As filed with the Securities and Exchange Commission on______________,1995
REGISTRATION NO. 33-______
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
__________
UNITED BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
WEST VIRGINIA 6711 55-0641179
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Code) Identification No.)
UNITED CENTER
500 VIRGINIA STREET, EAST
CHARLESTON, WEST VIRGINIA 25301
(304) 348-8400
(Address and telephone number of principal executive offices)
__________
JOSEPH WILLIAM SOWARDS COPY: DEBORAH A. SINK, ESQ.
UNITED BANKSHARES, INC. BOWLES RICE MCDAVID
514 MARKET ST. GRAFF & LOVE
PARKERSBURG, WV 26102 1600 COMMERCE SQUARE
CHARLESTON, WV 25301
(304) 424-8761 (304) 347-1124
(Name, address and telephone number of agent for service)
__________
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
__________
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
TITLE OF SECURITIES AMOUNT TO PROPOSED MAXIMUM AMOUNT OF
BE REGISTERED PROPOSED MAXIMUM AGGREGATE OFFERING REGISTRATION
PER UNIT (1) OFFERING PRICE (1) FEE FEE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK
$2.50 PAR VALUE 271,000 $28.30 $555,550 $191.55
- ---------------------------------------------------------------------------------------------------------------
(1) ESTIMATED SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE
PURSUANT TO RULE 457(F)(2) BASED ON UNITED BANKSHARES, INC. STOCK BEING
EXCHANGED FOR 201,100 SHARES OF FIRST COMMERCIAL BANK AND A $28.16 BOOK VALUE
FOR FIRST COMMERCIAL BANK STOCK ON MARCH 31, 1995, LESS CASH PAID BY REGISTRANT
OF $26.25 PER SHARE.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT 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 SECTION 8(A) MAY
DETERMINE.
UNITED BANKSHARES, INC.
CROSS REFERENCE SHEET PURSUANT TO RULE 501(b)
Form S-4 Section Caption
Item Number and Caption in Prospectus*
----------------------- --------------
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus.......................... Cross Reference Sheet; Prospectus
Page; Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................. TABLE OF CONTENTS
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other
Information......................... SUMMARY, THE PROPOSED TRANSACTION
4. Terms of the Transaction............ SUMMARY, THE PROPOSED TRANSACTION
5. Proforma Financial Information...... Not Applicable
6. Material Contracts with the
Company Being Acquired.............. Not Applicable
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
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... PART I
10. Information with Respect to
S-3 Registrants..................... DESCRIPTION OF UBS
11. Incorporation of Certain Information
by Reference........................ PART I
12. Information with Respect to S-2 or
S-3 Registrants..................... Not Applicable
Form S-4 Section Caption
Item Number and Caption in Prospectus*
----------------------- --------------
13. Incorporation of Certain Information
by Reference........................ ADDITIONAL INFORMATION
14. Information with Respect to
Registrants Other than S-3
or S-2 Registrants.................. Not Applicable
15. Information with Respect to
S-3 Companies....................... DESCRIPTION OF UNITED BANKSHARES,
INC.
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................ DESCRIPTION OF FIRST COMMERCIAL
BANK
18. Information if Proxies,
Consents or Authorizations
are to be Solicited................. SPECIAL MEETING OF FIRST
COMMERCIAL BANK SHAREHOLDERS
19. Information if Proxies,
Consents or Authorizations
are Not to be Solicited
or in an Exchange Offer............. Not Applicable
20. Indemnification of Directors
and Officers........................ PART II Indemnification of
Directors and Officers of UBS and
its Subsidiaries
21. Exhibits and Financial Statement
Schedules........................... EXHIBIT INDEX, INDEX TO FINANCIAL
STATEMENTS
22. Undertakings........................ PART II
* This Registration Statement on Form S-4 contains a prospectus/proxy
statement to be sent to the shareholders of the company the Registrant proposes
to acquire via a merger transaction, First Commercial Bank.
PROSPECTUS/PROXY STATEMENT
UNITED BANKSHARES, INC.
271,000 SHARES OF COMMON STOCK
United Bankshares, Inc. ("UBS") hereby offers up to 271,000 shares, in
the aggregate, of its common stock, $2.50 par value, to the shareholders of
First Commercial Bank, a Virginia banking institution with its principal office
in Arlington, Virginia, ("FCB") in exchange for up to 201,100 shares of the
stock of FCB. Under the terms of the Agreement and Plan of Merger dated March
6, 1995, between UBS and FCB (the "Merger Agreement"), shareholders other than
the Control Shareholders (as defined herein) will, upon consummation of the
transaction, at their option, receive (i) shares of UBS common stock ("UBS
Stock"), pursuant to the exchange ratio described herein, and $26.25 in cash for
each share of common stock they own in FCB or (ii) all cash, in the amount of
$52.57 per share of FCB Stock. No fractional shares of UBS Stock will be
issued. In lieu thereof, shareholders will receive a cash payment as provided
for in the Merger Agreement.
Information concerning the proposed acquisition is contained in the
following Proxy Statement which is part of this Prospectus. The date of this
Prospectus/Proxy Statement is ____________, 1995.
THERE ARE RISKS ASSOCIATED WITH ACQUISITION OF THE SECURITIES OFFERED
HEREIN. SEE SUMMARY-RISK FACTORS.
---
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
No person has been authorized to give any information or make any
representation not contained in this Prospectus/Proxy Statement in connection
with the offer and proxy solicitations contained herein, and, if given or made,
such information or representation must not be relied upon as having been
authorized by UBS or any of its subsidiaries. This Prospectus/Proxy Statement
does not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby to any person to whom it is unlawful to make such
an offer and any sale made hereunder shall create, under any circumstances, an
implication that there has been no change in the affairs of UBS or any of its
subsidiaries since the date hereof.
AVAILABLE INFORMATION
UBS is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended, and, in accordance with those
requirements, files reports, proxy and information statements, and other
information with the Securities and Exchange Commission (the "SEC") and with the
National Association of Securities Dealers Automated Quotations Systems National
Market System ("NASDAQ/NMS"). The documents filed by UBS with the SEC can be
inspected and copied at the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. The documents filed by UBS with
NASDAQ/NMS can be inspected and copied at the Public Reference section of
NASDAQ/NMS at 1737 K Street, N.W., Washington DC 20006-1506. Copies of such
documents can be obtained from the public reference sections at prescribed
rates.
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed with the SEC by UBS pursuant
to Section 13 or 14 of the Securities Exchange Act of 1934, as amended, are
hereby incorporated herein by reference:
1. Annual Report on Form 10-K for the fiscal year ended
December 31, 1994;
2. Quarterly Report on Form 10-Q for the quarter ended March
31, 1995; and
3. Proxy Statement for the Annual Meeting of Shareholders held
on April 24, 1995.
All documents filed by UBS pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, after the date of this
Prospectus and prior to the Special Meeting of Shareholders of FCB shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
such subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM JOSEPH WM. SOWARDS, UNITED BANKSHARES, INC., 514 MARKET STREET,
PARKERSBURG, WEST VIRGINIA 26102. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY _______________, 1995.
TABLE OF CONTENTS
PROSPECTUS/PROXY STATEMENT........................................... 1
INTRODUCTION......................................................... 1
SPECIAL MEETING OF FCB SHAREHOLDERS.................................. 3
Purpose and Vote Required....................................... 3
Proxies......................................................... 4
SUMMARY.............................................................. 6
FCB............................................................. 6
UBS............................................................. 6
Comparison of Shareholders' Rights.............................. 7
The Merger Agreement............................................ 7
Reasons for the Merger/Fairness Opinion......................... 8
Merger Consideration............................................ 9
Shareholder Approval............................................ 9
Accounting Treatment............................................ 10
Tax Consequences................................................ 10
Risk Factors.................................................... 11
Dividend Policy of UBS.......................................... 11
Conditions to Consummation of the Merger........................ 11
Payment of Merger Consideration................................. 12
Comparative Stock Prices........................................ 12
THE PROPOSED TRANSACTION............................................. 16
THE MERGER........................................................... 16
Reasons for the Merger.......................................... 16
Merger Consideration............................................ 18
Engagement of Financial Advisor................................. 22
Role of FCB's Financial Advisor................................. 24
Opinion of Financial Advisor.................................... 24
Effect on the Corporate Parties................................. 29
Tax Consequences................................................ 29
Conditions to Consummation of the Merger........................ 31
Termination of the Merger Agreement............................. 38
Merger Effective Date........................................... 39
Accounting Treatment............................................ 39
Comparison of Shareholders' Rights.............................. 40
Issuance and Exchange of Stock Certificates..................... 41
Dissenters' Rights.............................................. 42
COMPARATIVE PER SHARE DATA........................................... 44
FCB SELECTED FINANCIAL DATA.......................................... 46
i
DESCRIPTION OF UNITED BANKSHARES, INC................................ 48
Organizational History and Subsidiaries......................... 48
Business of UBS................................................. 48
Business of Subsidiary Banks.................................... 49
Dividends....................................................... 49
Market and Stock Prices of UBS.................................. 50
Other Information............................................... 51
DESCRIPTION OF FIRST COMMERCIAL BANK................................. 52
General......................................................... 52
Competition..................................................... 52
Regulation and Supervision...................................... 53
Description of Properties....................................... 54
Legal Proceedings............................................... 54
Market for Common Equity
and Related Stockholder Matters............................ 55
Market Information.............................................. 55
Directors....................................................... 56
Executive Officers.............................................. 56
Family Relationships............................................ 57
Control Shareholders' Chapter 11 Proceedings.................... 57
Executive Compensation.......................................... 58
(1) Other Annual Compensation................................... 59
(2) All Other Compensation...................................... 59
Directors Compensation.......................................... 59
Executive Bonus Plan............................................ 60
Executive Salary Continuation Plan.............................. 60
Employment Agreements........................................... 61
Security Ownership of Certain Beneficial Owners and
Management................................................. 62
Certain Relationships and Related Transaction................... 63
REGULATION AND SUPERVISION........................................... 64
General......................................................... 64
Non-banking Activities Permitted to UBS......................... 66
Credit and Monetary Policies and Related Matters................ 67
Capital Requirements............................................ 69
Historical and Pro Forma Capital Ratios......................... 72
Federal Deposit Insurance Corporation Improvement Act of
1991....................................................... 74
Reigle-Neal Interstate Banking Bill............................. 75
EXPERTS.............................................................. 76
LEGAL MATTERS........................................................ 76
SOURCES OF INFORMATION............................................... 77
ADDITIONAL INFORMATION............................................... 77
ii
FINANCIAL INFORMATION CONCERNING
FIRST COMMERCIAL BANK......................................... F-1
FCB Management's Discussion and Analysis for the period
ended March 31, 1995.......................................... F-2
FCB Financial Statements as of March 31, 1995 and for the
period ended March 31, 1995 (unaudited)....................... F-10
FCB Management's Discussion and Analysis of Financial
Condition and Results of Operation for the years
ended December 31, 1994 and 1993.............................. F-23
FCB Audited Financial Statements (as of December 31,
1994 and for the years ended December 31, 1994,
1993 and 1992)................................................ F-37
EXHIBITS
Exhibit A - Agreement and Plan of Merger........................... E-1
Exhibit B - Baxter, Fentriss and Company Fairness Opinion.......... E-58
Exhibit C - Tax Opinion............................................ E-61
iii
[FIRST COMMERCIAL BANK LETTERHEAD]
_______________________, 1995
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of First Commercial Bank to be held at _________________________, ____________,
Virginia, on _________________________, 1995 at _______________________, local
time. At this meeting, you will be asked to consider and approve the Agreement
and Plan of Merger dated March 6, 1995 (the "Merger Agreement") among United
Bankshares, Inc. ("UBS"), First Commercial Bank ("FCB") and Commercial Interim
Bank ("Interim Bank"), a Virginia banking corporation to be formed as a wholly-
owned subsidiary of UBS to facilitate its acquisition of FCB. FCB will merge
with and into Interim Bank (the "Merger"). Interim Bank will be the surviving
bank and will change its name to "First Commercial Bank." Contemporaneously
with the Merger, Bank First, N.A. ("Bank First"), a wholly-owned national
banking subsidiary of UBS with its principal office in McLean, Virginia, will
also merge into Interim Bank. Again, Interim Bank will survive, resulting in a
state-member bank with the title "First Commercial Bank," having its principal
office in Arlington, Virginia (at the present office of FCB) and a branch in
McLean, Virginia (at the present office of Bank First).
Pursuant to the terms of the Merger Agreement and upon the effective
date of the Merger, shareholders of FCB, other than certain Control
Shareholders, will be entitled to receive one of two forms of merger
consideration ("Merger Consideration"). FCB shareholders may elect to receive
(i) 1.12 shares of UBS stock plus $26.25 in cash in exchange for each share of
FCB stock or (ii) all cash in the amount of $52.57 per share of FCB stock. No
fractional shares of UBS stock will be issued in connection with the Merger and,
in lieu thereof, UBS will pay shareholders the value of any fractional shares of
UBS stock in cash. In addition, the exchange ratio may change in certain
circumstances as more fully described in the accompanying proxy materials.
The Merger is subject to approval of the holders of a majority of the
outstanding shares of FCB. Completion of the Merger is also subject to
regulatory approval and other conditions described in the enclosed materials.
A notice of the Special Meeting, a proxy for your use in connection
with that meeting, and a Prospectus/Proxy Statement describing the proposed
transaction in detail accompany this letter. We urge you to read all of these
documents carefully before deciding how to vote your shares.
Your Board of Directors has approved the Merger. Accordingly, your
Board of Directors unanimously recommends that you VOTE FOR the Merger.
I hope that you will attend the Special Meeting. Regardless of your
plans to attend, I urge you, because of the importance of this matter, to
execute and mail the enclosed proxy in the envelope provided. If you decide to
attend the meeting, you may withdraw your proxy and vote in person on all
matters brought before it.
Sincerely,
_____________________________
2
[FIRST COMMERCIAL BANK LETTERHEAD]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that, pursuant to the call of the Board of
Directors, a Special Meeting of Shareholders of First Commercial Bank will be
held at __________________________, Virginia on _____________, 1995 at
_________, local time, for the purpose of considering and voting upon the
following matters:
1. To consider and vote upon an Agreement and Plan of Merger dated
March 6, 1995 by and among United Bankshares, Inc. ("UBS"), First Commercial
Bank and Commercial Interim Bank. A copy of the Agreement is attached as
Exhibit A to the accompanying Prospectus/Proxy Statement which you are urged to
read carefully.
2. To act upon any other business which may properly come before the
Special Meeting or any adjournment or adjournments thereof. The Board of
Directors at present knows of no other business to come before this Special
Meeting.
The close of business on _____________________________, 1995, has been
fixed by the Board of Directors as the record date for determining shareholders
entitled to notice of and to vote at this Special Meeting.
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE REGARDLESS OF YOUR PLANS TO ATTEND THIS SPECIAL MEETING. IF YOU DO
ATTEND, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
INDIVIDUALS HAVE BEEN NAMED IN THE PROXY TO VOTE THE SHARES
REPRESENTED BY PROXY. IF YOU WISH TO CHOOSE SOME OTHER PERSON TO ACT AS YOUR
PROXY, MARK OUT THE PRINTED NAME AND WRITE IN THE NAME OF THE PERSON YOU SELECT
IN THE SPACE PROVIDED IN THE PROXY.
By Order of the Board of Directors
__________________________________, 1995
___________________________________
Name & Title
3
PROSPECTUS/PROXY STATEMENT
--------------------------
UNITED BANKSHARES, INC.
514 Market Street
Parkersburg, West Virginia 26102
(304) 424-8800
FIRST COMMERCIAL BANK, A VIRGINIA BANKING CORPORATION
3801 Wilson Boulevard
Arlington, Virginia 22203
Special Meeting of
FCB Shareholders
to be held ____________________, 1995
INTRODUCTION
------------
This Prospectus/Proxy Statement is being furnished by First Commercial
Bank ("FCB") in conjunction with the solicitation by its Board of Directors of
proxies for the special meeting of shareholders to be held ________, 1995 (the
"Special Meeting") and by United Bankshares, Inc. ("UBS") in connection with the
issuance of its shares. At the Special Meeting, shareholders will consider and
vote upon the approval of an Agreement and Plan of Merger dated March 6, 1995
(the "Merger Agreement"), by and between UBS, FCB and Commercial Interim Bank
("Interim Bank"), a Virginia banking corporation to be formed as a wholly-owned
subsidiary of UBS to facilitate its acquisition of FCB. FCB will merge with and
into Interim Bank (the "Merger"). Interim Bank will be the surviving bank and
will change its name to "First Commercial Bank." Contemporaneously with the
Merger, Bank First, N.A. ("Bank First"), a wholly-owned national banking
subsidiary of UBS with its principal office in McLean, Virginia, will also merge
into Interim Bank. Again, Interim Bank will survive, resulting in a state
member bank with the title "First Commercial Bank," its principal office in
Arlington, Virginia (at the present office of FCB) and a branch in McLean,
Virginia (at the present office of Bank First). The terms of the Bank First
merger with and into Interim Bank are set forth in a separate Agreement and Plan
of Merger dated March 6,
1
1995, by and between UBS, Bank First, Interim Bank and UBF Holding Company, Inc.
("UBF," a second-tier bank holding company which owns Bank First).
Information relevant to the special meeting of FCB shareholders is set
forth below, followed by a summary of information contained in the
Prospectus/Proxy Statement. All shareholders should review this entire
Prospectus/Proxy Statement, including all exhibits hereto.
2
SPECIAL MEETING OF FCB SHAREHOLDERS
PURPOSE AND VOTE REQUIRED
The purpose of the Special Meeting of FCB shareholders is to act upon
the Merger Agreement and the proposed merger of FCB with and into Interim Bank.
If the Merger is consummated, FCB shareholders will exchange each share of the
common stock of FCB ("FCB Stock") they hold for 1.12 shares of the common stock
of UBS ("UBS Stock") and $26.25 in cash; with the exchange ratio to be adjusted
if certain circumstances exist as described in the section hereof captioned "THE
MERGER-Merger Consideration." No fractional shares of UBS Stock will be issued
in connection with the Merger and, in lieu thereof, UBS will pay cash for any
fractional shares, also described in the above-referenced section. FCB
shareholders, other than James B. and Janet Brockett (the "Control
Shareholders") also have the option of accepting all cash in amount of $52.57
per share. A detailed description of this transaction is set forth in this
Prospectus/Proxy Statement and the exhibits attached to it. See the sections of
---
this Proxy Statement titled SUMMARY and THE PROPOSED TRANSACTION.
SHAREHOLDERS ARE URGED TO READ THIS ENTIRE DOCUMENT CAREFULLY BEFORE VOTING
THEIR SHARES.
FCB's Board of Directors has unanimously approved the proposed Merger
and recommends that the shareholders of FCB VOTE FOR the Merger. See the
---
sections of this Proxy Statement titled SUMMARY and THE PROPOSED TRANSACTION and
the paragraphs thereunder captioned "Reasons For the Merger."
With respect to the vote on the Merger, FCB shareholders are entitled
to cast one vote for each share of FCB Stock they hold on the record date of
________, 1995. To approve the Merger, a vote of the two-thirds of the issued
and outstanding shares of FCB
3
Stock is required. As of April 15, 1995, the Directors and Executive Officers
of FCB had the authority to vote, directly or indirectly, approximately 70% of
the issued and outstanding shares of FCB Stock. The ability of the Control
Shareholders to vote the 68.6% of FCB Stock they own is subject to receiving the
approval of the United States Bankruptcy Court for the Eastern District of
Virginia, which approval was received by a court order dated June 20, 1995 that
became final and nonappealable on June 30, 1995. See DESCRIPTION OF FCB -
Control Shareholders' Chapter 11 Proceeding. Subject to the receipt of such
approval, the management of FCB expects that such shares will be voted FOR
approval of the Merger and therefore THAT THE MERGER WILL BE APPROVED.
PROXIES
A proxy for use by FCB shareholders in connection with the Special
Meeting is enclosed with this Prospectus/Proxy Statement which will be mailed to
FCB shareholders on or about ___________, 1995. The proxy will be voted as
specified thereon by the shareholder. Where no specification is made on the
Proxy, a properly executed Proxy will be voted FOR approval of the Merger.
As of the date of the mailing of this Prospectus/Proxy Statement, the
management of FCB is not aware of any business to be acted upon at the Special
Meeting other than consideration of the Merger and it is not anticipated that
other matters will be brought before the meeting. As previously communicated,
the annual meeting of shareholders of FCB has been postponed indefinitely in
view of the pending Merger. FCB's Board of Directors, at its ____________, 1995
meeting, amended FCB's bylaws to permit such a postponement in order to avoid
the expense of the annual meeting. If for any reason the Merger does not take
place, the management of FCB will call a meeting of shareholders for the purpose
of conducting the regular annual business meeting. If any other matter should
be
4
brought before the Special Meeting, each shareholder will be entitled to cast
one vote for each share of FCB Stock held on the record date on each such
matter. The persons appointed as proxies may vote on such matters according to
the direction of FCB's Board of Directors.
Any shareholder has the right to revoke his or her proxy anytime
before it is voted by notifying the judges of election appointed for the meeting
either in person or in writing prior to the vote. Written instructions or
substitute proxies sent prior to the meeting may be addressed to the secretary
of FCB at its offices.
The proxy solicitation of shareholders of FCB is made by FCB's Board
of Directors and the cost of such solicitation will be paid by FCB. In addition
to soliciting by mail, directors, officers and regular employees of FCB, who
will receive no compensation for their services other than their regular
salaries and fees, may solicit proxies by telephone, telegraph, mail, or
personal interview. Brokerage houses, nominees, fiduciaries and other
custodians have been requested to forward solicitation materials to the
beneficial owners of FCB Stock held in their names and will be reimbursed for
their expenses in doing so.
5
SUMMARY
The following is a summary of the information contained in this
Prospectus/Proxy Statement. This summary is not intended to be a complete
statement of all material contained in this Prospectus/Proxy Statement and it is
qualified in its entirety by reference to the more detailed discussions
contained elsewhere in this document and in the accompanying exhibits.
Shareholders should read this entire Prospectus/Proxy Statement carefully.
FCB
FCB is a Virginia banking corporation. It was incorporated on August
2, 1972. FCB is a state chartered bank and a member of the Federal Reserve
System. As of December 31, 1994, and March 31, 1995, respectively, FCB had
total assets of $60,834,000 and $61,098,000 and total shareholders' equity of
$5,724,000 and $5,691,000.
UBS
UBS is a West Virginia corporation and a registered bank holding
company pursuant to the Bank Holding Company Act of 1956, as amended. It was
incorporated on March 26, 1982, and organized on September 9, 1982. As a bank
holding company, UBS's present business is the operation of its three bank
subsidiaries, United National Bank ("UNB"), United National Bank-South ("UNB-
S"), and Bank First, N.A. UBS also owns United Venture Fund, Inc., ("UVF"), a
West Virginia capital company, primarily engaged in lending activities
consistent with the requirements of the West Virginia Capital Company Act and
the Bank Holding Company Act. UBS also owns UBF Holding Company, Inc. and UBC
Holding Company, second-tier bank holding companies which own Bank First and
UNB, respectively. As of December 31, 1994, and March 31, 1995, respectively,
UBS had consolidated assets of $1,787,641,000 and $1,792,217,000 and
stockholders' equity of $179,746,000 and $183,339,000.
6
COMPARISON OF SHAREHOLDERS' RIGHTS
UBS is a West Virginia corporation and a bank holding company while
FCB is a Virginia corporation and a state chartered bank. The rights of the
shareholders of each are different in certain respects. One significant
difference is with regard to shareholders' preemptive rights. In the case of
UBS, shareholders do not have preemptive rights and additional shares may be
issued without offering current shareholders the opportunity to maintain their
ownership position. FCB shareholders do have preemptive rights and are
therefore entitled to purchase shares in any new issuance of stock sufficient to
maintain their ownership position. Another significant difference is that,
pursuant to Section 6.1-43 of the Virginia Banking Act, FCB shareholders do not
have dissenters' rights to elect to receive the appraised value of their shares
in lieu of the Merger Consideration. UBS shareholders do have such rights under
the West Virginia Corporation Act, W.Va. Code (S)(S) 31-1-122 and 123. A third
important difference is that UBS shareholders have the right to vote
cumulatively in the election of directors while FCB shareholders do not. No
anti-takeover provisions have been added to the articles of incorporation or
bylaws of UBS or FCB; such matters are governed in the case of both entities by
the respective corporate laws applicable to each. See THE PROPOSED TRANSACTION
---
- - Comparison of Shareholders' Rights.
THE MERGER AGREEMENT
UBS proposes to acquire FCB via the merger of FCB with and into
Interim Bank. Interim Bank is in the process of being organized under Virginia
law. It will become a party to the Merger Agreement upon its execution of an
Adoption Agreement. Under the terms of the Merger Agreement, Interim Bank will
survive the Merger ("Surviving Bank").
7
Pursuant to the terms of the Merger Agreement and upon the effective
date of the Merger, shareholders of FCB, other than the Control Shareholders,
will be entitled to receive one of two forms of consideration (the "Merger
Consideration"). FCB Shareholders may elect to receive: (i) 1.12 shares of UBS
Stock plus $26.25 in cash in exchange for each share of FCB Stock they own, or
(ii) all cash in the amount of $52.57 per share of FCB Stock. To the extent
minority shareholders opt to receive all cash and giving effect to amounts paid
for fractional shares, the Control Shareholders, James and Janet Brockett, will
receive a greater proportion of UBS Stock to assure criteria for a tax-free
exchange will be met. No fractional shares of UBS Stock will be issued in
connection with the Merger and, in lieu thereof, UBS will pay shareholders the
value of any fractional shares of UBS Stock in cash, as described herein. The
exchange ratio may change if certain circumstances exist. See THE MERGER-Merger
Consideration.
For further information on the Merger Agreement and its terms, see THE
PROPOSED TRANSACTION and Exhibit A hereto.
REASONS FOR THE MERGER/FAIRNESS OPINION
It is the opinion of the management of FCB that the Merger will
provide benefits for FCB shareholders by permitting the Surviving Bank to be
more efficient and competitive. Those who opt to receive UBS Stock plus cash
will hold a more liquid security than they presently hold and it is one based
upon a larger, more diversified organization. Those shareholders who opt to
receive all cash will have an opportunity to liquidate their shares at an
attractive price. While the original impetus to sell FCB stemmed from the
personal requirements of the Control Shareholders, the Board of Directors
believes that the transaction negotiated with UBS is in the best interests of
all shareholders. See THE PROPOSED TRANSACTION - THE MERGER-Reasons for the
Merger and DESCRIPTION OF FIRST COMMERCIAL BANK - Control Shareholders' Chapter
11
8
Proceeding. Among other things, the Board of Directors is relying upon the
fairness opinion of Baxter Fentriss and Company, an investment banking firm
located in Richmond, Virginia, which specializes in banking transactions. The
Board of Directors of FCB has carefully considered the current economic
environment and the terms of the Merger Agreement and unanimously recommends
approval of the Merger. See THE PROPOSED TRANSACTION -THE MERGER - Reasons for
---
the Merger.
MERGER CONSIDERATION
The Merger Consideration for each share of FCB Stock and the other
terms of the Merger Agreement were reached through arm's-length negotiations
between the managements of UBS and FCB. The Board of Directors of FCB believes
that the terms of the Merger Agreement, including the exchange ratio, are fair
and equitable to the FCB shareholders. The managements of UBS and FCB
considered various factors in negotiating the exchange ratio. For information
on how the exchange ratio was determined, see THE PROPOSED TRANSACTION - THE
MERGER - Exchange Ratio. FCB has retained Baxter Fentriss and Company to issue
a fairness opinion. See THE PROPOSED TRANSACTION - THE MERGER - Engagement of
---
Financial Advisor and Exhibit B.
SHAREHOLDER APPROVAL
Under Virginia corporate law, the Merger Agreement must be confirmed,
ratified and approved by the holders of at least two-thirds of the issued and
outstanding shares of FCB and of Interim Bank. UBS will approve the Merger as
sole shareholder of Interim Bank.
9
ACCOUNTING TREATMENT
As presented in this Prospectus/Proxy Statement and the relevant
financial sections included herein, the parties expect the Merger to be
accounted for under the purchase method of accounting. Under the purchase method
of accounting, the acquired institution's balance sheet is adjusted to current
fair values as of the date of the Merger. Any excess consideration paid over the
net current fair value of assets acquired and liabilities assumed will be
recorded as goodwill. The results of operations of FCB will be included in UBS's
consolidated financial statements from the date of the Merger. Pro forma
financial information concerning the Merger is not included herein since the
addition of FCB would not have materially affected UBS historical financial
information presented without FCB.
TAX CONSEQUENCES
The Merger is structured to be a tax-free exchange transaction for
federal income tax purposes to the extent that UBS Stock is received. Gain or
-------------
loss should be recognized by shareholders as a result of the transactions, to
the extent of any cash received: (i) in addition to stock consideration ($26.25
per share); (ii) as the entire Merger Consideration ($52.57 per share); or (iii)
in lieu of fractional shares. Shareholders should consult their tax advisors
concerning all tax consequences of the consummation of the Merger as it relates
to their own circumstances, including but not limited to, consequences under
federal, state and local income tax and other tax laws. For a more detailed
discussion of the tax consequences of the Merger and the opinion of counsel to
be rendered regarding the federal income tax consequences to FCB shareholders,
see THE PROPOSED TRANSACTION - THE MERGER - Tax Consequences.
10
RISK FACTORS
FCB shareholders who opt to receive UBS Stock plus cash will be
exchanging their FCB Stock for UBS Stock. Many of the risks associated with
holding FCB Stock will be similar to the risks of holding UBS Stock. There are
risks inherent in any equity investment. Both companies are subject to
substantial state and federal regulation, including regulation of business
opportunities and the ability to pay dividends. For information on the impact of
regulation, see REGULATION AND SUPERVISION.
As to the transactions described herein, there is a risk that the
Merger will not receive the required regulatory approvals or shareholder
approvals or that other conditions to consummation may not be met.
DIVIDEND POLICY OF UBS
UBS shareholders are entitled to receive dividends when and as
declared by UBS's Board of Directors as funds are legally available therefor.
Payment of dividends by UBS is dependent upon payment of dividends by its
banking subsidiaries. Historically, UBS has paid dividends to its shareholders
quarterly. See DESCRIPTION OF UBS - Dividends.
---
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to various conditions including
the approval of the Merger Agreement by the requisite shareholder vote, receipt
of all necessary regulatory approvals of the Merger, and certain bankruptcy
court approvals. For further information as to these and the other conditions to
consummation of the Merger, see THE PROPOSED TRANSACTION - THE MERGER -
Conditions to Consummation of the Merger.
11
PAYMENT OF MERGER CONSIDERATION
As soon as practicable after the consummation of the Merger,
shareholders of FCB, other than the Control Shareholders, will be mailed written
materials permitting them to elect the Merger Consideration they prefer with
instructions as to how to exchange their certificates for the form of Merger
Consideration they have selected.
COMPARATIVE STOCK PRICES
The following table presents the high and low prices of UBS Stock and
FCB Stock during the periods set forth as follows:
UBS FCB
(Historical Basis) (Historical Basis)
------------------ ------------------
High Low High Low
---- --- ---- ---
1993
----
1st Quarter 23.50 19.25 8.40 8.00
2nd Quarter 22.75 19.75 8.40 8.00
3rd Quarter 25.75 21.50 8.40 8.00
4th Quarter 28.50 25.25 15.00 8.00
1994
----
1st Quarter 27.25 25.50 8.00 8.00
2nd Quarter 26.75 25.00 8.00 8.00
3rd Quarter 25.75 24.00 8.00 8.00
4th Quarter 24.75 23.00 8.00 8.00
1995
----
1st Quarter 26.00 23.25 8.00 8.00
2nd Quarter 27.50 25.25 8.00 8.00
through June 1, 1995
The source of stock price information for UBS is the National
Association of Securities Dealers Automated Quotations System/National Market
System ("NASDAQ/NMS"). UBS stock is listed under the trading symbol "UBSI."
FCB's management compiled the
12
information based upon trades known to it. The above quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
The following table presents the high and low market prices of UBS and
FCB Stock as well as equivalent per share data, as of March 3, 1995, the closest
date immediately before the public announcement of the proposed Merger for which
information is available:
UBS FCB/1/
(Historical FCB/2/ (Equivalent
Basis) (Historical Basis) Per Share)
----------- ------------------ ------------
High Low High Low High Low
---- --- ---- ---- ---- ---
$25.125 $25.00 $ 8.40 $ 8.00 $28.14 $28.00
Pro Rata Cash/3/ 26.25 26.25
----- -----
Total Consideration $54.39 $54.25
===== =====
Cash Alternative $52.57 $52.57
===== =====
From information available, the respective managements believe that
the historical high and low prices in the table accurately reflect the amounts
at which its stock was traded during the periods indicated.
______________________
/1/ Equivalent per share prices are calculated by multiplying the
historical prices of UBS Stock by the exchange ratio of 1.12 shares of UBS Stock
for one (1) share of FCB Stock.
/2/ There is no regular market for FCB stock and FCB therefore cannot
provide market value data as of March 3, 1995. The price indicated is as of
December 31, 1994, the date closest to and prior to the date of the public
announcement of the Merger.
/3/ Under this calculation, it is assumed that all FCB shareholders
receive 1.12 shares of UBS stock plus $26.25 in cash for each share of FCB stock
they own. Shareholders should compare the consideration they would receive under
the option to receive UBS stock plus cash as set forth above and the option to
receive cash only.
13
Shareholders should be aware that as more FCB shareholders, other than
the Control Shareholders, elect the all cash option, the Control Shareholders
will receive a greater equivalent per share amount if the price of the UBS Stock
exceeds $23.49 per share. With respect to the Control Shareholders, set forth
below is a table presenting the high and low market prices of UBS Stock and FCB
Stock as well as equivalent per share data as of March 3, 1995, the closest date
immediately before the public announcement of the proposed Merger, assuming 100%
of the minority FCB shareholders elect the cash option:
FCB
(Equivalent
UBS Per Share
(Historical FCB for Control
Basis)/1/ (Historical Basis) Shareholders)/2/
--------- ------------------ ----------------
High Low High Low High Low
---- --- ---- --- ---- ---
$25.125 $25.00 $ 8.00 $ 8.00 $41.04 $40.85
Pro Rata Cash/3/ 14.18 14.18
----- -----
Total Consideration for Control Shareholders $55.22 $55.03
===== =====
Cash Only Option for all other FCB Shareholders $52.57 $52.57
===== =====
_____________________________
/1/ With respect to the Control Shareholders, assuming all other FCB
shareholders elect to take cash, equivalent per share prices are calculated by
multiplying historical prices of UBS Stock by an exchange ratio of 1.634 shares
of UBS Stock for one (1) share of FCB Stock. The exchange ratio is obtained by
dividing the total number of shares UBS will issue, 225,232, which the Control
Shareholders will receive if no FCB stockholders elect to take stock, by the
137,883 shares of FCB Stock the Control Shareholders will exchange.
/2/ There is no regular market for the FCB Stock and FCB therefore cannot
provide market value data as of March 3, 1995. The price indicated is as of
December 31, 1994, the date closest to and prior to the date of the public
announcement of the Merger.
/3/ Based on the assumption that the Control Sareholders will exchange a
total of 137,883 shares of FCB stock for 225,232 shares of UBS stock and receive
cash consideration of $1,955,557 at the high and low prices for UBS stock shown
above.
14
Set forth below is a summary of the exhange options available and the
resulting impact on Control Shareholders and all other FCB shareholders:
Based upon a share price of UBS stock of $25.00
if shareholders other than Control Shareholders
elect to receive ALL CASH CASH & STOCK
then equivalent value received by
CONTROL SHAREHOLDERS WOULD BE: $55.03 $54.25
and equivalent value received by
ALL OTHER SHAREHOLDERS WOULD BE: $52.57 $54.25
Based upon a price per share of UBS stock of
$25.125 if shareholders other than control
shareholders elect to receive ALL CASH CASH & STOCK
then equivalent value received by
CONTROL SHAREHOLDERS WOULD BE: $55.22 $54.39
and equivalent value received by
ALL OTHER SHAREHOLDERS WOULD BE: $52.57 $54.39
15
THE PROPOSED TRANSACTION
The following is a discussion of the material aspects of the proposed
transaction. It includes a summary of the terms of the Merger Agreement which
is qualified in its entirety by reference to the agreement annexed to this
document as Exhibit A, which is incorporated herein by reference.
THE MERGER
REASONS FOR THE MERGER
UBS. In the opinion of the management of UBS, the proposed
---
transactions will be in the best interests of UBS shareholders. The Merger will
permit UBS to expand its operations in the Northern Virginia market. The Merger
will permit the Surviving Bank to compete more effectively with other financial
institutions in its market.
Substantial changes have reshaped the financial services industry
since the early 1980's. Deregulation has had the effect of intensifying
competition among banks and other financial institutions for deposits, loans and
other financial services. New banking laws have encouraged bank mergers and
increased the number of branch banks, and these developments have also
contributed to increased competition in the industry. There is also a strong
industry trend toward consolidation.
FCB. The initial impetus for the proposed transaction stemmed from
---
the Control Shareholders' need to liquidate all or a portion of their shares in
FCB to satisfy the requirements of their creditors in a proceeding under Chapter
11 of the Federal Bankruptcy Code (the "Chapter 11 Proceeding"). The Control
Shareholders desired to liquidate their FCB shares in an orderly manner, thus
maximizing the amount realized. Given the relatively
16
limited public market for FCB shares, the Control Shareholders, the Board of
Directors and the management of FCB determined to pursue a sale of FCB in a
transaction benefitting all shareholders. To this end, on July 1, 1994, FCB
engaged Baxter Fentriss and Company as agent and financial advisor to FCB to
explore a merger, sale or other business combination involving FCB.
In making the decision to recommend the UBS merger proposal to the FCB
shareholders, the FCB Board also considered market and competitive factors. As
mentioned above, the banking industry is facing many challenges that create
substantial uncertainty about the future of the industry and FCB's ability to
maintain its financial performance. In addition to these industry-wide
challenges, community banks like FCB may find it difficult to maintain
satisfactory levels of profitability due to the increased level of competition
they face for loans and deposits. This competition increasingly comes in the
form of larger, multistate institutions that have name recognition, marketing
efforts and advertising budgets that a community bank cannot match. Moreover,
larger institutions are generally able to offer customers a wider array of
financial products and services due to their higher levels of expertise, greater
amounts of capital and other resources which are available to larger
institutions. These factors have played an important part in creating the
strong trend toward consolidation in the banking industry.
After discussions and arm's-length negotiations with several possible
candidates, the Board of Directors of FCB decided the terms of the offer made by
UBS were the most favorable to FCB and its shareholders. Baxter Fentriss and
Company, in its role as financial advisor to FCB, has recommended that FCB
accept the UBS merger proposal and has delivered a fairness opinion to FCB in
connection with the proposed transaction. See THE MERGER - Opinion of
---
Investment Banker and Exhibit B. Therefore, the Board of Directors of FCB
selected UBS as the best merger partner for FCB
17
and, with the unanimous approval of the Board of Directors, FCB entered into the
definitive Merger Agreement on March 6, 1995.
The Board of Directors of FCB has determined that it is advisable and
in the best interests of FCB's minority shareholders to provide them with an
option to accept $52.57 in cash in full payment of their FCB shares, rather than
part cash and part UBS stock. FCB negotiated for, and UBS agreed to, the
inclusion of an all cash alternative as a form of Merger Consideration. This
option permits any minority shareholder who wishes to do so to liquidate his or
her investment in FCB in a convenient manner, without the necessity and expense
of first acquiring UBS shares in the merger and then selling such shares. This
structure is possible because the Control Shareholders are willing to accept
(and would prefer to receive, for personal tax planning purposes) more UBS Stock
and less cash for their FCB shares. Dissenters' rights (which would permit
shareholders to receive the fair value of their shares in cash) are not
available under Virginia law to FCB shareholders in connection with the proposed
transaction.
MERGER CONSIDERATION
As consideration for the Merger, shareholders of FCB, other than the
Control Shareholders will be entitled to receive either stock and cash or all
cash as set forth in (a) or (b) below:
(a) Shares of UBS Stock plus cash for each share of FCB Stock
they own.
Except as provided in paragraph (b) below as to the Control
Shareholders, FCB shareholders will receive 1.12 shares of UBS Stock plus $26.25
in cash for each share of FCB Stock they own; provided, however, if UBS Stock
has an average closing price of less than $23.50 per share for the 20 trading
days immediately prior to the Merger Effective Date (the "Average Price"), then
the exchange
18
ratio shall be adjusted upward, to a maximum of 1.348 shares of UBS Stock for
each share of FCB Stock, so that the proportion of UBS Stock to the total Merger
Consideration shall be equal to or greater than 50% of the total Merger
Consideration, as defined below. (The exchange ratio, as adjusted, if necessary,
is referred to as the "Applicable Exchange Ratio").
(b) Cash consideration equal to $52.57.
For each share of FCB Stock as to which an FCB shareholder elects to
receive all cash, the Control Shareholders agree to accept the additional UBS
Stock (and, correspondingly less than $26.25 per FCB share in cash) so that
greater than 50% of the total Merger Consideration will be paid in UBS Stock.
The amount of cash to be received by the Control Shareholders will equal $26.25
times 201,100 (the number of FCB shares), minus all cash to be paid to all other
shareholders [whether such shareholders elect to receive all cash or cash and
UBS Stock].
The proportion of UBS Stock to total consideration shall be calculated
as set forth below:
a = the closing price of UBS Stock on the Merger Effective Date,
times 201,100, times the Applicable Exchange Ratio
b = all cash paid to FCB shareholders,
Proportion of UBS Stock = a
-
to total Merger Consideration a + b
Notwithstanding the foregoing, UBS may terminate the Merger Agreement
if (i) application of the ratio adjustment set forth above would result in the
issuance of more than 271,000 shares of UBS Stock or (ii) if the Average Price
is $27 or greater. FCB may terminate this Agreement if the Average Price is $20
or
19
less. If any of the termination rights described in this paragraph arise, the
parties will attempt to renegotiate the ratio and/or cash consideration to
result in an aggregate consideration of not less than $52.57 per share of FCB
Stock. The total consideration of UBS Stock and cash (including cash paid to
FCB shareholders electing stock and cash or all cash) is referred to herein as
the "Merger Consideration."
No fractional shares of UBS Stock will be issued and, in lieu thereof,
FCB shareholders will be entitled to receive cash based upon the Average Price
per share for UBS Stock, without interest. If the outstanding shares of UBS
stock are changed into a different number or class by virtue of any
reclassification, split, stock dividend, exchange of shares or similar event,
then the exchange ratio provided herein will be adjusted proportionately. The
issuance of UBS Stock for other corporate purposes, such as for other
acquisitions or pursuant to stock option plans, will not result in an adjustment
to the exchange ratio. From and after the Merger Effective Date, FCB
shareholders will cease to have any rights with respect to such shares and such
shares will thereafter be deemed cancelled and void. The sole rights of such
shareholders will be to receive the Merger Consideration.
Each FCB shareholder (other than the Control Shareholders) will have
the opportunity to make a binding election whether to accept $52.57 in cash in
full payment for his or her shares at the time such shares are surrendered to
UBS. ANY FCB SHAREHOLDER WHO FAILS TO MAKE AN ELECTION, FOR ANY REASON, WILL
RECEIVE UBS STOCK AND CASH.
Except for any shares of FCB as to which a shareholder elects to
receive all cash, each holder of certificates representing shares of the stock
of FCB will, upon the surrender to UBS, or its agent, of such certificates in
proper form, be entitled
20
to receive a certificate or certificates representing the number of whole shares
of the common stock of UBS into which the surrendered certificates shall have
been converted by reason of the Merger. Until surrendered for exchange, each
outstanding certificate of FCB submitted for exchange for UBS Stock shall be
deemed for all corporate purposes to evidence the ownership of the full shares
of stock of UBS into which such shares have been converted by reason of the
Merger. Shareholders electing to receive all cash shall, upon surrender of
their FCB certificates, be entitled to $52.57 per share.
Until an FCB shareholder's outstanding certificates have been
surrendered, UBS may, at its sole discretion, withhold, with respect to such FCB
shareholder, as applicable (i) the certificates representing the shares of its
stock into which such FCB shares are converted by reason of the Merger; (ii) the
distribution of any and all dividends and payment for fractional shares with
respect to the stock of UBS to which the FCB shareholder is entitled; and/or
(iii) the cash consideration for the shares of such FCB shareholder. Upon the
delivery to UBS of the outstanding FCB certificates by an FCB shareholder, there
will be delivered to the record holder thereof (i) the certificate representing
the shares of the stock of UBS to which the exchanging FCB holder is entitled
any dividends thereon along with the cash portion of the consideration, any
payment for fractional shares, all without interest; or (ii) the cash
consideration, without interest, as appropriate.
The Merger Consideration was negotiated through arm's-length
discussions between the managements of UBS and FCB. The parties considered
historical factors such as asset quality, type and mix of deposits and earnings.
The potential for future earnings through economies of scale was also a factor
in negotiating the exchange ratio. Another important factor was FCB's market
and its addition to existing UBS markets.
21
The parties considered various exchange ratio scenarios comparing book
value, market value, price to earnings ratios, capital ratios and market price
per share. The parties to the Merger Agreement met and discussed the financial
and other terms with their respective legal and financial advisors.
The Board of Directors of FCB believes that the terms of the proposed
transaction, including the exchange ratio are fair and equitable to its
shareholders and, accordingly, the Board recommends a favorable vote FOR the
Merger.
ENGAGEMENT OF FINANCIAL ADVISOR
At a special meeting held on June 30, 1994, the FCB Board of Directors
decided to entertain a sale of FCB. At that same meeting, the Board decided to
retain Baxter Fentriss and Company ("Baxter Fentriss") as FCB's agent and
financial advisor in connection with the exploration, review and development of
merger, acquisition and business combination proposals. Baxter Fentriss is an
investment banking firm and advises financial institutions in connection with
mergers and acquisitions. According to Baxter Fentriss, it is continually
engaged, among other things, in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and valuations for
estate, corporate and other purposes.
The Board's selection of Baxter Fentriss was made on the
recommendation of FCB's Chairman and the Executive Committee of the Board. This
recommendation was based on: (1) a presentation made to the Executive Committee
by Mr. James Baxter, president of Baxter Fentriss; (2) references provided by
Baxter Fentriss; and (3) recommendations received by the Chairman from six banks
that had used Baxter Fentriss in the past.
An engagement letter was signed between FCB and Baxter Fentriss on
July 1, 1994. Under the terms of that letter, Baxter
22
Fentriss undertook to: (a) advise FCB generally concerning mergers,
acquisitions and restructuring; (b) explore the interest level of select buyers
willing to make an offer for FCB; (c) evaluate the financial and non-financial
terms of any offer and seek to improve such terms; (d) advise and assist FCB in
acquisition negotiations relating to price, structure, terms and conditions with
any potential buyers; (e) provide an opinion to the FCB Board of Directors
regarding the fairness of any acquisition transaction from a financial viewpoint
to the shareholders of FCB; (f) communicate with any independent public
accountants, consultants, and tax and legal counsel on behalf of FCB; and (g)
take such incidental or related actions on behalf of FCB as may be appropriate.
FCB agreed to indemnify Baxter Fentriss and its officers, employees and agents
against liabilities (including certain potential liabilities under federal
securities laws) arising out of the performance of its services, other than
losses resulting from the negligence, misconduct or bad faith of Baxter
Fentriss.
FCB paid Baxter Fentriss a $10,000 advisory fee at the inception of
the engagement. FCB also agreed to pay Baxter Fentriss a transaction fee equal
to 1.25% of any consideration paid upon any merger, business combination,
restructuring or asset sale. FCB agreed to pay one-fourth of the expected
transaction fee upon the execution of a definitive agreement for a business
combination or restructuring. This amount ($34,181) was paid to Baxter Fentriss
in April, 1995. The remainder of the transaction fee, less a credit of $5,000
for one-half of the advisory fee, will be paid to Baxter Fentriss when the
Merger is consummated. FCB did not pay Baxter Fentriss any separate or
additional consideration for its fairness opinion. See THE PROPOSED TRANSACTION
---
- -- THE MERGER -- Opinion of Financial Advisor.
23
ROLE OF FCB'S FINANCIAL ADVISOR
Once retained, Baxter Fentriss commenced the process of identifying
potential suitors for FCB. Using information provided by FCB, Baxter Fentriss
prepared a summary description of FCB, which was sent to a number of banks and
bank holding companies. Significant interest was shown by a number of potential
acquirers.
On September 21, 1994, the FCB Board approved the commencement of due
diligence by potential acquirers and authorized Baxter Fentriss and FCB
management to negotiate towards a definitive agreement for the acquisition of
FCB. Negotiations were held with potential acquirers over the next four months.
Baxter Fentriss took the lead in this process on FCB's behalf.
On January 24, 1995, Baxter Fentriss made a presentation to the FCB
Board analyzing two pending offers to acquire FCB. Based on this presentation
and its own analysis, the Board approved the Merger and authorized FCB to move
towards a definitive agreement with UBS.
In its role as financial advisor to FCB, Baxter Fentriss was actively
involved in the negotiation and analysis of the proposed Merger Consideration.
However, Baxter Fentriss did not determine or specifically recommend the amount
of the Merger Consideration. Baxter Fentriss is not affiliated, and has no
other agreements or arrangements, with UBS or FCB.
OPINION OF FINANCIAL ADVISOR
On May 12, 1995 Baxter Fentriss delivered to FCB its opinion that as
of such date, and on the basis of matters referred to herein, the Merger is
fair, from a financial point of view, to the shareholders of FCB. According to
Baxter Fentriss, it consulted with the management of FCB and UBS; reviewed the
Agreement and Plan of Merger, and certain publicly available
24
information on the parties; and reviewed certain additional materials made
available by the management of the respective banks in rendering its opinion.
No limitations were imposed by FCB's Board of Directors upon Baxter
Fentriss with respect to the investigation made or procedures followed by it in
rendering its opinion. The full text of Baxter Fentriss' written opinion is
attached as Exhibit B to this Prospectus/Proxy Statement and should be read in
its entirety with respect to the procedures followed, assumptions made, matters
considered, and qualifications and limitations on the review undertaken by
Baxter Fentriss in connection therewith.
Baxter Fentriss' opinion is directed to FCB's Board of Directors only,
and is directed only to the fairness, from a financial point of view, of the
Merger to the shareholders of FCB. It does not address FCB's underlying
business decision to effect the proposed Merger, nor does it constitute a
recommendation to any FCB shareholder as to how such shareholder should vote
with respect to the proposed merger at the Meeting or as to any other matter.
Baxter Fentriss' opinion was one of many factors taken into
consideration by FCB's Board of Directors in making its determination to approve
the Merger Agreement, and the receipt of Baxter Fentriss' opinion is a condition
precedent to FCB's consummating the proposed Merger. The opinion of Baxter
Fentriss does not address the relative merits of the proposed Merger as compared
to any alternative business strategies that might exist for FCB or the effect of
any other business combination in which FCB might engage.
Baxter Fentriss has represented that it performed a variety of
financial analyses in connection with rendering its opinion to FCB's Board of
Directors. Baxter Fentriss has represented that, in conducting its analyses and
arriving at its opinion as expressed herein, it considered such financial and
other
25
factors as it deemed appropriate under the circumstances including, among
others, the following: (i) the historical and current financial condition and
results of operations of UBS and FCB including interest income, interest
expense, interest sensitivity, non-interest income, non-interest expense,
earnings, book value, returns on assets and equity, capitalization, the amount
and type of non-performing assets, the impact of holding certain non-earning
real estate assets, the reserve for loan losses and possible tax consequences
resulting from the transaction; (ii) the business prospects of UBS and FCB;
(iii) the economies of UBS's and FCB's respective market areas; (iv) the
historical and current market for FCB Common Stock; and (v) the nature and terms
of certain other merger transactions that it believed to be relevant. Baxter
Fentriss has represented that it also considered its assessment of general
economic, market, financial and regulatory conditions and trends, as well as its
knowledge of the financial institutions industry, its experience in connection
with similar transactions, its knowledge of securities valuation generally, and
its knowledge of merger transactions in the Metropolitan Washington DC market.
Baxter Fentriss has represented that in connection with rendering its
opinion, it reviewed (i) the Merger Agreement; (ii) drafts of this Prospectus/
Proxy Statement; (iii) the Annual Reports to shareholders, including the audited
financial statements of FCB and UBS; (iv) pro forma combined unaudited condensed
balance sheets as of December 31, 1994, and pro forma combined statements of
income for the year ended December 31, 1994, presented by UBS; (v) certain
additional financial and operating information with respect to the business,
operations and prospects of UBS and FCB as it deemed appropriate. Baxter
Fentriss has represented that it also (a) held discussions with members of the
senior management of UBS and FCB regarding the historical and current business
operation, financial condition and future prospects of their respective
companies; (b) reviewed the historical market prices and trading activity for
the common stock of FCB and UBS; (c) compared the results of operations of FCB
with those of certain banking
26
companies that it deemed to be relevant; (d) analyzed the pro forma financial
impact of the proposed merger on UBS; (e) analyzed the pro forma financial
impact of the proposed merger on FCB; and (f) conducted such other studies,
analyses, inquiries and examinations as Baxter Fentriss deemed appropriate.
The following is a summary provided by Baxter Fentriss of selected
analyses performed in connection with its opinion.
1. Stock Price History. Baxter Fentriss studied the history of the
----- ----- -------
trading prices and volume for FCB and UBS Common Stock and compared that to
publicly traded banks in the Virginia and West Virginia market and to the price
offered by UBS. As of December 31, 1994, FCB's fully diluted book value was
$28.46 and the last trades known to FCB prior to the announcement of the
acquisition occurred around $8.00 per share.
2. Comparative Analysis. Baxter Fentriss compared the price to
----------- --------
earnings multiple, price to book multiple and price to assets multiple of the
UBS offer with other comparable merger transactions in the Metropolitan
Washington DC market after considering FCB's non-performing assets and other
variables. The comparative multiples included both bank and thrift sales during
the last three years. The proposed price to be paid to FCB represented a price
at the top of the range of transactions announced in the Metropolitan Washington
DC market in terms of price to book and price to normalized earnings.
3. Pro Forma Impact. Baxter Fentriss considered the pro forma
--- ----- ------
impact of the transaction and concluded the transaction should have a positive
long-term impact on UBS.
4. Discounted Cash Flow Analysis. Baxter Fentriss performed a
---------- ---- ---- --------
discounted cash flow analysis to determine hypothetical present values for a
share of FCB's common stock as a 5 and 10 year investment. Under this analysis,
Baxter Fentriss considered
27
various scenarios for the performance of FCB's stock using (i) a range from 0%
to 10% in the growth of FCB's earnings and dividends and (ii) a range from 6
times to 12 times earnings as the terminal value for FCB's stock. A range of
discount rates from 11% to 15% were applied to these alternative growth and
terminal value scenarios. These ranges of discount rates, growth alternatives,
and terminal values were chosen based upon what Baxter Fentriss, in its
judgment, considered to be appropriate taking into account, among other things,
FCB's past and current performance, the general level of inflation, rates of
return for fixed income and equity securities in the marketplace generally and
for companies with similar risk profiles. In all of the scenarios considered,
the present value of a share of FCB's common stock was calculated at less than
the value of the UBS offer. Thus, according to Baxter Fentriss, its discounted
cash flow analysis indicated that FCB shareholders would be in a better
financial position by receiving the UBS common stock and cash offered in the
proposed merger transaction rather than continuing to hold FCB's common stock.
Baxter Fentriss has represented that its analysis indicated that,
using publicly available information on UBS and applying the capital guidelines
of banking regulators, the proposed merger would not seriously dilute the
capital and earnings capacity of UBS and would, therefore, likely not be opposed
by the banking regulatory agencies from a capital perspective. Furthermore,
Baxter Fentriss has represented that it considered the likely market overlap and
the Federal Reserve guidelines with regard to market concentration and did not
believe there to be an issue with regard to possible antitrust concerns.
Baxter Fentriss has represented that it has relied, without any
independent verification, upon the accuracy and completeness of all financial
and other information reviewed, and has assumed that all estimates, including
those as to possible economies of scale, were reasonably prepared by management,
and reflect their best current judgments. Baxter Fentriss has
28
represented that it did not make an independent appraisal of the assets or
liabilities of either FCB or UBS, and that it has not been furnished such an
appraisal.
EFFECT ON THE CORPORATE PARTIES
Under the Merger Agreement, FCB will merge with and into Interim Bank.
Interim Bank will survive the Merger. Immediately prior to the merger of FCB
into Interim Bank, Bank First will merge into Interim Bank, with Interim Bank
surviving the Merger. Interim Bank, as the Surviving Bank, will change its name
to "First Commercial Bank" and will operate as a Virginia state chartered bank.
It will be a member of the Federal Reserve System. It will have its main office
in Arlington, Virginia, at the present location of FCB and a branch in McLean,
Virginia, at the present office of Bank First. Bank First and FCB will cease to
exist as corporate entities and all assets, liabilities and operations will
transfer to Interim Bank as Surviving Bank. UBS also intends to eliminate the
second-tier bank holding company which owns Bank First, UBF, by causing it to
merge into UBS as a part of an internal reorganization. The UBF/UBS merger is a
part of the merger agreement between UBS, UBF, Bank First and Interim Bank,
which also provides for the Bank First/Interim Bank merger. The result of the
reorganization transactions and the Merger will be that UBS will directly own
100% of the issued and outstanding shares of Surviving Bank.
TAX CONSEQUENCES
The merger of FCB and Interim Bank has been structured to qualify as a
tax-free reorganization under Section 368 (a)(l)(A) of the Internal Revenue Code
of 1986, as amended (the "Code"). FCB is relying upon the written opinion of
Robins, Kaplan, Miller & Ciresi, Washington, D.C., counsel to FCB, as to the tax
consequences of the Merger to FCB and its shareholders. A draft of the opinion
is attached hereto as Exhibit C. At closing, Robins,
29
Kaplan, Miller & Ciresi, Washington, D.C. will either issue its opinion or the
Merger will not be consummated. The opinion, when issued, will state that:
1. The statutory merger of FCB with and into Interim Bank will
constitute a tax-free reorganization within the meaning of Sections 368(a)(1)(A)
and 368(a)(2)(D) of the Code.
2. The gain, if any, realized by a FCB shareholder upon receipt of
UBS Stock plus cash will be recognized, but not in an amount in excess of the
cash received as part of the Merger, including cash received in lieu of
fractional shares. The provisions of Section 302 of the Code will govern whether
the character of the gain will be ordinary income or capital gain.
3. The holding period of the UBS Stock received by each holder of FCB
Stock will include the period during which the FCB Stock surrendered and
exchanged therefor was held, provided such FCB Stock was a capital asset in the
hands of the holder at the time of the consummation of the Merger.
4. A FCB shareholder who elects to receive all cash and receives
solely cash in exchange for his FCB Stock should be treated as having received
such cash in redemption of FCB Stock subject to the provisions of Sections 302
and 318 of the Code.
THE MERGER MAY HAVE CONSEQUENCES AFFECTING TAXES OTHER THAN THE FEDERAL INCOME
TAX CONSEQUENCES DISCUSSED ABOVE. SHAREHOLDERS SHOULD CONSULT THEIR TAX
ADVISORS CONCERNING ALL TAX CONSEQUENCES OF THE CONSUMMATION OF THE MERGER AS IT
RELATES TO THEIR OWN CIRCUMSTANCES, INCLUDING BUT NOT LIMITED TO CONSEQUENCES
UNDER FEDERAL, STATE AND LOCAL INCOME TAX AND OTHER TAX LAWS.
30
CONDITIONS TO CONSUMMATION OF THE MERGER
Subject to waiver by the parties, unless otherwise prohibited by law,
consummation of the Merger will take place only if certain conditions set forth
in the Merger Agreement are satisfied. The principal conditions, which have not
yet been satisfied, are as follows:
1. Conditions to Obligations of All Parties:
Subject to the respective right of each party to waive any condition
required to be met by the other party, the parties are not obligated to
consummate, or to cause to be consummated, the transactions contemplated by this
Agreement unless:
(a) Shareholder Approval of Transaction. Before the Merger
----------- -------- -- -----------
Effective Date, FCB must have obtained the approval, ratification and
confirmation of this Agreement and the transactions contemplated herein by the
requisite vote of its shareholders, as required by law and by any applicable
provision of its articles of incorporation and bylaws.
(b) Commercial Interim Bank. UBS must have caused the
---------- ------- ----
organization and chartering of Commercial Interim Bank and Commercial Interim
Bank must have executed the Adoption Agreement.
(c) Absence of Restraint. No order to restrain, enjoin or
------- -- ---------
otherwise prevent the consummation of the transactions contemplated in this
Agreement may have been entered by any court or administrative body which
remains in effect on the Merger Effective Date.
(d) Governmental Approvals. There shall have been obtained by
------------ ---------
the Merger Effective Date any and all permits, approvals and consents of every
governmental body or agency which are necessary or appropriate so that
consummation of the Merger
31
will be in compliance with all applicable laws, including, without limitation,
those with respect to the Federal Reserve Board, the Virginia Bureau of
Financial Institutions and any other regulator with jurisdiction over the
transactions.
(e) Compliance with Representations, Warranties and Additional
---------- ---- ---------------- ---------- --- ----------
Agreements. All of the representations and warranties of the parties contained
- ----------
in the Merger Agreement must be true in all material respects at and as of the
Merger Effective Date (except for changes contemplated and permitted by this
Agreement or otherwise consented to in writing by the appropriate party to this
Agreement) and each party must have complied with and performed, in all material
respects, all of the agreements contained in the Merger Agreement to be
performed by it at or before the Merger Effective Date.
(f) Securities Law Compliance. No order suspending the
---------- --- ----------
effectiveness of UBS's Registration Statement filed with the SEC may have been
issued which remains in effect on the date of the Closing, and no proceedings
for that purpose shall, before the Closing, have been initiated or, to the best
knowledge of UBS, threatened. All state securities and "blue sky" permits or
approvals required to carry out the transactions contemplated in this Agreement
shall have been received to permit free trading of the UBS stock issued to the
non-affiliate FCB shareholders.
2. Additional conditions to obligations of UBS:
(a) Counsel's Opinion. UBS must receive an opinion of counsel
--------- -------
for FCB dated as of the Merger Effective Date, to the effect that:
(i) FCB is a state chartered bank duly organized, validly
existing and in good standing under the laws of the Commonwealth of Virginia.
32
(ii) The authorized capital stock and the number of shares
issued and outstanding of FCB are as stated in the opinion. The issued and
outstanding shares are validly issued, fully paid and non-assessable, and were
not issued in violation of any preemptive rights of the shareholders of FCB. As
of such date, to the best of counsel's knowledge, there are no options,
warrants, convertible securities or similar items outstanding on behalf of FCB.
(iii) FCB has the corporate power and authority to execute,
deliver and perform its obligations under the Merger Agreement. The Merger
Agreement has been duly authorized, executed and delivered by FCB and
constitutes the legal, valid and binding obligation of FCB, enforceable in
accordance with its terms except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium, or
other laws affecting creditors' rights generally.
(iv) The modifications to the employment arrangements
contemplated by the Merger Agreement and executed on or prior to the Merger
Effective Date have been duly authorized, executed and delivered by the parties
thereto and constitute the legal, valid and binding obligation of each party
thereto and are enforceable in accordance with their terms.
(v) All necessary corporate proceedings have been duly and
validly taken by FCB, to the extent required by law, its respective articles of
incorporation and bylaws, or otherwise, to authorize the execution and delivery
of this Agreement by FCB and the consummation of the transactions contemplated
herein.
(vi) Counsel has reviewed the proxy statement and, with
respect to all information relating to FCB contained therein, counsel does not
know of any misleading statement of any material fact or failure to state a
material fact which was
33
necessary to be stated to prevent the statements made from being false or
misleading in any material respect, except as to financial data, as to which
counsel expresses no opinion.
(vii) The consummation of the transactions contemplated
herein in the Merger Agreement will not violate or result in a breach of, or
constitute a default under the articles of incorporation or bylaws of FCB or
constitute a breach or termination of, or default under, any agreement or
instrument of which counsel is aware and which would have a material adverse
effect on the business of FCB, and to which either is a party or by which it or
any of its property is bound.
(b) Affiliates Agreements. UBS must have received an agreement
---------- ----------
executed and delivered by each shareholder of FCB who, in the reasonable opinion
of UBS, may be deemed an affiliate of FCB as that term is defined in Rule 145
promulgated by the Securities and Exchange Commission.
(c) Executives and Contracts. Section 3.10 of the Merger
---------- --- ---------
Agreement requires that:
(i) All employment contracts presently in effect at FCB shall be
terminated in a form and manner satisfactory to UBS on or before the Merger
Effective Date.
(ii) The Supplemental Executive Retirement Plan ("SERP") of
James Brockett and Janet Brockett and the Deferred Compensation Agreement of
James Brockett shall remain in effect. The SERPs of Charles Brockett, Lionel
Taylor and Harry Scott shall be reduced to $35,000 per year, with such amendment
to be accomplished in form and manner satisfactory to UBS. All SERPs and James
Brockett's Deferred Compensation Plan must be actuarially funded through life
insurance or other arrangement on or before the Merger Effective Date such that
satisfaction of the obligations has
34
been provided for. James Brockett and Janet Brockett shall retire on or before
the Merger Effective Date or October 31, 1995, whichever is later. James
Brockett's deferred compensation plan shall be amended such that he need not be
employed on January 1, 1996, to be eligible for the deferred compensation of
$100,000 a year for four (4) years, commencing upon consummation. All such
actions shall be approved by the FCB Board of Directors and consented to, in
writing, by the individuals affected.
(iii) Prior to the Merger Effective Date, FCB may pay a pro rata
annual bonus, up to an annual amount of $200,000, provided that the amount has
been accrued monthly and subject to agreed upon monthly financial performance.
(iv) All key man and Split Dollar life insurance policies must
be cancelled on or before the Merger Effective Date, except for the Split Dollar
Life Insurance Agreement with James Brockett, unless utilized to satisfy the
requirements of (b) above or unless it is possible to transfer the policies net
of the cash surrender value (satisfying all premium loan repayments) to the
insured.
(d) UBS Satisfaction with Loan Loss Reserve, Provision of
--- ------------ ---- ---- ---- -------- --------- --
Charge-Offs, Funding of Benefits, Other Reserve Accounts, etc. As of the Merger
- ------------ ------- -- --------- ----- ------- --------- ---
Effective Date, UBS, in its sole discretion, must be satisfied with the adequacy
of the then existing level of FCB's loan loss reserve and with the sufficiency
of the write-downs and charge-offs in the loan portfolio, such level and
sufficiency to be consistent with the requirements of any regulators and prudent
banking practices. In addition, FCB must also fund the SERPs, 1995 bonuses and
the deferred retirement obligation identified in Section 3.10 of the Merger
Agreement, and reserve for all contingencies in a manner consistent with the
requirements of the regulators and prudent banking practices; provided, however,
that absent a material adverse change in the
35
financial condition of FCB, if FCB makes the additional $500,000 provision to
the loan loss reserve, the $50,000 provision to its OREO reserve and the $35,000
provision to its repossession reserve set forth in Section 3.5(l), the reserves
shall be deemed to be adequate.
(e) Control Shareholders. The Control Shareholders shall use
------- ------------
their best efforts to obtain, on or before July 15, 1995, the approval of the
Bankruptcy Court for the Eastern District of Virginia, which shall be final and
nonappealable, as to the transactions by the Control Shareholders contemplated
herein and their related contractual agreements, including the power and
authority to vote their shares of FCB stock in favor of the Merger, to enter
into this Agreement and carry out the provisions applicable to them, to transfer
their shares of FCB stock for the Merger Consideration, free and clear of any
and all liens, security interests and other encumbrances, and any and all
related actions; which approval must be, in form and substance, satisfactory to
UBS. Such approval must contemplate and approve the range of cash and stock
consideration the Control Shareholders could receive under the terms of this
Agreement. The Control Shareholders satisfied this condition by obtaining the
requisite court order on June 20, 1995, which became final and non-appealable on
June 30, 1995.
3. Additional Conditions to the Obligations of FCB:
(a) FCB shall have received the opinion of counsel to UBS
to the effect that:
(i) UBS is a West Virginia corporation, validly existing
and in good standing under the laws of West Virginia and is duly authorized to
own its properties and to conduct its business as presently conducted.
Commercial Interim Bank is validly existing and in good standing under the laws
of the Commonwealth of Virginia and is duly authorized to own its properties and
to conduct its business as presently conducted.
36
(ii) All necessary corporate proceedings have been duly
taken by UBS to the extent required by law, their articles of incorporation,
articles of association, bylaws or otherwise, to authorize the execution and
delivery of the Merger Agreement and the consummation of the transactions
contemplated herein. The Merger Agreement constitutes the legal, valid and
binding obligation of UBS and Commercial Interim Bank (once it executes the
Adoption Agreement) and is enforceable against them in accordance with its terms
except as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium, or other laws affecting
creditors rights generally.
(iii) To the best of counsel's knowledge, all regulatory
approvals of federal or state banking regulators necessary to consummate the
Merger have been obtained.
(iv) Counsel has reviewed the proxy statement and with
respect to all information relating to the Merger and to UBS and Commercial
Interim Bank contained therein, and knows of no respect in which the proxy
statement contained any false or misleading statement of any material fact or of
any failure to state a material fact which was necessary to be stated to prevent
the statements made from being false or misleading in any material respect,
except as to the financial statements and other financial data as to which
counsel expresses no opinion.
(b) Tax Opinion. On or before the Closing, FCB must have
--- -------
received an opinion from Robins, Kaplan, Miller & Ciresi, Washington, D.C., in a
form reasonably satisfactory to UBS's counsel to the effect that:
(i) The statutory merger of FCB with and into Commercial
Interim Bank will constitute a tax-free reorganization within the meaning of
Section 368(a)(i)(A) and Section 368(a)(2)(D) of the Code;
37
(ii) The gain, if any, realized by a FCB shareholder upon
receipt of UBS stock plus cash will be recognized, but not in an amount in
excess of the cash received as part of the Merger, including cash received in
lieu of fractional shares. The provisions of Section 302 of the Code will govern
whether the character of the gain will be ordinary income or capital gain;
(iii) The holding period of the UBS Stock received by each
holder of FCB's Stock will include the period during which FCB Stock surrendered
in exchange therefor was held, provided such Stock was a capital asset in the
hands of the shareholder at the time of the Closing; and
(iv) A FCB shareholder who elects to receive all cash and
receives solely cash in exchange for his or her FCB Stock will be treated as
having received such cash in redemption of his or her FCB Stock subject to the
provisions of Sections 302 and 318 of the Code.
(c) Fairness Opinion. The board and shareholders of FCB shall
-------- -------
have received the opinion of Baxter Fentriss and Company that the transaction is
fair, from a financial perspective, to the shareholders of FCB.
(d) Consent of NationsBank or Repayment of Capital Loan. FCB
------- -- ----------- -- --------- -- ------- ----
will either obtain the consent of NationsBank to the Merger as required by its
loan agreement with NationsBank or FCB will repay the remaining balance
(approximately $500,000) of the $750,000 loan. See Section entitled "Regulation
and Supervision".
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Merger
Effective Date by the mutual consent of the Boards of Directors of FCB and UBS
or by either party in the event that the criteria set forth in the Merger
Agreement are not satisfied within
38
the time contemplated therein. The Merger Agreement has a termination date of
December 31, 1995, and must be consummated by that date unless the parties
agree, in writing, to an extension of the time.
MERGER EFFECTIVE DATE
No specific date for consummation of the Merger is set forth in the
Merger Agreement; however the parties have agreed to use their best efforts to
consummate by October 31, 1995. However, it is the intention of the parties to
consummate as soon as possible after receipt of required shareholder and
regulatory approvals and after satisfaction of all conditions to consummation.
ACCOUNTING TREATMENT
As presented in this Prospectus/Proxy Statement and the relevant
financial sections included herein, the parties expect the Merger to be
accounted for under the purchase method of accounting. Under the purchase
method of accounting, the acquired institution's balance sheet is adjusted to
current fair values as of the date of the Merger. Any excess consideration paid
over the net current fair value of assets acquired and liabilities assumed will
be recorded as good will. The results of operations of FCB will be included in
UBS's consolidated financial statements from the date of the Merger. Proforma
financial information concerning the Merger is not included herein since the
addition of FCB would not have materially affected UBS historical financial
information as presented without FCB.
39
COMPARISON OF SHAREHOLDERS' RIGHTS
UBS is a West Virginia corporation and a bank holding company while
FCB is a Virginia corporation and a state member bank. However, current FCB and
UBS shareholders' rights with regard to redemption by each respective issuer,
and liquidation are substantially parallel.
One significant difference is with regard to shareholders' preemptive
rights. In the case of UBS, shareholders do not have preemptive rights and the
---
Board of Directors has the authority to issue additional shares without
obtaining the approval of shareholders and without first offering newly issued
shares to existing shareholders for purchase. FCB shareholders do have
preemptive rights and are therefore entitled to purchase shares in any new
issuance of stock sufficient to maintain their ownership position.
Another significant difference is that, pursuant to Section 6.1-43 of
the Virginia Banking Act, FCB shareholders do not have dissenters' rights of
appraisal which would give them the right, in certain transactions, to opt to
receive an appraised value for their shares in lieu of the transaction
consideration. UBS shareholders do have such rights pursuant to the West
Virginia Corporation Act, W.Va. Code (S)(S) 122 and 123. Pursuant to these
provisions, in the event of a merger, consolidation or any sale or exchange of
all or substantially all of the property and assets of a corporation not made in
the ordinary course of business, a shareholder may exercise dissenters' rights
as to all or a part of the shares owned. By following prescribed statutory
procedures, a shareholder is entitled to receive the "fair value" of the shares
as to which he or she has exercised dissenters' rights.
A third significant difference is that UBS shareholders have the
right, under the West Virginia Corporation Act and the
40
West Virginia Constitution, to vote their shares cumulatively in the election of
directors while FCB shareholders do not have cumulative voting rights. UBS
shareholders may vote the number of shares owned for as many persons as there
are directors to be elected, or to cumulate the votes by giving one candidate as
many votes as the number of directors there are to be elected times the number
of shares to be voted, or by distributing such votes on the same principle among
any number of candidates.
No antitakeover provisions have been added to the articles of
incorporation or bylaws of UBS or FCB; such matters are governed in the case of
both entities by the applicable corporate laws. UBS shareholders currently have
cumulative voting rights with regard to the election of directors and these
rights will continue for UBS shareholders following the Merger. FCB and UBS
shareholders do not have conversion rights, nor are there redemption or sinking
fund provisions with respect to any of their stock.
UBS must look to the ability of its subsidiaries to pay dividends in
order to pay dividends to its shareholders. The dividends payable by UBS
subsidiaries, which are national bank subsidiaries, are dependent upon their
earnings and profitability and compliance with certain federal banking law
requirements. The dividends paid by FCB are also dependent upon its earnings
and profitability and compliance with state and banking law requirements.
Following consummation of the Merger, dividends received by UBS shareholders
will continue to be dependent upon payment of dividends by its banking
subsidiaries. See DESCRIPTION OF UBS - Dividends.
---
ISSUANCE AND EXCHANGE OF STOCK CERTIFICATES
Mellon Bank, N.A., Pittsburgh, Pennsylvania, acts as Exchange and
Transfer Agent for UBS Stock ("Transfer Agent"). As
41
soon as practicable after the Merger Effective Date, the shareholders of FCB
will receive written instructions from UBS or the Transfer Agent with respect to
the right of FCB shareholders (other than the Control Shareholders) to elect (1)
to accept $52.57 in cash per share in full payment of their shares or (2) to
exchange their FCB Stock for UBS Stock and $26.25 in cash per share. IF AN FCB
SHAREHOLDER FAILS AFFIRMATIVELY TO ELECT TO RECEIVE THE $52.57 CASH PAYMENT FOR
HIS OR HER FCB SHARES, HE OR SHE WILL RECEIVE UBS STOCK AND $26.25 IN CASH FOR
EACH FCB SHARE.
Upon delivery of their FCB stock certificates pursuant to the written
instructions, FCB shareholders will be sent their portion of the Merger
Consideration (whether all cash, or cash and UBS Stock), together with cash for
any fractional share of UBS Stock to which a particular shareholder is entitled.
Until exchanged, the stock certificates of FCB will evidence for all corporate
purposes ownership of the number of whole shares of UBS Stock into which they
are converted as a result of the Merger. UNTIL SUCH OUTSTANDING CERTIFICATES
HAVE BEEN EXCHANGED, UBS MAY, AT ITS SOLE OPTION, WITHHOLD: (I) THE MERGER
CONSIDERATION, INCLUDING THE CERTIFICATES REPRESENTING THE SHARES OF UBS STOCK
INTO WHICH THE FCB SHARES ARE CONVERTED AND (II) THE DISTRIBUTION OF ANY AND ALL
CASH CONSIDERATION, DIVIDENDS OR PAYMENTS FOR FRACTIONAL SHARES WITH RESPECT TO
THE UBS STOCK TO WHICH THE SHAREHOLDER IS ENTITLED. UPON DELIVERY OF THE
OUTSTANDING CERTIFICATES IN ACCORDANCE WITH THE WRITTEN INSTRUCTIONS, UBS WILL
DELIVER THE ABOVE ITEMS TO THE SHAREHOLDER PROVIDED THAT ANY CASH WILL BE
DELIVERED WITHOUT INTEREST.
The shares of UBS Stock to be issued pursuant to the Merger are
registered under the Securities Act of 1933, as amended (the "1933 Act").
Directors, officers and principal shareholders of FCB may be considered to be
"affiliates" for purposes of Rule 145 promulgated under the 1933 Act.
Therefore, they may be deemed to be "underwriters" subject to the limitations
imposed by Rule 145
42
upon the disposition of their shares of UBS Stock received pursuant to the
Agreement. In light of these limitations, which do not apply to FCB shareholders
generally, the individuals who may be considered affiliates must enter into
agreements with UBS to the effect that the shares of UBS they receive pursuant
to the Merger will not be sold or otherwise disposed of except in accordance
with the 1933 Act and Rule 145 promulgated thereunder. The individuals who may
be considered affiliates and who will execute the affiliates' agreements have
been advised of these requirements and restrictions.
DISSENTERS' RIGHTS
The Virginia Banking Act specifically excludes the application of
dissenters' rights of appraisal to mergers of Virginia banks. See Va. Code Ann.
---
(S) 6.1-43 (1993). FCB shareholders who do not wish to receive shares of UBS
Stock as part of the Merger Consideration should elect the "all cash"
alternative. See THE PROPOSED TRANSACTION - THE MERGER - Merger Consideration.
---
43
COMPARATIVE PER SHARE DATA
The table which follows, presents historical per share data for UBS and FCB, pro
forma combined per share data and equivalent per share data showing the value of
one share of FCB common stock in the combined corporation. Such data is based
on historical financial statements for UBS and FCB and pro forma combined
amounts giving effect to the exchange of 1.12 shares of UBS common stock for
each share of FCB common stock plus an additional $26.25 of cash consideration
paid for each share of FCB common stock.
For purposes of determining the value of consideration in the proposed
transaction, which will be recorded using the purchase method of accounting, UBS
common stock has been valued at $25 per share, or the price as reported on the
NASDAQ National Market System as of March 6, 1995. Management of UBS believes
that use of such date is appropriate at this time for valuing the proposed
transaction consideration because of the lengthy time period between initiation
and expected consummation. For further discussion of the consideration, see THE
PROPOSED TRANSACTION - THE MERGER - Merger Consideration.
The per share data included in the tables which follow should be read in
conjunction with the historical financial statements of UBS and FCB and the
related notes accompanying each such financial statement. The data presented is
not necessarily indicative of the
44
results which would have been obtained if the combination had been consummated
in the periods indicated or which may be obtained in the future.
COMPARATIVE PER SHARE DATA (UNAUDITED)
(Data in dollars, Except shares)
THREE MONTHS
ENDED YEAR ENDED
MARCH 31 DECEMBER 31
1995 1994
---- ----
UNITED BANKSHARES, INC. ("UBS")
Historical:
Net income .58 2.08
Book value at end of period 15.53 15.21
Cash dividends declared 0.29 1.06
Average shares outstanding 11,809,055 11,993,062
FIRST COMMERCIAL BANK ("FCB")
Historical:
Net income (0.24) 3.04
Book value at end of period 28.30 28.46
Cash dividends declared 0.20
Average shares outstanding 201,100 201,100
PRO FORMA COMBINED (UNAUDITED) (1)
Net income 0.57 2.11
Book value at end of period 15.74 15.17
Average shares outstanding 12,034,287 12,218,294
FCB EQUIVALENT PER SHARE DATA (UNAUDITED) (2)
Net income 0.64 2.36
Book value at end of period 17.63 16.99
Cash dividends declared 0.32 1.19
(1) Assumes receipt of 100% of the 201,100 shares of FCB common stock for no
more than 271,000 shares of UBS common stock valued at $25 per share plus
an additional $26.25 of cash consideration paid for each share of FCB
common stock.
(2) The equivalent per share amounts are the result of multiplying the cash
dividends declared by UBS, the pro forma combined net income, and pro
forma combined book value by the 1.12 to 1 exchange ratio of UBS common
stock for each common share of FCB.
45
First Commercial Bank
SELECTED FINANCIAL DATA
(In Thousands Except for Per Share Data)
For the Three For the
Months Ended Year Ended
March 31 December 31
1995 1994
---------------- --------------
Total interest income $ 1,302 $ 5,036
Total interest expense 516 1,882
Net interest income 786 3,154
Provision for possible
loan losses 150 20
Other income 124 265
Other expenses 838 2,472
Income taxes (29) 316
Income before cumulative
effect of accounting change (49) 611
Net income (49) 611
Cash dividends 40
Per common share:
Income before cumulative
effect of accounting change (0.24) 3.04
Net income (0.24) 3.04
Cash dividends 0.20
Book value per share 28.30 28.46
Return on average
shareholders' equity -3.41% 11.08%
Return on average assets -0.33% 0.99%
Average assets 59,087 61,516
Investment securities 8,491 8,448
Net loans 43,588 42,812
Total assets 61,098 60,834
Total deposits 53,693 53,225
Long-term borrowings 460 492
Total borrowings
and other liabilities 1,714 1,885
Shareholders' equity 5,691 5,724
46
FIRST COMMERCIAL BANK
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
FIVE YEAR SUMMARY
---- ---- -------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
TOTAL INTEREST INCOME $ 5,036 $ 4,935 $ 5,253 $ 5,637 $ 6,179
TOTAL INTEREST EXPENSE 1,882 1,999 2,390 3,134 3,531
NET INTEREST INCOME 3,154 2,936 2,863 2,503 2,648
PROVISION FOR POSSIBLE
LOAN LOSSES 20 460 694 740 360
OTHER INCOME 265 422 230 313 301
OTHER EXPENSES 2,472 2,388 2,203 2,021 2,453
INCOME TAXES 316 196 46 3 22
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 611 314 150 52 114
NET INCOME 611 314 150 52 114
CASH DIVIDENDS 40 40 40 40 40
PER COMMON SHARE:
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 3.04 1.56 0.74 0.26 0.56
NET INCOME 3.04 1.56 0.74 0.26 0.56
CASH DIVIDENDS 0.20 0.20 0.20 0.20 0.20
BOOK VALUE PER SHARE 28.46 25.72 24.36 23.82 23.76
RETURN ON AVERAGE
SHAREHOLDERS' EQUITY 11.08% 6.10% 3.10% 1.10% 2.30%
RETURN ON AVERAGE ASSETS 0.99% 0.40% 0.20% 0.10% 0.20%
AVERAGE ASSETS 61,516 66,270 61,801 60,678 60,410
INVESTMENT SECURITIES 8,448 15,515 10,674 9,710 11,152
NET LOANS 42,812 40,569 40,492 45,517 41,213
TOTAL ASSETS 60,834 71,791 60,693 63,707 62,304
TOTAL DEPOSITS 53,225 61,761 54,355 54,920 52,561
LONG-TERM BORROWINGS 493 563 613 663 694
TOTAL BORROWINGS
AND OTHER LIABILITIES 1,885 4,857 1,440 3,997 4,965
SHAREHOLDERS' EQUITY 5,724 5,173 4,899 4,790 4,778
47
DESCRIPTION OF UNITED BANKSHARES, INC.
ORGANIZATIONAL HISTORY AND SUBSIDIARIES
UBS is a West Virginia corporation registered as a bank holding
company pursuant to the Bank Holding Company Act of 1956, as amended. The
headquarters of UBS are located in United Center at 500 Virginia Street, East,
Charleston, West Virginia. UBS was incorporated on March 26, 1982, and
organized on September 9, 1982. UBS began conducting business on May 1, 1984,
with the acquisition of three (3) banks. On October 1, 1985, these three (3)
subsidiaries were merged and on November 1, 1985, were renamed United National
Bank ("UNB").
Since that time UBS has acquired various subsidiary banks through
merger. As a result of an internal reorganization involving the merger of two
(2) subsidiaries into UNB effective January 1, 1993, UBS owns three (3)
subsidiary banks as of March 31, 1995: UNB, United National Bank-South ("UNB-
S") and Bank First, N.A. ("Bank First"). UNB and Bank First are each the
wholly-owned subsidiary of second-tier bank holding companies, UBC Holding
Company, Inc. and UBF, respectively, each of which is a wholly-owned subsidiary
of UBS. UNB has its main office in Parkersburg, West Virginia, UNB-S has its
main office in Beckley, West Virginia, and Bank First has its main office in
McLean, Virginia.
In addition to its bank subsidiaries, UBS chartered and capitalized
United Venture Fund, Inc., a West Virginia corporation which has qualified as a
Capital Company under the West Virginia Capital Company Act. This subsidiary
makes loans and limited equity investments, consistent with the Bank Holding
Company Act, intended to result in or contribute to new jobs and/or industry in
West Virginia.
BUSINESS OF UBS
As a bank holding company registered under the Bank Holding Company
Act of 1956, as amended, UBS's present business is the operation of its bank
subsidiaries. As of December 31, 1994, and March 31, 1995, respectively, UBS's
consolidated assets approximated $1,787,641,000 and $1,792,217,000 and total
shareholders' equity approximated $179,746,000 and $183,339,000.
UBS is permitted to acquire other banks and bank holding companies as
well as thrift institutions. UBS is also permitted to engage in certain non-
banking activities which are closely related to banking under the provisions of
the Bank Holding Company Act and the Federal Reserve Board's Regulation Y.
Management continues to consider such opportunities as they arise and in this
regard, management from time to time makes inquiries, proposals, offers or
48
expressions of interest as to potential opportunities. No agreements or
understandings to acquire other banks or bank holding companies or non-banking
subsidiaries or to engage in other non-banking activities, other than those
identified herein, presently exist.
BUSINESS OF SUBSIDIARY BANKS
As of March 31, 1995, UBS affiliates operated 39 banking offices in
West Virginia and one office in Virginia. UBS, through its affiliates, conducts
a full service commercial and consumer banking business. Included among the
banking services offered are the acceptance of deposits in checking, savings,
time and money market accounts; the making and servicing of personal,
commercial, floor plan and student loans; and the making and servicing of
construction and real estate loans. Also offered are individual retirement
accounts, safe deposit boxes, wire transfers and other standard banking products
and services. As a part of their lending function, UNB, UNB-S and Bank First
offer credit card services including accounts issued under the name of certain
correspondent banks.
UNB and UNB-S also maintain trust departments which act as trustees
under wills, trust and pension and profit sharing plans, as executors and
administrators of estates, as guardians for the estate of minors and
incompetents, and perform a variety of investment and security services. UNB
trust services are available to customers of affiliate banks. UNB provides
services to its correspondent banks such as check clearing, safekeeping and the
buying and selling of federal funds.
UNB and UNB-S are members of a regional network of automated teller
machines known as the MAC ATM network while Bank First participates in the MOST
network. Through MAC and MOST, all of UBS's subsidiary banks are participants
in a network known as Cirrus which provides banking on a nationwide basis.
DIVIDENDS
As of March 31, 1995, UBS had 20,000,000 authorized shares of common
stock, par value $2.50 per share, of which 11,954,453 were issued and
outstanding, including 152,770 shares of treasury stock. These shares were held
by approximately 5,087 shareholders of record.
The shareholders of UBS are entitled to receive dividends when and as
declared by its Board of Directors. Dividends are paid quarterly. Aggregate
dividends were .29 per share for the first quarter of 1995, $1.06 per share in
1994, and $.95 per share in 1993. Dividends are paid out of funds legally
available and the payment of dividends is subject to the restrictions set forth
in the West Virginia Corporation Act.
49
Payment of dividends by UBS is dependent upon payment of dividends to
it by its subsidiary banks. The ability of national banks to pay dividends is
subject to certain limitations imposed by the national banking laws. The Office
of the Comptroller of the Currency ("OCC") may prohibit dividends if it deems
the payment to be an unsafe or unsound banking practice. The OCC has issued
guidelines for dividend payments by national banks, emphasizing that proper
dividend size depends on the bank's earnings and capital.
MARKET AND STOCK PRICES OF UBS
UBS Stock is traded over the counter on the National Association of
Securities Dealers Automated Quotations System ("NASDAQ") under the trading
symbol UBSI.
The following table presents the high and low prices of UBS's common
stock during the periods set forth below:
UBS
Historical Basis
-----------------
1995 High Low
---- ---- ---
Second Quarter through $27.50 $25.25
June 1, 1995
First Quarter $26.00 $23.25
1994
----
Fourth Quarter 24.75 23.00
Third Quarter 25.75 24.00
Second Quarter 26.75 25.00
First Quarter 27.25 25.50
1993
----
Fourth Quarter 28.50 25.25
Third Quarter 25.75 21.50
Second Quarter 22.75 19.75
First Quarter 23.50 19.25
The prices listed above are based upon information available to UBS's
management from NASDAQ listings. No attempt has been made by UBS's management to
ascertain the prices for every sale of UBS Stock during the periods indicated.
However, based on the information available, UBS's management believes that the
50
prices accurately represent the amounts at which UBS's Stock was traded during
the periods indicated.
OTHER INFORMATION
UBS Stock is actively traded in the over-the-counter market under the
NASDAQ symbol UBSI. Since information regarding UBS is readily available to
investors, the law permits this document to be abbreviated by incorporating
information regarding UBS by reference to certain reports and other documents
filed with the SEC. See INFORMATION INCORPORATED BY REFERENCE. Other than as
described herein, there have been no material changes in the affairs of UBS
since the filing of its Annual Report on Form 10-K for the year ended December
31, 1994 that have not been described in a subsequent report filed with the SEC
pursuant to the Securities and Exchange Act of 1934, as amended.
51
DESCRIPTION OF FIRST COMMERCIAL BANK
GENERAL
FCB is a Virginia banking corporation and a member of the Federal
Reserve System. It was chartered on August 2, 1972. FCB is located
approximately in the geographical center of Arlington County, Virginia. The
main office address is 3801 Wilson Boulevard, Arlington, Virginia. FCB does not
have any branches. On December 31, 1994, FCB had 23 full-time employees.
The banking services offered to the public are services normally
associated with a commercial bank including, but not necessarily limited to,
checking accounts, savings programs, safe deposit boxes, and commercial and
consumer-type loans. FCB does not operate a trust department nor does it own
any subsidiaries or bank related enterprises. FCB is independently owned with
381 shareholders of record owning 201,100 shares of the total stock outstanding.
As of December 31, 1994, and March 31, 1995, respectively, FCB had total assets
approximating $60,834,000 and $61,098,000 and total stockholders equity
approximately $5,724,000 and $5,691,000.
COMPETITION
Arlington County consists of approximately 25.7 square miles in area
and has a population of approximately 167,000. There are 13 banks operating in
Arlington County with approximately 69 offices. Of the 13 banks, FCB is one of
three independent banks. In addition, there are 6 savings banks with 10 offices
and 11 credit unions that compete for loans and deposits in Arlington County.
52
REGULATION AND SUPERVISION
The operations of FCB are subject to federal and state statutes which
apply to state member banks of the Federal Reserve System.
The stock of FCB is subject to the registration requirements of the
Securities Act of 1933. FCB is subject to the periodic reporting requirements
of the Securities Exchange Act of 1934. These include, but are not limited to,
the filing of annual, quarterly and other current reports with the Board of
Governors of the Federal Reserve System.
FCB as a state member bank is supervised and regularly examined by the
Virginia Bureau of Financial Institutions and the Federal Reserve Board. Such
supervision and examination by the Virginia Bureau of Financial Institutions and
the Federal Reserve Board is intended primarily for the protection of depositors
and not for the stockholders of FCB.
In order to comply with the capital adequacy guidelines for state
member banks established by the Board of Governors of the Federal Reserve System
("FRS"), FCB borrowed $750,000 (the "Capital Loan") from Sovran Bank, N.A. (now,
NationsBank of Virginia, N.A.) pursuant to a Capital Note Agreement dated
September 15, 1988. The loan is classified as secondary capital in accordance
with FRS guidelines. As of December 31, 1994, the outstanding principal balance
of the Capital Loan was $492,297. Currently, FCB has sufficient capital without
the Capital Loan to comply with the FRS capital adequacy guidelines currently in
effect. The rate of interest on the Capital Loan (prime plus 0.5%)
significantly exceeds FCB's current cost of funds. In addition, the Capital
Loan contains certain affirmative and negative covenants regulating the
activities of FCB. One of those covenants prohibits FCB from entering into any
merger transaction without the prior written
53
consent of NationsBank. Accordingly, FCB intends to repay the Capital Loan in
full on or before the Merger Effective Date.
DESCRIPTION OF PROPERTIES
FCB occupies a four-story brick building at 3801 Wilson Boulevard,
Arlington, Virginia. FCB is under a 20-year lease with Aries Investment Company
for approximately 11,354 square feet of ground on which FCB's office building
was constructed. In March of 1994 FCB exercised its option to extend the lease
until December 2004. FCB has an additional option to extend the lease for
another 10 years. The current annual rent is $95,402. The office building is
owned by FCB.
In April 1986, FCB entered in a lease agreement with The Young Group,
Inc. for the premises of 6661 Old Dominion Drive, McLean, Virginia. The
premises provided 1,790 square feet, which FCB intended to use as a branch
location. The lease term was ten (10) years with renewal options of five (5)
years for annual rental of $77,901. Effective February 1, 1990, FCB had
subleased the branch office under a lease that expires June 30, 1996, and
provides for rental income of $81,480 per year. The rent under both leases is
adjusted at five year intervals for inflation.
LEGAL PROCEEDINGS
FCB is the defendant in a case styled Weichert Company of Virginia,
Inc. v. First Commercial Bank which is pending before the Arlington County
Circuit Court. The case had been scheduled for trial by jury in November 1994,
however, the case was nonsuited by Weichert. A new trial date will be
established by the Court in 1995. The case is an action wherein Weichert
Company of Virginia, Inc. seeks to recover approximately $154,000 plus $500,000
in punitive damages in connection with an account that Weichert alleges was
wrongfully set off. The case was dismissed in the
54
trial court after argument of First Commercial's plea in bar, which asserted
that Weichert lacked standing to bring the suit. The case was reversed and
remanded by the Virginia Supreme Court. FCB plans to continue to contest the
case vigorously. The outcome cannot be predicted at this time.
FCB is routinely involved in other legal actions which involve
attempts to collect monies due FCB pursuant to loans in default. There are no
other pending legal proceedings, other than ordinary routine litigation
incidental to the business of FCB. Management and legal counsel are of the
opinion that the ultimate resolution of these proceedings will not result in
material liability to FCB.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
FCB's stock is being traded over the counter in the Washington, D. C.
metropolitan area. The trade prices shown below were provided courtesy of
Koonce Securities, Rockville, Maryland. Other transactions may have occurred
which were not reported to FCB. As of June 1, 1995, there were approximately
381 stockholders of record.
MARKET INFORMATION
Quarter: First Second Third Fourth
- -------- ----- ------ ----- ------
1994 High $8.00 High $8.00 High $8.00 High $ 8.00
Low $8.00 Low $8.00 Low $8.00 Low $ 8.00
1993 High $8.40 High $8.40 High $8.40 High $15.00
Low $8.00 Low $8.00 Low $8.00 Low $ 8.00
1992 High $8.00 High $8.00 High $8.00 High $ 8.00
Low $8.00 Low $8.00 Low $8.00 Low $ 8.00
The above quotations reflect inter-dealer prices, without retail mark-
up, mark-down or commission and may not represent actual transaction.
55
FCB paid an annual cash dividend on common stock of $ .20 per share
for 1993 and 1994.
As part of FCB's loan agreement with NationsBank for the Capital Loan,
FCB has agreed not to pay dividends that would exceed 30% of FCB's net income
for the preceding fiscal year.
DIRECTORS
The following is a list of the Board of Directors, their occupations
for the past five years, approximate ages at this filing, and other pertinent
information:
NAMES (AGES) PRINCIPAL OCCUPATION DIRECTOR SINCE
------------ -------------------- --------------
Yvonne E. Anderson Real Estate Sales and Investments 1983
(68)
James B. Brockett Chairman of the Board and 1980
(65) President of the Bank
Janet H. Brockett Senior Vice President of Bank 1982
(57)
Charles C. Brockett Vice President and Chief Financial 1993
(31) Officer of Bank
Gayle B. Matthews Attorney at Law 1980
(54)
John F. Rutledge Attorney at Law 1979
(70)
Lionel S. Taylor Executive Vice President of Bank 1988
(54)
Wayne J. Smith President, Wayne J. Smith Company 1990
(55) Association Management and Public
Relations
Messrs. Matthews and Rutledge are retained by FCB from time-to-time to provide
legal services.
EXECUTIVE OFFICERS
NAMES (AGES) POSITION HELD DATES HELD
------------- ------------- ----------
James B. Brockett Chairman and President 1980
(65)
56
Janet H. Brockett Vice President 1980
(57) Senior Vice President 1985
Harry F. Scott Vice President 1980
(51) Senior Vice President 1985
Lionel S. Taylor Senior Vice President 1981
(57) Executive Vice President 1985
Senior Lending Officer
Charles C. Brockett Vice President 1990
(31) Vice President & 1991
Chief Financial Officer
FAMILY RELATIONSHIPS
James B. Brockett and Janet H. Brockett are husband and wife. Charles C.
Brockett is the son of James B. Brockett.
CONTROL SHAREHOLDERS' CHAPTER 11 PROCEEDINGS
In September 1989, Herndon Lumber and Millwork, Inc. of which James B.
Brockett was the president, filed a petition for protection under Chapter 11 of
the United States Bankruptcy Code. Mr. Brockett, who owned a 50% interest, was
not actively involved in the management of the Company, which was involved in
lumber sales. The Company incurred operating losses and became illiquid as a
result of the slowdown in residential construction and the collapse of the real
estate market.
In October 1992, Burke Brockett and Rice Partnership, in which Mr.
Brockett was a general partner with a one-third interest, filed a petition for
protection under Chapter 7 of the United States Bankruptcy Code. The
partnership, which held land for residential development, became illiquid as a
result of the severe decrease in residential construction.
James B. Brockett and Janet H. Brockett filed a petition for
protection under Chapter 11 of the United States Bankruptcy Code on October 28,
1992. The action was taken because of personal guarantees of lease obligations
of Herndon Lumber and Millwork, Inc. referred to above.
57
The Control Shareholders have filed a motion with the Bankruptcy Court
seeking an order permitting them (1) to vote for the Merger; (2) to execute and
perform their obligations under the Merger Agreement; and (3) to exchange their
FCB Stock pursuant to the Merger Agreement, free and clear of all liens and
encumbrances which liens and encumbrances shall be transferred to the UBS Stock
so received in the exchange. This motion was granted by order of the Bankruptcy
Court issued on June 20, 1995 and became nonappealable on June 30, 1995.
The Control Shareholders intend to prepare and file a reorganization
plan for their Chapter 11 Proceedings calling for (i) the substitution of the
UBS Shares as collateral for all claims currently secured by the FCB Stock owned
by the Control Shareholders and (ii) the payment in cash, out of the cash
provided in the Merger Consideration, of allowed claims. The Control
Shareholders anticipate that certain allowed claims will be compromised and
reduced in amount and that certain disputed claims will be disallowed or will be
compromised and reduced in amount, so that the amount of cash payments required
to satisfy claims in the Chapter 11 Proceedings will not exceed the amount of
cash provided as part of the Merger consideration. There can, however, be no
assurance that the reorganization plan will be approved by the Bankruptcy Court
or that the results set forth above will be obtained in the Chapter 11
Proceedings.
EXECUTIVE COMPENSATION
The following table sets forth the total annual compensation paid or
accrued by FCB or for the account of the Chief Executive Officer and each of the
four most highly compensated executive officers of FCB whose total cash
compensation for the calendar year ended December 31, 1994, exceeded $100,000
(James B. Brockett was the only Executive Officer to meet the disclosure
requirement):
58
Annual Compensation
---------------------------------------------------------
NAME AND (1) OTHER ANNUAL (2) ALL OTHER
PRINCIPAL POSITION YEAR SALARY DIRECTOR FEES BONUS COMPENSATION COMPENSATION
James B. Brockett 1994 $150,000 $32,000 $154,062 $ - $131,491
Chairman and President 1993 $150,000 $32,000 $102,497 $ - $102,557
1992 $150,000 $32,000 -0- $ - $134,069
(1) OTHER ANNUAL COMPENSATION
No officer of the FCB received perquisites and other personal benefits
that exceeded the lesser of either $50,000 or 10% of the annual salary and
bonus shown in the above table. To facilitate performance of their duties, FCB
makes available, at its expense, an automobile to Mr. Brockett as well as to
three other executive officers.
(2) ALL OTHER COMPENSATION
All other compensation includes amounts accrued but not paid under the
FCB deferred compensation agreement of $87,966, amounts accrued but not paid
of $35,108 to provide post retirement insurance benefits and the cost of term
insurance provided for 1994 of $8,417.
DIRECTORS COMPENSATION
Directors of FCB receive a fee of $500 for each Board of Directors
meeting. Each member of the Executive Committee receives a fee of $500 for each
Executive Committee meeting.
59
EXECUTIVE BONUS PLAN
On June 9, 1992, at the FCB annual meeting, shareholders of the Bank
voted to amend the bonus formula contained in the employment agreement for James
B. Brockett approved June 12, 1984 to correct an omission in the original
formula. Under the amended bonus plan, bonuses on excess earnings are computed
as follows:
================================================================================
BASE EARNINGS (2) FOR BONUS % MAXIMUM BONUS
BONUS RANGE FOR RANGE FOR RANGE
================================================================================
200,000 to 600,000 25% $100,000
600,000 to 700,000 20% 20,000
(1) 700,000 to 800,000 15% 15,000
800,000 to 900,000 10% 10,000
Over 900,000 5% 5,000 each
$100,000 of earnings
================================================================================
(1) Range added with amendment
(2) Base earnings is defined as net income before taxes
A bonus computed under the formula of $154,062 was accrued for 1994.
EXECUTIVE SALARY CONTINUATION PLAN
FCB entered into agreements on April 18, 1986, with certain executive
officers to induce each executive to remain in his capacity with FCB. The
agreements provide retirement benefits conditional upon the continuous
employment of a period of at least ten years and death benefits payable to their
designated beneficiaries should the executive die while employed by FCB.
Effective for 1992, the Board of Directors approved deferred
compensation agreements for Janet H. Brockett and James B. Brockett. The
agreement for Janet H. Brockett is substantially identical to the agreements
with the other executive officers. The agreement with James B. Brockett
provides for retirement benefits of $100,000 per year for four years conditional
upon Mr. Brockett's employment until January 1, of the year following his
attaining age sixty-five (65) which date is January 1, 1996.
60
The executive officers covered by the agreements are shown in the
following table.
================================================================================
OFFICER RETIREMENT BENEFIT ANNUAL
------- Age YEARS BENEFITS
---------- ------- --------
- --------------------------------------------------------------------------------
Charles C. Brockett 60 15 $ 80,000
- --------------------------------------------------------------------------------
Janet H. Brockett 60 15 50,000
- --------------------------------------------------------------------------------
James B. Brockett 65 4 100,000
- --------------------------------------------------------------------------------
Harry F. Scott 60 15 85,000
- --------------------------------------------------------------------------------
Lionel S. Taylor 60 15 80,000
================================================================================
The agreements provide for reduced annual benefits should the
executive officer retire prior to retirement age.
On December 31, 1993, a Split Dollar Life Insurance agreement with
James B. Brockett was amended as follows: (a) to provide for interest to FCB at
the rate of 5% compounded annually, beginning October 1, 1989, on the premiums
advanced by FCB, and (b) to limit the number of premium payments of $81,710 made
under the agreement to ten (10). The premium advances made by FCB continue to
be secured by a collateral assignment of the death benefits of the policy.
EMPLOYMENT AGREEMENTS
On December 31, 1992, Mr. Brockett entered into an employment
agreement with FCB for a term of one year. The agreement will automatically
renew unless either party gives written notice to the other of his or its
intention to renew the agreement at least ninety (90) days prior to the
commencement of the renewal period. The agreement provides for a base salary of
$150,000 and any bonus to which he is entitled pursuant to the "Executive Bonus
Plan." The agreement also provides for participation in other employee benefit
plans use of an automobile, three weeks annual vacation and for reimbursement of
the cost of membership and/or monthly dues in professional and civic
organizations approved by the Board of Directors. The agreement
61
provides further that, in the event Mr. Brockett's employment is terminated by
FCB at any time during the terms of the agreement for any reason other than
"cause" (gross negligence, proven dishonesty, or willful violation of law by the
employee), FCB will pay a lump sum amount equivalent to salary and benefits
payable for a period which ranges from nine to twenty-four months, depending on
the length of service. Upon voluntary termination by the employee, FCB will pay
to the employee a lump sum amount equivalent to the salary and benefits payable
for a period which ranges from three to twelve months depending on the length of
service. In the event of a change in control and the employee is not assigned
substantially the same position or not provided substantially the same
facilities within the trade area of FCB as defined in its Community Reinvestment
Act Statement, then in effect, the employee will be entitled to terminate his
employment and receive a lump sum payment of 2.99 times his then annual salary.
FCB has entered into substantially similar agreements with other executive
officers.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows as of March 31, 1995, (a) the voting
securities of each person who was known by FCB to beneficially own more than 5%
of any class of FCB's voting securities; and (b) the equity securities,
including options for the purchase of equity security, of FCB beneficially owned
directly or indirectly by all directors and officers of FCB individually and as
a group.
COMMON SHARES AND
OPTIONS FOR
NAME AND ADDRESS PURCHASE OF PERCENTAGE
OF HOLDER COMMON SHARES (1) OF CLASS
--------- ----------------- --------
James B. Brockett and 137,883 68.6%
Janet H. Brockett
1300 Crystal Drive
Arlington, VA 22202
All directors and 141,167 70.2%
officers as a group (9
in number)
(1) All common shares are held of record and beneficially owned.
62
None of the management shares owned are subject to options, warrants, rights or
conversion privileges. No officer or director other than James and Janet
Brockett beneficially own more than 1%.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
Most of the directors, and their related interests maintain normal
banking relationships with FCB. Loans made by FCB to such persons or other
entities were made in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than normal risk of collectability or present other unfavorable
features.
63
REGULATION AND SUPERVISION
GENERAL
UBS, as a bank holding company, is subject to the restrictions of the
Bank Holding Company Act of 1956, as amended, and are registered pursuant to its
provisions. As a registered bank holding company, UBS is subject to the
reporting requirements of the Board of Governors of the Federal Reserve System
("Board of Governors"), and is subject to examination by the Board of Governors.
The Bank Holding Company Act prohibits the acquisition by a bank
holding company of direct or indirect ownership of more than five percent of the
voting shares of any bank within the United States without prior approval of the
Board of Governors and also prohibits the granting of such approval in respect
of any bank within the United States, located outside of the state where the
bank holding company's principal operations are conducted, unless the
acquisition is specifically authorized by the statutes of the state in which the
bank is located. West Virginia law permits certain interstate bank acquisitions.
With certain exceptions, a bank holding company is prohibited from acquiring
direct or indirect ownership or control or more than five percent of the voting
shares of any company which is not a bank, and from engaging directly or
indirectly in business unrelated to the business of banking, or managing or
controlling banks.
The Board of Governors of the Federal Reserve System ("Federal Reserve
Board"), in its Regulation Y, permits bank holding companies to engage in non-
banking activities closely related to banking or managing or controlling banks.
Approval of the Federal Reserve Board is necessary to engage in these activities
or to make acquisitions of corporations engaging in these activities as the
Federal Reserve Board determines whether these acquisitions or activities are in
the public interest. In
64
addition, by order, and on a case by case basis, the Federal Reserve Board may
approve other non-banking activities.
As a bank holding company doing business in West Virginia, UBS is also
subject to regulation by the West Virginia Board of Banking and Financial
Institutions (the "West Virginia Board") and must submit annual reports to the
Department.
Federal law restricts subsidiary banks of a bank holding company from
making certain extensions of credit to the parent bank holding company or to any
of its subsidiaries, from investing in the holding company stock, and limits the
ability of a subsidiary bank to take its parent company stock as collateral for
the loans of any borrower. Additionally, federal law prohibits a bank holding
company and its subsidiaries from engaging in certain tie-in arrangements in
conjunction with the extension of credit or furnishing of services.
The operations of UBS's banking subsidiaries, which are national
banking subsidiaries, are subject to federal statutes which apply to national
banks. UBS's national banking subsidiaries are primarily regulated by the OCC.
UBS's subsidiaries are also subject to regulations promulgated by the Federal
Reserve Board and the FDIC. As a member of the FDIC, the deposits of UBS's
subsidiaries are insured as required by federal law. The OCC regularly examines
revenues, loans, investments, management practices, and other aspects of UBS's
subsidiaries. These examinations are conducted primarily to protect depositors
and not shareholders. In addition to these regular examinations, UBS's
subsidiary banks each must furnish to the OCC a quarterly report containing a
full and accurate statement of its affairs.
The operations of FCB are subject to Virginia state statutes which
apply to state-chartered banks. As such, its primary regulator is the Virginia
Bureau of Financial Institutions. As a member of the FDIC, deposits of FCB are
insured as provided by federal law. As a member of the Federal Reserve System,
FCB's
65
primary federal regulator is the Federal Reserve Board. The Virginia Bureau of
Financial Institutions, which is the primary state supervisory authority of FCB
along with the Federal Reserve Board, regularly examine reserves, loans,
investments, management practices, and other aspects of FCB's operations. These
examinations are conducted primarily to protect depositors and customers, not
shareholders.
NON-BANKING ACTIVITIES PERMITTED TO UBS
The Federal Reserve Board permits, within prescribed limits, bank
holding companies to engage in non-banking activities closely related to banking
or to managing or controlling banks. Such activities are not limited to the
state of West Virginia. Some examples of non-banking activities which presently
may be performed by a bank holding company are: making or acquiring, for its own
account or the account of others, loans and other extensions of credit;
operating as an industrial bank, or industrial loan company, in the manner
authorized by state law; servicing loans and other extensions of credit;
performing or carrying on any one or more of the functions or activities that
may be performed or carried on by a trust company in the manner authorized by
federal or state law; acting as an investment or financial advisor; leasing real
or personal property; making equity or debt investments in corporations or
projects designed primarily to promote community welfare, such as the economic
rehabilitation and the development of low income areas; providing bookkeeping
services or financially oriented data processing services for the holding
company and its subsidiaries; acting as an insurance agent or a broker, to a
limited extent, in relation to insurance directly related to an extension of
credit; acting as an underwriter for credit life insurance which is directly
related to extensions of credit by the bank holding company system; providing
courier services for certain financial documents; providing management
consulting advice to nonaffiliated banks; selling retail money orders having a
face value of not more than $1,000, traveler's checks and U. S. savings bonds;
performing appraisals of real estate; arranging commercial
66
real estate equity financing under certain limited circumstances; providing
securities brokerage services related to securities credit activities;
underwriting and dealing in government obligations and money market instruments;
providing foreign exchange advisory and transactional services; and acting under
certain circumstances, as futures commission merchant for nonaffiliated persons
in the execution and clearance on major commodity exchanges of futures contracts
and options.
CREDIT AND MONETARY POLICIES AND RELATED MATTERS
UBS's subsidiary banks and FCB are affected by the fiscal and monetary
policies of the federal government and its agencies, including the Federal
Reserve Board. An important function of these policies is to curb inflation and
control recessions through control of the supply of money and credit. The
operations of UBS's subsidiary banks and FCB are affected by the policies of
government regulatory authorities, including the Federal Reserve Board which
regulates money and credit conditions through open market operations in United
States Government and federal agency securities, adjustments in the discount
rate on member bank borrowings, and requirements against deposits and regulation
of interest rates payable by member banks on time and savings deposits. These
policies have a significant influence on the growth and distribution of loans,
investments and deposits, and interest rates charged on loans, or paid for time
and savings deposits, as well as yields on investments. The Federal Reserve
Board has had a significant effect on the operating results of commercial banks
in the past and is expected to continue to do so in the future. Future policies
of the Federal Reserve Board and other authorities and their effect on future
bank earnings be predicted.
The Federal Reserve Board has a policy to the effect that a bank
holding company is expected to act as a source of financial and managerial
strength to each of its subsidiary banks and to commit resources to support each
such subsidiary bank. Under the
67
source of strength doctrine, the Federal Reserve Board may require a bank
holding company to contribute capital to a troubled subsidiary bank, and may
charge the bank holding company with engaging in unsafe and unsound practices
for failure to commit resources to such a subsidiary bank. This capital
injection may be required at times when UBS may not have the resources to
provide it. Any capital loans by a holding company to any of the subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In addition, the Crime Control Act of
1990 provides that in the event of a bank holding company's bankruptcy, any
commitment by such holding company to a federal bank or thrift regulatory agency
to maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
In 1989, the United States Congress enacted the Financial Institutions
Reform, Recovery and Enforcement Act ("FIRREA"). Under FIRREA depository
institutions insured by the FDIC may now be liable for any losses incurred by,
or reasonably expected to be incurred by, the FDIC after August 9, 1989, in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution, or (ii) any assistance provided by the FDIC to commonly controlled
FDIC-insured depository institution in danger of default. "Default" is defined
generally as the appointment of a conservator or receiver and "in danger of
default" is defined generally as the existence of certain conditions indicating
that a "default" is likely to occur in the absence of regulatory assistance.
Accordingly, in the event that any insured bank or subsidiary of UBS causes a
loss to the FDIC, other bank subsidiaries of UBS could be liable to the FDIC for
the amount of such loss.
Under federal law, the OCC may order the pro rata assessment of
shareholders of a national bank whose capital stock has become impaired, by
losses or otherwise, to relieve a deficiency in such national bank's capital
stock. This statute also provides for the enforcement of any such pro rata
assessment
68
of shareholders of such national bank to cover such impairment of capital stock
by sale, to the extent necessary, of the capital stock of any assessed
shareholder failing to pay the assessment. Similarly, the laws of certain
states provide for such assessment and sale with respect to the subsidiary banks
chartered by such states. UBS as the sole stockholder of its subsidiary banks,
is subject to such provisions. Virginia law does not provide for assessment of
fully paid shares of bank stock.
CAPITAL REQUIREMENTS
As banking institutions, UBS and FCB are subject to final risk-based
capital guidelines that were issued by the Federal Reserve Board in January,
1989. The guidelines establish a systematic analytical framework that makes
regulatory capital requirements more sensitive to differences in risk profiles
among banking organizations, takes off-balance sheet exposures into explicit
account in assessing capital adequacy, and minimizes disincentives to holding
liquid, low-risk assets. Under the guidelines and related policies, bank
holding companies must maintain capital sufficient to meet both a risk-based
asset ratio test and leverage ratio test on a consolidated basis. The risk-
based ratio is determined by allocating assets and specified off-balance sheet
commitments into four weighted categories, with higher levels of capital being
required for categories perceived as representing greater risk. All of UBS's
depository institution subsidiaries and FCB are subject to substantially similar
capital requirements adopted by applicable regulatory agencies.
Generally, under the applicable guidelines, the financial
institution's capital is divided into two tiers. "Tier 1," or core capital,
includes common equity, noncumulative perpetual preferred stock (excluding
auction rate issues) and minority interests in equity accounts of consolidated
subsidiaries, less goodwill and other intangibles. "Tier 2," or supplementary
capital, includes, among other things, cumulative and limited-life preferred
stock, hybrid capital instruments, mandatory convertible securities,
69
qualifying subordinated debt, and the allowance for loan losses, subject to
certain limitations, less required deductions. "Total capital" is the sum of
Tier 1 and Tier 2 capital. Bank holding companies are subject to substantially
identical requirements, except that cumulative perpetual preferred stock can
constitute up to 25% of a bank holding company's Tier 1 capital.
The guidelines, which became effective December 31, 1990, were phased
in over two years, with the transition, or phase-in period, being completed at
the end of 1992. Effective December 31, 1992, financial institutions are
required to attain a risk-based ratio of 8%, of which 4% must be Tier 1 capital.
The appropriate regulatory authority may set higher capital requirements when an
institution's particular circumstances warrant.
For purposes of the leverage ratio, the numerator is defined as Tier 1
capital and the denominator is defined as adjusted total assets (as specified in
the guidelines). The guidelines provide for a minimum leverage ratio of 3% for
financial institutions that meet certain specified criteria, including excellent
asset quality, high liquidity, low interest rate exposure and the highest
regulatory rating. Financial institutions not meeting these criteria are
required to maintain a leverage ratio which exceeds 3% by a cushion of at least
100 to 200 basis points.
The guidelines also provide that financial institutions experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets. Furthermore, the Federal Reserve
Board's guidelines indicate that the Federal Reserve Board will continue to
consider a "tangible Tier 1 leverage ratio" in evaluating proposals for
expansion or new activities. The tangible Tier 1 leverage ratio is the ratio of
an institution's Tier 1 capital, less all intangibles, to total assets, less all
intangibles.
70
Failure to meet applicable capital guidelines could subject the
financial institution to a variety of enforcement remedies available to the
federal regulatory authorities, including limitations on the ability to pay
dividends, the issuance by the regulatory authority of a capital directive to
increase capital and termination of deposit insurance by the FDIC, as well as to
the measures described under the "Federal Deposit Insurance Corporation
Improvement Act of 1991" as applicable to undercapitalized institutions.
As of March 31, 1995, the historical Tier 1 risk-based ratio, total
risk-based ratio and total assets leverage ratio for UBS and FCB and related pro
forma capital ratios (in accordance with fully phased in requirements) were as
follows:
71
HISTORICAL AND PROFORMA CAPITAL RATIOS
AS OF MARCH 31, 1995
UBS/
FIRST
COMMERCIAL
PROFORMA FIRST
CONSOLIDATED UBS COMMERCIAL
------------ -------- ----------
Risk-based Capital:
Actual Tier 1 14.41% 14.49% 13.26%
Actual Total 15.66% 15.74% 14.51%
Reg Minimum Tier 1 4.00% 4.00% 4.00%
Reg Minimum Total 8.00% 8.00% 8.00%
Excess over Minimum:
Tier 1 10.41% 10.49% 9.26%
Total 7.66% 7.74% 7.51%
Leverage 9.67% 9.67% 9.32%
Equity to
assets 10.22% 10.23% 9.31%
UBS/
1ST
COMMERCIAL
PROFORMA FIRST
CONSOLIDATED UBS COMMERCIAL
------------ --------- ----------
(in millions)
Risk-based Capital:
Actual Tier 1 $179.3 $173.2 $5.7
Actual Total 194.9 188.2 6.2
Reg Minimum Tier 1 49.8 47.8 1.7
Reg Minimum Total 99.5 95.7 3.4
Excess over Minimum:
Tier 1 129.5 125.4 4.0
Total 95.4 92.5 2.8
Leverage 179.3 173.2 5.7
Equity to
assets 189.4 183.3 5.7
72
HISTORICAL AND PROFORMA CAPITAL RATIOS
AS OF DECEMBER 31, 1994
UBS/
FIRST
COMMERCIAL
PROFORMA FIRST
CONSOLIDATED UBS COMMERCIAL
------------- ------------- ----------
Risk-based Capital:
Actual Tier 1 14.13% 14.27% 12.35%
Actual Total 15.38% 15.52% 13.60%
Reg Minimum Tier 1 4.00% 4.00% 4.00%
Reg Minimum Total 8.00% 8.00% 8.00%
Excess over Minimum:
Tier 1 10.13% 10.27% 8.35%
Total 7.38% 7.52% 5.60%
Leverage 9.49% 9.49% 9.44%
Equity to
assets 10.03% 10.05% 9.41%
UBS/
FIRST
COMMERCIAL
PROFORMA FIRST
CONSOLIDATED UBS COMMERCIAL
------------ ------------ ----------
(in millions)
Risk-based Capital:
Actual Tier 1 $175.4 $169.7 $ 5.7
Actual Total 190.9 184.6 6.3
Reg Minimum Tier 1 49.6 47.6 1.9
Reg Minimum Total 99.3 95.1 3.7
Excess over Minimum:
Tier 1 125.8 122.1 3.8
Total 91.6 89.5 2.6
Leverage 175.4 169.7 5.7
Equity to
assets 185.4 179.7 5.7
73
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
In December, 1991, Congress enacted the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), which substantially revises the
bank regulatory and funding provisions of the Federal Deposit Insurance
Corporation Act and makes revisions to several other banking statues.
FDICIA establishes a new regulatory scheme, which ties the level of
supervisory intervention by bank regulatory authorities primarily to a
depository institution's capital category. Among other things, FDICIA
authorizes regulatory authorities to take "prompt corrective action" with
respect to depository institutions that do not meet minimum capital
requirements. FDICIA establishes five capital tiers: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically under capitalized.
By regulation, an institution is "well-capitalized" if it has a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of
6% or greater and a Tier 1 leverage ratio of 5% or greater and is not subject to
a regulatory order, agreement or directive to meet and maintain a specific
capital level for any capital measure. UBS meets the definition of a "well-
capitalized" holding company. FCB is an "adequately capitalized" institution.
As a well-capitalized institution, UBS, but not FCB, is permitted to engage in a
wider range of banking activities, including among other things, the accepting
of "brokered deposits," and the offering of interest rates on deposits higher
than the prevailing rate in their respective markets. Because FCB is not well-
capitalized, FCB must first obtain a waiver from the FDIC in order to engage in
"brokered deposit" activities. Even with a waiver, FCB cannot pay interest
rates on deposits that are significantly above market.
74
Another requirement of FDICIA is that federal banking agencies must
prescribe regulations relating to various operational areas of banks and bank
holding companies. These include standards for internal audit systems, loan
documentation, information systems, internal controls, credit underwriting,
interest rate exposure, asset growth, compensation, a maximum ratio of
classified assets to capital, minimum earnings sufficient to absorb losses, a
minimum ratio of market value to book value for publicly traded shares and such
other standards as the agency deems appropriate. Since many of the required
regulations have not been promulgated, it is not possible to determine precisely
how these new standards will effect either FCB or UBS. It is generally believed
that the new regulations will increase the regulatory burden of insured
depository institutions and their affiliates.
REIGLE-NEAL INTERSTATE BANKING BILL
In 1994, Congress passed the Reigle-Neal Interstate Banking Bill (the
"Interstate Bill"). The Interstate Bill permits certain interstate banking
activities through a holding company structure, effective September 30, 1995.
It permits interstate branching by merger effective June 1, 1997 unless states
opt-in sooner, or opt out before that date. States may elect to permit de novo
branching by specific legislative election. Virginia has opted-in to interstate
branching by merger; to date, West Virginia has taken no action. The Interstate
Bill will permit consolidation of banking institutions across state lines and,
perhaps, de novo entry. As its provisions become effective, it is likely that
the resulting restructurings and interstate activities will result in the
realization of economies of scale within those institutions with entities in
more than one state. One result could be increased competitiveness, due to the
realization of economies of scale and/or, where permitted, due to de novo market
entrants.
75
EXPERTS
The consolidated financial statements of FCB at December 31, 1994 and
1993, and for each of the three years in the period ended December 31, 1994,
included in this Prospectus/Proxy Statement and Registration Statement have been
audited by S.B. Hoover & Company, L.L.P. independent auditors, as set forth in
their reports included herein.
The consolidated financial statements of UBS at December 31, 1994 and
1993, and for each of the three years in the period ended December 31, 1994,
incorporated by reference in this Prospectus/Proxy Statement and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon incorporated by reference herein. As to the year
ended December 31, 1992, Ernst & Young LLP's report is based in part on the
report of Somerville & Company, independent auditors.
The financial statements referred to above are included or are
incorporated in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.
Baxter Fentriss and Company has acted as financial advisor to FCB in
connection with the Merger and has delivered an opinion to the FCB Board of
directors on the fairness of the Merger, which opinion is attached hereto as
Exhibit B. FCB will pay Baxter Fentriss and Company a contingent fee upon
consummation of the Merger See THE PROPOSED TRANSACTION - THE MERGER - Opinion
---
of Financial Advisor."
LEGAL MATTERS
The legality of the shares of UBS Stock to be issued upon consummation
of the proposed acquisition described herein will be passed upon by the law firm
of Bowles Rice McDavid Graff & Love, with offices in Charleston, West Virginia.
Bowles Rice McDavid Graff & Love has acted as counsel to UBS in connection with
the preparation of this Prospectus/Proxy Statement.
76
One of UBS's directors, F. T. Graff, Jr., is a partner in the law firm
of Bowles Rice McDavid Graff & Love and has been associated with this law firm
for a number of years.
Legal matters pertaining to FCB have been examined by the law offices
of Robins, Kaplan, Miller & Ciresi, Washington, D.C., and Atlanta, Georgia.
Robins, Kaplan, Miller & Ciresi has prepared the tax opinion referred to herein
and acted as special counsel to FCB in connection with this Prospectus/Proxy
Statement.
SOURCES OF INFORMATION
The information in this Prospectus/Proxy Statement concerning UBS and
its subsidiaries and FCB has been supplied by the management of each of the
respective companies.
ADDITIONAL INFORMATION
This Prospectus/Proxy Statement constitutes the Prospectus of UBS that
is part of a Registration Statement filed by UBS under the Securities Act of
1933, as amended, with respect to its common stock offered hereby. As permitted
by the rules and regulations of the Securities and Exchange Commission (the
"Commission"), this Prospectus/Proxy Statement omits certain information set
forth in that Registration Statement. The information omitted may be obtained
from the principal office of the Commission of Washington, D.C. 20549, upon
payment of the fee prescribed by the Commission, or may be examined there
without charge.
77
FINANCIAL INFORMATION CONCERNING
FIRST COMMERCIAL BANK
F-1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(FOR QUARTER ENDED MARCH 31, 1995)
F-2
PART I
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NET INCOME
Net loss for the three months ended March 31, 1995 was $(49,000) compared
to net income of $135,000 for the same period in 1994. The reasons for the
decrease are related to additional expense recorded in accordance with the terms
set forth in a Merger Agreement dated March 6, 1995 between First Commercial
Bank (acquiree) and United Bankshares, Inc. (acquiror). The Merger Agreement
provides that, prior to consummation of the merger transaction, the Bank conform
its basis for estimating expenses on loans, foreclosed real estate and
repossessed assets to the methodology of the acquiror based upon the acquiror's
ultimate plans for recovery of such loans and assets. In addition to the expense
for loan losses, foreclosed real estate, repossessed assets, the Bank funded
deferred and current compensation plans, and accrued professional fees
associated with the merger transaction.
The accruals pursuant to the Merger Agreement and the resultant impact on
pre-tax net income amounted to $319,500 for the first three months of 1995.
Therefore, for purposes of evaluation of earnings performance, one must consider
these expenses as non-recurring.
NET INTEREST MARGIN
The Bank's net interest margin, adjusted for non-interest bearing deposits,
increased from 5.41% for the three months ended March 31, 1994 to 6.12% for the
same period in 1995. This increase is attributed to the immediate realization of
increases in the prime lending rate and delayed realization of increases in
interest rates paid on deposits.
NONINTEREST INCOME
Total noninterest income increased $45,000 or 57% when comparing the three
month periods ending March 31, 1995 and 1994 respectively. The majority of this
increase is the result of increased overdraft fees collected on deposit
accounts. The balance of the increase was due in part to increased revenues from
merchant bank card processing and the remaining portion from income recognized
through an executive life insurance program.
F-3
PART I
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
NONINTEREST EXPENSE
Total noninterest expense increased from $607,000 for the three months
ended March 31, 1994 to $838,000 for the same period in 1995. Salaries and
compensation increased $63,000 or 24.8% due to a bonus to the Chief Executive
Officer. Employee benefits increased $107,000 or 127.4% due to the increased
expense related to the proposed funding of all deferred compensation contracts
pursuant to the Merger Agreement. Occupancy, Other Equipment and Data Processing
expenses categories experienced only moderate changes representing normal
fluctuations in costs associated with operation of the physical banking
facility. Other noninterest expenses increased $60,000 or 27.14% which was the
combined result of increased professional fees paid in association with the
proposed Merger Agreement, increased provision for other real estate owned and
repossessed assets.
CASH AND CASH EQUIVALENTS
Total Cash and Cash Equivalents was $5,440,756 at March 31, 1995 and
$5,834,193 at December 31, 1994. This decrease represents only normal
fluctuation in deposit base and loan volume.
LOANS
Total loans increased $775,506 representing a growth of 1.81% during the
first three months of 1995. This increase is due to normal growth through
marketing efforts and a general economic recovery.
NON-ACCRUAL AND PAST DUE LOANS
The following table shows loans placed in a non-accrual status and loans
contractually past due 90 days or more as to principal or interest payments:
(amounts in thousands of dollars)
March 31, December 31,
1995 1994
--------- ------------
Non-Accrual Loans 44 48
Loans Past Due 90 Days or More 612 165
F-4
PART I
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Loans are placed on a non-accrual basis as soon as it determined that the
collection of interest is in doubt regardless of whether or not the loan is
overdue. Loans that are 90 days or more overdue are placed on a non-accrual
basis unless it is believed that the collection is imminent or both the unpaid
principal and interest are fully secured by adequate collateral.
The amount of loans placed on a nonaccrual status remained relatively
unchanged while loans past due 90 days or more increased significantly. The
increase in this category is due to the addition of one nonperforming loan. The
subject loan is considered by management to be adequately secured with regard to
repayment of principal and accrued interest. The borrower has sought protection
under Chapter 11 of the U.S. Bankruptcy Code thereby delaying payment according
to the terms of the loan agreement. The collateral for the loan is currently
being liquidated in stages by the borrower and the Bank will begin to receive
payments by the third quarter of 1995.
LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES
The Bank has increased its Provision for loan losses to $150,000 for the
first three months of 1995 as compared to $20,000 for the same period in 1994.
The reason for the increase is to conform to the methodology of the acquiror as
discussed earlier in this section. The Bank performs a monthly analysis of its
Allowance for Loan Losses as it relates to problem and potential problem loans.
Effective January 1, 1995, First Commercial Bank adopted Financial
Accounting Standards Board Statement No. 114, "Accounting by Creditors for
Impairment of a Loan, "(SFAS No. 114)" which was amended by Statement No. 118
and is effective for fiscal years beginning after December 15, 1994. Under the
new standard, the 1995 allowance for credit losses related to loans that are
identified for evaluation in accordance with SFAS No. 114 is based on discounted
cash flows using the loan's initial effective interest rate or the fair value of
the collateral for certain collateral dependent loans. Prior to 1995, the
allowance for credit losses related to these loans was based on undiscounted
cash flows or the fair value of the collateral for collateral dependent loans.
The adoption of SFAS No. 114 did not have a material impact on the allowance for
loan losses.
OTHER ASSETS
Other assets, as a whole, changed only moderately and was due to normal
business activity and depreciation of fixed assets.
F-5
PART I
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Other Real Estate Owned
Management of the bank, in the normal course of business, may deem it
necessary to order a foreclosure sale on property securing loans that are not
performing satisfactorily or where other means of collection have been
exhausted. The foreclosure sale may result in the Bank acquiring the subject
property in order to protect its interest. As of March 31, 1995 the Bank had
other real estate holdings of $858,000 representing property acquired as a
result of defaulted loans. The properties consist of two (2) residential
properties, one (1) commercial property, and one (1) agricultural property.
Other real estate owned is reported at the lower of fair value at the date of
foreclosure or the current value less estimated costs to sell. All properties
are being vigorously marketed and it is anticipated that the majority, if not
all, will be liquidated by the end of 1995. Management anticipates no material
loss in the ultimate disposition of these assets.
DEPOSITS
Total deposits increased $468,345 or .9% at March 31, 1995 from December
31, 1994. Non-interest bearing demand deposits decreased $650,232 due to normal
deposit base fluctuation. Interest bearing demand deposits increased $1,118,577
during the same period which is the result of normal deposit growth and a shift
by depositors away from non-bank investments back into traditional bank savings
instruments.
CAPITAL ADEQUACY
The following table lists the primary capital position of the bank as well
as ratios, utilizing adjusted total assets, in accordance with the Capital
Adequacy Guidelines set forth by the Federal Reserve Board of Governors:
March 31, December 31,
1995 1994
---------- ------------
Primary capital to assets 9.15% 9.31%
Tier I leverage ratio 9.28% 9.30%
Total qualifying capital to 10.65% 10.54%
adjusted total assets
F-6
PART I
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Interest Rate Sensitivity
Interest sensitive assets and liabilities are defined as those assets or
liabilities that mature or reprice within a designated time frame. The principal
function of asset and liability management is to maintain an appropriate
relationship between those assets and liabilities that are sensitive to changing
market interest rates. This relationship has become very important, given the
volatility in interest rates over the last several years, due to the potential
impact on earnings. First Commercial Bank closely monitors the sensitivity of
its assets and liabilities on an on-going basis.
The difference between rate sensitive assets and rate sensitive liabilities
for specified periods of time is known as the "gap". It is the policy of
management to maintain a gap to total assets ratio of +/- 3% or a gap to total
earning assets of +/- 5% within the one year horizon. It should be understood
that these ratios are not designated for the purpose of dictating product mix
but are designed to aid management in the overall evaluation of asset and
liability management. Minor deviations from these benchmarks are not viewed as
detrimental, but do provide a reasonable basis for further analysis and
projection of the effects of market interest rate changes.
The gap table presented herein as of March 31, 1995 reveals that the Bank
is moderately liability sensitive through the one year horizon. This occurrence
has not traditionally been one for concern in that it is caused by the large
amount of savings, NOW and money market accounts that, for the purposes of the
table, are all considered as immediately available for repricing. Historically,
these accounts do not dictate immediate adjustments in rate commensurate with a
market change, but have always been much slower to adjust. Therefore, one must
consider the relative high probability that a sudden market change would not
cause an immediate adjustment in these liabilities thereby reducing the adverse
impact of being liability sensitive in an increasing rate environment.
LIQUIDITY
The majority of the Bank's investment portfolio is in highly marketable
U.S. Treasury securities and cash equivalents. Other sources of funds can be
obtained through borrowing from correspondent banks, the Federal Reserve Bank
and through increasing deposits.
F-7
FIRST COMMERCIAL BANK
INTEREST RATE SENSITIVITY GAP
(In Thousands)
MARCH 31, 1995
----------------------------------------------------------------------------------------
ASSETS DAYS TOTAL 1 - 5 OVER 5
---------------------------------------
0 - 90 91 - 180 181 - 365 ONE YEAR YEARS YEARS TOTAL
---------- ------------ ------------- ---------- --------- --------- -------------
Interest-Earning Assets:
- ------------------------
Federal funds sold and securities
purchased under agreements to
resell and other short-term
investments $ 2,750 $ 2,750 $2,750
Investment and Marketable
Equity Securities:
Taxable 993 $495 $2,473 3,961 $4,055 $0 8,016
Tax-exempt 0 100 0 100 0 375 475
Loans, net of unearned
income 24,232 1,993 3,284 29,509 10,953 3,126 43,588
---------- ------------ ------------- ---------- --------- --------- -------------
Total Interest-Earning Assets $27,975 $2,588 $5,757 $36,320 $15,008 $3,501 $54,829
========== ============ ============= ========== ========= ========= =============
LIABILITIES
Interest-Bearing Funds:
- -----------------------
Savings, NOW & MMDA $20,357 $20,357 $20,357
Time deposits of $100,000
and over 3,409 $805 $2,041 6,255 $1,019 7,274
Other time deposits 3,616 2,250 6,056 11,922 7,540 $11 19,473
Capital notes 33 33 66 132 328 460
---------- ------------ ------------- ---------- --------- --------- -------------
Total Interest-Bearing Funds $27,415 $3,088 $8,163 $38,666 $8,887 $11 $47,563
========== ============ ============= ========== ========= ========= =============
Interest Sensitivity Gap $560 ($500) ($2,406) ($2,346) $6,121 $3,490 $7,265
========== ============ ============= ========== ========= ========= =============
Cumulative Gap $560 $60 ($2,346) ($2,346) $3,775 $7,265 $7,265
========== ============ ============= ========== ========= ========= =============
Cumulative Gap as a Percentage
of Total Earning Assets 1.02% 0.11% -4.28% -4.28% 6.89% 13.25% 13.25%
F-8
INTEREST RATE SENSITIVITY GAP
(In Thousands)
DECEMBER 31, 1994
----------------------------------------------------------------------------------------
ASSETS DAYS TOTAL 1 - 5 OVER 5
---------------------------------------
0 - 90 91 - 180 181 - 365 ONE YEAR YEARS YEARS TOTAL
---------- ------------ ------------- ---------- --------- --------- -------------
Interest-Earning Assets:
- ------------------------
Federal funds sold and securities
purchased under agreements to
resell and other short-term
investments $2,300 $2,300 $2,300
Investment and Marketable
Equity Securities:
Taxable 497 $987 $1,463 2,947 $5,026 $0 7,973
Tax-exempt 0 0 0 0 0 475 475
Loans, net of unearned
income 21,643 3,034 3,845 28,522 12,346 1,944 42,812
---------- ------------ ------------- ---------- --------- --------- -------------
Total Interest-Earning Assets $24,440 $4,021 $5,308 $33,769 $17,372 $2,419 $53,560
========== ============ ============= ========== ========= ========= =============
LIABILITIES
Interest-Bearing Funds:
- -----------------------
Savings, NOW & MMDA $20,361 $20,361 $20,361
Time deposits of $100,000
and over 1,486 $1,240 $1,057 3,783 $985 4,768
Other time deposits 3,881 3,356 4,133 11,370 9,487 $0 20,857
Capital notes 33 33 66 132 361 493
---------- ------------ ------------- ---------- --------- --------- -------------
Total Interest-Bearing Funds $25,761 $4,629 $5,256 $35,646 $10,833 $0 $46,479
========== ============ ============= ========== ========= ========= =============
Interest Sensitivity Gap ($1,321) ($608) $52 ($1,877) $6,539 $2,419 $7,081
========== ============ ============= ========== ========= ========= =============
Cumulative Gap ($1,321) ($1,929) ($1,877) ($1,877) $4,662 $7,081 $7,081
========== ============ ============= ========== ========= ========= =============
Cumulative Gap as a Percentage
of Total Earning Assets -2.47% -3.60% -3.50% -3.50% 8.70% 13.22% 13.22%
F-9
FINANCIAL STATEMENTS
(FOR THE QUARTER ENDED MARCH 31, 1995)
(UNAUDITED)
F-10
BALANCE SHEETS
FIRST COMMERCIAL BANK
March 31 December 31
1995 1994
------------ -----------
ASSETS
Cash and due from banks $ 2,691,000 $ 3,534,000
Federal funds sold 2,750,000 2,300,000
------------- -------------
Total cash and cash equivalents 5,441,000 5,834,000
Securities available for sale(at market) 3,961,000 3,912,000
Investment securities(market value-$4,431,000
at March 31, 1995 and $4,335,000 at
December 31, 1994) 4,530,000 4,536,000
Loans
Commercial, financial, and agricultural 11,016,000 10,943,000
Real estate:
Single family residential 10,851,000 11,253,000
Commercial 11,248,000 11,092,000
Construction 7,412,000 6,406,000
Other 273,000 274,000
Installment 2,789,000 2,845,000
------------- -------------
43,589,000 42,813,000
Less: Unearned income (1,000) (1,000)
Allowance for loan losses (811,000) (661,000)
------------- -------------
Net loans 42,777,000 42,151,000
Bank premises and equipment 917,000 933,000
Interest receivable 517,000 511,000
Life Insurance Contracts 1,410,000 1,394,000
Other Real Estate Owned 858,000 873,000
Other assets 687,000 690,000
------------- -------------
TOTAL ASSETS $ 61,098,000 $ 60,834,000
============= =============
LIABILITIES
Domestic deposits
Noninterest-bearing $ 6,589,000 $ 7,239,000
Interest-bearing 47,104,000 45,986,000
------------- -------------
TOTAL DEPOSITS 53,693,000 53,225,000
Accrued expenses and other liabilities 1,254,000 1,392,000
Subordinated Note 460,000 493,000
------------- -------------
TOTAL LIABILITIES 55,407,000 55,110,000
SHAREHOLDERS' EQUITY
Common stock, $5.00 par value;
Authorized-400,000 shares; issued and
outstanding-201,100 at March 31, 1995 and
December 31, 1994 1,005,000 1,005,000
Surplus 1,006,000 1,006,000
Retained earnings 3,684,000 3,733,000
Net unrealized holding loss on securities
available for sale (4,000) (20,000)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 5,691,000 5,724,000
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 61,098,000 $ 60,834,000
============= =============
See notes to financial statements.
F-11
STATEMENTS OF INCOME (UNAUDITED)
FIRST COMMERCIAL BANK
Three Months Ended
March 31,
-------------------
1995 1994
---- ----
INTEREST INCOME
Interest and fees on loans $1,153,000 $1,066,000
Interest on federal funds sold 26,000 36,000
Interest and dividends on securities:
Taxable 116,000 100,000
Exempt from federal taxes 7,000 7,000
---------- ----------
TOTAL INTEREST INCOME 1,302,000 1,209,000
---------- ----------
INTEREST EXPENSE
Interest on deposits 505,000 434,000
Interest on short-term borrowings 0 18,000
Interest on long-term borrowings 11,000 9,000
---------- ----------
TOTAL INTEREST EXPENSE 516,000 461,000
---------- ----------
NET INTEREST INCOME 786,000 748,000
PROVISION FOR POSSIBLE LOAN LOSSES 150,000 20,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 636,000 728,000
---------- ----------
OTHER INCOME
Other charges, commissions, and fees 108,000 77,000
Other income 16,000 2,000
---------- ----------
TOTAL OTHER INCOME 124,000 79,000
---------- ----------
OTHER EXPENSES
Salaries and employee benefits 508,000 338,000
Net occupancy expense 49,000 48,000
Other expense 281,000 221,000
---------- ----------
TOTAL OTHER EXPENSES 838,000 607,000
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (78,000) 200,000
INCOME TAXES (BENEFIT) (29,000) 65,000
---------- ----------
NET (LOSS)INCOME $ (49,000) $ 135,000
========== ==========
(Loss) earnings per common share $ (0.24) $ 0.67
Average outstanding shares 201,100 201,100
See notes to financial statements.
F-12
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY(UNAUDITED)
FIRST COMMERCIAL BANK
Three Months Ended March 31, 1995
------------------------------------------------------------------------
Net
Unrealized
Loss on
Common Stock Securities Total
-------------------
Par Retained Available Shareholders'
Shares Value Surplus Earnings for Sale Equity
--------------------------------------------------------------------
Balance
January 1, 1995 201,100 $1,005,000 $1,006,000 $3,733,000 $ (20,000) $ 5,724,000
Net Income/(Loss) (49,000) (49,000)
Net Change In
Unrealized loss
on securities
available for sale 16,000 16,000
------- ---------- ---------- ---------- ---------- -----------
Balance at
March 31, 1995 201,100 $1,005,000 $1,006,000 $3,684,000 $ (4,000) $ 5,691,000
======= ========== ========== ========== ========== ===========
See notes to financial statements
F-13
STATEMENTS OF CASH FLOWS (UNAUDITED)
FIRST COMMERCIAL BANK
Three Months Ended
March 31
-------------------------------
1995 1994
---- ----
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 12,000 $ 48,000
INVESTING ACTIVITIES
Proceeds from maturities and calls of
securities available for sale 500,000 9,000,000
Purchases of securities available for sale (505,000) (2,012,000)
Net purchase of bank premises and equipment (13,000) 0
Investment in life insurance contracts (5,000) (457,000)
Changes in:
Loans (776,000) (554,000)
-------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (799,000) 5,977,000
-------- ---------
FINANCING ACTIVITIES
Cash dividends paid (40,000) (40,000)
Repayment of long-term borrowings (33,000) (12,000)
Changes in:
Deposits 467,000 (7,004,000)
Federal funds purchased and securities
sold under agreements to repurchase 0 25,000
- ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 394,000 (7,031,000)
------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (393,000) (1,006,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,834,000 12,181,000
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $5,441,000 $11,175,000
========== ===========
See notes to financial statements.
F-14
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FIRST COMMERCIAL BANK
1. GENERAL
The accompanying unaudited interim financial statements of First Commercial Bank
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions for Form 10-QSB.
Accordingly, the financial information does not contain all of the information
and footnotes required by generally accepted accounting principles. The
financial statements presented in this report have not been audited. The
accounting and reporting policies followed in the presentation of these
financial statements are consistent with those applied in the preparation of the
1994 annual report of First Commercial Bank on Form 10-KSB. In the opinion of
management, adjustments necessary for a fair presentation of financial position
and results of operations for the interim periods have been made. Such
adjustments are of a normal and recurring nature. In addition to normal and
recurring adjustments, $319,500 additional expense was recorded in the first
quarter of 1995. These adjustments are associated with a Merger Agreement dated
March 6, 1995 which is described in greater detail in Part I, Item 2 of this
filing.
Effective January 1, 1995, First Commercial Bank adopted Financial Accounting
Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a
Loan, "(SFAS No. 114)" which was amended by Statement No. 118 and is effective
for fiscal years beginning after December 15, 1994. Under the new standard, the
1995 allowance for credit losses related to loans that are identified for
evaluation in accordance with SFAS No. 114 is based on discounted cash flows
using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans. Prior to 1995, the allowance
for credit losses related to these loans was based on undiscounted cash flows or
the fair value of the collateral for collateral dependent loans. The adoption
of SFAS No. 114 did not have a material impact on the allowance for loan losses.
F-15
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
FIRST COMMERCIAL BANK
2. SECURITIES AVAILABLE FOR SALE
The book and estimated fair value of securities available for sale at March 31,
1995, by contractual maturity are as follows:
Estimated
Book Fair
Value Value
------------ ------------
Due in one year or less $ 3,967,000 $ 3,961,000
Due after one year through five years 0 0
Due after five years through ten years 0 0
Due after ten years 0 0
Marketable equity securities 0 0
------------ ------------
Total $ 3,967,000 $ 3,961,000
============ ============
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
March 31, 1995
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 3,967,000 $ 2,000 $ 8,000 $ 3,961,000
Marketable equity
securities 0 0 0 0
Other 0 0 0 0
------------- ----------- ----------- ------------
Total $ 3,967,000 $ 2,000 $ 8,000 $ 3,961,000
============= =========== =========== ============
At March 31, 1995, the cumulative net unrealized holding loss on available for
sale securities resulted in an decrease of $4,000 to shareholders' equity.
F-16
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
FIRST COMMERCIAL BANK
2. SECURITIES AVAILABLE FOR SALE - continued
The book and estimated fair value of securities available for sale at December
31, 1994, by contractual maturity are as follows:
Estimated
Book Fair
Value Value
------------ ------------
Due in one year or less $ 2,966,000 $ 2,948,000
Due after one year through five years 979,000 964,000
Due after five years through ten years 0 0
Due after ten years 0 0
Marketable equity securities 0 0
------------ ------------
Total $ 3,945,000 $ 3,912,000
============ ============
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
December 31, 1994
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 3,945,000 $ 0 $ 33,000 $ 3,912,000
Marketable equity
securities 0 0 0 0
Other 0 0 0 0
------------ ----------- ----------- ------------
Total $ 3,945,000 $ 0 $ 33,000 $ 3,912,000
============ =========== =========== ============
F-17
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
FIRST COMMERCIAL BANK
3. INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities are
summarized as follows:
March 31, 1995
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 4,055,000 $ 0 $ 66,000 $ 3,989,000
State and political
subdivisions 475,000 3,000 36,000 442,000
------------ ------------ ------------ ------------
Total $ 4,530,000 $ 3,000 $ 102,000 $ 4,431,000
============ ============ ============ ============
December 31, 1994
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 4,061,000 $ 0 $ 151,000 $ 3,910,000
State and political
subdivisions 475,000 4,000 54,000 425,000
------------ ------------ ------------ ------------
Total $ 4,536,000 $ 4,000 $ 205,000 $ 4,335,000
============ ============ ============ ============
F-18
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
FIRST COMMERCIAL BANK
3. INVESTMENT SECURITIES - continued
The amortized cost and estimated fair value of debt securities at March 31,
1995, and December 31, 1994, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the issuers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
March 31, 1995
-------------------------
Estimated
Book Fair
Value Value
------------ ------------
Due in one year or less $ 0 $ 0
Due after one year through
five years 4,155,000 4,092,000
Due after five years
through ten years 125,000 122,000
Due after ten years 250,000 217,000
------------ ------------
Total $ 4,530,000 $ 4,431,000
============ ============
December 31, 1994
--------------------------
Estimated
Book Fair
Value Value
------------ ------------
Due in one year or less $ 0 $ 0
Due after one year through
five years 4,061,000 3,910,000
Due after five years
through ten years 225,000 221,000
Due after ten years 250,000 204,000
------------ ------------
Total $ 4,536,000 $ 4,335,000
============ ============
F-19
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
FIRST COMMERCIAL BANK
4. NONPERFORMING LOANS
Nonperforming loans are summarized as follows:
March 31 December 31
1995 1994
------------ -----------
(in thousands)
Loans past due 90 days or more
and still accruing interest $ 612 $ 165
Troubled debt restructurings - -
Nonaccrual loans 44 48
------- ------
$ 656 $ 213
======= ======
5. ALLOWANCE FOR LOAN LOSSES
The adequacy of the allowance for loan losses is based on management's
evaluation of the relative risks inherent in the loan portfolio. A progression
of the allowance for loan losses for the periods presented is summarized as
follows:
Three Months Ended
March 31,
----------------------
1995 1994
-------- ------
(in thousands)
Balance at beginning of
period $ 661 $ 755
Provision charged to expense 150 20
------ ------
811 775
Loans charged-off 0 (2)
Less recoveries 0 0
------ ------
Net Charge-offs 0 (2)
------ ------
Balance at end of period $ 811 $ 773
====== ======
F-20
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
FIRST COMMERCIAL BANK
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES - continued
Effective January 1, 1995, First Commercial Bank adopted Financial Accounting
Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a
Loan, "(SFAS No. 114)" which was amended by Statement No. 118 and is effective
for fiscal years beginning after December 15, 1994. Under the new standard, the
1995 allowance for credit losses related to loans that are identified for
evaluation in accordance with SFAS No. 114 is based on discounted cash flows
using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans. Prior to 1995, the allowance
for credit losses related to these loans was based on undiscounted cash flows or
the fair value of the collateral for collateral dependent loans. The adoption
of SFAS No. 114 did not have a material impact on the allowance for loan losses.
6. COMMITMENTS AND CONTINGENT LIABILITIES
There are outstanding commitments which include, among other things, commitments
to extend credit and letters of credit undertaken in the normal course of
business. Outstanding standby letters of credit and commitments to extend
credit amounted to approximately $6,701,000 and $7,145,000 at March 31, 1995 and
December 31, 1994, respectively.
First Commercial Bank is currently involved, in the normal course of business,
in various legal proceedings. Management is vigorously pursuing all of its
legal and factual defenses and, after consultation with legal counsel, believes
that all such litigation will be resolved without material effect on financial
position or results of operations.
F-21
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--Continued
FIRST COMMERCIAL BANK
7. EARNING ASSETS AND INTEREST-BEARING LIABILITIES
The following table shows the daily average balance of major categories of
assets and liabilities for each of the three month periods ended March 31,
1995, and March 31, 1994, with the interest rate earned or paid on such
amount.
Three Months Ended Three Months Ended
March 31, March 31,
1995 1994
------------------------------------- ------------------------------------
(Dollars in Average Avg. Average Avg.
Thousands) Balance Interest Rate Balance Interest Rate
------------------------------------- ------------------------------------
ASSETS
Earning assets:
Federal funds sold and securities
purchased under agreements to
resell and other short-term
investments $ 1,771 $26 5.95% $4,878 $36 2.99%
Investment Securities:
Taxable 8,070 116 5.75% 11,137 100 3.63%
Tax-exempt (1) 475 11 8.93% 475 11 8.93%
------------------------------------- ------------------------------------
Total Securities 8,545 127 5.93% 11,612 111 3.82%
Loans, net of unearned
income (2) 42,635 1,153 10.97% 40,561 1,066 10.66%
Allowance for possible loan
losses (713) (767)
---------------- ---------------
Net loans 41,922 11.15% 39,794 10.86%
------------------------------------- ------------------------------------
Total earning assets 52,238 $1,306 10.14% 56,284 $1,213 8.74%
---------------------- ---------------------
Other assets 6,849 7,334
---------------- ----------------
TOTAL ASSETS $59,087 $63,618
================ ================
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $44,779 $505 4.57% $43,313 $434 4.06%
Federal funds purchased,
repurchase agreements and
other short-term borrowings 0 0 3,331 18 2.19%
Subordinated debt 465 11 9.59% 550 9 6.64%
------------------------------------- ------------------------------------
Total Interest-Bearing Funds 45,244 516 4.63% 47,194 461 3.96%
------------- ----------
Demand deposits 6,758 10,203
Accrued expenses and other
liabilities 1,329 971
---------------- ----------------
TOTAL LIABILITIES 53,331 58,368
Shareholders' Equity 5,756 5,250
---------------- ----------------
TOTAL LIABILITIES AND
AND SHAREHOLDERS EQUITY $59,087 $63,618
================ ================
NET INTEREST INCOME $790 $752
============= ==========
INTEREST SPREAD 5.51% 4.78%
NET INTEREST MARGIN 6.12% 5.41%
(1) The interest income and the yields on nontaxable loans and investment
securities are presented on a tax-equivalent basis using the statutory
federal income tax rate of 34%.
(2) Nonaccruing loans are included in the daily average loan amounts
outstanding.
F-22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(FOR YEAR ENDED DECEMBER 31, 1994)
F-23
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1994 1993 1992 1991 1990
CONDENSED STATEMENTS
OF INCOME
Total interest income $ 5,036 $ 4,935 $ 5,253 $ 5,637 $ 6,179
Total interest expense (1,882) (1,999) (2,390) (3,134) (3,531)
------- ------- ------- ------- -------
Net Interest Income 3,154 2,936 2,863 2,503 2,648
Provision for loan losses (20) (460) (694) (740) (360)
--- ---- ---- ---- ----
Net Interest Income after Provision
for Loan Losses 3,134 2,476 2,169 1,763 2,288
Other operating income 265 422 230 313 301
Other operating expense (2,472) (2,388) (2,203) (2,021) (2,453)
------- ------- ------- ------- -------
Income before Income Tax Expense 927 510 196 55 136
Income tax expense (316) (196) (46) (3) (22)
---- ---- --- -- ---
Net Income $ 611 $ 314 $ 150 $ 52 $ 114
=== === === == ===
Total Assets at Year End $60,834 $71,791 $60,693 $63,707 $62,304
PER SHARE INFORMATION
Earnings per share $ 3.04 $ 1.56 $ .74 $ .26 $ .56
Dividends per share .20 .20 .20 .20 .20
Book value per share 28.46 25.72 24.36 23.82 23.76
FINANCIAL STATEMENT RATIOS
Return on assets .99% .4% .2% .1% .2%
Return on equity 11.1 6.1 3.1 1.1 2.3
Dividend payout 6.6 12.8 26.9 76.9 35.7
Equity to assets 9.4 7.2 8.1 7.5 7.7
F-24
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Net Income
Net income of the Bank increased from $149,566 for 1992 to $314,057 for 1993 and
to $611,098 for 1994. Net income per share was $.74 in 1992, $1.56 in 1993 and
$3.04 in 1994.
Net Interest Margin
The Bank's net interest margin increased to 4.89% in 1992, decreased slightly to
4.81% in 1993 and increased to 5.34% in 1994 as a result of a combination of
factors. The yield on total earning assets decreased from 9.17% in 1992 to 8.20%
in 1993 reflecting lower yields on both loans and investments. The yield on
total earning assets increased to 8.76% in 1994 as a result of higher yields on
federal funds sold and taxable investment securities. The rates on approximately
48% of the Bank's commercial loans are tied to the prime rate. As a result of
declining interest rates, the average yield on loans declined from 10.65% in
1992 to 10.31% in 1993 and to 10.12% in 1994. Average loans increased
approximately $1,000,000 contributing to the improvement in the yield on total
earning assets for 1994. The Bank's cost of funds decreased from 5.37% in 1992
to 4.36% in 1993 and to 4.07% in 1994. The average balance invested in federal
funds increased from $4,921,590 to $7,808,082 in 1993. Funds invested in federal
funds came from increases in deposits and a reduction in average loans
outstanding due to declining demand for loans in 1993. During 1994 the average
investment in federal funds decreased $3,664,343 to $4,143,739 and the average
investment in securities decreased $1,450,097. Funds from the redemption of
investments were used to increase the loan portfolio and payout deposit
withdrawals. During 1994, an increase of .56% in the yield on earning assets
combined with a decrease of .29% in the cost of interest bearing liabilities
resulted in a .53% improvement in the net interest margin. A complete analysis
of the net interest margin is included in Tables 1 to 3 and the changes in net
interest income due to changes in volume and rates are shown in Tables 4 through
6.
Other Income
Service charges increased 26.8% in 1993 due to substantial increases in
overdraft fees paid by several depositors which were discontinued in 1994. In
1993, miscellaneous income included income from the settlement of a loss claim
for $135,000 and the recovery of $13,200 of an appeal bond charged off in 1992.
In 1994, miscellaneous income increased due to an increase of approximately
$20,000 in merchant card processing fees.
Other Expenses
Total other expenses increased 8.4% for 1993 and 3.5% for 1994, as a result of a
combination of factors. Salaries increased in 1993 and 1994 as a result of an
increase in the number of employees and bonuses accrued for the Bank's chief
executive officer of $102,493 in 1993 and $154,062 in 1994. Employee benefit
expenses increased in both 1993 and 1994 as a result of expenses related to the
deferred compensation plan for key officers. Total deferred compensation plan
expenses were $171,837 in 1992, $192,608 in 1993 and $222,385 in 1994. During
1992, the deferred compensation plan was amended to include James B. Brockett
and Janet H. Brockett resulting in the additional expense. It is anticipated
that deferred compensation plan expense will increase approximately 15% in 1995.
F-25
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Future occupancy expense is expected to increase at rates which are equivalent
to inflation. In April 1993, leases on the Bank's computer equipment expired
resulting in a significant decrease in computer rent expense. The equipment was
purchased for approximately $20,000 which was included in furniture and
equipment expense for 1993 because the computer may become obsolete in the near
future.
Repossession expense decreased in 1993 and 1994 reflecting the decrease in the
number of repossessions. The Bank continued to incur legal fees in 1993 and
1994, related to current litigation and operations. The FDIC insurance
assessments increased 12.8% in 1993 reflecting higher assessment rates. In 1992,
other expenses included a $25,000 loss of an appeal bond, of which $13,200 was
recovered in 1993 and included in other income. The additional decrease in other
expenses in 1993 was attributable to decreases in expenses for foreclosed
properties and meals and entertainment.
Investment Securities
Investment securities, composed mainly of U.S. Treasury securities, increased
$4,901,426 in 1993 and decreased $7,066,561 in 1994 in response to changes in
deposits. Management's current strategy is to invest in short-term U. S.
Treasury securities to provide adequate liquidity. Approximately 35% of the
securities will mature in less than one year and 94% in less than 6 years. At
January 1, 1994, the Bank transferred all U. S. Treasury securities maturing
within two years to the available for sale category. The purpose of the
securities in this category is to supplement federal funds sold as a source of
short-term liquidity. The available for sale securities are carried at the
current market value with adjustments to stockholders' equity for the unrealized
gain or loss. It is not anticipated that this accounting method will have a
significant impact on the Banks financial statements because of the quality and
short maturities of the securities. The maturity ranges and the weighted average
yield of the investments are shown in Note 3 to the financial statements.
Loans
Net loans increased 3.6% in 1994 and .60% in 1993 in response to changing loan
demand. Real estate construction loans increased $3,285,000 in 1993 and
$1,068,000 in 1994 to a total of $6,406,000 at December 31, 1994, in response to
the increase in construction activity. Loan origination fees increased from
$68,866 in 1992 to $113,945 in 1993 and $240,380 in 1994, due to the increase in
real estate construction lending. The above fees are not included in interest
income in the net interest margin analysis. The major classifications of loans
are shown in Note 4 to the financial statements.
F-26
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Loan Maturity Distribution
The maturities of loans and their sensitivities to changes in interest
rates at December 31, 1994 are shown in the following schedule:
Predetermined Floating or
Interest Adjustable
Total Rates Rates
Due in three months or less $21,405,000 $ 4,819,000 $16,586,000
Due after three months through twelve
months 6,058,000 6,058,000
Due after one year through five years 12,193,000 12,042,000 151,000
Due after five years 3,109,000 3,109,000
----------- ----------- -----------
42,765,000 $26,028,000 $16,737,000
=========== ===========
Non-accrual loans 47,000
-----------
Total Loans $42,812,000
===========
Non-Accrual and Past Due Loans
The following table shows loans placed in a non-accrual status and loans
contractually past due 90 days or more as to principal or interest
payments:
- - - - - - - - - - December 31, - - - - - - - - - -
1994 1993 1992
Non-Accrual Loans $ 47,588 $ 628,426 $ 440,056
Loans Past Due 90 Days or More 152,905 338,148 514,000
Loans are placed on a non-accrual basis as soon as it is determined that
the collection of interest is in doubt whether or not the loan is overdue.
Loans that are more than 90 days overdue are placed on non-accrual status
unless it is believed collection is imminent or the unpaid principal and
interest is fully secured by adequate collateral.
Potential Problem Loans
At December 31, 1994, management had not identified any potential problem
loans which were not classified as non-accrual or past due.
F-27
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Non-Accrual and Past Due Loans (Continued)
Loan Losses and Allowance for Loan Losses
The Bank's provision for loan losses decreased from $694,231 in 1992 to
$460,000 in 1993 and to $20,000 in 1994 in response to a decrease in loan
charge offs and an improving local economy. Net loan losses as a percentage
of average loans were .27% for 1994 compared with .71% for 1993 and 1.88%
for 1992. The allowance for loan losses as a percentage of loans was 1.54%
at the end of 1994 compared with 1.83% at the end of 1993 and 1.42% at the
end of 1992. Management has determined that the allowance is adequate to
absorb losses in the loan portfolio, however, additions may become
necessary because of changing economic conditions.
A summary of loan losses and recoveries follows:
1994 1993 1992
Balance, Beginning of Period $755,168 $582,856 $692,116
-------- -------- --------
Provision Charged to Expense 20,000 460,000 694,231
-------- -------- --------
Loan Losses
Commercial 153,949 256,363 751,283
Installment loans to individuals 2,680 54,861 59,157
-------- -------- --------
Total Loan Losses 156,629 311,224 810,440
-------- -------- --------
Recoveries
Commercial 42,834 23,536 6,949
-------- -------- --------
Total Recoveries 42,834 23,536 6,949
-------- -------- --------
Net Loan Losses 113,795 287,688 803,491
-------- -------- --------
Balance, End of Period $661,373 $755,168 $582,856
======== ======== ========
Ratio of Net Loan Losses During the Period
to Average Loans Outstanding During the Period .27% .71% 1.88%
F-28
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Loan Losses and Allowance for Loan Losses (Continued)
The balance of the allowance for loan losses was allocated as follows:
December 31, 1994 December 31, 1993 December 31, 1992
Balance at Percent Balance at Percent Balance at Percent
End of of Loan End of of Loans End of of Loans
Period in in Each Period in in Each Period in in Each
Each Loan Loan Each Loan Loan Each Loan Loan
Category Category Category Category Category Category
Commercial $537,560 67% $559,100 67% $399,330 53%
Consumer 54,815 7% 118,000 9% 125,806 9%
Real Estate -0- 26% 0 24% 0 38%
Unallocated 68,998 N/A 78,068 N/A 57,720 N/A
-------- ---- -------- --- -------- ----
Total $661,373 100% $755,168 100% $582,856 100%
======== ==== ======== === ======== ====
Allowance for Loan Losses as
a Percentage of Loans 1.54% 1.83% 1.42%
In determining the balance in the allowance for loan losses management
considers: the composition of the loan portfolio, past loan loss experience,
local economic conditions and a review of individual loans.
Investments in Life Insurance Contracts
The amounts invested in key man and split dollar life insurance contracts
increased from $131,263 during 1993 to $485,899 during 1994. The increase was
the result of prepaying (at a discount) all the premiums due on a policy used to
fund a split dollar agreement. The total investment in life insurance contracts
was $1,394,287 at December 31, 1994, compared with $851,848 at December 31,
1993. Income recognized on the life insurance contracts was $56,540 in 1994 and
$55,479 in 1993.
F-29
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Deposits
Average deposits increased 7.7% in 1993 and decreased 8.8% in 1994 resulting in
total deposits of $53,224,901 at December 31, 1994. For 1994, average non-
interest bearing deposits decreased $6,050,989 resulting in a total of
$7,239,337 at December 31, 1994. The decrease was the result of an abrupt
decrease in the level of real estate escrow deposits that were short term in
nature and abnormally high in 1993 due to the unusual interest rate environment.
As interest rates fell between 1992 and 1994, depositors switched deposits from
certificates of deposit to interest bearing demand deposits. Average
certificates of deposit decreased from $18,105,000 in 1993 to $16,177,311 in
1994, and average interest bearing demand deposits increased from $16,797,000 in
1993 to $20,141,307 in 1994. Average IRA accounts increased 4.5% in 1993,
however, they decreased 6.7% in 1994 as depositors sought higher yields. Year
end balances for certificates of deposit of $100,000 and over decreased from
$5,527,130 at December 31, 1992 to $4,011,094 at December 31, 1994.
The following schedule shows the maturity distribution of certificates of
deposit in excess of $100,000 at December 31, 1994.
(Thousands)
Three months or less $ 1,386
Over three through twelve months 2,061
Over one year through five years 564
------
Total $ 4,011
======
Capital Adequacy
The Federal Reserve Board has established minimum capital ratios which are
calculated as a percentage of risk-weighted assets. At the end of 1994 the
Bank's Tier I capital (stockholders' equity) ratio was 9.1% compared with the
required ratio of 4.00%. The Bank's Tier II capital (stockholders' equity plus
subordinated capital notes and the allowance for loan losses) was 10.54%
compared with the required ratio of 8.00%.
Liquidity
The Bank has implemented a liquidity management policy with the objective of
maintaining sufficient liquid assets to cover all foreseeable demands for cash
and still have excess liquid assets equal to at least 3% of total assets. Excess
liquid assets (liquidity position) is equal to net liquid assets less volatile
liabilities. At December 31, 1994, the liquidity position divided by total
assets was 12.2% compared with 17.0% at December 31, 1993. As part of its
liquidity management policy, management has several options available to
increase liquidity. The Bank is normally a net seller of federal funds which can
be reduced. The Bank keeps a significant portion of its investment portfolio in
unpledged assets that are less than 18 months to maturity which can be sold
without significant loss. The Bank maintains federal funds line of credit of
$1,300,000. The Bank holds commercial loans that can be sold. The Bank may
obtain short-term loans from the Federal Reserve Bank if it should become
illiquid in spite of its liquidity management efforts.
F-30
TABLE 1
AVERAGE BALANCES
YIELDS AND RATES
INCOME AND EXPENSE
1994 1994
Average Income/ Yield/
Balance Expense Rate
Federal Funds Sold $ 4,143,739 $ 164,034 3.96%
----------- ----------
Taxable Investment Securities 8,856,928 413,708 4.67
Tax-Exempt Investment Securities 475,000 42,086 8.86 (1)
----------- ----------
Total Securities 9,331,928 455,794 4.88
----------- ----------
Total Loans - Net of Unearned Income (2) 41,406,504 4,189,809 10.12
----------- ----------
Total Earning Assets - Net of Unearned Income 54,882,171 4,809,637 8.76
----------
Less Allowance for Loan Losses (747,136)
Total Non-Earning Assets 7,380,904
-----------
Total Assets $61,515,939
===========
Interest Bearing Deposits:
Demand deposits $20,141,307 559,562 2.78
Savings 1,635,318 47,792 2.92
Certificates of deposit 16,177,311 765,567 4.73
Individual retirement accounts 6,657,348 443,986 6.67
----------- ----------
Total Interest Bearing Deposits 44,611,284 1,816,907 4.07
----------- ----------
Borrowed Funds:
Subordinated capital note 529,415 40,758 7.70
Short-term borrowings 1,048,928 23,907 2.28
----------- ----------
Total Borrowed Funds 1,578,343 64,665 4.10
----------- ----------
Total Interest Bearing Liabilities 46,189,627 1,881,572 4.07
----------
Non-Interest Bearing Deposits 8,773,473
Other Liabilities 1,039,639
-----------
Total Liabilities 56,002,739
Stockholders' Equity 5,513,200
-----------
Total Liabilities and Capital $61,515,939
===========
Net Interest Income $2,928,065
==========
Differential Between Yield and Rate Paid 4.69%
Net Yield on Interest Earning Assets 5.34%
(1) Taxable equivalent basis using a Federal income tax rate of 34%
(2) Balance includes nonaccrual loans
F-31
TABLE 2
AVERAGE BALANCES
YIELDS AND RATES
INCOME AND EXPENSE
1993 1993
Average Income/ Yield/
Balance Expense Rate
Federal Funds Sold $ 7,808,082 $ 236,106 3.02%
----------- ----------
Taxable Investment Securities 10,307,025 392,794 3.81
Tax-Exempt Investment Securities 475,000 42,086 8.86 (1)
----------- ----------
Total Securities 10,782,025 434,880 4.03
----------- ----------
Total Loans - Net of Unearned Income (2) 40,404,231 4,163,988 10.31
----------- ----------
Total Earning Assets - Net of Unearned Income 58,994,338 4,834,974 8.20
----------
Less Allowance for Loan Losses (742,267)
Total Non-Earning Assets 8,017,676
-----------
Total Assets $66,269,747
===========
Interest Bearing Deposits:
Demand deposits $16,797,343 480,344 2.86
Savings 1,668,872 53,487 3.20
Certificates of deposit 18,105,196 880,541 4.86
Individual retirement accounts 7,136,236 511,388 7.17
----------- ----------
Total Interest Bearing Deposits 43,707,647 1,925,760 4.41
----------- ----------
Borrowed Funds:
Subordinated capital note 581,582 38,303 6.59
Short-term borrowings 1,529,978 34,706 2.27
----------- ----------
Total Borrowed Funds 2,111,560 73,009 3.46
----------- ----------
Total Interest Bearing Liabilities 45,819,207 1,998,769 4.36
----------
Non-Interest Bearing Deposits 14,824,462
Other Liabilities 483,531
-----------
Total Liabilities 61,127,200
Stockholders' Equity 5,142,547
-----------
Total Liabilities and Capital $66,269,747
===========
Net Interest Income $2,836,205
==========
Differential Between Yield and Rate Paid 3.84%
Net Yield on Interest Earning Assets 4.81%
(1) Taxable equivalent basis using a Federal income tax rate of 34%
(2) Balance includes nonaccrual loans
F-32
TABLE 3
AVERAGE BALANCES
YIELDS AND RATES
INCOME AND EXPENSE
1992 1992
Average Income/ Yield/
Balance Expense Rate
Federal Funds Sold $ 2,886,492 $ 102,232 3.54%
---------- ---------
Taxable Investment Securities 9,965,069 447,616 4.49
Tax-Exempt Investment Securities 506,297 44,259 8.74 (1)
---------- ---------
Total Securities 10,471,366 491,875 4.70
---------- ---------
Total Loans - Net of Unearned Income (2) 42,514,627 4,526,941 10.65
---------- ---------
Total Earning Assets - Net of Unearned Income 55,872,485 5,121,048 9.17
---------
Less Allowance for Loan Losses (772,623)
Total Non-Earning Assets 6,701,473
----------
Total Assets $61,801,335
==========
Interest Bearing Deposits:
Demand deposits $13,743,691 523,533 3.81
Savings 1,665,540 66,740 4.01
Certificates of deposit 20,115,421 1,170,518 5.82
Individual retirement accounts 6,831,658 539,863 7.90
---------- ---------
Total Interest Bearing Deposits 42,356,310 2,300,654 5.43
---------- ---------
Borrowed Funds:
Subordinated capital note 631,974 43,386 6.87
Short-term borrowings 1,528,454 46,348 3.03
---------- ---------
Total Borrowed Funds 2,160,428 89,734 4.15
---------- ---------
Total Interest Bearing Liabilities 44,516,738 2,390,388 5.37
---------
Non-Interest Bearing Deposits 12,003,302
Other Liabilities 400,884
----------
Total Liabilities 56,920,924
Stockholders' Equity 4,880,411
----------
Total Liabilities and Capital $61,801,335
==========
Net Interest Income $2,730,660
=========
Differential Between Yield and Rate Paid 3.80%
Net Yield on Interest Earning Assets 4.89%
(1) Taxable equivalent basis using a Federal income tax rate of 34%
(2) Balance includes nonaccrual loans
F-33
TABLE 4
RATE VOLUME ANALYSIS
1994
Change in 1994 1994
Income/ Rate Volume
Expense Effect Effect
Earning Assets:
Federal Funds $ (72,072) $ 38,591 $(110,663)
Taxable Securities 20,914 76,163 (55,249)
Tax-Exempt 0 0 0
--------- --------- ---------
Total Securities 20,914 76,163 (55,249)
Total Loans 25,821 (77,513) 103,334
--------- --------- ---------
Total Earning Assets (25,337) 311,861 (337,198)
--------- --------- ---------
Interest Bearing Liabilities:
Demand deposits 79,218 (16,419) 95,637
Savings (5,695) (4,621) (1,074)
Certificates of deposit (114,974) (21,279) (93,695)
Individual retirement accounts (67,402) (33,066) (34,336)
--------- --------- ---------
Total Interest Bearing Deposits (108,853) (148,703) 39,850
Subordinated capital note 2,455 5,893 (3,438)
Other Borrowing (10,799) 121 (10,920)
--------- --------- ---------
Total Interest Bearing Liabilities (117,197) (133,347) 16,150
--------- --------- ---------
Net Interest Income $ 91,860 $ 445,208 $(353,348)
========= ========= =========
Note: The changes attributable to a rate/volume variance have been allocated to
the rate effect.
F-34
TABLE 5
RATE VOLUME ANALYSIS
1993
Change in 1993 1993
Income/ Rate Volume
Expense Effect Effect
Earning Assets:
Federal Funds $ 133,874 $ (40,350) $ 174,264
Taxable Securities (54,822) (70,176) 15,354
Tax-Exempt (2,173) 562 (2,735)
-------- -------- --------
Total Securities (56,995) (71,596) 14,601
Total Loans (362,953) (138,196) (224,757)
-------- -------- --------
Total Earning Assets (286,074) (572,348) 286,274
-------- -------- --------
Interest Bearing Liabilities:
Demand deposits (43,189) (159,533) 116,344
Savings (13,253) (13,387) 134
Certificates of deposit (289,977) (172,982) (116,995)
Individual retirement accounts (28,475) (52,537) 24,062
-------- -------- --------
Total Interest Bearing Deposits (374,894) (448,272) 73,378
Subordinated capital note (5,083) (1,621) (3,462)
Other Borrowing (11,642) (11,688) 46
-------- -------- --------
Total Interest Bearing Liabilities (391,619) (461,562) 69,943
-------- -------- --------
Net Interest Income $ 105,545 $(110,786) $ 216,331
======== ======== ========
Note: The changes attributable to a rate/volume variance have been allocated to
the rate effect.
F-35
TABLE 6
RATE VOLUME ANALYSIS
1992
Change in 1992 1992
Income/ Rate Volume
Expense Effect Effect
Earning Assets:
Federal Funds $ 17,379 $ (68,975) $ 86,354
Taxable Securities (214,835) (224,845) 10,010
Tax-Exempt (6,129) (1,248) (4,881)
-------- -------- --------
Total Securities (220,964) (227,422) 6,458
Total Loans (204,685) (82,248) (122,437)
-------- -------- --------
Total Earning Assets (408,270) (450,218) 41,948
-------- -------- --------
Interest Bearing Liabilities:
Demand deposits (181,527) (233,905) 52,378
Savings 5,923 (19,838) 25,761
Certificates of deposit (501,399) (385,955) (115,444)
Individual retirement accounts 43,635 (33,541) 77,176
-------- -------- --------
Total Interest Bearing Deposits (633,368) (695,183) 61,815
Subordinated capital note (18,181) (14,072) (4,109)
Other Borrowing (92,482) (25,883) (66,599)
-------- -------- --------
Total Interest Bearing Liabilities (744,031) (745,192) 1,161
-------- -------- --------
Net Interest Income $ 335,761 $ 294,974 $ 40,787
======== ======== ========
Note: The changes attributable to a rate/volume variance have been allocated to
the rate effect.
F-36
AUDITED FINANCIAL STATEMENTS
(AS OF DECEMBER 31, 1994 AND 1993)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992)
F-37
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of First Commercial Bank
We have audited the accompanying balance sheets of First Commercial Bank as of
December 31, 1994 and 1993, and the related statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Commercial Bank as of
December 31, 1994 and 1993, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
/s/ S. B. Hoover & Company, L.L.P.
-----------------------------------
S. B. Hoover & Company, L.L.P.
January 26, 1995
(Except for Note 17 for which the
date is March 6, 1995)
F-38
FIRST COMMERCIAL BANK
BALANCE SHEETS
December 31,
ASSETS 1994 1993
Cash and due from banks (notes 2 & 15) $ 3,534,193 $ 2,181,459
Federal funds sold (note 15) 2,300,000 10,000,000
----------- -----------
Cash and Cash Equivalents 5,834,193 12,181,459
Securities available for sale (at market value) (note 3) 3,911,875
Securities held to maturity (market value of
$4,335,114 in 1994 and $15,528,269 in 1993) (note 3) 4,536,357 15,514,793
----------- -----------
Total Securities 8,448,232 15,514,793
Loans, net of unearned income (notes 4, 14, 15 & 16) 42,812,089 41,324,015
Less allowance for loan losses (note 5) (661,373) (755,168)
----------- -----------
Net Loans 42,150,716 40,568,847
Bank premises and equipment, net (note 6) 932,851 1,049,436
Interest receivable 511,242 522,500
Life insurance contracts 1,394,287 851,848
Other real estate owned 872,933 525,278
Other assets 689,275 576,713
----------- -----------
Total Assets $60,833,729 $71,790,874
=========== ===========
LIABILITIES
Deposits:
Demand - Noninterest bearing $ 7,239,337 $12,207,426
- Interest bearing 20,153,894 23,178,705
Savings 1,595,427 1,818,421
Certificates of deposit $100,000 and over 4,011,094 4,573,125
Other time deposits 20,225,149 19,983,641
----------- -----------
Total Deposits 53,224,901 61,761,318
Securities sold under repurchase agreements (note 7) 3,295,000
Accrued interest and other liabilities 1,392,768 998,772
Subordinated capital note (note 8) 492,297 562,576
----------- -----------
Total Liabilities 55,109,966 66,617,666
----------- -----------
STOCKHOLDERS' EQUITY (notes 8 & 13)
Common stock, $5 par value, authorized 400,000
shares, issued and outstanding 201,100 shares 1,005,500 1,005,500
Capital surplus 1,005,500 1,005,500
Retained earnings 3,733,086 3,162,208
Net unrealized loss on securities available for sale (20,323)
----------- -----------
Total Stockholders' Equity 5,723,763 5,173,208
----------- -----------
Total Liabilities and Stockholders' Equity $60,833,729 $71,790,874
=========== ===========
The accompanying notes are an integral part of this statement.
F-39
FIRST COMMERCIAL BANK
STATEMENTS OF INCOME
Years Ended December 31,
1994 1993 1992
INTEREST INCOME:
Interest and fees on loans $ 4,430,188 $ 4,277,936 $ 4,674,096
Interest on investment securities
Taxable 413,708 392,794 447,616
Nontaxable 27,778 27,778 29,211
Interest on federal funds sold 164,034 236,106 102,232
---------- ---------- ----------
Total Interest Income 5,035,708 4,934,614 5,253,155
---------- ---------- ----------
INTEREST EXPENSE:
Certificates of deposits over $100,000 159,865 213,608 431,111
Other deposits 1,657,042 1,712,151 1,869,543
Short-term borrowings 23,907 34,707 46,348
Subordinated capital note 40,758 38,303 43,386
---------- ---------- ----------
Total Interest Expense 1,881,572 1,998,769 2,390,388
---------- ---------- ----------
NET INTEREST INCOME 3,154,136 2,935,845 2,862,767
PROVISION FOR LOAN LOSSES (note 5) 20,000 460,000 694,231
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,134,136 2,475,845 2,168,536
---------- ---------- ----------
OTHER INCOME:
Service fees 183,295 230,078 181,386
Miscellaneous 124,594 225,153 57,477
Loss on sale of securities (48,613)
Net gain (loss) on foreclosed real estate 5,582 (32,758) (8,806)
---------- ---------- ----------
Total Other Income 264,858 422,473 230,057
---------- ---------- ----------
OTHER EXPENSES:
Salaries 1,020,564 928,440 760,881
Employee benefits (notes 11 & 12) 390,430 351,433 273,288
Occupancy expenses, net (note 10) 198,640 192,468 188,314
Furniture and equipment expense 176,532 197,188 172,541
Computer rent expense (note 10) 24,678 75,553
Repossession expense 13,448 42,913 77,858
Legal and professional fees 123,842 127,188 108,221
Directors' fees 154,000 150,500 148,000
FDIC insurance assessment 150,905 147,281 130,614
Other expenses 243,446 226,241 267,465
---------- ---------- ----------
Total Other Expenses 2,471,807 2,388,330 2,202,735
---------- ---------- ----------
Income before Income Tax Expense 927,187 509,988 195,858
INCOME TAX EXPENSE (note 9) 316,089 195,931 46,292
---------- ---------- ----------
NET INCOME $ 611,098 $ 314,057 $ 149,566
========== ========== ==========
Net Income per Share $ 3.04 $ 1.56 $ .74
========== ========== ==========
The accompanying notes are an integral part of this statement.
F-40
FIRST COMMERCIAL BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized
Gain
(Loss)
on Securities
Common Capital Retained Available
Stock Surplus Earnings for Sale Total
BALANCE, DECEMBER 31, 1991 $ 1,005,500 $ 1,005,500 $ 2,779,025 $ $ 4,790,025
Net income 149,566 149,566
Dividends declared, $.20
per share (40,220) (40,220)
---------- ----------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1992 1,005,500 1,005,500 2,888,371 4,899,371
Net income 314,057 314,057
Dividends declared, $.20
per share (40,220) (40,220)
----------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1993 1,005,500 1,005,500 3,162,208 5,173,208
Net income 611,098 611,098
Dividends declared, $.20
per share (40,220) (40,220)
Cumulative effect of change in
accounting principle (net
of income taxes of $1,400)
(Note 1) 2,717 2,717
Decline in fair value (net of
income taxes of ($13,856)) (23,040) (23,040)
---------- ----------- ---------- -------- ----------
BALANCE, DECEMBER 31, 1994 $ 1,005,500 $ 1,005,500 $ 3,733,086 $ (20,323) $ 5,723,763
========== ========== ========== ======== ==========
The accompanying notes are an integral part of this statement.
F-41
FIRST COMMERCIAL BANK STATEMENTS OF CASH FLOWS
Years Ended December 31,
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 611,098 $ 314,057 $ 149,566
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 20,000 460,000 694,231
Depreciation 137,502 141,332 134,805
Net amortization of bond premium 31,106 153,119 279,790
Increase in carrying value of life
insurance policies (56,540) (55,479) (10,707)
Increase in deferred income tax benefit (98,179) (100,065) (13,115)
Loss on sale of assets 43,031 32,758 8,806
(Increase) decrease in other assets (30,541) 150,683 27,326
Increase (decrease) in accrued expenses 242,735 572,080 (199,339)
------------ ------------ ------------
Net Cash Provided by Operating Activities 900,212 1,668,485 1,071,363
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale 13,000,000
Proceeds from sales of securities available for sale 3,969,375
Purchase of securities available for sale (5,935,624)
Proceeds from maturities of securities held to maturity 0 6,000,000 14,351,317
Purchase of securities held to maturity (4,079,688) (11,054,545) (15,594,870)
Net decrease (increase) in loans (1,918,714) (371,358) 4,121,692
Purchase of bank premises and equipment (20,917) (145,619) (14,557)
Investment in life insurance policies (485,899) (131,263) (43,819)
Proceeds from sale of assets 295,500 470,500 14,885
Investment in other assets (129,595)
------------ ------------ ------------
Net Cash Provided by (Used in) Investing Activities 4,694,438 (5,232,285) 2,834,648
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand and savings deposits (8,643,689) 8,002,504 2,710,570
Net increase (decrease) in time deposits 107,272 (595,752) (3,276,425)
Payments on subordinated capital note (70,279) (50,000) (49,999)
Increase (decrease) in short-term borrowings (3,295,000) 2,895,000 (2,270,759)
Cash dividends paid (40,220) (40,220) (40,220)
------------ ------------ ------------
Net Cash Provided by (Used in) Financing Activities (11,941,916) 10,211,532 (2,926,833)
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents (6,347,266) 6,647,732 979,178
Cash and Cash Equivalents, Beginning of Year 12,181,459 5,533,727 4,554,549
------------ ------------ ------------
Cash and Cash Equivalents, End of Year $ 5,834,193 $ 12,181,459 $ 5,533,727
============ ============ ============
Supplemental Information
Cash Paid For:
Interest $ 1,890,381 $ 2,013,536 $ 2,463,479
Income taxes 523,648 76,756 118,000
Noncash Investing Activities:
Transfers from loans to other real estate owned 1,417,345 134,394 883,307
Loans made to facilitate sale of real estate owned 1,100,500 300,000 720,000
The accompanying notes are an integral part of this statement.
F-42
FIRST COMMERCIAL BANK
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles and conform to general
practices within the banking industry. Significant accounting policies are
summarized below.
A. CASH AND CASH EQUIVALENTS
Cash and equivalents includes cash on hand, federal funds sold and
deposits at other financial institutions whose initial maturity is
ninety days or less.
B. INVESTMENT SECURITIES
Debt securities that management has the ability and intent to hold to
maturity are classified as held to maturity and carried at cost,
adjusted for amortization of premium and accretion of discounts using
methods approximating the interest method. Other marketable securities
are classified as available for sale and are carried at fair value.
Unrealized gains and losses on securities available for sale are
recognized as direct increases or decreases in stockholders' equity.
Cost of securities sold is recognized using the specific identification
method.
C. LOANS
Loans are carried on the balance sheet net of the allowance for loan
losses. Interest income on loans is generally calculated by using the
simple interest method on the daily amount of principal outstanding
except where serious doubt exists as to collectibility of the loan, in
which case the accrual of income is discontinued.
D. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based upon management's knowledge and
review of the loan portfolio. Estimates of loan losses involve the
exercise of judgement, the use of assumptions with respect to present
economic conditions and knowledge of the environment in which the Bank
operates. Among the factors considered in determining the level of the
allowance are the changes in composition of the loan portfolio, the
amount of delinquent and nonaccrual loans, past loan loss experience
and the value of collateral securing the loans.
E. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is charged to income over the estimated
useful lives of the assets on a combination of the straight-line and
accelerated methods. The ranges of the useful lives of the premises and
equipment are as follows:
F-43
FIRST COMMERCIAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Buildings and Improvements 5 - 40 years
Furniture and fixtures 3 - 20 years
Automobiles 2 - 4 years
Maintenance, repairs, and minor improvements are charged to operations
as incurred. Gains and losses on routine dispositions are reflected in
other income or expense.
F. INCOME TAXES
Amounts provided for income tax expense are based on income reported
for financial statement purposes rather than amounts currently payable
under income tax laws. Deferred taxes, which arise principally from
temporary differences between the period in which certain income and
expenses are recognized for financial accounting purposes and the
period in which they affect taxable income, are included in the
amounts provided for income taxes. Prior to 1993, deferred income
taxes were provided for using the provisions of APB 11. Effective
January 1, 1993, the Company adopted Financial Accounting Standards
No. 109, "Accounting for Income Taxes." The effect of this change in
the method of accounting for income taxes was not material and is
included as additional income tax expense for 1993. (See note 9)
G. FORECLOSED REAL ESTATE
Foreclosed real estate is carried at the lower of fair value at the
date of foreclosure or the current fair value minus the estimated
costs to sell. Adjustments to the carrying value are included in the
computation of net income for the period.
H. DEFERRED COMPENSATION CONTRACTS
Expenses for deferred compensation contracts and the related liability
are calculated using the double discounting method.
I. CHANGE IN ACCOUNTING PRINCIPLE
As of January 1, 1994, the Bank adopted Financial Accounting Standard
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and classified investments with an amortized cost of
$15,039,793 and a market value of $15,043,910 as securities available
for sale. The carrying value of the securities available for sale was
adjusted to market value and the unrealized gain or loss net of income
taxes recorded as an increase or decrease in stockholders' equity as
follows:
F-44
FIRST COMMERCIAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Decline in
Fair Value
January 1, During December 31,
1994 1994 1994
Securities available for sale $ 4,117 $(36,896) $(32,779)
Deferred income tax benefit (payable) (1,400) 13,856 12,456
------- -------- --------
Unrealized Gains (Losses) on Securities
Available for Sale $ 2,717 $(23,040) $(20,323)
======= ======== ========
2. CASH AND CASH EQUIVALENTS:
The Bank is required to maintain average reserve balances based on a
percentage of deposits. During 1994 and 1993, the Bank's average reserve
requirements were approximately $390,000. The Bank has met this
requirement through its cash on hand and due from banks.
3. INVESTMENT SECURITIES:
The amortized cost and fair value of investment securities at December
31, 1994, were:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale
------------------
U. S. Treasury $ 3,944,654 $ -0- $ 32,779 $ 3,911,875
========== ========== ======== ==========
Held to Maturity
----------------
U. S. Treasury
and Agencies $ 4,061,357 $ $ 150,732 $ 3,910,625
Municipals 475,000 3,500 54,011 424,489
---------- ---------- -------- ----------
Totals $ 4,536,357 $ 3,500 $ 204,743 $ 4,335,114
========== ========== ======== ==========
The amortized cost and estimated market values of investment securities
at December 31, 1993, were:
F-45
FIRST COMMERCIAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT SECURITIES (CONTINUED):
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U. S. Treasury securities $ 15,039,793 $ 9,873 $ 5,756 $ 15,043,910
State, county and municipal
bonds 475,000 11,547 2,188 484,359
----------- ------- ------ -----------
Total $ 15,514,793 $ 21,420 $ 7,944 $ 15,528,269
=========== ======= ====== ===========
The amortized cost and fair value of debt securities at December 31,
1994, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment
penalties.
Securities Available for Sale Securities Held to Maturity
----------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less $ 2,965,707 $2,947,500 $ $
Due after one year through
five years 978,947 964,375 4,061,357 3,910,625
Due five years through
ten years 225,000 220,989
Due after ten years 250,000 203,500
--------- --------- --------- ---------
Total $3,944,654 $3,911,875 $4,536,357 $4,335,114
========= ========= ========= =========
During 1994, the Bank sold available for sale for total proceeds of
$3,969,375 resulting in gross realized losses of $48,613.
Securities with a carrying value of $1,200,000 at December 31, 1994, were
pledged to secure public deposits and for other purposes required by law.
F-46
FIRST COMMERCIAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LOANS:
Major classifications of loans at December 31, 1994 and 1993, are as
follows:
(Rounded to the Nearest Thousand)
1994 1993
Commercial loans $ 22,249,000 $ 22,282,000
Real estate - construction 6,406,000 5,338,000
Real estate - 1-4 family residential 11,253,000 9,864,000
Personal loans 2,845,000 3,582,000
Other loans 59,000 258,000
----------- -----------
42,812,000 41,324,000
Allowance for loan losses (661,000) (755,000)
----------- -----------
Loans, Net $ 42,151,000 $ 40,569,000
=========== ===========
4. LOANS (CONTINUED):
The total loans classified as nonaccrual at December 31, 1994, 1993 and
1992, the proforma interest income that would have been earned in 1994,
1993 and 1992 if such loans had not been classified as nonaccrual and the
amounts of interest actually included in net income for those years, are
as follows:
1994 1993 1992
Total nonaccrual loans $47,588 $628,426 $440,056
Proforma interest 5,507 72,580 64,066
Interest included in net income 3,490 43,866 25,682
5. ALLOWANCE FOR LOAN LOSSES:
Changes in the allowance for loan losses were as follows:
1994 1993 1992
Balance, beginning of year $ 755,168 $ 582,856 $ 692,116
Provision charged to operations 20,000 460,000 694,231
Loans charged off (156,629) (311,224) (810,440)
Recoveries 42,834 23,536 6,949
--------- --------- ---------
Balance, end of year $ 661,373 $ 755,168 $ 582,856
========= ========= =========
F-47
FIRST COMMERCIAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. BANK PREMISES AND EQUIPMENT:
The major classes of bank premises and equipment and the total
accumulated depreciation at December 31, 1994 and 1993, are as follows:
1994 1993
Buildings $ 1,007,886 $ 1,007,886
Leasehold improvements 174,810 253,515
Furniture and equipment 816,671 938,082
Automobiles 138,711 138,711
---------- ----------
2,138,078 2,338,194
Less accumulated depreciation 1,205,227 1,288,758
---------- ----------
$ 932,851 $ 1,049,436
========== ==========
Depreciation expense was $137,502, $141,332 and $134,805 for the years
ended December 31, 1994, 1993 and 1992, respectively.
7. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS:
Information on securities sold under repurchase agreements is shown in
the following schedule:
Weighted
Maximum Outstanding Average Average Year End
Outstanding at at Balance Interest Interest
Any Month End Year End Outstanding Rate Rate
1994 $ 3,320,000 $ 0 $ 1,048,928 2.28% N/A
1993 $ 3,295,000 $ 3,295,000 $ 1,529,979 2.27% 2.44%
At December 31, 1994, the Bank had unused lines of credit to purchase
federal funds of $1,300,000.
F-48
FIRST COMMERCIAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. SUBORDINATED CAPITAL NOTE:
In order to provide additional regulatory capital the Bank borrowed funds
under a subordinated note from NationsBank for $750,000. The note is
payable in quarterly installments including interest at .5% over
NationsBank's prime with increasing amounts of principal through July 1,
1998. The agreement contains certain default provisions relating to
operations and the maintenance of capital, including the provision that
the Bank will be in default if dividends paid exceed thirty percent (30%)
of the Bank's net income for the preceding fiscal year.
Principal payments on the capital note are scheduled as follows:
1995 $ 131,118
1996 131,118
1997 131,118
1998 98,943
9. INCOME TAXES:
The income tax expense is shown in the following schedule:
1994 1993 1992
Current expense $ 414,268 $ 295,996 $ 59,407
Deferred tax benefit (98,179) (119,012) (13,115)
Change in accounting method 18,947
-------- -------- --------
Income Tax Expense $ 316,089 $ 195,931 $ 46,292
======== ======== =======
9. INCOME TAXES (CONTINUED):
The net deferred tax asset at December 31, 1994 and 1993, is shown in
the following schedule:
1994 1993
Deferred Tax Asset
Deferred compensation plan $ 222,948 $ 147,337
Allowance for loan losses 88,942 122,408
Accrued officer bonus 87,230 34,849
Valuation allowance OREO 13,736 7,971
Unrealized loss on securities 12,456
Other 1,739 1,449
-------- --------
427,051 314,014
-------- --------
Deferred Tax Liabilities
Depreciation 23,234 27,000
Key man insurance policies 25,907 19,739
-------- --------
49,141 46,739
-------- --------
Net Deferred Tax Asset $ 377,910 $ 267,275
======== ========
F-49
FIRST COMMERCIAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The components of net deferred income tax benefit resulting from timing
differences in the recognition of revenue and expenses for tax and
financial purposes were as follows:
1994 1993 1992
Allowance for loan losses $ 33,466 $ (29,797) $ 74,276
Accelerated depreciation (3,766) (8,081) 400
Accrued officer bonus (52,381) (34,849)
Deferred compensation plan (75,611) (65,486) (67,016)
Gain on foreclosed real estate 15,802 (27,270)
Change in accounting method 18,947
Other 113 3,399 6,495
------- -------- -------
Net Deferred Income Tax Benefit $(98,179) $(100,065) $(13,115)
======= ======== =======
The difference between income tax expense and the amount computed by
applying the statutory federal income tax rates to pretax income was as
follows:
1994 1993 1992
Statutory federal tax rates applied
to pretax income $ 315,244 $ 173,396 $ 59,635
Change in accounting method 18,948
Nontaxable interest (9,445) (9,445) (11,392)
Nondeductible expense 2,896 2,124 2,820
Officers' life insurance 7,394 9,623 (5,522)
Other 1,285 751
------- -------- --------
Income Tax Expense $ 316,089 $ 195,931 $ 46,292
======== ======== ========
10. OPERATING LEASES:
The Bank has entered into a lease for the land on which the Bank's office
building has been constructed. The current annual rental is $95,402. This
ground lease expires December 5, 2004 and is renewable for an additional
ten years. Periodically, the annual rent is adjusted to reflect increases
in the Consumer Price Index. Additional off-site storage space is leased
on a year-to-year basis. The Bank has a ten year lease for a branch
office with annual rental of $77,901, which expires June 30, 1996.
Effective February 1, 1990, the Bank subleased the branch office under a
lease that expires June 30, 1996 and provides for rental income of
$81,481 per year.
The Bank also leases equipment under various operating leases.
F-50
FIRST COMMERCIAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. OPERATING LEASES (CONTINUED):
The net rental expenses of the Bank were as follows:
1994 1993 1992
Facilities leases $ 173,509 $ 170,951 $ 168,066
Less sublease income (81,481) (81,481) (81,481)
-------- -------- --------
92,028 89,470 86,585
Equipment leases 4,650 28,667 80,186
-------- -------- --------
Net Rental Expenses $ 96,678 $ 118,137 $ 166,771
======== ======== ========
Future minimum rental payments under noncancelable leases as of December
31, 1994, are as follows:
Facilities Equipment Total
1995 $ 173,303 $3,411 $ 176,714
1996 134,353 3,411 137,764
1997 95,402 1,421 96,823
1998 95,402 95,402
1999 95,402 95,402
Thereafter 469,058 469,058
---------- ------- ----------
1,062,920 8,243 1,071,163
Less rental income from subleases 122,222 122,222
---------- ------- ----------
$ 940,698 $8,243 $ 948,941
========== ====== ==========
11. DEFERRED COMPENSATION CONTRACTS:
The Bank has entered into deferred compensation contracts with Bank
officers under the Bank's executive salary continuation plan approved in
1986. Beginning in 1991, the Bank began accruing a liability, which at
the date of retirement, will equal the present value of payments to be
made under the contracts. The expense accrued for 1994, 1993 and 1992 was
$222,385, $192,608 and $171,857, respectively.
In addition to the deferred compensation contract, the Bank has a split
dollar life insurance agreement which was amended on December 31, 1993,
under which the Bank has agreed to advance ten annual premiums of $81,710
on a whole life insurance policy owned by the chief executive officer.
The amount of the advances is recorded as an asset and accrues interest
at 5% compounded annually. The premium advance account is secured by a
collateral assignment of the policy and will be reimbursed upon his
death.
F-51
FIRST COMMERCIAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYMENT CONTRACTS:
On December 31, 1992, the Bank entered into employment agreements with
the executive officers of the Bank. The agreements provide for a
continuation of the present salaries and benefits and automatically renew
annually unless either party gives timely notice that the agreement will
not be renewed. In the event that employment is terminated by the Bank
for other than cause, the Bank will pay a lump sum payment equivalent to
salary and benefits for a period which ranges from nine to twenty-four
months depending on the years of service. Upon voluntary termination by
the employee, the Bank will pay a lump sum amount equivalent to salary
and benefits for a period which ranges from three to twelve months
depending on the years of service. In the event of a change in control
and the employee is not assigned substantially the same position or not
provided substantially the same facilities within the trade area of the
Bank as defined in its Community Reinvestment Act Statement, then in
effect, the employee will be entitled to terminate his employment and
receive a lump sum payment of 2.99 times the then annual base salary.
13. STOCKHOLDERS' EQUITY:
At December 31, 1994 and 1993, there were 400,000 shares of common stock
authorized of which 201,100 were issued and outstanding of which the
chief executive officer of the Bank beneficially owns 68.6%.
14. RELATED PARTY TRANSACTIONS:
Certain officers, directors, employees and their affiliates are loan
customers of the Bank. In management's opinion, the loans were made in
the ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the time
for comparable transactions with unrelated parties. An analysis of loans
to related parties (net of participation) is shown in the following
schedule:
1994 1993
Balance, beginning of year $ 738,713 $ 553,492
New loans made 45,122 344,300
Repayments (118,336) (103,034)
Loans to former officers (11,775)
Loans charged off (44,270)
---------
Balance, end of year $ 665,499 $ 738,713
========= =========
In the ordinary course of business, the Bank had accepted deposits from
related parties and their affiliates of $2,959,823 at December 31, 1994
and $3,474,435 at December 31, 1993.
F-52
FIRST COMMERCIAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. CONCENTRATION OF CREDIT RISKS:
The Bank has cash deposited in and federal funds sold to one commercial
bank of $5,203,109 and $5,717,140 at December 31, 1994 and 1993,
respectively.
The Bank grants commercial, residential real estate and consumer loans to
customers located primarily in northern Virginia and the District of
Columbia. Collateral held varies, but may include accounts receivable,
marketable securities, deposit accounts, inventory, property, plant and
equipment, real estate, and income producing commercial properties. A
schedule of loans by type is shown in note 4. Included in personal loans
are loans which are secured by mobile homes, totaling $1,877,953 and
$2,273,064 at December 31, 1994 and 1993. Collateral required by the Bank
is determined on an individual basis depending on the nature of the loan
and the financial condition of the borrower.
16. COMMITMENTS AND GUARANTEES:
The Bank is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit, standby letters of credit and financial guarantees. Those
instruments involve, to varying degrees, elements of credit risk in
excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit and financial guarantees written is
represented by the contractual amount of those instruments. The Bank uses
the same credit policies in making commitments and conditional
obligations as it does for the loans reflected in the balance sheet.
Contract Amount
1994 1993
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $ 6,588,432 $ 5,088,000
Standby letters of credit and financial
guarantees written 556,733 657,832
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit evaluation of the
borrower. Collateral held varies, but may include accounts receivable,
marketable securities, deposit accounts, inventory, property, plant and
equipment, real estate, and income producing commercial properties.
F-53
FIRST COMMERCIAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
16. COMMITMENTS AND GUARANTEES (CONTINUED):
Standby letters of credit and financial guarantees written are
conditional commitments issued by the Bank to guarantee the performance
of a customer to a third party. The guarantees are primarily issued as
performance bonds relating to construction. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loans to customers.
17. AGREEMENT TO MERGE:
On March 6, 1995, the Board of Directors of First Commercial Bank
("Bank") entered into an agreement to merge with United Bankshares, Inc.
("United"), 514 Market Street, Parkersburg, WV. Under the agreement
United will obtain 100% ownership of the Bank in exchange for 1.12 shares
of the common stock of United and $26.25 in cash for each share of Bank
common stock. Consummation of the transactions is expected in late 1995.
F-54
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
E-1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is made and
entered into as of this 6th day of March, 1995, among First Commercial Bank, a
Virginia banking corporation ("FCB"); United Bankshares, Inc. ("UBS") and
Commercial Interim Bank, a Virginia banking corporation to be formed as a
wholly-owned subsidiary of UBS.
WHEREAS, FCB is a Virginia state banking institution organized and
existing under the laws of the Commonwealth of Virginia with its principal
office in Arlington, Virginia;
WHEREAS, Commercial Interim Bank will be organized as a Virginia
banking institution with its principal office located in Arlington, Virginia;
WHEREAS, UBS is a West Virginia corporation with its principal office
located in Charleston, West Virginia, and is a registered bank holding company
under the Bank Holding Company Act of 1956, as amended;
WHEREAS, the parties hereto desire to accomplish the merger of FCB
into Commercial Interim Bank with Commercial Interim Bank surviving and
operating under the name "First Commercial Bank" (the "Merger");
WHEREAS, shareholders of FCB will receive shares of UBS common stock
("UBS stock") and/or cash for each share of FCB common stock ("FCB" stock") they
own as consideration for the Merger; provided, however that no fractional shares
of UBS stock will be issued and in lieu thereof FCB shareholders will receive
cash consideration as provided herein;
E-2
WHEREAS, FCB has authorized capital of $2,000,000, divided into
400,000 shares of common stock of $5.00 par value, of which 201,100 are issued
and outstanding, resulting in a capital account of $1,005,500, with surplus of
$1,005,500 and undivided profits of $3,705,741 as of December 31, 1994;
WHEREAS, for federal income tax purposes, the transactions are
intended to be treated as a tax free reorganization under Internal Revenue Code
(S)368(a)(2)(D).
WHEREAS, pursuant to the terms of a separate merger agreement, UBS
also intends to merge Bank First, N.A., a wholly-owned national association with
and into Commercial Interim Bank, with Commercial Interim Bank to service the
merger and the present office of Bank First, N.A. to become a branch office of
the Surviving Bank.
NOW, THEREFORE, for and in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, UBS and
FCB do represent, warrant, covenant and agree (and Commercial Interim Bank will
represent, warrant, covenant and agree) as follows:
ARTICLE I
---------
PLAN OF MERGER
--------------
1.1 Parties to Merger and Surviving Bank. The parties to the Plan of
------------------------------------
Merger are FCB and Commercial Interim Bank. FCB shall merge with and into
Commercial Interim Bank under the charter of the latter, pursuant to the laws of
Virginia and the United States. At the time of the Merger, FCB will cease to
exist and Commercial Interim Bank will be the Surviving Bank. The name
E-3
of the Surviving Bank shall be "First Commercial Bank" and its principal office
will be in Arlington, Virginia.
1.2 Terms of Merger. The terms and conditions of the Merger are set
---------
forth in this Agreement. Upon satisfaction of all of the terms and conditions
set forth herein, the Merger shall be effective upon the date so indicated by
the Virginia State Corporation Commission, Bureau of Financial Institutions
("Bureau").
1.3 Effect of Merger. Upon consummation, the Merger shall have the
----------------
following effects:
(a) The Surviving Bank, will upon the time of the Merger and
thereafter, possess all of the rights, privileges, immunities and franchises, of
Commercial Interim Bank and FCB.
(b) All property, real, personal and mixed, and all debts due in
whatever amount, and all other choses in action, and all other interests
belonging to or due to Commercial Interim Bank and FCB will be taken and deemed
to be transferred to and vested in Commercial Interim Bank as the Surviving Bank
and all property, real, personal and mixed, and all debts due in whatever
amount, and all other choses in action, and all other interests belonging to or
due to Commercial Interim Bank and FCB shall remain in the Surviving Bank
without further act; and the title to any real estate, or any interest therein,
vested in FCB shall not revert or be in any way impaired by reason of the
Merger.
(c) The Surviving Bank will be responsible and liable for all of
the liabilities and obligations of Commercial Interim Bank and FCB,
respectively, and neither the rights of creditors nor liens upon the property of
FCB shall be impaired by the Merger, including, but not limited to, any
liability of FCB arising under its bylaws or the applicable laws of Virginia in
E-4
connection with the indemnification of directors and officers of FCB arising at
any time prior to the Merger Effective Date.
(d) The Surviving Bank will have a capital stock account equal
to $2,000,000, divided into 400,000 shares of common stock of $5.00 par value,
all of which will be issued, with no surplus and undivided profits of $3,705,741
such capital account to be adjusted to account for the Bank First, N.A. merger
and earnings between December 31, 1994 and the Merger Effective Date.
1.4 Consideration. As consideration for the Merger, shareholders of
-------------
FCB, other than James B. and Janet H. Brockett (the "Control Shareholders"), who
do not dissent to this transaction will be entitled to receive either stock and
cash or all cash as set forth below:
(a) Shares of UBS stock plus cash for each share of FCB stock
they own: Except as provided in paragraph (b) below as to the Control
Shareholders, FCB shareholders who do not dissent will receive 1.12 shares of
UBS stock plus $26.25 in cash for each share of FCB stock they own. Provided
that, if UBS stock has an average closing price of less than $23.50 per share
for the 20 trading days immediately prior to the Merger Effective Date (the
"Average Price"), or if the exercise of dissenters' rights by FCB shareholders
has the effect, in the aggregate, of reducing the percentage of the total Merger
Consideration (defined below) paid in UBS stock to 50% or less, then the
exchange ratio shall be adjusted upward, to a maximum of 1.348 shares of UBS
stock for each share of FCB stock, such that the proportion of UBS stock to the
total Merger Consideration shall be greater than 50% of the total Merger
Consideration, as defined below. (The exchange ratio, as adjusted, if necessary,
is referred to as the "Applicable Exchange Ratio").
(b) Cash consideration equal to $52.57.
E-5
For each share of FCB stock as to which an FCB shareholder elects to
receive all cash, the Control Shareholders agree to accept the additional UBS
stock (and, correspondingly less than $26.25 per FCB share in cash) so as to
meet the requirement that greater than 50% of the total Merger Consideration be
paid in UBS stock. The amount of cash to be received by the Control
Shareholders shall equal $26.25 times 201,100 (the number of FCB shares), minus
all cash to be paid to all other shareholders (whether such shareholders elect
to receive all cash (including dissenters) or cash and UBS stock).
The proportion of UBS stock to total consideration shall be calculated
as set forth below:
a = the closing price of UBS stock on the Merger Effective Date
times 201,100 times the Applicable Exchange Ratio
b = all cash paid to FCB shareholders, including to FCB
shareholders who dissent from the Merger
Proportion of UBS stock = a
-----
to total Merger Consideration a + b
Notwithstanding the foregoing, UBS may terminate this Agreement if (i)
application of the ratio adjustment set forth above would result in the issuance
of greater than 271,000 shares of UBS stock or (ii) if the Average Price is $27
or greater. FCB may terminate this Agreement if the Average Price is $20 or
less. If any of the termination rights in the foregoing sentences arise, the
parties will attempt to renegotiate the ratio and/or cash consideration to
result in an aggregate consideration of not less than $52.57 per share of FCB
stock. The total consideration of UBS stock and cash (including cash paid to
FCB shareholders electing stock and cash, all cash or exercising dissenters'
rights) is referred to herein as the "Merger Consideration."
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No fractional shares of UBS stock will be issued and in lieu thereof,
FCB shareholders will be entitled to receive cash based upon the Average Price
per share for UBS stock, without interest. If, on or after the date hereof, and
prior to the Merger, the outstanding shares of UBS stock are changed into a
different number or class by virtue of any reclassification, split, stock
dividend, exchange of shares or similar event, then the exchange ratio provided
herein will be adjusted proportionately. The issuance of UBS stock for other
corporate purposes, as contemplated in Section 2.1(l), will not result in an
adjustment to the exchange ratio. From and after the date of the Merger, the
holders of certificates representing FCB shares shall cease to have any rights
with respect to such shares (except dissenters' rights) and such shares will
thereafter be deemed cancelled and void. The sole rights of such shareholders
(excluding dissenters' rights) will be to receive the Merger Consideration.
Any FCB shareholder who fails to make an election will receive stock
and cash. The FCB shareholders (other than Control Shareholders) shall make a
binding election at or prior to the special meeting of FCB shareholders held to
consider the Merger.
1.5 Exchange of Shares. Except for any shares of FCB as to which
------------------
dissenters' rights are exercised pursuant to VA Stock Corporations Act, Virginia
Code Anno. (S)(S) 13.1-729-13.1-741 (1993) ("VA Appraisal Statute") and except
for any shares of FCB as to which a shareholder elects to receive all cash, each
holder of certificates representing shares of the stock of FCB will, upon the
surrender to UBS, or its agent, of such certificates in proper form, be entitled
to receive a certificate or certificates representing the number of whole shares
of the common stock of UBS into which the surrendered certificates shall have
been converted by reason of the Merger. Until surrendered for exchange, each
outstanding certificate of FCB submitted for exchange for UBS stock shall be
deemed for all corporate purposes to evidence the
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ownership of the full shares of stock of UBS into which such shares have been
converted by reason of the Merger. Shareholders electing to receive all cash,
shall, upon surrender of their FCB certificates, be entitled to the cash
consideration provided for herein. Until an FCB shareholder's outstanding
certificates have been surrendered, UBS may, at its sole discretion, withhold,
with respect to such FCB shareholder, as applicable (i) the certificates
representing the shares of its stock into which such FCB shares are converted by
reason of the Merger; (ii) the distribution of any and all dividends and payment
for fractional shares with respect to the stock of UBS to which the FCB
shareholder is entitled; (iii) the cash consideration for the shares of such FCB
shareholder. Upon the delivery to UBS of the outstanding FCB certificates by an
FCB shareholder, there will be delivered to the record holder thereof (i) the
certificate representing the shares of the stock of UBS to which the exchanging
FCB holder is entitled any dividends thereon along with the cash portion of the
consideration, any payment for fractional shares, all without interest; or (ii)
the cash consideration, without interest.
1.6 Articles of Incorporation and Bylaws of Surviving Bank. Upon
------------------------------------------------------
the Merger being consummated, the Articles of Incorporation of Commercial
Interim Bank will be the Articles of Incorporation of the Surviving Bank and the
Bylaws of Commercial Interim Bank shall be the Bylaws of the Surviving Bank
until altered, amended or repealed in accordance with their provisions and
applicable law. The Surviving Bank will be a state chartered banking corporation
and a member of the Federal Reserve System.
1.7 Additional Requirements. If at any time, the Surviving Bank
-----------------------
shall consider or be advised that any further assignments, conveyances or
assurances are necessary or desirable to vest, perfect or conform in the
Surviving Bank the title to any property or rights of FCB or are otherwise
necessary to carry out the provisions of the Plan of Merger and this Agreement,
the proper officers and directors of FCB as of the Merger Effective Date, and
E-8
thereafter, the officers of the Surviving Bank, will execute and deliver any and
all property assignments, conveyances, assurances, and other instruments to
vest, perfect or confirm title to any such property or rights in the Surviving
Bank and otherwise carry out the provisions of this Agreement.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 Representations and Warranties of UBS and Commercial Interim
------------------------------------------------------------
Bank. Unless disclosed in Exhibit A hereto or previously disclosed in writing to
- ----
FCB, as of the date of this Agreement, and as of the date of the consummation of
the transactions contemplated herein, UBS represents and warrants, as of the
date hereof, and Commercial Interim Bank will represent and warrant as of the
date it executes the Adoption Agreement contained in Exhibit B hereto, and as of
the date of consummation of the transactions contemplated herein, the following
to FCB:
(a) Organization. UBS is a West Virginia corporation duly
------------
organized, validly existing and in good standing under the laws of the State of
West Virginia. UBS has the requisite corporate power and authority to own and
lease its properties and to conduct its business as currently conducted and as
currently contemplated to be conducted. UBS shall cause Commercial Interim Bank
to be to be formed, and as of the date of its execution of the Adoption
Agreement, it will be a duly organized, validly existing Virginia banking
corporation in good standing under the laws of the Commonwealth of Virginia.
(b) Authority. UBS has and Commercial Interim Bank will have,
---------
the power to enter into this Agreement and to consummate the transactions
contemplated herein. The execution and delivery of this Agreement and the
consummation of the transactions
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contemplated herein have been duly authorized by the Board of Directors of UBS
and will be so authorized by the Board of Directors of Commercial Interim Bank.
UBS, as sole shareholder of Commercial Interim Bank, will vote all shares of
Commercial Interim Bank in favor of the Merger and the transactions contemplated
herein. No approval is required from UBS shareholders. Upon its execution and
delivery, this Agreement constitutes the valid and legally binding obligation of
UBS and will constitute the valid and legally binding obligation of Commercial
Interim Bank upon execution of the Adoption Agreement. The execution and
delivery of this Agreement does not and will not, and the consummation
contemplated herein will not, violate (i) any provisions of the Articles of
Incorporation or Bylaws of UBS or Commercial Interim Bank, (ii) any laws of the
State of West Virginia, the Commonwealth of Virginia or the United States of
America or (iii) any material restriction to which any of them is subject.
(c) Financial Statements. UBS has delivered to FCB copies of
--------------------
its consolidated financial statements for the fiscal year ended December 31,
1994. UBS represents and warrants that the financial statements which have been
or will be delivered pursuant to any provision of this Agreement fairly present
its financial position of as of the date thereof and the results of its
operations and its cash flows for each of the respective periods specified
therein in conformity with generally accepted accounting principles applied on a
consistent basis.
(d) Applications. UBS and Commercial Interim Bank, with the
------------
cooperation of FCB, will cause to be filed all necessary regulatory applications
with the appropriate bank regulators to accomplish the transactions contemplated
herein. UBS will pay all expenses associated with the filing of such regulatory
applications, excluding legal, accounting or other expenses incurred by FCB in
connection therewith.
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(e) Authority to Exchange Shares. The shares of UBS to be
----------------------------
issued pursuant to this Agreement are duly authorized. When issued upon the
terms and conditions specified in this Agreement, the shares will be validly
issued, fully paid and non-assessable. There are no preemptive or similar rights
with regard to the shares of UBS to be issued in connection with the
transactions contemplated herein. The shares of UBS stock to be issued pursuant
to this Agreement to FCB shareholders will be, when issued, registered with the
SEC pursuant to an effective registration on Form S-4 and will be freely
transferrable by all FCB shareholders except those designated as affiliates per
Section 4.2(c).
(f) Registered Bank Holding Company. UBS is a duly registered
-------------------------------
bank holding company under the Bank Holding Company Act of 1956, as amended.
(g) Absence of Certain Changes. Except as may be disclosed in
--------------------------
Exhibit A hereto and made a part hereof, since December 31, 1994:
(i) There has been no material change in the operations,
financial condition, or results of operation of UBS or any subsidiary of UBS
which could have a material adverse effect on the consolidated assets, financial
condition, or operations of UBS nor has any event or condition occurred which is
known to its officers which may result in such a change;
(ii) There has not been any damage, destruction, or loss by
reason of fire, flood, accident or other casualty (whether insured or not
insured) materially and adversely affecting the consolidated assets, financial
condition or operations of UBS;
E-11
(iii) Neither UBS nor any subsidiary of UBS has disposed of
or agreed to dispose of any properties or assets material to UBS, nor has it
leased to others, or agreed to so lease, any of such material properties or
assets; and
(iv) UBS has not granted any warrant, option or right to
acquire, or agreed to repurchase, redeem or otherwise acquire, any shares of its
capital stock or any other of its securities whatsoever, except as set forth in
Section 2.1(l) hereof.
(h) Litigation. Except as disclosed in Exhibit A, neither UBS
----------
nor any subsidiary of UBS is a party to or, to the knowledge of its executive
officers, threatened with any litigation, action, governmental or other
proceeding, investigation, strike or other labor dispute which might affect the
validity of this Agreement or which, individually or in the aggregate, might
have a materially adverse effect on UBS's consolidated assets, financial
condition, operations or material contractual rights; and there is no
outstanding order, writ, injunction or decree of any court or governmental
agency against or materially affecting UBS or a material portion of any of its
consolidated businesses or assets.
(i) Absence of Undisclosed or Contingent Liabilities. Except to
------------------------------------------------
the extent reflected on the December 31, 1994 consolidated financial statements
of UBS and its subsidiaries delivered to FCB, there exists no claim, liability,
obligation, or any known asserted claim, secured or unsecured (whether accrued,
absolute, contingent or otherwise), that would have a material adverse effect on
the consolidated operations, financial condition or results of operations of
UBS.
(j) No Adverse Event. Since December 31, 1994, there has been
----------------
no change or changes, which, individually or in the
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aggregate, has or have materially and adversely affected the business of UBS.
(k) SEC Reports. The Form 10-K Annual Report to the Securities
-----------
and Exchange Commission by UBS for the year ended December 31, 1993, its
quarterly filings made during 1994 on Form 10-Q, and its current reports made on
Form 8-K made during 1994, if any, do not contain, as of the date hereof or as
of their respective dates, any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading.
(l) Capitalization. The authorized capital stock of UBS is
--------------
20,000,000 shares of common stock, par value of $2.50 per share, of which
11,954,453 are issued and outstanding as of the date hereof and are fully paid
and nonassessable, and of which 137,520 shares are held in treasury by UBS.
Pursuant to the terms of UBS's 1988 Incentive Stock Option Plan, options to
purchase 68,800 shares of UBS stock are held by its key employees. Pursuant to
the terms of UBS's 1991 Incentive Stock Option Plan, options to purchase 315,875
shares of UBS stock are held by its key employees and additional options may be
awarded for up to 100,000 shares each calendar year. UBS may issue additional
shares pursuant to its dividend reinvestment plan, its employee stock purchase
plan, in connection with other acquisitions, and for other corporate purposes.
(m) Registration. As soon as practicable after the date hereof,
------------
UBS will cause a Registration Statement (or, in the case of State "blue sky"
filings, other appropriate form) to be filed with and declared effective by the
Securities and Exchange Commission, appropriate agencies regulating securities,
and other governmental agencies having jurisdiction, with respect to the UBS
stock to be issued pursuant to this Agreement. The Registration Statement (and
other appropriate forms) will comply as to form with applicable requirements of
law and, except as to the information about FCB furnished by it in writing for
use in the Registration Statement (or other appropriate form), or written
information
E-13
about FCB contained therein and reviewed by it, will contain no untrue statement
of any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Registration Statement and "blue sky" filings contemplated
by this Agreement will be sufficient to ensure that the UBS stock held by non-
affiliates of FCB may be freely resold without further registration.
(n) Title to Properties. UBS and its subsidiaries have good and
-------------------
marketable title to all of their property and assets set forth on the
consolidated balance sheet of UBS as of December 31, 1994 subject to no liens,
mortgages, pledges, encumbrances or charges of any kind except liens reflected
on said balance sheet, liens of record, liens which do not materially affect the
current use of the property or liens for ad valorem taxes not yet due and
payable, and all of their leases are in full force and effect, and neither UBS
nor any of its subsidiaries is aware of any default thereunder.
(o) Taxes. Except as disclosed in Exhibit A hereto, (i) UBS and
-----
its subsidiaries have filed all federal income tax returns and all other
federal, state, municipal and other tax returns which they are required to file,
have paid all taxes shown to be due on such returns and, in the opinion of their
respective chief executive and financial officers, have adequately reserved for
all current taxes;
(ii) Neither the Internal Revenue Service ("IRS") nor any
other taxing authority is now asserting against UBS or its subsidiaries, or, to
their knowledge, threatening to assert against them, or any of them, any
deficiency or claim for additional taxes, interest or penalties;
E-14
(iii) There is no pending or threatened examination of the
federal income tax returns of UBS or its subsidiaries and, except for tax years
still subject to the assessment and collection of additional federal income
taxes under the three-year period of limitations described in IRC (S) 6501(a),
no tax year of UBS or its subsidiaries remains open to the assessment and
collection of additional federal income taxes; and
(iv) There is no pending or threatened examination of the
West Virginia business and occupation tax returns of UBS or its subsidiaries
and, except for tax years still subject to the assessment and collection of
additional business and occupation taxes under the three-year period of
limitations described in W.Va. Code (S) 11-10-15, no tax year of UBS or its
subsidiaries remains open to the assessment and collection of additional
business and occupation taxes.
(p) Subsidiaries of UBS. The subsidiaries of UBS consist of
-------------------
corporations or national banking associations which are duly organized, validly
existing and in good standing under applicable laws. Each has the corporate
power, and all necessary Federal, state, and local banking and other
authorizations, to own its property and conduct its business as currently
conducted and as currently contemplated to be conducted. UBS owns, free and
clear of liens and encumbrances of any nature, 100% of the issued and
outstanding stock of its subsidiaries.
(q) ERISA. Unless disclosed in Exhibit A, (i) each plan subject
-----
to Title IV or ERISA and established or maintained for persons, including
employees or former employees of UBS or any of its subsidiaries ("Plan") has
been maintained and funded in accordance with its terms and with all provisions
of ERISA applicable thereto; (ii) no event reportable under Section 4043 of
ERISA has occurred and is continuing with respect to any Plan; (iii) no
liability to the Pension Benefit Guaranty Corporation has
E-15
been incurred with respect to any Plan, other than for premiums due and payable;
(iv) no Plan has been terminated, no proceedings have been made to terminate any
Plan, and no decision has been made to terminate or institute proceedings to
terminate any Plan; (v) no Plan is a multi-employer Plan; and (vi) there has
been no cessation of, and no decision has been made to cease, operations at a
facility or facilities where such cessation could reasonably be expected to
result in a separation from employment of more than 20% of the total number of
employees who are participants under any Plan.
(r) Absence of Defaults and Violation. Except as disclosed in
---------------------------------
Exhibit A attached hereto and made a part hereof, neither UBS nor its
subsidiaries (i) are in default under any term or provision of any mortgage,
deed of trust, note, bond, indenture, commitment, contract, agreement,
franchise, permit, license, lease or instrument to which they are a party or by
which any of them or any of their properties is bound and which is material to
the consolidated financial condition, businesses or operations of UBS, (ii) are
subject to any decree, order, writ or injunction of any court or authority which
materially restricts their operations or requires any material actions, (ii) are
in violation of any law, rule or regulation known and applicable to them which
could materially affect the consolidated financial, assets businesses or
operations of UBS; or (iv) has received notification from any agency or
department of federal, state or local government or regulatory authority or the
staff thereof asserting that any of them is not in compliance with any of the
statutes, regulations, rules or ordinances which such governmental authority or
regulatory authority enforces, or any threat to revoke any license, franchise,
permit or governmental authorization which could materially affect the
consolidated financial condition, assets, business, or operations of UBS or any
of its subsidiaries.
(s) Other Transactions. Nothing herein shall be construed to
------------------
limit at any time the ability of UBS or any of its
E-16
subsidiaries from entering into other agreements or transactions pursuant to
which it or its subsidiaries may merge, consolidate or affiliate with any other
entity, or acquire or establish other branches or subsidiaries.
(t) Environmental Concerns. Unless otherwise indicated in
----------------------
Exhibit A, to the knowledge of their respective chief executive and chief
financial officers, neither UBS nor its subsidiary banks own any property where:
1. Material amounts of Hazardous Substances have been
generated, treated, stored, disposed of, incinerated or recycled at or on the
property;
2. Aboveground or underground storage tanks are or have
been located;
3. Spills, discharges, releases, deposits of material
amounts of any Hazardous Substances have occurred;
4. Hazardous Substances have been released on adjacent
properties which could migrate onto the property;
5. An investigation or administrative proceeding by a
governmental agency or a lawsuit by a governmental agency or private third party
occurred involving Applicable Environmental Law and where the property contains
conditions which would give rise to such an event; or
6. Solid waste as defined in the West Virginia Solid Waste
Management Act, West Virginia Code (S) 20-5F-1 et seq. has been disposed of.
-- ---
To the knowledge of their respective chief executive and chief
financial officers, neither UBS nor its subsidiary banks
E-17
has a loan secured by property which is owned or operated by an entity or person
in violation of Applicable Environmental Law or has a condition which could lead
to a violation of Applicable Environmental Law.
For purposes of this Agreement, (1) The term "Applicable
Environmental Law" shall include but shall not be limited to the laws and
implementing regulations of the United States Government, the State of West
Virginia and local governments, whether currently in existence or hereafter
enacted, that govern: (i) the existence, cleanup and/or remedy of hazardous
substance contamination on property; (ii) the protection of the environment from
released, spilled, deposited or otherwise emplaced hazardous substance
contamination; (iii) the control of hazardous substances and hazardous substance
waste; and (iv) the reporting, use, generation, transport, treatment and removal
of hazardous substances and (2) The term "Hazardous Substance" shall mean any
substance which at any time is toxic, ignitable, reactive or corrosive and that
is regulated by any Applicable Environmental Law or which has been or shall be
determined at any time by any agency or court to be a toxic, ignitable, reactive
or corrosive substance regulated under Applicable Environmental Law or
detrimental to the environment or health of living organisms. "Hazardous
Substance" includes any and all materials or substances that are defined as
"hazardous wastes", "extremely hazardous wastes" or a "hazardous substances"
pursuant to any Applicable Environmental Law. "Hazardous Substance" includes,
but is not restricted to asbestos, polychlorinated biphenyls ("PCBs"), radon,
nuclear materials and petroleum.
(r) Matters Relevant to Tax Treatment.
---------------------------------
(i) UBS has no plan or intention to liquidate Commercial Interim
Bank; to merge Commercial Interim Bank with or into another corporation; to sell
or otherwise dispose of the stock of
E-18
Commercial Interim Bank; or to cause Commercial Interim Bank to sell or
otherwise dispose of any of the assets of FCB acquired in the Merger, including
UBS stock acquired by FCB pursuant to the Merger, except for dispositions made
in the ordinary course of business or transfers described in I.R.C. Section
368(a)(2)(C).
(ii) Following the Merger, Commercial Interim Bank will continue
the historic business of FCB or use a significant portion of FCB's business
assets in a business.
(iii) UBS has no plan or intention to reacquire any of its stock
issued in the Merger.
(iv) Neither UBS nor Commercial Interim Bank has any plan or
intention to sell or otherwise dispose of any of the assets of FCB acquired in
the Merger, except for dispositions made in the ordinary course of business,
dispositions in arm's length transactions made to avoid duplicative facilities
or to comply with regulatory requirements, or transfers described in I.R.C.
Section 368(a)(2)(C) of the Code.
(v) Neither UBS nor Commercial Interim Bank owns directly or
indirectly, nor have they owned during the past five years, directly or
indirectly, any stock or FCB.
(vi) Prior to the Merger, UBS will be in control of Commercial
Interim Bank within the meaning of I.R.C. Section 368(c).
(vii) Following the Merger, Commercial Interim Bank will not
issue additional shares of its stock that would result in UBS losing control of
Commercial Interim Bank within the meaning of Section 368(c).
(viii) Neither UBS nor Commercial Interim Bank are investment
companies, as defined in I.R.C. Section 368(a)(2)(F)(iii) and (iv).
E-19
(ix) The payment of cash to FCB shareholders in lieu of fractional
shares of UBS stock is not separately bargained for consideration and is solely
for the purpose of saving UBS the expense and inconvenience of issuing
fractional shares. The total cash consideration that will be paid in the Merger
to the FCB shareholders instead of issuing fractional shares of UBS stock will
not exceed 1% of the total consideration to be issued in the transaction to FCB
shareholders in exchange for their shares of FCB common stock. The fractional
share interests of each FCB shareholder will be aggregated and no FCB
shareholder will receive cash for fractional shares in an amount equal to or
greater than the value of one full share of UBS stock.
(x) None of the compensation received by any shareholder-employees of
FCB will be separate consideration for, or allocable to, any of their shares of
FCB stock; none of the shares of UBS stock received by any shareholder-employees
will be separate consideration for, or allocable to, any employment agreement;
and the compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
2.2. Representation and Warranties of FCB. Unless disclosed in
------------------------------------
Exhibit C hereto or previously disclosed in writing to UBS, as of the date of
this Agreement and as of the date of the consummation of the transactions
contemplated herein, FCB represents and warrants the following to UBS and
Commercial Interim Bank:
(a) Organization. FCB is a Virginia banking institution duly
------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia. It has all of the requisite corporate power and
authority to own and lease its properties and to conduct its business as it is
now being conducted and as currently contemplated to be conducted.
E-20
(b) Authority of FCB. Subject to all applicable state and
----------------
federal regulatory approval and the requisite shareholder approval, FCB has the
power to enter into this Agreement and to cause the transactions contemplated
herein to be carried out. The execution and delivery of this Agreement and the
consummation of the transactions contemplated herein have been duly authorized
by the Board of Directors of FCB. Except for the ratification, confirmation and
approval of this Agreement by FCB's stockholders, no other acts or proceedings
on its part are necessary to authorize the transactions contemplated by this
Agreement. Upon its execution and delivery, subject only to shareholder
ratification, confirmation and approval, this Agreement constitutes the valid
and legally binding obligation of FCB. Subject to obtaining the permits,
approvals, consents and authorizations set forth in Article IV hereto, the
execution and delivery of this Agreement does not, and the consummation of the
transaction contemplated herein will not, violate (i) any provision of the
Articles of Incorporation, or the Bylaws of FCB, (ii) any laws of the
Commonwealth of Virginia or of the United States of America or (iii) any other
material restriction of any kind or character to which FCB is subject. No
acceleration of payment, default, breach or termination will occur in any
material respect by virtue of the consummation of the transaction contemplated
in this Agreement under any material contract, agreement, deed of trust, note,
instrument, order, judgment or decree.
(c) Capital Stock of FCB. FCB has one class of capital stock
--------------------
consisting of 400,000 shares of authorized common stock having a par value of
$5.00 per share, 201,100 of which are issued and outstanding. The outstanding
shares of FCB stock have been duly and validly authorized and issued and have
not been issued in violation of any preemptive rights of any of its
shareholders. FCB holds no shares of its stock as treasury stock and has not
redeemed any shares within the last two (2) years. The Control Shareholders own
137,883 shares, or 68.6%, of the issued and outstanding FCB stock.
E-21
(d) Absence of Certain Changes. Except as disclosed in Exhibit
--------------------------
C attached hereto and made a part hereof since December 31, 1994:
(i) There has not been any damage, destruction, or loss by
reason of fire, flood, accident or other casualty (whether insured or not
insured) materially and adversely affecting the assets, financial condition or
operations of FCB;
(ii) FCB has not disposed of or agreed to dispose of any of
its material properties or assets, nor has either leased to others, or agreed to
so lease, any of such material properties or assets;
(iii) There has not been any change in the authorized,
issued or outstanding capital stock of FCB or any material change in the
outstanding debt of FCB, other than changes due to payments in accordance with
the terms of such debt and other than the acceptance of deposits by FCB in the
ordinary course of business;
(iv) There has not been, nor will there be, any
declaration, setting aside or payment of any dividend or distribution in respect
of any shares of the common stock of FCB except for dividends of up to five
cents per share per quarter; provided that FCB shall not pay such a dividend for
any quarter for which FCB shareholders will be entitled to receive a dividend as
UBS shareholders;
(v) FCB has not granted at any time any warrant, option or
right to acquire, or agreed to repurchase, redeem or otherwise acquire, any
shares of its capital stock or any other of its securities whatsoever except as
granted or agreed in this Agreement;
E-22
(vi) No change has occurred in the personnel who are key
personnel with respect to the operations of FCB; nor has there been any increase
in the compensation or fees payable by FCB to its directors, officers, employees
or former employees, nor has there been any increase in any loans, bonus,
insurance, pension or other employee benefit plan, payment or arrangement for or
with any of such directors, officers, employees or former employees;
(vii) FCB has not made any loan or advance, other than in
the ordinary course of business;
(viii) FCB has not made any expenditure or commitment for
the purchase, acquisition, construction or improvement of any material capital
asset or of capital assets which in the aggregate would be material;
(ix) Except transactions contemplated herein, FCB has not
entered into any other material transaction, contract or lease, or incurred any
other material obligation or liability; and
(x) There has not been any other event, condition or
development of any kind which materially and adversely affects the assets,
financial condition or operations of FCB, and it has no knowledge of any such
event, condition or development which may materially and adversely affect the
assets, financial condition or operations of FCB.
(e) Taxes. Except as disclosed in Exhibit C attached hereto and
-----
made a part hereof:
(i) FCB has filed all federal income tax returns and all
other federal, state, municipal and other tax returns which it is required to
file, has paid all taxes shown to be due on such returns and, in the opinion of
its chief executive
E-23
and financial officers, has adequately reserved or recognized for all current
and deferred taxes;
(ii) Neither the IRS nor any other taxing authority is now
asserting against FCB, or, to its knowledge, threatening to assert against
either of them, any material deficiency or material claim for additional taxes,
interest or penalties;
(iii) There is no pending or threatened examination of the
federal income tax returns of FCB and, except for tax years still subject to the
assessment and collection of additional federal income taxes under the three
year period of limitations prescribed in IRC (S) 6501(a), no tax year of FCB
remains open to the assessment and collection of additional federal income
taxes; and
(iv) There is no pending or threatened examination or
outstanding liability for any Virginia state taxes, except for tax liabilities
not yet due and payable.
(f) Litigation, Etc. Except as disclosed in Exhibit C attached
---------------
hereto and made a part hereof, FCB is not a party to or, to the knowledge of its
executive officers, threatened with any litigation, action, governmental or
other proceeding, investigation, strike or other labor dispute which might
affect the validity of this Agreement or which, individually or in the
aggregate, might have a materially adverse affect on its assets, financial
condition or operations or on any of its material contractual rights; and there
is no outstanding material order, writ, injunction or decree of any court or
governmental agency against or affecting FCB or a material portion its business
or assets.
E-24
(g) Absence of Defaults and Violations. Except as disclosed in
----------------------------------
Exhibit C attached hereto and made a part hereof, FCB is not (i) in default
under any term or provision of any mortgage, deed of trust, note, bond,
indenture, commitment, contract, agreement, franchise, permit, license, lease or
instrument to which it is a party or by which it or its properties are bound and
which is material to its financial condition, businesses or operations, (ii)
subject to any judgment, decree or order of any court or order, agreement, or
similar arrangement with a regulatory authority which materially restricts it
operations or requires any material action, (iii) in violation of any law, rule
or regulation known and applicable to it which violation could materially affect
their financial condition, assets, businesses or operations, or (iv) in receipt
of notification from any agency or department of federal, state or local
government or regulatory authority or the staff thereof asserting that it is not
in compliance with any of the statutes, regulations, rules or ordinances which
such governmental authority or regulatory authority enforces and which lack of
compliance could materially affect the financial condition, assets, business or
operations of FCB, or any threat to revoke any license, franchise, permit or
governmental authorization which could materially affect its financial
condition, assets, business or operations.
(h) Absence of Undisclosed Assets and of Undisclosed Contingent
-----------------------------------------------------------
Liabilities. Except to the extent reflected on the latest financial statements
- -----------
of FCB delivered to UBS or except as disclosed in Exhibit C attached hereto and
made a part hereof, FCB has no undisclosed assets, or any material claim,
liability, obligation, or any known asserted claim, secured or unsecured, any of
which is material (whether accrued, absolute, contingent or otherwise), against
it or its assets.
(i) Financial Statements. FCB has delivered to UBS copies of
--------------------
the unaudited financial statements of FCB for the year ended December 31, 1994,
consisting of Balance Sheets,
E-25
Statements of Income, and Statements of Changes in Stockholders' Equity and
Statements of Cash Flows and notes thereto. FCB will, as soon as possible,
deliver to UBS copies of its audited financial statements for the year ended
December 31, 1994. FCB represents and warrants that its financial statements
which have been or will be delivered pursuant to any provision of this Agreement
fairly present the financial position of FCB as of the date thereof and the
results of its operations for each period specified therein.
(j) Real Property. FCB owns or leases the real property as
-------------
shown on Exhibit C. Except as disclosed on Exhibit C, it is the owner of good
and marketable title in fee simple of the real property reflected on its books
and records as being owned or leased by it. FCB is entitled to possession of any
leased property and all such leases are valid and in full force and effect. All
real property owned by FCB is free and clear of liens and encumbrances except
for liens of record, liens which do not materially affect the current use of the
property or liens for ad valorem taxes not yet due and payable.
(k) No Adverse Event. Since December 31, 1994 there has been no
----------------
change, other than changes in the ordinary course of business, which,
individually or in the aggregate, has or have materially and adversely affected
the financial condition, results of operations or the businesses of FCB.
(l) Material Contracts. Except as disclosed in Exhibit C
------------------
attached hereto and made a part hereof, FCB is not a party to, or bound or
affected by, nor receives benefits under (i) any material agreement, arrangement
or commitment not cancelable by it without penalty, other than agreements,
arrangements or commitments entered into in the ordinary course of business
consistent with its past practice and negotiated on an arm's length basis, or
(ii) any material agreement, arrangement or commitment relating to the
employment, election or retention in office of any director or officer.
E-26
(m) ERISA. Except as disclosed in Exhibit C, (i) each plan subject
-----
to Title IV of ERISA and established or maintained for persons including
employees or former employees of FCB ("Plan") has been maintained and funded in
accordance with its terms and with all provisions of ERISA applicable thereto;
(ii) no event reportable under Section 4043 of ERISA has occurred and is
continuing with respect to any Plan; (iii) no liability to Pension Benefit
Guaranty Corporation has been incurred with respect to any Plan, other than for
premiums due and payable; (iv) no Plan has been terminated, no proceedings have
been instituted to terminate any Plan, and no decision has been made to
terminate or institute proceedings to terminate any Plan; and (v) there has been
no cessation of, and no decision has been made to cease, operations at a
facility or facilities where such cessation could reasonably be expected to
result in a separation from employment of more than 20% of the total number of
employees who are participants under any Plan.
(n) Regulatory Reports. FCB has filed all material reports required
------------------
to be filed by it with all applicable banking regulators, and with any other
regulatory authority to which it must report, and such reports have been
completed in accord with applicable regulations and requirements.
(o) Environmental Concerns. Unless otherwise indicated in Exhibit C,
----------------------
to the knowledge of its chief executive and chief financial officers, FCB owns
or leases no property where:
1. Material amounts of Hazardous Substances have been generated,
treated, stored, disposed of, incinerated or recycled at or on the property;
2. Aboveground or underground storage tanks are or have been
located;
E-27
3. Spills, discharges, releases, deposits of material amounts of
any Hazardous Substances have occurred;
4. Hazardous Substances have been released on adjacent
properties which could migrate onto the property;
5. An investigation or administrative proceeding by a
governmental agency or a lawsuit by a governmental agency or private third party
occurred involving Applicable Environmental Law and where the property contains
conditions which would give rise to such an event; or
6. Solid waste as defined in the VA Solid Waste Management Act
VA Code Anno. (S) 10.1-1400 et seq. (1993).
To the knowledge of its chief executive and chief financial officers,
FCB has no loan secured by property which is owned or operated by an entity or
person in violation of Applicable Environmental Law or has a condition which
could lead to a violation of Applicable Environmental Law.
(p) Ownership of Brockett Shares. The Control Shareholders own 68.6%
----------------------------
of FCB stock. The FCB stock owned by the Control Shareholders will be delivered
to UBS free and clear of any lien or encumbrance. The Control Shareholders
represent and warrant that they will use their best efforts to obtain the
authority to deliver their shares as contemplated herein and to vote their
shares in favor of implementation of this Agreement and the Merger, consistent
with and pursuant to the requirements of Section 3.11 hereof.
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ARTICLE III
-----------
ADDITIONAL AGREEMENTS
---------------------
3.1 Approval of FCB Shareholders. FCB will submit to shareholders,
----------------------------
as part of the proxy materials prepared for its shareholders' consideration,
this Agreement and the transactions contemplated herein for approval,
ratification and confirmation by the holders of at least a majority of the
issued and outstanding shares in accordance with law.
3.2 Approval of Sole Shareholder of Commercial Interim Bank. UBS
-------------------------------------------------------
will vote all its shares in Commercial Interim Bank in favor of the Merger of
FCB into Commercial Interim Bank.
3.3 Rights of Dissenting Stockholders. Any shareholder of FCB who
---------------------------------
properly perfects his or her right to dissent under the Virginia Appraisal
Statute, shall be entitled to the fair value of such shares. The appraisal
procedures to be followed will be those set forth in the Virginia Appraisal
Statute.
3.4 Regulatory Approval. UBS and Commercial Interim Bank with FCB,
-------------------
will prepare and file with the Board of Governors of the Federal Reserve System
("FRB"), the Bureau and any other applicable regulator all applications required
to seek approval of the Merger. The parties hereto agree, to expeditiously,
continuously and aggressively pursue regulatory approval of the transactions
contemplated herein. UBS shall provide FCB with copies of all correspondence,
applications, and other documents submitted in the regulatory approval
proceedings.
3.5 Conduct of Business by FCB Until Closing. FCB acknowledges and
----------------------------------------
agrees that the obligations contained in this Section 3.5 are an integral part
of the consideration for this Agreement and that UBS's commitments herein are
conditioned upon performance of these operational covenants. Unless the prior
E-29
written consent of UBS is obtained, or unless otherwise provided for herein,
FCB, between the date of this Agreement and the Merger Effective Date will:
(a) Take no action, and not permit any action to be taken, which
will have a material adverse effect upon FCB, or its properties, financial
condition, businesses or operations, including, without limitation, the
commencement of any new branch banking operation.
(b) Take no action or do anything (i) which will cause FCB to
be, as of the Merger Effective Date, in violation of any of their
representations, warranties, covenants and agreements contained in this
Agreement or (ii) which will materially and adversely affect the consummation of
the transactions contemplated in this Agreement.
(c) Take no action to reclassify or alter FCB's authorized
stock, to issue shares of capital stock, debt instruments, or other securities
or to amend the Articles of Incorporation or Bylaw.
(d) Not pay or declare any dividend or make any other
distribution in respect of FCB's shares of common stock or acquire for value any
of such shares or pay any dividend, except as permitted herein.
(e) Take no action, and not permit any action to be taken, to
mortgage, pledge or subject to any lien or any other encumbrance on any of FCB's
material assets, to dispose of any material assets, or to incur or cancel any
material debt or claim, except in the ordinary course of business as heretofore
conducted.
E-30
(f) Afford to the officers, attorneys, accountants, and other
authorized representatives of UBS full access to the respective properties,
books, tax returns and records of FCB, during normal business hours and upon
reasonable request, in order that they may make such investigations of the
affairs of FCB as UBS deems necessary or advisable. The parties hereto and their
respective affiliates shall use all information that each obtains from the other
pursuant to this Agreement solely for the transactions contemplated by this
Agreement or for purposes consistent with the intent of this Agreement, and
shall not use any of such information for any other purpose, including, without
limitation, the competitive detriment of any party. Each of the parties hereto
and their respective affiliates shall maintain as strictly confidential all
information it learns from another of the parties hereto pursuant to this
Agreement and shall, at any time, upon request, return promptly all
documentation provided or made available to third parties including all copies
thereof. Each of the parties may disclose such information to its respective
affiliates, counsel, accountants, tax advisers, and consultants. The
confidentiality agreement contained in this section shall remain operative and
in full force, and shall survive the termination of this Agreement.
The parties hereto shall mutually agree in advance upon the
form and substance of all public disclosures concerning this Agreement and the
transactions contemplated hereby.
(g) Promptly advise UBS of any material adverse change in the
financial condition, assets, businesses or operations of FCB and any material
breach of any representation, warranty, covenant or agreement made by FCB in
this Agreement.
(h) Maintain in full force and effect adequate fire, casualty,
public liability, employee fidelity and other insurance coverage in accordance
with prudent practices to protect
E-31
FCB against losses for which insurance protection can be obtained at reasonable
cost.
(i) Take no action, and take such reasonable steps as are
practicable to avoid any action to be taken, to change the senior management of
FCB, to increase any compensation, benefits, or fees payable by FCB to their
respective directors and officers, employees, or former employees, or to
increase any loans, insurance, pension or other employee benefit plan, payment
or arrangement for such officers, directors, employees, except as provided
herein.
(j) Take no action (i) to acquire, or to be acquired by, to
merge or merge with any company or business, to sell substantially all of FCB's
assets, or similar transaction other than pursuant to the provisions of this
Agreement, or (ii) to acquire any branch, or, except in the ordinary course of
business, any material assets of any other company or business.
(k) Take no material action, and not permit any material action
to be taken, whatsoever with respect to its properties, assets, businesses or
operations, other than in the ordinary course of its business.
(l) Make provisions to the loan loss reserve in an aggregate
amount no less than $500,000 before the Merger Effective Date, less any amounts
recovered from previously charged-off loans; and in addition FCB agrees that it
will (i) increase its OREO reserve by $50,000, and (ii) increase its
repossession reserve by $35,000, and (iii) properly and timely charge-off any
loan losses, as required by any applicable regulatory agency and prudent banking
practices, and (iv) at the time of any such charge-off, FCB will make a
provision to the loan loss reserve equal to the amount of the loss, less the
specific amount allocated in the reserve, if any, relating to the charged-off
loan (such specific amounts having
E-32
been previously identified in writing by loan and amount). The requirements of
this subparagraph (l) are qualified in that FCB is not obligated to take the
actions set forth if such action will cause FCB to report a loss in any quarter;
in such case FCB shall fulfill the foregoing requirements to the extent possible
without producing a loss. The requirements of this subparagraph shall not be
construed to preclude the payment of bonuses otherwise expressly authorized
herein.
(m) Make no loans including but not limited to any extension,
renewal, modification or refinancing of an existing loan, in excess of $ 150,000
without UBS's prior written consent, which will not be unreasonably withheld.
(n) Not sell, trade or purchase any securities in its investment
portfolio without prior consent of UBS's Treasurer, which will not be
unreasonably withheld.
3.6 Conduct of Business by UBS Until Closing. UBS, as a bank holding
----------------------------------------
company, in the normal conduct of its business, may acquire other banks or bank
holding companies or engage in certain nonbanking activities which are closely
related to banking, all as permitted under federal and state law. Accordingly,
UBS may continue to seek and consider such opportunities and will not be
restrained from doing so by the terms of this Agreement. In the event that UBS
should reach an understanding with another entity regarding a merger, purchase
or consolidation, UBS may proceed with a merger, purchase or consolidation
concurrently with the acquisition by merger contemplated by this Agreement.
Notwithstanding the prior paragraph of this Section 3.6 to the
contrary, unless the prior written consent of FCB is obtained, UBS between the
date hereof and the Effective Time of the Merger, shall:
E-33
(a) Take no action, and not permit any action to be taken,
by it or its subsidiaries, which will have a material adverse effect upon its
properties, financial condition, businesses or operations.
(b) Take no action or do anything (i) which will cause it to
be in violation of its representations, warranties, covenants and agreements
contained in this Agreement or (ii) which will materially and adversely affect
the consummation of the transaction contemplated in this Agreement.
(c) Take no action to reclassify or alter its authorized
capital stock or to amend its Articles of Incorporation or Bylaws.
(d) Promptly advise FCB of any material adverse change in
the financial condition, assets, businesses or operations of UBS and any breach
of any representation, warranty, covenant or agreement made by UBS in this
Agreement.
(e) Maintain in full force and effect adequate fire,
casualty, public liability, employee fidelity and other insurance coverage in
accordance with prudent practices to protect fully UBS and its subsidiaries
against losses for which insurance protection can reasonably be obtained.
(f) Afford to the officers, attorneys, accountants, and
other authorized representatives of FCB full access to the respective
properties, books and records of UBS, during normal business hours and upon
reasonable request, in order that they may make such investigations of the
affairs of UBS as it deems necessary or advisable. The parties hereto and their
respective affiliates shall use all information that each obtains from the other
pursuant to this Agreement solely for the effectuation of the transactions
contemplated by this Agreement or for purposes consistent with the intent of
this Agreement, and
E-34
shall not use any of such information for any other purpose, including, without
limitation, the competitive detriment of any party. Each of the parties hereto
and their respective affiliates shall maintain as strictly confidential all
information it learns from another of the parties hereto pursuant to this
Agreement and shall, at any time, upon request, return promptly all
documentation provided or made available to third parties. Each of the parties
may disclose such information to its respective affiliates, counsel,
accountants, tax advisers, and consultants. The confidentiality agreement
contained in this section shall remain operative and in full force, and shall
survive the termination of this Agreement.
3.7 Proxy Statement. It is understood that as an integral part of
---------------
the transaction contemplated by this Agreement, proxy materials must be prepared
and sent to FCB shareholders presenting certain disclosures about UBS, FCB and
about the transactions contemplated herein. FCB agrees to assist in the due
diligence related thereto, and to cooperate fully in the preparation of the
proxy materials to be sent to the shareholders of FCB. The proxy materials sent
to shareholders of FCB shall be subject to prior review and approval of the
management of FCB.
3.8 Employees. Employees of FCB shall be eligible, as soon as
---------
practicable after the Merger Effective Date, to participate in benefit plans
substantially similar to those in effect at the present subsidiaries of UBS.
Such employees shall be given credit for service at FCB for all purposes under
UBS pension plans.
3.9 Board of Directors. The Board of Directors of the Surviving
------------------
Bank, as of the Merger Effective Date shall include six (6) representatives from
FCB, including James B. Brockett and five others to be selected by FCB and
approved by UBS.
E-35
3.10 Executives and Contracts. (a) All employment contracts
------------------------
presently in effect at FCB shall be terminated in a form and manner satisfactory
to UBS on or before the Merger Effective Date. (b) The Supplemental Executive
Retirement Plan ("SERP") of James Brockett and Janet Brockett and the Deferred
Compensation Agreement of James Brockett shall remain in effect. The SERPs of
Charles Brockett, Lionel Taylor and Harry Scott shall be reduced to $35,000 per
year, with such amendment to be accomplished in form and manner satisfactory to
UBS. All SERPs and James Brockett's Deferred Compensation Plan must be
actuarially funded through life insurance or other arrangement on or before the
Merger Effective Date such that satisfaction of the obligations has been
provided for. James Brockett and Janet Brockett shall retire on or before the
Merger Effective Date or October 31, 1995, whichever is later. James Brockett's
deferred compensation plan shall be amended such that he need not be employed on
January 1, 1996 to be eligible for the deferred compensation of $100,000 a year
for four (4) years, commencing upon consummation. All such actions shall be
approved by the FCB Board of Directors and consented to, in writing, by the
individuals affected. (c) Prior to the Merger Effective Date, FCB may pay a pro
rata annual bonus, up to an annual amount of $200,000, provided that the amount
has been accrued monthly and subject to agreed upon monthly financial
performance. (d) All key man and Split Dollar life insurance policies must be
cancelled on or before the Merger Effective Date, except for the Split Dollar
Life Insurance Agreement James Brockett, unless utilized to satisfy the
requirements of (b) above or unless it is possible to transfer the policies net
of the cash surrender value (satisfying all premium loan repayments) to the
insured.
3.11 Control Shareholders. The Control Shareholders shall use their
--------------------
best efforts to obtain, on or before July 15, 1995, the approval of the
Bankruptcy Court for the Eastern District of Virginia, which shall be final and
nonappealable, as to the transactions by the Control Shareholders contemplated
herein and
E-36
their related contractual agreements, including the power and authority to vote
their shares of FCB stock in favor of the Merger, to enter into this Agreement
and carry out the provisions applicable to them, to modify or terminate the
executive contracts as contemplated by Section 3.10 to transfer their shares of
FCB stock for the Merger Consideration, free and clear of any and all liens,
security interests and other encumbrances, and any and all related actions;
which approval must be, in form and substance, satisfactory to UBS. Such
approval must contemplate and approve the range of cash and stock consideration
the Control Shareholders could receive under the terms of this Agreement.
ARTICLE IV
----------
CONDITIONS
----------
4.1 Conditions to Obligations of All Parties. Subject to the
----------------------------------------
respective right of each party to waive any condition required to be met by the
other party hereto by this Section 4.1, the parties are not obligated to
consummate, or to cause to be consummated, the transactions contemplated by this
Agreement unless:
(a) Shareholder Approval of Transaction. Before the Closings,
-----------------------------------
FCB shall have obtained the approval, ratification and confirmation of this
Agreement and the transactions contemplated herein by the requisite vote of its
shareholders, as required by law and by any applicable provision of its articles
of incorporation and bylaws.
(b) Commercial Interim Bank. UBS shall have caused the
-----------------------
organization and chartering of Commercial Interim Bank and Commercial Interim
Bank shall have executed the Adoption Agreement.
(c) Absence of Restraint. No order to restrain, enjoin or
--------------------
otherwise prevent the consummation of the transactions
E-37
contemplated in this Agreement shall have been entered by any court or
administrative body which remains in effect on the Merger Effective Date.
(d) Governmental Approvals. There shall have been obtained by
----------------------
the Merger Effective Date any and all permits, approvals and consents of every
governmental body or agency which are necessary or appropriate so that
consummation of the transactions contemplated in this Agreement shall be in
compliance with all applicable laws, including, without limitation, those with
respect the FRB, the Bureau and any other regulator with jurisdiction over the
transactions.
(e) Compliance with Representations, Warranties and Additional
----------------------------------------------------------
Agreements. All of the representations and warranties of the parties contained
- ----------
in this Agreement shall be true in all material respects at and as of the Merger
Effective Date with the same force and effect as if they had been made at and as
of such dates (except for changes contemplated and permitted by this Agreement
or otherwise consented to in writing by the appropriate party to this Agreement)
and each party shall have complied with and performed, in all material respects,
all of the agreements contained in this Agreement to be performed by it at or
before the Merger Effective Date. At the Closing of each merger transaction,
each party shall have received from the other party to this Agreement, a
certificate, in affidavit form, dated as of the date of the Closing, signed by
such party's chief executive officer and chief financial officer, certifying
that the foregoing statements made in this Section 4.1(e) are true and correct
to the best of their knowledge and belief.
(f) Securities Law Compliance. The Registration Statement to be
-------------------------
filed by UBS with the Securities and Exchange Commission pursuant to Section
2.1(m) hereof, shall be declared effective on or before the date of the Closing.
No order
E-38
suspending the effectiveness thereof shall have been issued which remains in
effect on the date of the Closing, and no proceedings for that purpose shall,
before the Closing, have been initiated or, to the best knowledge of UBS,
threatened. All state securities and "blue sky" permits or approvals required to
carry out the transactions contemplated in this Agreement shall have been
received to permit free trading of the UBS stock issued to the non-affiliate FCB
shareholders.
4.2 Additional Conditions to Obligations of UBS.
-------------------------------------------
(a) Counsel's Opinion. UBS shall have received an opinion of
-----------------
counsel for FCB dated as of the Merger Effective Date, to the effect that:
(i) FCB is a state chartered bank duly organized, validly
existing and in good standing under the laws of the Commonwealth of Virginia;
(ii) The authorized capital stock and the number of shares
issued and outstanding of FCB are as stated in the opinion. The issued and
outstanding shares are validly issued, fully paid and non-assessable, and were
not issued in violation of any preemptive rights of the shareholders of FCB. As
of such date, to the best of counsel's knowledge, there are no options,
warrants, convertible securities or similar items outstanding on behalf of FCB.
(iii) FCB has the corporate power and authority to execute,
deliver and perform its obligations under this Agreement. This Agreement has
been duly authorized, executed and delivered by FCB and constitutes the legal,
valid and binding obligation of FCB, enforceable in accordance with its terms
except as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium, or other laws affecting
creditors' rights generally.
E-39
(iv) The agreements contemplated by Section 3.10 and
executed on or prior to the Merger Effective Date have been duly authorized,
executed and delivered by the parties thereto and constitute the legal, valid
and binding obligation of each party thereto and are enforceable in accordance
with their terms.
(v) All necessary corporate proceedings have been duly and
validly taken by FCB, to the extent required by law, its respective articles of
incorporation and bylaws, or otherwise, to authorize the execution and delivery
of this Agreement by FCB and the consummation of the transactions contemplated
herein.
(vi) Counsel has reviewed the proxy statement contemplated
hereby and, with respect to all information relating to FCB contained therein,
counsel does not know of any misleading statement of any material fact or
failure to state a material fact which was necessary to be stated to prevent the
statements made from being false or misleading in any material respect, except
as to financial data, as to which counsel expresses no opinion.
(vii) The consummation of the transactions contemplated
herein will not violate or result in a breach of, or constitute a default under
the articles of incorporation or bylaws of FCB or constitute a breach or
termination of, or default under, any agreement or instrument of which counsel
is aware and which would have a material adverse effect on the business of FCB,
and to which either is a party or by which it or any of its property is bound.
(b) Affiliates Agreements. UBS shall have received an
---------------------
agreement, in the form of Exhibit D hereto, executed and delivered by each
shareholder of FCB who, in the reasonable opinion of UBS, may be deemed an
affiliate of FCB as that term is defined in Rule 145 promulgated by the
Securities and Exchange Commission.
E-40
(c) Due Diligence. UBS must have the opportunity to conduct a
-------------
due diligence investigation into various aspects of FCB's operations. Based on
its investigation, which must be concluded by the end of the fifth business day
following the date of this Agreement, UBS, in its discretion, may within five
(5) calendar days after the close of the above due diligence period (i) elect
not to pursue consummation of the proposed transactions or (ii) may notify FCB
of any objections or requirements resulting therefrom. If UBS elects not to
pursue consummation of the proposed transactions and properly notifies FCB of
the same, this Agreement shall expire and parties hereto shall have no further
obligations or liabilities hereunder. If UBS raises any objections as a result
of its due diligence and properly notifies FCB of the same, FCB must cure or
address the concerns to the satisfaction of UBS or UBS is not obligated to
continue to pursue consummation of the transactions contemplated herein. Failure
to provide notice under this paragraph shall not be construed as a waiver by UBS
of any item required by or condition of this Agreement.
(d) UBS Satisfaction with Loan Loss Reserve, Provision of
-----------------------------------------------------
Charge-Offs, Funding of Benefits Other Reserve Accounts, etc. As of the Merger
- ------------------------------------------------------------
Effective Date, UBS, in its sole discretion, must be satisfied with the adequacy
of the then existing level of FCB's loan loss reserve and with the sufficiency
of the write-downs and charge-offs in the loan portfolio, such level and
sufficiency to be consistent with the requirements of any regulators and prudent
banking practices. In addition, FCB must also fund the SERPs, 1995 bonuses and
the deferred retirement obligation identified in Section 3.10, and reserve for
all contingencies in a manner consistent with the requirements of the regulators
and prudent banking practices; provided, however, that absent a material adverse
change in the financial condition of FCB, if FCB makes the additional $500,000
provision to the loan loss reserve, the $50,000 provision to its OREO reserve
and the $35,000 provision to its repossession reserve set forth in Section
3.5(l), the reserves shall be deemed to be adequate.
E-41
(e) Control Shareholders. The Control Shareholders shall have
--------------------
complied with the provisions of Section 3.11.
4.3 Additional Conditions to Obligations of FCB.
-------------------------------------------
(a) FCB shall have received the opinion of counsel to UBS to the
effect that:
(i) UBS is a West Virginia corporation, validly existing
and in good standing under the laws of West Virginia and is duly authorized to
own its properties and to conduct its business as presently conducted.
Commercial Interim Bank is validly existing and in good standing under the laws
of the Commonwealth of Virginia is duly authorized to own its properties and to
conduct its business as presently conducted.
(ii) All necessary corporate proceedings have been duly
taken by UBS to the extent required by law, their articles of incorporation,
articles of association, bylaws or otherwise, to authorize the execution and
delivery of this Agreement and the consummation of the transactions contemplated
herein. This Agreement constitutes the legal, valid and binding obligation of
UBS and Commercial Interim Bank (once it executes the Adoption Agreement) and is
enforceable against them in accordance with its terms except as enforceability
may be limited by general equitable principles, bankruptcy, insolvency,
reorganization, moratorium, or other laws affecting creditors rights generally.
(iii) To the best of counsel's knowledge, all regulatory
approvals of federal or state banking regulators necessary to consummate the
transactions contemplated herein have been obtained.
(iv) Counsel has reviewed the proxy statement described
herein and with respect to all information relating to the Merger and to UBS and
Commercial Interim Bank contained therein, and knows of no respect in which the
proxy statement
E-42
contained any false or misleading statement of any material fact or of any
failure to state a material fact which was necessary to be stated to prevent the
statements made from being false or misleading in any material respect, except
as to the financial statements and other financial data as to which counsel
expresses no opinion.
(b) Tax Opinion. On or before the Closing, FCB shall have
-----------
received an opinion from Bowles Rice McDavid Graff & Love, Charleston, West
Virginia in a form reasonably satisfactory to FCB's counsel to the effect that:
(i) The statutory merger of FCB with and into Commercial
Interim Bank will constitute a tax-free reorganization within the meaning of IRC
Section 368(a)(i)(A) and IRS Section 368(a)(2)(D);
(ii) The gain, if any, realized by a FCB shareholder upon
receipt of UBS shares plus cash, will be recognized, but not in any amount in
excess of all cash received as part of the merger transaction; including cash
received in lieu of fractional shares. The provisions of IRC Section 302 will
govern whether the character of the gain will be ordinary income or capital
gain. Each shareholder should consult his or her own tax advisor with respect to
the determination of whether the exchange has the effect of a redemption or the
distribution of a dividend;
(iii) The holding period of the UBS stock received by each
holder of FCB's common stock will include the period during which the stock of
FCB surrendered in exchange therefor was held, provided such stock was a capital
asset in the hands of the shareholder at the time of the Closing; and
(iv) A FCB shareholder who elects to receive all cash or
who dissents from the transaction and receives solely cash in exchange for his
stock in FCB will be treated as having
E-43
received such cash in redemption of his or her FCB stock subject to the
provisions of I.R.C. (S)(S) 302 and 318.
(c) Fairness Opinion. The board and shareholders of FCB shall
----------------
have received the opinion of Baxter Fentriss and Company that the transaction is
fair, from a financial perspective, to the shareholders of FCB.
ARTICLE V
---------
CLOSING
-------
5.1 Closing. The closing (the "Closing") of each merger transaction
-------
shall take place at the principal office of UBS, or such other place as may be
agreeable to the parties hereto, shall consist of the exchange of items required
hereby and the filing of the Articles of Merger. The parties will use their best
efforts to close on or about October 31, 1995. The payment of the Merger
Consideration will commence as soon as possible after the Merger Effective Date.
Shareholders, other than the Control Shareholders, will be asked to indicate
their election as to whether to receive UBS stock and cash or cash only prior to
the closing.
ARTICLE VI
----------
MISCELLANEOUS
-------------
6.1 Termination. This Agreement may be terminated and cancelled, and
-----------
the transaction contemplated herein may be abandoned, notwithstanding
shareholder authorization, at any time before the Merger Effective Date as
follows:
(a) By mutual consent of the Board of Directors of UBS and FCB
as evidenced by a majority vote of each of their respective Boards of Directors;
or
(b) By UBS if any of the conditions required to be satisfied by
FCB specified in Sections 4.1 and 4.2 hereof shall not
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have been satisfied within the time contemplated by this Agreement for
consummation of this transaction; or
(c) By FCB if any of the conditions required to be satisfied by
UBS specified in Section 4.1 and 4.3 hereof shall not have been satisfied within
the time contemplated by this Agreement for consummation of the transactions; or
(d) By any party if the Merger will violate any nonappealable
final order, decree or judgment of any court of governmental body which binds
any party.
In any event, the obligations of the parties under this Agreement
shall terminate December 31, 1995, if the Closing have not occurred before that
date, unless the parties hereto mutually agree in writing to an extension of the
time within which to close.
In the event of the termination of this Agreement for any reason, each
party shall forthwith deliver to the other parties hereto all documents, work
papers and other material obtained from it or any of its subsidiaries relating
to the transaction contemplated herein, whether obtained before or after the
execution hereof, and will continue to treat as confidential all such
information in the same manner as it treats similar confidential information of
its own and shall cause its and its subsidiaries' employees, agents and
representatives, to keep all such information confidential except for such
disclosures that are required by law or regulation or by rule, order or decree
or any court or government agency.
6.2 Expenses. Each of the parties to this Agreement agrees to pay,
--------
without a right to reimbursement from the other party hereto and whether or not
the transaction contemplated in this Agreement shall be consummated, all of the
costs incurred by it incident to the performance of its obligations under this
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Agreement and to the consummation of the transactions contemplated herein.
6.3 Survival of Provisions. The representations, warranties,
----------------------
obligations and other agreements contained in all sections of Article I and
Article II, Sections 3.5(f), 6.1, 6.2 and 6.4 of this Agreement shall survive
the consummation of the transactions contemplated herein and shall be and remain
strictly enforceable thereafter in accordance with the terms thereof for the
period of one (1) year after the date each merger transaction is consummated.
Except as aforesaid, and except as may be otherwise explicitly provided in this
Agreement, the respective representations, warranties, obligations and other
agreements of the parties hereto shall not survive the Closings.
6.4 Individual FCB Shareholders. Control Shareholders own 68.6% of
---------------------------
FCB Stock as follows: James B. Brockett, 400 shares, held individually; Janet H.
Brockett, 200 shares, held individually; James and Janet Brockett, 137,283
shares, held jointly. Should the nature of such ownership change, the Control
Shareholders will promptly notify UBS.
Subject to Section 3.11, Control Shareholders have executed this
Agreement to evidence their assent hereto and for the express purpose of binding
them, to the extent consistent with and not in violation of their fiduciary
duty, to the fulfillment of each of the terms and conditions hereof by the
respective parties and the diligent, expeditious and good faith pursuit, and
timely consummation of the transactions contemplated herein. Control
Shareholders further agree, subject to the terms and conditions of the
Bankruptcy Court approval contemplated in Section 3.11, to cooperate fully with
the parties, their employees, representatives and agents in consummating the
transactions as proposed and each agrees to vote his or her shares in favor of
the Merger. Control Shareholder agree to take no action inconsistent with this
E-46
Agreement or the consummation of the merger transactions; provided that each
Control Shareholder shall act at all times in a manner consistent with his or
her fiduciary responsibilities and as required by the Bankruptcy Court. Any
shares acquired by an Control Shareholder or any member of the Control
Shareholders' family will, without further action, be subject to the agreements
contained in this paragraph 6.4.
Control Shareholder and FCB hereby represent (i) that there is no
present plan or intention by the Control Shareholders, or by any other
shareholder of FCB who owns 1% or more of the FCB common stock, and, (ii) to the
best of the knowledge of the Control Shareholders and the management of FCB,
there is no plan or intention on the part of the remaining FCB shareholders, to
sell, exchange or otherwise dispose of a number of shares of UBS Stock received
in the Merger that would reduce the FCB shareholders' ownership of UBS Common
Stock to a number of shares having a value, as of the date of the transaction,
of 50% or less of the value of all of the formerly outstanding stock of FCB as
of the same date. For purposes of this representation, shares of FCB stock
exchanged for cash or other property, if any, surrendered by dissenters or
exchanged for cash in lieu of fractional shares of UBS Common Stock will be
treated as outstanding FCB stock on the date of transaction. Shares of FCB stock
and shares of UBS Stock held by FCB shareholders and otherwise sold, redeemed or
disposed of prior or subsequent to the transaction will be considered stock
exchanged pursuant to the Merger.
Each Control Shareholder further acknowledges and agrees (i) that
UBS has relied on his or her representations and agreements as set forth herein
and (ii) that his or her agreement to vote his or her shares in favor of the
Merger is necessary to fulfill certain conditions precedent to consummation of
the Merger.
6.5 Amendment. This Agreement may be amended by mutual consent of
---------
the Board of Directors of UBS and FCB, evidenced by a
E-47
majority vote of each of their respective Boards of Directors, at any time
before or after approval thereof by the shareholders; but, after any such
shareholder approval, no amendment shall be made to this Agreement which
substantially and adversely changes the terms of the particular agreement
without obtaining the further approval of the respective shareholders of that
party. This Agreement may not be amended except by an instrument in writing duly
executed by the appropriate officers on behalf of each of the parties hereto.
6.6 Assignability. This Agreement shall inure to the benefit of and
-------------
be binding upon the parties hereto and their respective successors and assigns,
provided that this Agreement may not be assigned by any party without the prior
written consent of the other parties hereto.
6.7 Notices. Any notice or other communication required or permitted
-------
under this Agreement shall be made in writing and shall be deemed to have been
duly given or received if delivered in person or if sent by certified mail, with
postage prepaid, addressed as follows:
TO UBS: TO FCB:
Steven E. Wilson James B. Brockett
Executive Vice President and CFO President & CEO
United National Bank First Commercial Bank
514 Market Street 3801 Wilson Blvd.
Parkersburg, WV 22610 Arlington, VA 22203
COPY TO: COPY TO:
Deborah A. Sink, Esq. Robert E. Falb, Esq.
Bowles Rice McDavid Graff ROBINS, KAPLAN, MILLER & CIRESI
& Love Suite 1200, 1801 K' Street, N.W.
1600 Commerce Square Washington, D.C. 20036
P. O. Box 1386
Charleston, WV 25325-1386
E-48
6.8 Entire Agreement. This Agreement, together with all exhibits
----------------
attached hereto, constitutes the entire agreement among the parties and shall
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of the transaction contemplated
herein and may not be changed except by amendment pursuant to the provisions of
Section 6.5 of this Agreement.
6.9 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original; but all of which shall
constitute one and the same instrument.
6.10 Governing Law. Subject to the applicable law of the United
-------------
States of America, this Agreement shall be governed and construed in all
respects, including, but not limited to, validity, interpretation and effect,
pursuant to the laws of the Commonwealth of Virginia.
6.11 Invalid Provisions. The invalidity or unenforceability of any
------------------
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
6.12 Headings and Subheadings. The headings and subheadings used in
------------------------
this Agreement are included for convenience of reference only and shall have no
effect on the construction or meaning of this Agreement.
E-49
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their corporate officers thereunto duly authorized.
Attest: UNITED BANKSHARES, INC.
BY /s/ Joseph Wm. Sowards BY /s/ Richard M. Adams
----------------------- ---------------------------
ITS Secretary ITS Chairman of Board and CEO
----------------------- --------------------------
Attest: FIRST COMMERCIAL BANK
BY /s/ Harry F. Scott BY /s/ James B. Brockett
----------------------- -------------------------
ITS Secretary ITS Chairman and President
---------------------- ------------------------
JAMES B. AND JANET H. BROCKETT
/s/ James B. Brockett
- -------------------------------
James B. Brockett*
/s/ Janet H. Brockett
- -------------------------------
Janet H. Brockett*
E-50
*Signing for the sole purpose of agreeing to perform comply with and be bound by
the terms of Sections 2.2(p), 3.11 and 6.4 of the foregoing Agreement and Plan
of Merger.
E-51
EXHIBIT LIST
Exhibit A - UBS Disclosures
Exhibit B - Adoption Agreement
Exhibit C - FCB Disclosures
Exhibit D - Form of Affiliates Agreement
[Exhibits to Merger Agreement omitted]
E-52
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
-----------------------------------------
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER, is entered into as of
the 15th day of June, 1995, by and among UNITED BANKSHARES, INC., a West
Virginia corporation ("UBS"), COMMERCIAL INTERIM BANK, a Virginia banking
corporation ("Commercial Interim Bank") and FIRST COMMERCIAL BANK, a Virginia
banking corporation ("First Commercial").
WHEREAS, under the terms of an Agreement and Plan of Merger dated as
of March 6, 1995, First Commercial will be merged into Commercial Interim Bank
with Commercial Interim Bank surviving the merger and operating under the name
of "First Commercial Bank";
WHEREAS, the parties to the Agreement and Plan of Merger desire to
amend the Agreement to provide for (i) the provision of a tax opinion by Robins,
Kaplan, Miller & Ciresi, Washington, D.C.; and (ii) a change to the procedure
whereby shareholders of FCB, other than the Control Shareholders, may elect to
receive stock or cash; and
NOW, THEREFORE, for and in consideration of the premises and
representations, warranties, covenants, and agreements contained herein, UBS,
and First Commercial do represent, warrant, covenant and agree (and Commercial
Interim Bank will represent, warrant, covenant and agree) to amend the Agreement
and Plan of Merger as follows:
1. Section 1.4(b) shall be amended to read as follows:
(b) Cash consideration equal to $52.57.
For each share of FCB stock as to which an FCB shareholder elects
to receive all cash, the Control Shareholders agree to accept the
additional UBS stock (and, correspondingly less than $26.25 per FCB
share in cash) so as to meet the requirement that greater than 50% of
the total Merger Consideration be paid in UBS stock. The amount of cash
to be received by the Control Shareholders shall equal $26.25 times
201,100 (the number of FCB shares), minus all cash to be paid to all
other shareholders (whether such shareholders elect to receive all cash
(including dissenters) or cash and UBS stock).
The proportion of UBS stock to total consideration shall be
calculated as set forth below:
a = the closing price of UBS stock on the Merger Effective Date
times 201,100 times the Applicable Exchange Ratio
E-53
b = all cash paid to FCB shareholders, including to FCB
shareholders who dissent from the Merger
Proportion of UBS stock = a
---------
to total Merger Consideration a + b
Notwithstanding the foregoing, UBS may terminate this Agreement
if (i) application of the ratio adjustment set forth above would
result in the issuance of greater than 271,000 shares of UBS stock or
(ii) if the Average Price is $27 or greater. FCB may terminate this
Agreement if the Average Price is $20 or less. If any of the
termination rights in the foregoing sentences arise, the parties will
attempt to renegotiate the ratio and/or cash consideration to result
in an aggregate consideration of not less than $52.57 per share of FCB
stock. The total consideration of UBS stock and cash (including cash
paid to FCB shareholders electing stock and cash, all cash or
exercising dissenters' rights) is referred to herein as the "Merger
Consideration."
No fractional shares of UBS stock will be issued and in lieu
thereof, FCB shareholders will be entitled to receive cash based upon
the Average Price per share for UBS stock, without interest. If, on or
after the date hereof, and prior to the Merger, the outstanding shares
of UBS stock are changed into a different number or class by virtue of
any reclassification, split, stock dividend, exchange of shares or
similar event, then the exchange ratio provided herein will be
adjusted proportionately. The issuance of UBS stock for other
corporate purposes, as contemplated in Section 2.1(l), will not result
in an adjustment to the exchange ratio. From and after the date of the
Merger, the holders of certificates representing FCB shares shall
cease to have any rights with respect to such shares (except
dissenters' rights)
E-54
and such shares will thereafter be deemed cancelled and void. The sole
rights of such shareholders (excluding dissenters' rights) will be to
receive the Merger Consideration.
The FCB shareholders (other than Control Shareholders) shall make
a binding election as to the form of Merger Consideration on or within
15 days after the Merger Effective Date, at the time they surrender
their FCB stock in exchange for the Merger Consideration. Any FCB
shareholder who fails to make an election will receive stock and cash.
2. Tax Opinion. Section 4.3(b) shall be amended to read as follows:
-----------
(b) Tax Opinion. On or before the Closing, FCB shall have received an
-----------
opinion from Robins, Kaplan, Miller & Ciresi, Washington, D.C., in a
form reasonably satisfactory to UBS's counsel to the effect that:
(i) The statutory merger of FCB with and into Commercial
Interim Bank will constitute a tax-free reorganization within the
meaning of IRC Section 368(a)(i)(A) and IRS Section 368(a)(2)(D);
(ii) The gain, if any, realized by a FCB shareholder upon
receipt of UBS shares plus cash, will be recognized, but not in
any amount in excess of all cash received as part of the merger
transaction; including cash received in lieu of fractional
shares. The provisions of IRC Section 302 will govern whether the
character of the gain will be ordinary income or capital gain.
Each shareholder should consult his or her own tax advisor with
respect to the determination of
E-55
whether the exchange has the effect of a redemption or the
distribution of a dividend;
(iii) The holding period of the UBS stock received by each
holder of FCB's common stock will include the period during which
the stock of FCB surrendered in exchange therefor was held,
provided such stock was a capital asset in the hands of the
shareholder at the time of the Closing; and
(iv) A FCB shareholder who elects to receive all cash in
exchange for his stock in FCB will be treated as having received
such cash in redemption of his or her FCB stock subject to the
provisions of I.R.C. (S)(S) 302 and 318.
3. Dissenters' Rights. All references to rights of FCB
------------------
shareholders to dissent from the merger and receive cash in lieu of
the Merger Consideration are deleted and any conforming changes
necessary to preserve the meaning of any sentence containing such a
reference are deemed to have been made. This amendment is made since,
under applicable Virginia law, shareholders of a state chartered bank
do not have dissenters' rights of appraisal.
4. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original but all of
which shall constitute one in the same instrument.
E-56
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
Agreement and Plan of Merger to be executed by their corporate officers hereunto
duly authorized.
UNITED BANKSHARES, INC.,
a West Virginia corporation
By: /s/ Joseph Wm. Sowards
------------------------------------
Its: Executive Vice President
------------------------------------
& Secretary
------------------------------------
FIRST COMMERCIAL BANK,
a Virginia corporation
By: /s/ Harry F. Scott
------------------------------------
Its: Senior Vice President
------------------------------------
and Corporate Secretary
------------------------------------
By: /s/ James B. Brockett
------------------------------------
JAMES B. BROCKETT*
By: /s/ Jane H. Brockett
------------------------------------
JANET H. BROCKETT*
* Signing for the sole purpose of consenting to the foregoing amendments to
the Agreement and Plan of Merger.
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EXHIBIT B
OPINION OF BAXTER FENTRISS AND COMPANY
E-58
[LETTERHEAD OF BAXTER FENTRISS AND COMPANY WITH LOGO]
May 12, 1995
The Board of Directors
First Commercial Bank, Inc.
3801 Wilson Blvd.
Arlington, Virginia 22203-1993
Dear Members of the Board
First Commercial Bank, Inc., Arlington, Virginia ("FCB") and United
Bankshares, Inc., Charleston, West Virginia ("United") have entered into an
Agreement providing for the acquisition of FCB by United ("Acquisition"). The
terms of the Acquisition are set forth in the Agreement and Plan of Merger dated
March 6, 1995.
The terms of the Acquisition provide that, with the possible exception
of those shares as to which dissenter's rights may be perfected, each common
share of FCB will be exchanged for 1.12 shares of United common stock ($2.50 par
value), subject to certain adjustments for the changing market price of United,
plus $26.25 in cash.
You have asked our opinion as to whether the proposed transaction
pursuant to the terms of the Acquisition are fair to the respective shareholders
of FCB from a financial point of view.
In rendering our opinion, we have evaluated the consolidated financial
statements of FCB available to us from published sources. In addition, we have,
among other things: (a) to the extent deemed relevant, analyzed selected public
information of certain other financial institutions and compared FCB and United
from a financial point of view to the other financial institutions; (b)
considered the historical market price of the common stock of FCB and United;
(c) compared the terms of the Acquisition with the terms of certain other
comparable transactions to the extent information concerning such acquisitions
was publicly available; (d) reviewed the Agreement and Plan of Merger and
related documents; and (e) made such other analyses and examinations as we
deemed necessary. We also met with various senior officers of FCB and United to
discuss the foregoing as well as other matters that may be relevant. We have
not independently verified the financial and other information concerning FCB,
or United or other date which we have considered in our review. We have assumed
the accuracy and completeness of all such information; however, we have no
reason to
E-59
believe that such information is not accurate and complete. Our conclusion is
rendered on the basis of securities market conditions prevailing as of the date
hereof and on the conditions and prospects, financial and otherwise, of FCB and
United as they exist and are known to us as of December 31, 1994.
We have acted as financial advisor to FCB in connection with the
Acquisition and will receive from FCB a fee for our series, a significant
portion of which is contingent upon the consummation of the Acquisition.
It is understood that this opinion may be included in its entirety in
any communication by FCB or the Board of Directors to the stockholders of FCB.
The opinion may not, however, be summarized, excerpted from other otherwise
publicly referred to without our prior written consent.
Based on the foregoing, and subject to the limitations described
above, we are of the opinion that the terms of the Acquisition are fair to the
shareholders of FCC from a financial point of view.
Very truly yours,
/s/Baxter Fentriss and Company
Baxter Fentriss and Company
E-60
TAX OPINION OF
ROBINS, KAPLAN, MILLER & CIRESI
E-61
[To be dated and delivered on the Closing Date]
____________________, 1995
First Commercial Bank
3801 Wilson Blvd.
Arlington, Virginia 22203
RE: Merger of First Commercial Bank
Ladies and Gentlemen:
You have requested our opinion concerning certain Federal income
tax consequences incident to a merger of First Commercial Bank, a Virginia
banking institution ("FCB"), into and with Commercial Interim Bank, a banking
institution organized under the laws of the Commonwealth of Virginia ("CIB") as
a wholly-owned subsidiary of United Bankshares, Inc., a West Virginia
corporation ("UBS").
In preparing our opinion, we have examined the Agreement and Plan
of Merger/1/ dated as of March 6, 1995, as amended, among FCB, UBS and CIB, (the
"Plan"), the exhibits attached thereto; the Adoption Agreement dated as of
___________, 1995, among FCB, UBS and CIB; the Registration Statement (Form S-4)
submitted by UBS to the Securities and Exchange Commission effective as of
____________, 1995, (the "Registration Statement"); and the agreements and
instruments pursuant to which FCB will (1) merge into and with CIB, with CIB
surviving and operating under the name "First Commercial Bank," and (2) exchange
the issued and
___________________________________
/1/ Unless otherwise noted, all terms defined in the Plan have the same meaning
in this letter.
E-62
outstanding shares of common stock of FCB for a certain number of shares of
common stock of UBS and cash. The foregoing transactions shall be collectively
referred to as the "merger". In addition, we have reviewed the agreements
pursuant to which the compensation and benefits of the key employees of FCB will
be adjusted and modified pursuant to the Plan and a Plan of Reorganization filed
in the matter of James B. Brockett and Janet H. Brockett in the United States
Bankruptcy Court for the Eastern District of Virginia, Case No. 92-15370-AB (the
"Chapter 11 Plan").
You have represented that the Plan, the exhibits thereto, the
certificates of FCB and the Control Shareholders (described below), the
Registration Statement and the Chapter 11 Plan (1) present an accurate and
complete description of FCB, its intended transactions and proposed business
operations, (2) present an accurate and complete description of the Control
Shareholders' intentions and proposed transactions with respect to the UBS
shares to be received in the merger, (3) contain no statement of material fact
which is untrue and (4) do not omit or fail to state any material fact necessary
in order to make the statements contained therein not misleading. In addition,
in formulating our opinion, we have relied on that certain "fairness opinion"
issued by Baxter, Fentriss & Company and dated as of May 12, 1995.
This letter presents our opinion concerning questions of law
which are relevant to the realization by FCB and its shareholders of certain
Federal income tax benefits arising from the merger of FCB into and with CIB.
Our opinion is predicated on facts and assumptions derived from the documents,
agreements, instruments and reports referred to above, including, but not
limited to, assumptions concerning the value of the UBS shares on the Closing
Date. Although we have not independently verified each of the statements of fact
set forth herein, nothing has come to our attention that leads us to question
the accuracy of such statements or require us, under applicable principles of
legal ethics, to make further inquiry. If there is any change in material fact,
or if any material fact is not true or is not
E-63
disclosed, or if stated assumptions concerning future events and transactions do
not occur, or if events and transactions not now contemplated do occur, the
conclusions reached in this letter may be altered and the Federal income tax
consequences of the merger may be adversely affected. We can provide no
assurance that the facts, circumstances and assumptions necessary for favorable
Federal income tax consequences from the merger of FCB into and with CIB will
indeed occur.
Our opinion is also based on the applicable laws of the
Commonwealth of Virginia, pertinent provisions of the Internal Revenue Code of
1986, as amended (the "Code"), proposed temporary and final Income Tax and
Procedure and Administration Regulations issued by the Treasury thereunder (the
"Regulations") and interpretations of the Code and Regulations by the courts and
the Internal Revenue Service ("IRS" or "Service"), all as they exist at the date
of this letter. The Code, the Regulations, judicial decisions and administrative
interpretations are subject to change at any time and, in some circumstances,
with retroactive effect. Further, since this letter is not binding on the
Service or the courts, we can provide no assurance that the conclusions reached
herein, if challenged by the Service, will be sustained by a court.
Finally, the views stated in this letter are not intended as a
comprehensive or exhaustive analysis of the Federal income tax issues which may
arise in connection with the merger of FCB into and with CIB. Rather, this
opinion responds to specific questions or issues identified below. Although our
opinion may be used as an exhibit to the Plan or to the Registration Statement,
FCB shareholders should not construe this letter as advice to them. Each FCB
shareholder should consult his or her own counsel concerning the tax
consequences of participation in the merger transaction.
E-64
Facts
-----
FCB is a Virginia corporation and banking institution formed in
1972. FCB has one class of stock consisting of 400,000 shares of authorized
common stock having a par value of $5.00 per share, of which 201,100 shares are
issued and outstanding. The outstanding shares of FCB stock have been duly and
validly authorized and have not been issued in violation of any preemptive
rights of any of its shareholders. FCB holds no shares of its stock as treasury
stock and has not redeemed any shares within the last two years.
The Control Shareholders (as that term is defined in the Plan)
own 137,883 shares, or approximately 68.6 percent, of the issued and outstanding
stock of FCB as follows: James B. Brockett, 400 shares held individually; Janet
H. Brockett, 200 shares held individually; and James and Janet Brockett, 137,382
shares held jointly. The remaining 63,217 shares of the issued and outstanding
common stock of FCB are held by between 300 to 400 shareholders.
UBS is a West Virginia corporation. The authorized capital stock
of UBS is 20,000,000 shares of common stock having a par value of $2.50 per
share, of which 11,954,453 are issued and outstanding, and of which 137,520
shares are held in treasury by UBS.
UBS has caused CIB to be formed as a Virginia banking
corporation. UBS is the sole shareholder of CIB.
Prior to the statutory merger of FCB into and with CIB as
described below, UBF, a wholly-owned second tier subsidiary of UBS, shall cause
Bank First, N.A., a wholly-owned national association, to merge into and with
CIB pursuant to the terms of a separate merger agreement. CIB shall be the
surviving entity of the merger with Bank First, N.A. Immediately following the
merger of Bank First, N.A. into CIB, UBS shall cause UBS Holding Company, Inc.,
a wholly-owned subsidiary of UBS, to merge into and with UBS
E-65
pursuant to the terms of a separate merger agreement. UBS shall be the surviving
entity of the merger with UBF Holding Company, Inc.
Thereafter, and pursuant to the plan, FCB will be merged into and
with CIB pursuant to the laws of the Commonwealth of Virginia. CIB shall be the
surviving bank and shall operate under the name "First Commercial Bank." As of
the effective date of such statutory merger transaction, (i) all of the common
stock of FCB shall be canceled and FCB shall cease to exist, and, (ii) all of
the stock of CIB shall continue to be issued and outstanding and held by UBS.
For and in consideration of the statutory merger and in
accordance with the Plan, FCB shareholders will receive shares of UBS common
stock and cash for each share of FCB common stock they own; provided, however,
that no fractional shares of UBS stock will be issued, and in lieu thereof, FCB
shareholders will receive cash consideration. FCB shareholders will be entitled
to receive UBS stock and cash as follows:
FCB shareholders, other than Control Shareholders, may elect to
receive either (i) $52.57 per share, all cash, or (ii) 1.12 shares of UBS stock,
plus $26.25 in cash for each share of FCB stock that they own. For each share
of FCB stock as to which an FCB shareholder (other than a Control Shareholder)
elects to receive all cash, the Control Shareholders agree to accept an
additional 1.12 shares of UBS stock in lieu of a cash payment of $26.25 per
share. Control Shareholders will receive 1.12 shares of UBS stock, plus $26.25
in cash per share for their remaining shares of FCB stock.
In the opinion of Baxter, Fentriss & Company, the fair market
value of the UBS stock and cash consideration received by each FCB shareholder
is approximately equal to the fair market value of the FCB stock surrendered in
the exchange described above. The Plan provides that if the average closing
price of the UBS common stock is less than $23.50 per share for the twenty
trading
E-66
days immediately prior to the Closing Date, having the effect of reducing the
total consideration for the merger paid in UBS stock to 50 percent or less of
the value of the FCB stock as of the Closing Date, then the exchange ratio for
the merger shall be adjusted upward to a maximum of 1.348 shares of UBS stock
for each share of FCB stock. For purposes of this opinion, we have assumed that
the Average Price of the UBS common stock on the Closing Date will be not less
than $23.50 per share, such that the proportion of the total consideration for
the merger paid in UBS stock shall be equal to or greater than 50 percent of the
value of the FCB stock on the Closing Date.
The Chapter 11 Plan contemplates that _________ shares of UBS
stock to be issued to the Control Shareholders in the merger will be substituted
as collateral for certain secured obligations of the Control Shareholders, now
secured by a pledge of their FCB shares.
As set forth in a separate opinion of the undersigned, the merger
qualifies as a statutory merger under the laws of the Commonwealth of Virginia.
Further, under the applicable laws of Virginia, no FCB shareholder has the right
to dissent from the merger and elect to take the appraised value of his or her
shares in Cash.
As set forth in the certificates of FCB and the Control
Shareholders, FCB and the Control Shareholders have represented that:
(1) There is no present plan or intention by the Control
Shareholders, or by any other shareholder of FCB who owns one
percent or more of the FCB common stock, and the Chapter 11 Plan
does not contemplate, and, to the best of the knowledge of the
Control Shareholders and the management of FCB there is no plan
or intention on the part of the remaining FCB shareholders, to
sell, exchange or
E-67
otherwise dispose of a number of shares of UBS stock received in
the Merger that would reduce the FCB shareholders' ownership of
UBS Common Stock to a number of shares having a value, as of the
date of the transaction, of 50 percent or less of the value of
all of the formerly outstanding stock of FCB as of the same date.
For purposes of this representation, shares of FCB stock
exchanged for cash or other property, if any, or exchanged for
cash in lieu of fractional shares of UBS Common Stock, will be
treated as outstanding FCB stock on the date of the transaction.
Shares of FCB stock and shares of UBS Stock held by FCB
shareholders and otherwise sold, redeemed or disposed of prior or
subsequent to the transaction will be considered stock exchanged
pursuant to the Merger.
(2) In the merger, CIB will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the
fair market value of the gross assets by FCB immediately prior to
the merger transaction. For purposes of this representation,
amounts paid by FCB to shareholders who received cash or other
property, if any, FCB assets used by FCB to pay reorganization
expenses, and all redemptions and distributions (except for
regular, normal dividends) made by FCB immediately preceding the
transfer, will be included as assets of FCB immediately prior to
the transaction.
(3) The liabilities of FCB assumed by CIB and the liabilities to
which the transferred assets of FCB are subject were incurred by
FCB in the ordinary course of business.
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(4) There is no intercorporate indebtedness existing between any of
(i) UBS or FCB or (ii) CIB and FCB that was issued, acquired or
will be settled at a discount.
(5) FCB is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the
Code.
(6) The fair market value of the assets of FCB transferred to CIB
will equal or exceed the sum of the liabilities assumed by CIB,
if any, plus the amount of liabilities, if any, to which the
transferred assets are subject.
(7) FCB and any shareholder thereof will pay their respective
expenses, if any, incurred in connection with the merger.
(8) FCB is not an investment company, as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
(9) The payment of cash to FCB shareholders in lieu of fractional
shares of UBS common stock is not separately bargained for
consideration and is solely for the purpose of saving UBS the
expense and inconvenience of issuing fractional shares. The
total cash consideration that will be paid in the merger to the
FCB shareholders instead of issuing fractional shares of UBS
common stock will not exceed one percent of the total
consideration to be issued in the transaction to FCB shareholders
in exchange for their shares of FCB common stock. The fractional
share interests of each FCB shareholder will be aggregated and no
FCB
E-69
shareholder will receive cash for fractional shares in an amount
equal to or greater than the value of one full share of UBS
common stock.
(10) None of the compensation received by any shareholder-employees of
FCB will be separate consideration for, or allocable to, any of
their shares of FCB stock; none of the shares of UBS common
stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and
the compensation paid to any shareholder-employees will be for
services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's-length for similar
services.
As set forth in the Plan, UBS and CIB have made the following
representations:
(1) UBS has no plan or intention to liquidate CIB; to merge CIB with
or into another corporation; to sell or otherwise dispose of the
stock of CIB; or to cause CIB to sell or otherwise dispose of any
of the assets of FCB acquired in the merger, including UBS stock
acquired by FCB pursuant to the merger, except for dispositions
made in the ordinary course of business or transfers described in
section 368(a)(2)(C) of the Code.
(2) Following the merger, CIB will continue the historic business of
FCB or use a significant portion of FCB's business assets in a
business.
(3) UBS has no Plan or intention to reacquire any of its stock issued
in the merger.
E-70
(4) Neither UBS nor CIB has any plan or intention to sell or
otherwise dispose of any of the assets of FCB acquired in the
merger, except for dispositions made in the ordinary course of
business, dispositions in arm's length transactions made to avoid
duplicative facilities or to comply with regulatory requirements,
or transfers described in section 368(a)(2)(C) of the Code.
(5) Neither UBS nor CIB owns directly or indirectly, nor have they
owned during the past five years, directly or indirectly, any
stock of FCB.
(6) Prior to the merger, UBS holds 100 percent of the issued and
outstanding stock of CIB, and, therefore, UBS shall be in control
of CIB within the meaning of section 368(c) of the Code.
(7) Following the merger, CIB will not issue any additional shares of
its stock that would result in UBS losing control of CIB within
the meaning of section 368(c) of the Code.
(8) Neither UBS, CIB nor FCB are investment companies, as defined in
sections 368(a)(2)(F)(iii) and (iv) of the Code.
(9) No stock of CIB will be issued in the merger transaction.
(10) UBS, CIB and FCB and the shareholders thereof, will pay their
respective expenses, if any, incurred in connection with the
merger.
(11) The payment of cash to FCB shareholders in lieu of fractional
shares of UBS stock is not separately bargained for consideration
and is solely for the
E-71
purpose of savings UBS the expense and inconvenience of issuing
fractional shares. The total cash consideration that will be paid
in the merger to the FCB shareholders instead of issuing
fractional shares of UBS stock will not exceed one percent of the
total consideration to be issued in the transaction to FCB
shareholders in exchange for their shares of FCB common stock.
The fractional share interests of each FCB shareholder will be
aggregated and no FCB shareholder will receive cash for
fractional shares in an amount equal to or greater than the value
of one full share of UBS stock.
Issues
------
You have requested our opinion, based on the foregoing facts,
concerning the following Federal income tax issues:
(1) Whether the merger of FCB into and with CIB will constitute
a nontaxable reorganization within the meaning of sections 368(a)(1)(A) and
368(a)(2)(D) of the Code.
(2) Whether the gain, if any, realized by an FCB shareholder
upon receipt of UBS shares plus cash, including cash received in lieu of
fractional shares, will be recognized, but not in an amount in excess of all
cash received as part of the merger transaction; and whether the receipt of UBS
shares plus cash has the effect of a redemption or the distribution of a
dividend, i.e., whether the character of such gain will be considered capital
gain or ordinary income.
(3) Whether the holding period of the UBS stock received by each
holder of FCB's common stock will include the period during which the stock of
FCB surrendered in exchange
E-72
therefor was held, provided that such stock was a capital asset in the hands of
the shareholder at the time of the Closing Date.
(4) Whether an FCB shareholder who elects to receive all cash in
exchange for his or her FCB stock will be treated as having received such cash
in redemption of his or her FCB stock, subject to the provisions of sections 302
and 318 of the Code.
Opinions
--------
On the basis of the facts, circumstances and assumptions stated above,
and subject to the qualifications and limitations stated herein, we are of the
opinion that the merger of FCB into and with CIB qualifies as a "forward
triangular merger" and constitutes a nontaxable reorganization within the
meaning of sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. If the parties
engage in transactions in the manner described herein, FCB and its shareholders
will realize the material tax benefits described in the Registration Statement.
Specifically, we are of the opinion, based on the facts,
circumstances and opinions stated above and subject to the qualifications
discussed herein, that:
(1) The statutory merger of FCB into and with CIB will
constitute a nontaxable reorganization within the meaning of sections
368(a)(1)(A) and 368(a)(2)(D) of the Code.
(2) The gain, if any, realized by an FCB shareholder upon
receipt of UBS shares plus cash, will be recognized, but not in an amount in
excess of all cash received as part of the merger transaction; including cash
received in lieu of fractional shares. The provisions of section 302 of the Code
will govern whether the character of the gain will be ordinary income or capital
gain.
E-73
(3) The holding period of the UBS stock received by each holder
of FCB's common stock will include the period during which the stock of FCB
surrendered in exchange therefor was held, provided such stock was a capital
asset in the hands of the FCB shareholder at the time of the Closing Date.
(4) An FCB shareholder who elects to receive all cash in
exchange for his or her FCB stock will be treated as having received such cash
in redemption of his or her FCB stock, subject to the provisions of sections 302
and 318 of the Code.
Please note that the Regulation section 1.368-3 requires certain
records to be kept and information to be filed with the Federal income tax
returns of each corporation which is a party to the reorganization. This same
regulation requires each FCB shareholder, who has received UBS shares in
connection with the merger, to attach to his or her Federal income tax return
for the year in which such shares are received, a statement disclosing the
exchange of FCB stock for shares of UBS common stock and reporting the cost or
other basis of the FCB stock given up and the number and value of the UBS shares
received.
In light of the foregoing discussion and because the Service will
scrutinize carefully those transactions which have significant tax benefits to
taxpayers, there can be no assurance that the Service will not take positions in
conflict with our opinion expressed herein which might ultimately be sustained
by the courts. This qualification is intended not to detract from our opinion
as set forth above, but to indicate that the issues discussed herein are complex
and that the governing law is continually developing and in a state of flux. We
believe that, if the issues discussed herein were decided today, they would in
each instance be resolved favorably and consistently with our opinion.
E-74
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Registration
Statement.
Sincerely,
ROBINS, KAPLAN, MILLER & CIRESI
E-75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 31-1-9 of the West Virginia Code of 1931, as amended, permits
indemnification of present or former officers or directors who are named or
threatened to be named as parties to a legal action arising out of their
activities as officers or directors under certain circumstances.
The Amended and Restated Articles of Incorporation of United
Bankshares, Inc., contains the following provision with regard to the
indemnification of its directors and officers:
Each director and officer of this corporation, or former
director or officer of this corporation, or any person who
may have served at its request as a director or officer of
another corporation, his heirs and personal representative
shall be indemnified by this corporation against costs and
expenses at any time reasonably incurred by him arising out
of or in connection with any claim, action, suit or
proceeding, civil or criminal, against him or which he may
be made apart by reason of his being or having been such
director or officer except in relation to matters as to
which he shall be adjudged in such action, suit or
proceeding to be liable for gross negligence or willful
misconduct in the performance of a duty to the corporation.
If in the judgment of the Board of Directors of this
corporation a settlement of any claim, action, suit or
proceeding so arising be deemed in the best interest of the
corporation, any such director or officers shall be
reimbursed for any amounts paid by him in effecting such
settlement and reasonable expenses incurred in connection
therewith. The foregoing right of indemnification shall be
in addition to any and all other rights to which any
director or officer may be entitled as a matter of law.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question 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 .
Item 21. Exhibits and Financial Statement Schedules.
Exhibits required to be filed with this Registration Statement by
Item 601 of Regulations S-K follow the execution pages of the Registration
Statement. The required exhibit index precedes these documents. Required
exhibits which are a part of the preceding Prospectus and Proxy Statement are
incorporated by reference to their location.
Item 22. Undertakings.
(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 who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters in addition to the
information called for by other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) 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 (230.415), will be filed as a part
of an amendment is effective, and that, for purposes of determining any
liability of 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) Insofar as indemnification for liabilities under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question 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.
(4) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the Prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporation 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.
(5) 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 when it became effective.
(6) The undersigned registrant hereby undertakes:
(a) To file during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, present a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(b) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at this time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from the registration by means of post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly issued this registration
statement or amendment thereto to be signed on its behalf by the undersigned
hereunto duly authorized, in the City of Charleston, State of West Virginia, on
the 3rd day of July, 1995.
UNITED BANKSHARES, INC.
By /s/Richard M. Adams
Richard M. Adams
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Richard M. Adams and Joseph Wm. Sowards,
and each of them, his true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all 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, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in the about the premises, as fully to all intents and purposes as he
might do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or their substitutes, may lawfully do or cause to be done by
virtue hereof.
Signature Date
--------- ----
___/s/ Richard M. Adams_________________ __July 3, 1995
Richard M. Adams, Chairman of the Board,
Director, Chief Executive Officer
___/s/ I. N. Smith, Jr._________________ __July 3, 1995_
I. N. Smith, Jr., President and Director
__/s/ Steven E. Wilson___________________ __July 3, 1995_
Steven E. Wilson, Chief Financial Officer
and Chief Accounting Officer
__/s/ Robert G. Astorg____________________ __July 3, 1995_
Robert G. Astorg, Director
__________________________________________ __July 3, 1995_
Douglas H. Adams, Director
__________________________________________ __July 3, 1995_
Thomas J. Blair, III, Director
__/s/ Harry L. Buch_______________________ __July 3, 1995_
Harry L. Buch, Director
__________________________________________ __July 3, 1995_
R. Terry Butcher, Director
__/s/ John W. Dudley______________________ __July 3, 1995_
John W. Dudley, Director
__/s/ Smoot Fahlgren______________________ __July 3, 1995-
H. Smoot Fahlgren, Director
__________________________________________ __July 3, 1995_
Theodore J. Georgelas, Director
__/s/ Joseph N. Gompers___________________ __July 3, 1995_
Joseph N. Gompers, Director
__________________________________________ __July 3, 1995_
C. E. Goodwin, Director
__________________________________________ __July 3, 1995_
F. T. Graff, Jr., Director
__________________________________________ __July 3, 1995_
Leonard A. Harvey, Director
__________________________________________ __July 3, 1995_
Andrew J. Houvouras, Director
__________________________________________ __July 3, 1995_
Russell L. Isaacs, Director
__/s/ Robert P. McLean____________________ __July 3, 1995_
Robert P. McLean, Director
__/s/ Thomas A. McPherson_________________ __July 3, 1995_
Thomas A. McPherson, Director
__/s/ G. Ogden Nutting_____________________ __July 3, 1995_
G. Ogden Nutting, Director
___________________________________________ __July 3, 1995_
William C. Pitt, III, Director
___________________________________________ __July 3, 1995_
Charles E. Stealey, Director
__/s/ Warren A. Thornhill__________________ __July 3, 1995_
Warren A. Thornhill, Director
__/s/ Harold C. Wilkes_____________________ __July 3, 1995_
Harold C. Wilkes, Director
__/s/ James W. Word, Jr.___________________ __July 3, 1995_
James W. Word, Jr., Director
UNITED BANKSHARES, INC.
FORM S-4
INDEX TO EXHIBITS
S-B ITEM SEQUENTIAL
601 TABLE PAGE
DESCRIPTION REFERENCE NUMBER (A)
----------- --------- ----------
Underwriting agreement (1) N/A
Agreement and Plan of Merger (2)
Articles of Incorporation and Bylaws: (3)
(a) Bylaws
(b) Articles of Incorporation
Instruments Defining the Rights of Security (4) N/A
Holders
Opinions Re: Legality (5)
Opinion Re: Liquidation Preference (7) N/A
Opinion Re: Tax Matters and Consent (8)
Voting Trust Agreement (9) N/A
Material Contracts (10)
(a) Employment Agreement with
I. N. Smith, Jr. (b)
(b) Employment Agreement with
Richard M. Adams (e)
(c) Lease on Branch Office in
Charleston Town Center, (b)
Charleston, West Virginia
(d) Lease on United Center, (h)
Charleston, West Virginia
(e) Lease with Polymerland, Inc. (h)
on UNB Square
(f) Lease and Agreement between (c)
Valley Savings and Loan
Company (Lessor) and Dorothy
D. Adams, Richard M. Adams
and Douglas H. Adams
(Lessees)
(g) Agreement between Dorothy D. (c)
Adams, Richard M. Adams and
Douglas H. Adams (Lessors)
and Valley Savings and Loan
Company (Lessees)
(h) Employment Contract with (d)
Douglas H. Adams
(i) Employment Contract with (d)
Thomas A. McPherson
(j) Data Processing contract with (k)
FISERV
(k) Supplemental Retirement (i)
Contract with
Richard M.Adams
(l) Supplemental Retirement (i)
Contract with
Douglas H. Adams
(m) Executive Officer Change in (j)
Control Agreements
N/A
Statement Re: Computation of Per Share (11)
Earnings
Annual Report to Security Holders, et al. (13) N/A
Material Foreign Patents (14) N/A
Letter Re: Unaudited Interim Financial (15) N/A
Information
Letter Re: Changes in Certifying Accountant (16) N/A
Subsidiaries of the Registrant (21)
Consents:
(a) Consent of Ernst & Young, LLP (23)
(b) Consent of Sommerville & Company, LLP (23)
(c) Consent of Hoover & Company, L.L.P. (23)
(d) Consent of Baxter Fentriss and Company (23)
(e) Consent of Bowles Rice McDavid (23)
Graff & Love
(f) Consent of Robins, Kaplan,
Miller & Ciresi (23)
Power of Attorney (24)
Statement of Eligibility of Trustee (25) N/A
Invitation for Competitive Bids (26) N/A
Financial Data Schedule (27)
Information From Reports Furnished To (28) N/A
State Insurance Regulatory Authorities
Additional Exhibits: (29)
(a) Form of Proxy
(b) Form of Agreement Regarding
Affiliates
Footnotes:
- ----------
(a) N/A = Not Applicable.
(b) Incorporated into this filing by reference to Exhibit 10 of the 1985 Form
10-K for Intermountain Bankshares, Inc., File No. 0-12356.
(c) Incorporated into this filing by reference to Exhibit 10 of the 1986 Form
10-K for United Bankshares, inc., File No. 2-86947.
(d) Incorporated into this filing by reference to part II of Form S-4
Registration Statement of United Bankshares, Inc., Registration No. 33-
19968 filed February 3, 1988.
(e) Incorporated into this filing by reference to Exhibits to the 1988 10-K
for United Bankshares, Inc., File No. 013322.
(f) Incorporated into this filing by reference to the 1989 10-K for United
Bankshares, Inc., File No. 01322.
(g) Incorporated into this filing by reference to the 1990 10-K for United
Bankshares, Inc., File No. 013322.
(h) Incorporated into this filing by reference to the 1991 10-K for United
Bankshares, Inc., File No. 013322.
(i) Incorporated into this filing by reference to the 1992 10-K for United
Bankshares, Inc.,File No. 013322.
(j) Incorporated into this filing by reference to the 1993 10-K for United
Bankshares, Inc., File No. O-13322.
(k) Incorporated into this filing by reference to the 1994 10-K for United
Bankshares, Inc., File No. O013322.