AGREEMENT AND PLAN OF REORGANIZATION

Exhibit 2.1

 

AGREEMENT AND PLAN OF REORGANIZATION

 

BY AND BETWEEN

 

UNION BANKSHARES CORPORATION

 

AND

 

PROSPERITY BANK & TRUST COMPANY

 

 

October 31, 2005

 

TABLE OF CONTENTS

 

 

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AGREEMENT AND PLAN OF REORGANIZATION

 

THIS AGREEMENT AND PLAN OF REORGANIZATION (the “Agreement”) is made and entered into as of October 31, 2005, by and between Union Bankshares Corporation, a Virginia corporation (“Union”), and Prosperity Bank & Trust Company, a Virginia banking corporation (“Prosperity”).

 

WITNESSETH:

 

The parties desire that Prosperity shall become a wholly-owned subsidiary of Union pursuant to a plan of share exchange (the “Plan of Share Exchange”) substantially in the form attached as Exhibit A hereto, and the parties desire to provide for certain undertakings, conditions, representations, warranties and covenants in connection with the transactions contemplated hereby.

 

NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE 1

The Affiliation and Related Matters

 

1.1 The Affiliation

 

Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.2 hereof), Prosperity shall become a wholly-owned subsidiary of Union through the exchange of each outstanding share of common stock of Prosperity for a cash amount equal to $90.00 per share in accordance with Section 1.3 of this Agreement and the Plan of Share Exchange attached hereto as Exhibit A and made a part hereof (the “Affiliation”). From and after the Effective Time, the Affiliation shall have the effect set forth in Section 13.1-721 of the Virginia Stock Corporation Act (the “VSCA”).

 

1.2 Effective Time

 

The Affiliation will become effective on the date and at the time shown on the Certificate of Share Exchange issued by the Virginia State Corporation Commission (the “Effective Time”). Subject to the satisfaction or waiver of the conditions set forth in Article 4, the parties shall use their reasonable best efforts to cause the Effective Time to occur on or before April 1, 2006, or on such other date as the parties may agree in writing. All documents required by this Agreement to be delivered at or prior to the Effective Time will be exchanged by the parties at the closing of the Affiliation (the “Closing”), which shall be held on or before the Effective Time. At or after the Closing, Union and Prosperity shall execute and deliver Articles of Share Exchange containing the Plan of Share Exchange to the Virginia State Corporation Commission.

1.3 Conversion of Prosperity Capital Stock

 

At the Effective Time, by virtue of the Affiliation and without any action on the part of a holder of shares of Prosperity common stock, par value $5.00 per share (“Prosperity Common Stock”):

 

(a) Each share common stock of Union, par value $2.00 per share (“Union Common Stock”), that is issued and outstanding immediately before the Effective Time shall remain issued and outstanding and shall remain unchanged by the Affiliation.

 

(b) Each share of Prosperity Common Stock issued and outstanding immediately before the Effective Time (other than the Appraisal Shares as defined in Section 1.8 hereof) shall be converted into the right to receive a cash amount equal to $90.00 per share (the “Cash Consideration”).

 

(c) For purposes of this Agreement, the “Share Exchange Consideration” means the Cash Consideration and the Stock Option Consideration (as defined in Section 1.6).

 

1.4 Exchange Procedures

 

(a) Promptly after the Effective Time, Union will cause its transfer agent, or such other transfer agent or depository or trust institution of recognized standing approved by Union (in such capacity, the “Exchange Agent”), to send to each former shareholder of record of Prosperity immediately before the Effective Time transmittal materials for use in exchanging such shareholder’s certificates of Prosperity Common Stock for the Cash Consideration.

 

(b) After the Effective Time, there will be no transfers of shares of Prosperity Common Stock on the stock transfer books of Prosperity, and shares of Prosperity Common Stock presented to Union for any reason will be canceled and exchanged in accordance with this Article 1.

 

(c) Union, Prosperity and the Exchange Agent will not be liable to any former holder of Prosperity Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

 

1.5 Directors and Officers of Prosperity

 

The directors and officers of Prosperity will not change as a result of the Affiliation. The members of Prosperity’s Board of Directors will remain on such board for their existing terms of office and thereafter shall be subject to reelection at the discretion of Union.

 

1.6 Prosperity Stock Options

 

At the Effective Time, each stock option to purchase shares of Prosperity Common Stock granted pursuant to the Prosperity Bank & Trust Company Stock Option Plan then outstanding (and which by its terms does not lapse on or before the Effective Time), whether or not then exercisable, shall be cancelled in exchange for a cash payment equal to the difference between the per share exercise price and $90.00 (the “Stock Option Consideration”).

 

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1.7 Articles of Incorporation and Bylaws

 

The articles of incorporation and bylaws of Prosperity at the Effective Time shall be the articles of incorporation and bylaws of Prosperity after the Effective Time until thereafter amended in accordance with applicable law.

 

1.8 Appraisal Shares

 

Shareholders of Prosperity shall have the right to demand and receive payment of the fair value of their shares of Prosperity Common Stock pursuant to the provisions of Section 13.1-729 et seq. of the VSCA (the “Appraisal Shares”).

 

1.9 Definitions

 

Any term defined anywhere in this Agreement shall have the meaning ascribed to it for all purposes of this Agreement (unless expressly noted to the contrary). In addition:

 

(a) the term “Knowledge” means the knowledge, after due inquiry, of any “executive officer” of such party, as such term is defined in Regulation O (12 C.F.R. 215).

 

(b) “Material Adverse Effect” means, with respect to Union or Prosperity any effect that (i) is material and adverse to the financial position, results of operations or business of Union and its subsidiaries taken as a whole or Prosperity as the case may be, or (ii) would materially impair the ability of any of Union and its subsidiaries or Prosperity to perform their respective obligations under this Agreement or otherwise materially impede the consummation of the Affiliation; provided, however, that Material Adverse Effect shall not be deemed to include the impact of (A) changes in banking and similar laws of general applicability or interpretations thereof by any Governmental Authority (as defined in Section 3.10), (B) changes in generally accepted accounting principles (“GAAP”) or regulatory accounting requirements applicable to banks and their holding companies generally, (C) changes in general economic conditions affecting banks and their holding companies generally, (D) any modifications or changes to valuation policies and practices, or expenses incurred, in connection with the Affiliation or restructuring charges taken in connection with the Affiliation, in each case in accordance with GAAP, and (E) with respect to Prosperity, the effects of any action or omission taken with the prior consent of Union or as otherwise contemplated by the Agreement.

 

(c) the term “Previously Disclosed” by a party shall mean information set forth in a section of its Disclosure Schedule (as defined in Section 2.1) corresponding to the section of this Agreement where such term is used.

 

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ARTICLE 2

Representations and Warranties

 

2.1 Disclosure Schedules

 

Before entering into this Agreement, Prosperity delivered to Union a schedule, and Union delivered to Prosperity a schedule (respectively, each schedule a “Disclosure Schedule”), setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more of its representations or warranties contained in Article 2 or to one or more of its covenants contained in Article 3; provided that the mere inclusion of an item in a Disclosure Schedule as an exception to a representation or warranty will not be deemed an admission by a party that such item is material or was required to be disclosed therein.

 

2.2 Standard

 

For all purposes of this Agreement, no representation or warranty of Prosperity contained in Section 2.3 (other than the representations and warranties contained in Section 2.3(d), which shall be true in all material respects) or Union contained in Section 2.4 (other than the representations and warranties contained in Section 2.4(d), which shall be true in all material respects) will be deemed untrue or incorrect, and no party will be deemed to have breached a representation or warranty, as a consequence of the existence of any fact, event or circumstance unless such fact, circumstance or event, individually or taken together with all other facts, events or circumstances inconsistent with any representation or warranty contained in Section 2.3 or Section 2.4, has had or is reasonably likely to have a Material Adverse Effect with respect to Prosperity or Union, as the case may be.

 

2.3 Representations and Warranties of Prosperity

 

Subject to Section 2.1 and 2.2, Prosperity hereby represents and warrants to Union as follows:

 

(a) Organization, Standing and Power. Prosperity is a Virginia chartered banking corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia. Prosperity has the corporate power and authority to carry on its business in Virginia as now conducted and to own and operate its assets, properties and business; and it has the corporate power and authority to execute, deliver and perform its obligations under this Agreement, and to consummate the transactions contemplated hereby. Prosperity is in compliance in all material respects with all rules and regulations promulgated by any relevant regulatory authority, and it has all requisite corporate power and authority to carry on a commercial banking business as now being conducted.

 

(b) Subsidiaries. Prosperity does not own, directly or indirectly, five percent (5%) or more of the outstanding capital stock or other voting securities of any corporation, bank or other organization actively engaged in business. Prosperity does not have any subsidiaries.

 

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(c) Authorized and Effective Agreement .

 

(i) Subject only to receipt of the requisite stockholder approval of this Agreement and the Plan of Share Exchange, this Agreement and the Plan of Share Exchange and the transactions contemplated hereby and thereby have been authorized by all necessary corporate action on the part of Prosperity on or before the date hereof. This Agreement and the Plan of Share Exchange are valid and legally binding obligations of Prosperity, enforceable in accordance with their respective terms (except as enforceability may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws affecting the enforcement of rights of creditors or by general principles of equity).

 

(ii) Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated herein, nor compliance by Prosperity with any of the provisions hereof will: (A) conflict with or result in a breach of any provision of Prosperity’s articles of incorporation or bylaws; (B) except as Previously Disclosed , constitute or result in the breach of any term, condition or provision of, or constitute a default under, or give rise to any right of termination, cancellation or acceleration with respect to, or result in the creation of any lien, charge or encumbrance upon, any property or asset of Prosperity or any Prosperity Subsidiary pursuant to any (1) note, bond, mortgage or indenture, or (2) any material license, agreement or other instrument or obligation, to which Prosperity or any Prosperity Subsidiary is a party or by which Prosperity or any Prosperity Subsidiary or any of their respective properties or assets may be bound; or (C) subject to the receipt of all required regulatory and shareholder approvals, violate any order, writ, injunction, decree, statute, rule or regulation applicable to Prosperity or any Prosperity Subsidiary.

 

(iii) As of the date hereof, Prosperity is not aware of any reason why the necessary regulatory approvals and consents will not be received in order to permit consummation of the Affiliation.

 

(d) Capital Structure. The authorized capital stock of Prosperity consists of 1,000,000 shares of common stock, par value $5.00 per share, of which 387,844 shares are issued and outstanding. All outstanding shares of Prosperity Common Stock have been duly authorized and validly issued, are fully paid and nonassessable and have not been issued in violation of the preemptive rights of any person. As of the date hereof, there are stock options held by employees and directors of Prosperity that represent rights to purchase a total of 14,923 shares of Prosperity Common Stock. As of the date of this Agreement, there are not any shares of capital stock of Prosperity reserved for issuance, or any outstanding or authorized options, warrants, rights, agreements, convertible or exchangeable securities, or other commitments, contingent or otherwise, relating to its capital stock pursuant to which Prosperity is or may become obligated to issue shares of capital stock or any securities convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of its capital stock (collectively, “Rights”), except as contemplated under Prosperity’s stock option plan and as Previously Disclosed in Section 3.3(d) in its Disclosure Schedule (which includes copies of the stock option plan and individual stock option agreements pursuant to which employees and directors of Prosperity may exercise stock options).

 

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(e) Financial Statements and Reports. Prosperity’s audited financial statements and reports for the fiscal years ended December 31, 2003 and 2004, its unaudited financial statements, reports or information for any period subsequent to December 31, 2004, and all other reports or information compiled by it subsequent to December 31, 2002 provided to its shareholders or any regulatory agency (collectively, the “Prosperity Reports”) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each of the statements of financial position contained in or incorporated by reference into any such Prosperity Report (including the related notes and schedules) fairly presented in all material respects Prosperity’s financial position as of the date of such statement, and each of the statements of income and changes in stockholders’ equity and cash flows or equivalent statements in such Prosperity Reports (including any related notes and schedules thereto) fairly presented in all material respects, the results of operations, changes in stockholders’ equity and changes in cash flows, as the case may be, of Prosperity for the periods to which those statements relate, in each case in accordance with GAAP consistently applied to banks during the periods involved, except in each case as may be noted therein, and subject to normal year-end audit adjustments and as permitted in the case of unaudited statements.

 

(f) Absence of Material Changes and Events . Since December 31, 2004, and except as Previously Disclosed , there has been no change in the financial condition or results of operations of Prosperity which, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect on Prosperity.

 

(g) Absence of Undisclosed Liabilities . Since December 31, 2004, Prosperity has not incurred any liability (contingent or otherwise) that is material to Prosperity on a consolidated basis or that, when combined with all similar liabilities, would be material to Prosperity on a consolidated basis, except as Previously Disclosed or as disclosed in the Prosperity Reports and except for liabilities incurred in the ordinary course of business consistent with past practice.

 

(h) Material Contracts; Defaults . Except as Previously Disclosed , Prosperity is not a party to, bound by or subject to any agreement, contract, arrangement, commitment or understanding (whether written or oral) (A) that would be considered a “material contract” of Prosperity within the meaning of Item 601(b)(10) of the Securities and Exchange Commission’s (the “SEC”) Regulation S-K if the Prosperity Common Stock was registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (B) that restricts the conduct of business by Prosperity of ability to compete in any line of business or (C) with respect to employment of an officer, director or consultant of Prosperity. To its Knowledge, Prosperity is not in default under any material contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party, by which its respective assets, business, or operations may be bound or affected, or under which it or its respective assets, business, or operations receives benefits, and there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default.

 

(i) Legal Proceedings . Except as Previously Disclosed , there are no actions, suits or proceedings instituted or pending or, to Prosperity’s Knowledge, threatened against Prosperity or

 

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against any of Prosperity’s properties, assets, interests or rights, or against any of Prosperity’s officers, directors or employees that would, if determined adversely to Prosperity, have a Material Adverse Effect on Prosperity on a consolidated basis.

 

(j) Tax Matters . Prosperity has filed all federal, state and local tax returns and reports (“Tax Returns”) required to be filed, and all such Tax Returns were correct and complete in all material respects. All Taxes (as defined below) owed by Prosperity have been paid, are reflected as a liability in the Prosperity Reports, or are being contested in good faith and have been Previously Disclosed . Except as Previously Disclosed , no tax return or report filed by Prosperity is under examination by any taxing authority or the subject of any administrative or judicial proceeding, and no unpaid tax deficiency has been asserted against Prosperity by any taxing authority. As used herein, “Taxes” mean all taxes, charges, fees, levies or other assessments, including, without limitation, all income, gross receipts, sales, use, ad valorem, goods and services, capital, transfer, franchise, profits, license, withholding, payroll, employment, employer health, excise, estimated, severance, stamp, occupation, property or other taxes, custom duties, fees, assessments or chargers of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority.

 

(k) Property . Except as Previously Disclosed or reserved against as disclosed in the Prosperity Reports, Prosperity has good and marketable title free and clear of all material liens, encumbrances, charges, defaults or equitable interests to all of the properties and assets, real and personal, reflected in the balance sheet included in the Prosperity Reports as of December 31, 2004 or acquired after such date. To Prosperity’s Knowledge, all buildings, and all fixtures, equipment, and other property and assets that are material to the business of Prosperity, held under leases or subleases, are held under valid instruments enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws. To Prosperity’s Knowledge, the buildings, structures, and appurtenances owned, leased, or occupied by Prosperity are in good operating condition and in a state of good maintenance and repair and comply with applicable zoning and other municipal laws and regulations, and there are no latent defects therein.

 

(l) Employee Benefit Plans .

 

(i) Prosperity has Previously Disclosed in Section 2.3(l)(i) in its Disclosure Schedule all employee benefit plans and programs of Prosperity, including without limitation: (A) all retirement, savings and other pension plans; (B) all health, severance, insurance, disability and other employee welfare plans; and (C) all employment, vacation and other similar plans, all bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other employee benefit plans, programs or arrangements, and all employment or compensation arrangements, in each case for the benefit of or relating to its current and former employees and directors (individually, a “Prosperity Benefit Plan” and collectively, the “Prosperity Benefit Plans”).

 

(ii) None of the Prosperity Benefit Plans is a “multi-employer plan” as defined in section 3(37) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

 

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(iii) Except as Previously Disclosed , all of the Prosperity Benefit Plans are in compliance in all material respects with applicable laws and regulations, and Prosperity has administered the Prosperity Benefit Plans in accordance with applicable laws and regulations in all material respects.

 

(iv) Each Prosperity Benefit Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified, as reflected in a current favorable determination letter, or a filing has been made with the Internal Revenue Service seeking such a determination letter and that request is still awaiting decision by the Internal Revenue Service.

 

(v) Prosperity has made available to Union copies of all of the Prosperity Benefit Plans and, where applicable, summary plan descriptions, and annual reports required to be filed within the last three years pursuant to ERISA or the Code with respect to the Prosperity Benefit Plans.

 

(vi) To its Knowledge, Prosperity has not engaged in any prohibited transactions, as defined in Code section 4975 or ERISA section 406, with respect to any Prosperity Benefit Plan that is a pension plan as defined in Section 3(2) of ERISA.

 

(vii) There are no actions, suits, investigations or claims pending, or to Prosperity’s Knowledge, threatened or anticipated (other than routine claims for benefits), with respect to any of the Prosperity Benefit Plans.

 

(viii) Except as Previously Disclosed , no Prosperity Benefit Plan contains any provision that would give rise to any severance, termination or other payments or liabilities as a result of the transactions contemplated by this Agreement.

 

(ix) Prosperity has not established and does not maintain a welfare plan, as defined in ERISA section 3(1), that provides benefits to an employee at its expense after a termination of employment, except as required by the Consolidated Omnibus Budget Reconciliation Act of 1985.

 

(m) Insurance . Prosperity currently maintains insurance in amounts reasonably necessary for its operations and, to Prosperity’s Knowledge, similar in scope and coverage to that maintained by other entities similarly situated. The parties agree that the schedule of insurance set forth in the Disclosure Schedule satisfies this representation. Since June 1, 2005, Prosperity has not received any notice of a premium increase or cancellation or a failure to renew with respect to any insurance policy or bond and, within the last three fiscal years, has not been refused any insurance coverage sought or applied for, and Prosperity has no reason to believe that existing insurance coverage cannot be renewed as and when the same shall expire upon terms and conditions as favorable as those presently in effect, other than possible increases in premiums or unavailability of coverage that do not result from any extraordinary loss experience on the part of Prosperity.

 

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(n) Loans; Allowance for Loan Losses .

 

(i) Except as Previously Disclosed , to Prosperity’s Knowledge each loan reflected as an asset in the Prosperity Reports (A) is evidenced by notes, agreements or evidences of indebtedness which are true, genuine and what they purport to be, (B) to the extent secured, has been secured by valid liens and security interests which have been perfected, (C) is the legal, valid and binding obligation of the obligor and any guarantor, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles, and no defense, offset or counterclaim has been asserted with respect to any such loan which if successful could have a Material Adverse Effect on Prosperity, and (D) in all material respects was made in accordance with Prosperity’s standard loan policies.

 

(ii) Prosperity has Previously Disclosed the aggregate amounts as of a recent date of all loans, advances, credit enhancements, other extensions of credit, commitments and interest-bearing assets of Prosperity that have been classified by any bank examiner (whether regulatory or internal) as “Other Loans Specially Mentioned,” “Special Mention,” “Substandard,” “Doubtful,” “Loss,” “Classified” or words of similar import. Prosperity shall promptly, on a periodic basis, inform Union of any such classification arrived at any time after the date hereof.

 

(iii) Any real property classified as other real estate owned (“OREO”) included in non-performing assets in the Prosperity Reports is carried net of reserve at the lower of cost or market value based on independent appraisals. There is, however, currently no OREO property.

 

(iv) The allowance for loan losses reflected on the statements of financial condition included in the Prosperity Reports, as of their respective dates, is adequate in all material respects to provide for reasonably anticipated losses on outstanding loans.

 

(o) Environmental Matters .

 

(i) Except as Previously Disclosed , Prosperity is in substantial compliance with all Environmental Laws (as defined below). Prosperity has not received any communication alleging that it is not in such compliance and there are no present circumstances that would prevent or interfere with the continuation of such compliance.

 

(ii) Prosperity has not received notice of pending, and is not aware of any threatened, legal, administrative, arbitral or other proceedings, asserting Environmental Claims (as defined below) or other claims, causes of action or governmental investigations of any nature, seeking to impose, or that could result in the imposition of, any material liability arising under any Environmental Laws upon (A) Prosperity, (B) any person or entity whose liability for any Environmental Claim Prosperity has or may have retained either contractually or by operation of law, (C) any real or personal property owned or leased by Prosperity, or any real or personal property which Prosperity has been, or is,

 

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judged to have managed or to have supervised or to have participated in the management of, or (D) any real or personal property in which Prosperity holds a security interest securing a loan recorded on the books of Prosperity. Prosperity is not subject to any agreement, order, judgment, decree or memorandum by or with any court, governmental authority, regulatory agency or third party imposing any such liability.

 

(iii) With respect to all real and personal property owned or leased by Prosperity, or all real and personal property which Prosperity has been, or is, judged to have managed or to have supervised or to have participated in the management of, Prosperity has provided Union with access to copies of any environmental audits, analyses and surveys that have been prepared relating to such properties (a list of which is Previously Disclosed ). Prosperity is in compliance in all material respects with all recommendations contained in any such environmental audits, analyses and surveys.

 

(iv) There are no past or present actions, activities, circumstances, conditions, events or incidents that could reasonably form the basis of any Environmental Claim or other claim or action or governmental investigation that could result in the imposition of any liability arising under any Environmental Laws against Prosperity or against any person or entity whose liability for any Environmental Claim Prosperity has or may have retained or assumed either contractually or by operation of law.

 

(v) For purposes of this Agreement, the following terms shall have the following meanings:

 

(A) “Environmental Claim” means any written notice from any governmental authority or third party alleging potential liability (including, without limitation, potential liability for investigatory costs, clean-up, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based upon, or resulting from the presence, or release into the environment, of any Materials of Environmental Concern.

 

(B) “Environmental Laws” means all applicable federal, state and local laws and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, that relate to pollution or protection of human health or the environment.

 

(C) “Materials of Environmental Concern” means pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products and any other materials regulated under Environmental Laws.

 

(p) Books and Records . Prosperity’s books and records have been fully, properly and accurately maintained in all material respects, and there are no material inaccuracies or discrepancies of any kind contained or reflected therein.

 

(q) Takeover Laws and Provisions . To its Knowledge, Prosperity has taken all action necessary to exempt this Agreement and the Plan of Share Exchange and the transactions

 

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contemplated hereby and thereby from the requirements of any “control share,” “fair price,” “affiliate transaction,” “business combination” or other anti-takeover laws and regulations of Virginia. To its Knowledge, Prosperity has taken all action required to be taken by it in order to make this Agreement and the transactions contemplated hereby comply with, and this Agreement and the transactions contemplated hereby do comply with, the requirements of any articles, sections or provisions of its articles of incorporation and bylaws concerning “business combination,” “fair price,” “voting requirement,” “constituency requirement” or other related provisions.

 

(r) Regulatory Reports . Since December 31, 2004, Prosperity has filed all reports and statements, together with any amendments required to be made with respect thereto, that were required to be filed with the Virginia Bureau of Financial Institutions, the Board of Governors of the Federal Reserve and any other governmental or regulatory authority or agency having jurisdiction over their operations, and such reports were prepared in all material respects in accordance with the applicable statutes, regulations and instructions in existence as of the date of filing of such reports.

 

(s) Compliance With Laws . Prosperity:

 

(i) is in material compliance with all applicable federal, state and local statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto or to the employees conducting such businesses, including, without limitation, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act and all other applicable fair lending laws and other laws relating to discriminatory business practices;

 

(ii) has all permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations with, each Governmental Authority that is required in order to permit it to own or lease its properties and to conduct its business as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to Prosperity’s Knowledge, no suspension or cancellation of any of them is threatened; and

 

(iii) has received, since December 31, 2004, no notification or communication from any Governmental Authority (A) asserting that Prosperity is not in compliance with any of the statutes, regulations or ordinances which such Governmental Authority enforces or (B) threatening to revoke any license, franchise, permit or governmental authorization (nor, to Prosperity’s Knowledge, do any grounds for any of the foregoing exist).

 

(t) No Brokers . No action has been taken by Prosperity that would give rise to any valid claim against any party hereto for a brokerage commission, finder’s fee or other like payment with respect to the Affiliation, except a Previously Disclosed fee to be paid to Sandler O’Neill & Partners, L.P.

 

(u) Fiduciary Accounts . Prosperity has properly administered all accounts for which it acts as a fiduciary, including but not limited to accounts for which it serves as a trustee, agent,

 

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custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents and applicable laws and regulations. Neither Prosperity nor any of its respective directors, officers or employees, has committed any breach of trust with respect to any fiduciary account and the records for each such fiduciary account are true and correct and accurately reflect the assets of such fiduciary account.

 

(v) Transactions With Affiliates . All “covered transactions” between Prosperity and an “affiliate” within the meaning of Sections 23A and 23B of the Federal Reserve Act, as amended, have been in compliance with such provisions.

 

(w) Fairness Opinion . The Prosperity Board has received the written opinion of Sandler O’Neill & Partners, L.P. to the effect that, as of the date hereof, the Share Exchange Consideration is fair to the holders of Prosperity Common Stock from a financial point of view.

 

(x) Transactions in Securities . All offers and sales of Prosperity Common Stock by Prosperity were at all relevant times exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”).

 

(y) Investment Securities. Except for pledges to secure public and trust deposits and obligations under agreements pursuant to which Prosperity has sold securities subject to an obligation to repurchase, none of the investment securities reflected in the Prosperity Reports are subject to any restriction, contractual, statutory, or otherwise which would impair materially the ability of the holder of such investment to dispose freely of any such investment at any time. With respect to any agreements pursuant to which Prosperity has purchased securities subject to any agreement to resell, it has a valid, perfected first lien or security interest in the government securities or other collateral securing such agreement, and to Prosperity’s Knowledge, the value of such collateral equals or exceeds the amount of the debt secured thereby.

 

(z) Disclosure . The representations and warranties contained in this Section 2.3, when considered as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 2.3 not misleading.

 

2.4 Representations and Warranties of Union

 

Subject to Sections 2.1 and 2.2, Union hereby represents and warrants to Prosperity as follows:

 

(a) Organization, Standing and Power. Union is a Virginia corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia. Union has the corporate power and authority to carry on its business in Virginia as now conducted and to own and operate its assets, properties and business; and it has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. Union is duly registered as a bank holding company under the Bank Holding Company Act of 1956, as amended.

 

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(b) Subsidiaries. Each subsidiary of Union (each individually an “Union Subsidiary” and collectively the “Union Subsidiaries”) (i) is a duly organized corporation, validly existing and in good standing under applicable laws, (ii) has full corporate power and authority to carry on its business as now conducted and (iii) is duly qualified to do business in the states where its ownership or leasing of property or the conduct of its business requires such qualification and where the failure to so qualify would have a Material Adverse Effect on Union on a consolidated basis. The outstanding shares of capital stock of each Union Subsidiary have been duly authorized and are validly issued and outstanding, fully paid and nonassessable and all such shares are directly or indirectly owned by it free and clear of all liens, claims and encumbrances or preemptive rights of any person.

 

(c) Authorized and Effective Agreement .

 

(i) This Agreement and the Plan of Share Exchange and the transactions contemplated hereby and thereby have been authorized by all necessary corporate action on the part of Union on or before the date hereof. This Agreement and the Plan of Share Exchange are valid and legally binding obligations of Union, enforceable in accordance with their respective terms (except as enforceability may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws affecting the enforcement of rights of creditors or by general principles of equity).

 

(ii) Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated herein, nor compliance by Union with any of the provisions hereof: (A) conflict with or result in a breach of any provision of its articles of incorporation or bylaws; (B) except as Previously Disclosed , constitute or result in the breach of any term, condition or provision of, or constitute a default under, or give rise to any right of termination, cancellation or acceleration with respect to, or result in the creation of any lien, charge or encumbrance upon, any property or asset of Union or any Union Subsidiary pursuant to any (1) note, bond, mortgage, indenture, or (2) any material license, agreement or other instrument or obligation, to which Union or any Union Subsidiary is a party or by which Union or any of the Union Subsidiaries or any of their respective properties or assets may be bound; or (C) subject to the receipt of all required regulatory approvals, violate any order, writ, injunction, decree, statute, rule or regulation applicable to Union or any Union Subsidiary.

 

(iii) As of the date hereof, Union is not aware of any reason why the necessary regulatory approvals and consents will not be received in order to permit consummation of the Affiliation.

 

(d) Capital Structure. The authorized capital stock of Union consists of: (i) 24,000,000 shares of common stock, par value $2.00 per share, of which 8,773,136 are issued and outstanding; and (ii) 500,000 shares of preferred stock, par value $10.00 per share, of which no shares are issued and outstanding as of this date. All outstanding shares of Union Common Stock have been duly authorized and validly issued, are fully paid and nonassessable and have not been issued in violation of the preemptive rights of any person.

 

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(e) Financial Reports and Regulatory Documents. Union’s Annual Reports on Form 10-K for the fiscal years ended December 31, 2003 and 2004, and all other reports, registration statements, definitive proxy statements or information statements filed by it or any Union Subsidiary subsequent to December 31, 2002 under the Securities Act, or under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the form filed (collectively, the “Union Regulatory Filings”) with the SEC as of the date filed, (i) complied in all material respects as to form with the applicable requirements under the Securities Act or the Exchange Act, as the case may be, and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each of the statements of financial position contained in or incorporated by reference into any such Union Regulatory Filing (including the related notes and schedules) fairly presented in all material respects Union’s financial position and that of the Union Subsidiaries as of the date of such statement, and each of the statements of income and changes in shareholders’ equity and cash flows or equivalent statements in such Union Regulatory Filings (including any related notes and schedules thereto) fairly presented in all material respects, the results of operations, changes in shareholders’ equity and changes in cash flows, as the case may be, of Union and the Union Subsidiaries for the periods to which those statements relate, in each case in accordance with GAAP consistently applied to banks and bank holding companies during the per