival of Representations, Warranties and Covenants.......................... 29
6.4 Expenses....................................................................... 29
ARTICLE 7. GENERAL PROVISIONS............................................................. 30
7.1 Entire Agreement............................................................... 30
7.2 Binding Effect; No Third-Party Rights.......................................... 30
7.3 Waiver and Amendment........................................................... 30
7.4 Governing Law.................................................................. 30
7.5 Notices........................................................................ 30
7.6 Counterparts................................................................... 31
7.7 Severability................................................................... 31
EXHIBIT A - PLAN OF SHARE EXCHANGE
EXHIBIT B - EMPLOYMENT AND CONSULTATION AGREEMENT
EXHIBIT C - STOCK OPTION AGREEMENT
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of September 15, 1999, by and between VIRGINIA COMMONWEALTH
FINANCIAL CORPORATION, a Virginia corporation ("VCFC"), and CAROLINE SAVINGS
BANK, a Virginia savings bank ("Caroline").
WITNESSETH:
WHEREAS, the respective Boards of Directors of VCFC and Caroline have
approved the affiliation of their two companies through a share exchange under
Virginia law that will cause Caroline to become a wholly-owned subsidiary of
VCFC, all as more specifically provided in this Agreement and the Plan of Share
Exchange in the form attached hereto as Exhibit A (the "Plan of Share
Exchange"); and
WHEREAS, the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby.
NOW, THEREFORE, in consideration of the mutual warranties, covenants
and agreements set forth herein, the parties agree as follows.
ARTICLE 1
THE AFFILIATION AND RELATED MATTERS
1.1 THE AFFILIATION
Subject to the terms and conditions of this Agreement, at the Effective
Date as defined in Section 1.6 hereof, Caroline shall become a wholly-owned
subsidiary of VCFC through the exchange of each outstanding share of common
stock of Caroline for shares of the common stock of VCFC in accordance with
Section 1.2 of this Agreement and the Plan of Share Exchange (the
"Affiliation"). From and after the Effective Date, the Affiliation shall have
the effect set forth in Section 13.1-721 of the Virginia Stock Corporation Act
(the "VSCA").
1.2 CONVERSION OF CAROLINE STOCK
(a) At the Effective Date, by virtue of the Share Exchange and without
any action on the part of the holders thereof, each share of common stock, par
value $4.00 per share, of Caroline ("Caroline Common Stock") issued and
outstanding immediately prior to the Effective Date (other than Dissenting
Shares as defined in the Plan of Share Exchange) shall cease to be outstanding
and shall be converted into and exchanged for shares of common stock, par value
$2.50 per share, of VCFC ("VCFC Common Stock") pursuant to the terms and
conditions set forth in the Plan of Share Exchange, which terms are incorporated
herein and made a part of this Agreement by reference.
<PAGE>
(b) In the event VCFC changes (or establishes a record date for
changing) the number of shares of VCFC Common Stock issued and outstanding prior
to the Effective Date as a result of a stock split, stock dividend,
recapitalization or similar transaction with respect to the outstanding VCFC
Common Stock and the record date therefor shall be prior to the Effective Date,
appropriate and proportional adjustments will be made to the Exchange Ratio.
1.3 DIRECTORS, OFFICERS AND EMPLOYEES OF CAROLINE
The directors, officers and employees of Caroline will not change as a
result of the Affiliation. The members of Caroline's Board of Directors shall
remain in place for their existing terms of office and thereafter shall be
subject to reelection at the discretion of VCFC. William R. Southworth shall
remain as the President and Chief Executive Officer and a director of Caroline
pursuant to an employment and consultation agreement in the form attached hereto
as Exhibit B.
1.4 MANAGEMENT OF VCFC
On the Effective Date, VCFC shall increase the size of its board of
directors by two members, and William R. Southworth and E. Page Butler shall be
appointed to fill the vacancies so created. At the next annual meeting of
shareholders of VCFC, management of VCFC will recommend to shareholders that Mr.
Southworth be elected as a member of the class of directors whose terms expire
in 2001, and that Mr. Butler be elected as a member of the class of directors
whose terms expire in 2002. Mr. Southworth shall remain a director of VCFC until
his term expires or he no longer serves as President and Chief Executive Officer
of Caroline, after which time the size of the board of directors of VCFC will be
decreased by one member.
1.5 CAROLINE STOCK OPTIONS
From and after the Effective Date, all employee and director stock
options to purchase shares of Caroline Common Stock (each, a "Caroline Stock
Option"), that are then outstanding and unexercised, shall be converted into and
become options to purchase shares of VCFC Common Stock, and VCFC shall assume
each such Caroline Stock Option in accordance with the terms of the plan and
agreement by which it is evidenced; provided, however, that from and after the
Effective Date (i) each such Caroline Stock Option assumed by VCFC may be
exercised solely to purchase shares of VCFC Common Stock, (ii) the number of
shares of VCFC Common Stock purchasable upon exercise of such Caroline Stock
Option shall be equal to the number of shares of Caroline Common Stock that were
purchasable under such Caroline Stock Option immediately prior to the Effective
Date multiplied by the Exchange Ratio and rounding down to the nearest whole
share, with cash being paid for any fractional share interest that otherwise
would be purchasable, and (iii) the per share exercise price under each such
Caroline Stock Option shall be adjusted by dividing the per share exercise price
of each such Caroline Stock Option by the Exchange Ratio, and rounding down to
the nearest cent. The terms of each Caroline Stock Option shall, in accordance
with its terms, be subject to further adjustment as appropriate to reflect any
stock
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split, stock dividend, recapitalization or other similar transaction with
respect to VCFC Common Stock on or subsequent to the Effective Date.
1.6 THE CLOSING AND EFFECTIVE DATE
Subject to Section 6.1, the closing of the transactions contemplated by
this Agreement and the Plan of Share Exchange shall take place at such place as
may be mutually agreed upon by the parties (the "Closing"). The Affiliation will
become effective on the date shown on the Certificate of Share Exchange issued
by the State Corporation Commission of Virginia ("SCC") effecting the
Affiliation (the "Effective Date"). Unless otherwise agreed upon in writing,
subject to the conditions to the obligations of the parties to effect the
Affiliation as set forth in Article 5, the parties shall use their best efforts
to cause the Effective Date to occur as promptly as practicable after the
conditions set forth in Article 5 are satisfied.
1.7 DEFINITIONS
Any term defined in this Agreement and the Plan of Share Exchange shall
have the meaning ascribed to it for purposes of this Agreement. In addition:
(a) the term "best knowledge" when used with respect to a party shall
mean the knowledge, after due inquiry, of any "Executive Officer" of such party,
as such term is defined in Regulation O of the Federal Reserve Board;
(b) the term "Previously Disclosed" shall mean information set forth in
a schedule (a "Disclosure Schedule", which shall be arranged in sections
corresponding to the sections of this Agreement) from one party to the other
party delivered and dated on or before September 24, 1999, setting forth, among
other things, items the disclosure of which is necessary or appropriate in
relation to any or all of such party's representations and warranties. Any
matter included, whether aggregated or not, in the Caroline Financial Statements
or the VCFC Financial Statements, as the case may be, shall be deemed to be
Previously Disclosed; and
(c) the term "Caroline Option Agreement" shall mean the Stock Option
Agreement dated of even date herewith under which VCFC has an option to purchase
shares of Caroline, which shall be executed and delivered immediately following
and in connection with the execution of this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF CAROLINE
Caroline represents and warrants to VCFC as follows:
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2.1 ORGANIZATION, STANDING AND POWER
Caroline is a state savings bank duly organized, validly existing and
in good standing under the laws of the Commonwealth of Virginia with full
corporate power and authority to carry on a savings bank business as now
conducted and is an "insured bank" as defined in the Federal Deposit Insurance
Act and applicable regulations thereunder. Caroline has the corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and the Caroline Option Agreement, and to consummate the transactions
contemplated hereby and thereby (subject to receipt of the approval of the
shareholders of Caroline of this Agreement and the Plan of Share Exchange).
Caroline Financial Services Corporation, a wholly-owned subsidiary of Caroline
(the "Subsidiary"), is a duly organized corporation, validly existing and in
good standing under the laws of the Commonwealth of Virginia. The Subsidiary (i)
has full corporate power and authority to carry on its business as now conducted
and (ii) is duly qualified to do business in the states where its ownership or
leasing of property or the conduct of its business requires such qualification
and where the failure to so qualify would have a material adverse effect on
Caroline on a consolidated basis. The outstanding shares of capital stock of the
Subsidiary are validly issued and outstanding fully paid nonassessable and all
such shares are directly owned by Caroline free and clear of all liens, claims
and encumbrances or preemptive rights of any person.
2.2 AUTHORIZED AND EFFECTIVE AGREEMENT
(a) Caroline has all requisite corporate power and authority to enter
into and (subject to the receipt of all necessary governmental approvals and the
approval of the shareholders of Caroline of this Agreement and the Plan of Share
Exchange) to perform all of its obligations under this Agreement, the Plan of
Share Exchange and the Caroline Option Agreement. The execution, adoption and
delivery of this Agreement, the Plan of Share Exchange and the Caroline Option
Agreement and the consummation of the Affiliation have been duly and validly
authorized by all necessary corporate action on the part of Caroline, except the
approval of shareholders. This Agreement, the Plan of Share Exchange and the
Caroline Option Agreement represent the legal, valid, and binding obligations of
Caroline, enforceable against Caroline in accordance with their respective
terms, in each case subject to (i) bankruptcy, insolvency, reorganization,
moratorium, conservatorship, receivership or other similar laws affecting the
enforcement of rights of creditors of FDIC-insured institutions or the
enforcement of creditors' rights generally, (ii) laws relating to the safety and
soundness of depository institutions and (iii) general principles of equity.
(b) Neither the execution and delivery of this Agreement, the Plan of
Share Exchange or the Caroline Option Agreement or the consummation of the
transactions contemplated herein, nor compliance by Caroline with any of the
provisions hereof or thereof will: (i) conflict with or result in a breach of
any provision of Caroline's or its Subsidiary's Articles of Incorporation or
Bylaws; (ii) except as PREVIOUSLY DISCLOSED, constitute or result in the breach
of any term, condition or provision of, or constitute a
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default under, or give rise to any right of termination, cancellation or
acceleration with respect to, or result in the creation of any lien, charge or
encumbrance upon, any property or asset of Caroline or of its Subsidiary
pursuant to any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation; or (iii) subject to the receipt of all required
regulatory and shareholder approvals, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Caroline or its Subsidiary.
2.3 CAPITAL STRUCTURE
The authorized capital stock of Caroline consists of 3,000,000 shares
of common stock, par value $4.00 per share. As of the date hereof, there were
389,806 shares of Caroline Common Stock issued and outstanding. All outstanding
shares of Caroline Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable and have not been issued in violation of the
preemptive rights of any person. Except as PREVIOUSLY DISCLOSED, there are no
outstanding options, warrants or other rights to subscribe for or purchase from
Caroline any capital stock of Caroline or securities convertible into or
exchangeable for capital stock of Caroline.
2.4 SUBSIDIARIES
Caroline does not own, directly or indirectly, 5% or more of the
outstanding capital stock or other voting securities of any corporation or other
organization other than 100% of the capital stock of its Subsidiary.
2.5 FINANCIAL STATEMENTS; MINUTE BOOKS
The Caroline Financial Statements (as defined below) fairly present or
will fairly present, as the case may be, the consolidated financial position of
Caroline and its Subsidiary as of the dates indicated and the results of
operations, changes in stockholders' equity and statements of cash flows for the
periods then ended (subject, in the case of unaudited interim statements, to
normal recurring audit adjustments that are not material in amount or effect) in
conformity with generally accepted accounting principles applicable to financial
institutions applied on a consistent basis. The minute books of Caroline and its
Subsidiary contain legally sufficient records of all meetings and other
corporate actions of its shareholders and Board of Directors (including
committees of its Board of Directors). The Caroline Financial Statements shall
mean (i) the consolidated statements of financial condition of Caroline and its
Subsidiary as of December 31, 1998 and 1997 and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years ended December 31, 1998, 1997 and 1996 (including related notes and
schedules, if any) and (ii) the consolidated statements of financial condition
of Caroline and its Subsidiary and related statements of income, stockholders'
equity and cash flows (including related notes and schedules, if any) with
respect to quarterly periods ended subsequent to December 31, 1998.
8
<PAGE>
2.6 ABSENCE OF UNDISCLOSED LIABILITIES
Neither Caroline nor its Subsidiary has incurred any liability
(contingent or otherwise) that is material to Caroline on a consolidated basis
or that, when combined with all similar liabilities, would be material to
Caroline on a consolidated basis, except as PREVIOUSLY DISCLOSED or as disclosed
in the Caroline Financial Statements and except for liabilities incurred in the
ordinary course of business consistent with past practice since the date of the
most recent Caroline Financial Statements.
2.7 LEGAL PROCEEDINGS; COMPLIANCE WITH LAWS
Except as PREVIOUSLY DISCLOSED, there are no actions, suits or
proceedings instituted or pending or, to the best knowledge of Caroline,
threatened against Caroline or its Subsidiary, or against any property, asset,
interest or right of Caroline or its Subsidiary, that are reasonably expected to
have, either individually or in the aggregate, a material adverse effect on the
consolidated financial condition of Caroline and its Subsidiary or that are
reasonably expected to threaten or impede the consummation of the Affiliation.
Neither Caroline nor its Subsidiary is a party to any agreement or instrument or
subject to any judgment, order, writ, injunction, decree or rule that might
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), business or prospects of Caroline or such Subsidiary.
Except as PREVIOUSLY DISCLOSED, as of the date of this Agreement, neither
Caroline nor its Subsidiary nor any of their respective properties is a party to
or is subject to any order, decree, agreement, memorandum of understanding or
similar arrangement with, or a commitment or similar submission to, any federal
or state governmental agency or authority charged with the supervision or
regulation of depository institutions or mortgage lenders or engaged in the
insurance of deposits which restricts or purports to restrict in any material
respect the conduct of its business or its properties, or in any manner relates
to the capital, liquidity, credit policies or management of it; and except as
PREVIOUSLY DISCLOSED, neither Caroline nor its Subsidiary has been advised by
any such regulatory authority that such authority is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, commitment letter or
similar submission. To the best knowledge of Caroline, each of Caroline and its
Subsidiary has complied in all material respects with all laws, ordinances,
requirements, regulations or orders applicable to its business (including
environmental laws, ordinances, requirements, regulations or orders).
2.8 REGULATORY APPROVALS
Caroline knows of no reason why the regulatory approvals referred to in
Section 5.1(c) should not be obtained without the imposition of any condition of
the type referred to in Section 5.1(c).
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2.9 LABOR RELATIONS
Neither Caroline nor its Subsidiary is a party to or bound by any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is it the subject of a proceeding
asserting that it has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel it to bargain with any
labor organization as to wages and conditions of employment, nor is there any
strike or other labor dispute involving it, pending or, to the best of its
knowledge, threatened, nor is it aware of any activity involving its employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
2.10 TAX MATTERS
Each of Caroline and its Subsidiary has filed all federal, state and
local tax returns and reports required to be filed, and all taxes shown by such
returns to be due and payable have been paid or are reflected as a liability in
the Caroline Financial Statements or are being contested in good faith and have
been PREVIOUSLY DISCLOSED. Except to the extent that liabilities therefor are
specifically reflected in the Caroline Financial Statements, there are no
federal, state or local tax liabilities of Caroline or its Subsidiary other than
liabilities that have arisen since December 31, 1998, all of which have been
properly accrued or otherwise provided for on the books and records of Caroline.
Except as PREVIOUSLY DISCLOSED, no tax return or report of Caroline or its
Subsidiary is under examination by any taxing authority or the subject of any
administrative or judicial proceeding, and no unpaid tax deficiency has been
asserted against Caroline or its Subsidiary by any taxing authority.
2.11 PROPERTY
Except as PREVIOUSLY DISCLOSED or reserved against in the Caroline
Financial Statements, each of Caroline and its Subsidiary has good and
marketable title free and clear of all material liens, encumbrances, charges,
defaults or equities of whatever character to all of the material properties and
assets, tangible or intangible, reflected in the Caroline Financial Statements
as being owned by Caroline or its Subsidiary as of the dates thereof. To the
best knowledge of Caroline, all buildings, and all fixtures, equipment, and
other property and assets which are material to its business, held under leases
or subleases by Caroline or its Subsidiary are held under valid instruments
enforceable in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws. The buildings,
structures, and appurtenances owned, leased, or occupied by Caroline or its
Subsidiary are in good operating condition and in a state of good maintenance
and repair, and to the best knowledge of Caroline (i) comply with applicable
zoning and other municipal laws and regulations, and (ii) there are no latent
defects therein.
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2.12 REPORTS
Since January 1, 1995, Caroline has filed all reports and statements,
together with any amendments required to be made with respect thereto, that were
required to be filed with the SCC, the Federal Deposit Insurance Corporation
("FDIC"), and to the best knowledge of Caroline, any other governmental or
regulatory authority or agency having jurisdiction over its or its Subsidiary's
operations.
2.13 EMPLOYEE BENEFIT PLANS
(1) Caroline will deliver for VCFC's review, as soon as practicable,
true and complete copies of all material pension, retirement, profit-sharing,
deferred compensation, stock option, bonus, vacation or other material incentive
plans or agreements, all material medical, dental or other health plans, all
life insurance plans and all other material employee benefit plans or fringe
benefit plans, including, without limitation, all "employee benefit plans" as
that term is defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), currently adopted, maintained by, sponsored
in whole or in part by, or contributed to by Caroline or its Subsidiary for the
benefit of employees, retirees or other beneficiaries eligible to participate
(collectively, the "Caroline Benefit Plans"). Any of the Caroline Benefit Plans
which is an "employee pension benefit plan," as that term is defined in Section
(3(2) of ERISA, is referred to herein as a "Caroline ERISA Plan." No Caroline
Benefit Plan is or has been a multi-employer plan within the meaning of Section
3(37) of ERISA.
(2) Except as PREVIOUSLY DISCLOSED, all Caroline Benefit Plans are in
compliance with the applicable terms of ERISA and the Internal Revenue Code of
1986, as amended (the "IRC") and any other applicable laws, rules and
regulations, the breach or violation of which could result in a material
liability to Caroline.
(3) No Caroline ERISA Plan which is a defined benefit pension plan has
any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, and the present fair market value of the assets of any
such plan exceeds the plan's "benefit liabilities," as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that would
apply if the plan was terminated in accordance with all applicable legal
requirements.
2.14 INVESTMENT SECURITIES
Except for pledges to secure public and trust deposits and obligations
under agreements pursuant to which Caroline or its Subsidiary has sold
securities subject to an obligation to repurchase, none of the investment
securities reflected in the Caroline Financial Statements is subject to any
restriction, contractual, statutory, or otherwise, which would impair materially
the ability of the holder of such investment to dispose freely of any such
investment at any time. With respect to any agreements pursuant to which
Caroline or its Subsidiary has purchased securities subject to any agreement to
resell, it has a valid, perfected first lien or security interest in the
government securities or
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other collateral securing such agreement, and the value of such collateral
equals or exceeds the amount of the debt secured thereby.
2.15 CERTAIN CONTRACTS
(1) Except as PREVIOUSLY DISCLOSED, neither Caroline nor its Subsidiary
is a party to, or is bound by, (i) any material agreement, arrangement or
commitment, (ii) any agreement, indenture or other instrument relating to the
borrowing of money by Caroline or its Subsidiary or the guarantee by Caroline or
its Subsidiary of any such obligation, (iii) any agreement, arrangement or
commitment relating to the employment of a consultant or the employment,
election, retention in office or severance of any present or former director or
officer, (iv) any agreement to make loans or for the provision, purchase or sale
of goods, services or property between Caroline or its Subsidiary and any
director of officer of Caroline or its Subsidiary, or any member of the
immediate family or affiliate of any of the foregoing, or (v) any agreement
between Caroline and any 5% or more shareholder of Caroline; in each case other
than agreements entered into in the ordinary course of the banking business
consistent with past practice.
(2) Neither Caroline nor its Subsidiary, nor to the best knowledge of
Caroline, the other party thereto, is in default under any material agreement,
commitment, arrangement, lease, insurance policy or other instrument whether
entered into in the ordinary course of business or otherwise, nor has there
occurred any event that, with the lapse of time or giving of notice or both,
would constitute such a default, other than defaults of loan agreement by
borrowers from Caroline in the ordinary course of its business.
(3) Since December 31, 1998 neither Caroline nor its Subsidiary has
incurred or paid any obligation or liability that would be material to Caroline,
except obligations incurred or paid in connection with transactions in the
ordinary course of business of Caroline consistent with its practice and, except
as PREVIOUSLY DISCLOSED, from December 31, 1998 to the date hereof, neither
Caroline nor its Subsidiary has taken any action that, if taken after the date
hereof, would breach any of the covenants contained in Section 4.3 hereof.
2.16 INSURANCE
A complete list of all policies or binders of fire, liability,
product liability, workmen's compensation, vehicular and other insurance held by
or on behalf of Caroline and its Subsidiary is included in its disclosure
schedule and all such policies or binders are valid and enforceable in
accordance with their terms, are in full force and effect, and insure against
risks and liabilities to the extent and in the manner customary for the industry
and are deemed appropriate and sufficient by Caroline. Neither Caroline nor its
Subsidiary is in default with respect to any provision contained in any such
policy or binder and has not failed to give any notice or present any claim
under any such policy or binder in due and timely fashion. Neither Caroline nor
its Subsidiary has received notice of cancellation or non-renewal of any such
policy or binder. Neither Caroline nor its Subsidiary has
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knowledge of any inaccuracy in any application for such policies or binders, any
failure to pay premiums when due or any similar state of facts or the occurrence
of any event that is reasonably likely to form the basis for any material claim
against it not fully covered (except to the extent of any applicable deductible)
by the policies or binders referred to above. Neither Caroline nor its
Subsidiary has received notice from any of its insurance carriers that any
insurance premiums will be increased materially in the future or that any such
insurance coverage will not be available in the future on substantially the same
terms as now in effect.
2.17 ABSENCE OF MATERIAL CHANGES AND EVENTS
Since December 31, 1998, there has not been any material adverse change
in the condition (financial or otherwise), aggregate assets or liabilities, cash
flow, earnings or business of Caroline or its Subsidiary, and each of Caroline
and its Subsidiary has conducted its business only in the ordinary course
consistent with past practice. This representation and warranty shall not be
deemed to be modified by any disclosures made to VCFC or information provided to
VCFC as "PREVIOUSLY DISCLOSED" in connection with this Agreement or obtained by
VCFC during its due diligence investigation or otherwise in connection with this
Agreement, nor shall the receipt of such disclosures or information limit the
right of VCFC (i) to rely upon the representations and warranties contained
herein as a condition to its obligations to effect the Affiliation as provided
in Section 5.2 or (ii) to terminate this Agreement under Article 6.
2.18 LOANS, OREO AND ALLOWANCE FOR LOAN LOSSES
(1) Except as PREVIOUSLY DISCLOSED, and except for matters which
individually or in the aggregate do not materially adversely affect the
Affiliation or the consolidated financial condition of Caroline and its
Subsidiary, to the best knowledge of Caroline, each loan reflected as an asset
in the Caroline Financial Statements (i) is evidenced by notes, agreements, or
other evidences of indebtedness which are true, genuine and what they purport to
be, (ii) to the extent secured, has been secured by valid liens and security
interests which have been perfected, and (iii) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, subject to bankruptcy, insolvency and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles. All
loans and extensions of credit which are subject to regulation by the FDIC which
have been made by Caroline comply therewith.
(2) The classification on the books and records of Caroline of loans
and/or non-performing assets as nonaccrual, troubled debt restructuring, other
real estate owned ("OREO") or other similar classification, complies in all
material respects with generally accepted accounting principles and applicable
regulatory accounting principles.
(3) Except for liens, security interests, claims, charges, or such
other encumbrances as have been appropriately reserved for in the Caroline
Financial Statements or are not material, title to the OREO is good and
marketable, and there are no adverse claims or encumbrances on the OREO. All
title, hazard and other insurance claims and
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mortgage guaranty claims with respect to the OREO have been timely filed and
Caroline has not received any notice of denial of any such claim.
(4) Caroline is in possession of all of the OREO or, if any of the OREO
remains occupied by the mortgagor, eviction or summary proceedings have been
commenced or rental arrangements providing for market rental rates have been
agreed upon and Caroline is diligently pursuing such eviction or summary
proceedings or such rental arrangements. Except as PREVIOUSLY DISCLOSED, no
legal proceeding or quasi-legal proceeding is pending or, to the knowledge of
Caroline, threatened concerning any OREO or any servicing activity or omission
to provide a servicing activity with respect to any of the OREO.
(5) Except as PREVIOUSLY DISCLOSED, all loans made by Caroline to
facilitate the disposition of OREO are performing in accordance with their
terms.
(6) The allowance for possible loan losses shown on the Caroline
Financial Statements was, and the allowance for possible loan losses shown on
the financial statements of Caroline as of dates subsequent to the execution of
this Agreement will be, in each case as of the dates thereof, adequate in all
material respects to provide for possible losses, net of recoveries relating to
loans previously charged off, on loans outstanding (including accrued interest
receivable) of Caroline and other extensions of credit (including letters of
credit and commitments to make loans or extend credit) by Caroline.
2.19 STATEMENTS TRUE AND CORRECT
None of the information supplied or to be supplied by Caroline for
inclusion in the Registration Statement on Form S-4 (the "Registration
Statement") to be filed by VCFC with the Securities and Exchange Commission (the
"SEC"), the Proxy Statement/Prospectus (as defined in Section 4.2) to be mailed
to every Caroline shareholder or any other document to be filed with the SEC and
the SCC, the Federal Reserve Board, or any other regulatory authority in
connection with the transactions contemplated hereby, will, at the respective
time such documents are filed, and, in the case of the Registration Statement,
when it becomes effective and with respect to the Proxy Statement/Prospectus,
when first mailed to Caroline shareholders, be false or misleading with respect
to any material fact or omit to state any material fact necessary in order to
make the statements therein not misleading, or, in the case of the Proxy
Statement/Prospectus or any supplement thereto, at the time of the Caroline
Shareholders' Meeting, be false or misleading with respect to any material fact
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the
Caroline Shareholders' Meeting.
2.20 BROKERS AND FINDERS
Neither Caroline, nor any of its respective officers, directors or
employees, has employed any broker, finder or financial advisor or incurred any
liability for any fees or
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commissions in connection with the transactions contemplated herein, except for
Crestar Securities Corporation.
2.21 POOLING OF INTERESTS CONDITIONS
To the best knowledge of Caroline, there have been no events or
conditions to which it is subject that would prevent the Affiliation from being
accounted for as a "pooling of interests."
2.22 ENVIRONMENTAL MATTERS
(1) Except as PREVIOUSLY DISCLOSED, to the best knowledge of Caroline,
neither Caroline nor its Subsidiary owns or leases any properties affected by
toxic waste, radon gas or other hazardous conditions or constructed in part with
the use of asbestos. Each of Caroline and its Subsidiaries is in substantial
compliance with all Environmental Laws applicable to real or personal properties
in which it has a direct fee ownership or, with respect to a direct interest as
lessee, applicable to the leasehold premises or, to the best knowledge of
Caroline, the premises on which the leasehold is situated. Neither Caroline nor
its Subsidiary has received any Communication alleging that either Caroline or
its Subsidiary is not in such compliance and, to the best knowledge of Caroline,
there are no present circumstances (including Environmental Laws that have been
adopted but are not yet effective) that would prevent or interfere with the
continuation of such compliance.
(2) There are no legal, administrative, arbitral or other claims,
causes of action or governmental investigations of any nature, seeking to
impose, or that could result in the imposition, on Caroline or its Subsidiary of
any liability arising under any Environmental Laws pending or, to the best
knowledge of Caroline, threatened against (A) Caroline or its Subsidiary, (B)
any person or entity whose liability for any Environmental Claim Caroline or its
Subsidiary has or may have retained or assumed either contractually or by
operation of law, or (C) any real or personal property which Caroline or its
Subsidiary owns or leases, or has been or is judged to have managed or to have
supervised or participated in the management of, which liability might have a
material adverse effect on the business, financial condition or results of
operations of either Caroline or its Subsidiary. Neither Caroline nor its
Subsidiary is subject to any agreement, order, judgment, decree or memorandum by
or with any court, governmental authority, regulatory agency or third party
imposing any such liability.
(3) To the best knowledge of Caroline, there are no legal,
administrative, arbitral or other proceedings, or Environmental Claims or other
claims, causes of action or governmental investigations of any nature, seeking
to impose, or that could result in the imposition, on Caroline or its Subsidiary
of any liability arising under any Environmental Laws pending or threatened
against any real or personal property in which Caroline or its Subsidiary holds
a security interest in connection with a loan or a loan participation which
liability might have a material adverse effect on the business, financial
condition or results of operations of Caroline or its Subsidiary. Neither
Caroline nor its Subsidiary is subject
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to any agreement, order, judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any such
liability.
(4) With respect to all real and personal property owned or leased by
Caroline or its Subsidiary, other than OREO, Caroline has made available to VCFC
copies of any environmental audits, analyses and surveys that have been prepared
relating to such properties. With respect to all OREO held by Caroline and all
real or personal property which Caroline has been or is judged to have managed
or to have supervised or participated in the management of, Caroline has made
available to VCFC the information relating to such OREO available to Caroline.
Caroline is in compliance in all material respects with all recommendations
contained in any environmental audits, analyses and surveys relating to any of
the properties, real or personal, described in this subsection (4).
(5) There are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release,
emission, discharge or disposal of any Materials of Environmental Concern, that
could reasonably form the basis of any Environmental Claim or other claim or
action or governmental investigation that could result in the imposition of any
liability arising under any Environmental Laws currently in effect or adopted
but not yet effective against Caroline or its Subsidiary or against any person
or entity whose liability for any Environmental Claim Caroline or its Subsidiary
has or may have retained or assumed either contractually or by operation of law.
(6) For the purpose of this Agreement, the following terms shall have
the following meanings:
(i) "Communication" means a communication which is of a
substantive nature and which is made (A) in writing to Caroline or its
Subsidiary, or (B) orally to a senior officer of Caroline, whether from a
governmental authority or a third party.
(ii) "Environmental Claim" means any Communication from any
governmental authority or third party alleging potential liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from the
presence, or release into the environment, of any Material of Environmental
Concern.
(iii) "Environmental Laws" means all applicable federal, state
and local laws and regulations, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, that relate to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata). This definition includes, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of Materials
of Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
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(iv) "Materials of Environmental Concern" means pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other materials regulated under Environmental Laws.
2.23 YEAR 2000
Except as PREVIOUSLY DISCLOSED, Caroline has reviewed the areas within
its business and operation which could be adversely affected by, and has
developed a program to address and remedy on a timely basis, "Year 2000" issues
such as risks that computer applications, vendors, customers, equipment and
operating systems will not be "Year 2000 Compliant") (hereinafter defined), and
has made appropriate related inquiries of its vendors and customers. "Year 2000
Compliant," with respect to any person, means that the hardware and software
systems and components (including without limitation imbedded microchips) owned,
licensed or used by such person in connection with its business operations will
(without any additional cost or the need for human intervention) (i) accurately
process information involving any and all dates before, during and/or after
January 1, 2000, including without limitation recognizing and processing input,
providing output, storing information and performing date-related calculations,
all without creating any ambiguity as to the century and without any other
material and adverse error or malfunction, (ii) operate accurately without
material and adverse interruption or malfunction on and in respect of any and
all dates before, during and/or after January 1, 2000 and (iii) where
applicable, respond to and process two digit year input without creating any
ambiguity as to the century.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF VCFC
VCFC represents and warrants to Caroline as follows:
3.1 ORGANIZATION, STANDING AND POWER
VCFC is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia, with full corporate
power and authority to carry on its business as now conducted and to own and
operate its assets, properties and businesses. VCFC has the corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and the Caroline Option Agreement to consummate the transactions contemplated
hereby. VCFC is duly registered as a bank holding company under the Bank Holding
Company Act of 1956.
3.2 ORGANIZATION, STANDING AND POWER OF VCFC SUBSIDIARIES
Each subsidiary of VCFC (the "VCFC Subsidiaries" and, collectively with
VCFC, the "VCFC Companies") is a duly organized corporation, validly existing
and in good standing in their respective states of incorporation. Each VCFC
Subsidiary (i) has full corporate power and authority to carry on its business
as now conducted and (ii) is duly
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qualified to do business in the states where its ownership or leasing of
property or the conduct of its business requires such qualification and where
the failure to so qualify would have a material adverse effect on VCFC on a
consolidated basis. The outstanding shares of capital stock of each of the VCFC
Subsidiaries are validly issued and outstanding, fully paid and nonassessable
and all such shares are directly or indirectly owned by VCFC free and clear of
all liens, claims and encumbrances or preemptive rights of any person.
3.3 AUTHORIZED AND EFFECTIVE AGREEMENT
(a) VCFC has all requisite corporate power and authority to enter into
and to perform all of its obligations under this Agreement, the Plan of Share
Exchange and the Caroline Option Agreement. The execution, adoption and delivery
of this Agreement, the Plan of Share Exchange and the Caroline Option Agreement
and the consummation of the Affiliation have been duly and validly authorized by
all necessary corporate action on the part of VCFC. This Agreement, the Plan of
Share Exchange and the Caroline Option Agreement represent the legal, valid, and
binding obligations of VCFC, enforceable against VCFC in accordance with their
respective terms, in each case subject to (a) bankruptcy, insolvency,
reorganization, moratorium, conservatorship, receivership or other similar laws
affecting the enforcement of rights of creditors of FDIC-insured institutions or
the enforcement of creditors' rights generally, (b) laws relating to the safety
and soundness of depository institutions and their holding companies (c) general
principles of equity.
(b) Neither the execution and delivery of this Agreement, the Plan of
Share Exchange or the Caroline Option Agreement, the consummation of the
transactions contemplated herein, nor compliance by VCFC with any of the
provisions hereof will: (i) conflict with or result in a breach of any provision
of the Articles of Incorporation or Bylaws of VCFC or any VCFC Subsidiary; (ii)
constitute or result in the breach of any term, condition or provision of, or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon, any property or asset of VCFC or any VCFC
Subsidiary pursuant to any note, bond, mortgage, indenture, license, agreement
or other instrument or obligation which would have a material adverse effect on
the business, operations or financial condition of VCFC on a consolidated basis,
or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to VCFC or any VCFC Subsidiary.
3.4 CAPITAL STRUCTURE
The authorized capital stock of VCFC consists of: (i) 1,000,000 shares
of preferred stock, no par value per share, of which none are issued and
outstanding; and (ii) 5,000,000 shares of common stock, par value $2.50 per
share, of which 2,046,487 shares were issued and outstanding on September 1,
1999. All outstanding shares of VCFC Common Stock have been duly issued and are
validly outstanding, fully paid and nonassessable. The shares of VCFC Common
Stock to be issued in exchange for shares of Caroline Common Stock upon
consummation of the Affiliation will have been duly authorized and, when issued
in accordance with the terms of this Agreement, will be validly issued, fully
paid
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and nonassessable and will be duly registered under the applicable federal and
state securities laws.
3.5 FINANCIAL STATEMENTS
The VCFC Financial Statements (as defined below) fairly present or will
fairly present, as the case may be, the consolidated financial position of VCFC
as of the dates indicated and the consolidated results of operations, changes in
shareholders' equity and statements of cash flows for the periods then ended
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect) in conformity with
generally accepted accounting principles applicable to financial institutions
applied on a consistent basis. The VCFC Financial Statements shall mean (i) the
consolidated balance sheets of VCFC as of December 31, 1998 and 1997 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years ended December 31, 1998, 1997 and 1996 (including
related notes and schedules, if any) and (ii) the consolidated balance sheets of
VCFC and related consolidated statements of income, shareholders' equity and
cash flows (including related notes and schedules, if any) with respect to
periods ended subsequent to December 31, 1998.
3.6 MATERIAL ADVERSE CHANGE
VCFC has not, on a consolidated basis, suffered any material adverse
change in its business, financial condition, results of operations or prospects
since December 31, 1998.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES
Neither VCFC nor any VCFC Subsidiary has any liability (contingent or
otherwise) that is material to VCFC on a consolidated basis or that, when
combined with all similar liabilities, would be material to VCFC on a
consolidated basis, except as disclosed in the VCFC Financial Statements and
except for liabilities incurred in the ordinary course of business consistent
with past practice since the date of the most recent VCFC Financial Statements.
3.8 LEGAL PROCEEDINGS; COMPLIANCE WITH LAWS
There are no actions, suits or proceedings instituted or pending or, to
the best knowledge of VCFC, threatened against any of the VCFC Companies or
against any property, asset, interest or right of any of the VCFC Companies or
against any officer, director or employee of any of the VCFC Companies that
would, if determined adversely to VCFC or any VCFC Subsidiary, have a material
adverse effect on VCFC on a consolidated basis. To the best knowledge of VCFC,
the VCFC Companies have complied in all material respects with all laws,
ordinances, requirements, regulations or orders applicable to their respective
businesses (including environmental laws, ordinances, requirements, regulations
or orders).
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3.9 TAX MATTERS
VCFC has filed all federal, state and local tax returns and reports
required to be filed, and all taxes shown by such returns to be due and payable
have been paid or are reflected as a liability in the VCFC Financial Statements
or are being contested in good faith and have been PREVIOUSLY DISCLOSED. Except
to the extent that liabilities therefor are specifically reflected in the VCFC
Financial Statements, there are no federal, state or local tax liabilities of
VCFC other than liabilities that have arisen since December 31, 1998, all of
which have been properly accrued or otherwise provided for on the books and
records of VCFC. Except as PREVIOUSLY Disclosed, no tax return or report of VCFC
is under examination by any taxing authority or the subject of any
administrative or judicial proceeding, and no unpaid tax deficiency has been
asserted against VCFC by any taxing authority.
3.10 EMPLOYEE BENEFIT PLANS
(a) All VCFC employee benefit plans are in compliance with the
applicable terms of ERISA and the IRC and any other applicable laws, rules and
regulations, the breach or violation of which could result in a material
liability to VCFC on a consolidated basis.
(b) No VCFC employee benefit plan subject to ERISA that is a defined
benefit pension plan has any "unfunded current liability," as that term is
defined in Section 302(d)(8)(A) of ERISA, and the present fair market value of
the assets of any such plan exceeds the plan's "benefit liabilities," as that
term is defined in Section 4001(a)(16) of ERISA, when determined under actuarial
factors that would apply if the plan was terminated in accordance with all
applicable legal requirements.
3.11 ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the balance sheets included
in the VCFC Financial Statements, as of their respective dates, is adequate in
all material respects under the requirements of generally accepted accounting
principles and regulatory accounting principles to provide for reasonably
anticipated losses on outstanding loans.
3.12 STATEMENTS TRUE AND CORRECT
When the Registration Statement to be filed by VCFC with the SEC shall
become effective, and at all times subsequent thereto up to and including the
Caroline Shareholders' Meeting to vote upon the Affiliation, such Registration
Statement and all amendments or supplements thereto, with respect to all
information set forth therein furnished by VCFC relating to VCFC (i) shall
comply in all material respects with the applicable provisions of the federal
and state securities laws, and (ii) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading.
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3.13 YEAR 2000
Except as PREVIOUSLY DISCLOSED, VCFC has reviewed the areas within its
business and operation which could be adversely affected by, and has developed a
program to address and remedy on a timely basis, "Year 2000" issues such as
risks that computer applications, vendors, customers, equipment and operating
systems will not be "Year 2000 Compliant") (hereinafter defined), and has made
appropriate related inquiries of its vendors and customers. "Year 2000
Compliant," with respect to any person, means that the hardware and software
systems and components (including without limitation imbedded microchips) owned,
licensed or used by such person in connection with its business operations will
(without any additional cost or the need for human intervention) (i) accurately
process information involving any and all dates before, during and/or after
January 1, 2000, including without limitation recognizing and processing input,
providing output, storing information and performing date-related calculations,
all without creating any ambiguity as to the century and without any other
material and adverse error or malfunction, (ii) operate accurately without
material and adverse interruption or malfunction on and in respect of any and
all dates before, during and/or after January 1, 2000 and (iii) where
applicable, respond to and process two digit year input without creating any
ambiguity as to the century.
ARTICLE 4
COVENANTS AND AGREEMENTS
4.1 INVESTIGATION AND CONFIDENTIALITY
Caroline will keep VCFC advised of all material developments relevant
to its business and to consummation of the Affiliation, and VCFC will advise
Caroline of any material adverse change in its financial condition or operations
and all material developments that are likely to adversely affect consummation
of the Affiliation. The parties have not concluded their due diligence review of
each other. Therefore, VCFC and Caroline each may make or cause to be made such
further investigation of the financial and legal condition of the other as such
party reasonably deems necessary or advisable in connection with the
Affiliation, provided, however, that such investigation shall not interfere
unnecessarily with normal operations. VCFC and Caroline agree to furnish the
other and the other's advisors with such financial data and other information
with respect to its business and properties as such other party shall from time
to time reasonably request. Each party hereto shall, and shall cause each of its
directors, officers, attorneys and advisors to, maintain the confidentiality of
all information obtained in such investigation which is not otherwise publicly
disclosed by the other party, such undertaking with respect to confidentiality
to survive any termination of this Agreement. In the event of the termination of
this Agreement, each party shall return to the furnishing party or, at the
request of the furnishing party, destroy and certify the destruction of all
confidential information previously furnished in connection with the
transactions contemplated by this Agreement.
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4.2 REGISTRATION STATEMENT; SHAREHOLDER APPROVAL
(a) Caroline shall submit this Agreement and the Plan of Share Exchange
to its shareholders for approval at an annual or special meeting (the "Caroline
Shareholders' Meeting") to be held as soon as practicable after the Registration
Statement is declared effective. The Board of Directors of Caroline shall
unanimously recommend such approval, and Caroline shall take all reasonable
lawful action to solicit such approval by its shareholders; provided, however,
that if the Board of Directors of Caroline shall have reasonably determined in
good faith (after receiving written advise from its counsel to such effect) that
such recommendation is more likely than not to constitute a breach of its
fiduciary duties to the shareholders of Caroline, then the Board of Directors of
Caroline shall not be obligated to recommend the approval of this Agreement and
Plan of Merger. Each member of the Caroline Board of Directors agrees to vote
all shares of Caroline Common Stock under his control (and not held in a
fiduciary capacity) in favor of the Affiliation.
(b) VCFC and Caroline will prepare jointly the proxy
statement/prospectus to be used in connection with the Caroline Shareholders'
Meeting (the "Proxy Statement/Prospectus"). VCFC will prepare and file with the
SEC the Registration Statement, of which such Proxy Statement/Prospectus shall
be a part, and will use its best efforts to have the Registration Statement
declared effective as promptly as possible. 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
Caroline Shareholders' Meeting, such Registration Statement and all amendments
or supplements thereto, with respect to all information set forth therein
furnished or to be furnished by Caroline relating to Caroline and by VCFC
relating to the VCFC Companies, will conform in all material respects with the
provisions of the Securities Act of 1933 (the "Securities Act") and any other
applicable statutory or regulatory requirements.
4.3 OPERATION OF THE BUSINESS OF CAROLINE
Between the date of this Agreement and the Effective Date, Caroline
agrees that it will operate its business substantially as presently operated and
only in the ordinary course, and it will use its best efforts to preserve its
properties, business and relationships with customers, employees and other
persons having business dealings with it. Without limiting the generality of the
foregoing, Caroline agrees that it will not, without the prior written consent
of VCFC:
(a) Make any change in its authorized capital stock, or issue or sell
any additional shares of, securities convertible into or exchangeable for, or
options, warrants or rights to purchase, its capital stock, nor shall it
purchase, redeem or otherwise acquire any of its outstanding shares of capital
stock, except that Caroline shall not be restricted from entering into the
Caroline Option Agreement or from acquiring any shares of Caroline Common Stock
that secure an extension of credit made by Caroline that is in default or
selling, in the ordinary course, any such re-acquired shares;
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(b) Make any changes in the composition, level of compensation or title
of its officers, directors or other key management personnel other than
permitted by current employment policies in the ordinary course of business, any
of which changes shall be reported promptly to VCFC;
(c) Enter into any bonus, incentive compensation, stock option,
deferred compensation, profit sharing, thrift, retirement, pension, group
insurance or other benefit plan or any employment or consulting agreement,
except with respect to the stock options that the Caroline Savings Bank 1995
Stock Option and Incentive Plan (the "Plan") provides shall be granted to each
Eligible Director (as defined in such plan) in connection with a Change in
Control (as defined in the Plan) of Caroline and stock options granted to Mr.
Southworth for each profitable quarter of Caroline ending subsequent to December
31, 1998 and prior to the Effective Date under the Plan and, except as provided
in this Agreement, the Plan shall terminate on the Effective Date;
(d) Incur any obligation or liability (whether absolute or contingent,
excluding suits instituted against it), make any pledge, or encumber any of its
assets, nor dispose of any of its assets in any other manner, except in the
ordinary course of its business and for adequate value, or as otherwise
specifically permitted in this Agreement;
(e) Solicit or encourage inquiries or proposals with respect to,
furnish any information relating to, or participate in any negotiations or
discussions concerning, any acquisition or purchase of all or a substantial
portion of the assets of, or a substantial equity interest in, Caroline or any
business combination with Caroline other than as contemplated by this Agreement;
(except where the failure to furnish such information or participate in such
negotiations or discussions would, on the advice of counsel, constitute a breach
of the fiduciary or legal obligations of Caroline's Board of Directors to its
shareholders); or authorize or permit any officer, director, agent or affiliate
of Caroline to do any of the above; or fail to notify VCFC immediately if any
such inquiries or proposals are received by Caroline;
(f) Change its lending, investment, asset/liability management or other
material banking policies in any material respect, except as may be required by
applicable law;
(g) Alter, amend or repeal its Bylaws or Articles of Incorporation;
(h) Propose or take any other action which would make anyrepresentation
or warranty in Article 2 hereof untrue; or
(i) Pay any dividends on its capital stock.
4.4 OPERATION OF THE BUSINESS OF VCFC
VCFC agrees that, except as expressly permitted by this Agreement or
otherwise consented to or approved in writing by Caroline, during the period
from the date hereof to
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the Effective Date, VCFC will cause each of the VCFC Subsidiaries to conduct
their respective operations only in the ordinary and usual course of business
consistent with past practice.
4.5 REGULATORY FILINGS
VCFC and Caroline shall use their best efforts to prepare and file as
soon as practicable after the date hereof all required applications for
regulatory approval of the Affiliation. VCFC shall use its best efforts to
obtain prompt approval of each required application.
4.6 PUBLIC ANNOUNCEMENTS
Each party will consult with the other before issuing any press release
or otherwise making any public statements with respect to the Affiliation and
shall not issue any such press release or make any such public statement prior
to such consultations, except as may be required by law.
4.7 ACCOUNTING TREATMENT
VCFC and Caroline shall each use their best efforts to ensure that the
Affiliation qualifies for pooling-of-interests accounting treatment. VCFC is
aware of no reason why the Affiliation may not be accounted for as a
pooling-of-interests.
4.8 AFFILIATES
Caroline shall identify those persons who may be deemed to be
"affiliates" of Caroline within the meaning of Rule 145 promulgated under the
Securities Act. Caroline shall cause each person so identified to deliver to
VCFC at least 30 days prior to the Effective Date a written agreement providing
that such person will not dispose of VCFC Common Stock received in the
Affiliation, except in a manner that (i) complies with the Securities Act and
the rules and regulations promulgated thereunder, and (ii) is consistent with
the qualification of the transactions contemplated hereby for pooling of
interests accounting treatment.
4.9 BENEFIT PLANS; EMPLOYMENT AGREEMENT
(a) By January 1, 2000 employees of Caroline shall be entitled to
participate in the VCFC pension, health and welfare benefit and similar plans on
the same terms and conditions as employees of the VCFC Companies, giving effect
to years of service for purposes of eligibility to participate, eligibility for
benefits, and vesting (but not benefit accrual) with Caroline as if such service
were with VCFC. As of the Effective Date, VCFC will assume and honor the terms
of all non-qualified deferred compensation plans of Caroline.
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(b) VCFC and Caroline shall enter into an employment and consultation
agreement, effective as of the Effective Date, with Mr. Southworth in the form
provided in Exhibit B hereto.
4.10 INDEMNIFICATION
VCFC agrees that following the Effective Date, it shall indemnify,
defend and hold harmless any person who has rights to indemnification from
Caroline, to the same extent and on the same conditions as such person is
entitled to indemnification pursuant to Virginia law and Caroline's Articles of
Incorporation or Bylaws, as in effect on the date of this Agreement, to the
extent legally permitted to do so, with respect to matters occurring on or prior
to the Effective Date. Without limiting the foregoing, in any case in which
corporate approval may be required to effectuate any indemnification, VCFC shall
direct, at the election of the party to be indemnified, that the determination
of permissibility of indemnification shall be made by independent counsel
mutually agreed upon between VCFC and the indemnified party. VCFC shall use its
reasonable best efforts to maintain Caroline's existing directors' and officers'
liability policy, or some other policy, including VCFC's existing policy,
providing at least comparable coverage, covering persons who are currently
covered by such insurance of Caroline for a period of three years after the
Effective Date on terms no less favorable than those in effect on the date
hereof.
4.11 STOCK OPTION AGREEMENT
Caroline shall grant VCFC an option to acquire such number of shares of
Caroline Common Stock that would equate to 19.9% of the issued and outstanding
Caroline Common Stock, all in accordance with the Caroline Option Agreement.
ARTICLE 5
CONDITIONS TO THE AFFILIATION
5.1 GENERAL CONDITIONS
The respective obligations of each of VCFC and Caroline to effect the
Affiliation shall be subject to the fulfillment or waiver at or prior to the
Effective Date of the following conditions:
(a) CORPORATE ACTION. All corporate action necessary to authorize the
execution, delivery and performance of this Agreement and consummation of the
transactions contemplated hereby shall have been duly and validly taken,
including without limitation the approval of the shareholders of Caroline.
(b) REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective and shall not be subject to a stop order or any threatened
stop order of the SEC or any state securities commissioner.
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(c) REGULATORY APPROVALS. VCFC and Caroline shall have received all
regulatory approvals required in connection with the transactions contemplated
by this Agreement, all notice periods and waiting periods required after the
granting of any such approvals shall have passed, and all such approvals shall
be in effect; provided, however, that no such approvals shall have imposed any
condition or requirement which, in the reasonable opinion of the Boards of
Directors of VCFC or Caroline, would so materially adversely impact the economic
or business benefits of the transactions contemplated by this Agreement as to
render consummation of the Affiliation inadvisable or unduly burdensome.
(d) TAX OPINION. VCFC and Caroline shall have received an opinion of
VCFC's counsel in form and substance satisfactory to VCFC and Caroline to the
effect that the Affiliation will constitute a reorganization within the meaning
of Section 368 of the Internal Revenue Code and that no gain or loss will be
recognized by the shareholders of Caroline to the extent they receive VCFC
Common Stock solely in exchange for their Caroline Common Stock in the
Affiliation.
(e) OPINIONS OF COUNSEL. Caroline shall have delivered to VCFC and VCFC
shall have delivered to Caroline opinions of counsel, dated as of the Effective
Date, as to such matters as they may each reasonably request with respect to the
transactions contemplated by this Agreement and in a form reasonably acceptable
to each of them.
(f) LEGAL PROCEEDINGS. Neither VCFC nor Caroline shall be subject to
any order, decree or injunction of a court or agency of competent jurisdiction
which enjoins or prohibits the consummation of the Affiliation.
5.2 CONDITIONS TO OBLIGATIONS OF VCFC
The obligations of VCFC to effect the Affiliation shall be subject to
the fulfillment or waiver at or prior to the Effective Date of the following
additional conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Caroline set forth in Article 2 shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Date as though
made on the Effective Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise expressly contemplated by this Agreement or consented to in
writing by VCFC.
(b) PERFORMANCE OF OBLIGATIONS. Caroline shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date.
(c) OFFICERS' CERTIFICATE. Caroline shall have delivered to VCFC a
certificate, dated the Effective Date and signed by its Chairman or President,
to the effect that the conditions set forth in Sections 5.1(a), 5.2(a) and
5.2(b) have been satisfied.
26
<PAGE>
(d) AFFILIATE LETTERS. VCFC shall have received the written agreements
from the affiliates as specified in Section 4.8 hereof.
(e) ACCOUNTANTS' LETTER. VCFC shall have received a letter, dated as of
the Effective Date, from Yount, Hyde & Barbour, P.C., satisfactory in form and
substance to VCFC, that the Affiliation will qualify for pooling-of-interests
accounting treatment; provided, however, that such letter shall not be a
condition to the consummation of the Affiliation if VCFC takes any action which
would prevent the Affiliation from qualifying for pooling-of-interests
accounting treatment.
5.3 CONDITIONS TO OBLIGATIONS OF CAROLINE
The obligations of Caroline to effect the Affiliation shall be subject
to the fulfillment or waiver at or prior to the Effective Date of the following
additional conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of VCFC set forth in Article 3 shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Date as though
made on the Effective Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise expressly contemplated by this Agreement or consented to in
writing by Caroline.
(b) PERFORMANCE OF OBLIGATIONS. VCFC shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date.
(c) OFFICERS' CERTIFICATE. VCFC shall have delivered to Caroline a
certificate, dated the Effective Date and signed by its President, to the effect
that the conditions set forth in Sections 5.1(a), 5.1(b), 5.1(c), 5.3(a) and
5.3(b) have been satisfied.
(d) INVESTMENT BANKING LETTER. Caroline shall have received an updated
fairness opinion from Crestar Financial Corporation, financial advisor to
Caroline, addressed to Caroline and dated on or about the date the Proxy
Statement/Prospectus is mailed to shareholders of Caroline, to the effect that
the terms of the Affiliation are fair to the shareholders of Caroline from a
financial standpoint.
ARTICLE 6
TERMINATION
6.1 TERMINATION
This Agreement and the Plan of Share Exchange may be terminated at any
time before the Effective Date, whether before or after approval thereof by the
shareholders of Caroline, as provided below:
27
<PAGE>
(a) MUTUAL CONSENT. By mutual consent of the parties, evidenced by
their written agreement.
(b) CLOSING DELAY. At the election of either party, evidenced by
written notice, if the Closing shall not have occurred on or before July 31,
2000, or such later date as shall have been agreed to in writing by the parties;
provided, however, that the right to terminate under this Section 6.1(b) shall
not be available to either party whose failure to perform an obligation
hereunder has been the cause of, or has resulted in, the failure of the Closing
to occur on or before such date.
(c) CONDITIONS TO VCFC PERFORMANCE NOT MET. By VCFC upon delivery of
written notice of termination to Caroline if any event occurs which renders
impossible the satisfaction in any material respect of one or more of the
conditions to the obligations of VCFC to effect the Affiliation set forth in
Sections 5.1 and 5.2, and such noncompliance is not waived by VCFC.
(d) AS A RESULT OF DUE DILIGENCE. By VCFC at any time prior to the
close of business on October 15, 1999 in writing, by VCFC determines in its sole
good faith judgment, through review of information disclosed by Caroline or its
own due diligence investigation, (i) that the financial condition, results of
operations, business or business prospects of Caroline are materially adversely
different from VCFC's reasonable expectations with respect thereto on the date
of execution of this Agreement or (ii) that such information constitutes a
material breach of a representation or warranty of Caroline as set forth in
Article 2 hereof, except for the fact that such information has been Previously
Disclosed; provided that VCFC shall inform Caroline upon such termination as to
the reasons for VCFC's determination. The fact that Caroline has disclosed
information shall not prevent VCFC from terminating this Agreement pursuant to
this Section 6.1(d) on account of such information.
(e) AS A RESULT OF DUE DILIGENCE BY CAROLINE. By Caroline at any time
prior to the close of business on October 15, 1999 in writing, if Caroline
determines in its sole good faith judgment, through review of information
disclosed by VCFC or its own due diligence investigation, that the financial
condition, results of operations, business or business prospects of VCFC (as
such condition, results, business or prospects may affect the market price of
VCFC Common Stock) are materially different from Caroline's reasonable
expectations with respect thereto on the date of execution of this Agreement;
provided that Caroline shall inform VCFC upon such termination as to the reasons
for Caroline's determination. The fact that VCFC has disclosed information shall
not prevent Caroline from terminating this Agreement pursuant to this Section
6.1(e) on account of such information.
(f) CONDITIONS TO CAROLINE PERFORMANCE NOT MET. By Caroline upon
delivery of written notice of termination to VCFC if any event occurs which
renders impossible the satisfaction in any material respect of one or more of
the conditions
28
<PAGE>
to the obligations of Caroline to effect the Affiliation set forth in Sections
5.1 and 5.3, and such noncompliance is not waived by Caroline.
6.2 EFFECT OF TERMINATION
In the event this Agreement is terminated pursuant to Section 6.1
hereof, both this Agreement and the Plan of Share Exchange shall become void and
have no effect, except that (i) the provisions hereof relating to
confidentiality, press releases and expenses set forth in Sections 4.1, 4.6 and
6.4, respectively, shall survive any such termination and (ii) a termination
pursuant to 6.1(c) or 6.1(f) hereof shall not relieve the breaching party from
liability for an uncured intentional breach of any provision of this Agreement
giving rise to such termination.
6.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants in this Agreement and the
Plan of Share Exchange shall not survive the Effective Date and shall be
terminated and extinguished at the Effective Date. From and after the Effective
Date, the parties hereto shall have no liability to the other on account of any
breach of any of those representations, warranties and covenants; provided,
however, that the foregoing clause shall not (i) apply to agreements of the
parties which by their terms are intended to be performed after the Effective
Date, and (ii) shall not relieve any person for liability for fraud, deception
or intentional misrepresentation.
6.4 EXPENSES
(a) Except as provided below, each of the parties shall bear and pay
all costs and expenses incurred by it in connection with the transactions
contemplated herein, including fees and expenses of its own financial
consultants, accountants and counsel, except that VCFC agrees to bear and pay
the cost of printing and mailing the Proxy Statement/Prospectus.
(b) Notwithstanding the provisions of Section 6.4(a) hereof, if for any
reason the Affiliation is not approved by Caroline's shareholders at the
Caroline Shareholders' Meeting or any adjournment thereof, Caroline shall
reimburse VCFC for one-half of all reasonable out-of-pocket expenses incurred by
VCFC in connection with the transactions contemplated by this Agreement,
provided that the maximum amount that Caroline shall be responsible to VCFC for
under this Section 6.4(b) shall be limited to $25,000.
(c) If this Agreement is terminated by VCFC or Caroline because of a
willful and material breach by the other of any representation, warranty,
covenant, undertaking or restriction set forth herein, and provided that the
terminating party shall not have been in breach (in any material respect) of any
representation and warranty, covenant, undertaking or restriction contained
herein, then the breaching party shall reimburse the other party of all
reasonable out-of-pocket expenses incurred by it in connection with the
transactions contemplated by this Agreement.
29
<PAGE>
(d) Final settlement with respect to the reimbursement of such fees and
expenses by the parties shall be made within thirty days after the termination
of this Agreement.
ARTICLE 7
GENERAL PROVISIONS
7.1 ENTIRE AGREEMENT
This Agreement contains the entire agreement among VCFC and Caroline
with respect to the Affiliation and the related transactions and supersedes all
prior arrangements or understandings with respect thereto.
7.2 BINDING EFFECT; NO THIRD PARTY RIGHTS
This Agreement shall bind VCFC and Caroline and their respective
successors and assigns. Other than Section 4.10, nothing in this Agreement is
intended to confer upon any person, other than the parties hereto or their
respective successors, any rights or remedies under or by reason of this
Agreement.
7.3 WAIVER AND AMENDMENT
Any term or provision of this Agreement may be waived in writing at any
time by the party which is, or whose shareholders are, entitled to the benefits
thereof, and this Agreement may be amended or supplemented by written
instructions duly executed by the parties hereto at any time, whether before or
after the Caroline Shareholders' Meeting, except statutory requirements and
requisite approvals of shareholders and regulatory authorities.
7.4 GOVERNING LAW
Except as required otherwise or otherwise indicated herein, this
Agreement shall be construed and enforced according to the laws of the
Commonwealth of Virginia.
7.5 NOTICES
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
registered or certified mail, postage prepaid, addressed as follows:
30
<PAGE>
If to VCFC:
O. R. Barham, Jr.
Virginia Commonwealth Financial Corporation
P. O. Box 71
Culpeper, Virginia 22701
Copy to:
Fred W. Palmore, III
Mays & Valentine, L.L.P.
P. O. Box 1122
Richmond, Virginia 23218-1122
If to Caroline:
William R. Southworth
Caroline Savings Bank
P. O. Box 860
Bowling Green, Virginia 22427
Copy to:
George P. Whitley
LeClair Ryan
707 East Main Street, 11th Floor
Richmond, VA 23219
7.6 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but such counterparts together shall constitute one
and the same agreement.
7.7 SEVERABILITY
In the event that any provision of this Agreement shall be held invalid
or unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provisions hereof. Any provision of
this Agreement held invalid or unenforceable only in part or degree shall remain
in full force and effect to the extent not held invalid or unenforceable.
Further, the parties agree that a court of competent jurisdiction may reform any
provision of this Agreement held invalid or unenforceable so as to reflect the
intended agreement of the parties hereto.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers and their corporate
seals to be affixed hereto, all as of the date first written above.
VIRGINIA COMMONWEALTH
FINANCIAL CORPORATION
Culpeper, Virginia
By:____________________________________
O. R. Barham, Jr.
President
By:____________________________________
William B. Young
Chairman and Chief Executive Officer
CAROLINE SAVINGS BANK
Bowling Green, Virginia
By:____________________________________
William R. Southworth
President
By:____________________________________
James S. Day, Jr.
Chairman
32
<PAGE>
CAROLINE SAVINGS BANK
BOARD OF DIRECTORS
Each of the undersigned members of the Board of Directors of Caroline
Savings Bank agrees to be bound by his personal obligations as provided in
Section 4.2 and 4.3(e) of the Agreement and Plan of Reorganization.
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
33
<PAGE>
EXHIBIT A
To the Agreement
and Plan of
Reorganization
PLAN OF SHARE EXCHANGE
BETWEEN
CAROLINE SAVINGS BANK
AND
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION
Pursuant to this Plan of Share Exchange ("Plan of Share Exchange"),
Caroline Savings Bank, a Virginia savings bank ("Caroline"), shall become a
wholly-owned subsidiary of Virginia Commonwealth Financial Corporation, a
Virginia corporation and registered financial institution holding company
("VCFC"), pursuant to a statutory share exchange under Section 13.1-717 of the
Virginia Stock Corporation Act.
ARTICLE I
TERMS OF THE SHARE EXCHANGE
1.1 THE SHARE EXCHANGE
Subject to the terms and conditions of the Agreement and Plan of
Reorganization between VCFC and Caroline (the "Agreement"), at the Effective
Date, Caroline shall become a wholly-owned subsidiary of VCFC through the
exchange of each outstanding share of common stock of Caroline for shares of the
common stock of VCFC in accordance with Section 2.1 of this Plan of Share
Exchange and pursuant to a statutory share exchange under Section 13.1-717 of
the Virginia Stock Corporation Act (the "Share Exchange"). At the Effective
Date, the Share Exchange shall have the effect as provided in Section 13.1-721
of the Virginia Stock Corporation Act.
1.2 ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation and Bylaws of VCFC and Caroline in effect
immediately prior to the consummation of the Share Exchange shall remain in
effect following the Effective Date until otherwise amended or repealed.
ARTICLE II
MANNER OF CONVERTING SHARES
2.1 CONVERSION OF SHARES
Upon and by reason of the Share Exchange becoming effective pursuant to
the issuance of a Certificate of Share Exchange by the Virginia State
Corporation Commission, no cash, except as set forth in Section 2.3 below, shall
be allocated to the shareholders of Caroline and stock shall be issued and
allocated as follows:
(a) Each share of common stock, par value $4.00 per share, of Caroline
("Caroline Common Stock") issued and outstanding immediately prior to the
Effective Date shall, by operation of law, be automatically exchanged for .7959
shares of VCFC Common Stock, plus cash for fractional shares. The ratio of
shares of VCFC Common Stock that will be exchanged for each outstanding share of
Caroline Common Stock shall be referred to herein as the "Exchange Ratio." Each
holder of a certificate representing any shares of Caroline Common Stock upon
the surrender of his Caroline stock certificates
<PAGE>
to VCFC, duly endorsed for transfer in accordance with Section 2.2 below, will
be entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of VCFC Common Stock that his shares shall be
converted into pursuant to the Exchange Ratio. Each such holder of Caroline
Common Stock shall have the right to receive the consideration described in
Sections 2.1 and 2.3 upon the surrender of such certificate in accordance with
Section 2.2. In the event VCFC changes the number of shares of VCFC Common Stock
issued and outstanding prior to the Effective Date as a result of any stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding VCFC Common Stock and the record date therefor shall be prior to
the Effective Date, the Exchange Ratio shall be proportionately adjusted.
(b) Shares of Caroline Common Stock issued and outstanding shall, by
virtue of the Share Exchange, continue to be issued and outstanding shares held
by VCFC.
(c) From and after the Effective Date, all employee and director stock
options to purchase shares of Caroline Common Stock (each, a "Caroline Stock
Option"), that are then outstanding and unexercised, shall be converted into and
become options to purchase shares of VCFC Common Stock, and VCFC shall assume
each such Caroline Stock Option in accordance with the terms of the plan and
agreement by which it is evidenced; provided, however, that from and after the
Effective Date (i) each such Caroline Stock Option assumed by VCFC may be
exercised solely to purchase shares of VCFC Common Stock, (ii) the number of
shares of VCFC Common Stock purchasable upon exercise of such Caroline Stock
Option shall be equal to the number of shares of Caroline Common Stock that were
purchasable under such Caroline Stock Option immediately prior to the Effective
Date multiplied by the Exchange Ratio and rounding down to the nearest whole
share, with cash being paid for any fractional share interest that otherwise
would be purchasable, and (iii) the per share exercise price under each such
Caroline Stock Option shall be adjusted by dividing the per share exercise price
of each such Caroline Stock Option by the Exchange Ratio, and rounding down to
the nearest cent. The terms of each Caroline Stock Option shall, in accordance
with its terms, be subject to further adjustment as appropriate to reflect any
stock split, stock dividend, recapitalization or other similar transaction with
respect to VCFC Common Stock on or subsequent to the Effective Date.
2.2 MANNER OF EXCHANGE
As promptly as practicable after the Effective Date, VCFC shall cause
Registrar and Transfer Company, acting as the exchange agent ("Exchange Agent")
to send to each former stockholder of record of Caroline immediately prior to
the Effective Date transmittal materials for use in exchanging such
stockholder's certificates of Caroline Common Stock (other than shares held by
stockholders who perfect their dissenters' rights as provided under Section 2.5
hereof) for the consideration set forth in Section 2.1 above and Section 2.3
below. Any fractional share checks which a Caroline shareholder shall be
entitled to receive in exchange for such stockholder's shares of Caroline Common
Stock, and any dividends paid on any shares of VCFC Common Stock, that such
stockholder shall be entitled to receive prior to the delivery to the Exchange
Agent of such stockholder's certificates representing all of such stockholder's
shares of Caroline Common Stock will be delivered to such stockholder only upon
delivery to the Exchange Agent of the certificates representing all of such
shares (or indemnity satisfactory to VCFC and the Exchange Agent, in their
judgment, if any of such certificates are lost, stolen or destroyed). No
interest will be paid on any such fractional share checks or dividends to which
the holder of such shares shall be entitled to receive upon such delivery.
2
<PAGE>
2.3 NO FRACTIONAL SHARES
No certificates or scrip for fractional shares of VCFC Common Stock
will be issued. In lieu thereof, VCFC will pay the value of such fractional
shares in cash on the basis of the Closing Price and the Exchange Ratio.
2.4 DIVIDENDS
No dividend or other distribution payable to the holders of record of
VCFC Common Stock at or as of any time after the Effective Date shall be paid to
the holder of any certificate representing shares of Caroline Common Stock
issued and outstanding at the Effective Date until such holder physically
surrenders such certificate for exchange as provided in Section 2.2 of this Plan
of Share Exchange, promptly after which time all such dividends or distributions
shall be paid (without interest).
2.5 RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders of Caroline who object to the Share Exchange will be
entitled to the rights and remedies set forth in sections 13.1-729 through
13.1-741 of the Virginia Stock Corporation Act.
ARTICLE III
MODIFICATION - TERMINATION
This Plan of Share Exchange may be amended, modified or terminated at
any time prior to the Effective Date by the parties hereto as provided in the
Agreement between the parties.
3
<PAGE>
Appendix B
CAROLINE SAVINGS BANK
10-KSB
B-1
<PAGE>
FORM 10-KSB/A
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1998
CAROLINE SAVINGS BANK
---------------------
(Exact Name of Registrant as Specified in its Charter)
VIRGINIA 54-0918835
-------- ----------
(State of Incorporation) (IRS Employer ID No.)
268 NORTH MAIN STREET, BOWLING GREEN, VIRGINIA 22427
- ---------------------------------------------- -----
(Address of Principal Office) (Zip Code)
Registrant's telephone number, including area code (804) 633-9883
--------------
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK - $4.00 PAR VALUE
------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
--------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form
10-KSB. [ ]
Issuer's revenues for the most recent fiscal year were $3,884,856.
Estimated aggregate market value of the voting stock held by nonaffiliates of
the registrant at March 15, 1999 was $7,788,480.
Number of shares of Common Stock outstanding as of March 15, 1999 was 370,880.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December
31, 1998 are incorporated by reference in Part II and Part III of this Report.
Portions of the proxy statement relating to the 1999 Annual Meeting of
Stockholders are incorporated by reference in Part II and III of this Report.
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
-------------------------------------------------------
(a) 1. FINANCIAL STATEMENTS
The following information is included in the Bank's 1998 Annual Report,
which information is incorporated herein by reference:
Consolidated Statements of Financial Condition at December 31, 1998 and
1997 (Previously Filed)
Consolidated Statement of Income for years ended December 31, 1998 and
1997 (Previously Filed)
Consolidated Statements of Stockholder's Equity for years ended December
31, 1998 and 1997 (Previously Filed)
Consolidated Statements of Cash Flows for years ended December 31, 1998
and 1997 (Previously Filed)
Notes to Financial Statements (Previously Filed)
Independent Auditor's Report - 1998 (Previously Filed)
Independent Auditor's Report - 1997 (Included Herein)
2. EXHIBITS (Previously Filed)
Exhibit No. Description
----------- -----------
3.1 Articles of incorporation
3.2 By-laws to the articles of incorporation
10.2 1995 Stock Incentive Plan
13 1998 Annual Report filed herewith
22 Proxy Statement for the April 27, 1999 Annual Meeting of
Stockholders filed herewith
(b) REPORTS ON FORM 8-K
None
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAROLINE SAVINGS BANK
By:
/s/ W.R. Southworth
- --------------------
W.R. Southworth
President, CEO & Director
By:
/s/ Janet L. Moss
- --------------------
Janet L. Moss
Controller
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Director
- ---------------------- -------
Wayne V. Allen
/s/ Wilson M. Blatt Director 4/27/99
- ---------------------- -------
Wilson M. Blatt
/s/ Page Butler Director 4/20/99
- ---------------------- -------
Page Butler
Director
- ---------------------- -------
John F. Davis
/s/ James S. Day, Jr. Chairman of the Board 4/21/99
- ---------------------- -------
James S. Day, Jr.
/s/ Clyde Flagg Director 4/21/99
- ---------------------- -------
Clyde Flagg
Director
- ---------------------- -------
Harold Gardner
/s/ Arthur J. Martin Director 4/20/99
- ---------------------- -------
Arthur J. Martin
/s/ W. R. Southworth President, Chief Executive 4/21/99
- ---------------------- Officer, and Director -------
W. R. Southworth
/s/ J. Kemp Smith Executive Vice-President 4/21/99
- ---------------------- and Director -------
J. Kemp Smith
<PAGE>
[CHERRY, BEKAERT & HOLLAND LOGO APPEARS HERE]
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
and Stockholders
Caroline Savings Bank
Bowling Green, Virginia
We have audited the accompanying consolidated balance sheet of Caroline Savings
Bank and subsidiary as of December 31, 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit 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 identified above present
fairly, in all material respects, the financial position of Caroline Savings
Bank and subsidiary as of December 31, 1997 and the results of its operations,
changes in stockholders' equity, and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/ CHERRY, BEKAERT & HOLLAND, L.L.P.
- -------------------------------------
Cherry, Bekaert & Holland, L.L.P.
Richmond, Virginia
January 22, 1998
<PAGE>
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1998
CAROLINE SAVINGS BANK
---------------------
(Exact Name of Registrant as Specified in its Charter)
VIRGINIA 54-0918835
-------- ----------
(State of Incorporation) (IRS Employer ID No.)
268 NORTH MAIN STREET, BOWLING GREEN, VIRGINIA 22427
- ---------------------------------------------- -----
(Address of Principal Office) (Zip Code)
Registrant's telephone number, including area code (804) 633-9883
--------------
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK - $4.00 PAR VALUE
------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
--------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form
10-KSB. [ ]
Issuer's revenues for the most recent fiscal year were $3,884,856.
Estimated aggregate market value of the voting stock held by nonaffiliates of
the registrant at March 15, 1999 was $7,788,480.
Number of shares of Common Stock outstanding as of March 15, 1999 was 370,880.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December
31, 1998 are incorporated by reference in Part II and Part III of this Report.
Portions of the proxy statement relating to the 1999 Annual Meeting of
Stockholders are incorporated by reference in Part II and III of this Report.
<PAGE>
CAROLINE SAVINGS BANK
Table of Contents
PART I
Page
----
ITEM 1. DESCRIPTION OF BUSINESS..........................................3
ITEM 2. DESCRIPTION OF PROPERTIES.......................................13
ITEM 3. LEGAL PROCEEDINGS...............................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............14
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.........14
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS............................14
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................14
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE........................................15
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE BANK....................15
ITEM 10. EXECUTIVE COMPENSATION..........................................16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..16
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................16
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.........16
SIGNATURES...................................................................19
2
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
------------------------
GENERAL
The Bank commenced business in 1973 as a Virginia chartered stock savings
and loan association. On April 19, 1994, stockholders voted to convert to a
Virginia stock savings bank charter under the name Caroline Savings Bank.
Effective September 14, 1994, the conversion was completed and the Bank became a
state chartered stock savings bank. The Bank maintains its corporate
headquarters and home office in the town of Bowling Green, Virginia, and has
operated one additional Virginia branch office located on Leavells Road in
Spotsylvania County, in the suburbs on Fredericksburg, Virginia, since 1988.
The Bank's principal business consists of attracting FDIC-insured deposits
from the general public and using such deposits to originate mortgage loans
secured primarily by first liens on residential real estate in the communities
it serves, and to a lesser extent in consumer loans. The Bank's income is
derived from interest income on its loans and other investments, including
mortgage-backed securities and investment securities, and non-interest income
such as loan and origination fees and service charges. At December 31, 1998, the
Bank had total assets of $43.7 million, deposits of $35.2 million, loans
receivable of $33.8 million and stockholders' equity of $5.4 million.
The Bank is a member of the Federal Home Loan Bank ("FHLB") of Atlanta one
of the 12 regional banks comprising the Federal Home Loan Bank System. The Bank
is subject to regulation by the FDIC, State Corporations Commission (SCC) and to
the Board of Governors of the Federal Reserve System ("Federal Reserve Board").
The Bank presently exceeds all three capital requirements imposed by
regulatory authorities including the current risk-based capital requirements.
The Bank's executive office is located at 268 North Main Street, Bowling
Green, Virginia 22427 and its telephone number is (804) 633-9883. The mailing
address is Post Office Box 860, Bowling Green, Virginia 22427.
3
<PAGE>
OPERATING STRATEGY
The Bank provides personalized, quality financial services to its customers and
to further enhance the Bank's presence in its market area, it is working to:
Increase market share of deposits in its market area. Increase market share of
deposits in its market area while efficiently managing its retail offices.
Expand its market share in Caroline County with the newly opened Ladysmith
branch; increase fee income; effectively manage interest rate risk; and enhance
regulatory capital position.
Increase Residential Lending Volume in Market Area. Through experienced
management, the Bank has achieved satisfactory lending volumes in its market
area. The Bank believes it has positioned itself to take advantage of the loan
demand in the Caroline county and Fredericksburg-Spotsylvania market. During
1998 the Bank has experienced an upsurge in Residential mortgage loan
origination volume due to an increased number of refinanced mortgages. For
fiscal years ending December 31, 1998 and 1997, the Bank originated $4.2 million
and $3.1 million of residential mortgage loans.
Increased Deposit Market Share in Market Areas. The Bank operated three full
service retail offices in 1998, primarily in suburban areas in mid-central
Virginia. The Bank continuously seeks to increase its market share in the
communities it serves by expanding deposit relationships, by improving product
cross-selling and through new business development. The Bank's strategy of
gathering deposits primarily in suburban and rural communities has enabled it to
attract relatively stable deposits.
Increased Fee Income. Management of the Bank is working to increase fee income
by attracting a larger number of checking accounts and offering its customers a
wider selection of fee-based services. The Bank also is increasing fees by
surcharging on all foreign ATM transactions. The Bank believes that additional
fee income may be generated through the active marketing in the future of
financial products.
Interest Rate Risk Management. The Bank is committed to residential lending as
its primary business and seeks to limit the interest rate risk inherent in such
activity. The Bank emphasizes the retention in its portfolio of variable rate
mortgage and residential construction loans as well as fixed rate loans.
Enhance Regulatory Capital. The Bank is committed to enhancing its capital base
to maintain regulatory capital ratios and to permit future conservative growth
in total assets. In addition, management believes that the retention of future
earnings will enhance the Bank's capital levels. The Bank actively manages the
amount and mix of its assets in order to influence its capital ratios.
LENDING ACTIVITIES
General. The Bank primarily originates mortgage loans and construction loans
secured by residential real estate. During the fiscal years 1998 and 1997, the
Bank originated mortgage and construction loans totaling $11,960,536 and
$8,504,164, respectively. Most of these loans were secured by one-to-four
family residential real estate.
Under FIRREA, the permissible amount of loans-to-one-borrower by savings
institutions is generally limited
4
<PAGE>
to 15% of unimpaired capital and surplus. Loans in an amount equal to an
additional 10% of unimpaired capital and surplus also may be made to a borrower
if the loans are fully secured by readily marketable collateral. FIRREA also
provides special rules which permit loans to be made for any purpose up to
$500,000, notwithstanding a savings institutions level of unimpaired capital and
surplus. Under the current interpretations of FIRREA, the Bank's maximum
loans-to-one-borrower limit is $500,000. Commercial real estate lending
restrictions, enacted in FIRREA, limit this type of lending to 400% of
regulatory capital. Maximum loans to one borrower are further limited by
Virginia law.
Residential Lending. The primary lending activity of the Bank is the granting
of mortgage loans to enable borrowers to purchase single family homes on
properties within its principal market area. The Bank also originates a limited
number of one to four family residential construction loans.
The Bank originates both fixed rate mortgages and ARMs which have interest rates
that adjust annually and are indexed to the weekly average yied on one-year
Treasury securities. Borrower demand for ARMS versus fixed rate mortgage loans
is a function of interest rate levels, the expectations for changes in the level
of interest rates and the difference between interest rates and loan fees
offered for fixed rate mortgage loans and the rates and loan fees for ARMs. The
Bank's loan origination volume is subject to some seasonal variation, with the
heaviest demand in mid-spring to midsummer and lightest in the winter. Loan
demand is also affected by the interest rate environment and general economic
conditions.
The Bank has maintained its emphasis on residential mortgage lending as a source
of income. The Bank originates primarily conventional residential loans. The
Bank is a qualified FHLMC seller and can sell 30-year fixed rate loans into the
secondary market to help manage effectively its interest rate risk; however, the
Bank sold no loans into the secondary market.
The Bank maintains an internal loan-tracking system for residential loans which
provides management with information regarding the composition, status, and
volume of loans in process, as well as other information.
Conventional residential mortgage loans are originated for up to 95% of the
appraised value or selling price of the mortgaged property, whichever is less.
All loans with loan-to-value ratios in excess of 80% require the customer to
purchase private mortgage insurance from approved third parties so that the
Bank's risk is no greater than an 80% loan-to-value ratio. The Bank's
residential lending programs are intended to comply with all applicable
regulatory requirements.
Residential mortgage loan applications must be approved for compliance with
underwriting criteria, such as loan-to-value rations against the appraised
collateral, borrower income qualifications, credit history and the adequacy of
insurance. After approval, the Bank issues a commitment to the prospective
borrower specifying the amount of the loan and a date of expiration of the
commitment. Depending on the type of loan and whether the prospective borrower
has elected to lock in rates and fees, commitment information also includes
rates, fees and, if the loan is an ARM, information concerning the index,
convertibility and adjustment features.
Credit authority with respect to conventional residential mortgage lending is
currently assigned to four officers at the Bank, any three of whom may approve a
loan up to the FHLMC limit of $227,150. Residential loans that exceed $227,150
must be approved by at least three of the five members of the Executive Loan
Committee of the Board of Directors.
5
<PAGE>
The Bank traditionally made residential construction loans on custom homes
(where the home buyer is the borrower), and pre-sold homes, but not on
speculative residential construction, except to low-risk credit worthy
borrowers. Construction financing is generally considered to involve a higher
degree of risk than long-term financing on improved, occupied real estate. The
Bank limits its construction lending to contractors who have pre-sold the
subject properties under custom construction for the home owner. The Bank's risk
of loss on construction loans is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of construction and the
estimated cost of construction.
If the estimate of construction costs proves to be inaccurate, the Bank might
have to advance funds beyond that originally committed to permit completion of
the construction and to protect its security position. The Bank might also be
confronted with a project with insufficient value to assure full repayment.
The Bank's underwriting, monitoring and disbursement practices with respect to
construction financing are intended to ensure that sufficient funds are
available to complete construction projects. The Bank endeavors to limit its
risk through its underwriting procedures, by using only approved, qualified
appraisers and by dealing only with qualified builders and borrowers.
Consumer Lending. The Bank's consumer lending program provides loans for home
improvement, automobiles, and certain other worthwhile purposes. Generally,
consumer loans are originated for terms ranging from one month to five years at
fixed rates. The bank also offers loans secured by savings accounts, home
equity lines of credit and second mortgage loans.
Consumer lending is delegated to officers and branch managers. The maximum
current loan limit applicable to any such individual is $20,000 unsecured and
$30,000 secured. Unsecured consumer loans of an amount between $20,000 and
$30,000 must be approved by the chief executive officer and such loans more than
$30,000 must be approved by the Bank's Executive Loan Committee. Savings Bank
officers, as defined in the Bank's loan policy manual, have authority to make
secured loans up to $30,000. Secured loans above $30,000 but not more than
$50,000 require the approval of the chief executive officer and one other loan
officer and such loans of $50,000 or more require approval of the Loan Committee
of the Board of Directors.
Loan Servicing. Loan servicing includes collecting and remitting loan payments,
accounting for principal and interest, holding escrow funds for the payment of
real estate taxes and insurance premiums, contacting delinquent borrowers and
supervising foreclosures in the event of unremedied defaults. The Bank receives
a fee, generally 3/8% of the unpaid principal balance, for each loan serviced
for others. Such fees serve to compensate the Bank for the costs of performing
the servicing function.
The Bank services loans for the FHLMC. No loans were serviced for others. The
Bank does not anticipate increasing the pool of loans serviced for others. The
Bank's ability to continue servicing loans for the FHLMC is dependent upon the
Bank's ability to meet the seller/servicer qualifications of these agencies,
including the agencies' net worth requirements.
Secondary Market Activities. The Bank has developed correspondent relationships
with several financial institutions to facilitate the origination or sale of
mortgage loans in the secondary market on a whole loan basis. Virtually all
such loans are secured by real estate which is located in Virginia. Although
management of the Bank has the authority to purchase loans, it generally has not
purchased loans.
6
<PAGE>
Analysis of Loan Portfolio. Set forth below is selected data relating to the
composition of the Bank's loan portfolio by the type of loan.
At December 31,
1998 1997
---- ----
Type of Loans:
Mortgage loans $23,844,767 $25,100,849
Installment loans 7,764,985 6,640,642
Construction loans (net) 2,357,340 1,672,890
Home improvement loans 222,879 334,999
Loans to depositors, secured by savings 154,203 114,991
----------- ----------
34,344,174 33,804,371
Less:
Allowance for loan losses 252,116 202,405
Unearned income on installment loans 12,266 12,349
Net deferred loan fees 213,470 218,170
----------- ----------
$33,866,322 $33,431,447
=========== ===========
LOAN MATURITY TABLES
The following table sets forth the estimated maturity of the Bank's loan
portfolio at December 31, 1998. The table does not include prepayments or
scheduled principal repayments. All loans are shown as maturing based on
contractual maturities.
Due within 1 through Due after
1 year 5 years 5 years Total
------ ------- ------- -----
Mortgage and home
improvement $ 6,942 1,203,739 22,856,965 24,067,646
Installment and loans to
depositors, secured by
savings 3,336,200 3,385,357 1,197,631 7,919,188
Construction 2,357,340 0 0 2,357,340
NON-PERFORMING AND PROBLEM ASSETS
Loan Delinquencies. The Bank's collection procedures provide that when a
consumer loan is ten days past due, a late charge notice is sent. If payment is
still delinquent after twenty days, the customer will receive a delinquency
notice and a telephone call from the loan officer. If the delinquency
continues, similar subsequent efforts are made to eliminate the delinquency. If
the loan continues in a delinquent status for ninety days past due and no
repayment plan is in effect, a notice of right to cure default is mailed to the
customer giving ten days to bring the account current before proceeding with
legal action.
7
<PAGE>
Loans are reviewed on a monthly basis and are generally placed on a nonaccrual
status ("non-performing loans") when, in the opinion of management, the
collection of additional interest is doubtful. Interest accrued and unpaid at
the time a loan is placed on nonaccrual status is charged against interest
income. Payments on loans placed in nonaccrual status are applied to principal
only until transferred back to an accrual basis.
Non-performing Assets. At December 31, 1998 and 1997, the Bank had no
non-performing loans. The Bank seeks to maintain a low or zero level of
nonperforming assets through superior credit quality decisions, by following
strict policy guidelines, exercising close control over collections, and by
curing delinquencies.
Classified Assets. The Bank's system requires the classification of loans and
other assets that are considered to be of questionable quality and is intended
to be consistent with regulations adopted by the Bank's regulators. These
regulations require each insured institution to classify its assets on a
regular basis. In addition, in connection with the examination of insured
institutions, regulatory examiners have authority to identify problem assets
and, if appropriate, require them to be classified. The Bank's system employs
the classification categories of "substandard," "doubtful" and "loss."
Substandard assets have deficiencies which give rise to the distinct possibility
that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful assets have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full on the
basis of currently existing facts, conditions, and values questionable, and
there is a high probability of loss. An asset classified as loss is considered
uncollectible and of such little value that it should not be included as an
asset of the Bank.
Assets classified as substandard or doubtful require the establishment of a
valuation allowance in amounts adequate under FDIC regulations. Judgments
regarding the adequacy of a general valuation allowance are based on continual
evaluation of the nature, volume and quality of the loan portfolio and other
assets, specific problem assets and current economic conditions that may affect
the recoverability of recorded amounts.
In accordance with its classification of assets policy, the Bank regularly
reviews the problem assets in its portfolio to determine whether any assets
require classification in accordance with applicable regulations. On the basis
of management's review of its assets at December 31, 1998, the Bank had $242,613
of assets classified as substandard loans and $396,919 of assets classified as
doubtful. The Bank's potential problem loans include one mortgage loan with a
principal balance of $315,838 and one construction loan with a principal balance
of $46,624. At December 31, 1998, the Bank's allowance for loan losses was
$252,116.
Foreclosed Real Estate. Real estate acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until it is sold. Any real estate owned acquired, under the Bank's policy, is
and will be recorded at the lower of estimated fair market appraised value or
the principal balance of the defaulted loan (net of any loss reserves already
established). Development, improvement and direct holding costs relating to any
such property, if any, will be capitalized. Under the policy of the Bank, the
carrying value of any acquired property will be continuously evaluated and, if
necessary, an allowance will be established to reduce the carrying value to net
realizable value.
Generally, the Bank establishes specific allowances for the difference between
the anticipated net realizable value, adjusted for other possible sources of
repayment and the book balance of its classified loans and REO. Each classified
loan property is reviewed at least monthly. Allowances are established or
periodically increased,
8
<PAGE>
if necessary, based on the review of information obtained through on-site
inspections, market analysis, appraisals and purchase offers. At December 31,
1998 the Bank did not hold any foreclosed real estate.
Allowances for Loan Losses. The allowance for loan losses is an estimate of an
amount, by management, to provide for potential losses in the loan portfolio.
Various factors including charge-off experience, change in the volume of loans
and the level of under performing loans are taken into consideration in
determining the amount of the provisions for loan losses and the total amount of
the loan loss reserve.
<TABLE>
<CAPTION>
December 31,
1998 1997
Amount of % of Amount of % of
Allowance Allowance Allowance Allowance
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Mortgage loans $157,299 65.13% $150,023 74.12%
Installment loans 74,708 29.63% $ 39,691 19.61%
Construction loans 11,552 1.85% $ 9,998 4.94%
Home improvement loans 8,557 3.39% 2,693 1.33%
-------- ------- -------- -------
Total allowance for loan losses $252,116 100.00% $202,405 100.00%
======== ======= ======== =======
</TABLE>
The following table sets forth information with respect to the Bank's allowance
for loan losses at the dates and for the periods indicated:
December 31,
1998 1997
---- ----
Allowance balances at beginning of period $202,405 $156,317
Provision (credit) for loan losses:
Mortgage loans 7,276 44,472
Installment loans 69,306 11,766
Construction loans 1,554 2,964
Home improvement loans 5,864 798
Net (charge-offs) recoveries:
Mortgage loans 0 (1,175)
Installment loans (34,289) (12,737)
Construction loans 0 0
Home improvement loans 0 0
----------- ----------
Allowance balance at end of period $252,116 $202,405
=========== ==========
9
<PAGE>
INVESTMENT SECURITIES
As described in Note 2 to the financial statements, substantially all of the
Bank's investments are derived from U.S. Government and Agency obligations. In
addition, the Bank's equity securities consist of shares of Federal Home Loan
Mortgage Corporation Stock. The fair value of the US Treasury and Agency
obligations and equity security are determined based on quoted market values.
The weighted average yied by maturity, cost basis and fair value by maturity are
as follows:
<TABLE>
<CAPTION>
Weighted Carrying Estimated
Average Yield Amount Fair Value
------------- ------ ----------
<S> <C> <C> <C>
Available-for-sale:
U.S. Government and agency obligations:
Due in one year or less 5.75% $ 999,502 $1,006,421
Due from one year to five years 5.55% 1,988,183 1,979,689
Due from five to ten years 5.28% 1,386,251 1,395,637
Other investment securities:
Federal Home Loan Mortgage Corporation stock --- 9,814 645,947
---------- ----------
3.98% $4,383,750 $5,027,694
========== ==========
</TABLE>
The Bank had US Treasury and Agency obligations pledged as collateral for a
municipal deposit as of December 31, 1998 and 1997 respectively, totaling
$1,580,000 and $1,000,000.
The following tables of Average Balances, Interest, Yields and Costs, and
Rate/Volume analyze the Bank's net interest income for the year ended December
31, 1998 and 1997.
10
<PAGE>
Average Balances, Interest, Yields, and Costs
The following table sets forth certain information relating to the Bank's
average balance sheets and reflects the average yield on assets and average
cost of liabilities at and for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from month-end balances. Management does not believe that the use of
month-end balances instead of daily average balances has caused a material
difference in the information presented.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
At December, 1998 At December, 1997 1998
----------------- ----------------- ----
Actual Actual Actual Actual Average Interest Yield/
Balance Yield Balance Yield Balance Cost
------- ----- ------- ----- ------- -------- ----
Assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest-bearing deposits 571,991 6.29% 204,991 15.74% 388,491 35,965 9.26%
Investments 5,027,694 3.70% 4,318,365 4.66% 4,673,030 185,824 3.98%
Federal Home Loan Bank Stock 447,500 9.27% 447,500 5.42% 447,500 41,464 9.27%
Loans receivable 33,866,322 9.94% 33,431,447 9.61% 33,648,885 3,365,342 10.00%
---------- ---------- ---------- ---------
Total interest earning assets 39,913,507 9.09% 38,402,303 9.03% 39,157,906 3,628,595 9.27%
Non-interest-earning assets 3,826,261 3,554,845 3,690,553
---------- ---------- ----------
Total 43,739,768 41,957,148 42,848,459
========== =========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities
Savings deposits 8,534,358 3.65% 9,243,051 3.45% 8,888,705 311,453 3.50%
Demand deposits 1,835,407 0.03% 1,111,685 0.02% 1,473,546 592 0.04%
Now and money market deposits 4,128,535 2.79% 3,767,761 2.97% 3,948,148 115,148 2.92%
Certificates of deposit,
$100,000 or more 3,647,493 6.63% 2,960,747 7.58% 3,304,120 241,771 7.32%
Other Cerificates of deposit 17,110,942 4.86% 16,150,777 5.17% 16,630,860 831,559 5.00%
Borrowings 2,560,000 7.82% 3,340,000 7.76% 2,950,000 200,150 6.78%
---------- ---------- ---------- ---------
Total interest-bearing liabilities 37,816,735 4.50% 36,574,021 4.78% 37,195,379 1,700,673 4.57%
Non-interest-bearing liabilities 513,104 446,869 479,986
Stockholders' Equity 5,409,929 4,936,258 5,173,094
---------- ---------- ----------
Total 43,739,768 41,957,148 42,848,459
========== =========== ==========
Net interest income and interest
rate spread 4.59% 4.25% 1,927,922 4.69%
==========
Net yield on interest-earning assets 4.83% 4.48% 4.92%
Ratio of interest-earning assets
to interest-bearing liabilities 105.54% 105.00% 105.28%
Ratio of average equity to average assets 12.37% 11.76% 12.07%
<CAPTION>
Year Ended December 31,
- --------------------------------------
1997
----
Average
Average Interest Yield/
Balance Cost
------- -------- ----
<S> <C> <C>
210,836 32,271 15.31%
4,700,707 201,410 4.28%
447,500 24,266 5.42%
31,744,342 3,211,483 10.12%
- ---------- ---------
37,103,385 3,469,430 9.35%
3,929,169
- ----------
41,032,574
==========
8,598,845 318,594 3.71%
1,354,381 268 0.02%
3,561,658 112,076 3.15%
2,930,279 224,510 7.66%
16,446,780 834,992 5.08%
3,030,000 259,334 8.56%
- ---------- ---------
35,921,943 1,749,774 4.87%
385,862
4,724,769
- ----------
41,032,574
==========
1,719,656 4.48%
==========
4.63%
103.29%
11.51%
</TABLE>
<PAGE>
Rate/Volume Analysis
The following table analyzes the dollar amount of changes in interest income
and interest expense for major components of the Bank's interest earning assets
and interest-bearing liabilities. The table distinguishes between (i) changes
in net interest income attributable to volume (changes in volume multiplied by
the prior period's rate), (ii) changes in net interest income attributable to
rate (changes in interest rates multiplied by the prior period's volume), and
(iii) mixed changes (changes in volume multiplied by changes in rates.)
<TABLE>
<CAPTION>
Year Ended December 31, 1998 vs. 1997 Year Ended December 31, 1997 vs. 1996
--------------------------------------- ----------------------------------------
Increase (Decrease) Attributable to Increase (Decrease) Attributable to
--------------------------------------- ----------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
--------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income on:
Interest-bearing deposits 57,776 (19,382) (34,700) 3,694 (2,208) (6,818) 368 (8,658)
Investments 33,083 (41,803) (6,866) (15,586) (29,331) 42,107 (6,334) 6,442
Federal Home Loan Bank Stock 0 17,198 0 17,198 0 (8,178) 0 (8,178)
Loans Receivable 41,775 110,645 1,439 153,859 327,941 (33,927) (3,809) 290,205
------ ------- ----- ------- ------- -------- ------- -------
Total Interest Income 132,634 66,658 (40,127) 159,165 296,402 (6,816) (9,775) 279,811
------ ------- ----- ------- ------- -------- ------- -------
Interest Expense on:
Savings Deposits (24,428) 18,722 (1,435) (7,141) 45,814 (8,668) (1,404) 35,742
Demand Deposits 175 90 59 324 (138) (166) 43 (261)
Now and money market deposits 10,732 (6,990) (669) 3,072 9,783 (2,832) (263) 6,688
Certificates of deposit, $100,000 or more 52,075 (28,259) (6,555) 17,261 3,582 49,411 1,038 54,032
Other certificates of deposit 49,640 (50,095) (2,978) (3,433) (31,646) (29,408) 1,040 (60,015)
Borrowings (60,563) 1,799 (420) (59,164) 53,942 (25,456) (5,802) 22,684
-----------------------------------------------------------------------------------------
Total interest expense 27,631 (64,733) (11,999) (49,101) 81,336 17,119 (5,348) 58,870
-----------------------------------------------------------------------------------------
Increase (decrease) in net interest income $105,003 $131,391 $28,128 $208,266 215,067 10,303 (4,428) 220,941
=========================================================================================
</TABLE>
<PAGE>
SUPERVISION AND REGULATION
The Bank is regulated and examined on a regular basis by the FDIC. Included in
the examination is a review of the adequacy of the loan loss provision, quality
of loans and investments, propriety of management practices, compliance with
laws and regulations, and other aspects of the Bank's operations. In addition,
the Bank must furnish quarterly reports containing detailed financial statements
and schedules to the FDIC. The Bank is a state chartered savings bank and is
subject to regulation by the Bureau of Financial Institutions/State Corporation
Commission. The various laws and regulations administered by the regulatory
agencies affect corporate practices, such as payment of dividends, incurring
debt and acquisition of financial institutions and other companies. These laws
and regulations affect business practices, such as payment of interest on
deposits, the charging of interest on loans, types of business conducted and
location of offices. Any change in applicable laws or regulations may have a
material effect on the business of the Bank. The Bank is also subject to the
provisions of the Community Reinvestment Act of 1977, which requires the FDIC to
assess the Bank's record in meeting the credit needs of the community serviced
by the Bank, including low and moderate income neighborhoods.
The deposits of the Bank are insured by the FDIC and the Bank is a member of the
Saving Association Insurance Fund which is administered by the FDIC and is
subject to quarterly assessments based on deposits.
COMPETITION
The Bank faces strong competition, both in attracting deposits and in
originating real estate and other loans, from other thrifts, credit unions,
banks, and other mortgage lenders, most of which have greater resources than
the Bank. Some or all of these competitive institutions operate in each of the
Bank's market areas. The Bank competes in its market areas with these other
institutions and financial intermediaries in all phases of its operations,
including savings, lending, customer service and financial services. Management
believes that a strong knowledge of, and presence in, the markets served by the
Bank, a corporate focus on high-quality customer service, well-defined product
lines and marketing programs responsive to the demands of the consumer enables
the Bank to compete effectively in the delivery of its deposit and lending
products.
PERSONNEL
The Bank currently has twenty-two full-time employees and utilizes the services
of four part-time employees and two loan originators. The Bank currently
maintains a comprehensive employee benefit program providing company-sponsored
group health, life and disability insurance, a 401(k) retirement plan with a
profit-sharing option, paid vacations and sick leave, and educational
assistance, in which most eligible employees participate. The employee benefits
are considered by management to be generally comparable with employee benefits
available in the Bank's market area. Employees are not represented by a
collective bargaining unit. The Bank believes its relationship with its
employees is excellent.
ITEM 2. DESCRIPTION OF PROPERTIES
-------------------------
The Bank presently owns three facilities, its main office and corporate office
at 268 North Main Street, Bowling Green, VA, a second branch located at 11019
Leavells Road, Fredericksburg, VA, and a third office located at 18121 Jefferson
Davis Highway, Ruther Glen, VA.
13
<PAGE>
All properties are in sound physical condition and are deemed to be adequately
insured. There are no mortgages, liens or other limitations on the Bank's
ownership of its properties.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Bank is party to various legal proceedings originating from the ordinary
course of business. Management and counsel are of the opinion that settlement of
these items should not have a material effect on the financial position of the
Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-----------------------------------------------------------------
MATTERS
-------
There is no established market for the Bank's common stock. The Bank's common
stock trades infrequently, is not listed on an exchange, and is not quoted on
any bulletin board system. Sales of the Bank's stock take place between
individuals at mutually agreed prices and the Bank does not participate in the
transactions.
Management knows of no restrictions on the Bank's ability to pay future
dividends and management expects to continue to pay annual stock or cash
dividends in the future. However, the Bank's ability to pay dividend on its
common stock is substantially restricted by Federal regulation and the effect
of Federal income taxation on any dividends paid.
The number of holders of the Bank's Common Stock (the only class of equity
security of the Bank) of record was 542 as of the end of the Bank's fiscal year,
December 31, 1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
The information contained under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 3 through 5
of the Annual Report is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information for this items can be found in the Annual Report, which is
hereby incorporated by reference.
14
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Information contained under "Proposal Two: Ratification of the Selection of
Independent Auditors" on page 7 of the Proxy Statement used in connection with
the solicitation of proxies for the Bank's annual meeting of shareholders to be
held April 27, 1999, is incorporated herein by reference. Over the past 12
months, the Bank had no disagreements with its accountants on any matters of
accounting principles or practices for financial statement disclosure.
Cherry, Bekaert & Holland, L.L.P. ("Cherry Bekaert") served as the Bank's
independent public accountants for the fiscal years ended December 31, 1995,
December 31, 1996, and December 31, 1997. For various business reasons, senior
management recommended the replacement of Cherry Bekaert to the Company's Board
of Directors, and on August 27, 1998, the Board officially terminated its
business relationship with Cherry Bekaert. Cherry Bekaert's reports on the
Bank's financial statements for each of the last two fiscal years did not
contain an adverse opinion or disclaimer of opinion. Similarly, Cherry Bekaert
did not modify either such report as to uncertainty, audit scope or accounting
principles. There were no disagreements between the Bank and Cherry Bekaert
regarding any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
Upon the recommendation of senior management, on August 27, 1998, the Board of
Directors of the Bank appointed McGladrey & Pullen, L.L.P., as independent
public accountants to audit the Bank's consolidated financial statements for the
fiscal year ended December 31, 1998.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE BANK
--------------------------------------------
A. Directors of the Bank
See Proxy Statement, item titled "Election of Directors," page 3.
B. Executive Officers of the Bank
The names and (ages) of all principal officers of the Bank and of all persons
chosen to become principal officers, the nature of any family relationship
between them, their positions and offices with the Bank and terms of office and
any arrangements or understandings between officers and any other person
pursuant to which that person was selected as an officer is as follows:
William Roy Southworth (61) has served as the chief executive officer of the
Bank since 1973. He was elected president and director in 1975.
J. Kemp Smith (56) has been a vice president of the Bank since 1986. He was
elected a director October 21, 1997. Prior to that he was an officer and branch
manager for Dominion Bank.
Vicki L. Satterwhite (41), vice president and branch manager, was employed by
the Bank in 1976.
15
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
----------------------
See Proxy Statement items titled "Directors' Compensation", "Certain
Relationships and Related Transactions", and "Summary Compensation" at page 5
thereof.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
See the Proxy Statement for the 1997 Annual Meeting of Shareholders (the "Proxy
Statement") items titled "Security Ownership of Certain Beneficial Owners and
Management," at page 1 thereof.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information for this item is set forth in the section entitled "Certain
Relationships and Related Transactions" on page 5 of the Bank's Proxy Statement,
which section is hereby incorporated by reference.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
------------------------------------------------------
(a) 1. FINANCIAL STATEMENTS
The following information is included in the Bank's 1998 Annual Report,
which information is incorporated herein by reference.
Consolidated Statements of Financial Condition at December 31, 1998 and
1997
Consolidated Statements of Income for years ended December 31, 1998 and
1997
Consolidated Statements of Stockholder's Equity for years ended December
31, 1998 and 1997
Consolidated Statements of Cash Flows for years ended December 31, 1998 and
1997
Notes to Financial Statements
Independent Auditor's Report
16
<PAGE>
2. EXHIBITS
Exhibit No. Description
----------- -----------
3.1 Articles of incorporation
3.2 By-laws to the articles of incorporation
10.2 1995 Stock Incentive Plan
13 1998 Annual Report filed herewith
22 Proxy Statement for the April 27, 1999 Annual Meeting of
Stockholders filed herewith
(b) REPORTS ON FORM 8-K
None
17
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAROLINE SAVINGS BANK
By:
/s/ W.R. Southworth
- -------------------------------
W.R. Southworth
President, CEO & Director
By:
/s/ Janet L. Moss
- -------------------------------
Janet L. Moss
Controller
18
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Wayne V. Allen Director 3-29-99
- ------------------------ -------
Wayne V. Allen
/s/ Wilson M. Blatt Director 3-29-99
- ------------------------ -------
Wilson M. Blatt
/s/ Page Butler Director 3-29-99
- ------------------------ -------
Page Butler
/s/ John F. Davis Director 3-29-99
- ------------------------ -------
John F. Davis
/s/ James S. Day, Jr. Chairman of the Board 3-29-99
- ------------------------ -------
James S. Day, Jr.
/s/ Clyde Flagg Director 3-29-99
- ------------------------ -------
Clyde Flagg
/s/ Harold L. Gardner Director 3-26-99
- ------------------------ -------
Harold Gardner
/s/ Arthur J. Martin Director 3-29-99
- ------------------------ -------
Arthur J. Martin
/s/ W.R. Southworth President, Chief Executive Officer, and 3-29-99
- ------------------------ -------
W.R. Southworth Director
/s/ J. Kemp Smith Executive Vice-President and Director 3-29-99
- ------------------------ -------
J. Kemp Smith
19
<PAGE>
Appendix C
CAROLINE SAVINGS BANK
10-QSB
C-1
<PAGE>
FORM 10-QSB/A
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
FDIC CERTIFICATE NO. 31673
CAROLINE SAVINGS BANK
(Exact name of small business issuer as
specified in its charter)
VIRGINIA 54-0918835
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
268 North Main Street
Bowling Green, Virginia 22427
(Address of principal executive offices) (Zip Code)
(804) 633-9883
Issuer's telephone number
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter periods that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Common Stock, $4.00 Par Value -- 389,869 shares as of September 30, 1999
<PAGE>
CAROLINE SAVINGS BANK AND SUBSIDIARY
BOWLING GREEN, VIRGINIA
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income (Unaudited) -- Three and Nine months
ended September 30, 1999 and 1998.
Consolidated Balance Sheets (Unaudited) -- September 30, 1999.
Consolidated Statements of Cash Flows (Unaudited) -- Nine months ended
September 30, 1999 and 1998.
Notes to condensed consolidated financial statements
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures.
<PAGE>
Caroline Savings Bank
Consolidated Balance Sheet (Unaudited)
As of September 30, 1999
<TABLE>
<CAPTION>
<S> <C>
September 30, 1999
(Dollars in thousands)
ASSETS
Cash and cash equivalents $ 3,392
Investment securities
Securities held-to-maturity 4
Securities available-for-sale 6,984
Federal Home Loan Bank stock (restricted), at cost 225
Loans receivable, net 34,905
Premises and equipment, net 1,616
Other real estate owned 3
Accrued interest receivable
Loans 269
Investment securities 91
Prepaid expenses and other assets 145
-----------------
TOTAL ASSETS $47,634
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits - Savings accounts $9,855
Interest bearing transaction accounts 6,392
Money market deposits 1,649
Certificates of deposit of $100,000 or more 3,255
Other certificate accounts 17,204
Deferred income taxes 180
Federal Home Loan Bank advances 3,500
Accrued expenses and other liabilities 102
-----------------
TOTAL LIABILITIES 42,137
-----------------
STOCKHOLDERS' EQUITY
Common stock, $4 par value
Authorized, 3,000,000 shares
Issued and outstanding, 389,869 shares 1,559
Additional paid-in capital 1,866
Retained earnings, substantially restricted 1,829
Unrealized gain (loss) in securities available-for-sale (net of tax) 243
-----------------
TOTAL STOCKHOLDERS' EQUITY 5,497
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $47,634
=================
</TABLE>
*See Notes to Condensed Consolidated Financial Statements
<PAGE>
Caroline Savings Bank
Consolidated Statements of Income (Unaudited)
Three and Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C>
Three Months Nine Months
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
INTEREST INCOME
Loans receivable $817,221 $861,749 $2,469,471 $2,553,330
Depository institutions 98,519 40,836 248,007 153,399
----------------- ----------------- ---------------- ----------------
TOTAL INTEREST INCOME 915,740 902,585 2,717,478 2,706,729
----------------- ----------------- ---------------- ----------------
INTEREST EXPENSE
Deposits of $100,000 or more 37,383 27,504 112,016 86,551
Other deposits 343,244 349,863 1,035,334 1,030,744
Borrowings 85,198 74,447 215,243 216,303
----------------- ----------------- ---------------- ----------------
TOTAL INTEREST EXPENSE 465,825 451,814 1,362,593 1,333,598
----------------- ----------------- ---------------- ----------------
NET INTEREST INCOME 449,915 450,771 1,354,885 1,373,131
PROVISION FOR POSSIBLE LOAN LOSSES 21,000 21,000 63,000 63,000
----------------- ----------------- ---------------- ----------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 428,915 429,771 1,291,885 1,310,131
----------------- ----------------- ---------------- ----------------
NONINTEREST INCOME
Service charges on transaction accounts 73,978 58,589 202,789 162,219
Mortgage loan servicing fees 13,260 11,455 37,781 24,595
Other noninterest income 5,749 9,830 22,102 37,117
Other 2,895 2,639 9,398 7,785
----------------- ----------------- ---------------- ----------------
TOTAL NONINTEREST INCOME 95,882 82,513 272,070 231,716
----------------- ----------------- ---------------- ----------------
NONINTEREST EXPENSE
Personnel 192,580 188,931 629,818 566,314
Occupancy 18,027 17,187 49,120 50,231
Advertising 10,243 11,000 18,786 28,980
Equipment 22,929 20,364 65,515 61,524
Deposit insurance premiums 5,240 5,112 15,528 15,395
Data processing 53,650 54,971 149,676 164,770
Other 72,198 65,772 253,224 234,755
----------------- ----------------- ---------------- ----------------
TOTAL NONINTEREST EXPENSES 374,867 363,337 1,181,667 1,121,969
----------------- ----------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES 149,930 148,947 382,288 419,878
PROVISION FOR INCOME TAXES 55,498 52,605 137,797 153,047
----------------- ----------------- ---------------- ----------------
NET INCOME $ 94,431 $ 96,342 $ 244,490 $ 266,831
================= ================= ================ ================
NET INCOME PER SHARE - BASIC* $ 0.24 $ 0.25 $ 0.63 $ 0.69
================= ================= ================ ================
NET INCOME PER SHARE - DILUTED* $ 0.24 $ 0.24 $ 0.62 $ 0.68
================= ================= ================ ================
DIVIDEND PAID PER SHARE $ 0.00 $ 0.00 $ 0.00 $ 0.00
================= ================= ================ ================
</TABLE>
*See Notes to Condensed Consoldiated Financial Statements
<PAGE>
Caroline Savings Bank
Consolidated Statement of Cash Flows (Unaudited)
Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C>
Nine Months Ended
September 30, September 30,
1999 1998
(Dollars in thousands)
OPERATING ACTIVITIES
Net Income $ 244 $ 267
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Decrease (increase) in accrued interest receivable (52) (1)
Decrease (increase) in prepaid expenses and other assets 231 (17)
Increase (decrease) in accrued expenses and other liabilities (411) 70
------------------- -------------------
NET CASH PROVIDED BY OPERATING ACTIVITY 12 319
------------------- -------------------
INVESTING ACTIVITIES
Net purchase and sales of securities (1,906) 296
Net increase in loans (1,039) (1,161)
Change in Deferred Income Taxes 180 2
Purchase of premises and equipment 35 10
------------------- -------------------
NET CASH USED IN INVESTING ACTIVITIES (2,730) (853)
------------------- -------------------
FINANCING ACTIVITIES
Net (decrease) increase in deposit accounts 3,098 1,101
Proceeds (repayments) from FHLB advances 940 40
Cash dividends (5) (4)
Proceeds from exercise of stock options 17 6
------------------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,050 1,143
------------------- -------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,332 609
CASH AND CASH EQUIVALENTS AT JANUARY 1 $2,060 $1,246
------------------- -------------------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $3,392 $1,855
=================== ===================
</TABLE>
*See Notes to Condensed Consolidated Financial Statements
<PAGE>
CAROLINE SAVINGS BANK
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1999
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
NOTE B -- STATEMENT OF COMPREHENSIVE INCOME
Caroline Savings Bank adopted FASB Statement No. 130, Reporting
Comprehensive Income as of January 1, 1998. Statement No. 130 requires the
reporting of comprehensive income in addition to net income from operations.
Comprehensive income is a more inclusive financial reporting methodology that
includes disclosure of certain financial information that historically has not
been recognized in the calculation of net income. Comprehensive income for the
Bank includes unrealized gains and losses on available for sale securities. The
Bank had no other items of comprehensive income.
For the three months ended September 30, 1999, unrealized losses on
available for sale securities were $61,000, net of deferred taxes of $35,000.
For the three months ended September 30, 1998, unrealized gains on available for
sale securities were $28,000, net of deferred taxes of $15,000.
For the nine months ended September 30, 1999, unrealized losses on
available for sale securities were $168,000, net of deferred taxes of $94,000.
For the nine months ended September 30, 1998, unrealized gains on available for
sale securities were $71,000, net of deferred taxes of $39,000.
Comprehensive income for the three and nine month periods ended
September 30, 1999 and 1998 were approximately $33,000 and $76,000 for 1999 and
$124,000 and $338,000 for 1998, respectively, which included net income for the
periods along with the other comprehensive income item mentioned above.
<PAGE>
NOTE C -- EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income by
the average number of common shares outstanding during the period. Diluted
earnings per common share is calculated by dividing net income by the average
number of common shares outstanding plus the incremental number of stock options
outstanding at the end of the period.
<TABLE>
<CAPTION>
Three Months Ended
September 30 September 30
1999 1998
----------- -----------
<S> <C>
Net income available to common stockholders $ 94,432 $ 96,342
=========== ===========
Weighted average share outstanding 389,353 388,566
----------- -----------
BASIC EPS WEIGHTED AVG. SHARES OUTSTANDING 389,353 388,566
Effect of dilutive securities:
Incremental shares attributable to the 1995
Stock Option and Incentive Plan 5,618 5,296
----------- -----------
DILUTED EPS WEIGHTED AVG. SHARES OUTSTANDING 394,971 393,862
=========== ===========
BASIC EPS $ 0.24 $ 0.25
=========== ===========
DILUTED EPS $ 0.24 $ 0.24
=========== ===========
Nine Months Ended
September 30 September 30
1999 1998
----------- -----------
Net income available to common stockholders $ 244,491 $ 266,831
=========== ===========
Weighted average share outstanding 389,153 388,480
----------- -----------
BASIC EPS WEIGHTED AVG. SHARES OUTSTANDING 389,153 388,480
Effect of dilutive securities:
Incremental shares attributable to the 1995
Stock Option and Incentive Plan 5,618 5,296
----------- -----------
DILUTED EPS WEIGHTED AVG. SHARES OUTSTANDING 394,771 393,776
=========== ===========
BASIC EPS $ 0.63 $ 0.69
=========== ===========
DILUTED EPS $ 0.62 $ 0.68
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NOTE D -- NET LOANS RECEIVABLE
September 30 December 31
1999 1998
(Dollars in thousands)
Mortgage Loans $ 24,698 $ 23,845
Installment Loans 8,345 8,142
Construction Loans 2,350 3,740
--------- ----------
35,393 35,727
Less:
Allowance for possible loan losses 243 252
Unearned income on loans 245 226
--------- ----------
$ 34,905 $ 35,249
========= ==========
</TABLE>
NOTE E -- ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
<S> <C>
Nine Months Ended
September 30 December 31
1999 1998
(Dollars in thousands)
Balances December 31, 1998 and 1997 $ 252 $ 202
Provisions charged against income 63 84
Recoveries on loans charged off 10 4
Loans charged off (82) (38)
------- --------
Balances September 30, 1999 and December 31, 1998 $ 243 $ 252
======= ========
</TABLE>
NOTE F -- STOCK DIVIDENDS
At its January 1999 meeting, the Board of Directors declared a 5% stock
dividend for holders of record on February 26, 1999. All per share and stock
option amounts have been restated for all periods presented to reflect this
dividend.
<PAGE>
NOTE G -- PENDING TRANSACTION
On September 15, 1999, the Bank entered into a definitive affiliation
agreement with Virginia Commonwealth Financial Corporation of Culpeper, Virginia
(VCFC). Under the terms of the agreement, at the time of the affiliation, each
Bank stockholder will receive .7959 shares of VCFC stock for each share of
Caroline Savings Bank stock held. After the affiliation, Caroline Savings Bank
with continue to operate as a seperate banking subsidiary of VCFC. Consummation
of the affiliation is subject to approval by bank regulatory authorities and the
shareholders of the Bank. The affiliation is expected to be completed in the
first calendar quarter of 2000.
In addition to the affiliation agreement, the parties entered into an
option agreement to increase the profitability of the affiliation. The option
agreement permits the exercise by VCFC of an option to acquire up to 19.9% of
the Bank's common stock that would be outstanding immediately after the issuance
of shares in respect of the option, at a price of $20.00 per share. In general,
the option is exercisable at any time after any of the following occurs: (1) the
Bank, without having received VCFC's prior written consent, entering into an
agreement with any person to (i) acquire, merge or consolidate, or enter into
any similar transaction, with the Bank, (ii) purchase, lease or otherwise
acquire all or substantially all of the assets of the Bank, or (iii) purchase or
otherwise acquire directly from the Bank securities representing 10% or more of
the voting power of the Bank; (2) any person acquiring beneficial ownership or
the right to acquire beneficial ownership of 15% or more of the outstanding
shares of Bank common stock; or (3) any person making a proposal to the Bank by
public announcement or written communication that is or becomes the subject of
public disclosure to acquire the Bank by affiliation, share exchange,
consolidation, purchase of all or substantially all of its assets or any other
similar transaction, and following such proposal the shareholders of the Bank
vote not to approve the affiliation agreement.
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operations.
EARNINGS SUMMARY
Net income for the three months ended September 30, 1999 totaled
$94,432 as compared with $96,342 for the same period ended September 30, 1998.
On a per share basis (diluted) for the quarter ended September 30, 1999, income
was $0.24 as compared with $0.24 for 1998. Net income for the three months ended
September 30, 1999 was unfavorably impacted by a $11,530 increase in total
noninterest expenses.
Net income for the nine months ended September 30, 1999 totaled
$244,491 as compared to $266,831 for the same period ended September 30, 1998.
On a per share basis (diluted) for the nine months ended September 30, 1999,
income was $0.62 as compared with $0.68 for 1998. Net income for the nine months
ended September 30, 1999 was unfavorably impacted by a $18,245 decrease in net
interest income and a $59,698 increase in total noninterest expenses, offset by
a $40,354 increase in total noninterest income.
INTEREST INCOME
Interest income increased $13,155 or 1.5% for the quarter ended
September 30, 1999 over the comparable period in 1998. The interest income was
impacted for the quarter by a decrease in interest on net loans receivable of
$44,528 and an increase of $57,683 in interest income on investment securities
over the comparable period in 1998. This net increase is attributable to the
purchase of three new securities within the comparable period in 1998.
Interest income for the nine months ended September 30, 1999 increased
by $10,749 or 0.40% over the comparable period in 1998. This increase was
attributable to an increase of $84,608 or 55.2% in investment securities
interest offset by a decrease of $83,859 or 3.3% in interest income from loans
receivable.
INTEREST EXPENSE
Interest expense of $465,825 for the quarter ended September 30, 1999
represents a 3.1% increase from the comparable period in 1998. This increase of
$14,011 is attributable to an increase of 35.92% or $9,879 in interest expense
on deposits of $100,000 or more and an increase of $10,751 in interest paid on
borrowings compared to the quarter ended September 30, 1998.
For the nine months ended September 30, 1999 interest expense increased
by $28,995 or 2.2% over the comparable period in 1998. This increase is
primarily due to a $25,465 increase in interest paid on deposits of $100,000 or
more.
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses is an estimate of an amount, by
management, to provide for potential losses in the loan portfolio. Various
factors including charge-off experience, change in the volume of loans and the
level of under performing loans are taken into consideration in determining the
amount of the provision for loan losses and the total amount of the loan loss
reserve.
The allowance for loan losses was 0.69% of outstanding loans as of
September 30, 1999 and 1998. Net charge-off's in the period ended September 30,
1999 were $72,000 as compared to $34,000 for December 31, 1998. The $38,000
increase in net charge-off's is due mainly to one loan that was charged off in
May 1999.
The provision for loan losses was $63,000 for the nine months ended
September 30, 1999 & 1998, and $84,000 for the year ended December 31, 1998.
NON-INTEREST INCOME
Non-interest income for the three months ended September 30, 1999 was
$95,882, an increase of $13,369 from the $82,513 reported for the comparable
period ended September 30, 1998. Non-interest income was favorably impacted by
an increase of $15,389 in service charges on transaction accounts. This increase
can be attributed to an increasing customer base in checking accounts and an
upsurge in ATM activity at foreign terminals.
For the nine months ended September 30, 1999, non-interest income
increased 17.4% or $40,354 over the comparable period in 1998. This increase is
attributable to a 25% increase in service charges on transaction accounts and a
53.61% increase in mortgage loan servicing fees over the comparable period in
1998.
NON-INTEREST EXPENSES
For the quarter ended September 30, 1999, non-interest expenses totaled
$374,867, an increase of $11,530 or 3.2% over the $363,337 recorded during the
same period ended September 30, 1998.
For the nine months ended September 30, 1999, non-interest expenses
totaled $1,181,667, an increase of $59,698 or 5.3% over the $1,121,969 recorded
during the comparable period in 1998. This increase is attributable to a 8%
increase in other non-interest expenses which includes an increase of $3,921 or
92% in Y2K expenses over the comparable period in 1998. Also affecting the
increase in non-interest expenses for the nine months ended September 30, 1999
is an increase of 11.2% in personnel expenses and a decrease of 35.2% in
advertising costs over the comparable period in 1998. Management has decreased
the cost of advertising through innovative, as opposed to traditional, ways of
advertising.
<PAGE>
INTEREST SENSITIVITY AND LIQUIDITY
Liquidity is the ability to meet customers' demand for funds. These
requirements are met by the sale or maturity of existing assets, loan
repayments, increases in deposits and/or borrowed funds. Management attempts to
match rate sensitive assets to rate sensitive liabilities, by planning and
controlling the mix and maturities of these assets and liabilities. The purpose
of this asset/liability management is to create and maintain a proper
relationship between rate sensitive assets and liabilities and also to provide
adequate liquidity.
The Bank's variable rate loans are repriced annually to limit the
Bank's interest-rate risk.
NONPERFORMING ASSETS
At September 30, 1999 the Bank's non-performing assets consist of two
real estate loans with principle balances of $315,838 and $177,517,
respectively. As of December 31, 1998 the Bank had no non-performing loans. The
Bank seeks to maintain a low or zero level of non-performing assets through
superior credit quality decisions, by following strict policy guidelines,
exercising close control over collections, and by curing delinquencies.
CAPITAL POSITION
Shareholders' Equity for the Bank increased from $5,410,000 to
$5,497,000 or 1.6% from December 31, 1998 to September 30, 1999 due largely to a
$244,000 increase in retained earnings. This total increase was offset by a
decrease of $168,000 in unrealized gain(loss) in securities available-for-sale
since December 31, 1998.
YEAR 2000 ISSUE
The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, leading to disruptions in the
Bank's operation. There is one key date, 2/29/2000 (leap year), that could also
disrupt the Bank's operation. The Year 2000 date problem is a reality and the
deadline for correcting it cannot be postponed. The Bank identifies Year 2000 as
among the largest challenge it has had to face upon moving into the new
millennium. In 1996, the Bank began identifying these Y2K issues, and adopted a
two-phase process for becoming Y2K compliant.
In Phase I, which was completed in early 1998, the Bank identified the
areas in which the Bank would have its largest exposure to Y2K issues. The Bank
performed an inventory of all services and computer products that involved micro
processors in their operation. The Bank determined that its service bureau was
its major provider of financial data processing and the Bank's most vulnerable
link to the Y2K event.
<PAGE>
In Phase II, the Bank has developed action plans to insure that the
Bank is compliant by late 1999. The Bank has received and installed Y2K
compliant updates from financial software/hardware providers. The Bank is
working closely with its service bureau through scheduled testing to assure Y2K
compliance.
In the event some unforeseen circumstances arise, the Bank has in place
a manual posting system for all of its key financial processing, including loans
and deposits. The Bank believes that its expense will not exceed $35,000 in
making its services Y2K compliant. The Bank's total Y2K expense through
September 30, 1999 was $27,947. The Bank has successfully completed its Y2K
contingency plan. The validation of this plan was a success at each Bank
location. The Bank is currently meeting time-line requirements as stated by
regulatory authorities and expects all of its systems will be verified Year 2000
compliant and be able to process without interruption. However, should the
Bank's Y2K project fail due to external systems or other critical systems the
Bank is dependent upon, the Bank could incur additional costs, processing
delays, or system failures.
SUMMARY
The Bank's commitment is to maintain its strengths in the markets it
serves during difficult economic cycles, and to act resourcefully when
confronted with new challenges.
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Bank is not engaged in any legal proceedings at the
present time. From time to time, the Bank is a party to legal proceedings within
the normal course of business wherein it enforces its security interest in loans
made by it, and other matters of a like kind.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On September 15, 1999, the Bank entered into a definitive affiliation
agreement with Virginia Commonwealth Financial Corporation of Culpeper, Virginia
(VCFC). Under the terms of the agreement, at the time of the affiliation, each
Bank stockholder will receive .7959 shares of VCFC stock for each share of
Caroline Savings Bank stock held. After the affiliation, Caroline Savings Bank
with continue to operate as a seperate banking subsidiary of VCFC. Consummation
of the affiliation is subject to approval by bank regulatory authorities and the
shareholders of the Bank. The affiliation is expected to be completed in the
first calendar quarter of 2000.
In addition to the affiliation agreement, the parties entered into an
option agreement to increase the profitability of the affiliation. The option
agreement permits the exercise by VCFC of an option to acquire up to 19.9% of
the Bank's common stock that would be outstanding immediately after the issuance
of shares in respect of the option, at a price of $20.00 per share. In general,
the option is exercisable at any time after any of the following occurs: (1) the
Bank, without having received VCFC's prior written consent, entering into an
agreement with any person to (i) acquire, merge or consolidate, or enter into
any similar transaction, with the Bank, (ii) purchase, lease or otherwise
acquire all or substantially all of the assets of the Bank, or (iii) purchase or
otherwise acquire directly from the Bank securities representing 10% or more of
the voting power of the Bank; (2) any person acquiring beneficial ownership or
the right to acquire beneficial ownership of 15% or more of the outstanding
shares of Bank common stock; or (3) any person making a proposal to the Bank by
public announcement or written communication that is or becomes the subject of
public disclosure to acquire the Bank by affiliation, share exchange,
consolidation, purchase of all or substantially all of its assets or any other
similar transaction, and following such proposal the shareholders of the Bank
vote not to approve the affiliation agreement.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 2 - Agreement and Plan of Reorganization, dated
September 15, 1999, by and between Virginia
Commonwealth Financial Corporation and
Caroline Savings Bank. (Previously filed
with the FDIC and incorporated herein by
reference).
Exhibit 3 - (i) Articles of Incorporation - (Previously
filed with the FDIC and incorporated herein by
reference). (ii) Bylaws - (Previously filed
with the FDIC and incorporated herein by
reference).
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Bank
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Caroline Savings Bank,
(Registrant)
Date: November 24, 1999 By:/s/
-----------------------
W.R. Southworth
President
Date: November 24, 1999 By:/s/
-----------------------
Janet L. Moss
Controller
<PAGE>
Appendix D
Opinion of Crestar SECURITIES CORPORATION
D-1
<PAGE>
[LETTERHEAD OF CRESTAR SECURITIES CORPORATION]
___________, 1999
Board of Directors
Caroline Savings Bank
268 North Main Street
Bowling Green, Virginia 22427
Gentlemen:
Caroline Savings Bank ("Caroline") and Virginia Commonwealth Financial
Corporation ("Virginia Commonwealth"), have entered into an Agreement and Plan
of Reorganization, dated as of September 15, 1999 (the "Agreement"), pursuant to
which Caroline will become a wholly-owned subsidiary of Virginia Commonwealth
(the "Affiliation"). Upon consummation of the Affiliation, each share of
Caroline common stock issued and outstanding will be exchanged for .7959 shares
(the "Exchange Ratio") of Virginia Commonwealth common stock, with cash being
paid in lieu of issuing fractional shares.
Crestar Securities Corporation, as part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, private placements, and valuations for
estate, corporate and other purposes. Crestar Securities Corporation's
Investment Division has sold investment securities to Caroline from time to time
and Crestar Bank's Financial Institutions Division has provided certain
correspondent banking services to Caroline from time to time.
You have requested our opinion as to the fairness, from a financial point of
view, of the Exchange Ratio to the shareholders of Caroline.
In arriving at our opinion, we have reviewed and analyzed: (i) the
Agreement (ii) the Form S-4 Registration Statement filed with the Securities and
Exchange Commission in connection with the Affiliation; (iii) Caroline's annual
report to shareholders, annual
<PAGE>
Board of Directors
Caroline Savings Bank
____________, 1999
Page 2
reports on Form 10-KSB, and annual Proxy Statements to shareholders for the
three years ended December 31, 1998; (iv) Caroline's unaudited financial
statements for the six months ended June 30, 1999 and 1998; (v) other
information related to Caroline prepared by Caroline's management, including but
not limited to asset quality, reserve adequacy, margin analysis, interest rate
sensitivity, internal controls, loan policies, regulatory matters and legal
matters; (vi) Virginia Commonwealth's annual reports to shareholders and audited
financial statements for the three years ended December 31, 1998; (vii) Virginia
Commonwealth's annual report on Form 10-K for the year ended December 31, 1998;
(viii) Virginia Commonwealth's unaudited financial statements for the six months
ended June 30, 1999 and 1998; (ix) other information related to Virginia
Commonwealth prepared by Virginia Commonwealth's management, including but not
limited to asset quality, reserve adequacy, margin analysis, interest rate
sensitivity, internal controls, loan policies, regulatory matters and legal
matters; (x) information regarding the trading market for the common stocks of
Caroline and Virginia Commonwealth and the price range within which the
respective stocks have traded; (xi) the relationship of prices paid to relevant
financial data such as net worth, loans, deposits and earnings in certain bank
and bank holding company mergers and acquisitions in recent years; and (xii)
such other financial studies, analyses, inquiries, and other matters as we
deemed necessary. We have discussed with senior management of Caroline and
Virginia Commonwealth the background of the Affiliation, the reasons and basis
for the Affiliation, and the business and future prospects of Caroline and
Virginia Commonwealth individually and as a combined entity.
In conducting our review and arriving at our opinion, we have relied
upon and assumed, without independent verification, the accuracy and
completeness of the financial and other information regarding Caroline and
Virginia Commonwealth provided to us by or on behalf of Caroline and Virginia
Commonwealth or from public sources. We have relied upon and assumed that the
allowances for possible loan losses are adequate and comply fully with
applicable law, regulatory policy and sound banking practice. We did not conduct
a physical inspection of the properties or facilities of Caroline and Virginia
Commonwealth nor have we made any independent evaluation or appraisal of the
assets or liabilities of Caroline or Virginia Commonwealth. We also assumed
that, in the course of obtaining the necessary regulatory approvals for the
Affiliation, no conditions will be imposed that will have a material adverse
effect on the contemplated benefits of the Affiliation to either Caroline or, on
a pro forma basis, Virginia Commonwealth. Our opinion is necessarily based on
economic, financial market and industry conditions as they exist and can be
evaluated at 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 our opinion or otherwise comment upon any
events occurring after the date hereof.
<PAGE>
Board of Directors
Caroline Savings Bank
____________, 1999
Page 3
Our opinion is directed to the Board of Directors of Caroline and
relates only to the fairness, from a financial point of view, of the Exchange
Ratio to the shareholders of Caroline and does not constitute a recommendation
to any shareholder of Caroline as to how such shareholder should vote with
respect to the Affiliation.
Based on and subject to the foregoing, it is our opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial point of view, to
the shareholders of Caroline.
Very truly yours,
CRESTAR SECURITIES CORPORATION
By: /s/ Charles W. Byrd, Jr
------------------------
Charles W. Byrd, Jr.
Managing Director
<PAGE>
Appendix E
ARTICLE 15 - CODE OF VIRGINIA
E-1
<PAGE>
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.
<PAGE>
CODE OF VIRGINIA
ss 13.1-730
"Shareholder" means the record shareholder or the beneficial
shareholder. (1985, C. 522; 1992,C. 575.)
Law Review.--For article, "Dissenting Stockholders' Rights in Virginia:
Exclusivity of the Cash-Out Remedy and Determination of 'Fair Value,'" see 12 U.
Rich. L. Rev. 505 (1978). For article, "The New Virginia Stock Corporation Act:
A Primer," see 20 U. Rich. L. Rev. 67 (1985). For article, "Virginia's
Affiliated Transactions' Statute: Indulging Form Over Substance in Second
Generation Takeover Legislation," see 21 U. Rich. L. Rev. 489 (1987).
Editor's note.--The cases below were decided under prior law.
"Fair value" defined.--The term "fair value" of the stock of a
stockholder who dissents from a sale means the intrinsic worth of teh
dissenter's stock, which is to be arrived at after an appraisal of all the
elements of value. Lucas v. Pembroke Water Co., 205 Va. 84, 135 S.E.2d 147
(1964).
Elements of "fair value."--Among the elements to be considered in
arriving at the "fair value" or "fair cash value" of a dissenter's stock are its
market value, net asset value, investment value, and earning capacity. Lucas v.
Pembroke Water Co., 205 Va. 84, 135 S.E.2d 147 (1964).
The book value, or net asset value, of the stock is only one of the
factors to be considered. Mere book value alone is not determinative. Lucas v.
Pembroke Water Co., 205 Va. 84, 135 S.E.2d 147 (1964).
Excessive salary payments to officers and directors of a corporation
are assets of the corporation to be considered along with other assets in fixing
the value of the stock. Lucas v. Pembroke Water Co., 205 Va. 84, 135 S.E.2d 147
(1964).
"Fair cash value" means actual value.--Actual value of the shares of a
stockholder dissenting to a consolidation or merger of a corporation is
practically synonymous with "fair cash value" as those words were used in
repealed ss 13-47. Adams v. United States Distrib. Corp., 184 Va. 134, 34 S.E.2d
244 (1945), cert. denied, 327 U.S. 788, 66 S. Ct. 807, 90 L. Ed. 1014 (1946).
The term "fair cash value" means the intrinsic worth of the dissenter's
stock, which is to be arrived at after an appraisal of all the elements of
value. Adams v. United States Distrib. Corp., 184 Va. 134, 34 S.E.2d 244 (1945),
cert. denied, 327 U.S. 788, 66 S. Ct. 807, 90 L. Ed. 1014 (1946).
And not contractual value.--Dissenters may not recover the "contractual
value" of their shares, the par value plus accrued cumulative dividends, as
distinguished from the "fair cash value" or the "actual value." Adams v. United
States Distrib. Corp., 184 Va. 134, 34 S.E.2d 244 (1945), cert. denied, 327 U.S.
788, 66 S. Ct. 807, 90 L. Ed. 1014 (1946).
Determination of fair value of dissenters' stock upon conflicting
evidence is for the trial court. Lucas v. Pembroke Water Co., 205 Va. 84, 135
S.E.2d 147 (1964).
Amount of allowance of interest is left to discretion of trial court.
Lucas v. Pembroke Water Co., 205 Va. 84, 135 S.E.2d 147 (1964).
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 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
<PAGE>
ss.13.1-730 CORPORATIONS ss.13.1-730
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 on the National Association of
Securities Dealers Automated Securities System (NASDAQ) 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.
E. Notwithstanding any other provision of this article, no shareholder
of a corporation located in a county having a county manager form of government
and which is exempt from income taxation under ss.501 (c) or ss.528 of the
Internal Revenue Code and no part of whose income inures or may inure to the
benefit of any private shareholder or individual shall be entitled to dissent
and obtain payment for his shares under this article. (Code 1950, S.S. 13-85,
13.1-75, 13.1-78; 1956, c. 428; 1968, c. 733; 1972, c. 425; 1975, c. 500; 1984,
c. 613; 1985, c. 522; 1986, c. 540; 1988, c. 442; 1990, c. 229; 1992, c. 575;
1996, c. 246; 1999, c. 288.)
The 1999 amendment added subsection E.
Law Review.--For article discussing shareholder approval of mergers,
see 56 Va. L. Rev. 755 (1970). For survey of Virginia law on business
associations for the year 1971-1972, see 58 Va. L. Rev. 1172 (1972). For survey
of Virginia administrative law for the year 1974-1975, see 61 Va. L. Rev. 1632
(1975). For survey of Virginia law on business associations for the year
1974-1975, see 61 Va. L. Rev. 1650 (1975).
<PAGE>
ss.13.1-731 CODE OF VIRGINIA ss.13.1-732
For article, "Virginia's Affiliated Transactions' Statute: Indulging Form Over
Substance in Second Generation Takeover Legislation," see 21 U. Rich. L. Rev.
489 (1987).
Editor's note.--The cases below were decided under prior law.
Purpose of statutes.--The design of the statutes relating to the rights
of a dissenting stockholder is to assure him that he will be fully compensated
for the value of that of which he has been deprived by the merger, and no more.
Adams v. United States Distrib. Corp., 184 Va. 134, 34 S.E.2d 244 (1945), cert.
denied, 327 U.S. 788, 66 S. Ct. 807, 90 L. Ed. 1014 (1946).
Stockholder has election as to dissent.--Every stockholder of a merging
corporation has an election either to dissent and secure in the prescribed
manner the fair cash value of his stock or, if he fails to dissent, to be bound
by the terms of the merger. Adams v. United States Distrib. Corp., 184 Va. 134,
34 S.E.2d 244 (1945), cert. denied, 327 U.S. 788, 66 S. Ct. 807, 90 L. Ed. 1014
(1946); Pittston Co. v. O'Hara, 191 Va. 886, 63 S.E.2d 34, appeal dismissed, 342
U.S. 803, 72 S. Ct. 38, 96 L. Ed. 608 (1951).
Exclusiveness of statutory remedy.--Unless a corporate merger be
tainted with fraud or illegality, the dissenting stockholder must pursue the
remedy prescribed by statute. Adams v. United States Distrib. Corp., 184 Va.
134, 34 S.E.2d 244 (1945), cert. denied, 327 U.S. 788, 66 S. Ct. 807, 90 L. Ed.
1014 (1946), wherein the court expressly refused to agree with Weiss v. Atkins,
52 F. Supp. 418 (S.D.N.Y. 1943), rev'd, 149 F.2d 193 (2nd Cir. 1945), and
pointed out that Winfree v. Riverside Cotton Mills, 113 Va. 717, 75 S.E. 309
(1912), holding contra, was no longer applicable. See McGhee v. General Fin.
Corp., 84 F. Supp. 24 (W.D. Va. 1949), holding that the remedy is available
only in state courts.
The provisions of former law in regard to the valuation of the interest
of dissatisfied members or stockholders in case of the merger of their
corporation with another, were held to apply only in those cases in which the
corporations seeking to merge had proceeded in all respects by authority of law.
The provisions, therefore, were not exclusive of the right of dissatisfied
members to contest the validity of an order of merger by the State Corporation
Commission claimed to be destructive of their rights and interests, and utterly
without warrant of law. Jones v. Rhea, 130 Va. 345, 107 S.E. 814 (1921).
It was held that the existence of a summary remedy of appraisal and
payment under former ss 13-85 did not make the remedy at law adequate in such a
manner as to defeat equity jurisdiction, and the existence of such remedy did
not otherwise foreclose the plenary jurisdiction of a court of equity to grant
an injunction in advance of action or to grant a money award on equitable
principles after action. Craddock-Terry Co. v. Powell, 181 Va. 417, 25 S.E.2d
363 (1943); Pittston Co. v. O'Hara, 191 Va. 886, 63 S.E.2d 34, appeal dismissed,
342 U.S. 803, 72 S. Ct. 38, 96 L. Ed. 608 (1951).
Purchaser of stock is legally put upon notice that in event of merger
his remedy will be provided by the statute. McGhee v. General Fin. Corp., 84 F.
Supp. 24 (W.D. Va. 1949).
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
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. (Code 1950, S.S.
13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968, c. 733; 1972, c. 425; 1975, c. 500;
1984, c. 613; 1985, c. 522.)
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
<PAGE>
ss.13.1-733 CORPORATIONS ss.13.1-735
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.(1985, c.
522.)
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.
(Code 1950, S.S. 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968, c. 733; 1972, c.
425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
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
5. Be accompanied by a copy of this article. (Code 1950, S.S. 13-85,
13.1-75, 13.1-78; 1956, c. 428; 1968, c. 733; 1972, c. 425; 1975, c. 500; 1984,
c. 613; 1985, c. 522.)
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. (Code 1950, S.S.
13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968, c. 733; 1972, c. 425; 1975, c. 500;
1984, c. 613; 1985, c. 522.)
<PAGE>
ss.13.1-736 CODE OF VIRGINIA ss.13.1-739
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. (Code 1950, S.S. 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968,
c. 733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
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.
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. (Code 1950, S.S. 13-85, 13.1-75, 13.1-78;
1956, c. 428; 1968, c. 733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c.
522.)
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. (1985, c. 522.)
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.
<PAGE>
ss.13.1-740 CORPORATIONS ss.13.1-741
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. (Code 1950, S.S. 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968, c.
733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
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. (Code 1950,
S.S. 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968, c. 733; 1972, c. 425; 1975, c.
500; 1984, c. 613; 1985, c. 522.)
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,
<PAGE>
ss.13.1-742 CODE OF VIRGINIA ss.13.1-742
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. 13.1-739; 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
proceeding, 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. (Code
1950, S.S. 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968, c. 733; 1972, c. 425;
1975, c. 500; 1984, c. 613; 1985, c. 522.)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Article 10 of Chapter 9 of Title 13.1 of the Code of Virginia permits a
Virginia corporation to indemnify any director or officer for reasonable
expenses incurred in any legal proceeding in advance of final disposition of the
proceeding, if the director or officer furnishes the corporation a written
statement of his good faith belief that he has met the standard of conduct
prescribed by the Code, and a determination is made by the board of directors
that such standard has been met. In a proceeding by or in the right of the
corporation, no indemnification shall be made in respect of any matter as to
which an officer or director is adjudged to be liable to the corporation, unless
the court in which the proceeding took place determines that, despite such
liability, such person is reasonably entitled to indemnification in view of all
the relevant circumstances. In any other proceeding, no indemnification shall be
made if the director or officer is adjudged liable to the corporation on the
basis that personal benefit was improperly received by him. Corporations are
given the power to make any other or further indemnity, including advancement of
expenses, to any director or officer that may be authorized by the articles of
incorporation or any bylaw made by the shareholders, or any resolution adopted,
before or after the event, by the shareholders, except an indemnity against
willful misconduct or a knowing violation of the criminal law. Unless limited by
its articles of incorporation, indemnification of a director or officer is
mandatory when he entirely prevails in the defense of any proceeding to which he
is a party because he is or was a director or officer.
The Articles of Incorporation of the undersigned Registrant contain
provisions indemnifying the directors and officers of the Registrant to the full
extent permitted by Virginia law. In addition, the Articles of Incorporation
eliminate the personal liability of the Registrant's directors and officers to
the Registrant or its shareholders for monetary damages in excess of one dollar
to the full extent permitted by Virginia law.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits:
The following exhibits are filed on behalf of the Registrant as part of
this Registration Statement:
Exhibit No. Document
----------- --------
2.1 Agreement and Plan of Reorganization between
Caroline Savings Bank and Virginia
Commonwealth Financial Corporation, dated as
September 15, 1999, filed as Appendix A to
the Proxy Statement included in this
Registration Statement.
II-1
<PAGE>
3.1 Articles of Incorporation of Virginia
Commonwealth Financial Corporation, as
amended, incorporated herein by reference
to Exhibit 3 of the Registrant's Form 10-K,
dated as of March 30, 1999.
3.2 Bylaws of Virginia Commonwealth Financial
Corporation, incorporated herein by
reference to Exhibit 3 of the Registrant's
Form 10-K, dated as of March 30, 1999.
5 Legal opinion of Mays & Valentine, L.L.P.
8 Form of tax opinion of Mays &Valentine,
L.L.P.
21 Subsidiary of the Registrant.
23.1 Consent of Mays & Valentine, L.L.P.
(included in Exhibit 5).
23.2 Consent of Yount, Hyde & Barbour, P.C.
23.3 Consent of McGladrey & Pullen, LLP
23.4 Consent of Cherry, Bekaert & Holland, LLP
23.5 Consent of Crestar Securities Corporation
24 Powers of attorney (included on signature
page).
99.1 Form of Proxy of Caroline Savings Bank.
(b) Financial Statement Schedules
Not applicable.
(c) Reports, Opinions or Appraisals.
Not applicable.
Item 22. Undertakings
(a) Undertakings Required by Item 512 of Regulation S-K.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
II-2
<PAGE>
(i) To include any prospectus required by section 10(a)
(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party which is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
The Registrant undertakes 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 Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
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 question of 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.
II-3
<PAGE>
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Culpeper, Virginia, on
_________, 1999.
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION
By: /s/ O.R. Barham, Jr.
-----------------
O.R. Barham, Jr.
----------------------------
President
POWER OF ATTORNEY
Each of the undersigned hereby appoints________________ and
_____________________ as attorneys and agents for the undersigned, with full
power of substitution, for and in the name, place and stead of the undersigned,
to sign and file with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, any and all amendments and exhibits to this
Registration Statement and any and all applications, instruments and other
documents to be filed with the Securities and Exchange Commission pertaining to
the registration of securities covered hereby with full power and authority to
do and perform any and all acts and things whatsoever requisite or desirable.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Date Signature Title
---- --------- -----
<S> <C>
_________________ /s/ William B. Young Chairman of the Board
--------------------------------
William B. Young
_________________ /s/ O. R. Barham, Jr. President
--------------------------------
O. R. Barham, Jr. (Principal Executive Officer)
_________________ /s/ Jeffrey W. Farrar Senior Vice President
--------------------------------
Jeffrey W. Farrar (Principal Accounting Officer
and Principal Financial
Officer)
</TABLE>
II-5
<PAGE>
_________________ /s/ Gregory L. Fisher Director
--------------------------------
Gregory L. Fisher
_________________ /s/ Marshall D. Gayheart, Jr. Director
--------------------------------
Marshall D. Gayheart, Jr.
_________________ /s/ W. Robert Jebson, Jr. Director
--------------------------------
W. Robert Jebson, Jr.
_________________ /s/ H. Wayne Parrish Director
--------------------------------
H. Wayne Parrish
_________________ /s/ Thomas F. William , Jr. Director
--------------------------------
Thomas F. Williams, Jr.
_________________ /s/ Taylor E. Gore Director
--------------------------------
Taylor E. Gore
II-6
<PAGE>
EXHIBIT INDEX
Exhibit No. Document
- ----------- --------
2.1 Agreement and Plan of Reorganization between
Caroline Savings Bank and Virginia Commonwealth
Financial Corporation, dated as of
September 15, 1999, filed as Appendix A to the
Proxy Statement included in this Registration
Statement.
3.1 Articles of Incorporation of Virginia Commonwealth
Financial Corporation, as amended, incorporated
herein by reference to Exhibit 3 of the Registrant's
Form 10-K, dated as of March 30, 1999.
3.2 Bylaws of Virginia Commonwealth Financial
Corporation, incorporated herein by reference to
Exhibit 3 of the Registrant's Form 10-K, dated as of
March 30, 1999.
5 Legal opinion of Mays & Valentine, L.L.P.
8 Form of tax opinion of Mays & Valentine, L.L.P.
21 Subsidiary of the Registrant.
23.1 Consent of Mays & Valentine, L.L.P. (included in
Exhibit 5).
23.2 Consent of Yount, Hyde & Barbour, P.C.
23.3 Consent of McGladrey & Pullen, LLP
23.4 Consent of Cherry, Bekaert & Holland, L.L.P.
23.5 Consent of Crestar Securities Corporation.
24 Powers of attorney (included on signature page).
99.1 Form of Proxy of Caroline Savings Bank.
II-7
[MAYS & VALENTINE, L.L.P. LETTERHEAD]
November 26, 1999
Board of Directors
Virginia Commonwealth Financial Corporation
- --------------------------------------
__________________, Virginia ___________
Ladies and Gentlemen:
This letter is in reference to the Registration Statement on Form S-4
dated November 26, 1999, filed by Virginia Commonwealth Financial Corporation
(the "Company") with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Registration Statement"). The
Registration Statement relates to 310,246 shares of Common Stock, $2.50 par
value per share (the "Shares"), which Shares are proposed to be offered to the
shareholders of Caroline Savings Bank, a Virginia-chartered bank ("Caroline"),
pursuant to an Agreement and Plan of Reorganization, dated as of September 15,
1999, by and between Caroline and the Company, and (collectively, the
"Agreement").
We have examined such corporate proceedings, records and documents as
we considered necessary for the purposes of this opinion. We have relied upon
certificates of officers of the Company where we have deemed it necessary in
connection with our opinion.
Based upon such examination, it is our opinion that the aforementioned
Shares, when issued against payment therefor pursuant to the Agreement, will be
validly issued, fully paid and nonassessable under the laws of the Commonwealth
of Virginia.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Opinion" in the Proxy Statement forming a part of the Registration Statement.
Very truly yours,
MAYS & VALENTINE, L.L.P.
------------------------
[MAYS & VALENTINE, L.L.P. LETTERHEAD]
November 26, 1999
Board of Directors
Virginia Commonwealth Financial Corporation
102 South Main Street
Culpeper, Virginia 22701
Board of Directors
Caroline Savings Bank
268 North Main Street
Bowling Green, Virginia 22427
Re: Tax Opinion - Caroline Savings Bank becoming a wholly owned
subsidiary of Virginia Commonwealth Financial Corporation
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the proposed affiliation (the "Affiliation") of Caroline Savings
Bank ("Caroline") with Virginia Commonwealth Financial Corporation ("Virginia
Commonwealth") pursuant to the Agreement and Plan of Reorganization, dated
September 15, 1999, between these parties. Our opinion is given pursuant to
Section 6.1(d) of the Agreement and Plan of Reorganization.
FACTS:
OPINION:
Based on the foregoing and subject to the limitations and
qualifications set forth herein, we give our opinion as follows:
1. The Affiliation will qualify as a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code (the
"Code"), and Caroline and Virginia Commonwealth will each qualify as a "party to
a reorganization" within the meaning of Section 368 (b) of the Code.
<PAGE>
2. No gain or loss will be recognized for federal tax purposes by Caroline or
Virginia Commonwealth as a result of the Affiliation.
3. No gain or loss will be recognized for federal tax purposes by the
shareholders of Caroline as a result of the exchange of their common stock
solely for the common stock of Virginia Commonwealth.
4. Any shareholder of Caroline who receives cash in lieu of a fractional share
interest shall be treated as receiving a payment in redemption of such
fractional interest subject to the provisions of Section 302 of the Code. Gain
or loss will be realized and recognized to such shareholder measured by the
difference between the redemption price and the portion of the shareholder's
basis in Caroline stock allocable to such fractional share interest.
5. The aggregate tax basis of the shares of Virginia Commonwealth stock received
by each shareholder of Caroline will be equal to the aggregate tax basis of such
shareholder's shares of Caroline stock surrendered therefor in the Affiliation.
6. The holding period under Section 1223 of the Code for the shares of Virginia
Commonwealth stock received by each shareholder of Caroline will include the
holding period for the shares of Caroline stock of such shareholder surrendered
therefor in the Affiliation, provided that the Caroline shareholder held such
stock as a capital asset on the date of the Affiliation.
In rendering our opinion, we have considered the applicable provisions
of the Code, Treasury Regulations promulgated thereunder, pertinent judicial
authorities, interpretive rulings of the Internal Revenue Service, and other
authorities as we have considered relevant. Our opinion is limited to the
federal tax law of the United States of America and is expressed as of the date
hereof. We do not assume any obligation to update or supplement our opinion to
reflect any fact or circumstance which hereafter comes to our attention or any
change in law which hereafter occurs. Our opinions are limited to the matters
expressly stated; no opinion is implied or may be inferred beyond such matters.
Our opinion expressed herein is made in connection with the Affiliation
and is solely for the benefit of Caroline, Virginia Commonwealth and its
shareholders. We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement, which has been filed by Virginia Commonwealth with
the Securities and Exchange Commission, and to the reference to our firm under
the caption "Certain Federal Income Tax Consequences" in the Prospectus and
Proxy Statement forming a part of the Registration Statement. This opinion may
not, without our prior written consent, be otherwise distributed or relied upon
by any other person, filed with any other government agency or quoted in any
other document.
Very truly yours,
MAYS & VALENTINE, L.L.P.
---------------------------------
Subsidiary of Virginia Commonwealth Financial Corporation
Virginia Heartland Bank
Second Bank & Trust
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement on Form S-4 of our report dated January 15, 1999, on the consolidated
financial statements of Virginia Commonwealth Financial Corporation and
Subsidiaries as of December 31, 1998, and for the period ended December 31,
1998, which appears in the annual report on Form 10-K of Virginia Commonwealth
Financial Corporation and Subsidiaries for the year ended December 31, 1998.
/s/ YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
November 24, 1999
CONSENT OF McGLADREY & PULLEN, LLP
We hereby consent to the inclusion in this Registration Statement on
Form S-4 (No. 333-______) of Virginia Commonwealth Financial Corporation of our
report, dated February 2, 1999, relating to the consolidated statement of
financial condition of Caroline Savings Bank and Subsidiaries as of December 31,
1998, and the related consolidated statements of income, stockholders' equity
and cash flows for the year then ended.
We also consent to the reference to our Firm under the heading
"experts" in the Registration Statement.
/s/ McGLADREY & PULLEN, LLP
Richmond, Virginia
November __, 1999
Consent of Independent Auditors
The Board of Directors
Caroline Savings Bank and Subsidiary
We consent to the incorporation by reference in Registration Statement
No. 333- on Form S-4 of Virginia Commonwealth Financial Corporation of our
report, dated January 22, 1998, relating to the consolidated balance sheets of
Caroline Savings Bank and Subsidiary as of December 31, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended, which report is included in the Annual Report on
Form 10-KSB for the year ended December 31, 1998 of Caroline Savings Bank and
Subsidiary.
Cherry, Bekaert & Holland, LLP
Richmond, Virginia
November 24, 1999
CONSENT OF CRESTAR SECURITIES CORPORATION
We hereby consent to the inclusion as Appendix D to the Proxy Statement
Prospectus constituting part of the Registration Statement on Form S-4 of
Virginia Commonwealth Financial Corporation of our letter to the Board of
Directors of Caroline Savings Bank and to the reference made to such letter and
to the firm in the Proxy Statement Prospectus under the heading "Opinion of
Caroline Financial Advisor."
/s/ CRESTAR SECURITIES CORPORATION
___________, Virginia
__________, 1999
Caroline Savings Bank
Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints ____________________ and
____________________, jointly and severally, proxies, with full power to act
alone, and with full power of substitution, to represent the undersigned and to
vote, as designated below and upon any and all other matters that may properly
be brought before such meeting, all shares of Common Stock that the undersigned
would be entitled to vote at a Special Meeting of Shareholders of Caroline Bank
of Virginia ("Caroline") to be held at
___________________________________________, Virginia, on ________ __, 1999 at
____ _.m., local time, or any adjournments thereof, for the following purposes:
1. To approve the Agreement and Plan of Reorganization, dated as
of September 15, 1999, by and between Caroline and Virginia
Commonwealth Financial Corporation ("Virginia Commonwealth"),
and a related Share Exchange, which provides for Caroline
becoming a wholly-owned subsidiary of Virginia Commonwealth.
The Reorganization Agreement is enclosed with the accompanying
Proxy Statement as Appendix A.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon
any other business that may properly come before the meeting,
or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR ITEM 1.
Printed Name Signature
- ------------------------------ -------------------------
Signature
-------------------------
Dated: _____________, 1999
(If signing as Attorney,
Administrator, Executor, Guardian
or Trustee, please add your title
as such.)
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY
