As filed with the Securities and Exchange Commission on April 7, 1998
Registration No. ___-________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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UNION BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 6711 54-1598552
- ------------------------------- ---------------------------- ----------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) identification No.)
212 North Main Street
P.O. Box 446
Bowling Green, Virginia 22427
(804) 633-5031
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(Address including zip code and telephone number including
area code of registrant's principal executive office)
Copies to:
D. ANTHONY PEAY TIMOTHY P. VEITH, ESQ.
Chief Financial Officer Mays & Valentine, L.L.P.
Union Bankshares Corporation 1111 East Main Street
P.O. Box 446 P. O. Box 1122
Bowling Green, Virginia 22427 Richmond, Virginia 23218
(804) 633-5031
(Name, address, including zip code, WAYNE A. WHITHAM, JR., ESQ.
and telephone number, including area Williams Mullen Christian & Dobbins
code of agent for service) Two James Center
1021 East Cary Street
Richmond Virginia 23210
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
<PAGE>
If the securities being registered on this Form are to be offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered(1) Share (2) Price(2) Registration Fee
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
Common Stock, 158,209 $43.69 $6,912,151 $2,039.08
$4.00 par value
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(1) The estimated maximum number of shares to be issued.
(2) Estimated solely for purposes of calculating the registration fee and
calculated in accordance with Rule 457(f)(1) thereunder, on the basis
of the per share average of the bid and asked price as of 5 business
days prior to the date hereof for the Registrant's common stock to be
received by Rappahannock Bankshares, Inc. holders pursuant to the
business combination described in the enclosed Prospectus/Proxy
Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
UNION BANKSHARES CORPORATION
CROSS-REFERENCE SHEET
Pursuant to rule 404(a) of the securities act and item 501(b) of Regulation S-K,
showing the location or heading in the prospectus and proxy statement of the
information required by Part I of Form S-4.
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Form S-4 Item Number and Caption Location or Heading in Prospectus and
Proxy Statement
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A. Information about the Transaction
1. Forepart of the Registration Statement
and Outside Cover Page of Prospectus............................... Cover Page of Registration Statement;
Outside Front Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus...................................................... Available Information; Documents
Delivered.and Incorporated by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charge
and Other Information.............................................. Summary; Summary Historical Financial
Data; The RBS Special Meeting; The
Affiliation; Market Prices and Dividends;
Description of RBS
4. Terms of the Transaction.............................................. Summary; The Affiliation; Comparison of
Stockholder Rights of Union and RBS;
Description of Union Capital Stock
5. Pro Forma Financial Information....................................... Not Applicable
6. Material Contacts with the Company Being
Acquired........................................................... Summary; The Affiliation--Background of
the Affiliation,--Reasons for the
Affiliation, and --Interests of Certain
Persons in the Affiliation
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be Underwriters................... Not Applicable
8. Interests of Named Experts and Counsel................................ Legal Matters; Experts
</TABLE>
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Form S-4 Item Number and Caption Location or Heading in Prospectus
and Proxy Statement
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A. Information about the Transaction (continued)
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..................... Not Applicable
B. Information About the Registrant
10. Information with Respect to S-3 Registrants........................... Not Applicable
11. Incorporation of Certain Information by Reference..................... Not Applicable
12. Information with Respect to S-2 or S-3 Registrants.................... Documents Delivered and Incorporated by
Reference; Summary; Market Prices and
Dividends; Business of Union; Description
of Union Capital Stock
13. Incorporation of Certain Information by Reference..................... Documents Delivered and Incorporated by
Reference
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants........................................ Not Applicable
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies............................. Not Applicable
16. Information with Respect to S-2 or S-3 Companies...................... Not Applicable
17. Information with Respect to Companies Other Than S-3 or
S-2 Companies...................................................... Summary; Summary Historical Financial
Data; Market Prices and Dividends;
Description of RBS; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Financial Statements
D. Voting and Management Information
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................................ Documents Delivered and Incorporated by
Reference; Summary; The RBS Special
Meeting; The Affiliation
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer............................ Not Applicable
</TABLE>
[RBS LETTERHEAD]
April __, 1998
Dear Fellow Shareholders:
You are cordially invited to attend the Special Meeting of Shareholders
of Rappahannock Bankshares, Inc. ("RBS") to be held at the Main Office of the
Rappahannock National Bank of Washington (the "Bank") located at 257 Gay Street,
Washington, Virginia on _________, May __, 1998 at 2:00 p.m.
You will be asked to consider and vote on the Agreement and Plan of
Affiliation and Merger, dated February 25, 1998, between RBS and Union
Bankshares Corporation, a bank holding company organized under the laws of
Virginia ("Union"), and the related Plan of Merger (the "Affiliation
Agreement"). Based in Bowling Green, Virginia, Union is a bank holding company
with $595 million in total assets at year-end 1997 and with its principal
operations currently being conducted through three affiliated banks in Virginia.
Under the terms of the Affiliation Agreement, each share of common
stock of RBS outstanding immediately prior to consummation will automatically
become and be converted into 158.209 shares of Union common stock. Cash will be
paid in lieu of fractional shares. The shares of Union common stock you receive
pursuant to the affiliation should be more readily marketable than the shares of
RBS common stock you presently hold. Following the consummation of the
transaction with Union, the Bank will continue to operate as a separate
affiliate bank within the Union system.
Your Board of Directors has retained the investment banking firm of
McKinnon & Company, Inc. to act as its financial advisor in connection with the
transaction with Union. As discussed in the accompanying Prospectus and Proxy
Statement, McKinnon & Company, Inc. has delivered to the Board of Directors its
written opinion that, as of this date, the terms of the Affiliation Agreement
are fair from a financial point of view to our shareholders.
The exchange of RBS common stock for Union common stock (other than for
cash in lieu of any fractional shares) pursuant to the Affiliation Agreement
will be a tax-free transaction for federal income tax purposes. Details of the
proposed transaction with Union are set forth in the accompanying Prospectus and
Proxy Statement, which you are urged to read carefully in its entirety. Approval
of the transaction with Union requires the affirmative vote of more than
two-thirds of the outstanding shares of common stock of RBS.
Your Board of Directors unanimously approved the Affiliation Agreement
and the transaction with Union and believes that they are in the best interests
of RBS and our shareholders. Accordingly, the Board unanimously recommends that
you vote FOR the Affiliation Agreement.
We hope you can attend the Special Meeting. Whether or not you plan to
attend, please complete, sign and date the enclosed proxy card and return it
promptly in the enclosed envelope. Your vote is important regardless of the
number of shares you own.
We look forward to seeing you at the Special Meeting.
Sincerely,
ELIZABETH J. JONES JOHN R. CONRY, JR.
Chairman of the Board Executive Vice President
and President and Chief Executive Officer
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2
RAPPAHANNOCK BANKSHARES, INC.
WASHINGTON, VIRGINIA
---------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
May __, 1998
------------------------------------------
The Special Meeting of Shareholders of Rappahannock Bankshares,
Inc. ("RBS") will be held on _____________, May ___, 1998, at 2:00 p.m. at
the Main Office of the Rappahannock National Bank, located at 257 Gay Street,
Washington, Virginia for the following purposes:
1. To consider and vote upon a proposal to approve the Plan of
Merger provided by an Agreement and Plan of Affiliation and Merger,
dated February 25, 1998 (the Plan of Merger and the Agreement and Plan
of Affiliation and Merger are collectively referred to herein as the
"Affiliation Agreement") by and between RBS and Union Bankshares
Corporation, a Virginia corporation ("Union") registered under the Bank
Holding Company Act of 1956, a copy of which is included as Annex A
attached to the accompanying Prospectus and Proxy Statement, pursuant
to which (i) RBS shall merge with and into Union and the Rappahannock
National Bank of Washington shall become a wholly-owned subsidiary of
Union (the "Affiliation") and (ii) each outstanding share of RBS common
stock, par value $100.00 per share ("RBS Common Stock") (other than
shares of dissenting RBS Shareholders redeemed pursuant to Article 15
of Title 13.1 of the Code of Virginia of 1950, as amended (the
"VSCA")), shall automatically become and be converted into 158.209
shares of Union common stock, par value $4.00 per share ("Union Common
Stock"). Cash will be paid in lieu of fractional shares of Union Common
Stock.
2. To transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.
Each RBS Shareholder will have the right to dissent from the
Affiliation and to demand payment of the fair value of his shares in the event
the Affiliation is approved and consummated. Any right of any such RBS
Shareholder to receive such payment is contingent upon strict compliance with
the requirements set forth in Article 15 of the VSCA, the full text of which is
enclosed as Annex C attached to the accompanying Prospectus and Proxy Statement.
The Board of Directors has fixed April __, 1998, as the record date for
the Special Meeting, and only holders of record of RBS Common Stock at the close
of business on that date are entitled to receive notice of and to vote at the
Special Meeting or any adjournments or postponements thereof.
By Order of the Board of Directors
Elizabeth J. Jones
President
April __, 1998
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY
PROMPTLY, WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING.
THE BOARD OF DIRECTORS OF RBS UNANIMOUSLY RECOMMENDS THAT
RBS SHAREHOLDERS VOTE TO APPROVE THE AFFILIATION AGREEMENT.
<PAGE>
PROSPECTUS
Relating to 158.209 Shares of
Common Stock of
UNION BANKSHARES CORPORATION
PROXY STATEMENT
Relating to the
Special Meeting of Shareholders of
RAPPAHANNOCK BANKSHARES, INC.
To Be Held on May ___, 1998
This Prospectus and Proxy Statement (the "Prospectus and Proxy
Statement") is being furnished to the holders (the "RBS Shareholders") of common
stock, par value $100.00 per share (the "RBS Common Stock"), of Rappahannock
Bankshares, Inc., a Virginia corporation ("RBS") registered under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), in connection with the
solicitation of proxies by the Board of Directors of RBS for use at the Special
Meeting of Shareholders of RBS to be held at the Main Office of the Rappahannock
National Bank located at 257 Gray Street, Washington, Virginia on
_________________, May ____, 1998 at 2:00 p.m. and at any and all adjournments
or postponements thereof (the "RBS Special Meeting").
This Prospectus and Proxy Statement relates to the shares of common
stock, par value $4.00 per share ("Union Common Stock") of Union Bankshares
Corporation, a Virginia corporation ("Union") registered under the BHCA,
issuable in connection with the proposed merger of RBS with and into Union and
the affiliation of the Rappahannock National Bank of Washington, a national bank
and wholly-owned subsidiary of RBS (the "Bank"), with Union (such merger and
affiliation are referred to herein as the "Affiliation"), pursuant to a Plan of
Merger provided by an Agreement and Plan of Affiliation and Merger, dated
February 25, 1998, by and between Union and RBS (the Plan of Merger and the
Agreement and Plan of Affiliation and Merger are collectively referred to herein
as the "Affiliation Agreement"). Following consummation of the Affiliation, the
Bank will continue to operate as a separate bank within the Union system. Upon
consummation of the Affiliation, each outstanding share of RBS Common Stock
(other than shares of dissenting RBS Shareholders redeemed pursuant to Article
15 of Title 13.1 of the Code of Virginia of 1950, as amended (the "VSCA")) shall
automatically become and be converted into 158.209 shares of Union Common Stock.
Cash will be paid in lieu of fractional shares of Union Common Stock.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS AND PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF UNION COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
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The date of this Prospectus and Proxy Statement is April____, 1998.
<PAGE>
This Prospectus and Proxy Statement also constitutes (i) a proxy
statement for use at the RBS Special Meeting, at which the RBS Shareholders will
be asked to consider and vote upon a proposal to approve the Affiliation
Agreement and (ii) a prospectus covering the issuance in connection with the
Affiliation of up to 158,209 shares of Union Common Stock.
AVAILABLE INFORMATION
Union is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549-1004 and at the following
Regional Offices of the Commission: Chicago Regional Office, CitiCorp Center,
500 West Madison Street, Suite 1400 Chicago, Illinois 60621-2511; and New York
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such materials may be obtained at prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004. In addition, copies of such materials filed by
Union may be inspected at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. Union Common Stock
is publicly traded and quoted on The Nasdaq National Market under the symbol
"UBSH."
Union has filed with the Commission a Registration Statement on Form
S-4 (together with any annexes, exhibits and amendments thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") covering up to 158.209 shares of Union Common Stock.
Statements contained herein concerning any document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each such instance
reference is made to the copy of the applicable document filed with the
Commission or attached as an annex or exhibit thereto.
The information presented in this Prospectus and Proxy Statement
concerning RBS has been supplied by RBS and the information concerning Union has
been supplied by Union.
No person has been authorized to give any information or to make any
representation not contained in or incorporated by reference in this prospectus
and proxy statement, and, if given or made, such information or representation
not contained herein must not be relied upon as having been authorized. This
prospectus and proxy statement does not constitute an offer to sell, or the
solicitation of an offer to purchase, any of the securities offered by this
prospectus and proxy statement, or the solicitation of a proxy, in any
jurisdiction to or from any person to or from whom it is unlawful to make such
offer or solicitation of an offer, or proxy solicitation in such jurisdiction.
Neither the delivery of this prospectus and proxy statement nor the issuance or
sale of any securities hereunder shall under any circumstances create any
implication that there has been no change in the information set forth herein
since the date hereof or incorporated by reference herein since the date hereof.
<PAGE>
DOCUMENTS DELIVERED AND INCORPORATED BY REFERENCE
This Prospectus and Proxy Statement is accompanied by Union's 1997
Annual Report to Stockholders.
The following documents, previously filed with the Commission, are
incorporated by reference into this Prospectus and Proxy Statement:
1. Union's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997; and
2. The description of Union Common Stock set forth in Union's
registration statement filed pursuant to Section 12 of the Exchange
Act, and any amendment or report filed for the purpose of updating any
such description;
In addition, all reports and other documents subsequently filed by
Union pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to
the RBS Special Meeting shall also be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such reports and
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus and Proxy Statement to the extent that a
statement contained herein, or in any other subsequently filed document that
also is incorporated or deemed to be incorporated by reference herein, modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus and Proxy Statement.
This prospectus and proxy statement incorporates documents by reference
which are not presented herein or delivered herewith. These documents (other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference herein) are available, without charge, upon written or
oral request from any person, including any beneficial owner, to whom this
prospectus and proxy statement is delivered, in the case of documents relating
to Union, from Union Bankshares Corporation, 211 North Main Street, P.O. Box
446, Bowling Green, Virginia 22427, attention: D. Anthony Peay, Chief Financial
Officer (telephone (804) 633-5031), or, in the case of documents relating to
RBS, from Rappahannock Bankshares, Inc., 257 Gay Street, P.O. Box 179,
Washington, Virginia 22747-0179, attention: John R. Conry, Jr., Executive Vice
President and CEO (telephone (540) 675-3519). In order to ensure timely delivery
of the documents, any request should be made by April ___, 1998.
<PAGE>
TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION...............................................................
DOCUMENTS DELIVERED AND INCORPORATED BY REFERENCE...................................
SUMMARY.............................................................................
The Parties.......................................................................
The Affiliation...................................................................
Certain Other Agreements..........................................................
Certain Federal Income Tax Consequences...........................................
Comparison of Stockholder Rights..................................................
Recent Developments...............................................................
Market Price Data.................................................................
SUMMARY HISTORICAL FINANCIAL DATA...................................................
COMPARATIVE UNAUDITED PER SHARE DATA................................................
THE RBS SPECIAL MEETING.............................................................
THE AFFILIATION.....................................................................
General...........................................................................
Background to the Affiliation.....................................................
Reasons for the Affiliation; Recommendation of the RBS Board of Directors.........
Opinion of RBS Financial Advisor..................................................
Effective Date....................................................................
Procedures for Exchange of Certificates...........................................
Certain Federal Income Tax Consequences...........................................
Accounting Treatment..............................................................
Resale of Union Common Stock After the Affiliation by Controlling Persons.........
Conditions to Affiliation.........................................................
Treatment of Employee Benefit Plans...............................................
Exclusive Dealing.................................................................
Interests of Certain Persons in the Affiliation...................................
Termination.......................................................................
Appraisal Rights of Dissenting Shareholders.......................................
CERTAIN OTHER AGREEMENTS............................................................
The Support Agreement.............................................................
Employment Agreement..............................................................
Affiliate Undertakings............................................................
DESCRIPTION OF RBS..................................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..............................................
COMPARISON OF STOCKHOLDER RIGHTS OF UNION AND RBS
COMMON STOCK......................................................................
DESCRIPTION OF UNION CAPITAL STOCK..................................................
LEGAL MATTERS.......................................................................
EXPERTS.............................................................................
ANNEX A--AGREEMENT AND PLAN OF AFFILIATION AND
MERGER AND PLAN OF MERGER........................................................ A-1
ANNEX B--OPINION OF MCKINNON & COMPANY, INC. ....................................... B-1
ANNEX C--ARTICLE 15 OF THE VIRGINIA STOCK CORPORATION
ACT.............................................................................. C-1
INDEX TO FINANCIAL STATEMENTS....................................................... F-1
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<PAGE>
SUMMARY
This Summary is not intended to be a complete description of all
material facts regarding Union, RBS or the affiliation transaction and is
qualified in its entirety by the more detailed information contained elsewhere
or incorporated by reference in this Prospectus and Proxy Statement including
the Appendices hereto. RBS Shareholders should read carefully this Prospectus
and Proxy Statement in its entirety.
The Parties
Union Bankshares Corporation and Affiliates. Union is a multi-bank
holding company organized in 1993 under Virginia law. Union provides financial
services through its wholly-owned subsidiaries, Union Bank & Trust Company
("Union Bank"), Northern Neck State Bank ("Northern Neck Bank"), King George
State Bank ("King George Bank"), and Union Investment Services, Inc. ("Union
Investment"), and through its indirectly its owned subsidiary, Union Mortgage
Company, LLC ("Union Mortgage"). The three subsidiary banks, Union Bank,
Northern Neck Bank and King George Bank (collectively, the "Affiliate Banks"),
are full service retail commercial banks offering a wide range of banking and
related financial services, including demand and time deposits, as well as
commercial, industrial, residential construction, residential mortgage and
consumer loans. The Affiliate Banks have branches serving primarily the Central
and Northern Neck regions of Virginia. Union Investment Services, Inc., is a
full service discount brokerage company which offers a full range of investment
services, and sells mutual funds, bonds and stocks. Union Mortgage Company, LLC
provides a wide array of mortgage products to customers in the Company's primary
trade area. As of December 31, 1997, Union had consolidated assets, deposits and
shareholders' equity of $595 million, $472 million and $66 million,
respectively. Union's principal executive offices are located at 212 N. Main
Street, Bowling Green, Virginia 22427 and its telephone number is (804)
633-5031. See "Selected Financial Data" and "Business of Union."
As of April __, 1998 there were __________ shares of Union Common Stock
outstanding which are publicly traded and quoted on The NASDAQ National Market
System under the symbol "UBSH."
Rappahannock Bankshares, Inc. RBS is a Virginia corporation registered
as a bank holding company under the BHCA. Its principal operations are conducted
by its wholly-owned subsidiary, the Rappahannock National Bank of Washington, a
national banking association. The Bank operates a banking office in Washington,
Virginia. At December 31, 1997, RBS and the Bank had total assets of
approximately $20 million, deposits of approximately $17 million and loans (net)
of approximately $4 million. The principal executive office of RBS is located at
257 Gay Street, P.O. Box 179, Washington, Virginia 22747-0179, telephone number
(540) 675-3519.
As of April _, 1998, there were 1,000 shares of RBS Common Stock
outstanding for which there is no established trading market.
<PAGE>
The Affiliation
General. At the RBS Special Meeting described in the notice (the
"Notice") accompanying this Prospectus and Proxy Statement, RBS Shareholders
will be asked to consider and vote upon a proposal to approve the Affiliation
Agreement, a copy of which is attached as Annex A to this Prospectus and Proxy
Statement. Upon consummation of the Affiliation, each outstanding share of RBS
Common Stock (other than shares of dissenting RBS Shareholders redeemed pursuant
to Article 15 of Title 13.1 of the VSCA) shall automatically become and be
converted into 158.209 shares of Union Common Stock (the "Exchange Ratio") and
cash in lieu of fractional shares of Union Common Stock. The Exchange Ratio was
derived pursuant to arm's length negotiations among Union, RBS and RBS'
financial advisor. See "THE AFFILIATION--General," "--Background to the
Affiliation," "-- Reasons for the Affiliation; Recommendation of the RBS Board
of Directors" and "--Appraisal Rights of Dissenting Shareholders."
Vote Required. The affirmative vote of the holders of two-thirds of the
outstanding shares of RBS Common Stock entitled to vote thereon will be required
to approve the Affiliation Agreement. As of April ___, 1998, the directors and
executive officers of RBS beneficially owned an aggregate of 314 shares (31.4%)
of RBS Common Stock. Such directors and executive officers of RBS Common Stock
have executed agreements with Union pursuant to which each such person has
agreed to vote his shares to approve the Affiliation Agreement. See "THE RBS
SPECIAL MEETING" and "CERTAIN OTHER AGREEMENTS--The Support Agreement."
Recommendation of the RBS Board; Reasons for the Affiliation. The RBS
Board of Directors believes that the terms of the Affiliation and the
Affiliation Agreement are fair to, and in the best interests of, RBS and the RBS
Shareholders and has unanimously adopted the Affiliation Agreement. See "THE
AFFILIATION--Reasons for the Affiliation; and Recommendation of the RBS Board of
Directors."
The RBS board of directors unanimously recommends that RBS shareholders
vote TO APPROVE the Affiliation Agreement.
Opinion of Financial Advisor. The RBS Board of Directors has received
an opinion from McKinnon & Company, Inc. to the effect that the terms of the
Affiliation Agreement are fair to the RBS Shareholders from a financial point of
view. A copy of the opinion of McKinnon & Company, Inc., which sets forth the
assumptions made, matters considered and limits on the review undertaken, is
attached as Annex B to this Prospectus and Proxy Statement and is incorporated
herein by reference. RBS Shareholders are urged to read the opinion in its
entirety. See "THE AFFILIATION--Opinion of RBS Financial Advisor."
Conditions to Affiliation. The mutual obligation of Union and RBS to
consummate the Affiliation is subject to the requisite approval of the
Affiliation Agreement by the RBS Shareholders. Additionally, the obligation of
Union to consummate the Affiliation is subject to various conditions, including
the receipt of all appropriate regulatory approvals and that, consistent with
the accounting treatment of the Affiliation, less than 10% of RBS Shareholders
(or, in certain circumstances, a smaller percentage) exercise dissenters' rights
of appraisal. See "THE AFFILIATION--Conditions to Affiliation," and
"--Accounting Treatment."
<PAGE>
Governmental Approvals. Certain aspects of the Affiliation will require
notifications to, and approvals from, certain federal and state authorities,
including approval by the Board of Governors of the Federal Reserve, the
Virginia Bank Commissioner and the Virginia State Corporation Commission (the
"Virginia Commission"). Union expects to submit filings and notifications for
these purposes as soon as practicable. See "THE AFFILIATION--Conditions to
Affiliation."
Accounting Treatment. It is intended that the Affiliation will be
accounted for as a pooling of interests under generally accepted accounting
principles. The receipt of a letter from KPMG Peat Marwick LLP, the independent
certified public accountants of Union, confirming that the Affiliation will
qualify for "pooling of interests" accounting is a condition to Union's
obligation to consummate the Affiliation. See "THE AFFILIATION--Conditions to
Affiliation," and "--Accounting Treatment."
Appraisal Rights. Under Virginia law, an RBS Shareholder who objects to
the Affiliation and follows specified procedures is entitled to appraisal rights
with respect to the Affiliation. In order to be entitled to appraisal rights, an
RBS Shareholder must (a) deliver to RBS prior to the vote at the RBS Special
Meeting a written notice of intent to demand payment, (b) ensure that his shares
are not voted (or deemed to have been voted) to approve the Affiliation
Agreement, (c) after the Affiliation is consummated, follow the procedures set
forth in a notice sent to such RBS Shareholder by Union, and (d) if necessary,
notify Union of such RBS Shareholder's estimate of the fair value of such shares
and make a demand for payment therefor. If a judicial determination of the "fair
value" of RBS Common Stock held by such RBS Shareholder is necessary, such a
determination may result in a value that is more than, less than, or equal to
the consideration which would have been paid by Union pursuant to the
Affiliation. See "THE AFFILIATION--Appraisal Rights of Dissenting Shareholders"
for a more complete discussion of RBS Shareholders' appraisal rights.
AN RBS SHAREHOLDER WHO RETURNS A SIGNED PROXY BUT FAILS TO PROVIDE
INSTRUCTIONS AS TO THE MANNER IN WHICH SUCH SHARES ARE TO BE VOTED WILL BE
DEEMED TO HAVE VOTED TO APPROVE THE AFFILIATION AGREEMENT AND THEREFORE TO HAVE
WAIVED HIS DISSENTERS' RIGHTS. AN RBS SHAREHOLDER MAY VOTE AGAINST, ABSTAIN FROM
VOTING ON, OR REFRAIN FROM VOTING ON (BY NOT RETURNING THE PROXY CARD OR BY NOT
VOTING AT THE MEETING) THE AFFILIATION AGREEMENT WITHOUT LOSING HIS RIGHT TO
ASSERT DISSENTERS' RIGHTS, AS LONG AS SUCH RBS SHAREHOLDER'S INTENT TO DEMAND
PAYMENT IS TIMELY GIVEN. A VOTE AGAINST OR AN ABSTENTION WITH REGARD TO THE
AFFILIATION AGREEMENT WILL NOT ITSELF CONSTITUTE A TIMELY WRITTEN NOTICE OF
INTENT TO DEMAND PAYMENT AND A FAILURE TO VOTE WILL NOT CONSTITUTE A TIMELY
WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT. See "THE AFFILIATION--Appraisal
Rights of Dissenting Shareholders."
Interests of Certain Persons in the Affiliation. The Affiliation
Agreement provides that following the Effective Date (as hereinafter defined),
Union shall indemnify any person with respect to matters occurring on or prior
to the Effective Date who has rights to indemnification from RBS, to the same
extent and on the same conditions as in effect on the date of the Affiliation
Agreement. Union has also agreed to use its reasonable best efforts to maintain
RBS' existing directors' and officers' liability policy, or another policy
providing at least comparable coverage, covering persons who are currently
covered by such insurance of RBS for a period of three years after the Effective
Date on terms no less favorable than those in effect on the date of the
Affiliation Agreement. See "THE AFFILIATION--Interests of Certain Persons in the
Affiliation."
Certain Other Agreements
As a condition and inducement to Union's willingness to enter into the
Affiliation Agreement, directors and officers of RBS entered into a Support
Agreement, dated as of January 30, 1998 (the "Support Agreement"), with Union.
See "CERTAIN OTHER AGREEMENTS--The Support Agreement." Pursuant to the Support
Agreement, the directors and officers of RBS have agreed, among other things, to
certain restrictions on the transfer of RBS Common Stock such directors and
officers buy, own or control.
Certain Federal Income Tax Consequences
It is intended that the Affiliation will qualify as a tax-free
reorganization for Federal income tax purposes. Accordingly, (i) no gain or loss
will be recognized by RBS Shareholders (except with respect to cash, if any,
received in lieu of fractional shares) upon the exchange of RBS Common Stock for
Union Common Stock by reason of the Affiliation, and (ii) no gain or loss will
be recognized by Union, RBS or the Bank in the Affiliation. The receipt of an
opinion of counsel dated the Effective Date as to (i) above and as to certain
other matters is a condition to RBS' obligation to consummate the Affiliation.
RBS SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
TAX CONSEQUENCES TO THEM OF THE AFFILIATION. See "THE AFFILIATION--Certain
Federal Income Tax Consequences."
Comparison of Stockholder Rights
Upon consummation of the Affiliation, RBS Shareholders will become
stockholders of Union, which is a Virginia corporation, and their rights as
stockholders of Union will be governed by the Virginia Stock Corporation Act
("VSCA"), Union's Articles of Incorporation and Union's By-laws. The rights of
RBS Shareholders differ from those of the holders of Union Common Stock in a
number of areas, including the ability of Union to issue preferred stock, the
purchase rights attached to each share of Union Common Stock and the stockholder
vote required for extraordinary transactions. See "COMPARISON OF STOCKHOLDER
RIGHTS OF UNION AND RBS COMMON STOCK" and "DESCRIPTION OF UNION CAPITAL STOCK"
for a description of the material differences between the rights of holders of
Union Common Stock and RBS Common Stock and a description of Union capital
stock.
Market Price Data
Union Common Stock is publicly traded and quoted on The Nasdaq National
Market under the Symbol "UBSH." The market value of Union Common Stock on
February 24, 1998, the last full trading day preceding the public announcement
of the execution of the Affiliation Agreement, based on the closing price as
reported on The Nasdaq National Market, was $______ per share. The market value
of Union Common Stock on April ___, 1998, the latest practicable date prior to
the date of this Prospectus and Proxy Statement, based on the closing price as
reported on The Nasdaq National Market, was $_____ per share. RBS Common Stock
is not traded on any exchange and no established public trading market exists
for RBS Common Stock.
Because the market price of Union Common Stock is subject to
fluctuation, the market value of the Union Common Stock that RBS Shareholders
will receive pursuant to the Affiliation may increase or decrease prior to the
effective date. RBS Shareholders are urged to obtain current market quotations
for Union Common Stock.
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The following table presents selected historical financial data of
Union and RBS. Union's historical financial data for each of the annual periods
presented have been derived from its audited consolidated financial statements
previously filed with the Commission. RBS' historical financial data for each of
the three annual periods presented also have been derived from its consolidated
financial statements, with the data relating to 1997 as the only information
derived from audited financial statements. The summary historical financial data
set forth below does not purport to be complete and should be read in
conjunction with each company's audited and unaudited financial statements for
each of the annual periods presented, included elsewhere in the Prospectus and
Proxy Statement or in documents incorporated herein by reference. See "AVAILABLE
INFORMATION."
<TABLE>
<CAPTION>
As of or for the Year Ended December 31,
--------------------------------------------------------------
(Dollars in thousands, except per share data)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C>
UNION HISTORICAL:
Net Interest Income.............. $23,023 $21,666 $20,228 $18,838 $17,388
Income Before Income Taxes....... 10,079 9,728 8,832 8,612 7,044
Net Income....................... 7,883 7,456 6,753 6,713 5,515
Net Income Per Share of Common
Stock - Diluted................ 2.20 2.08 1.90 1.89 1.55
Total Assets..................... 595,481 540,893 505,374 462,880 424,582
Long-Term Debt................... 23,715 11,125 1,275 1,425 --
Per Share Cash Dividends Declared
and Paid on Common Stock....... .74 .64 .56 .51 .45
Loans, Net....................... 395,338 352,277 327,132 295,389 258,063
As of or for the Year Ended December 31,
------------------------------------------------------
(Dollars in thousands, except per share data)
1997 1996 1995
---- ---- ----
RBS HISTORICAL
(unaudited, except 1997):
Net Interest Income.............. 742 752 771
Income Before Income Taxes 369 384 402
Net Income....................... 283 283 289
Net Income Per Share of Common
Stock............................ 282.79 282.82 288.74
Total Assets....................... 20,235 18,889 18,238
Per Share Cash Dividends Declared and
Paid on Common Stock........... 150.00 150.00 150.00
Loans, Net......................... 4,013 3,761 4,320
</TABLE>
Pro Forma Financial Information. Pro forma financial information of Union and
RBS giving effect to the Affiliation under the pooling of interests accounting
method is not considered to be material to the consolidated financial statements
of Union. Accordingly, pro forma combined financial information is not
presented.
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following unaudited consolidated financial information reflects
certain comparative per share data relating to the Affiliation. The information
shown below should be read in conjunction with the historical consolidated
financial statements of Union and RBS including the respective notes thereto,
which are included elsewhere in this Prospectus and Proxy Statement or in
documents delivered herewith or incorporated herein by reference.
The following information is not necessarily indicative of the results
of operations or combined financial position that would have resulted had the
Affiliation been consummated at the beginning of the periods indicated, nor is
it necessarily indicative of the results of operations in future periods.
The table below presents selected comparative consolidated unaudited
per share information (i) for Union on a historical basis and on a pro forma
combined basis assuming the Affiliation had been effective during the periods
presented and accounted for as a pooling of interests and (ii) for RBS on a
historical basis and on a pro forma equivalent basis.
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C>
Per Common Share:
Net Income:
RBS - historical.................... $282.79 $282.82 $288.74
RBS pro forma equivalent (1)........ 346.48 327.49 300.60
Union - historical (diluted)........ 2.20 2.08 1.90
Union pro forma combined (2) 2.19 2.07 1.90
Cash Dividends Declared:
RBS - historical.................... $150.00 $150.00 $150.00
RBS pro forma equivalent (1)........ 117.07 101.25 88.60
Union - historical.................. .74 .64 .56
Union pro forma combined (3) .74 .64 .56
Book Value:
RBS - historical.................... $2,919.51 $2,778.03 $2,664.34
RBS pro forma equivalent (1)........ 2,904.20 2,598.70 2,396.24
Union - historical.................. 18.32 16.42 15.07
Union pro forma combined (4) ....... 18.36 16.43 15.15
</TABLE>
- -------------
(1) RBS pro forma equivalent amounts represent Union's pro forma combined
information multiplied by the Exchange Ratio of 158.209 shares of Union
Common Stock for each share of RBS Common Stock.
(2) Pro forma combined net income per share represents historical net income
per share of Union adjusted for the impact of pooling of interests with
RBS.
(3) Pro forma combined dividends per share represent historical dividends per
share paid by Union.
(4) Pro forma combined book value per share represents historical book value
per share of Union, adjusted for the impact of pooling of interests with
RBS.
<PAGE>
THE RBS SPECIAL MEETING
Date, Place and Time
The RBS Special Meeting will be held at the Main Office of the Bank
located at 257 Gay Street, Washington, Virginia on _____________, May ___, 1998
at 2:00 p.m.
Purpose of the RBS Special Meeting
At the RBS Special Meeting, RBS Shareholders will consider and vote
upon (i) a proposal to approve the Affiliation Agreement pursuant to which RBS
Shareholders (other than dissenting shareholders whose shares of RBS Common
Stock are redeemed pursuant to Article 15 of Title 13.1 of the VSCA) shall
receive, in exchange for each share of RBS Common Stock owned by them, 158.209
shares of Union Common Stock and cash in lieu of fractional shares of Union
Common Stock, and (ii) such other matters as may properly be brought before the
RBS Special Meeting.
THE RBS BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AFFILIATION
AGREEMENT.
Record Date
The RBS Board of Directors has fixed the close of business on April
___, 1998 (the "RBS Record Date") as the record date for determining holders
entitled to notice of and to vote at the RBS Special Meeting. Accordingly, only
holders of record of RBS Common Stock at the close of business on the RBS Record
Date will be entitled to notice of, and to cast their vote at, the RBS Special
Meeting. At the close of business on the RBS Record Date, there were 1,000
shares of RBS Common Stock issued and outstanding held by 54 holders of record.
Vote Required
Each holder of record of shares of RBS Common Stock on the RBS Record
Date is entitled to cast one vote per share, in person or by properly executed
proxy, on any matter that may properly come before the RBS Special Meeting. The
presence, in person or by properly executed proxy, of the holders of more than
two-thirds of the shares of RBS Common Stock outstanding on the RBS Record Date
is necessary to constitute a quorum at the RBS Special Meeting.
The approval of the Affiliation Agreement requires the affirmative vote
of the holders of more than two-thirds of the outstanding shares of RBS Common
Stock entitled to vote thereon.
As of April ___, 1998 the directors and executive officers of RBS owned
an aggregate of 314 shares (31.4%) of RBS Common Stock. Such persons have
executed agreements with Union pursuant to which such persons have agreed to
vote their shares of RBS Common Stock to approve the Affiliation Agreement. See
"CERTAIN OTHER AGREEMENTS--The Support Agreement."
All shares of RBS Common Stock represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies. If no instructions are
indicated, such shares of RBS Common Stock will be voted to approve the
Affiliation Agreement.
RBS does not know of any matters other than as described in the Notice
that are to come before the RBS Special Meeting. If any other matter or matters
are properly presented for action at the RBS Special Meeting, the persons named
in the enclosed form of proxy and acting thereunder will have the discretion to
vote on such matters in accordance with their best judgment, unless such
authorization is withheld. An RBS Shareholder who has given a proxy may revoke
it at any time prior to its exercise by giving written notice thereof on or
prior to the date of the RBS Special Meeting to John R. Conry, Jr., Executive
Vice President and CEO of RBS, by signing and returning a later dated proxy, or
by voting in person at the RBS Special Meeting; however, mere attendance at the
RBS Special Meeting will not in and of itself have the effect of revoking the
proxy.
Votes cast by proxy or in person at the RBS Special Meeting will be
tabulated by the election inspectors appointed for the meeting who will
determine whether or not a quorum is present. Where, as to any matter submitted
to the RBS Shareholders for a vote, proxies are marked as abstentions (or RBS
Shareholders appear in person but abstain from voting), such abstentions will be
treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. If a broker indicates on the proxy that it
does not have discretionary authority as to certain shares to vote on a
particular matter, those shares are also treated as shares that are present and
entitled to vote for quorum purposes. An abstention or broker non-vote will have
no effect on the election of directors but will have the effect of a vote
against the Affiliation Agreement.
Solicitation of Proxies
Proxies are being solicited by and on behalf of the RBS Board of
Directors and RBS will bear the costs of its solicitation of proxies.
Solicitations may be made by mail, telephone, or personally by directors,
officers and employees of RBS and the Bank, none of whom will receive additional
compensation for performing such services. Union will pay all the expenses of
printing and mailing the Prospectus and Proxy Statement.
THE AFFILIATION
The following description of the Affiliation does not purport to be
complete and is qualified in its entirety by reference to the Affiliation
Agreement, a copy of which is attached to this Prospectus and Proxy Statement as
Annex A and incorporated herein by reference. RBS Shareholders are urged to read
the Affiliation Agreement in its entirety.
Background to the Affiliation
During the week of October 20, 1997 John R. Conry, Jr., Executive Vice
President and Chief Executive Officer of RBS contacted William J. McKinnon, Jr.,
President of McKinnon & Company, Inc. regarding the possibility of RBS retaining
an investment advisor such as McKinnon & Company to serve as financial advisor
to RBS in its possible sale or merger with another entity. Mr. Conry explained
that RBS had received an unsolicited offer to acquire RBS and that he was
interviewing several firms as possible financial advisor for RBS in its
potential sale or merger.
On October 27, 1997, Mr. McKinnon met with Elisabeth J. Jones,
Chairman, and John R. Conry, Jr., Executive Vice President and Chief Executive
Officer, of RBS to discuss the possibility of McKinnon & Company serving as
RBS's financial advisor in its possible sale or merger. Subsequently McKinnon &
Company submitted a proposed contract to RBS to serve as financial advisor to
the board of directors of RBS. On November 17, 1997, Mr. McKinnon met with the
full board of directors of RBS to discuss the proposed financial advisor
contract. The RBS Board of Directors authorized Elizabeth J. Jones, Chairman and
President, to accept McKinnon & Company's proposed contract to solicit
alternative offers to the unsolicited offer received by RBS. McKinnon & Company
subsequently contacted seven financial institutions regarding their possible
acquisition or merger with RBS.
On December 8, 17, 18 and 19, 1997, Mr McKinnon, Ms. Jones, and Mr.
Conry, met with the chief executive officer and another representative of five
financial institutions, including: 1) one regional multi-state multi-bank
holding company; 2) two multi-bank holding companies in Virginia; and 3) two
bank holding companies in RBS's market. Ms. Jones and Mr. Conry recommended to
the full Board of Directors at a meeting on December 29, 1997, that McKinnon &
Company be authorized to negotiate merger terms with Union, one of the
multi-bank holding companies which had indicated a desire to allow RBS to
maintain its independent bank status with its own board of directors and
management as part of Union's multi-bank holding company. Subsequent to the
December 29, 1997, Board meeting, McKinnon & Company contacted Union and
negotiated a proposed fixed exchange ratio of 158.209 shares of Union common
stock for each share of RBS common stock. Also, following the December 29, 1997,
Board meeting of RBS, RBS contacted Williams Mullen Christian & Dobbins, counsel
to RBS. Union contacted Mays & Valentine, L.L.P., counsel to Union, who began
drafting a proposed final agreement. On January 20, 1998, the President and
Chief Executive Officer and the Chief Financial Officer of Union met with the
full Board of RBS to discuss the proposed merger and the operations of Union. On
January 27, 1998, McKinnon & Company met with the full board of RBS and issued a
verbal opinion to the RBS Board that Union's proposed offer to RBS was fair from
a financial point of view as of that date. Over the next two weeks a proposed
definitive agreement, a related support agreement and an employment agreement
described hereinbelow were negotiated as well as a proposed new employment
contract for John R. Conry, Jr., the Executive Vice President and Chief
Executive Officer of RBS. On February 24, 1998, the RBS Board of Directors
agreed unanimously to approve the Affiliation Agreement and authorized the
President to sign the definitive agreement and on February 25, 1998
representatives of Union signed the definitive agreement for the merger of RBS
with Union as contained in the Affiliation Agreement. The Agreement was publicly
announced on February 25, 1998.
The RBS Board of Directors believes that the Affiliation Agreement and
the Merger are in the best interests of RBS and the RBS Stockholders. The RBS
Board of Directors recommends that RBS Stockholders vote FOR the Affiliation
Agreement and the Merger contemplated thereby.
Reasons for the Affiliation; Recommendation of the RBS Board of Directors
The RBS Board of Directors believes that the Affiliation and the
Affiliation Agreement are in the best interests of RBS and the RBS Shareholders.
As explained below, this conclusion is supported by the opinion of its
independent financial advisor. In considering the terms and conditions of the
Affiliation Agreement, the RBS Board of Directors considered a number of
factors. The RBS Board of Directors did not assign any relative or specific
weights to the factors considered. The material factors considered were:
(i) The Financial Terms of the Affiliation. In this regard, the RBS
Board of Directors was of the view that, based on historical and anticipated
trading ranges for Union Common Stock, the value of consideration to be received
by RBS Shareholders resulting from the Exchange Ratio represented a fair
multiple of RBS' per share book value and earnings. While the Affiliation will
result in a decrease in dividend income to RBS Shareholders, the RBS Board of
Directors was of the view that Union would continue to pay dividends at its
current rate which is a rate comparable for similarly sized institutions,
although there can be no assurance that current dividends are indicative of
future dividends. See "COMPARATIVE UNAUDITED PER SHARE DATA." In addition, the
Affiliation will result in increased liquidity for RBS Shareholders since Union
Common Stock is quoted on the NASDAQ National Market System. In addition, the
RBS Board of Directors considered how the premium included in Union's offer
(measured as the difference between the total transaction value of the
Affiliation and RBS's book value at December 31, 1997) compared on a percentage
basis to RBS's loans and deposits. See "--Opinion of RBS Financial Advisor" for
a discussion of this comparative information.
(ii) The Terms, Other Than the Financial Terms, and Structure of the
Affiliation. In this respect, the RBS Board of Directors considered the benefits
to the customers and employees of the Bank and the communities it serves by
allowing the Bank to remain a separate bank within the Union system. The RBS
Board of Directors also considered that the Affiliation would qualify as a
tax-free reorganization under the Internal Revenue Code of 1986, as amended (the
"Code"). See "--Certain Federal Income Tax Consequences."
(iii) Certain Financial and Other Information Concerning Union. In this
respect, the RBS Board of Directors considered, among other things, the
consistent high position of Union among its peer group of national and regional
financial institutions in terms of profitability, capital adequacy and asset
quality. The RBS Board of Directors also considered that the historical net
income per share of Union Common Stock to be received by the RBS Shareholders,
after giving effect to the Exchange Ratio, would represent a substantial
increase in the historical net income per share of RBS Common Stock, although
there can be no assurance that pro forma amounts are indicative of future income
per share of Union. The RBS Board of Directors also considered the marketability
of Union Common Stock, which is publicly traded and quoted on The Nasdaq
National Market. The RBS Board of Directors further considered the
diversification of risk associated with ownership of an institution that
operates three banks serving a broader geographic area.
(iv) Other Possible Affiliation Partners. The RBS Board of Directors
considered, based in part on the advice of McKinnon & Company, possible
affiliation partners for RBS other than Union, the prospects of such other
possible affiliation partners, and the likelihood that such other potential
partners would be able to make an offer directly comparable to Union's offer.
Based upon the foregoing considerations, none of the other affiliation
possibilities considered by the RBS Board of Directors was perceived by the RBS
Board of Directors to present the advantages that the Affiliation would provide,
and as a result Union was the only institution which McKinnon & Company was
authorized to negotiate with.
(v) Opinion of RBS Financial Advisor. The RBS Board of Directors also
considered the opinion of McKinnon & Company as to the fairness, from a
financial point of view, of the terms of the Affiliation Agreement to the RBS
Shareholders. See "--Opinion of RBS Financial Advisor."
(vi) Certain Other Considerations. The RBS Board of Directors further
determined that the addition of resources resulting from the Affiliation will
enable the Bank to provide a wider and improved array of financial services to
consumers and businesses and to achieve added flexibility in dealing with the
changing competitive environment in its market area. In addition, the RBS Board
of Directors concluded that the Affiliation will help provide the Bank with the
financial resources needed to meet the competitive challenges arising from
recent and anticipated changes in the banking and financial services industry.
The RBS Board of Directors believes that the Affiliation and the
Affiliation Agreement are in the best interests of RBS and the RBS Shareholders.
The RBS Board of Directors unanimously recommends that RBS Shareholders vote TO
APPROVE the Affiliation Agreement.
Opinion of the RBS Financial Advisor
RBS's Board of Directors retained the investment banking firm of
McKinnon & Company, Inc. to serve as its financial advisor and to evaluate the
terms of the Affiliation Agreement, and McKinnon & Company has rendered its
opinion to the Board of Directors of RBS that the terms of the Affiliation
Agreement are fair from a financial point of view to the RBS Stockholders. In
developing its opinion, McKinnon & Company reviewed and analyzed material
bearing upon the financial and operating conditions of RBS, Union, and on a pro
forma basis, RBS and Union combined, and material proposed in connection with
the Affiliation Agreement including, among other things, the following: (1) the
Affiliation Agreement; (2) the Registration Statement; (3) RBS's and Union's
financial results for fiscal years 1990 through 1997, and certain documents and
information deemed relevant to McKinnon & Company's analysis; (4) discussions
with senior management of RBS and Union regarding past and current business
operations of, and outlook for, RBS, Union, including trends, the terms of the
proposed Merger, and related matters; (5) the reported price and trading
activity of RBS and Union Common Stock and financial and stock market
information (when available) for RBS and Union with similar information for
certain other companies, and securities for which are publicly traded; (6) the
financial terms of certain recent business combinations which McKinnon & Company
deemed comparable in whole or in part; (7) the relationship of prices paid to
relevant financial data such as net worth, loans, deposits and earnings in
certain bank and bank holding company affiliations and acquisitions in Maryland,
North Carolina and Virginia in recent years and the deal price relative to the
seller's price one day prior to the announcement of such deals; and (8) other
published information and other factors and information which McKinnon & Company
deemed relevant. No instruction or limitations were given or imposed in
connection with the scope of or the examination or investigations made by
McKinnon & Company in arriving at its findings. Finally, McKinnon & Company has
performed such other studies and analyses it deemed appropriate, including an
analysis of the pro forma financial impact of the Merger on RBS and Union. A
copy of McKinnon & Company's opinion, which sets forth the assumptions made,
matters considered and qualifications made on the review undertaken, is attached
as Appendix B hereto and should be read in its entirety.
McKinnon & Company used the information gathered to evaluate the
financial terms of the Merger using standard valuation methods, including
discounted cash flow analysis, market comparable analysis, comparable
acquisition analysis and dilution analysis.
Comparable Acquisition Analysis.
McKinnon & Company compared the relationship of prices paid to relevant
financial data such as net worth, assets, deposits and earnings in seventeen
bank and bank holding company mergers and acquisitions in Maryland, North
Carolina and Virginia since December 31, 1996, representing all such
transactions known to McKinnon & Company to have occurred during this period
involving banks and bank holding companies, with the proposed Merger and found
the consideration to be received from Union to be within the relevant pricing
ranges acceptable for such recent transactions. It was also noted that RBS's
equity to asset ratio was 17.58% compared with 9.60% on average for the eight
smaller Virginia banks. Among the seventeen bank and bank holding company
transactions in 1997 either closed or pending in Maryland, Virginia and North
Carolina, McKinnon & Company has developed a group of thirteen small
transactions, ranging in deal value from $14 million to $45 million and in asset
size from $73 million to $259 million, and a group of four larger transactions
each exceeding $100 million in deal value and over $950 million in assets of the
selling institution. The thirteen smaller transactions included eight in
Virginia, three in North Carolina and two in Maryland, while all of the larger
transactions were in Virginia. Specifically, based on the thirteen smaller
transactions in Virginia, North Carolina and Maryland either completed or
pending in 1997, other than the Merger, the average price to book was 249.54% in
Virginia, 267.80% in North Carolina, 238.46% in Maryland, and 252.05% overall,
compared with 219.55% for the Merger; the average price to earnings ratio was
23.17 times in Virginia, 26.09 times in North Carolina and 16.58 times in
Maryland, and 22.80 times overall, compared with 23.88 times for the Merger; the
average price to deposits was 29.61% in Virginia, 30.10% in North Carolina,
27.27% in Maryland and 29.44% overall, compared with 47.54% for the Merger; and
the average price to assets was 25.51% in Virginia, 24.49% in North Carolina,
22.18% in Maryland and 24.76% overall, compared with 38.69% for the Merger.
Among the four larger transactions, all in Virginia, the average price to book
was 294.99% compared with 219.55% for the Merger; the average price to earnings
was 21.41 times compared with 23.88 times for the Merger, the average price to
deposits was 31.53% compared with 47.54% for the Merger; the average price to
assets was 24.21% compared with 38.69% for the Merger.
Market Comparable Analysis.
McKinnon & Company analyzed the performance and financial condition of
Union relative to two groups including the following Large and Small financial
institutions: NationsBank Corporation; First Union Corporation; Wachovia
Corporation; BB&T Corp; Crestar Financial Corp.; First Virginia Bank, Inc.;
Keystone Financial; Mercantile Bankshares, Inc.; One Valley Bancorp; Susquehanna
Bancshares; F&M National Corporation; MainStreet BankGroup, Inc.; F&M Bancorp;
Mason-Dixon Bancshares and FCNC Corp. (collectively the "Large Bank Group") and:
FNB Corporation; American National Bankshares; National Bankshares, Inc.; James
River Bankshares; Community Bankshares; Second National Financial; Southern
Financial Bancorp; Benchmark Bankshares; Mid-Atlantic Bank Group; Central
Virginia Bankshares; Salem Bank & Trust; Guaranty Financial Corp.; and Bank of
Essex (collectively the "Small Bank Group"). Among the financial information
compared was information relating to equity to assets, loans to deposits, net
interest margin, non-performing assets, total assets, non-accrual loans, loan
loss reserve and asset growth rates. Additional information compared for the
trailing twelve month period ended September 30, 1997 was (i) price to book
value ratio which was 223.5% for Union compared to averages of 261.8% for the
Large Bank Group and 204.3% for the Small Bank Group; (ii) price to earnings
ratio which was 19.1 times compared to an average of 18.8 times for the Large
Bank Group and 17.7 times for the Small Bank Group; (iii) return on average
assets which was 1.40% for Union compared to an average 1.35% for the Large Bank
Group and 1.31% for the Small Bank Group; (iv) return on equity which was 12.82%
compared to an average of 14.74% for the Large Bank Group and 12.34% for the
Small Bank Group; and (v) a dividend yield of 1.89% compared to an average of
2.42% for the Large Bank Group and 1.78% for the Small Bank Group. Overall, in
the opinion of McKinnon & Company, Union's operating performance and financial
condition were in line with the Large Bank Group and Small Bank Group averages,
and Union's market value was reasonable when compared to the Large and Small
Bank Groups. Accordingly, RBS shareholders will receive Union Common Stock that
is reasonably valued when compared to the Large Bank Group and to the Small Bank
Group.
Dilution Analysis
Based upon publicly available financial information on RBS and Union,
McKinnon & Company considered the effect of the transaction on the book value,
earnings and market value of RBS and Union. The immediate effect on Union was
less than 1% increase in book value and less than 1% decrease in earnings per
share. The effect on RBS under the same assumption is to decrease dividends by
$29.76 per share, or 19.84%, and to increase the market value per share of RBS
to $6,367.91, or approximately 119.55% over the book value. RBS's stock did not
trade in 1997 to the knowledge of its board of directors and management. Prior
to 1997 isolated trades occurred at or below its book value at the time of the
trade according to management. RBS's dividend payout is approximately 53% of net
income compared with approximately 34% for Union, and 27% for the Small Bank
Group and 39% for the Large Bank Group under a Market Comparable Analysis,
above. This dilution analysis does not take into account the longer term
benefits for the combined companies resulting from the combination. McKinnon &
Company concluded from the analysis that the transaction would have a
significant positive effect on RBS and the RBS Stockholders in that the market
value of Union's Common Stock to be received by the RBS Stockholders, after
giving effect to the Exchange Ratio, would represent a substantial increase in
the historical market value of RBS's Common Stock, although there can be no
assurance that pro forma amounts are indicative of the future.
The summary set forth above includes the material factors considered,
but does not purport to be a complete description of the presentation by
McKinnon & Company to the RBS Board of Directors or of the analyses performed by
McKinnon & Company. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial analysis
or summary description. Accordingly, notwithstanding the separate factors
summarized above, McKinnon & Company believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, would
create an incomplete view of the process underlying the preparation of its
opinion. As a whole, these various analyses contributed to McKinnon & Company's
opinion that the terms of the Merger Agreement are fair from a financial point
of view to the RBS Stockholders.
McKinnon & Company is an investment banking firm that specializes in
Virginia community banks. In ten years McKinnon & Company has been lead managing
underwriter in approximately thirty public stock offerings for Virginia
community banks and thrifts and has served as financial advisor, including
providing fairness opinions to numerous Virginia community banks and thrifts and
has served as financial advisor, including providing fairness opinions to
numerous Virginia community banks. McKinnon & Company, as part of its investment
banking business, is engaged in the evaluation of businesses, particularly banks
and thrifts, and their securities, in connection with mergers and acquisitions,
initial public offerings, private placements and evaluations for estate and
corporate recapitalizations. McKinnon & Company is also a market maker in
Virginia community bank stocks listed on NASDAQ:NMS, the NASDAQ Small Cap Market
and the OTC Bulletin Board, but not in RBS. McKinnon & Company believes it has a
thorough working knowledge of the banking industry throughout Virginia.
Pursuant to an engagement letter dated November 17, 1997, between RBS
and McKinnon & Company, in exchange for its services, McKinnon & Company shall
receive a contingent fee of 1% of the market value paid for RBS, payable at the
closing or effective date of the Affiliation. This investment advisory fee is a
legal obligation of RBS and is 1% of the fair market value of the consideration
to be paid to the shareholders of RBS on the date the merger becomes effective
for McKinnon & Company's services as independent financial advisor in connection
with the sale or merger, including the rendering of a fairness opinion to RBS's
Board of Directors.
Effective Date
As soon as practicable after the performance of all agreements and
obligations of the parties under the Affiliation Agreement and upon fulfillment
or waiver of all conditions precedent contained therein, Union and RBS will
execute and deliver Articles of Merger (the "Articles"), and will file the
Articles with the Virginia Commission. The Affiliation shall become effective on
such date and time (the "Effective Date") as set forth in the Articles as filed
with the Virginia Commission.
Procedures for Exchange of Certificates
Certificates representing shares of RBS Common Stock which have been
converted to shares of Union Common Stock may at any time after the Effective
Date be surrendered to Registrar and Transfer Company, Union's stock transfer
agent acting as exchange agent (the "Exchange Agent"), and exchanged by the
holders thereof for new certificates representing the appropriate number of
whole shares of Union Common Stock determined by the Exchange Ratio and for cash
in lieu of any fractional shares.
No certificates for fractional shares of Union Common Stock shall be
issued but, in lieu thereof, and solely as a mechanism for rounding
shareholdings to whole shares, Union will pay cash for such fractional shares on
the basis of the closing price for Union Common Stock (as reported by The Nasdaq
National Market) on the Effective Date (or if no closing price is reported on
that date, then the closing price on the next preceding day on which there is a
closing price), without interest, upon surrender of certificates of RBS Common
Stock representing such fractional shares. No such holder shall be entitled to
dividends, voting rights or any other rights of shareholders in respect of any
fractional share.
Shortly after the Effective Date, RBS Shareholders will receive
transmittal forms and instructions as to the time and method of surrendering
their certificates. Until so surrendered, certificates formerly representing
shares of RBS Common Stock (other than shares of dissenting shareholders as
described herein under the heading "Appraisal Rights of Dissenting
Shareholders") will be deemed for all corporate purposes to evidence the number
of whole shares of Union Common Stock that a holder would be entitled to receive
upon surrender and the cash to be paid in lieu of fractional shares. Dividends
and other distributions, if any, that become payable on whole shares of Union
Common Stock pending exchange of certificates representing shares of RBS Common
Stock will be retained by Union or the Exchange Agent until surrender of the
certificates, at which time those dividends and any other distributions will be
paid without interest.
RBS SHAREHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES UNTIL THEY
HAVE RECEIVED TRANSMITTAL FORMS AND INSTRUCTIONS. RBS SHAREHOLDERS SHOULD NOT
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
Certain Federal Income Tax Consequences
The following is a summary of the anticipated material Federal income
tax consequences of the Affiliation; it is not intended to be a complete
description of those consequences:
(i) the Affiliation will qualify as a tax-free reorganization under
Section 368(a)(1)(A) of the Code;
(ii) no gain or loss will be recognized by Union or RBS as a result of
the Affiliation;
(iii) no gain or loss will be recognized by the RBS Shareholders upon
their receipt of Union Common Stock in exchange for RBS Common Stock pursuant to
the Affiliation;
(iv) the tax basis of the shares of Union Common Stock received by the
RBS Shareholders will equal the tax basis of their RBS Common Stock exchanged
therefor;
(v) assuming that an RBS Shareholder holds the RBS Common Stock as a
capital asset at the Effective Date, the holding period of the Union Common
Stock received by such RBS Shareholder will include the holding period of the
RBS Common Stock exchanged therefor.
The obligation of RBS to consummate the Affiliation is subject to the
receipt of an opinion of Williams Mullen Christian & Dobbins, counsel to RBS,
with respect to the federal income tax consequences of the Affiliation,
substantially to the effect of paragraphs (i) through (v) immediately above.
Such opinion will not address the state, local or foreign tax aspects of the
Affiliation. RBS has agreed in the Affiliation Agreement to use its best efforts
and to cause the Bank to use its best efforts to cause the Affiliation to
qualify as a tax-free reorganization under Section 368(a)(1)(A) of the Code.
Any cash received by RBS Shareholders, whether as a result of the
exercise of their dissenters' rights or in lieu of the issuance of fractional
shares, could result in taxable income to such RBS Shareholders. The receipt of
such cash generally will be treated as a sale or exchange of the stock resulting
in capital gain or loss measured by the difference between the cash received and
an allocable portion of the basis of the stock relinquished. The receipt of such
cash may be treated as a dividend and taxed as ordinary income in certain
limited situations.
The discussion set forth above is included for general information
only. It does not address the state, local or foreign tax aspects of the
Affiliation. In addition, it does not discuss the federal income tax
considerations that may be relevant to certain persons, and may not apply to
certain holders subject to special tax rules, including dealers in securities
and foreign holders. The discussion is based upon currently existing provisions
of the Code, existing Treasury regulations thereunder and current administrative
rulings and court decisions. All of the foregoing are subject to change and any
such change could affect the continuing validity of this discussion.
EACH RBS SHAREHOLDER SHOULD CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO
THE SPECIFIC TAX CONSEQUENCES OF THE AFFILIATION TO HIM, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
Accounting Treatment
It is expected that the Affiliation will be accounted for as a pooling
of interests under generally accepted accounting principles. The obligation of
Union to consummate the Affiliation is conditioned upon the receipt by Union of
a letter from its independent certified public accountants to the effect that
the Affiliation qualifies for pooling of interests accounting treatment under
generally accepted accounting principles if consummated in accordance with the
Affiliation Agreement. Under the pooling of interests method of accounting, the
historical basis of the assets and liabilities of Union and RBS will be combined
at the Effective Date and carried forward at their previously recorded amounts
and the stockholders' equity accounts of RBS will be combined on Union's
consolidated balance sheet. Income and other financial statements of Union
issued after consummation of the Affiliation will be restated retroactively to
reflect the consolidated operations of Union and RBS as if the Affiliation had
taken place prior to the periods covered by such financial statements.
In order for the Affiliation to qualify for pooling of interests
accounting treatment, substantially all of the outstanding RBS Common Stock must
be exchanged for Union Common Stock. RBS has agreed in the Affiliation Agreement
to use its, and to cause the Bank to use its, best efforts to cause the
Affiliation to qualify for pooling of interests treatment. In the event that RBS
Shareholders exercise their dissenters' rights of appraisal with respect to an
aggregate of 10% or more of the shares of RBS Common Stock outstanding or in the
event that one of the other conditions to pooling of interests accounting
treatment is not satisfied, the Affiliation would not qualify for the pooling of
interests method of accounting, and a condition to Union's obligation to
consummate the Affiliation would not be fulfilled. See "--Appraisal Rights of
Dissenting Shareholders," and "--Conditions to Affiliation." Union has the
option but no obligation, to waive such condition, in which case the Affiliation
could nonetheless be consummated. In such event, the Affiliation would be
accounted for as a purchase. Under purchase accounting, the aggregate purchase
price of RBS (consisting of the fair value of RBS Common Stock at the execution
of the Affiliation Agreement and transaction expenses) would be allocated to the
tangible and intangible net assets acquired, based on their estimated fair
values at the Effective Date. Any excess of such purchase price over the
tangible assets acquired would be amortized against the consolidated income of
Union for a period of 15 years.
Individuals who are affiliated with Union and RBS have entered into
agreements with Union providing that they will not sell, transfer or otherwise
dispose of shares of Union Common Stock owned by them or, in the case of
affiliates of RBS, to be received by such persons in the Affiliation, until such
time as financial results covering at least 30 days of combined operations of
Union and RBS have been published. See "CERTAIN OTHER AGREEMENTS--Affiliate
Undertakings."
Business Pending the Affiliation
Until consummation of the Affiliation (or termination of the
Agreement), RBS is obligated to operate its businesses only in the ordinary and
usual course, consistent with past practice and to use its best efforts to
maintain its business organizations, employees and business relationships and
retain the services of its officers and key employees. Until consummation of the
Affiliation (or termination of the Agreement) RBS may not, without the consent
of Union, among other things: (a) declare or pay additional dividends on its
capital stock, except for its regular $75,000 cash dividend declared in December
1997, and aggregate cash dividends not exceeding $75,000 (or earnings through
the date of payment) for the semiannual period ending June 30, 1998; (b)
encourage, solicit or initiate inquiries or proposals with respect to, furnish
any information relating to, or participate in any negotiations regarding any
acquisition or purchase of all or a substantial portion of the assets of, or a
substantial equity interest in, RBS or any business combination with RBS, except
where the failure to do so would constitute a breach of the fiduciary or legal
obligations of the RBS Board of Directors to the shareholders of RBS; (c) amend
its charter or bylaws; (d) issue any capital stock or otherwise change its
capitalization; or (e) purchase or redeem any of its capital stock.
Resale of Union Common Stock After the Affiliation by Controlling Persons
All shares of Union Common Stock received by RBS shareholders in
connection with the Affiliation will be freely transferable, except that Union
Common Stock received by persons who are deemed to be "affiliates" of RBS for
purposes of Rule 145 under the 1933 Act. To the best knowledge of RBS and Union,
the only persons who may be deemed to be affiliates of RBS subject to these
limitations are the directors and executive officers of RBS who have been
advised of these restrictions and have agreed in writing to them.
Conditions to Affiliation
Consummation of the Affiliation is conditioned upon, among other
things, approval of the Affiliation Agreement by an affirmative vote of more
than two-thirds of the outstanding shares of RBS Common Stock entitled to vote
thereon.
The obligation of Union to consummate the Affiliation is also subject
to the prior satisfaction of certain further conditions including but not
limited to the following: (1) the absence of any material adverse change in the
consolidated balance sheet, consolidated income statement, financial position,
results of operations or business of RBS or the Bank, except as provided in the
Affiliation Agreement, and the absence of any injunction against or impediment
to consummation of the Affiliation; (2) receipt of a letter from Union's
independent certified public accountants to the effect that the Affiliation
qualifies for pooling-of-interests accounting treatment; (3) compliance by RBS
and the Bank with certain conditions, including limits on unapproved increases
in compensation of directors, officers or employees of RBS or the Bank or
unapproved alterations in benefits received by such individuals; (4) maintenance
of the existing investment practices and policies of RBS and the Bank; (5) the
absence of any actual or threatened legal proceeding or impediment that in the
reasonable opinion of Union might prevent the consummation of the Affiliation;
(6) the absence of any condition or event, actual or threatened, which does or
may adversely affect the tax-qualified status of any "Qualified Plan" (as
defined in the Affiliation Agreement) or which may result in costs for
unanticipated benefit liabilities with respect to any Qualified Plan; (7) the
accuracy and satisfaction of various other financial and legal representations
and conditions with respect to RBS and the Bank; (8) the receipt of certain
regulatory approvals; and (9) the effectiveness of the Registration Statement.
Union may in its discretion waive conditions (1) through (7).
The obligation of RBS to consummate the Affiliation is subject to the
satisfaction of certain further conditions including the following: (1) receipt
of an opinion of counsel confirming certain of the consequences of the
Affiliation for RBS Shareholders as set forth above under the heading "Certain
Federal Income Tax Consequences;" and (2) the accuracy and satisfaction of
various financial and legal representations and conditions with respect to
Union.
Treatment of Employee Benefit Plans
Pursuant to the Affiliation Agreement and at the option of Union, after
the Effective Date employees of RBS and the Bank will be entitled to participate
in Union's employee benefit plans and programs on substantially the same basis
as similarly situated employees of Union or in plans and programs which, subject
to certain conditions provided in the Affiliation Agreement, are comparable to
and provide for participation on substantially the same basis as RBS's and the
Bank's plans and programs currently in effect.
Exclusive Dealing
RBS has agreed that while the Affiliation Agreement is in effect,
neither RBS nor any of its or the Bank's officers, directors, employees, agents
or representatives (including its investment bankers) shall, directly or
indirectly: (i) encourage, solicit or initiate any Acquisition Proposal (as
hereinafter defined) or take any other action to facilitate any inquiries or
proposal that constitutes or may reasonably be expected to lead to any
Acquisition Proposal; or (ii) recommend any Acquisition Proposal to RBS
Shareholders or enter into any agreement with respect to any Acquisition
Proposal or participate in discussions or negotiations with, or furnish any
information to, any person in connection with any potential Acquisition
Proposal, unless an unsolicited Acquisition Proposal is made and the RBS Board
of Directors shall conclude, based on written advice of counsel, that its
fiduciary obligations require consideration or acceptance or the recommendation
of such Acquisition Proposal.
An "Acquisition Proposal" is defined in the Affiliation Agreement as
including any proposed (A) merger, consolidation, share exchange or similar
transaction involving RBS or the Bank, (B) sale, lease or other disposition
directly or indirectly by merger, consolidation, share exchange or otherwise of
assets of RBS (including the stock of the Bank), or the Bank representing 10% or
more of the consolidated assets of RBS and the Bank, (C) issue, sale or other
disposition of securities representing 10% or more of the voting power of RBS or
the Bank, and (D) transactions in which any person or group shall acquire
beneficial ownership of 10% or more of the outstanding RBS Common Stock or Bank
common stock.
RBS has agreed that it will immediately advise Union of, and
communicate to Union the terms of, any such inquiry or proposal addressed to RBS
or the Bank or of which RBS or the Bank, or their respective officers,
directors, employees, agents, or representatives (including its investment
bankers) has knowledge.
Interests of Certain Persons in the Affiliation
The Affiliation Agreement provides that following the Effective Date,
Union shall indemnify and hold harmless any person who has rights to
indemnification from RBS, to the same extent and on the same conditions as such
person is entitled to indemnification pursuant to the applicable provisions of
Title 13.1 of the VSCA and RBS's Articles of Incorporation, as in effect on the
date of the Affiliation Agreement, to the extent legally permitted with respect
to matters occurring on or prior to the Effective Date, including, without
limitation, the transactions contemplated in the Affiliation Agreement. Union's
obligations with respect to indemnification shall be no greater than RBS's
obligations as of the date of the Affiliation Agreement. Union has also agreed
to use its reasonable best efforts to maintain RBS's existing directors' and
officers' liability policy, or another policy providing at least comparable
coverage, covering persons who are currently covered by such insurance of RBS
for a period of three years after the Effective Date on terms no less favorable
than those in effect on the date of the Affiliation Agreement. Mr. Conry's
existing employment contracts with RBS and the Bank will be replaced by a new
employment agreement with Union if the Affiliation is consummated. See "CERTAIN
OTHER AGREEMENT--Conry Employment Agreement" below.
Termination and Termination Fee
The Affiliation Agreement provides that it may be terminated and the
Affiliation abandoned at any time prior to the Effective Date: (a) by the mutual
consent of RBS and Union; (b) by Union if certain of the conditions set forth in
the Affiliation Agreement have not been met or waived by Union, or if at any
time Union receives information from any regulatory authority, which by law is
required to approve the Affiliation, or which has authority to challenge the
validity of the Affiliation in judicial proceedings or otherwise, that provides
a substantial basis for reasonably concluding that the required regulatory
approval will not be granted or the Affiliation or such transactions will be so
challenged; or if the RBS Board of Directors recommends to the RBS Shareholders
or accepts an Acquisition Proposal; (c) by RBS if certain conditions set forth
in the Affiliation Agreement have not been met or waived by RBS, or if in
compliance with the provisions of the Affiliation Agreement, it recommends to
the RBS Shareholders or accepts an Acquisition Proposal; and (d) by Union or RBS
if the Affiliation is not consummated by November 30, 1998. The Affiliation
Agreement provides that no party shall be relieved of or released from any
liability arising out of an intentional breach of any provision thereof. See
"CERTAIN OTHER AGREEMENTS--The Stock Option Agreement."
The Affiliation Agreement provides that upon termination of the
Agreement by Union, if the directors of RBS recommend to its shareholders or if
RBS accepts an Acquisition Proposal, or if terminated by RBS in compliance with
Section 1.12 of the Affiliation Agreement (addressing the RBS Board's
conclusion, based upon written advice of counsel, that its fiduciary obligations
require consideration, acceptance or recommendation of an Acquisition Proposal),
RBS shall pay Union a termination fee in the amount of $310,000.00 and RBS's and
Union's transaction expenses.
Appraisal Rights of Dissenting Shareholders
An RBS Shareholder who objects to the Affiliation (a "Dissenting
Shareholder") and who complies with the provisions of Article 15 of Title 13.1
of the VSCA ("Article 15") may demand the right to receive a cash payment, if
the Affiliation is consummated, for the fair value of his stock immediately
before the Effective Date, exclusive of any appreciation or depreciation in
anticipation of the Affiliation unless such exclusion would be inequitable. In
order to receive payment, a Dissenting Shareholder must deliver to RBS prior to
the vote at the Special Meeting a written notice of intent to demand payment for
his shares if the Affiliation is effectuated (an "Intent to Demand Payment") and
must not vote his shares to approve the Affiliation Agreement. An RBS
Shareholder who returns a signed proxy but fails to provide instructions as to
the manner in which such shares are to be voted will be deemed to have voted to
approve the Affiliation Agreement, and, therefore, to have waived his
dissenters' rights. An RBS Shareholder may vote against the Affiliation
Agreement, abstain from voting on the Affiliation Agreement or refrain from
voting on (by not returning the proxy or by not voting at the meeting) the
Affiliation Agreement without losing his right to assert dissenters' rights, as
long as such RBS Shareholder's Intent to Demand Payment is timely given. The
Intent to Demand Payment should be addressed to: Elisabeth J. Jones, President,
Rappahannock Bankshares, Inc., 257 Gay Street, P.O. Box 179, Washington,
Virginia 22747-0179. A VOTE AGAINST OR AN ABSTENTION WITH REGARD TO THE
AFFILIATION AGREEMENT WILL NOT ITSELF CONSTITUTE A TIMELY WRITTEN NOTICE OF
INTENT TO DEMAND PAYMENT AND A FAILURE TO VOTE WILL NOT CONSTITUTE A TIMELY
WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT.
An RBS Shareholder of record may assert dissenters' rights as to fewer
than all the shares registered in his name only if the RBS Shareholder dissents
with respect to all shares beneficially owned by any one person and notifies RBS
in writing (delivered or mailed to the name and address noted immediately above)
of the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of such a partial dissenter are determined as if the shares
as to which he dissents and his other shares were registered in the names of
different shareholders. A beneficial shareholder of RBS Common Stock may assert
dissenters' rights as to shares held on his behalf by a shareholder of record
only if (i) he submits to RBS 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, and
(iii) he files an Intent to Demand Payment in a timely manner.
If the Affiliation is consummated, within 10 days after the Effective
Date Union 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 to approve the Affiliation Agreement. The Dissenter's
Notice shall (i) state where the demand for payment (the "Payment Demand") shall
be sent and where and when stock certificates shall be deposited; (ii) supply a
form for demanding payment; (iii) set a date by which Union must receive the
Payment Demand (which may not be fewer than 30 nor more than 60 days after
delivery of the Dissenter's Notice); 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 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 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 February 25, 1998.
Except with respect to shares of RBS Common Stock acquired after the
Announcement Date, Union shall pay a Dissenting Shareholder the amount Union
estimates to be the fair value of his shares, plus accrued interest. Such
payment shall be made within 30 days of receipt of the Dissenting Shareholder's
Payment Demand. As to shares of RBS Common Stock acquired after the Announcement
Date, Union is only obligated to estimate the fair value of the shares, plus
accrued interest, and to offer to pay this amount to the Dissenting Shareholder
conditioned upon the Dissenting Shareholder's agreement to accept it in full
satisfaction of his claim.
If a Dissenting Shareholder believes that the amount paid or offered by
Union is less than the fair value of his shares of RBS Common Stock, or that the
interest due is incorrectly calculated, that Dissenting Shareholder may notify
Union in writing of his own estimate of the fair value of his shares and amount
of interest due and demand payment of such estimate (less any amount already
received by the Dissenting Shareholder) (the "Estimate and Demand"). The
Dissenting Shareholder must notify Union of the Estimate and Demand within 30
days after the date Union makes or offers to make payment to the Dissenting
Shareholder.
Within 60 days after receiving the Estimate and Demand, Union 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 Union
must pay each Dissenting Shareholder whose demand remains unsettled the amount
demanded. If a judicial determination of the "fair value" of RBS Common Stock
held by such RBS Shareholder is necessary, such a determination may result in a
value that is more than, less than, or equal to the consideration which would
have been paid by Union pursuant to the Affiliation. If a proceeding is
commenced, the court must determine all costs of the proceeding and must assess
those costs against Union, 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 and is not intended to be a complete statement of its provisions. The
foregoing discussion is qualified in its entirety by reference to the full text
of Article 15, which RBS Shareholders are strongly encouraged to review
carefully and which is included as Annex C to this Prospectus and Proxy
Statement. No further notice of the events giving rise to dissenters' rights or
any steps associated therewith will be furnished to RBS 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 Code. See "THE AFFILIATION--Certain
Federal Income Tax Consequences."
CERTAIN OTHER AGREEMENTS
The Support Agreement
As a condition to Union entering into the Affiliation Agreement,
directors and officers of RBS owning an aggregate of 314 shares (31.4%) of the
outstanding RBS Common Stock (the "Supporting RBS Shareholders"), entered into a
Support Agreement dated as of January 30, 1998 (the "Support Agreement") with
Union. Pursuant to the Support Agreement, each of the Supporting RBS
Shareholders has agreed (a) not to pledge, hypothecate, grant a security
interest in, sell, transfer or otherwise dispose of or encumber (other than
pledges for loans disclosed to and approved by Union) nor enter into any
agreement, arrangement or understanding (other than a proxy for purposes of
approving the Affiliation Agreement) which would restrict, establish a right of
first refusal to or otherwise relate to the transfer or voting of the shares of
RBS Common Stock owned or acquired by such Supporting RBS Shareholder during the
term of the Support Agreement; (b) not to directly or indirectly, solicit,
initiate or encourage inquiries or proposals from, or participate in discussions
or negotiations with, or provide any information to, any individual or entity
(other than Union and its employees and agents) concerning any sale of assets,
sale or exchange of stock, merger, consolidation or similar transactions
involving RBS or the Bank, and to use all commercially reasonable efforts to
assure that RBS or the Bank takes no such steps; (c) to immediately advise Union
of any such inquiry or proposal of which such Supporting RBS Shareholder has
knowledge; (d) to vote his or her shares of RBS Common Stock in favor of the
Affiliation Agreement and the transactions contemplated thereby, and subject to
certain fiduciary duties, to use his best efforts to cause the Affiliation to be
effected. The Support Agreement terminates upon the termination of the
Affiliation Agreement.
The Supporting RBS Shareholders also agreed under the Support Agreement
to a three year non-competition provision. After the date of the Support
Agreement and for a three year period following consummation of the Affiliation,
the Supporting RBS Shareholders may not invest in or otherwise participate in
any manner in a bank or other financial institution which conducts or will
conduct business in the market in which the Bank operates as of January 30,
1998.
Conry Employment Agreement
The Bank, RBS and John R. Conry, Jr. entered into a replacement
employment agreement, the effective date of which is contingent upon the Closing
of the Affiliation, related to his continued service as the Executive Vice
President and Chief Executive Officer of the Bank following the Effective Date
(the "New Agreement"). The Bank currently employs Mr. Conry as Executive Vice
President and Chief Executive Officer pursuant to an employment agreement dated
April 21, 1997 between Mr. Conry and the Bank. Performance by the Bank of its
financial obligations under the Bank Employment Agreement is guaranteed by RBS,
pursuant to another employment agreement dated April 21, 1997 between Mr. Conry
and RBS (collectively, these agreements are referenced as the "Existing
Agreements")
The Agreement provides that consummation of the Merger is conditioned,
in part, on the Bank and Mr. Conry entering into the New Agreement, and
terminating the Existing Agreements, effective as of the Effective Date of the
Merger. The new employment agreement provides essentially the same terms as the
Existing Agreement except that in the event his employment is terminated by the
Bank without "cause" (as defined therein), Mr. Conry is entitled to receive the
full financial benefit of his agreement through April 20, 2000, the termination
date of the Existing Agreements, rather than for a period of 12 months. Mr.
Conry waived the provisions of the Existing Agreements related to the
Affiliation constituting a "change of control." Any successor in interest of the
Bank must assume the obligations under the New Agreement.
Affiliate Undertakings
In connection with the execution and delivery of the Affiliation
Agreement, the Supporting RBS Shareholders also executed a memorandum,
undertaking and agreement (the "Undertaking") pursuant to which they have
undertaken to comply with certain provisions of the federal securities laws and
to be subject to additional restrictions on the sale of shares of Union Common
Stock. See "THE AFFILIATION--Accounting Treatment" and "--Resale of Union Common
Stock After the Affiliation by Controlling Persons."
Market Prices and Dividends
Union Common Stock is listed on the NASDAQ National Market System
("NASDAQ/NMS") under the symbol "UBSH." Quarterly information on the high and
low closing sales prices of Union Common Stock on NASDAQ/NMS for the first and
second quarters of 1998 and each of the quarterly periods in 1997, 1996 and 1995
are set forth in the following table.
NASDAQ/NMS Closing Sales Price
High Low
---- ---
1998
Second Quarter (through April __)
First Quarter 44.75 40.00
1997
Fourth Quarter 44.75 32.75
Third Quarter 33.75 28.75
Second Quarter 31.00 24.25
First Quarter 26.25 25.00
1996
Fourth Quarter 26.25 25.00
Third Quarter 27.00 24.50
Second Quarter 27.75 23.50
First Quarter 27.25 24.50
1995
Fourth Quarter 28.00 24.25
Third Quarter 27.50 23.50
Second Quarter 26.50 22.00
First Quarter 27.00 22.00
DESCRIPTION OF RBS
RBS was organized in 1985 as a Virginia corporation for the purpose of
serving as the parent holding company for the Bank. RBS does not engage in any
activities other than acting as a holding company for the Bank. Accordingly, the
principal business of RBS is conducted through the Bank.
As of December 31, 1997, RBS had total assets of approximately $20.2
million, total deposits of approximately $17.1 million and total shareholders'
equity of approximately $2.9 million. RBS is the second largest independent
financial institution in its service area in terms of total assets and has the
largest deposit market share of any bank in the area.
The Bank is a community-oriented institution and provides a wide range
of deposit, loan and other general banking services to individuals, businesses,
institutions and governmental entities, including individual and commercial
demand and time deposit accounts, commercial and consumer loans, residential
mortgages, credit card services and safe deposit boxes. The Bank also offers a
full line of trust services.
RBS and the Bank are subject to state and federal banking laws and
regulations which impose specific requirements or restrictions on and provide
for general regulatory oversight with respect to virtually all aspects of
operations. As a national banking association, the Bank is regulated and
examined by the Office of the Comptroller of the Currency. RBS is registered as
a bank holding company under the BHCA and is, therefore, subject to regulation
and examination of the Board of Governors of the Federal Reserve System.
The Bank's Main Office is located in Washington, Virginia. The Bank
owns its banking office.
As of April ___, 1998, the Bank employed seven people on a full-time
basis.
Security Ownership of Certain Beneficial Owners and Management
The persons named below are members of the present Boards of Directors
of RBS and the Bank.
The table sets forth the beneficial ownership of RBS Common Stock by
the directors, executive officers and holders of five percent or more of the
outstanding shares of the RBS Common Stock and all directors and executive
officers of RBS as a group as of April ___, 1998.
Number of Shares of
Nominee and Address Common Stock Percent of
------------------- Beneficially Owned(1) Class
--------------------- ------
Elisabeth J. Jones 20 *
James W. Flecher, III 204 20.4%
John R. Conry, Jr. 1 *
A. F. Cannon 50(2) *
T. B. Massie 22 *
Mary L. Payne 10 *
G. E. Williams 7 *
All Directors and Executive 314 31.4%
Officers are a group (7
individuals)
- -------------
* Represents less than 1% of the outstanding shares.
(1) For purposes of this table, beneficial ownership has been determined as
of April __, 1998 in accordance with the provisions of Rule 13d-3 of
the Exchange Act under which, in general, a person is deemed to be the
beneficial owner of a security if he has or shares the power to vote or
direct the voting of the security or the power to dispose of or direct
the disposition of the security, or has the right to acquire beneficial
ownership of the security within 60 days.
(2) Includes shares owned by the spouse of Mr. Cannon with respect to which
he has joint power to vote.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
AND RELATED STATISTICAL INFORMATION
The following discussion is intended to assist readers in understanding
and evaluating the financial conditions and results of operations of the Bank.
This review should be read in conjunction with the Bank's financial statements
and accompanying notes included herein. This analysis provides an overview of
the significant changes that occurred during the periods presented.
Overview
RBS's performance for the year of 1997 stayed level versus the same
period a year ago. Net income for 1997 was $282,788 compared to $282,814 for
1996, with earnings per share of $282.79 compared to $282.81 in 1996.
Return on average equity for 1997 was 9.89% and 10.31% 1996.
Return on average assets for 1997 was 1.65% and 1.64% in 1996.
These performance figures have remained steady, although return on
average assets declined from 1.75% in 1995 to 1.64% in 1996 and up to 1.65% in
1997. The return on average equity declined in 1997 to 9.89% from 10.31% in
1996, which was up from 11.23% in 1995.
RBS's average loan to average deposits ratio has ranged from 22.12% to
33.83% since 1995. RBS has consistently increased its market share, as measured
by deposits. Since 1995 total average assets have increased 4.76% to $17,292,000
at December 31, 1997.
RBS's net interest margin has declined to 4.52% in 1997, from 4.94% in
1995. The decline in the net interest margin is a result of the general decline
in interest rates in the economy. RBS's interest expense as a percent of average
earning assets has remained very stable ranging from 1.92% in 1995 up to 1.95%
in 1996 and then down to 1.94% in 1997.
Net Interest Income
Net interest income is the major component of RBS's earnings and is
equal to the amount by which interest income exceeds interest expense. Earning
assets are composed primarily of loans and securities, while deposits represent
the major portion of interest-bearing liabilities. Changes in the volume and mix
of these assets and liabilities, as well as changes in the yields earned and
rates paid, are determinants in changes in net interest income. Net interest
margin is calculated as net interest income divided by average earning assets
and represents the RBS's net yield on its earning assets.
Net interest income was $741 thousand in 1997, 1.46% less than the $752
thousand in 1996. This decrease in net interest income was primarily due to
volume decreases in the loan portfolio, as loan demand continued to decline. The
average balance of the loan portfolio was $3,567 million for 1997, down 8.35%
from 1996. The average balance of the securities portfolio was $9,419 thousand
for 1997, an increase of 7.97% from an average securities portfolio of $8,724
thousand in 1996. Although interest rates were lower in 1997 than 1996, the
yield on average loans decreased 21 basis points to 9.45% from 9.66% in 1996,
while the yield on securities increased 4 basis points to 5.70% in 1997 from
5.66% in 1996. Interest expense in 1997 was $318 thousands down 0.63% from $320
thousands in 1996, while the average cost of interest-bearing liabilities was
3.24% up 5 basis points from 1996. This decrease in the average balance of
interest earning assets of 0.23% to $16,381 thousand in 1997 from $16,419
thousand in 1996 coupled with the decrease of 7 basis points in the yield on
average earnings assets in 1997 versus 1996, together with an increase of
interest bearing liabilities produced an decrease of 6 basis points, or 1.31% in
the net interest margins for 4.58% in 1996 to 4.52% in 1997.
Net interest income was $752 thousand in 1996, 2.46% less than the $771
thousand in 1995. The decline in net interest income was primarily due to volume
decreases in the loan portfolio. The average balance of loans decreased $501
thousand, or 11.40% from $4,393 thousand in 1995 to $3,892 thousand in 1996
while the average balance of securities portfolio increased $188 thousand, or
2.20%, for $8,536 thousand in 1995 to $8,724 thousand in 1996.
Average earning assets increased $814 thousand or 5.22% in 1996 to
$16,419 thousand from $15,605 thousand in 1995. Interest rates were slightly
lower in 1996 than 1995. Therefore, the yield on average earning assets declined
33 basis points in 1996, to 6.53%, versus for 6.86% in 1995, with the yield on
loans increasing 3 basis points from 9.63% in 1995 to 9.66% in 1996, while the
yield on securities actually decreased 10 basis points from 5.76% in 1995 to
5.66% in 1996. Total interest-bearing liabilities on average increased 5.88%
from $9,486 thousand in 1995 to $10,044 thousand in 1996 and the average rate
paid on interest-bearing liabilities increased 3 basis points to 3.19% in 1996
from 3.16% in 1995. The net interest margin declined 36 basis points, or 7.30%,
in 1996, from 4.94% in 1995 to 4.58% in 1996. The decline in net interest margin
was due primarily to a greater increase in interest-bering liabilities than
interest-earning assets.
Other Income. Other income is comprised of service charges and other
fee related income from services rendered by the Bank. In addition, gains and
losses realized from the sale of fixed assets are included in other income.
RBS's total other income increased from $114 thousand in 1996 to $116
thousand 1997. The increase is attributed to an increase in service charge
income on deposit accounts.
Other income decreased $31 thousand, or 21.51%, from 1995 to 1996.
Service charges on deposit accounts decreased 18.25% or $23 thousand due to one
account volume of business.
Other Expenses. Other expenses represents the overhead of the bank.
RBS's management actively monitors all categories of other expense in an
attempt to improve productivity and earnings performance.
In 1997, total other expenses increased $8 thousand or 1.66%
compared to the same period last year. Salaries and benefits increased $4
thousand.
In 1996, other expense decreased 6.51% to $480 thousand. These
decreases were due to the bank having a significant savings in FDIC insurance of
$10 thousand due to the lowering of insurance premiums.
Income Taxes. Income tax expense was $87 thousand for 1997. The
provision for 1996 was $102 thousand versus $113 thousand in 1995. The
decrease resulted primarily from a decrease in taxable income.
The following table illustrates average balances of total interest
earning assets and total interest bearing liabilities for the period indicated.
It shows the distribution of assets, liabilities and stockholders' equity and
the related income, expense and corresponding weighted average yields and rates.
The average balances used for the purpose of these tables and other statistics
disclosures were calculated by using daily average balances.
<PAGE>
Average Balance, Interest Income and Expenses, and Average Yields and Rates
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------------------------------------------------------
1997 1996
------------------------------------------ ---------------------------------------
<S> <C>
Interest Interest
Average Income/ Yield Average Income/ Yield
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
Assets:
Securities $9,419 $537 5.70% $8,724 $494 5.66%
Federal Funds Sold 3,395 185 5.45% 3,803 202 5.31%
Loans (net) (1) 3,567 337 9.45% 3,892 376 9.66%
----------------- ------------- ------------- --------------
Total earning assets $16,381 $1,059 6.46% $16,419 1,072 6.53%
Non-interest earning assets:
Cash and due from banks 796 664
Premises and equipment 48 57
Other assets 294 287
Less: allowance for loan losses -227 -220
================= ============= ============= ==============
Total Assets $17,292 $1,059 $17,207 $1,072
================= ============= ============= ==============
Liabilities and Stockholders' Equity
Interest-bearing deposits:
Regular savings 6,748 202 2.99% 8,152 245 3.01%
Time deposits 1,138 52 4.57% 1,079 48 4.45%
----------------- -------------
Time deposits>$100,000 1,936 64 3.31% 813 27 3.32%
----------------- ------------- ------------- --------------
Total interest-bearing deposits $9,822 $318 3.24% $10,044 $320 3.19%
Non-interest bearing liabilities:
Demand Deposits 4,466 4,232
Other Liabilities 145 189
----------------- -------------
Total liabilities $14,433 $14,465
Stockholders' equity 2,859 2,742
----------------- -------------
Total liabilities and
stockholders' equity $17,292 $17,207
================= =============
Net interest income $741 $752
============= ==============
Interest rate spread (2) 3.22% 3.34%
Interest expense as a percent of 1.94% 1.95%
average earning assets
Net interest margin (3) 4.52% 4.58%
Years Ended December 31
---------------------------------------------
1995
---------------------------------------------
Interest
Average Income/ Yield
Balance Expense Rate
------- ------- ----
Assets:
Securities $8,536 $492 5.76%
Federal Funds Sold 2,676 156 5.83%
Loans (net) (1) 4,393 423 9.63%
-------------- ------------
Total earning assets $15,605 $1,071 6.86%
Non-interest earning assets:
Cash and due from banks 809
Premises and equipment 74
Other assets 227
Less: allowance for loan losses -208
============== ============
Total Assets $16,507 $1,071
============== ============
Liabilities and Stockholders' Equity
Interest-bearing deposits:
Regular savings 7,919 237 2.99%
Time deposits 1,110 45 4.05%
-------------- ------------
Time deposits>$100,000 457 18 3.94%
-------------- ------------
Total interest-bearing deposits $9,486 $300 3.16%
Non-interest bearing liabilities:
Demand Deposits 4,254
Other Liabilities 168
--------------
Total liabilities $13,908
Stockholders' equity 2,599
--------------
Total liabilities and
stockholders' equity $16,507
==============
Net interest income $771
============
Interest rate spread (2) 3.70%
Interest expense as a percent of 1.92%
average earning assets
Net interest margin (3) 4.94%
</TABLE>
(1) Nonaccruing loans are included in average loans outstanding.
(2) Interest spread is the average yield earned on earning assets less the
average rate incurred on interest bearing liabilities.
(3) Net interest margin is the net interest income expressed as a percentage of
average earning assets.
<PAGE>
The following table describes the impact on interest income of the
Bank resulting from changes in average balances and average rates for the
periods shown. The change in interest due to both volume and rate has been
allocated to changes in rate.
Volume and Rate Analysis
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 vs 1996 1996 vs 1995 1995 vs 1994
------------ ------------ ------------
Increase (decrease) Increase (decrease) Increase (decrease)
Due to change in: Due to change in: Due to change in:
Volume Rate Total Volume Rate Total Volume Rate Total
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C>
Interest Income on:
Securities 39 4 43 11 (9) 2 (86) 105 19
Federal funds sold (22) 5 (17) 66 (20) 46 47 38 85
Loans (31) (8) (39) (48) 1 (47) 20 (28) (8)
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------- ----------
Interest Income (14) (1) (13) 29 (28) 1 (19) 115 96
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------- ----------
Interest expense:
Deposits:
Savings (42) (1) (43) 7 1 8 (37) 0 (37)
Time deposits 94 (53) 41 49 (37) 12 16 (6) 10
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------- ----------
Total Interest Bearing 52 (54) (2) 56 (36) 20 (22) (5) (27)
Deposits
Net interest earnings (11) (19) 123
========== ========== =========== ========== ========== ========== ========== =========== ==========
</TABLE>
<PAGE>
Interest Sensitivity
Measuring the sensitivity to changes in interest rates is an important
tool the Bank utilizes to minimize effects of significant changes, up or down,
in market interest rates. The table below shows the interest sensitivity gap
position of the Bank as of December 31, 1997.
Interest Sensitivity Analysis
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Within 3-12 1 to 5 Over Total
3 Months Months Years 5 Years
<S> <C>
Interest-Earning Assets:
Federal funds sold $6,320 $0 $0 $0 $6,320
Investment securities 570 1,130 7,223 0 8,923
Loans (2) 1,222 245 2,546 0 4,013
-------------- ------------- ------------- -------------- -------------
Total earning assets $8,112 $1,375 $9,769 $0 $19,256
-------------- ------------- ------------- -------------- -------------
Interest Bearing Liabilities:
Deposits:
Demand $4,744 $0 $0 $0 $4,744
Savings 0 8,320 0 0 8,346
Time deposits, $100,000 and over 2,400 100 250 0 2,750
Other time deposits 386 370 542 0 1,298
-------------- ------------- ------------- -------------- -------------
Total interest-bearing liabilities $7,530 $8,790 $792 $0 $17,112
-------------- ------------- ------------- -------------- -------------
Period Gap $582 ($7,415) $8,977 $0 $2,144
Cumulative Gap $582 ($6,833) $2,144 $2,144
Ratio of cumulative gap to total earnings 3.02% -35.49% 11.13% 11.13%
assets
</TABLE>
(1) The repricing dates may differ from maturity dates for certain assets
due to prepayment assumptions.
(2) Excludes nonaccrual loans.
As a real estate secured lender and with shorter term liabilities, the
bank has made its' loans with a maturity to generally not be longer than three
years. To counter this, the Bank attempts to keep a sizable portion of its
certificate of deposits maturing within a one-to-three year period.
The table shows the Bank to be liability sensitive in the first 12
months and asset sensitive in the 1 to 3 month period. The Bank is overall
liability sensitive in the one year and under time frame and the potential
impact on the earnings of the Bank is within parameters established to control
interest rate risk.
Securities
Securities Held-to-Maturity. The carrying value of investment
securities amounted to $7,328 thousand as of December 31, 1997 as compared to
$5,020 thousand a year earlier and $5,552 thousand as of December 31, 1995. The
comparison of amortized cost (carrying value) to fair value is shown in the
following table and note 2 of the financial statements contains more information
on securities held-to-maturity.
Securities Available-for-Sale. Securities available-for-sale are used
by the Bank as part of the management of the interest rate risk management
process and for liquidity purposes. These securities are marked to market on a
quarterly basis and may be sold at any time. The fair market value of these
securities was $1,603 thousand as of December 31, 1997, $3,555 thousand as of
December 31, 1996 and $3,817 thousand on December 31, 1995. Note 2 of the
financial statements contains more information on securities available-for-sale.
Securities Portfolio
(DOLLARS IN THOUSAND)
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------------
Held to Maturity Available for Sale
---------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------------- --------------- ---------------- ----------------
<S> <C>
Book Value
U.S. Treasury and agency securities $5,328 $5,356 $1,600 $1,594
Securities issued by
states and political subdivisions 2,000 2,021 0 0
Other securities 0 0 9 9
---------------- --------------- ---------------- ----------------
Total $7,328 $7,377 $1,609 $1,603
================ =============== ================ ================
December 31, 1996
------------------------------------------------------------------
Held to Maturity Available for Sale
---------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------------- --------------- ---------------- ----------------
Book Value
U.S. Treasury and agency securities $3,090 $3,099 $3,565 $3,546
Securities issued by
states and political subdivisions 1,930 1,938 0 0
Other securities 0 0 9 9
---------------- --------------- ---------------- ----------------
Total $5,020 $5,037 $3,574 $3,555
================ =============== ================ ================
December 31, 1995
------------------------------------------------------------------
Held to Maturity Available for Sale
---------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------------- --------------- ---------------- ----------------
Book Value
U.S. Treasury and agency securities $4,128 $4,144 $3,801 $3,808
Securities issued by
states and political subdivisions 1,424 1,434 0 0
Other securities 0 0 9 9
---------------- --------------- ---------------- ----------------
Total $5,552 $5,578 $3,810 $3,817
================ =============== ================ ================
</TABLE>
RBS does not hold any derivative instruments.
The following table sets forth the maturity distribution and weighted
average yields of the investment portfolio at December 31, 1997. The weighted
average yields are calculated on the basis of book value of the investment
portfolio and on the interest income of investments adjusted for amortization of
premium and accretion of discount.
Maturities of Investments
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Weighted Weighted
Amortized Fair Average Amortized Fair Average
Cost Value Yield Cost Value Yield
------------ ------------ ------------ ------------- ----------- -----------
<S> <C>
U.S. Treasury and agency securities
Within 12 months $800 $803 6.26% $300 $301 6.14%
Over 1 year through 5 years 4,529 4,553 6.18% 1,300 1,293 6.23%
Over 5 years through 10 years 0 0 0.00% 0 0 0.00%
Over 10 years 0 0 0.00% 0 0 0.00%
Securities issues by
states and political subdivisions
Within 12 months 505 505 3.59% 0 0 0.00%
Over 1 year through 5 years 1,384 1,403 4.01% 0 0 0.00%
Over 5 years through 10 years 0 0 0.00% 0 0 0.00%
Over 10 years 111 112 4.70% 0 0 0.00%
------------- ----------- -----------
Total $7,329 $7,376 5.59% $1,600 $1,594 6.22%
============ ============ ============ ============= =========== ===========
</TABLE>
Loan Portfolio
RBS's loan portfolio is comprised of commercial loans, commercial and
residential real estate loans, construction loans and consumer loans. The
primary market for these loan is the Town of Washington and Rappahannock County.
Net loans on December 31, 1997, equaled $4,013 thousand as compared
to $3,761 thousand at year end 1996. Net loans grew 6.70% during 1997. From
year end 1995 to year end 1996, net loans decreased $559 thousand or 12.94%. RBS
does not have any foreign loans or highly leveraged transactions.
Real estate loans comprise the majority of RBS's loan portfolio.
Commercial loans consist of lines of credit to finance seasonal inventory,
accounts receivable or for other cash flow purposes such as agriculture,
equipment loans and for other business purposes. These loans are made on both a
variable rate basis as well as fixed rate with terms up to 1 year. Real estate
loans consist of commercial and residential mortgages with mostly fixed rates
and terms up to 30 years. Real estate loans with terms greater than 5 years are
made on a balloon note basis with maturities ranging up to 5 years to allow the
Bank to reevaluate both the credit worthiness and interest rate. Installment
loans are primarily loans to individuals for the purchase of motor vehicles,
household goods or other personal goods. Although RBS makes unsecured commercial
loans to higher net worth borrowers, the majority of loans are secured.
In the normal course of business, RBS makes various commitments to lend
money and incurs certain contingent liabilities which are disclosed but not
reflected in its financial statements. On December 31, 1997, 1996, and 1995,
respectively, the Bank had no letters of credit outstanding.
Interest income on all loans is computed on a simple interest basis
based on the principal balance outstanding. Variable rate loans carry an
interest rate tied to the prime lending rate as published in the Wall Street
Journal.
The following table summarizes the composition of the loan portfolio,
together with percentages, at December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Loan Portfolio
(DOLLARS IN THOUSANDS)
December 31
---------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
% to % to % to
Total Total Total
Gross Gross Gross
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
<S> <C>
Commercial $63 1.57% $182 4.84% $137 3.17%
Real Estate 3,569 88.94% 3,229 85.85% 3,537 81.88%
Installment 381 9.49% 350 9.31% 646 14.95%
-------------- ------------- -------------- -------------- ------------- --------------
Total loans 4,013 100.00% 3,761 100.00% 4,320 100.00%
Less unearned interest 0 0 0
-------------- -------------- -------------
Net Loans $4,013 $3,761 $4,320
============== ============== =============
Loan Maturity Schedule
December 31,
-----------------------------------------------------------------------------
Maturing
---------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
(DOLLARS IN THOUSANDS)
Fixed Rate $635 $2,529 $0 $3,164
Variable Rate 849 0 0 $849
================== =================== ================== ===================
Total $1,484 $2,529 $0 $4,013
================== =================== ================== ===================
</TABLE>
Asset Quality
RBS maintains and follows written policies and procedures to assure
that the quality of its assets remains high. The policy includes underwriting
guidelines, collateral valuation standards, loan approval authorities and
procedures for loan review identifying, monitoring and reporting on problem or
potential problem loans. A committee of the Board of Directors is involved in
reviewing RBS's potential problem loans as well as reports showing all loans
made in the previous six months. All new loans are reported to the Board
monthly.
An analysis of the allowance for loan losses, including charge-off
activity, is presented below for the periods indicated:
Allowance for Loan Losses
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C>
Balance, beginning of period $224 $214 $210
Loans charged off:
Real Estate 0 0 0
Commercial 0 0 0
Installment 1 0 7
----------------------- ---------------------- -----------------------
Total $1 $0 $7
----------------------- ---------------------- -----------------------
Recoveries of loans previously charged off:
Real Estate 0 0 0
Commercial 0 0 0
Installment 10 10 11
----------------------- ---------------------- -----------------------
Total recoveries $10 $10 $11
----------------------- ---------------------- -----------------------
Net loans recovered (charged off) $9 $10 $4
Provision for loan losses 0 0 0
----------------------- ---------------------- -----------------------
Balance, end of period $233 $224 $214
======================= ====================== =======================
Allowance for loan losses to
period end total loans 5.81% 5.96% 4.95%
Allowance for loan losses
to nonaccrual loans 221.90% 217.48% 201.89%
</TABLE>
RBS attempts to maintain the allowance for loan losses at a sufficient
level to provide for potential losses in the loan portfolio. Loan losses are
charged directly to the allowance when they occur and similarly, recoveries are
credited to the allowance. The level of the allowance is determined by a loan
review officer, independent of the loan officer, upon consideration of a number
of factors such as actual loss experience, assessments of problem and potential
problem loans, changes in the size and or characteristics of the loan portfolio
or in lending practices and changes in the local economy. Additionally, RBS is
examined by one or more banking regulatory agencies on an annual basis. Much of
the examination process involves a review of RBS's loan portfolio. The
regulatory agency develops its own independent assessment of the loan quality
and the adequacy of the allowance as well as identifying problem or potential
problem loans. RBS utilizes these independent reviews as part of its
consideration in judging the quality of the portfolio and adequacy of the
allowance for loan losses.
Based on the above, management believes that the December 31, 1997
allowance for loan losses was adequate at 5.81% of total loans to absorb credit
losses inherent in the loan portfolio, although no assurance can be given in
this regard due to competitive and economic uncertainties.
Nonperforming Assets
(DOLLARS IN THOUSANDS)
December 31
--------------------------------------------
1997 1996 1995
--------------------------------------------
Nonaccrual loans $105 $103 $106
Loans past due 90 days or more
and still accruing 0 0 0
Allowance for loan losses to
nonaccrual loans 221.90% 217.48% 201.89%
Nonperforming assets to period
end loans and OREO 2.62% 2.74% 2.45%
..... Loans are generally placed on nonaccrual when a loan is specifically
determined to be impaired or when the principal or interest is delinquent 90
days or more.
Deposits
RBS uses deposits to fund its loans and investments portfolio. For
1997, total average deposits were $14,288 thousand compared to $14,276 thousand
for 1996, a 0.08% increase. For the year 1995, total average deposits were
$13,740 thousand for a 3.90% gain from 1995 to 1996.
For 1997, the average noninterest-bearing deposits were $4,466 thousand
and made up 31.25% of total average deposits. For 1996, the average
noninterst-bearing deposits were $4,232 thousand or 29.64% of total deposits.
For the year 1995, total average noninterst-bearing deposits were $4,254
thousand or 30.94%. The largest category of interest-bearing deposits is
certificates of deposit. For 1997, certificates of deposit averaged $3,074
thousand or 21.11% of total average deposits compared to $1,892 thousand or
13.01% for 1996, and $1,567 thousand or 11.40% for 1995.
RBS offers a variety of checking, and savings accounts to businesses,
nonprofit, local government and individuals. The customers availing themselves
of these services live and or work primarily in the local area which assures RBS
of a stable deposit base.
The following table details the average amount of, and the average rate
paid on, the following deposit categories for the period indicated:
<PAGE>
<TABLE>
<CAPTION>
Average Deposits and Average Rates Paid
(DOLLARS IN THOUSANDS)
December 31,
1997 1996 1995
---- ---- ----
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
------- --------- ------- --------- ------- ---------
<S> <C>
Deposits
Savings deposits $6,748 2.99% $8,152 3.01% $7,919 2.99%
Time Deposits 1,138 4.57% 1,079 4.45% 1,110 4.05%
Large Denomination deposits 1,936 3.31% 813 3.32% 457 3.94%
-----------------------------------------------------------------------------
Total interest-bearing accounts $9,822 3.24% $10,044 3.19% $9,486 3.16%
Noninterest-bearing deposits 4,466 4,232 4,254
Total Deposits $14,288 $14,276 $13,740
============ ============ ============
</TABLE>
The following table is a summary of the maturity distribution of
certificates of deposits with balance of $100,000 or more at December 31, 1997:
Maturity of CDs of $100,000 or More
(DOLLARS IN THOUSANDS)
Three months or less $2,400 87.27%
Over three months to one year 100 3.64%
Over one year to five years 250 9.09%
---------- -----------
Total $2,750 100.00%
=========== ===========
As of December 31, 1997, large certificates of deposit totaled $2,750
thousand and comprised 67.95% of the total certificates of deposit. At year
end 1996 and 1995, large certificates registered $2,101 thousand, and $1,902
thousand, respectively. As shown in the table, 90.90% of the large
certificates mature in one year or less and the remainder mature over a one to
five year period. The Bank does not solicit large certificates of deposit
from outside its local market and generally does not offer premium rates for
larger certificates accounts.
<PAGE>
Analysis of Capital
The following table sets forth the various capital amounts and ratios
for the dates indicated:
Analysis of Capital
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31
-------------------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C>
Tier 1 Capital
Common stock $100 $100 $100
Surplus 200 200 200
Retained earnings (deficit) $2,619 $2,478 $2,365
--------------------- ---------------------- ----------------------
Total Tier 1 Capital $2,919 $2,778 $2,665
--------------------- ---------------------- ----------------------
Tier 2 Capital
Allowance for loan losses (1) 73 63 57
--------------------- ---------------------- ----------------------
Total Tier 2 Capital $73 $63 $57
--------------------- ---------------------- ----------------------
Total risk-based capital $2,992 $2,841 $2,722
===================== ====================== ======================
Risk-based assets $5,830 $5,028 4,530
Capital Ratios:
Tier 1 risk-based capital 50.07% 55.25% 58.83%
Total risk-based capital 51.32% 56.50% 60.08%
Tier 1 capital to average total assets 15.77% 14.90% 14.44%
</TABLE>
(1) Limited to 1.25% of risk-weighted assets.
Liquidity
Liquidity represents an institution's ability to meet present and
future financial obligations through either the sale or maturity of existing
assets or the acquisition of additional funds. Liquid assets include cash,
federal funds sold investments, and maturing loans. The following table presents
a summary of liquid assets available for use at December 31, 1997, 1996 and
1995.
Summary of Liquid Assets
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1997 1996 1995
------------------ ------------------ -------------------
<S> <C>
Cash and due from banks $ 812 $ 633 $ 1,133
Federal fluids sold 6,320 5,730 3,175
Investments held-to-maturity (1) 2,371 1,850 3,422
Available-for-sale securities (2) 1,594 3,546 3,894
------------------ ------------------ -------------------
Total liquid assets $11,097 $11,779 $11,624
================== ================== ===================
Deposits and other liabilities $17,316 $16,111 $15,575
Ratio of liquid assets to deposits and other liabilities 64.09% 73.11% 74.63%
</TABLE>
(1) Only investments securities with a maturity of one year or less are
considered liquid assets for this table.
(2) Excludes equity/other securities (Federal Reserve stock) not readily
saleable on the market.
The Bank has borrowing arrangements with correspondent banks that
enables it to borrow approximately $3,750 thousand for liquidity or to fund
loans and investments. Although these arrangements have been in place for more
than three years, the Bank has not utilized them. Additionally, RBS has the
ability to sell loans, this is considered another source of liquidity and
considered in management's liquidity plans and assessments. Management monitors
liquidity closely on a regular basis and believes that the levels help plus the
borrowing capability are adequate to meet any requirements.
RBS currently has no long-term debt and no material commitments for
capital expenditure.
Return on Equity and Assets
The following table represents ratios considered to be significant
indicators of RBS's profitability and financial condition as of the dates show:
<TABLE>
<CAPTION>
Return on Equity and Assets
(DOLLARS IN THOUSANDS)
December 31,
---------------------------------------------------------
1997 1996 1995
------------------ ------------------ -------------------
<S> <C>
Return on average assets 1.64% 1.64% 1.75%
Return on average equity 9.90% 10.32% 11.12%
Equity to asset ratio 14.43% 14.71% 14.61%
</TABLE>
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs begin written
using two digits rather than four to define the applicable year. Any of RBS's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculation causing disruptions of operations, including, among
other things, a temporary inability to process transaction or engage in normal
business activities.
Based on a recent assessment, RBS determined that significant
modification or replacements of software programs is not required. RBS has
assurances from its software vendors that they will have a Year 2000 compliant
version in time to meet federal guidelines. RBS has determined that should a
vendor not meet expectations, the cost to change vendors to one who is year 2000
compliant would not materially affect RBS.
BUSINESS OF UNION
History and Business
Union is a multi-bank holding company serving the Central and Northern
Neck regions of Virginia through its three banking affiliates, Union Bank,
Northern Neck Bank and King George Bank and its two non-bank subsidiaries,
Union Investment and Union Mortgage (the latter held indirectly through each
Affiliate Bank's direct ownership). Union was formed in connection with the
affiliation of Union Bank and Northern Neck Bank in 1993. King George Bank
became a wholly-owned subsidiary of Union in September, 1996. The Affiliate
Banks are state-chartered, Federal Reserve member banks whose deposits are
insured by the Federal Deposit Insurance Corporation. Each is a full-service
commercial bank offering a wide range of banking and related financial
services, including consumer and commercial demand and time deposit accounts,
consumer and commercial loans, residential and commercial mortgages, credit
card services and safe deposit boxes. Union Investment Services is a
full-service discount brokerage firm providing a wide variety of investment
choices to investors throughout Union's trade area. Union Mortgage Company
provides a diverse offering of mortgage products to consumers.
Through its 14 locations, Union Bank serves customers in a primary
service area which stretches from its headquarters in Bowling Green along the
I-95 corridor from Fredericksburg to central Hanover County and east to King
William County. Northern Neck Bank serves the Northern Neck and Middle Peninsula
regions through eight locations throughout the Northern Neck. The Subsidiary
Banks have a long history of service, with Union Bank, Northern Neck Bank and
King George Bank having been organized in 1902, 1909 and 1973, respectively.
King George Bank enhances the Company's presence in the Fredericksburg and
Northern Neck market through its two locations in King George County and
Colonial Beach.
At December 31, 1997, Union had total consolidated assets of
approximately $595 million, total consolidated deposits through its banking
affiliates of approximately $472 million and consolidated shareholders'
equity of approximately $66 million. Union's total consolidated net
income for the year ended December 31, 1997, was approximately $7.9 million,
or $2.20 per share on a diluted basis.
For additional information concerning Union, see Union's 1997
Annual Report to Shareholders included separately with this Proxy
Statement/Prospectus. See also "Incorporation of Certain Information by
Reference," "Selected Financial Data."
Union's Acquisition Program
Management believes there are additional opportunities to acquire
financial institutions or to acquire assets and deposits that will allow Union
to enter new markets or increase market share in existing markets. Management
intends to pursue acquisition opportunities in strategic markets where its
managerial, operational and capital resources will enhance the performance of
acquired institutions and may, after the date of this Proxy
Statement/Prospectus, enter into agreements to acquire additional financial
institutions. There can be no assurance that Union will be able to successfully
effect any additional acquisition activity, or that any such acquisition
activity will have a positive effect on the value of shares of Union Common
Stock.
COMPARISON OF STOCKHOLDER RIGHTS OF UNION
AND RBS COMMON STOCK
General
Union and RBS are corporations subject to the provisions of the VSCA.
Shareholders of RBS, whose rights are governed by RBS's Articles of
Incorporation and Bylaws and by the VSCA, will become shareholders of Union
upon consummation of the Affiliation. The rights of such shareholders as
shareholders of Union will then be governed by the Articles of Incorporation and
Bylaws of Union and by the VSCA.
The following is a summary of the material differences in the rights
of shareholders of RBS and Union. This summary is qualified in its entirety by
reference to the articles of incorporation and bylaws of each corporation and to
the VSCA.
Authorized Capital
Union. Union is authorized to issue (i) 12,000,000 shares of Common
Stock, par value $4.00 per share, of which 3,575,937 shares were issued and
outstanding as of December 31, 1997, and (ii) 500,000 shares of Preferred
Stock, par value $10.00 per share, of which no shares were issued and
outstanding as of December 31, 1997. Union's Articles of Incorporation
authorize the Union Board, without shareholder approval, to fix the
preferences, limitations and relative rights of the preferred stock and to
establish series of such preferred stock and determine the variations between
each series. If any shares of preferred stock are issued, the rights of
holders of Union Common Stock would be subject to the rights and preferences
conferred to holders of such preferred stock. There are no preemptive rights
to purchase additional shares of capital stock of Union. See "Description of
Union Capital Stock" for additional information.
RBS. RBS is authorized to issue 1,000 shares of RBS Common Stock, par
value $100.00 per share, of which 1,000 shares were issued and outstanding as
of December 31, 1997. Similar to the shareholders of Union, the shareholders
of RBS do not have preemptive rights to subscribe for and purchase any shares
of RBS Common Stock issued for cash in order to retain their proportionate
ownership in RBS.
Dividend Rights
Union. The holders of Union Common Stock are entitled to share
ratably in dividends when and as declared by the Union Board of Directors
out of funds legally available therefor. One of the principal sources of
income to Union is dividends from its Affiliate Banks. For a description of
certain restrictions on the payment of dividends by banks, see "Market Prices
and Dividends." Union's Articles of Incorporation permit the Union Board to
issue preferred stock with terms set by the Union Board, which terms may include
the right to receive dividends ahead of the holders of Union Common Stock. No
shares of preferred stock are presently outstanding.
RBS. The holders of RBS Common Stock also are entitled to share
ratably in dividends when and as declared by the RBS Board of Directors out
of funds legally available therefor. "Market Prices and Dividends" for a
description of certain restrictions on the payment of dividends by banks.
Voting Rights
The holders of both Union and RBS Common Stock have one vote for each
share held on any matter presented for consideration by the shareholders.
Neither the holders of Union nor RBS Common Stock are entitled to cumulative
voting in the election of directors.
<PAGE>
Directors and Classes of Directors
Union. The Union Board is divided into three classes so that each
director serves for a term ending on the date of the third annual meeting
following the annual meeting at which such director was elected. In the event
of any increase in the authorized number of directors, the newly created
directorships resulting from such increase would be apportioned among the three
classes of directors so as to maintain such classes as nearly equal as possible.
Because of the classification of directors, unless the shareholders act to
remove directors from office, two annual meetings generally would be
required to elect a majority of the Union Board. Under Union's Articles of
Incorporation, directors may only be removed for cause and with the affirmative
vote of at least two-thirds of the outstanding shares entitled to vote.
RBS. The RBS Board is divided into three classes so that each director
serves for a term ending on the date of the third annual meeting following the
annual meeting at which such director was elected. In the event of any increase
in the authorized number of directors, the newly created directorships
resulting from such increase would be apportioned among the three classes of
directors so as to maintain such classes as nearly equal as possible.
Because of the classification of directors, unless the shareholders act to
remove directors from office, two annual meetings generally would be
required to elect a majority of the RBS Board. Under RBS's Articles of
Incorporation, directors may only be removed for cause and with the affirmative
vote of at least 80% of the outstanding shares entitled to vote.
Anti-Takeover Provisions
Certain provisions of the VSCA and the Articles of Incorporation and
Bylaws of Union and RBS may discourage an attempt to acquire control of Union or
RBS, respectively, that a majority of either corporation's shareholders
determined was in their best interests. These provisions also may render the
removal of one or all directors more difficult or deter or delay corporate
changes of control that the Union Board or RBS Board, respectively, did not
approve.
Classified Board of Directors; Removal of Directors. The provisions
of Union's Articles and RBS's Bylaws providing for classification of the Board
of Directors into three separate classes and removal of directors only for
cause and with the affirmative vote of the holders of at least two-thirds in
the case of Union and 80% in case of RBS of the outstanding shares may have
certain anti-takeover effects.
Authorized Preferred Stock. The Articles of Incorporation of Union
authorize the issuance of preferred stock. The Union Board may, subject to
applicable law and the rules of the Nasdaq National Market, authorize the
issuance of preferred stock at such times, for such purposes and for such
consideration as they may deem advisable without further shareholder approval.
The issuance of preferred stock under certain circumstances may have the effect
of discouraging an attempt by a third party to acquire control of Union by, for
example, authorizing the issuance of a series of preferred stock with rights and
preferences designed to impede the proposed transaction.
Supermajority Voting Provisions. The VSCA provides that, unless a
corporation's articles of incorporation provide for a higher or lower vote,
certain significant corporate actions must be approved by the affirmative vote
of the holders of more than two-thirds of the votes entitled to be cast on the
matter. Corporate actions requiring a two-thirds vote include amendments to a
corporation's articles of incorporation, adoption of plans of merger or share
exchange, sales of all or substantially all of a corporation's assets other
than in the ordinary course of business and adoption of plans of dissolution
("Fundamental Actions"). The VSCA provides that a corporation's articles
may either increase the vote required to approve Fundamental Actions or may
decrease the required vote to not less than a majority of the votes entitled to
be cast.
The Articles of Incorporation of Union provide that a Fundamental
Action shall be approved by a vote of a majority of all votes entitled to be
cast on such transactions by each voting group entitled to vote on the
transaction, provided that the transaction has been approved and recommended by
at least two-thirds of the directors in office at the time of such approval and
recommendation. If the transaction is not so approved and recommended, then the
transaction shall be approved by the vote of 80% or more of all votes entitled
to be cast on such transactions by each voting group entitled to vote on the
transaction.
The Articles of Incorporation of RBS provide that the affirmative vote
of the holders of at least 80% of the outstanding shares of RBS Common Stock is
required to approve a "Business Combination" (as defined in the Articles of
Incorporation) with any person who owns or controls 5% or more of the total
voting power of all the outstanding voting stock of RBS. A "Business
Combination" is defined in the RBS Articles of Incorporation to include: (i) any
merger or consolidation with or into any other corporation, (ii) any share
exchange in which a corporation, person, or entity acquires the issued or
outstanding shares of capital stock of RBS pursuant to a vote of shareholders,
(iii) any issuance of shares of RBS that result in the acquisition of control of
RBS by any person, firm or corporation or group of one or more thereof that
previously did not control the corporation, (iv) the sale, lease, exchange,
mortgage, pledge or other transfer of all, or substantially all, of the assets
of RBS, (v) the adoption of a plan for the liquidation or dissolution of RBS
proposed by any other corporation or entity or (vi) any transaction similar to,
or having similar effect, as any of the foregoing transactions.
These provisions could tend to make the acquisition of either Union
or RBS more difficult to accomplish without the cooperation or favorable
recommendation of either the Union or RBS Board, as the case may be.
Shareholder Meetings. Shareholders of Union may not request that a
special meeting of shareholders be called. Shareholders of RBS holding at
least 10% of the shares outstanding and entitled to vote may require that a
special meeting of the shareholder be called.
State Anti-Takeover Statutes. Virginia has two anti-takeover statutes
in force, the Affiliated Transactions Statute and the Control Share Acquisitions
Statute.
Affiliated Transactions. The VSCA contains provisions governing
"affiliated transactions" (including, among other various transactions, mergers,
share exchanges, sales, leases, or other dispositions of material assets,
issuances of securities, dissolutions, and similar transactions) with an
"interested shareholder" (generally the beneficial owner of more than 10% of any
class of the corporation's outstanding voting shares). During the three years
following the date a shareholder becomes an interested shareholder, any
affiliated transaction with the interested shareholder must be approved by both
a majority of the "disinterested directors" (those directors who were directors
before the interested shareholder became an interested shareholder or who were
recommended for election by a majority of disinterested directors) and by the
affirmative vote of the holders of two-thirds of the corporation's voting shares
other than shares beneficially owned by the interested shareholder. The
foregoing requirements do not apply to affiliated transactions if, among other
things, a majority of the disinterested directors approve the interested
shareholder's acquisition of voting shares making such a person an interested
shareholder prior to such acquisition. Beginning three years after the
shareholder becomes an interested shareholder, the corporation may engage in an
affiliated transaction with the interested shareholder if (i) the transaction is
approved by the holders of two-thirds of the corporation's voting shares, other
than shares beneficially owned by the interested shareholder, (ii) the
affiliated transaction has been approved by a majority of the disinterested
directors, or (iii) subject to certain additional requirements, in the
affiliated transaction the holders of each class or series of voting shares will
receive consideration meeting specified fair price and other requirements
designed to ensure that all shareholders receive fair and equivalent
consideration, regardless of when they tendered their shares.
Control Share Acquisitions. Under the VSCA's control share
acquisitions law, voting rights of shares of stock of a Virginia corporation
acquired by an acquiring person at ownership levels of 20%, 33 1/3%, and 50% of
the outstanding shares may, under certain circumstances, be denied unless
conferred by a special shareholder vote of a majority of the outstanding
shares entitled to vote for directors, other than shares held by the acquiring
person and officers and directors of the corporation or, among other
exceptions, such acquisition of shares is made pursuant to a merger agreement
with the corporation or the corporation's articles of incorporation or by-laws
permit the acquisition of such shares prior to the acquiring person's
acquisition thereof. If authorized in the corporation's articles of
incorporation or by-laws, the statute also permits the corporation to redeem
the acquired shares at the average per share price paid for them if the voting
rights are not approved or if the acquiring person does not file a "control
share acquisition statement" with the corporation within sixty days of the
last acquisition of such shares. If voting rights are approved for control
shares comprising more than fifty percent of the corporation's outstanding
stock, objecting shareholders may have the right to have their shares
repurchased by the corporation for "fair value".
The provisions of the Affiliated Transactions Statute and the Control
Share Acquisition Statute are only applicable to public corporations that
have more than 300 shareholders. Corporations may provide in their articles
of incorporation or bylaws to opt-out of the Control Share Acquisitions
Statute. Union has not opted-out of the statute. The statutes do not apply to
RBS because it has fewer than 300 shareholders.
Director and Officer Exculpation
The VSCA provides that in any proceeding brought by or in the right of
a corporation or brought by or on behalf of shareholders of the corporation, the
damages assessed against an officer or director arising out of a single
transaction, occurrence or course of conduct may not exceed the lesser of (i)
the monetary amount, including the elimination of liability, specified in the
articles of incorporation or, if approved by the shareholders, in the bylaws as
a limitation on or elimination of the liability of the officer or director, or
(ii) the greater of (a) $100,000 or (b) the amount of cash compensation received
by the officer or director from the corporation during the twelve months
immediately preceding the act or omission for which liability was imposed. The
liability of an officer or director is not limited under the VSCA 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.
Union. The Articles of Incorporation of Union provide that to the
full extent that the VSCA permits the limitation or elimination of the
liability of directors or officers, a director or officer of Union shall not be
liable to Union or its shareholders for monetary damages.
RBS. The Articles of Incorporation of RBS provide directors or
officers of RBS shall be indemnified for monetary damages and expenses
reasonably incurred by reason of having been a director or officer, except for
willful or gross negligence in the performance of their duties.
<PAGE>
Indemnification
Union. The Articles of Incorporation of Union provide that, to the
full extent permitted by the VSCA and any other applicable law, Union is
required to indemnify a director or officer of Union who is or was a party to
any proceeding by reason of the fact that he is or was such a director or
officer or is or was serving at the request of the corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The
board of directors is empowered, by majority vote of a quorum of
disinterested directors, to contract in advance to indemnify any director or
officer.
RBS. Similar to Union, the Articles of Incorporation of RBS provide
that, to the full extent permitted by the VSCA and any other applicable law, RBS
is required to indemnify a director or officer of RBS who is or was a party to
any proceeding by reason of the fact that he is or was such a director or
officer or is or was serving at the request of the corporation, or another
corporation in which RBS owns shares or of which it is a creditor, except in
relation to matters in which the director or officer has adjudged liable by
reason of having been guilty of gross negligence of willful misconduct.
Dissenter's Rights
The provisions of Article 15 of the VSCA provide shareholders of a
Virginia corporation the right to dissent from, and obtain payment of the
fair value of their shares in the event of mergers, share exchanges,
consolidations and certain other corporate transactions. However, Article 15
of the VSCA provides that holders of shares of a Virginia corporation which has
shares listed on a national securities exchange or on the National
Association of Securities Dealers Automated Quotation System (NASDAQ) or which
has at least 2,000 record shareholders are not entitled to dissenters' rights
unless certain requirements are met. It is expected that following
consummation of the Affiliation, Union will have approximately _______
shareholders of record. For additional information in this regard, see
"Affiliation - Rights of Dissent and Appraisal."
DESCRIPTION OF UNION CAPITAL STOCK
Union is authorized to issue (i) 12,000,000 shares of Common Stock,
par value $4.00 per share, and (ii) 500,000 shares of Preferred Stock, par
value $10.00 per share, which may be issued in series with such powers,
designations, and rights as may be established from time to time by the Board
of Directors. On April ___, 1998, Union had issued and outstanding __________
shares of Union Common Stock held by ______ shareholders of record. All
outstanding shares of Union Common Stock are fully paid and nonassessable. No
shares of Preferred Stock have been issued.
Common Stock
Holders of shares of Union Common Stock are entitled to receive
dividends when and as declared by the Board of Directors out of funds legally
available therefor. Union's ability to pay dividends is dependent upon its
earnings and financial condition of Union and certain legal requirements.
Specifically, the Federal Reserve has stated that bank holding companies should
not pay dividends except out of current earnings and unless the prospective rate
of earnings retention by the company appears consistent with its capital needs,
asset quality and overall financial condition. In addition, Virginia law
precludes any distribution to shareholders if, after giving it effect, (a) Union
would not be able to pay its debts as they become due in the usual course of
business; or (b) Union's total assets would be less than the sum of its total
liabilities plus the amount that would be needed, if Union were to be dissolved
at the time of the distribution to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to those
receiving the distribution. Upon the liquidation, dissolution or winding up of
Union, whether voluntary or involuntary, holders of Union Common Stock are
entitled to share ratably, after satisfaction in full of all liabilities, in all
remaining assets of Union available for distribution. The dividend and
liquidation rights of Union Common Stock are subject to the rights of any
Preferred Stock that may be issued and outstanding.
Holders of Union Common Stock are entitled to one vote per share on all
matters submitted to shareholders. There are no cumulative voting rights in
the election of directors or preemptive rights to purchase additional shares
of any class of Union's capital stock. Holders of Union Common Stock have no
conversion or redemption rights. The shares of Union Common Stock presently
outstanding are, and those shares of Union Common Stock to be issued in
connection with the Affiliation will be when issued, fully paid and
nonassessable. Union Common Stock is approved for trading on the Nasdaq
National Market.
Union maintains a Dividend Reinvestment Plan providing for the
purchase of additional shares of Union Common Stock by reinvestment of cash
dividends paid on the outstanding shares of Union Common Stock. Dividends
reinvested are applied to the purchase of shares of Union Common Stock at
95% of the market value at the time of purchase. The plan permits Union, at
its discretion, to use shares purchased in the over-the-counter market or
to use Union's authorized and unissued shares in order to satisfy the plan's
requirements.
Preferred Stock
The Board of Directors, without shareholder approval, is empowered
to authorize the issuance, in one or more series, of shares of Preferred Stock
at such times, for such purposes and for such consideration as it may deem
advisable. The Board of Directors is also authorized to fix before the
issuance thereof the designations, voting, conversion, preference and other
relative rights, qualifications and limitations of any such series of Preferred
Stock.
The Board of Directors, without shareholder approval, may authorize the
issuance of one or more series of Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of Union
Common Stock and, under certain circumstances, discourage an attempt by others
to gain control of Union.
The creation and issuance of any additional series of Preferred Stock,
and the relative rights, designations and preferences of such series, if and
when established, will depend upon, among other things, the future capital needs
of Union, then existing market conditions and other factors that, in the
judgment of the Board of Directors, might warrant the issuance of Preferred
Stock.
LEGAL MATTERS
Certain legal matters in connection with the validity of the securities
offered hereby and the Affiliation will be passed upon for Union by Mays &
Valentine, L.L.P., Richmond, Virginia. Certain legal matters in connection
with the Affiliation will be passed upon for RBS by Williams Mullen Christian &
Dobbins, Richmond, Virginia.
EXPERTS
The consolidated balance sheets of Union Bankshares Corporation and
subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1997, have been
incorporated by reference herein in reliance upon the reports of KPMG Peat
Marwick LLP and Smith & Eggleston, P.C., independent auditors, incorporated by
reference herein, and upon the authority of said firms as experts in accounting
and auditing.
The financial statements included in and incorporated in this
Prospectus and Proxy Statement by reference to the Annual Report of RBS for the
year ended December 31, 1997 has been audited by S. B. Hoover & Company, L.L.P.,
independent certified public accountants, whose report thereon is incorporated
herein by reference in reliance upon the report of said firm and upon the
authority of said firm as experts in auditing and accounting. The
financial statements of RBS included in this Proxy Statement/Prospectus for
the year ended December 31, 1996 are unaudited. The 1996 financial
statements were reviewed by S. B. Hoover & Company, L.L.P. A review is
substantially less in scope than an audit and does not provide a basis for the
expression of an opinion on the financial statements taken as a whole.
<PAGE>
ANNEX A
AGREEMENT AND PLAN
OF AFFILIATION AND MERGER
DATED FEBRUARY 25, 1998
BY AND BETWEEN
UNION BANKSHARES CORPORATION
AND
RAPPAHANNOCK BANKSHARES, INC.
AND
PLAN OF MERGER
A-1
<PAGE>
AGREEMENT AND PLAN OF AFFILIATION AND MERGER
BETWEEN UNION BANKSHARES CORPORATION
AND RAPPAHANNOCK BANKSHARES, INC.
(SOLE SHAREHOLDER OF
THE RAPPAHANNOCK NATIONAL BANK OF WASHINGTON)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph Subject Page
- --------- ------- ----
<S> <C>
A-
1.1 The Affiliation........................................................................ 5
1.2 Conversion of Rappahannock Stock....................................................... 5
1.3 Certain Employment Contracts........................................................... 6
1.4 "Best Efforts" Requirement............................................................. 6
1.5 Definitions............................................................................ 6
1.6 Representations and Warranties of Union................................................ 6
(a) Bank Holding Company Status...................................................... 6
(b) Federal Reserve Application...................................................... 6
(c) Good Standing.................................................................... 6
(d) Capitalization................................................................... 6
(e) SEC Registration of Common Stock................................................. 6
(f) Financial Statements............................................................. 7
(g) Material Changes................................................................. 7
(h) Conflicting Agreements........................................................... 7
(i) Validly Issued Stock............................................................. 7
(j) Due Authorization............................................................... 7
(k) Anti-dilution Clause............................................................. 7
1.7 Representations and Warranties of Rappahannock......................................... 8
(a) Corporate Status................................................................. 8
(b) Capitalization................................................................... 8
(c) Shareholder List Accuracy........................................................ 8
(d) Number of Shareholders........................................................... 8
(e) Director's Shares--Title......................................................... 8
(f) Unpaid Dividends................................................................. 8
(g) Compliance with Laws and Regulatory Orders....................................... 8
(h) Employment Agreements, Leases, Material
Contracts, List of Securities, Community
Reinvestment Act Statement, Financial Reports,
Material Changes, Losses and Liabilities......................................... 9
(i) Accuracy of Financial Statements................................................. 9
(j) Stock Issuance, Distributions.................................................... 9
(k) Litigation....................................................................... 10
(l) Tax Returns and Liability........................................................ 10
(m) Brokers.......................................................................... 10
(n) Employee Plans................................................................... 10
(o) Title to Personalty.............................................................. 11
(p) No Conflicting Agreements........................................................ 11
(q) Condition of Personal Property................................................... 12
</TABLE>
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(r) Laws Relating to Real Estate..................................................... 12
(s) Title to Real Estate............................................................. 12
(t) Condition of Real Estate......................................................... 12
(u) Environmental Matters............................................................ 12
(v) Insurance Matters................................................................ 12
1.8 Access to Records and Information; Operation of Business............................... 12
1.9 Audits, Income and Capital Account Requirements,
Certified Financial Statements, Accuracy of
Representations, Loan Portfolio, Deposit and Other
Liabilities and Expenses, Loan Portfolio, Nature of
Expenses, Securities List Accuracy................................................. 14
1.10 Regulatory Approvals................................................................... 14
1.11 Best Efforts Regarding Tax Free Reorganization......................................... 14
1.12 Exclusive Dealing...................................................................... 15
1.13 Conditions to Union's Obligations...................................................... 15
(a) Federal Reserve Approval......................................................... 15
(b) Other Regulatory Approvals....................................................... 15
(c) SEC Registration................................................................. 16
(d) Shareholders Agreements.......................................................... 16
(e) Other Consents................................................................... 16
(f) Dividends........................................................................ 16
(g) Stock Issuance, Evidences of Indebtedness, Distributions......................... 16
(h) Employment Benefit Plans......................................................... 16
(i) Sale of Securities............................................................... 16
(j) Other Approvals.................................................................. 16
(k) Pooling Letter................................................................... 17
(l) Other Offices.................................................................... 17
(m) Litigation....................................................................... 17
(n) Qualified Plan--Material Adverse Conditions...................................... 17
(o) Representations of Rappahannock.................................................. 17
(p) Tax Opinion...................................................................... 17
(q) Previously Disclosed............................................................. 17
1.14 Conditions to Rappahannock's Obligations............................................... 17
(a) Tax Opinion...................................................................... 17
(b) Material Adverse Conditions...................................................... 18
1.15 Fairness Opinion....................................................................... 18
1.16 Confidentiality........................................................................ 18
1.17 Shareholder Lists...................................................................... 18
1.18 Accounting Treatment................................................................... 18
2.1 Effective Date......................................................................... 19
2.2 Union's Obligations in Accomplishing the Affiliation................................... 19
2.3 Rappahannock's Obligations in Accomplishing the Affiliation............................ 19
2.4 Shareholder Approval................................................................... 19
2.5 Effect of the Affiliation.............................................................. 19
2.6 Confirmatory Deeds..................................................................... 20
2.7 Procedural Matters..................................................................... 20
2.8 Benefit Plans.......................................................................... 20
2.9 Indemnification........................................................................ 20
2.10 Public Announcements................................................................... 21
</TABLE>
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2.11 Non-Survival of Representations, Warranties and Covenants.............................. 21
3.1 Termination for Regulatory Reasons..................................................... 21
3.2 Termination By Consent Or Due To Passage Of Time....................................... 21
3.3 Termination With Respect To Acquisition Proposal....................................... 21
3.4 Amendment.............................................................................. 21
3.5 Expenses; Limited Liability............................................................ 21
3.6 Notices................................................................................ 22
3.7 Counterparts........................................................................... 23
3.8 Binding Effect; No Third-Party Rights.................................................. 23
3.9 Applicable Law......................................................................... 23
EXHIBIT A Plan of Merger......................................................................... 24
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF AFFILIATION AND MERGER
THIS AGREEMENT AND PLAN OF AFFILIATION AND MERGER (the "Agreement"),
made this 25th day of February, 1998, by and between Union Bankshares
Corporation, a Virginia corporation ("Union"), and Rappahannock Bankshares,
Inc., a Virginia corporation, which is the sole shareholder of The Rappahannock
National Bank of Washington, a national banking association (the "Bank")
(hereinafter, "Rappahannock" shall refer to both Rappahannock Bankshares, Inc.
and the Bank, unless the context requires otherwise).
WITNESSETH, that for and in consideration of the mutual promises of the
parties hereto hereinafter contained and other good and valuable consideration,
the parties hereto agree as follows:
RECITALS
A. Union is a business corporation duly organized and existing under
the laws of the State of Virginia with its principal office at 211 North Main
Street, Bowling Green, Virginia. It is registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended.
B. Rappahannock is a business corporation duly organized and existing
under the laws of the State of Virginia with its principal office at 257 Gay
Street, Washington, Virginia. It is registered as a bank holding company under
the Bank Holding Company Act of 1956, as amended.
C. The Bank is a national bank with its office in Washington, Virginia.
The Bank is a wholly-owned subsidiary of Rappahannock.
D. The affiliation provided for herein will be submitted to the Board
of Governors of the Federal Reserve Board (the "Federal Reserve"), the Virginia
State Corporation Commission (the "Commission"), and to other appropriate
regulatory agencies for approval.
E. The Boards of Directors of Union and Rappahannock have respectively
approved this Agreement and authorized its execution on their behalf.
ARTICLE I
General Provisions
1.1 The Affiliation. Subject to the terms, provisions, and conditions
of this Agreement, the Bank shall become affiliated with Union by the merger of
Rappahannock with and into Union pursuant to the procedures described in Article
II of this Agreement (the "Affiliation") and the Plan of Merger attached as
Exhibit A and incorporated herein by this reference (the "Plan of Merger").
1.2 Conversion of Rappahannock Stock. At the Effective Date, by virtue
of the merger pursuant to the Affiliation and without any action on the part of
the holders thereof, each share of common stock, par value $100.00 per share, of
Rappahannock issued and outstanding immediately prior to the Effective Date
(other than shares that dissent, in accordance with Paragraph 3(c) of the Plan
of Merger) shall cease to be outstanding and shall be converted into and
exchanged for 158.209 shares of common stock, par value $4.00 per share, of
Union (the "Common Stock"), all in accordance with Paragraph 3(b) of the Plan of
Merger. Fractional shares shall be treated as provided in Paragraph 3(d) of the
Plan of Merger.
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1.3 Employment Contracts. As a condition to closing, the Bank and John
R. Conry, Jr. shall enter into a new employment agreement (the "New Agreement")
that shall replace and terminate the employment agreement, dated April 21, 1997,
between the Bank and John R. Conry, Jr. and the employment agreement, dated
April 21, 1997, between Rappahannock and John R. Conry, Jr. (the "Current
Agreements"). The parties agree that the New Agreement shall be executed on or
prior to March 4, 1998, held in escrow by the parties until the Effective Date
and shall not be effective until the Effective Date of the Affiliation. The
parties intend that the effectiveness of the New Agreement as a replacement for
the Current Agreements shall have the effect that the Affiliation shall not
constitute a "change of control" as defined in the Current Agreements.
1.4 "Best Efforts" Requirement. Union and Rappahannock shall each use
its best efforts, and Rappahannock shall cause the Bank to use its best efforts,
to consummate the transactions contemplated in this Agreement.
1.5 Definitions. Any term defined anywhere in this Agreement shall have
the meaning ascribed to it for all purposes of this Agreement (unless expressly
noted to the contrary). In addition:
(a) the term "best knowledge" when used with respect to a
party shall mean the knowledge, after due and diligent inquiry, of any
"Executive Officer" of such party, as such term is defined in
Regulation 0 of the Federal Reserve Board;
(b) the term "Previously Disclosed" by a party shall mean
information set forth in a written disclosure letter that is delivered
by that party to the other party delivered and dated not later than
5:00 p.m. on March 6, 1998 and specifically designated as information
"Previously Disclosed" pursuant to this Agreement.
1.6 Representations and Warranties of Union. Union represents and
warrants to, and agrees with, Rappahannock as follows:
(a) Union is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended.
(b) Union will, as promptly as practicable, cause the filing
of an application with the Federal Reserve, and with any state
regulatory agencies as may be required, for approval of the
Affiliation, and prosecute such applications in good faith and with
diligence.
(c) Union is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Virginia and has
the corporate power and authority to carry on its business as it is now
conducted.
(d) As of February 25, 1998, the authorized capital stock of
Union consists of 500,000 shares of Preferred Stock, par value $10.00
per share ("Union Preferred"), and 12,000,000 shares of Common Stock,
$4.00 par value, (being the "Common Stock" identified above as the
Common Stock into which shares of common stock of Rappahannock will be
converted pursuant to the provisions of this Agreement). As of February
25, 1998, no shares of Union Preferred were outstanding and 3,571,308
shares of Common Stock were outstanding; all of the aforesaid
outstanding shares of Common Stock were validly issued, and are fully
paid and nonassessable.
(e) Union will, with the cooperation of Rappahannock, prepare
and file with the Securities and Exchange Commission ("SEC") as soon as
practicable a Registration Statement (including both a prospectus and a
Rappahannock proxy statement) (the "Registration Statement") under the
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Securities Act of 1933 (the "Securities Act") with respect to the
shares of Common Stock issuable upon consummation of the Affiliation
and under the Securities Exchange Act of 1934 (the "Exchange Act") with
respect to the Rappahannock proxy statement that will be distributed to
the shareholders of Rappahannock for purposes of their vote on the
Affiliation and shall use reasonable efforts to have the Registration
Statement declared effective by the SEC. Union shall also take
reasonable actions required under state blue sky or securities laws in
connection with the issuance of the shares of Common Stock in the
Affiliation.
(f) Union has delivered to Rappahannock copies of its
consolidated financial statements for the year ended December 31, 1996
containing the following consolidated financial statements of Union
("Union's Financial Statements"): consolidated balance sheets as of
December 31, 1996 and 1995 and statements of consolidated income,
consolidated cash flows, and consolidated changes in shareholders'
equity for each of the three years in the period ended December 31,
1996, together with the notes thereto, certified by KPMG Peat Marwick,
L.L.P., independent public accountants, as well as any interim
statements prepared since such date, all of which are true and complete
in all material respects, have been prepared in accordance with
generally accepted accounting principles consistently followed
throughout the periods covered by such consolidated financial
statements, and present fairly the consolidated financial position,
consolidated cash flows, results of their operations, and changes in
shareholders equity of Union and its subsidiaries at the close of
business at the dates of, and for the periods covered by, Union's
Financial Statements.
(g) Since December 31, 1996, there has not been any material
adverse change in Union's consolidated balance sheet, consolidated
income statement, financial position, results of operations, or
business. No material loss is presently realizable or anticipated with
respect to any asset included in Union's Financial Statements (except
to the extent provided for therein), and there is no material
liability, actual or contingent, known or anticipated, of a character
that should be disclosed in such financial statements and that is not
disclosed therein, other than liabilities arising in the ordinary
course of business since December 31, 1996, which are not materially
adverse.
(h) Neither the execution and delivery of this Agreement nor
the carrying out of the transactions contemplated hereunder will result
in any material violation, termination, modification of, or be in
conflict with, any terms of any material contract or other instrument
to which Union is a party, or of any judgment, decree, or order
applicable to Union, or result in the creation of any material lien,
charge, or encumbrance upon any of the properties or assets of Union.
(i) The Common Stock deliverable pursuant to this Agreement
will be, prior to its issuance, duly authorized for issue and will,
when issued and delivered in accordance with this Agreement, be duly
and validly issued, fully paid and nonassessable.
(j) The execution, delivery, and performance of this Agreement
by Union has been duly and effectively authorized by its Board of
Directors and requires no action on the part of the shareholders of
Union.
(k) Nothing in this Agreement shall limit the right of Union
to issue or repurchase any of its stock or other securities in any
manner and for any consideration permitted by law either in connection
with acquisitions of new affiliates or otherwise, prior to or after the
Effective Date, as hereinafter defined; provided, however, that if
Union takes any action which establishes, prior to the Effective Date,
as hereinafter defined, a record date or effective date for a stock
dividend on the Common Stock, a split or reverse split of the Common
Stock or any distribution on all shares of the Common Stock other than
cash dividends, Union will take such action as shall be necessary in
order that each share of common stock of Rappahannock will be converted
in the Affiliation into the same number of shares of Common Stock
(whether such number is greater or lesser than the number otherwise
provided for herein) together with any such other property so
distributed that the owner of such shares would have owned immediately
after the record date or effective date of such event had the Effective
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Date occurred immediately before such record date or effective date and
the conversion ratio set forth in Section 1.2 hereof shall be adjusted
accordingly.
1.7 Representations and Warranties of Rappahannock. Rappahannock
represents and warrants to, and agrees with, Union as follows:
(a)(i) Rappahannock is a Virginia stock corporation, legally
formed, validly existing and in good standing under the laws of
Virginia and has the corporate power and authority to carry on its
business as it is now conducted. It is a registered bank holding
company under the Bank Holding Company Act of 1956, as amended.
Rappahannock has one office, which is located at 257 Gay Street,
Washington, Virginia. Rappahannock has no subsidiaries other than the
Bank.
(ii) The Bank is a national bank legally formed, validly
existing and in good standing under the laws of the United States, is
insured by the Federal Deposit Insurance Corporation (the "FDIC") and
is a member of the Federal Reserve System. The Bank has one banking
office which is located at 257 Gay Street, Washington, Virginia. No
application for any additional banking office is pending. The Bank has
no subsidiaries.
(b) The authorized capital stock of Rappahannock consists of
1,000 shares of common stock, par value $100.00 per share, of which
1,000 shares are issued and outstanding. All of the outstanding shares
of Rappahannock's common stock are in certificate form, were validly
issued and are fully paid and nonassessable. The authorized capital
stock of the Bank consists of 1,000 shares of capital stock, par value
$100.00 per share, of which 1,000 shares are issued and outstanding.
All of such issued and outstanding shares of the Bank's capital stock
are in certificate form, were validly issued, are fully paid and
nonassessable, and are owned beneficially and of record by
Rappahannock. Neither Rappahannock nor the Bank has any options, calls,
warrants, commitments or agreements of any character to which it is a
party or by which it is bound, calling for the issuance, sale or
transfer of shares of Rappahannock's or the Bank's stock of any class
or of any security representing the right to purchase or receive any
such stock. The shareholders of Rappahannock do not have preemptive
rights.
(c) The list of shareholders to be furnished by Rappahannock
pursuant to Section 1.17 shall be true, correct and complete.
(d) Rappahannock has less than 500 shareholders of record and
its common stock is not registered under Section 12 of the Exchange
Act.
(e) At the date of this Agreement, (1) each of the directors
of Rappahannock, respectively, owns with sole or joint power to vote,
or directly or indirectly controls the power to vote, the number of
shares of common stock of Rappahannock set forth beside their
respective name in the list provided pursuant to Section 1.17, (2) such
number of shares constitutes all of the shares of stock of Rappahannock
owned with sole or joint power to vote, or direct or indirect control
of the power to vote, as the case may be, by each director, and (3)
each of the directors, respectively, has good and merchantable title to
all of the shares of stock indicated on said list as being owned by
him, free of all restrictions and encumbrances of every kind and
character, except as indicated on such list.
(f) Except for the dividend declared on December 31, 1997, in
the amount of $75,000, there are no declared and unpaid dividends or
distributions on, or with respect to, the shares of stock of
Rappahannock.
(g) To the best knowledge of Rappahannock, and except as
otherwise previously disclosed to Union, Rappahannock has complied with
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all laws and regulations applicable to it and its respective properties
and operations, including, without limitation, those with respect to
all employee benefit plans maintained by Rappahannock, and all valid
orders of regulatory authorities having jurisdiction over Rappahannock,
and has not received any notice of any asserted violations of the same.
(h) Rappahannock has previously furnished to Union (i) copies
of its and the Bank's charter and bylaws, including all amendments
thereto, (ii) copies of all written agreements or understandings
(except such as may be deemed created or implied as a matter of law)
and written memoranda of all oral agreements or understandings, between
Rappahannock or the Bank and each of their respective directors,
officers and employees relating to his compensation or employment,
(iii) copies of all leases, agreements, options, mortgages, title
reports and title policies with respect to Rappahannock and the Bank's
offices, (iv) copies of all other material contracts and leases (other
than loan documents), (v) a list of all securities held by Rappahannock
and the Bank, respectively, on January 1, 1998, (vi) a copy of the
Bank's Community Reinvestment Act Statement, and (vii) copies of the
Bank's year-end reports of condition and income filed with the
Comptroller of the Currency for all years after 1994, including copies
of the call reports filed by the Bank with the Comptroller of the
Currency during the year ended December 31, 1997, copies of all forms
FRY-9, FRY-6 and FRY-6A and other reports filed with the Federal
Reserve after 1994, copies of all Annual Reports to Shareholders, if
any, after 1994, and a copy of Rappahannock's consolidated financial
statements for the year ended December 31, 1996, containing the
following consolidated financial statements of Rappahannock:
consolidated balance sheets as of December 31, 1995 and 1996, and
statements of consolidated income, consolidated cash flows, and
consolidated changes in shareholders' equity for each of the two years
in the period ended December 31, 1996, together with the notes thereto
(reviewed, but unaudited), as reviewed by S. B. Hoover, independent
public accountants, and any unaudited interim financial statement
prepared since December 31, 1996, and a copy of the most recent review
letter rendered by Rappahannock's independent public accountants (such
financial reports and statements collectively referred to herein as
"Rappahannock's Financial Statements"). Since December 31, 1996, there
has been no material adverse change in Rappahannock's consolidated
balance sheet, consolidated income statement, financial position,
results of operations, or business; no material loss is presently
realizable or anticipated with respect to any asset included in
Rappahannock's Financial Statements (except to the extent provided for
therein), and there is no material liability, actual or contingent,
known or anticipated of a character that should be disclosed in such
financial statements and that is not disclosed therein, other than
liabilities arising in the ordinary course of business since December
31, 1996, which are not materially adverse.
(i) All of the financial statements previously provided to
Union pursuant to subparagraph (h)(vii) of this Section 1.7 are true
and complete in all material respects, have been prepared in accordance
with generally accepted accounting principles consistently followed
throughout the periods covered by such financial statements, and
present fairly the financial position, cash flows (with respect to
those financial statements containing statements of cash flows),
results of operations, and changes in shareholders' equity (with
respect to those financial statements containing statements of changes
in shareholders' equity) of Rappahannock and the Bank, as the case may
be, at the close of business at the dates thereof and for the periods
covered thereby.
(j) Since December 31, 1996, neither Rappahannock nor the Bank
has authorized or issued any additional shares of stock or securities
convertible thereto or options, warrants or rights to subscribe thereto
or any notes, debentures or other evidences of indebtedness (other than
certificates of deposit issued by the Bank in the normal course of
business) or authorized or made payment or distribution of any of their
assets to their respective shareholders by way of dividends or
otherwise, except for the regular dividends described in Section
1.13(f).
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(k) Except as Previously Disclosed, there is no litigation or
other proceeding pending against or threatened against Rappahannock
that might reasonably be expected to have a material adverse effect on
Rappahannock's Financial Statements.
(l) Rappahannock has filed with the appropriate governmental
agencies all tax returns required to be filed and have paid all taxes
shown to be due on such returns. Rappahannock has no material liability
for taxes except as set forth and provided for in Rappahannock's
Financial Statements, and there is no reason to believe that any such
liability will be asserted in connection with such returns except as
noted in Rappahannock's Financial Statements. Rappahannock's federal
tax returns have not been audited by the Internal Revenue Service since
1991. Rappahannock is not aware of any currently pending or threatened
investigations or proceedings concerning its tax returns by any
governmental agency.
(m) There is no finder or broker acting, or who has acted, for
Rappahannock, nor, to the best knowledge of the directors of
Rappahannock, for any shareholder of Rappahannock, in connection with
the transactions contemplated by this Agreement, except that
Rappahannock has retained McKinnon & Company, Inc. as its financial
advisor pursuant to a retainer agreement, a copy of which has been
provided to Union.
(n) Except as Previously Disclosed in a benefit plan schedule,
neither Rappahannock nor the Bank sponsors, maintains or is required to
contribute to and has not during the preceding five (5) years
sponsored, maintained or contributed to an "employee benefit plan" (as
such term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA")) or any other employee benefit program
or arrangement, whether formal or informal, including, without
limitation, any pension, profit sharing, deferred compensation,
retirement, bonus, stock option, stock purchase or restricted stock
plan, severance or "golden parachute" arrangement, or any other
compensation, welfare or fringe benefit plan, program or arrangement
providing for benefits for, or for the welfare of, any or all of the
current or former employees, directors, consultants or independent
contractors of Rappahannock or the Bank or the beneficiaries of such
persons (such plans, programs and arrangements set forth in the benefit
plan schedule, collectively, the "Employee Plans").
(1) Each Employee Plan and any related funding arrangement is
in compliance with all applicable requirements of ERISA, the Internal
Revenue Code of 1986 (the "Code") and other applicable law and each
Employee Plan has been properly administered in accordance with its
written terms to the extent consistent with such requirements of law
except as Previously Disclosed; all benefits due and payable under any
Employee Plan have been paid in accordance with the terms of such
Employee Plan except as Previously Disclosed; Rappahannock and the Bank
have timely made (and at the Effective Date will have timely made) all
contributions required to be made to any Employee Plan; there is no
litigation or other proceeding pending or threatened against or with
respect to any Employee Plan or its fiduciaries except as Previously
Disclosed; all reports, returns, forms, notifications or other
disclosure materials required to be filed with any governmental entity
or distributed to employees with respect to any Employee Plan have been
timely filed or distributed and are accurate and complete except as
Previously Disclosed; no nonexempt "prohibited transaction" (as defined
in Section 4975 of the Code and Section 406 of ERISA) has occurred or
will occur prior to the Effective Date with respect to any Employee
Plan subject to such rules except as Previously Disclosed; except to
the extent limited by applicable law and except in the case of special
contractual arrangements (all of which are noted on the benefit plan
schedule as "not unilaterally amendable"), neither Rappahannock nor the
Bank is subject to any legal obligation to continue any Employee Plan
either before or after the Effective Date and any such Employee Plan,
in any manner and without the consent of any employee or beneficiary,
may be amended or terminated.
(2) Rappahannock or the Bank has previously delivered or made
available (or will deliver or make available within a reasonable time
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following the execution of this Agreement) to Union complete copies of:
each Employee Plan; all related trust agreements or other funding
arrangements, including, but not limited to, insurance policies; for
the five (5) most recent plan years, all annual reports (5500 series)
for each Employee Plan that have been filed with any governmental
agency; all other material documents relating to any Employee Plan as
may reasonably be requested by Union.
(3) The only Employee Plans currently maintained by
Rappahannock or the Bank which are intended to be qualified under
Section 401(a) of the Code are a defined benefit plan (the "Pension
Plan") (the "Qualified Plan"); the Qualified Plan meets the
requirements for tax qualification under Section 401(a) of the Code and
its related trust is tax-exempt under Section 501(a) of the Code; each
Qualified Plan has received a favorable determination letter from the
Internal Revenue Service with respect to its tax-qualified status and
Rappahannock or the Bank has delivered or made available (or will
deliver or make available within a reasonable time following the
execution of this Agreement) to Union complete copies of all such
determination letters and all material correspondence relating to the
applications therefor; nothing has occurred since the date of the most
recent applicable determination letter nor will occur prior to the
Effective Date that would adversely affect the tax-qualified status of
the Qualified Plan except as Previously Disclosed.
(4) With respect to the Pension Plan, no "accumulated funding
deficiency" (as defined in Section 412 of the Code and Section 302 of
ERISA), whether or not waived, and no "unfunded current liability" (as
defined in Section 412 of the Code and Section 302 of ERISA) exists; no
"reportable event" (as defined in Section 4043 of ERISA) has occurred
or will occur prior to the Effective Date; Rappahannock or the Bank has
made all required premium payments to the Pension Benefit Guaranty
Corporation when due; no amendment has occurred or will occur prior to
the Effective Date which could require Rappahannock or the Bank to
provide security to the Pension Plan under Section 401(a)(29) of the
Code; all benefit statements provided to Pension Plan participants
correctly state in all material respects the participants' accrued
benefits under the Pension Plan and the amount of such accrued benefits
has been calculated in the same manner as the accrued benefits of such
participants as reflected on the Pension Plan's actuarial reports; as
of October 1, 1997, the assets of the Pension Plan were at least equal
to the present value of the accrued benefits of the participants,
former participants and beneficiaries in such plan, based first on
those actuarial methods, tables and assumptions (as then in effect)
used for minimum funding purposes, and second on those actuarial
methods, tables and assumptions (as then in effect) used for
calculating termination liability; Rappahannock or the Bank has
delivered to Union complete copies of the actuarial valuation and
trustee reports for the Pension Plan for the last five (5) plan years.
(5) Rappahannock's Financial Statements reflect the present
value of any arrangement providing or promising post-retirement
medical, life or other post-retirement benefits to any employee, former
employee (or any beneficiary of any employee or former employee) of
Rappahannock or the Bank in a manner satisfying the requirements of FAS
106.
(o) Except as disclosed or reserved against in its financial
statements, Rappahannock has good and marketable title to all of its
material property and assets, including those reflected on
Rappahannock's Financial Statements, except as sold or otherwise
disposed of only in the ordinary course of business, free and clear of
all material liens and encumbrances (except as permitted in Section
1.7(s) below with respect to certain real estate). Without limiting the
foregoing, Rappahannock has good and marketable title to all of the
issued and outstanding shares of common stock of the Bank, free and
clear of all liens, encumbrances, restrictions, options, warrants and
agreements of any kind or nature.
(p) The execution and delivery of this Agreement by
Rappahannock have been duly and validly authorized by its Board of
Directors by a vote of more than two thirds of the entire the
Rappahannock Board of Directors. Neither the execution and delivery of
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this Agreement nor the carrying out of the transactions contemplated
hereunder or thereunder will result in any material violation,
termination, modification of, or conflict with, the Articles of
Incorporation or Bylaws of Rappahannock, or any terms of any material
contract or other instrument to which Rappahannock or the Bank is a
party, or of any judgment, decree, or order applicable to Rappahannock
or the Bank, or result in the creation of any material lien, charge, or
encumbrance upon any of the properties or assets of Rappahannock or the
Bank. No consent to the Affiliation by any private party (excluding,
with respect to the Affiliation, Rappahannock's shareholders) is
required, including without limitation, in connection with any
contract, lease, mortgage or other instrument to which Rappahannock or
the Bank is a party.
(q) The tangible personal property of Rappahannock is in good
operating condition and repair, subject to ordinary wear and tear.
(r) To Rappahannock's actual knowledge, there is no material
violation of any zoning, building, fire or other regulatory laws,
statutes, ordinances or regulations relating to Rappahannock's offices
or other real property; no condemnation proceeding exists or, to
Rappahannock's actual knowledge, is threatened that would preclude or
impair the use of Rappahannock's offices as presently being used in the
conduct of their business.
(s) The Bank has good and marketable fee simple title to the
real estate for its office and any other real property owned by the
Bank, free and clear of material liens and encumbrances of every kind
and nature except use, occupancy and similar restrictions of public
record, easements, encumbrances and encroachments that may be observed
by an inspection of the property. Except as Previously Disclosed,
utility and other easements and encumbrances do not materially
adversely affect the fair market value of the real property. Leases for
Bank facilities, if any, are valid and in full force and effect; the
Bank has not breached any material provision of, and is not in default
in any material respect under the terms of any such lease.
(t) All electrical, plumbing, heating, air conditioning and
other mechanical systems and related equipment in the office facilities
are in good working order, subject to ordinary wear and tear.
(u)(1) Rappahannock has no actual knowledge (i) that there is
any material violation or material non-compliance with any
environmental laws and regulations related to real estate (including,
without limitation, offices and foreclosed properties) owned by
Rappahannock (the "Real Estate"), (ii) except for one oil tank
currently in use, that there are any other underground tanks on the
Real Estate, and (iii) that there has been any release of hazardous
substances or petroleum products on any such property.
(2) Rappahannock has no actual knowledge, (i) that there is
any material violation or material non-compliance with any
environmental laws and regulations related to real property in which
Rappahannock holds a security interest or which it holds in a fiduciary
or agency capacity, (ii) that there are any underground tanks on any
such property, and (iii) that there has been any release of hazardous
substances or petroleum products on any such property.
(v) Rappahannock has not received any notice of a premium
increase or cancellation or a failure to renew with respect to any
insurance policy or bond. Within the last three years, has not been
refused any insurance coverage sought or applied for, and has no reason
to believe that existing insurance coverage cannot be renewed as and
when the same shall expire upon terms and conditions as favorable as
those presently in effect, other than possible increases in premiums or
unavailability of coverage that do not result from any extraordinary
loss experience on the part of such companies.
1.8 (a) Access to Records and Information; Operation of Business. From
the date of this Agreement until the Effective Date, each party will afford each
other party, its officers and other authorized representatives, reasonable
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access to all its books, accounts, records, bank examination reports (subject to
such permission from regulatory agencies as may be required), tax returns,
leases, contracts and documents and furnish such information with respect to its
assets, liabilities and business as the other party may from time to time
reasonably request. Specifically, Rappahannock shall permit Union to perform the
audits and examinations described in Section 1.9 hereof. The access to records
and information provided in this section shall be conducted only in such manner
as is necessary to obtain all required approvals of the Affiliation by the
Federal Reserve, the Bureau of Financial Institutions of the Commission, and any
other regulatory authorities, to prepare any registration statement, proxy
statement or other documents required to be filed with the SEC, or other
authorities, and to meet any of the other conditions set forth in this
Agreement. The parties shall fully cooperate in satisfying the conditions set
forth in this Agreement.
(b) Except as otherwise contemplated by this Agreement and unless
Union shall otherwise consent in writing, from the date of this Agreement until
the Effective Date, Rappahannock will do and otherwise cause to be done all
things necessary to:
(1) preserve and keep in full force and effect the corporate
existence of Rappahannock and the Bank;
(2) operate their respective businesses only in the usual,
regular and ordinary manner and consistent with past operations; follow
Rappahannock's current lending practices with regard to the setting of rates,
credit standards and collection procedures; preserve the present business
organizations intact; and preserve their present relationships with persons
having business dealings with them;
(3) maintain insurance in amounts and coverage as currently
maintained and reasonably necessary for its operations;
(4) maintain an allowance for loan losses adequate under the
requirements of generally accepted accounting principles and regulatory
accounting principles to provide for reasonably anticipated losses on
outstanding loans;
(5) make no material increase in levels of staffing; make no
material changes in duties or responsibilities of senior management or make no
changes in or appointments of senior management;
(6) maintain their books, accounts and records in the usual
regular and ordinary manner, on a basis consistent with prior years; comply in
all material respects with all material laws and contractual obligations, and
perform all of the material obligations relating to their business without
material default;
(7) not enter into any material agreement or incur any
material obligation other than in the ordinary course of business;
(8) not pledge, sell, lease, transfer, dispose or otherwise
encumber any of their property or assets other than in the ordinary course of
business and, in any event, not pledge, sell, lease, transfer, dispose of or
otherwise encumber the capital stock of the Bank;
(9) not issue any shares of Rappahannock or Bank capital
stock, any securities convertible into or exchangeable for Rappahannock or Bank
capital stock, or any other class of securities, whether debt (other than
certificates of deposit issued by the Bank in the ordinary course of business
and consistent with past practice) or equity; and not issue any option or rights
to acquire any of the foregoing;
(10) not amend Rappahannock's or the Bank's Charters or
Bylaws;
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(11) not provide for the consolidation with or merger of
Rappahannock or the Bank or a share exchange or any other reorganization
involving Rappahannock or Bank capital stock with or into another corporation or
the liquidation or dissolution of Rappahannock or the Bank;
(12) not create any subsidiary, affiliate or any other
business entity; and
(13) not take any other action or enter into any agreement
which would have the effect of defeating the purposes of this Agreement or the
Affiliation, or cause the Affiliation not to qualify as a tax-free
reorganization under Section 368(a)(1)(A) of the Code.
1.9 Audits, Income and Capital Account Requirements, etc. As soon as
possible, but in no event more than 45 days, after execution of this Agreement,
Rappahannock agrees to take such action as may be necessary to have audited
consolidated financials statements for the year ended December 31, 1997,
prepared by S. B. Hoover, or other independent public accounting firm acceptable
to Union, at Rappahannock's expense, which statements shall include consolidated
balance sheets as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for the years then
ended (or such other consolidated financial statements as of dates or for such
periods as may be required by the Securities and Exchange Commission), together
with the notes. Rappahannock also agrees to deliver to Union promptly upon
filing the Bank's December 31, 1997 call report, as well as any subsequently
filed call reports. If any audited financial statements, subsequent interim
financial reports, call reports or other information provided to Union as
required herein shall disclose, in the reasonable opinion of Union, (1) that the
shareholders' equity of Rappahannock, determined in accordance with generally
accepted accounting principles, consistently applied, is less than $2,919,504
(which amount shall be adjusted such that changes in unrealized gains or losses
on securities available for sale and reasonable costs of consummating the
Affiliation (excluding costs related to the audit procedures required to be
performed by Rappahannock pursuant to the transaction) shall not be taken into
consideration in determining Rappahannock's compliance with this shareholders'
equity provision) or (2) that since December 31, 1996 there has been a material
adverse change in the balance sheet, income statement, financial position,
results of operation or business of Rappahannock, or (3) that any inability of
independent public accountants to certify financial statements of Rappahannock
for any period (or any qualification to such a certification) would materially
interfere with or prevent Union, before or after the Effective Date, from
complying with requirements of the SEC (or other requirements) for the
preparation and publication of certified or other required financial statements,
whether for Rappahannock or for Union and its consolidated subsidiaries, or (4)
that the representations contained in 1.7 hereof or elsewhere in this Agreement
are inaccurate in any material respect, or (5) that the nature or composition of
the Bank's loan portfolio is materially different from the nature or composition
of the Bank's loan portfolio as reflected in the Bank's filed call reports, or
(6) that the nature or composition of the Bank's deposit liabilities are
materially different from the nature or composition of the Bank's deposit
liabilities as reflected in the Bank's filed call reports, or (7) that the
Bank's accrued expenses or other liabilities are different in nature from those
associated with the normal operation of a commercial bank, or (8) that the list
of its securities supplied by Rappahannock to Union pursuant to Section 1.7(h)
hereof is inaccurate, as of its date, in any material respect, then Union shall
have the right by written notice to Rappahannock at any time prior to the
Effective Date to terminate this Agreement, in which event no party shall have
any obligations under, or liabilities arising out of, this Agreement, except as
set forth in Section 3.5 with respect to expenses.
1.10 Regulatory Approvals. When requested by Union, and through counsel
for Union, Rappahannock will cooperate and will cause the Bank to cooperate with
Union and will use, and will cause the Bank to use, its best efforts to obtain
the approval of the Affiliation and of the steps necessary to accomplish the
Affiliation by all appropriate state and federal regulatory agencies.
1.11 Best Efforts Regarding Tax Free Reorganization. Rappahannock
agrees to use its best efforts to (i) cause the Affiliation to qualify as a
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tax-free reorganization under Section 368(a)(1)(A) of the Code, and (ii)
cooperate with Union in preparing and furnishing the proxy statement to be
delivered to Rappahannock's shareholders in connection with the Affiliation.
1.12 Exclusive Dealing. The Board of Directors of Rappahannock has
carefully considered and deliberated upon the terms and conditions of the
Affiliation and has concluded that the Affiliation is fair to, and in the best
interests of the shareholders of Rappahannock, with the intent that this
Agreement be conclusive and binding, subject to the terms and conditions hereof.
In the process of so concluding, the Board of Directors of Rappahannock has, at
Rappahannock's expense, been advised by McKinnon & Company, Inc., its financial
advisor, that the consideration to be received in the Affiliation is fair to the
shareholders of Rappahannock from a financial point of view. Accordingly, in
view of the commitments of the parties and the time and expense required to
consummate the Agreement and while this Agreement is in effect, neither
Rappahannock nor any of its or the Bank's officers, directors, employees, agents
or representatives (including, without limitation, investment bankers) shall,
directly or indirectly: (i) encourage, solicit or initiate the submission of any
Acquisition Proposal or take any other action to facilitate any inquiries or the
making of any proposal that constitutes or may reasonably be expected to lead to
any Acquisition Proposal; or (ii) recommend any Acquisition Proposal to
Rappahannock shareholders or enter into any agreement with respect to any
Acquisition Proposal or participate in discussions or negotiations with, or
furnish any information to, any person in connection with any potential
Acquisition Proposal, unless an unsolicited Acquisition Proposal is made and the
Board of Directors of Rappahannock shall conclude, based on written advice of
counsel, that its fiduciary obligations require consideration or acceptance or
the recommendation of such Acquisition Proposal. "Acquisition Proposal" shall
mean any proposed (A) merger, consolidation, share exchange or similar
transaction involving Rappahannock or the Bank, (B) sale, lease or other
disposition directly or indirectly by merger, consolidation, share exchange or
otherwise of assets of Rappahannock (including the stock of the Bank), or the
Bank representing 10% or more of the consolidated assets of Rappahannock and the
Bank, (C) issue, sale or other disposition (including by way of merger,
consolidation, share exchange or any similar transaction) of securities (or
options, rights or warrants to purchase, or securities convertible into, such
securities) representing 10% or more of the voting power of Rappahannock or the
Bank, (D) transactions, other than those transactions involving persons who
execute agreements with Union as of the date hereof to support the Affiliation,
in which (i) any person shall acquire beneficial ownership (as such term is
defined in Rule 13d-3 under the Exchange Act), or the right to acquire
beneficial ownership, or (ii) any "group" (as such term is defined under the
Exchange Act) shall have been formed which beneficially owns or has the right to
acquire beneficial ownership, of 10% or more of the outstanding Rappahannock or
Bank common stock. The occurrence of an Acquisition Proposal as defined in (D)
of the preceding sentence shall not create a right of Union to receive the
termination fee and certain expenses as set as forth in Section 3.3 hereof
except in the event that the transaction is a tender or exchange offer involving
more than 20% of the capital stock of Rappahannock or the Bank. Rappahannock
shall immediately advise Union of, and communicate to Union the terms of, any
such inquiry or proposal addressed to Rappahannock or the Bank or of which
Rappahannock or the Bank, or their respective officers, directors, employees,
agents, or representatives (including, without limitation, any investment
banker) has knowledge. Rappahannock's Board of Directors shall use its best
efforts to cause its officers, directors, employees, agents and representatives
and the Bank and its officers, directors, employees, agents and representatives
to comply with the requirements of this Section 1.12.
1.13 Conditions to Union's Obligations. The obligations of Union under
this Agreement are subject to the satisfaction prior to, and at, the Effective
Date, of the conditions set forth in Article II of this Agreement and of the
following conditions:
(a) That pursuant to applicable statutes, the Federal Reserve shall
have given all required approvals to permit the Affiliation and the steps
necessary to accomplish the Affiliation and such approvals shall have become
effective and all required waiting periods with respect thereto shall have
expired.
(b) That all appropriate State regulatory agencies (including, without
limitation, the Commission) and any appropriate Federal regulatory agencies in
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addition to the Federal Reserve shall have approved the Affiliation and the
steps necessary to accomplish the Affiliation to the extent, if any, required by
applicable state or federal laws and all required waiting periods with respect
thereto shall have expired.
(c) That the Registration Statement shall have been declared effective
by the SEC and any applicable state securities regulatory authorities and there
shall not be in effect a stop order with respect thereto.
(d) That shareholders who are affiliates of Rappahannock shall have
entered into agreements with Union as of the date of this Agreement in form and
substance satisfactory to Union, necessary or desirable to conform with SEC Rule
145.
(e) That all other consents or approvals, governmental or otherwise,
that in the opinion of counsel for Union are necessary to permit, enable or
facilitate the Affiliation, shall have been granted or issued and shall have
become effective.
(f) That prior to the Effective Date, Rappahannock shall not have
authorized or distributed any of its assets to its shareholders by way of
dividends or otherwise, except for a regular $75,000 cash dividend declared in
December 1997, and aggregate cash dividends (paid by Rappahannock, Union or a
combination of the two) not exceeding $75,000 (or earnings to date through the
date of payment) for the semi-annual period ending June 30, 1998, subject to any
limitations under the provisions of Sections 1.9 and 1.13(k) hereof.
(g) That since December 31, 1996, Rappahannock and the Bank shall not
have issued or authorized the issuance of additional shares of their respective
capital stock of any class or options to buy shares of said stock or warrants or
rights to subscribe thereto or any notes, debentures or other evidences of
indebtedness (other than certificates of deposit issued by the Bank in the
normal course of business) or issued or authorized the issuance of other
securities in respect of, in lieu of, or in substitution for the now outstanding
shares of capital stock, or repurchased or redeemed any of their capital stock
or changed their respective capitalization or made any distribution of their
earnings or assets other than as provided in Section 1.13(f) above or as
otherwise agreed in writing by Union, and Rappahannock shall not have sold,
transferred or granted any option or other rights with respect to the capital
stock of the Bank held by Rappahannock.
(h) That, except with the prior written approval of Union, there shall
have been no increase in the compensation, or rate of compensation, payable or
to become payable by Rappahannock or the Bank to any director, officer or
employee thereof, other than in the normal and ordinary course of business, or
the establishment of, or an agreement to establish by Rappahannock or the Bank,
any early retirement program or arrangement for certain employees, or, except in
the ordinary course of business, any payment of any bonus, profit sharing,
severance or other extraordinary compensation or change in any presently
existing stock option, employee stock ownership, profit sharing, pension,
retirement, bonus, severance, group life or health insurance or other plan,
agreement or arrangement, and that Rappahannock and the Bank shall not have
adopted or entered into any new employment, stock option, employee stock
ownership, profit sharing, pension, retirement, bonus, group life or health
insurance or other benefit plan, agreement or arrangement.
(i) That between January 7, 1998, and the Effective Date, no change
shall have been made in Rappahannock's existing investment practices and
policies.
(j) That there are granted or issued any such consents or approvals,
governmental or otherwise, which are necessary to permit or enable Rappahannock
after the Effective Date to conduct all and every part of the business and
activities conducted by the Bank prior to the Effective Date in the manner in
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which such activities and business were then conducted and at the offices at
which they are conducted as of the date of this Agreement.
(k) That Union shall have received a letter, dated as of the Effective
Date, from KPMG Peat Marwick L.L.P., satisfactory in form and substance to
Union, that the Merger will qualify for pooling-of-interests accounting
treatment.
(l) That Rappahannock shall not have opened any new, or closed any
existing, offices without the consent of Union, unless required to do so in
connection with any governmental or regulatory enforcement action.
(m) That there shall be no actual or threatened legal proceeding or
impediment that in the reasonable opinion of Union might prevent the
consummation of the Affiliation.
(n) That no condition shall exist and no event shall have occurred, or
shall be threatened, and no claim, assessment or litigation shall be pending or
threatened and no settlement of any claim, assessment or litigation shall have
occurred, which does or may adversely affect the tax-qualified status of the
Qualified Plan or which may result in costs for unanticipated benefit
liabilities with respect to the Qualified Plan and, as a consequence, does or
may, in the reasonable opinion of Union, materially and adversely affect the
income, operations, financial position, business, or assets of Rappahannock, the
Bank or such Qualified Plan.
(o) That the representations of Rappahannock contained in Section 1.7
of this Agreement (other than paragraph (c)) shall be true in all material
respects on and as of the Effective Date as if made again as of such date, and
that, on request of Union, and as of the Effective Date, the President of
Rappahannock shall deliver a written certificate to Union that, to his best
knowledge, the representations of Rappahannock set forth in this Agreement
(other than paragraph (c) of Section 1.7) are true and correct in all material
respects as if made on and as of the date of such certificate and that the
conditions set forth herein required to have been met by Rappahannock by such
date have, without exception, been met.
(p) That Union shall have received from Mays & Valentine, L.L.P. an
opinion with respect to the federal income tax consequences of the Affiliation
substantially to the effect that the Affiliation will qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code, and that no gain or loss will be recognized by Union or
Rappahannock as a result of the Affiliation.
(q) That Union, after a review of the information that is Previsously
Disclosed, shall not have determined in its sole good faith judgment that the
financial condition, business or prospects of Rappahannock are materially
adversely different from what was reasonably expected by Union; provided that
Union shall inform Rappahannock in writing no later than March 11, 1998, of such
determination and shall state the reasons for such determination.
Conditions (d), (e), (f), (g), (h), (i), (j), (k), (1), (m), (n), (o),
(p) and (q) may be waived by Union.
1.14 Conditions to Rappahannock's Obligations. (a) The obligation of
Rappahannock to consummate the Affiliation under this Agreement is subject to
the condition that Rappahannock shall have received an opinion from Williams,
Mullen Christian & Dobbins (or from such other counsel as may be acceptable to
Union and Rappahannock, in their reasonable discretion) substantially to the
effect that, upon completion of the Affiliation (except as to the receipt of
cash as a result of the exercise of dissenter's rights or the disposition of
fractional shares):
(1) the Affiliation will qualify as a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code;
(2) no gain or loss will be recognized by Union or Rappahannock as a
result of the Affiliation;
(3) no gain or loss will be recognized to the shareholders of
Rappahannock upon receipt by them of Common Stock in exchange for common stock
of Rappahannock;
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(4) provided that Rappahannock common stock is held as a capital asset,
the basis of the Common Stock received by such shareholders of Rappahannock will
be the same as the basis of the common stock of Rappahannock surrendered by such
shareholders in exchange for the Common Stock;
(5) provided that Rappahannock common stock is held as a capital asset,
such shareholders' holding period of the Common Stock received by them will
include the shareholders' holding period of the common stock of Rappahannock
which is surrendered in exchange for such Common Stock.
(b) The obligation of Rappahannock to consummate the Affiliation under
this Agreement is subject to the satisfaction prior to, and at the Effective
Date, of the following further conditions that the representations of Union
contained in Section 1.6 of this Agreement (other than paragraph (d)) shall be
true in all material respects on and as of the Effective Date as if made again
as of such date, and that, on request of Rappahannock, and as of the Effective
Date, the President of Union shall deliver a written certificate to Rappahannock
that, to his best knowledge, the representations of Union set forth in this
Agreement (other than paragraph (d) of Section 1.6) are true and correct in all
material respects as if made on and as of the date of such certificate and that
the conditions set forth herein required to have been met by Union by such date
have, without exception, been met.
1.15 Fairness Opinion. The obligation of Rappahannock to consummate the
Affiliation under this Agreement is subject to the further condition that the
Rappahannock proxy statement referred to in Section 1.6(e) hereof shall contain
the written opinion of McKinnon & Company, Inc. (or such other recognized
investment firm as Rappahannock may select), dated contemporaneously with the
date of the proxy statement, to the effect that the consideration to be received
in the Affiliation is fair to the shareholders of Rappahannock from a financial
point of view.
1.16 Confidentiality. Between the date of this Agreement and the
Effective Date, Union and Rappahannock each will maintain in confidence, and
cause its directors, officers, employees, agents and advisors to maintain in
confidence, and not use to the detriment of the other party, any written, oral
or other information obtained in confidence from the other party or a third
party in connection with this Agreement or the transactions contemplated hereby
unless such information is already known to such party or to others not bound by
a duty of confidentiality or unless such information becomes publicly available
through no fault of such party, unless use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated hereby or unless the
furnishing or use of such information is required by or necessary or appropriate
in connection with legal proceedings. If the Affiliation is not consummated,
each party will return or destroy as much of such written information as may
reasonably be requested except to the extent that it is necessary or appropriate
for the party to retain the information in connection with any legal proceedings
relating to the Agreement.
1.17 Shareholder List. Within five days after the date of this
Agreement, Rappahannock shall furnish to Union a list containing the names and
addresses of all current holders of common stock of Rappahannock as the same
appear on the stock registration books of Rappahannock and the number of shares
held by each.
1.18 Accounting Treatment. Rappahannock and Union shall each use their
best efforts to ensure that the Merger qualifies for pooling-of-interests
accounting treatment.
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ARTICLE II
The Affiliation
2.1 Effective Date. Subject to the terms and conditions contained in
this Agreement, as soon as practicable after the performance of all agreements
and obligations of the parties hereunder and upon fulfillment or waiver of all
conditions precedent contained herein, Union and Rappahannock will execute and
deliver Articles of Merger in such form as in the opinion of counsel to Union
may be required by Virginia law (the "Articles") and any other documents
required by law to effectuate the Affiliation, and will file the Articles with
the Commission. The effective date and time of the Affiliation (the "Effective
Date") shall be the effective date and time set forth in Articles or such later
time as the Commission issues a Certificate of Merger. After all of the
conditions set forth in this Agreement have been met or waived, the Effective
Date will be the earliest practical date that is the last business day of a
month, or such other date as may be acceptable to Union and Rappahannock.
2.2 Union's Obligations in Accomplishing the Affiliation. In order to
effect the Affiliation as aforesaid, Union will (i) prepare and file with the
Federal Reserve and the Commission, applications requesting approval of the
Affiliation; and (ii) prepare and file any other necessary regulatory
applications and use its best efforts to obtain approval of all such
applications.
2.3 Rappahannock's Obligations in Accomplishing the Affiliation. At
such times as shall be requested by Union, Rappahannock and its management and
directors shall, and will also cause the Bank and its management and directors
to, (i) cooperate with and assist Union in the preparation and filing with the
Commission of an application requesting approval of Union's acquisition of
Rappahannock and the Bank pursuant to 6.1-383.1 of the Code of Virginia, or any
successor statute thereto, (ii) cause the publication of any newspaper notices
required by law or by the Federal Reserve, Commission or other regulatory
authority with respect to the Affiliation or such acquisition, (iii) duly call
and convene a meeting of Rappahannock's shareholders to vote on the Affiliation
and, in connection therewith and subject to the fiduciary duties of the Board of
Directors of Rappahannock (as advised in writing by its counsel), but only as
such fiduciary duty is encompassed in, contemplated by, and within the scope of
Section 1.12, approve and recommend this Agreement, the Plan of Merger and the
Affiliation to Rappahannock's shareholders and use their best efforts to obtain
a favorable vote thereon; and (iv) take such action as shall be required by law,
including, if so required, the appointment of a co-fiduciary for such purpose,
to permit shares of common stock of Rappahannock held by the Bank as fiduciary
to be voted on the Affiliation. In connection with the submission of the Plan of
Merger to the shareholders of Rappahannock under Section 13.1-718 of the
Virginia Corporation Law, hereinafter defined, Rappahannock agrees that its
Board of Directors will not take any action that would have the effect of
requiring that the Plan of Merger be approved by greater than "more than
two-thirds of the votes entitled to be cast" on the matter nor, pursuant to
provisions of Section 13.1-718C of the Virginia Corporation Law, impose any
condition to approval of the Plan of Merger by the shareholders of Rappahannock.
2.4 Shareholder Approval. The Affiliation is subject to the additional
nonwaivable condition that this Agreement, the Plan of Merger, and the
Affiliation, shall have been approved by shareholders of Rappahannock holding
more than two-thirds of the votes entitled to be cast on the matter at a meeting
of Rappahannock's shareholders duly called for that purpose and duly
constituted, at which a quorum is present and acting throughout, subject to the
terms of the Agreement.
2.5 Effect of the Affiliation. Upon the Effective Date, Rappahannock
shall be merged with and into Union in accordance with this Agreement and the
Plan of Merger and pursuant to the applicable provisions of Title 13.1 of the
Code of Virginia, 1950, as amended (the "Virginia Corporation Law") and with the
effect provided in said provisions. Union shall be the successor in the
Affiliation (or, under Virginia law, the "surviving" corporation); no amendments
to its charter will be effected by the Affiliation.
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2.6 Confirmatory Deeds. When and as reasonably requested by Union,
Rappahannock shall execute and deliver or cause to be executed and delivered,
all such deeds and other instruments, and take or cause to be taken all such
further or other actions, as Union may deem necessary or desirable in order to
vest or perfect in or confirm of record or otherwise to Union as Successor in
the merger, title to and possession of all real estate and other property of
Rappahannock, and otherwise to carry out the intent and purposes of this
Agreement and the Affiliation.
2.7 Procedural Matters. Union, at its option, may revise the sequence
of events or similar matters relating solely to the corporate structural
provisions of the Affiliation in such manner as the President of Union, acting
on the advice of its legal counsel, may reasonably determine will best
facilitate accomplishment of the Affiliation; provided, however, that such
revisions may not affect the consideration to Rappahannock shareholders as set
forth in Section 1.2 hereof or the federal income tax consequences of the
Affiliation.
2.8 Benefit Plans. At the option of Union (which may be applied on a
plan or program by plan or program basis), after the Effective Date, employees
of Rappahannock and the Bank shall be entitled to participate either (x) in
Union's employee benefit plans and programs on substantially the same basis as
similarly situated employees of Union (taking into account all applicable
factors, including but not limited to position, employment classification, age,
length of service, pay, part time or full time status, and the like, as well as
changes made in such plans and programs in the future) or (y) in plans and
programs which, subject to changes required by applicable laws or by limitations
imposed by insurance companies providing plan benefits, are comparable to and
provide for participation on substantially the same basis as Rappahannock's and
the Bank's plans and programs currently in effect. If and to the extent option
(x) is effectuated:
(1) Union agrees that (i) the coverage under its plans and
programs shall be available to each employee of Rappahannock and the
Bank and his or her dependents without regard to any waiting period,
evidence or requirement of insurability, actively at work requirement
or preexisting condition exclusion or limitation (except to the extent
and in the manner any such waiting period, evidence or requirement of
insurability, actively at work requirement or exclusion or limitation
applies immediately prior to the effectuation of option (x)) and (ii)
amounts paid or payable by employees for health care expenses for the
portion of the annual benefit period prior to the date as of which
option (x) becomes effective shall be credited in satisfaction of any
deductible requirement and any out-of-pocket limit for the balance of
the annual benefit period which includes such date.
(2) Union agrees to treat service with Rappahannock and
the Bank before the Effective Date as service with Union for purposes
of eligibility to begin participation and vesting (but not benefit
accruals) for purposes of all employee benefit and seniority based
plans and programs, including but not limited to annual, sick and
personal leave accruing following the Effective Date.
2.9 Indemnification. Union agrees that following the Effective Date, it
shall indemnify and hold harmless any person who has rights to indemnification
from Rappahannock, to the same extent and on the same conditions as such person
is entitled to indemnification pursuant to Virginia Corporation Law, hereinafter
defined, and Rappahannock's Articles of Incorporation, 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, including, without
limitation, the transactions contemplated in this Agreement, but, in no event,
shall Union's obligations hereunder be greater than those of Rappahannock as of
the date of this Agreement. Without limiting the foregoing, in any case in which
corporate approval may be required to effectuate any indemnification with
respect to a director of Rappahannock, Union shall, to the extent required by
Rappahannock's Articles of Incorporation as of the date of this Agreement,
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 Union and the indemnified party. Union shall use
its reasonable best efforts to maintain Rappahannock's existing directors' and
officers' liability policy, or some other policy, including Union's existing
policy, providing at least comparable coverage, covering persons who are
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<PAGE>
currently covered by such insurance of Rappahannock for a period of three years
after the Effective Date on terms no less favorable than those in effect on the
date hereof.
2.10 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 consultation, except as may be required
by law.
2.11 Non-Survival of Representations, Warranties and Covenants. Except
for Sections 1.2, 1.14(a) (with respect to the tax opinion), 1.16, 2.6, and 2.9
of this Agreement, none of the respective representations and warranties,
obligations, covenants and agreements of the parties shall survive the Effective
Date.
ARTICLE III
Miscellaneous
3.1. Termination For Regulatory Reasons. If, at any time, Union
receives information from any regulatory authority, which by law is required to
approve or otherwise act upon the Affiliation or any other aspect of the
transactions provided for herein or which has authority to challenge the
validity of the Affiliation or such transactions in judicial proceedings or
otherwise, that provides a substantial basis for concluding that the required
regulatory approval will not be granted or that the Affiliation or such
transactions will be so challenged, Union may, subject to the provisions of
Section 3.5 with respect to expenses, terminate all obligations under this
Agreement by giving fourteen (14) days written notice of such termination to
Rappahannock. Upon such termination, except as set forth in Section 3.5, this
Agreement shall become null and void and none of the parties hereto shall have
any obligation or liability to the others with respect to this Agreement.
3.2. Termination By Consent Or Due To Passage Of Time. At any time
prior to the Effective Date, notwithstanding the approval of the Merger by the
stockholders of Rappahannock, this Agreement may be terminated by mutual consent
of Rappahannock and Union. Moreover, Union and Rappahannock shall be entitled to
terminate this Agreement after November 30, 1998, by written notice to the other
party unless the Effective Date shall have occurred on or before such date or
the parties hereto shall have extended the Effective Date of this Agreement in
writing.
3.3. Termination With Respect To Acquisition Proposal. This Agreement
may be terminated by Union if the Directors of Rappahannock recommend to its
stockholders or Rappahannock accepts an Acquisition Proposal and may be
terminated by Rappahannock if, in compliance with Section 1.12 hereof, its
Directors recommend to its stockholders or it accepts an Acquisition Proposal.
In any such case, Rappahannock shall pay Union a termination fee in the amount
of $310,000 and shall also pay its and Union's expenses as provided in Section
3.5(a) below.
3.4. Amendment. This Agreement may be amended, but only in writing
approved by Rappahannock and Union, at any time prior to the Effective Date and
with respect to any of the terms and provisions hereof; provided, however, that
after the stockholders of Rappahannock have approved the Merger, no amendment
shall be made that alters the Conversion Rate (except pursuant to Section
1.6(k)) or otherwise materially adversely affects the rights of Rappahannock's
stockholders.
3.5. Expenses; Limited Liability. (a) Each party to this Agreement
shall pay its own expenses relating hereto, including fees and disbursements of
its respective counsel and of any investment or financial advisor retained by
it; provided, however, that, subject to the provisions of the next sentence of
this Section 3.5(a), in the event the transactions hereunder are not
consummated, other than pursuant to Section 3.3, Union will pay for the
preparation of the regulatory filings referred to herein and for the filing fees
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<PAGE>
relating thereto, the printing and mailing of the Proxy Statement, and all fees
and disbursements of accountants (not including routine auditing fees) for
either of the parties hereto. The termination of this Agreement in accordance
with the terms of Sections 3.1, 3.2 or 3.3 shall create no liability on the part
of any party to the Agreement, except as set forth in Section 3.3, or on the
part of any party's directors, officers, stockholders, agents or
representatives, or any other individuals. However, that if this Agreement is
terminated under any of such provisions or otherwise by Union by reason of a
material breach by Rappahannock, or by Rappahannock by reason of a material
breach by Union, and such breach involves an intentional or willful
misrepresentation or breach of covenant, the breaching party shall be liable to
the nonbreaching party for all costs and expenses reasonably incurred by the
nonbreaching party in connection with the preparation, execution and attempted
consummation of this Agreement, including the fees of its counsel, accountants,
consultants and other advisors and representatives.
(b) In the absence of termination costs being due under Section 3.3,
and nothwithstanding any other provisions of this Agreement, if Rappahannock
shareholders do not approve the Affiliation at the Rappahannock meeting or any
adjornment thereof, Rappahannock shall reimburse Union for all reasonable
out-of-pocket expenses incurred by Union in connection with the transactions
contemplated by this Agreement, provided that the maximum amount that
Rappahannock shall be responsible for under this Section 3.5(b) shall be limited
to $60,000.
3.6. Notices. All notices or other communications required or permitted
under the terms of this Agreement shall be sufficient if hand delivered or if
sent by registered or certified mail, postage prepaid, addressed as follows:
If to Union:
Union Bankshares Corporation
P. O. Box 446
211 North Main Street
Bowling Green, Virginia 22427
Fax No. 1-804-633-1310
Attention: G. William Beale
Copy to Union's Counsel:
Mays & Valentine, L.L.P.
NationsBank Center
1111 East Main Street
Richmond, VA 23219
Fax No. 1-804-697-1339
Attention: Fred W. Palmore, III, Esq.
If to Rappahannock:
Rappahannock Bankshares, Inc.
257 Gay Street
P.O. Box 179
Washington, Virginia 22747
Fax No. 1-804-675-1225
Attention: John R. Conry, Jr.
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<PAGE>
Copy to Rappahannock's Counsel:
Williams, Mullen, Christian & Dobbins
2 James Center
Richmond, VA 23219
Fax No. 1-804-783-6507
Attention: Wayne A. Whitham, Jr., Esq.
or to such other address as shall hereafter be provided in writing by Union or
Rappahannock, respectively. Any notice or communication given pursuant to this
Agreement shall be deemed to have been given on the day it is mailed.
3.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
together be deemed one and the same Agreement.
3.8 Binding Effect; No Third-Party Rights. This Agreement shall bind
Union and Rappahannock and their respective successors and assigns. Other than
Section 2.9, nothing in this Agreement is intended to confer upon any
individual, corporation or other entity, other than the parties hereto or their
respective successors, any rights or remedies under or by reason of this
Agreement.
3.9 Applicable Law. This Agreement shall be governed by the laws of
Virginia.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above, pursuant to resolutions of their Boards of
Directors acting by a vote of at least two-thirds.
UNION BANKSHARES CORPORATION
By: /s/ G. William Beale (SEAL)
-------------------------------
G. William Beale
President and Chief Executive Officer
RAPPAHANNOCK BANKSHARES, INC.
By: /s/ Elisabeth J. Jones (SEAL)
------------------------------
Elisabeth J. Jones
Chairman
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<PAGE>
EXHIBIT A
PLAN OF MERGER
OF
RAPPAHANNOCK BANKSHARES, INC.
WITH AND INTO
UNION BANKSHARES CORPORATION
1. The Parties. Rappahannock Bankshares, Inc., a Virginia corporation
and federally registered bank holding company ("Rappahannock"), shall merge (the
"Merger") with and into Union Bankshares Corporation, a Virginia corporation and
federally registered bank holding company ("Union") (collectively, the
"Constituent Corporations"). Union shall be (and is hereinafter called when
reference is made to it after the consummation of the Merger) the surviving
corporation (the "Surviving Corporation").
2. Effective Date. The Merger shall be effective on such date as may be
determined in accordance with the Agreement and Plan of Affiliation and Merger
described in Section 7 (the "Effective Date").
3. Conversion and Exchange of Shares.
(a) Each share of the common stock of Union issued and
outstanding immediately prior to the Effective Date shall remain issued
and outstanding after the Merger as one share of common stock of the
Surviving Corporation, without any action on the part of the holder
thereof.
(b) Subject to Subparagraph 3(d) below, each share of the
issued and outstanding common stock of Rappahannock (other than the
shares of dissenting shareholders of Rappahannock redeemed pursuant to
Subparagraph 3(c) hereof and shares owned by Union, or any direct or
indirect subsidiary of Union, other than in a fiduciary capacity), for
all corporate purposes and without any further action on the part of
the holders thereof, shall automatically become and be converted into
158.209 shares of the common stock of the Surviving Corporation. All
shares of the common stock of Rappahannock owned by Union or any direct
or indirect subsidiary of Union, other than in a fiduciary capacity,
shall, by virtue of the Merger be canceled, and shall not be converted
into common stock of the Surviving Corporation. Certificates
representing shares of common stock of Rappahannock which have been
converted to shares of common stock of the Surviving Corporation shall
thereafter represent shares of the common stock (and the right to cash
for fractional shares) in the aforementioned proportions. Such
certificates may at any time after the Effective Date be surrendered to
Registrar and Transfer Company, acting as Union's exchange agent (the
"Exchange Agent"), and exchanged by the holders thereof for new
certificates representing the appropriate number of whole shares of
common stock of the Surviving Corporation determined by the above
conversion formula and for cash in lieu of any fractional shares as set
forth in Subparagraph 3(d) below. No dividends or other distributions
shall be paid on any person's converted shares until such person has
been issued a new certificate in the name of the Surviving Corporation.
When the new certificates have been issued, the holders thereof shall
be entitled to and shall be paid, without interest, the amount of all
dividends or other distributions that have theretofore, but after the
Effective Date, become payable to holders of record after the Effective
Date with respect to the number of whole shares of common stock
represented by the certificate issued upon such surrender or exchange.
(c) Any shares of common stock of Rappahannock with
respect to which the holder, consistent with the requirements of
Article 15 of Title 13.1 of the Code of Virginia, 1950, as amended (the
"Virginia Corporation Law"), (i) prior to the vote of shareholders on
this Plan of Merger, files written notice of his intention to demand
payment for his shares if the Merger is effected, (ii) effects no
change in the beneficial ownership of his shares from the date of such
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<PAGE>
filing through the Effective Date, (iii) refrains from voting his or
her shares in favor of the Merger contemplated by this Plan of Merger,
and (iv) within thirty (30) days after the delivery by Union of a
notice to demand payment pursuant to Section 13.1-734 of the Virginia
Corporation Law ("Dissenter's Notice") demands payment and deposits his
certificates for such shares in accordance with said Dissenter's
Notice, shall be entitled to receive from Rappahannock or the Surviving
Corporation, as the case may be, in cash the fair value of his shares
of the common stock of Rappahannock, determined in accordance with the
provisions of Article 15 of the Virginia Corporation Law, or any
successor statute thereto, plus interest from the date his shares are
deposited in accordance with the Dissenter's Notice until payment
therefor.
(d) No certificates will be issued for fractional shares of
the Surviving Corporation's common stock, but, in lieu thereof, and
solely as a mechanism for rounding shareholdings to whole shares, the
Surviving Corporation will pay cash for such fractional shares on the
basis of the closing price for Union's common stock (as reported by
NASDAQ/NMS) on the Effective Date (or if no closing price is reported
on that date, then the closing price on the last active day on which
there is a closing price), without interest, upon surrender of
certificates of common stock of Rappahannock representing such
fractional shares No such holder shall be entitled to dividends, voting
rights or any other rights of shareholders in respect of any fractional
share.
4. Articles of Incorporation and Bylaws. On the Effective Date, the
Articles of Incorporation and Bylaws of Union in effect immediately prior to the
Effective Date shall be the Articles of Incorporation and Bylaws of the
Surviving Corporation until amended or restated in accordance with applicable
law.
5. Board of Directors; Officers. The directors and officers of Union
who hold office immediately prior to the Effective Date shall thereafter be the
directors and officers of the Surviving Corporation until their successors be
elected and qualify.
6. Further Assurances. If at any time the Surviving Corporation shall
consider or be advised that any further assignments, conveyances or assurances
are necessary or desirable to vest, perfect or confirm the Surviving Corporation
with title to any property or rights of the Constituent Corporations, or
otherwise carry out the provisions hereof, the proper officers and Directors of
Rappahannock or Union, as the case may be, before the Effective Date and
thereafter the officers of the Surviving Corporation acting on behalf of
Rappahannock or Union, as the case may be, shall execute and deliver any and all
proper assignments, conveyances and assurances, and do all things necessary or
desirable to vest, perfect or confirm the Surviving Corporation with title to
such property or rights and otherwise carry out the provisions hereof.
7. Modification and Amendment. Any of the terms and provisions of this
Plan of Merger may be amended at any time prior to the Effective Date, by a
writing executed by the Constituent Corporations; provided, however, that after
the shareholders of Rappahannock have approved the Plan of Merger, no amendment
in this Plan of Merger shall be made that alters the conversion rate or kind of
shares to be received as set forth in Paragraph 3 (except pursuant to the
anti-dilution provisions contained in Section 1.6(k) of that certain Agreement
and Plan of Affiliation and Merger between the Constituent Corporations dated
February 25, 1998, a copy of which has been provided to each shareholder
together herewith, which provision is incorporated herein by reference) or
otherwise adversely affects the rights of Rappahannock's shareholders. Action by
the Executive Committee of the Board of Directors of Union or by any officer of
either Constituent Corporation to whom such authority has been delegated by
their respective Boards of Directors shall satisfy the requirements of this
paragraph.
8. Termination and Abandonment. This Plan of Merger may be terminated
and the Merger abandoned at any time prior to the Effective date by the mutual
consent in writing of the Constituent Corporations or otherwise in accordance
with the Agreement and Plan of Affiliation and Merger referred to above.
<PAGE>
ANNEX B
McKINNON & COMPANY, INC.
INVESTMENT BANKING
<TABLE>
<S> <C>
555 Main Street o Suite 1212 Member National Association of Securities Dealers, Inc. Telephone (757) 623-4636
Norfolk, Virginia 23510 Member SIPC FAX (757) 623-1560
</TABLE>
[FORM OF]
OPINION OF McKINNON & COMPANY, INC.
April 6, 1998
Board of Directors
Rappahannock Bankshares, Inc.
257 Gay Street
Washington, Virginia 22747-0179
Dear Board Members:
In connection with the proposed affiliation of Rappahannock Bankshares,
Inc. ("RBS") with Union Bankshares Corporation ("Union") you have asked us to
render an opinion as to whether the financial terms of the Agreement and Plan of
Affiliation and Merger, including the Plan of Merger attached thereto (the
"Affiliation Agreement") dated as of February 25, 1998 between RBS and Union,
are fair, from a financial point of view, to the stockholders of RBS. The
Affiliation Agreement provides for the merger of RBS with and into Union and the
Rappahannock National Bank of Washington (the "Bank") shall become a
wholly-owned subsidiary of Union (the "Affiliation") and stockholders of RBS
will receive common stock of Union. Under the terms of the Affiliation
Agreement, upon consummation of the Merger, each share of common stock of RBS,
par value $100.000 per share, (other than those shares of RBS stockholders who
properly perfect their dissenters' rights), automatically shall become and be
converted into 158.209 shares of the common stock of Union, par value $4.00 per
share ("Union Common Stock"). Cash will be paid in lieu of fractional shares. As
of the date of the Affiliation Agreement, RBS had 1,000 shares of common stock
issued and outstanding. Under the terms of the Affiliation Agreement, and based
on the exchange ratio of 158.209 shares of Union for each share of RBS common
stock, an aggregate of 158,209 shares of Union may be issued for the RBS common
stock outstanding.
McKinnon & Company, Inc. ("McKinnon") is an investment banking firm
that specializes in Virginia community banks and thrifts. In ten years McKinnon
has been lead managing underwriter in approximately thirty-one public stock
offerings for Virginia community banks and thrifts and has served as financial
advisor, including providing fairness opinions, to numerous Virginia community
banks and thrifts. McKinnon, as part of its investment banking business, is
engaged in the evaluation of businesses, particularly banks, and their
securities, in connection with mergers and acquisitions, initial public
offerings, private placements and evaluations for estates and corporate
recapitalizations. McKinnon is also a market maker in Virginia community bank
stocks listed on NASDAQ and the OTC Bulletin Board. McKinnon believes it has a
thorough working knowledge of the banking industry throughout Virginia.
In developing our opinion, we have among other things, reviewed and
analyzed material bearing upon the financial and operating conditions of RBS,
Union, and, on a pro forma basis, RBS and Union combined, and material proposed
in connection with the Affiliation Agreement, including, among other things, the
following:
<PAGE>
Page 2
(1) the Agreement and Plan of Affiliation and Merger, dated as of
February 25, 1998 among RBS and Union;
(2) the registration statement filed with the Securities and Exchange
Commission in connection with the proposed Merger, including a prospectus
relating to 158,209 shares of common stock of Union, and the Proxy Statement
relating to a special meeting of stockholders of RBS to be held on
_____________, 1998; and
(3) RBS's and Union's financial results for fiscal years 1990 through
1997, and certain documents and information we deem relevant to our analysis;
(4) held discussions with senior management of RBS and Union regarding
past and current business operations of, and outlook for, RBS, Union, including
trends, the terms of the proposed Merger, and related matters;
(5) reviewed the reported price and trading activity of RBS and Union
Common Stock and compared financial and stock market information (when
available) for RBS and Union with similar information for certain other
companies, and securities for which are publicly traded;
(6) reviewed the financial terms of certain recent business
combinations which we deemed comparable in whole or in part;
(7) performed such other studies and analyses as we considered
appropriate, including an analysis of the pro forma financial impact of the
Merger on RBS and Union;
(8) reviewed other published information, performed certain financial
analyses and considered other factors and information which we deem relevant.
In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of the information furnished to
us by or on behalf of RBS and Union. We have not attempted independently to
verify such information, nor have we made any independent appraisal of the
assets of RBS or Union. We have taken into account our assessment of general
economic, financial market and industry conditions as they exist and can be
evaluated at the date hereof, as well as our experience in business valuation in
general.
We have been retained by you as a financial advisor to RBS with respect
to the proposed Merger. In the normal course of business McKinnon & Company,
Inc. is a market maker in the common stock of Union listed on the NASDAQ
National Market. Our opinion is directed to the Board of Directors of RBS. We
participated in some of the discussions but we did not recommend the structure
or give any opinion regarding the business reasons for doing this proposed
Merger.
On the basis of our analysis and review and in reliance on the accuracy
and completeness of the information furnished to us and subject to the
conditions noted above, it is our opinion that, as of the date hereof, the terms
of the Affiliation Agreement are fair, from a financial point of view, to the
holders of RBS Common Stock.
Very truly yours,
McKinnon & Company, Inc.
<PAGE>
ANNEX C
Article 15 of the Virginia Stock Corporation Act
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.ss. 13.1-732 through 13.1-739.
"Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
"Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
"Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial
shareholder.
ss. 13.1-730. Right to dissent.
A. A shareholder is entitled to dissent from, and obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions:
<PAGE>
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 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 Quotation 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
<PAGE>
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 2 a and 2 b of this subsection; or
3. The transaction to be voted on is an "affiliated transaction" and is
not approved by a majority of "disinterested directors" as such terms are
defined in ss. 13.1-725.
D. The right of a dissenting shareholder to obtain payment of the fair
value of his shares shall terminate upon the occurrence of any one of the
following events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
3. His demand for payment is withdrawn with the written consent of the
corporation.
ss. 13.1-731. Dissent by nominees and beneficial owners.
A. A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
1. He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
2. He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
ss. 13.1-732. Notice of dissenters' rights.
A. If proposed corporate action creating dissenters' rights under ss.
13.1-730 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under ss. 13.1-730
is taken without a vote of shareholders, the corporation, during the ten-day
<PAGE>
period after the effectuation of such corporate action, shall notify in writing
all record shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in ss. 13.1-734.
ss. 13.1-733. Notice of intent to demand payment.
A. If proposed corporate action creating dissenters' rights under ss.
13.1-730 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights (i) shall deliver to the corporation before
the vote is taken written notice of his intent to demand payment for his shares
if the proposed action is effectuated and (ii) shall not vote such shares in
favor of the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A
of this section is not entitled to payment for his shares under this article.
ss. 13.1-734. Dissenters' notice.
A. If proposed corporate action creating dissenters' rights under ss.
13.1-730 is authorized at a shareholders' meeting, the corporation, during the
ten-day period after the effectuation of such corporate action, shall deliver a
dissenters' notice in writing to all shareholders who satisfied the requirements
of ss. 13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
3. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before or
after that date;
4. Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the date
of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article.
ss. 13.1-735. Duty to demand payment.
A. A shareholder sent a dissenters' notice described in ss. 13.1-734
shall demand payment, certify that he acquired beneficial ownership of the
<PAGE>
shares before or after the date required to be set forth in the dissenters'
notice pursuant to subdivision 3 of subsection B of ss. 13.1-734, and, in the
case of certificated shares, deposit his certificates in accordance with the
terms of the notice.
B. The shareholder who deposits his shares pursuant to subsection A of
this section retains all other rights of a shareholder except to the extent that
these rights are canceled or modified by the taking of the proposed corporate
action.
C. A shareholder who does not demand payment and deposits his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
ss. 13.1-736. Share restrictions.
A. The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received.
B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder except to the
extent that these rights are canceled or modified by the taking of the proposed
corporate action.
ss. 13.1-737. Payment.
A. Except as provided in ss. 13.1-738, within thirty days after receipt
of a payment demand made pursuant to ss. 13.1-735, the corporation shall pay the
dissenter the amount the corporation estimates to be the fair value of his
shares, plus accrued interest. The obligation of the corporation under this
paragraph may be enforced (i) by the circuit court in the city or county where
the corporation's principal office is located, or, if none in this Commonwealth,
where its registered office is located or (ii) at the election of any dissenter
residing or having its principal office in the Commonwealth, by the circuit
court in the city or county where the dissenter resides or has its principal
office. The court shall dispose of the complaint on an expedited basis.
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.
<PAGE>
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 to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under ss. 13.1-739.
ss. 13.1-739. Procedure if shareholder dissatisfied with payment or
offer.
A. A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate (less any payment under ss. 13.1-737), or reject the
corporation's offer under ss. 13.1-738 and demand payment of the fair value of
his shares and interest due, if the dissenter believes that the amount paid
under ss. 13.1-737 or offered under ss. 13.1-738 is less than the fair value of
his shares or that the interest due is incorrectly calculated.
B. A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection A
of this section within thirty days after the corporation made or offered payment
for his shares.
ss. 13.1-740. Court action.
A. If a demand for payment under ss. 13.1-739 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the circuit court in the city or county described in
subsection B of this section to determine the fair value of the shares and
accrued interest. If the corporation does not commence the proceeding within the
sixty-day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
B. The corporation shall commence the proceeding in the city or county
where its principal office is located, or, if none in this Commonwealth, where
its registered office is located. If the corporation is a foreign corporation
without a registered office in this Commonwealth, it shall commence the
proceeding in the city or county in this Commonwealth where 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
<PAGE>
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.
ss. 13.1-741. Court costs and counsel fees.
A. The court in an appraisal proceeding commenced under ss. 13.1-740
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters did not act in good faith in demanding
payment under ss. 13.1-739.
B. The court may also assess the reasonable fees and expenses of
experts, excluding those of counsel, for the respective parties, in amounts the
court finds equitable:
1. Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of ss.ss. 13.1-732 through 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
<PAGE>
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.
<PAGE>
RAPPAHANNOCK BANKSHARES, INC.
Index To Financial Statements
Independent Accountants' Report F-2
Consolidated Statements of Financial Condition
as of December 31, 1997 and 1996 F-3
Consolidated Statements of Income for the Years
Ended December 31, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Rappahannock Bankshares, Inc. and Subsidiary
Washington, Virginia
We have audited the accompanying balance sheet of Rappahannock Bankshares, Inc.
(a Virginia corporation) as of December 31, 1997 and the related statements of
income, retained earnings, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rappahannock Bankshares, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
The 1996 financial statements were reviewed by us and our report thereon dated
January 7, 1997 stated that we were not aware of any material modifications that
should be made to those statements for them to be in conformity with generally
accepted accounting principles. However, a review is substantially less in scope
than an audit and does not provide a basis for the expression of an opinion on
the financial statements taken as a whole.
/s/ S. B. Hoover & Company, L.L.P.
Harrisonburg, Virginia
January 20, 1998, except Note 14
which is as of February 25, 1998
F-2
<PAGE>
RAPPAHANNOCK BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
(Audited) (Unaudited)
--------- -----------
<S> <C>
Cash and due from banks $ 811,658 $ 632,709
Interest bearing deposits in banks 95,000 100,000
Federal funds sold 6,320,000 5,750,000
Securities held to maturity 7,328,958 5,020,597
Securities available for sale 1,593,958 3,546,390
Other investments 55,475 43,748
Loans, net of unearned income 4,012,794 3,760,753
Less: Allowance for loan losses (232,617) (224,267)
------------- -------------
Net Loans 3,780,177 3,536,486
Bank premises and equipment, net 43,710 52,531
Accrued interest receivable 125,373 95,041
Deferred income taxes 60,825 60,865
Other assets 20,066 50,903
------------- -------------
Total Assets $ 20,235,200 $ 18,889,270
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits - Noninterest bearing $ 4,744,468 $ 4,308,395
Deposits - Interest bearing
Savings 8,320,730 8,470,306
Certificates of deposit of less than $100,000 1,297,330 1,085,332
Certificates of deposit of $100,000 or more 2,750,000 2,101,101
------------- -------------
Total Deposits 17,112,528 15,965,134
Other Liabilities 203,167 146,108
------------- -------------
Total Liabilities 17,315,695 16,111,242
------------- -------------
Stockholders' Equity
Common stock, $100 par value, 1,000 shares
authorized, issued and outstanding 100,000 100,000
Surplus 200,000 200,000
Retained earnings 2,623,370 2,490,582
Net unrealized losses on securities available for sale (3,865) (12,554)
------------- -------------
Total Stockholders' Equity 2,919,505 2,778,028
------------- -------------
Total Liabilities and Stockholders' Equity $ 20,235,200 $ 18,889,270
============= =============
</TABLE>
See Accountants' Report.
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
RAPPAHANNOCK BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
(Audited) (Unaudited)
--------- -----------
<S> <C>
Interest Income
Interest and fees on loans $ 337,025 $ 376,656
Interest on federal funds sold 185,015 201,747
Interest on bank deposits 6,592 2,548
Interest on investment securities
Taxable 439,813 411,265
Nontaxable 90,376 79,900
------------ ------------
Total Interest Income 1,058,821 1,072,116
------------ ------------
Interest Expense
Savings 201,644 244,659
Time deposits, $100,000 and over 64,006 27,456
Other time deposits 51,509 48,190
------------ ------------
Total Interest Expense 317,159 320,305
------------ ------------
Net Interest Income 741,662 751,811
Provision for Loan Losses -0- -0-
Net Interest Income After Provision for
Loan Losses 741,662 751,811
------------ ------------
Other Income
Service charges on deposit accounts 107,786 103,302
Other operating income 8,157 10,423
------------ ------------
Total Other Income 115,943 113,725
------------ ------------
Other Expenses
Salaries and employee benefits 288,130 283,792
Occupancy expenses 5,657 5,256
Furniture and equipment expenses 27,181 30,056
Data processing expenses 61,011 60,265
Other operating expenses 106,310 101,170
------------ ------------
Total Other Expenses 488,289 480,539
------------ ------------
Income Before Income Taxes 369,316 384,997
Income tax expense 86,528 102,183
------------ ------------
Net Income $ 282,788 $ 282,814
============ ============
Net Income per Share $ 282.79 $ 282.82
============ ============
Average Shares Outstanding 1,000 1,000
=========== ===========
</TABLE>
See Accountants' Report.
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
RAPPAHANNOCK BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31 1997 AND 1996
(AUDITED FOR 1997, UNAUDITED FOR 1996)
<TABLE>
<CAPTION>
Net
Unrealized
Gains
(Losses) on
Securities
Common Retained Available
Stock Surplus Earnings for Sale Total
------ ------- -------- ----------- -----
<S> <C>
Balance, December 31, 1995 $ 100,000 $ 200,000 $ 2,357,768 $ 6,575 $ 2,664,343
Net income 282,814 282,814
Dividends on common stock (150,000) (150,000)
Change in net unrealized
gains and losses on
securities available
for sale (19,129) (19,129)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 100,000 200,000 2,490,582 (12,554) 2,778,028
Net income 282,788 282,788
Dividends on common stock (150,000) (150,000)
Change in net unrealized
gains and losses on
securities available
for sale 8,689 8,689
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 $ 100,000 $ 200,000 $ 2,623,370 $ (3,865) $ 2,919,505
============ ============ ============ ============ ============
</TABLE>
See Accountants' Report.
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
RAPPAHANNOCK BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
(Audited) (Unaudited)
--------- -----------
<S> <C>
Cash Flows From Operating Activities
Net income $ 282,788 $ 282,814
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,223 12,704
Deferred income taxes (4,436) 3,465
Premium amortization on securities, net 21,253 9,835
Decrease in other assets 505 (9,885)
Increase (decrease) in other liabilities 57,059 (80,161)
------------- -------------
Total adjustments 83,604 (64,042)
------------- -------------
Net Cash Provided by Operating Activities 366,392 218,772
------------- -------------
Cash Flows From Investing Activities
Purchase of interest bearing deposits in banks (95,000) (100,000)
Maturity of interest bearing deposits in banks 100,000 94,000
Proceeds from maturities of securities held to maturity 4,559,201 6,950,000
Proceeds from maturities of securities available for sale 3,150,000 2,577,227
Purchases of securities held to maturity (7,784,945) (7,721,327)
Purchases of securities available for sale (300,000) (979,149)
Increase in federal funds sold (570,000) (2,575,000)
Net (increase) decrease in loans (243,691) 570,357
Purchase of premises and equipment (402) (2,444)
------------- -------------
Net Cash Used in Investment Activities (1,184,837) (1,186,336)
------------- -------------
Cash Flows From Financing Activities
Net increase in demand and savings deposits 286,497 417,561
Net increase in time deposits 860,897 224,337
Cash dividends paid (150,000) (175,000)
------------- -------------
Net Cash Provided by Financing Activities 997,394 466,898
------------- -------------
Net Increase (Decrease) in Cash and Due from Banks 178,949 (500,666)
Cash and Due from Banks
Beginning 632,709 1,133,375
------------- -------------
Ending $ 811,658 $ 632,709
============= =============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors $ 314,776 $ 319,649
Income taxes $ 73,766 $ 191,265
</TABLE>
See Accountants' Report.
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
RAPPAHANNOCK BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS
Rappahannock Bankshares, Inc. is a bank holding company for its
wholly-owned subsidiary, Rappahannock National Bank (the Bank).
The Bank operates under a federal charter and is supervised by the
Office of the Comptroller of the Currency and the Federal Deposit
Insurance Corporation. The Bank provides normal banking services,
excluding trust services. The Bank provides services primarily to
customers located in Rappahannock County, Virginia.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies used by the Bank conform to
generally accepted accounting principles and practices within the
banking industry.
Principles of Consolidation
The consolidated financial statements of Rappahannock Bankshares,
Inc. and Rappahannock National Bank include the accounts of both
companies. All material intercompany balances and transactions
have been eliminated.
Use of Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities and the reported revenues and expenses. A
material estimate which is sensitive to changes in local economic
conditions is the determination of the allowance for loan losses.
Future adjustments to the allowance may be necessary based on
changes in local economic conditions.
Securities
The Company accounts for security investments under Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Management has
reviewed the securities portfolio and classified all securities as
either held to maturity or available for sale. Securities that the
Company has both the positive intent and ability to hold to
maturity (at time of purchase) are classified as held to maturity
securities. All other securities are classified as available for
sale. Securities held to maturity are carried at historical cost
and adjusted for amortization of premiums and accretion of
discounts, using the straight-line method. Securities available
for sale are carried at fair value with any valuation adjustments
reported, net of deferred taxes, as a separate component of
stockholders' equity.
Interest and dividends on securities and amortization of premiums
and discounts on securities are reported as interest income. Gains
(losses) realized on sales and calls of securities are determined
on the specific identification method and are reported as gains
(losses) on security transactions in the noninterest income
section of the income statement.
See Accountants' Report.
F-7
<PAGE>
RAPPAHANNOCK BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans
Interest on all loans is accrued based on the loan balance
outstanding using the simple interest method. Interest on loans
that are contractually past due more than 90 days is not
recognized as income until received. Income is subsequently
recognized only to the extent that cash payments are received
until, in management's judgement, the borrower's ability to
service the loan as agreed returns in which case the loan is
returned to accrual status.
Provision for Loan Losses
For financial reporting purposes, the allowance for possible loan
losses is increased by provisions charged to operating expenses
and reduced by loans charged-off, net of recoveries. The allowance
is maintained at a level considered adequate to provide for
potential loan losses based on management's evaluation of the loan
portfolio.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation of property and
equipment is computed principally on the straight-line method over
the following useful lives:
Buildings and improvements 5 - 25 years
Furniture and equipment 5 years
Income Taxes
The provision for income taxes charged against earnings relates to
all items of revenues and expenses recognized for financial
reporting purposes during the year. The actual current tax
liability may be different than the charge against earnings due to
the effect of temporary differences between financial and tax
accounting resulting in deferred income taxes.
Pension Plan
The Bank has a trusteed, noncontributory, defined benefit pension
plan covering substantially all full-time employees. The Bank
annually charges to operations the net pension expense based on
the actuarially determined obligation as of year end.
Earnings and Dividends Paid Per Share
Earnings per share computations are based on the weighted average
number of shares outstanding during each year.
Presentation of Cash Flows
For purposes of reporting cash flows, cash and due from banks
include cash on hand and demand deposits held by other
institutions, including cash items in process of clearing.
See Accountants' Report.
F-8
<PAGE>
RAPPAHANNOCK BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 RESTRICTED CASH BALANCES
The subsidiary Bank maintains reserves in the form of cash and
balances with the Federal Reserve Bank against its deposit
liabilities. Aggregate reserves of the subsidiary (in the form of
cash and deposits with the Federal Reserve Bank) of approximately
$275,000 were maintained to off-set reserve bank charges at
December 31, 1997.
NOTE 4 INVESTMENT SECURITIES
The amortized cost and estimated fair value of securities are as
follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C>
Held to Maturity
December 31, 1997
U. S. Treasury securities $ 1,798,430 $ 10,102 $ $ 1,808,532
U. S. Agency securities 3,530,499 16,550 180 3,546,869
Obligations of states and
political subdivisions 2,000,029 20,916 209 2,020,736
------------- ----------- ----------- -------------
$ 7,328,958 $ 47,568 $ 389 $ 7,376,137
============= =========== =========== =============
December 31, 1996
U. S. Treasury securities $ 2,340,146 $ 8,943 $ 616 $ 2,348,473
U. S. Agency securities 750,171 500 72 750,599
Obligations of states and
political subdivisions 1,930,280 12,491 5,085 1,937,686
------------- ----------- ----------- -------------
$ 5,020,597 $ 21,934 $ 5,773 $ 5,036,758
============= =========== =========== =============
Available for Sale
December 31, 1997
U. S. Treasury securities $ 299,988 $ 575 $ $ 300,563
U. S. Government agencies 1,299,826 6,431 1,293,395
------------- ----------- ----------- -------------
$ 1,599,814 $ 575 $ 6,431 $ 1,593,958
============= =========== =========== =============
December 31, 1996
U. S. Treasury securities $ 1,264,435 $ 1,749 $ 2,248 $ 1,263,936
U. S. Government agencies 2,300,975 3,686 22,207 2,282,454
------------- ----------- ----------- -------------
$ 3,565,410 $ 5,435 $ 24,455 $ 3,546,390
============= =========== =========== =============
</TABLE>
See Accountants' Report.
F-9
<PAGE>
RAPPAHANNOCK BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated fair value of fixed rate
investment securities as of December 31, 1997, by contractual
maturity, are shown below:
<TABLE>
<CAPTION>
Amortized Fair
Securities Held to Maturity Cost Value
--------------------------- --------- -----
<S> <C>
Due in one year or less $ 1,304,534 $ 1,307,746
Due after one year through five years 5,913,480 5,956,193
Due after ten years 110,944 112,198
------------- -------------
$ 7,328,958 $ 7,376,137
============= =============
Securities Available for Sale
Due in one year or less $ 299,988 $ 300,563
Due after one year through five years 1,299,826 1,293,395
------------- -------------
$ 1,599,814 $ 1,593,958
============= =============
</TABLE>
Other investments consist of stock in the Federal Reserve Bank and
interests in two limited liability companies which participate in
low income housing projects. The carrying values of these
investments approximate fair value.
There were no sales of securities during 1997 or 1996.
Investment securities with a carrying value of $8,442,957 and
$5,983,330 and a market value of $8,463,381 and $5,984,806 at
December 31, 1997 and 1996, respectively, were pledged as
collateral on public deposits and for other purposes as required
by law.
NOTE 5 LOANS, NET
Major classifications of loans are as follows:
1997 1996
---- ----
Real estate
Construction $ 527,446 $ 211,617
Mortgage 3,041,507 3,017,407
Commercial and agricultural 62,734 181,700
Installment 381,107 350,029
------------- -------------
Net Loans 4,012,794 3,760,753
Allowance for loan losses (232,617) (224,267)
------------- -------------
Loans, Net of Allowance $ 3,780,177 $ 3,536,486
============= =============
See Accountants' Report.
F-10
<PAGE>
RAPPAHANNOCK BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C>
Balance, beginning of year $ 224,267 $ 213,602
Recoveries added to the reserve 9,593 10,665
Loan losses charged to the reserve (1,243)
------------- -----------
Balance, End of Year $ 232,617 $ 224,267
============= ===========
</TABLE>
NOTE 7 BANK PREMISES AND EQUIPMENT, NET
The major classes of bank premises and equipment and the total
accumulated depreciation and amortization are as follows:
1997 1996
---- ----
Land $ 25,000 $ 25,000
Buildings and improvements 89,106 89,106
Furniture and equipment 153,522 153,121
------------- -----------
267,628 267,227
Less accumulated depreciation (223,918) (214,696)
------------- -----------
Bank premises and equipment, net $ 43,710 $ 52,531
============= ===========
Depreciation included in operating expenses for 1997 and
1996, were $9,223 and $12,704, respectively.
NOTE 8 DEPOSITS
At December 31, 1997, the scheduled maturities of certificates of
deposit are as follows:
1998 $ 3,255,644
1999 601,442
2000 34,012
2001 24,574
2002 131,658
-------------
Total $ 4,047,330
=============
See Accountants' Report.
F-11
<PAGE>
RAPPAHANNOCK BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 INCOME TAXES
Income tax expense and its components are as follows:
1997 1996
---- ----
Components of income tax expense:
Current expense $ 90,964 $ 98,718
Deferred income tax (benefit) (4,436) 3,465
----------- -----------
$ 86,528 $ 102,183
=========== ===========
The following is a summary of the net deferred income taxes
receivable:
1997 1996
---- ----
Deferred Tax Assets:
Loan loss provision $ 35,907 $ 35,907
Pension liability 23,195 17,849
Unrealized loss on
securities available for sale 1,991 6,467
Other (268) 642
----------- -----------
Net Deferred Asset $ 60,825 $ 60,865
=========== ===========
The following is a reconciliation of the expected statutory tax
rate with the reported tax:
1997 1996
---- ----
Statutory tax rate 34% 34%
Decrease in tax rate resulting from:
Tax-exempt interest, net of disallowed
interest expense (8) (6)
Low income housing credit (2) (1)
Other, net (1)
---- -----
23% 27%
===== =====
See Accountants' Report.
F-12
<PAGE>
RAPPAHANNOCK BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 DEFINED BENEFIT PENSION PLAN
The components of the pension cost charged to expense consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C>
Service cost $ 25,761 $ 21,817
Interest cost on projected benefit obligation 16,462 12,920
Return on plan assets (57,833) (23,411)
Net amortization 31,334 (1,819)
----------- -----------
Net Pension Cost $ 15,724 $ 9,507
=========== ===========
</TABLE>
The following table sets forth the plan's funded status as of
September 30, 1997 and 1996, respectively, and the liability
recognized in the accompanying statements of financial condition
as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation $ 105,944 $ 156,530
=========== ===========
Vested benefit obligation $ 105,944 $ 156,130
=========== ===========
Projected benefits $ (171,159) $ (219,497)
Plan assets at fair value 224,517 239,669
----------- -----------
Excess of plan assets over projected
benefit obligation 53,358 20,172
Unrecognized net gain (157,783) (135,104)
Deferred transition gain 2,738 3,012
Unrecognized prior service cost 33,467 36,813
----------- -----------
Liability on statements of financial condition $ (68,220) $ (75,107)
=========== ===========
</TABLE>
The benefit formula is computed as a percentage of the final
five-year average earnings times total years of service, with a
maximum of 35 years and a reduced percentage for service over 25
years.
The pension plan assets are held in a balanced fund which includes
marketable equity securities, debt securities, and money market
certificates.
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present
value of the benefit obligations for 1997 were 7.5% and 5.0%,
respectively. In the prior year, the weighted average discount
rate had been 7.5% and the increase in future compensation had
been estimated at 6.0%. The expected long-term rate of return on
plan assets in both years was 9.0%.
See Accountants' Report.
F-13
<PAGE>
RAPPAHANNOCK BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 CONTINGENT LIABILITIES AND COMMITMENTS
The Bank's consolidated financial statements do not reflect
various commitments and contingent liabilities which arise in the
normal course of business and which involve elements of credit
risk, interest rate risk and liquidity risk. These commitments and
contingent liabilities include commitments to extend credit and to
contribute additional capital to a limited liability company
(LLC). Such financial instruments are recorded in the financial
statements when they are funded or related fees are incurred or
received. A summary of the Bank's commitments and contingent
liabilities at December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
Notional Amounts
----------------
1997 1996
---- ----
<S> <C>
Commitments to extend credit $ 119,000 $ 385,000
Commitments to contribute capital to LLC $ 37,598 $ 56,000
</TABLE>
Commitments to extend credit include exposure to some credit loss
in the event of nonperformance of the customer. The Bank's credit
policies and procedures for credit commitments and financial
guarantees are the same as those for extension of credit that are
recorded on the consolidated statements of condition. Because
these instruments have fixed maturity dates, and because many of
them expire without being drawn upon, they do not generally
present any significant liquidity risk to the Bank. The Bank's
experience has been that approximately ninety percent of loan
commitments are drawn upon by customers. The Bank has not incurred
any losses on its commitments in either 1997 or 1996.
As is the case with most businesses in the world, the Bank faces
the need to insure that its data processing will not be
interrupted when the year 2000 begins ("The Millenium Problem").
As a regulated financial institution, the Bank is required to
develop a plan to address data processing changes that will be
needed in order to insure that data processing errors do not
occur. This is referred to as a Year 2000 Plan and such a plan
includes assessing the adequacy of current software, the steps
vendors are taking to upgrade their software and data processing
capabilities and the need to upgrade hardware. The Bank has
developed such a plan to review its exposure and believes that it
should have no problems meeting the year 2000 changes that will
be required.
NOTE 12 CONCENTRATIONS OF CREDIT
The Bank grants agribusiness, commercial, consumer and residential
loans primarily to customers throughout Rappahannock County,
Virginia. The loan portfolio is well diversified and generally is
collateralized by assets of the customers. The loans are expected
to be repaid from cash flow or proceeds from the sale of selected
assets of the borrowers. The concentrations of credit by type of
loan are set forth in Note 5. The distribution of commitments to
extend credit approximates the distribution of loans outstanding.
The Bank had deposits in and federal funds sold to correspondent
banking institutions that exceed FDIC insurance levels. These
uninsured amounts totaled $6,320,000 and $5,750,000 at December
31, 1997 and 1996, respectively.
See Accountants' Report.
F-14
<PAGE>
RAPPAHANNOCK BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 REGULATORY MATTERS
The subsidiary Bank, as a national bank, is subject to the
dividend restrictions set forth by the Comptroller of the
Currency. Under such restrictions, the Bank may not, without the
prior approval of the Comptroller of the Currency, declare
dividends in excess of the sum of the current year's earnings plus
the retained earnings from the prior two years. The dividends, as
of December 31, 1997, that the Bank could declare, without the
approval of the Comptroller of the Currency, amounted to
approximately $265,700. The Bank declared dividends to the parent
company of $150,000 for the years ended December 31, 1997 and
1996.
The Bank is also required to maintain minimum amounts of capital
to total "risk weighted" assets, as defined by the banking
regulators. At December 31, 1997, the Bank is required to have
minimum Tier 1 and Total capital ratios of 4.00% and 8.00%,
respectively. The Bank's actual ratios at that date were 45.64%
and 46.93%, respectively. The Bank's leverage ratio at December
31, 1997, was 15.77%.
NOTE 14 SUBSEQUENT EVENT
On February 25, 1998, the Board of Directors of the Company
announced that it had reached a definitive agreement with Union
Bankshares Corporation of Bowling Green, Virginia ("Union") to
support Union's offer of 158.209 shares of Union stock in exchange
for each share outstanding of the Company's stock. Based on the
price of Union's stock on January 26, 1998, the exchange ratio
equates to a value of approximately $6,500 per share for each
share of Rappahannock Bankshares, Inc. stock that is outstanding.
Subject to the approval of shareholders and appropriate regulatory
agencies, the merger is expected to take place in the summer of
1998.
See Accountants' Report.
F-15
<PAGE>
Part II
Item 20. Indemnification of Directors and Officers.
The laws of the Commonwealth of Virginia pursuant to which the Company
is incorporated permit it to indemnify its officers and directors against
certain liabilities with the approval of its shareholders. The articles of
incorporation of the Company, which have been approved by its shareholders,
provide for the indemnification of each director and officer (including former
directors and officers and each person who may have served at the request of the
Company as a director or officer of any other legal entity and, in all such
cases, his or her heirs, executors and administrators) against liabilities
(including expenses) reasonably incurred by him or her in connection with any
actual or threatened action, suit or proceeding to which he or she may be made
party by reason of his or her being or having been a director or officer of the
Company, except in relation to any action, suit or proceeding in which he or she
has been adjudged liable because of willful misconduct or a knowing violation of
the criminal law.
The Company has purchased officers' and directors' liability
insurance policies. Within the limits of their coverage, the policies insure (1)
the directors and officers of the Company against certain losses resulting from
claims against them in their capacities as directors and officers to the extent
that such losses are not indemnified by the Company and (2) the Company to the
extent that it indemnifies such directors and officers for losses as permitted
under the laws of Virginia.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibit Index
Exhibit No. Description of Exhibit
1 Not Applicable
2 Agreement and Plan of Affiliation, dated February
25, 1998, between Union Bankshares Corporation
("Union") and Rappahannock Bankshares, Inc.
("RBS") and a related Plan of Merger, filed as Annex
A to the Proxy Statement/Prospectus included in this
Registration Statement.
3.1 Articles of Incorporation of Union. Incorporated
herein by reference to Exhibit 3.1 to Union's
Registration Statement on Form S-4 (Registration No.
33-60458).
3.2 Bylaws of Union. Incorporated herein by reference to
Exhibit 3.1 to Union's Registration Statement on Form
S-4 (Registration No. 33-60458).
5 Opinion of Mays & Valentine, L.L.P. regarding the
legality of the securities being registered and
consent.
8.1 Form of tax opinion of Williams, Mullen, Christian &
Dobbins regarding the tax-free nature of the merger
between Union and RBS [to be filed by amendment].
10 Proposed Employment Agreement between Registrant
and John R. Conry, Jr. (condition upon consummation
of the transaction described in Proxy
Statement/Prospectus)
13.1 Union's Annual Report on Form 10-K for the year ended
December 31, 1997 (incorporated by reference to
filing with the Commission on March 31, 1998).
13.2 Union's Annual Report to Shareholders (incorporated
by reference to filing with the Commission on March
31, 1998; copies of which are to be mailed to
shareholders of RBS along with the Proxy
Statement/Prospectus).
21 Subsidiaries of Union: Union Bank & Trust Company;
Northern Neck State Bank; King George State Bank and
Union Investment Services. Each of the foregoing
subsidiaries of Union are Virginia corporations and
are wholly-owned by Union.
<PAGE>
Exhibit No. Description of Exhibit
23.1 Consent of KPMG Peat Marwick LLP, as independent
auditors for Union.
23.2 Consent of S.B. Hoover & Company,
L.L.P., as accountants for RBS.
23.3 Consent of Mays & Valentine, L.L.P. (included as
part of Exhibit 5).
23.4 Consent of McKinnon & Company, Inc. relating to
inclusion of its opinion given to RBS in the Proxy
Statement/Prospectus included in this Registration
Statement.
24 Powers of Attorney (included in Part II of this
Registration Statement).
99 Form of proxy of RBS.
(b) No financial statement schedules are required to be filed herewith
pursuant to Item 21(b) of this Form.
Item 22. Undertakings
(a) Item 512 of Regulation S-K.
Rule 415 Offerings. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) 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) 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) 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.
Registration on Form S-4.
(1) The undersigned registrant hereby undertakes as follows: That prior
to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by
any person or party which is deemed to be an underwriter within
<PAGE>
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Request for Acceleration of Effective Date or Filing Registration
Statement on Form S-8.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payments by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(b) Item 22(b) of Form S-4
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(c) Item 22(c) of Form S-4
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became effective.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the Town of Bowling
Green, Commonwealth of Virginia on April 6, 1998.
UNION BANKSHARES CORPORATION
By: /s/ G. William Beale
--------------------------------------------
G. William Beale, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below constitutes and appoints G. William
Beale and D. Anthony Peay, and each of them singly, as his or her true and
lawful attorneys-in-fact and agents, with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to sign
any and all registration statements or applications to the Securities and
Exchange Commission, the regulatory authorities of any state in the United
States or any other regulatory authorities as may be necessary to permit shares
of Common Stock of the Company to be offered in the United States in connection
with the proposed merger of Rappahannock Bankshares, Inc. with the Company,
including without limitation any and all amendments or post-effective amendments
to this registration statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission or any other such regulatory authority, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite or necessary to be done to enable Union Bankshares
Corporation to comply with the provisions of the Securities Act of 1933, and all
requirements of the Securities and Exchange Commission as well as all other
laws, rules and regulations relating to the offer and sale of securities.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- -----
<S> <C>
/s/ G. William Beale President and Chief Executive Officer and Director April 6, 1998
- ------------------------------ (Principal Executive Officer)
G. William Beale
/s/ E. Peyton Motley Executive Vice President and Chief Operating Officer April 6, 1998
- ------------------------------ and Director
E. Peyton Motley
/s/ D. Anthony Peay Vice President and Chief Financial Officer (Principal April 6, 1998
- ------------------------------ Financial and Accounting Officer)
D. Anthony Peay
Chairman of the Board and Director April 6, 1998
- ------------------------------
Walton Mahon
/s/ Charles H. Ryland Vice Chairman of the Board and Director April 6, 1998
- ------------------------------
Charles H. Ryland
Director April 6, 1998
- ------------------------------
W. Tayloe Murphy, Jr.
Signature Capacity Date
--------- -------- ----
<CAPTION>
Director April 6, 1998
- ------------------------------
Ronald L. Hicks
/s/ Homer L. Hite Director April 6, 1998
- ------------------------------
Homer L. Hite
/s/ M. Raymond Piland Director April 6, 1998
- ------------------------------
M. Raymond Piland
Director April 6, 1998
- ------------------------------
A. D. Whittaker
</TABLE>
EXHIBITS 5 AND 23.3
Mays & Valentine, L.L.P. Letterhead
[FORM OF OPINION]
804/697-1265 11992.016
April 7, 1998
Union Bankshares Corporation
212 N. Main Street
Bowling Green, Virginia 22427-0446
Gentlemen:
We have participated in the preparation of the Registration
Statement under the Securities Act of 1933 on Form S-4, including Exhibits (the
"Registration Statement"), of Union Bankshares Corporation ("Union") relating to
the registration of 158,209 shares of Union Common Stock, $4.00 par value, to be
issued by Union pursuant to the merger transaction by and between Rappahannock
Bankshares, Inc. and Union (the "Merger") in accordance with the Agreement and
Plan of Affiliation and Merger made as of February 25, 1998.
We have been requested to furnish an opinion to be included as
an exhibit to the Registration Statement. In connection with the furnishing of
our opinion, we have examined, among other things, the Articles of Incorporation
and Bylaws of Union. We have also examined the Agreement and Plan of Affiliation
and Merger, the minutes of the proceedings of the Board of Directors of Union,
the Registration Statement, and such other records and documents as we deem
pertinent.
Based on the foregoing, with regard to the legality of the
issuance of the Union Common Stock being registered under the Registration
Statement, it is our opinion that:
1. Union has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Virginia, with
full power and authority to carry on business in which it is now and will be
engaged.
2. The 158,209 shares of Union Common Stock being registered
under the Registration Statement pursuant to the Merger will, when issued, be
legally issued, fully paid and non-assessable.
<PAGE>
Union Bankshares Corporation
April 7, 1998
Page 2
We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as an exhibit to the Registration Statement
and to the reference to us under the caption "Legal Opinions" in the Proxy
Statement contained therein.
Sincerely,
/s/ Mays & Valentine, L.L.P.
EXHIBIT 10
THE RAPPAHANNOCK NATIONAL BANK
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered as of this
24th day of February, 1998, by and between THE RAPPAHANNOCK NATIONAL BANK, a
national banking association ("Bank"), and JOHN R. CONRY, JR. ("Executive"), and
is guaranteed by RAPPAHANNOCK BANKSHARES, INC., a Virginia corporation
("Rappahannock Bankshares").
RECITALS
A. The Bank currently employs Executive as Executive Vice President and
Chief Executive Officer pursuant to that certain employment agreement dated
April 21, 1997 by and between Executive and the Bank (the "1997 Bank Employment
Agreement").
B. Performance by the Bank of its financial obligations under the 1997
Employment Agreement is guaranteed by the Bank's parent, Rappahannock
Bankshares, pursuant to that certain employment agreement dated April 21, 1997
by and between Executive and Rappahannock Bankshares (the "1997 Holding Company
Employment Agreement").
C. Rappahannock Bankshares and Union Bankshares Corporation, a Virginia
corporation ("Union Bankshares"), have entered into a merger agreement dated
February 25, 1998 (the "Merger Agreement") under which Rappahannock Bankshares
will be merged into Union Bankshares and the Bank will become a wholly owned
subsidiary of Union Bankshares (the "Merger") effective as of the date provided
in the Merger Agreement (the "Effective Date of the Merger").
<PAGE>
D. The Merger Agreement provides that consummation of the Merger is
conditioned, in part, on Executive's entering into a new employment agreement,
and terminating the 1997 Bank Employment Agreement and the 1997 Holding Company
Employment Agreement, effective as of the Effective Date of the Merger.
E. The Bank desires to continue to employ Executive as of and after the
Effective Date of the Merger as its Executive Vice President and Chief Executive
Officer pursuant to the terms of this Agreement.
F. Executive, subject to the terms of this Agreement, desires to accept
such employment contingent on the consummation of the Merger pursuant to the
Merger Agreements or any amendments thereto.
In consideration of the foregoing and of the mutual agreements set
forth below the parties agree as follows:
1. Contingent on the consummation of the Merger pursuant to the
Merger Agreements or any amendments thereto, the parties agree that the 1997
Bank Employment Agreement and the 1997 Holding Company Employment Agreement
shall be terminated and shall cease to apply to Executive's employment by the
Bank and Rappahannock Bankshares, and that Executive's contractual employment
rights and duties and the obligations of the Bank, Rappahannock Bankshares and
Union Bankshares (in its capacity as successor in interest to Rappahannock
Bankshares after the Merger) to Executive shall be determined under this
Agreement, effective as of the Effective Date of the Merger. It is intended that
Rappahannock Bankshares and Union Bankshares be provided third party beneficiary
rights and be entitled to enforce the provisions of this Agreement.
<PAGE>
2. The Bank agrees to employ Executive as its Executive Vice
President and Chief Executive Officer. The Bank also agrees to annually nominate
Executive for election to its Board of Directors to serve until the next annual
meeting of shareholders. Continued membership on the Board of Directors shall be
subject to future shareholder election.
3. This Agreement shall become effective on the Effective Date
of the Merger, and shall continue through April 22, 2000 unless sooner
terminated in accordance with Section 10 below.
4. Executive shall diligently and conscientiously devote his
full time and attention as Executive Vice President and Chief Executive Officer
of the Bank to discharge the duties of a Chief Executive Officer in accordance
with the applicable policies as in effect from time to time for similarly
situated employees of subsidiaries of Union Bankshares. Executive will give his
best efforts to perform his duties in a competent and professional manner, to a
standard of care of a Chief Executive Officer of any other community bank of
similar size.
5. During the period of Executive's employment with the Bank,
the Bank shall pay the Executive a salary for all services to Bank, the amount
of which shall be fixed by the Board of Directors of the Bank from time to time
during such period, provided that in no event shall Executive's salary be at a
rate less than Seventy Four Thousand and 00/100 Dollars ($74,000.00) per year,
payable in at least semi-monthly installments. An incentive ("Incentive
Compensation") for Executive, in addition to whatever the Board of Directors may
award annually on a staff basis, will be based upon the following (All negative
provisions to the loan loss reserve will not be computed into net income):
If the return as a percentage of Average Assets (ROA), for the fiscal
year is 1.10 or more then an additional incentive compensation of
Executive will be 12% of each dollar above 1.00 ROA.
<PAGE>
(For example: Average assets for fiscal year $16,000,000, net income
(return) equals $176,000 or 1.10 ROA, then Executive incentive would be
12% of $16,000 or $1,920).
6. The Bank will reimburse Executive for all reasonable and
necessary expenses incurred by him in carrying out his duties under this
Agreement, including such reasonable expenses as may be required for Executive
to attend such educational and professional seminars, as are approved by the
Board of Directors of the Bank in the annual budget of the Bank or as are
otherwise available to similarly situated employees of subsidiaries of Union
Bankshares, to improve his skills in the performance of the duties required of
him hereunder. Executive shall present to the Bank from time to time an itemized
account of such expenses.
7. Executive shall be provided all employee benefits as are
provided by the Bank at the Effective Date of the Merger or as are provided from
time to time thereafter for similarly situated employees of other subsidiaries
of Union Bankshares. Executive shall be entitled to an annual vacation of four
(4) weeks each calendar year, during which time his compensation shall be paid
in full, with no more than three (3) consecutive weeks at one time. Subject to
the foregoing, any revisions to the personnel policy during the term of this
Agreement will apply to Executive, provided, however, that in any personnel
policy of the Bank, the trial period and length of notice required upon
resignation shall not be applicable. At the Effective Date of the Merger,
Executive will begin employment under this Agreement with prior sick leave and
vacation accruals as accumulated as of the day before the Effective Date of the
Merger, as recorded in personnel records of the Bank and go forward on the
defined schedule of the personnel policy, as in effect from time to time.
8. The Bank shall furnish Executive with suitable work
facilities, including but not limited to a private office, secretary, and all
bank facilities and records which may be required in the performance of the
Executive's duties hereunder.
<PAGE>
9. This Agreement shall inure to the benefit of and be binding
upon Executive and the Bank, Rappahannock Bankshares, their successors and
assigns.
10. This Agreement may be terminated in certain circumstances on
the following terms:
a. Should Executive die, or become disabled for a
period of ninety consecutive days during the term of this Agreement, the Bank
shall be obligated to pay any salary and benefits to which Executive may be
entitled until the end of the month in which the death occurs, or through the
ninetieth day of disability (or the elimination period under any long term
disability policy or program maintained by the Bank and in which Executive
participates, but in no event longer than 180 days), and not thereafter.
Executive agrees that all accumulated sick leave and vacation shall be exhausted
during the ninety day period of disability.
b. Executive may terminate this Agreement by giving
thirty (30) days written notice to the Bank. Upon receipt of such notice, the
Bank shall be obligated to pay any salary and benefits to which Executive may be
entitled until the date of termination and not thereafter.
c. As provided by 12 U.S.C. 24 paragraph fifth, the
Bank, by its Board of Directors, may dismiss Executive at pleasure.
11. Acknowledging the Bank's right to dismiss Executive at
pleasure, the Bank and Executive nevertheless agree that it is fair and
reasonable to provide Executive with certain financial protection in the event
he is dismissed by the Bank.
a. To that end, in the event Executive is
dismissed, the Bank agrees that it shall continue to make semi-monthly
payments to Executive, without interruption, in the amount of his then-current
monthly salary, that it will pay him an additional annual amount (prorated for
<PAGE>
any partial year) equal to his Incentive Compensation for the year preceding the
year of his termination, and that it will continue his employee benefits as in
effect for Bank employees from time to time at Bank's expense (or, if the
Executive is ineligible to participate in any such employee benefit plans, the
Bank may choose in lieu thereof to pay the Executive an amount equal to Bank's
cost for such benefits), through April 22, 2000. Employee benefits (or cash in
lieu thereof) otherwise receivable by the Executive pursuant to this paragraph
shall be reduced to the extent comparable benefits are actually received by the
Executive from any other source attributable to his employment, and any such
employee benefits actually received by the Executive shall be reported promptly
by the Executive to the Bank.
b. Notwithstanding the foregoing, the Bank is
under no obligation to make such continuing payments or provide such
continuing benefits for a period longer than (12) months if Executive's
dismissal by the Bank's Board of Directors is for cause. For purposes of this
paragraph "cause" shall include the following:
i) gross incompetence, gross negligence, willful
misconduct in office or breach of a material fiduciary duty owed to the Bank or
any subsidiary or affiliate thereof;
ii) conviction of a felony, a crime of moral
turpitude or commission of an act of embezzlement or fraud against the Bank or
any subsidiary or affiliate thereof;
iii) any material breach by the Executive of a
material term of this Agreement, including, without limitation, material
failure to perform a substantial portion of his duties and
responsibilities hereunder; or
iv) deliberate dishonesty of the Executive
with respect to the Bank or any subsidiary or affiliate thereof.
<PAGE>
For purposes of this paragraph, Executive's voluntarily termination of his
employment with the Bank within ninety (90) days after a reduction in
Executive's pay without cause, or a change in Executive's duties or
responsibilities in the nature of a demotion without cause, or the failure of
any successor in interest of the Bank or Rappahannock Bankshares to assume their
respective obligations under this Agreement, shall be deemed equivalent to being
dismissed by the Bank without cause.
c. Notwithstanding any other provisions of this
Agreement, Executive acknowledges that the obligation of Bank to pay
compensation and provide benefits following dismissal may not be enforceable
under existing law.
12. Notwithstanding any other provisions of this Agreement,
Executive's refusal to move outside of Rappahannock County shall not constitute
"cause" for termination. Executive shall not be moved to any affiliate of Union
Bankshares (or any successor in interest) outside of Rappahannock County without
his consent. In the event of any such move to which Executive consents, his
then-current salary shall be increased by ten percent (10%) at the time of such
move (and not thereafter reduced), and the Bank or its successor shall pay all
of Executive's moving expenses and temporary relocation expenses associated with
such move.
13. This agreement and the rights and obligations hereunder
shall be governed by the laws of the Commonwealth of Virginia and the United
States of America.
14. This agreement constitutes the entire agreement between the
parties and may not be amended orally, but only in writing, signed by the
parties hereto, provided that no amendment shall increase the obligations of
Rappahannock Bankshares (or its successor in interest) without its written
consent.
<PAGE>
This agreement has been approved by the Bank's Board of Directors by
legally constituted resolution, a copy of which is attached as Exhibit A.
THE RAPPAHANNOCK NATIONAL BANK
By /s/ Elisabeth J. Jones /s/ John R. Conry, Jr.
----------------------- ---------------------------
Elisabeth J. Jones
Its: President JOHN R. CONRY, JR., Executive
(Corporate Seal)
Attest:
/s/______________________________________
Secretary
<PAGE>
Rappahannock Bankshares guarantees performance by the Bank of its
financial obligations under this Agreement without regard to whether such
obligations are unenforceable directly against the Bank due to banking laws or
for any other reason, and the undersigned represents that Rappahannock
Bankshares' guarantee of such financial obligations has been approved by its
Board of Directors by legally constituted resolution, a copy of which is
attached as Exhibit B.
RAPPAHANNOCK BANKSHARES, INC.
By /s/Elisabeth Jones
----------------------
Elisabeth Jones
Its: President
(Corporate Seal)
Attest:
/s/__________________________________________
Secretary
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Union Bankshares Corporation
We consent to the use of our report dated February 4, 1998, with respect to the
consolidated balance sheets of Union Bankshares Corporation and subsidiaries as
of December 31, 1997 and 1996, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1997, which report is incorporated by
reference in Form S-4 of Union Bankshares Corporation, and to the reference to
our firm under the heading "Experts" in the Prospectus and Proxy Statement.
/s/ KPMG Peat Marwick LLP
Richmond, Virginia
April 6, 1998
EXHIBIT 23.2
ACCOUNTANT'S CONSENT
The Board of Directors
Rappahannock Bankshares, Inc.
We consent to the use of our report included herein in the Registration
Statement filed on or about April 6, 1998, and to the reference to our firm
under the heading "Experts" in the proxy statement prospectus.
Harrisonburg, Virginia /s/ S. B. Hoover & Company, L.L.P.
April 6, 1998
EXHIBIT 23.4
FINANCIAL ADVISOR'S CONSENT
The Board of Directors
Rappahannock Bankshares, Inc.
We consent to the use of our form of opinion included herein in the
Registration Statement filed on or about April 6, 1998, and to the reference to
our firm under the sections of the Proxy Statement / Prospectus headings
"Summary" and "The Affiliation".
Norfolk, Virginia /s/ McKinnon & Company, Inc.
April 6, 1998
EXHIBIT 99
PROXY
Rappahannock Bankshares, Inc.
Special Meeting of Shareholders
Held May __, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned Shareholder hereby constitutes and appoints Elisabeth
J. Jones, James M. Fletcher, and John R. Conry, Jr., or any of them, proxies of
the undersigned, with full power of substitution, to vote the shares of common
stock of the undersigned at the Special Meeting of Shareholders of the Company
to be held at the Main Office of the Rappahannock National Bank of Washington
(the "Bank") located at 257 Gay Street, Washington, Virginia on _________, May
__, 1998 at 2:00 p.m.and at any adjournment of adjournments thereof, with all
powers the undersigned would possess if personally present:
ITEM 1: To consider and vote upon a proposal to approve the Plan of Merger
provided by an Agreement and Plan of Affiliation and Merger, dated February 25,
1998 (the Plan of Merger and the Agreement and Plan of Affiliation and Merger
are collectively referred to herein as the "Affiliation Agreement") by and
between the Company and Union Bankshares Corporation, a Virginia corporation
("Union") registered under the Bank Holding Company Act of 1956, a copy of which
is included as Annex A attached to the accompanying Prospectus and Proxy
Statement, pursuant to which (i) the Company shall merge with and into Union and
the Rappahannock National Bank of Washington shall become a wholly-owned
subsidiary of Union (the "Affiliation") and (ii) each outstanding share of the
Company common stock, par value $100.00 per share ("Company Common Stock")
(other than shares of dissenting Company Shareholders redeemed pursuant to
Article 15 of Title 13.1 of the Code of Virginia of 1950, as amended (the
"VSCA")), shall automatically become and be converted into 158.209 shares of
Union common stock, par value $4.00 per share ("Union Common Stock"). Cash will
be paid in lieu of fractional shares of Union Common Stock.
_____FOR _____AGAINST _____ABSTAIN
ITEM 2: To take action upon such other matters as may properly come before the
meeting or any adjournment of adjournments thereof.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ON ITEM 1 LISTED ABOVE, AND
YOUR PROXY WILL BE VOTED FOR ITEM 1 IF NO SPECIFICATION IS MADE. IF ANY OTHER
MATTERS COME BEFORE THE MEETING, THIS PROXY BE VOTED WITH RESPECT THERETO IN THE
INTEREST OF THE COMPANY ACCORDING TO THE BEST JUDGMENT OF THE PERSON OR PERSONS
VOTING THE PROXY.
(OVER)
<PAGE>
This proxy is revocable by you at any time prior to the voting of the
shares represented, by notifying the Secretary of the Company in writing before
such vote or by filing another proxy with the Secretary bearing a later date.
Shareholders who are present at the meeting may withdraw their proxy and vote in
person. When signing as attorney, executor, administrator, trustee or guardian,
please give your full title as such. Both joint holders should sign.
Dated __________________________, 1998 _________________________(SEAL)
Number of Shares ___________ _________________________(SEAL)
_________________________(SEAL)
Return to:
Rappahannock Bankshares, Inc.
257 Gay Street
Washington, Virginia 22747-0179
