As filed with the Securities and Exchange Commission on January 30, 1997
Registration No. 333-20399
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
PRE-EFFECTIVE
AMENDMENT No. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PINNACLE BANKSHARES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C>
Virginia 6711 54-1832714
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization Classification Code) Identification No.)
</TABLE>
<TABLE>
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Copy to:
Robert H. Gilliam, Jr. Timothy P. Veith, Esq.
President and Chief Executive Officer Mays & Valentine
Pinnacle Bankshares Corporation 1111 East Main St.,
622 Broad Street NationsBank Center
Altavista, Virginia 24517 Richmond, Virginia 23219
Telephone: (804) 369-3000 Telephone: (804) 697-1265
----------------------------------- ---------------------------
(Name and Address of Agent for Service Process)
</TABLE>
Approximate date of commencement of the proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: [x]
<PAGE>
[The First National Bank of Altavista Letterhead]
February __, 1997
Dear Fellow Shareholders:
You are cordially invited to attend the Annual Meeting of
Shareholders of your Bank on April 8, 1997, at 11:30 a.m. at the Fellowship Hall
of Altavista Presbyterian Church, located at 707 Broad Street, Altavista,
Virginia. The accompanying Notice and Proxy Statement/Prospectus describe
important matters to be presented at the meeting. Please give them your prompt
attention.
At the Annual Meeting you will be asked to approve a proposal
to adopt a bank holding company form of organization for the Bank. Under the
proposal, the Bank will conduct its banking operations as a wholly-owned
subsidiary of Pinnacle Bankshares Corporation, a Virginia corporation that will
serve as the holding company for the Bank (the "Holding Company"). Each share of
your stock in the Bank will be converted, in a tax-free transaction, into three
shares of common stock of the Holding Company. Following the reorganization of
the Bank into a holding company structure, your equity ownership in the Holding
Company will be exactly the same as your present ownership in the Bank, and the
Bank will continue to operate from the same offices it currently occupies.
The financial services industry is one of the most rapidly
changing segments of Virginia's and the nation's economy. Historical
distinctions between various types of financial institutions are eroding rapidly
and banks are subject to new and more aggressive competition from every side.
Your Board believes that the greater flexibility and investment opportunities
provided by the establishment of a holding company will facilitate the
fulfillment of our customers' needs in this rapidly changing environment. The
Board of Directors encourages you to read carefully the enclosed Proxy
Statement/Prospectus and to VOTE FOR the reorganization of the Bank.
At the meeting, you also will vote on the election of all of
the directors of the Bank for the coming year. Your Board of Directors
unanimously supports these individuals and recommends that you VOTE FOR them as
directors.
We hope you can attend the Annual Meeting. Whether of not you
plan to attend, please complete, sign and date the enclosed proxy card and
return it promptly in the enclosed envelope. Your vote is important regardless
of the number of shares you own. We look forward to seeing you at the Annual
Meeting, and we appreciate your continued loyalty and support.
Sincerely,
Robert H. Gilliam, Jr.
President and Chief Executive Officer
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 8, 1997
To Our Shareholders:
The Annual Meeting of Shareholders of The First National Bank of
Altavista (the "Bank") will be held, on Tuesday, April 8, 1997, at 11:30 a.m. at
the Fellowship Hall of Altavista Presbyterian Church, located at 707 Broad
Street, Altavista, Virginia for the following purposes:
1. To approve an Agreement and Plan of Reorganization dated as of
January 22, 1997 (the "Agreement"), a copy of which is attached to the
accompanying Proxy Statement/Prospectus as Exhibit A, providing for the merger
of the Bank into a wholly-owned national bank subsidiary of Pinnacle Bankshares
Corporation, a Virginia corporation, formed to serve as the holding company for
the Bank;
2. To elect the directors of the Bank for a one year term and until
their successors are elected and qualified;
3. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on February __, 1997,
will be entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof.
By Order of the Board of Directors
-------------------
Robert H. Gilliam, Jr.
President and Chief Executive Officer
February __, 1997
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY
PROMPTLY, WHETHER OR NOT YOU PLAN TO ATTEND THE
ANNUAL MEETING.
THE BOARD OF DIRECTORS OF FIRST NATIONAL BANK RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE THE AGREEMENT.
<PAGE>
THE
FIRST NATIONAL BANK
OF
ALTAVISTA
-------------------------
PROXY STATEMENT / PROSPECTUS
719,025 SHARES OF COMMON STOCK
OF
PINNACLE BANKSHARES CORPORATION
-------------------------
INTRODUCTION
This Proxy Statement/Prospectus is furnished to shareholders of The
First National Bank (the "Bank") in connection with the solicitation of proxies
by the Board of Directors of the Bank for use at the Annual Meeting of
Shareholders to be held on April 8, 1997, at the time and place set forth in the
accompanying Notice of Annual Meeting of Shareholders and at any adjournment
thereof (the "Annual Meeting"). This Proxy Statement/Prospectus and the enclosed
form of proxy are being mailed to the shareholders of the Bank on or about
February __, 1997.
At the Annual Meeting, shareholders will be asked to approve the
reorganization of the Bank into a holding company structure (the
"Reorganization") in accordance with the terms and conditions set forth in the
Agreement and Plan of Reorganization, dated as of January 22, 1997 (the
"Agreement"), a copy of which is attached as Exhibit A to this Proxy
Statement/Prospectus. The Agreement provides for the merger of the Bank into a
wholly-owned subsidiary of Pinnacle Bankshares Corporation, a Virginia
corporation recently organized to serve as the holding company for the Bank (the
"Holding Company"). Under the terms of the Agreement, the Bank will be merged
into Pinnacle Bank, N.A., a newly chartered subsidiary bank of the Holding
Company organized to serve as a vehicle in accomplishing the Reorganization
("Pinnacle Bank"). At the effective date of the Reorganization, each outstanding
share of common stock of the Bank will be converted, in a tax-free transaction,
into three shares of common stock of the Holding Company. After consummation of
the Reorganization, the Bank will conduct its business as a wholly-owned
subsidiary of the Holding Company in substantially the same manner and from the
same offices as the Bank did before the Reorganization. See "The Proposed
Reorganization."
This Proxy Statement/Prospectus also serves as the prospectus for the
Holding Company as it relates to the 719,025 shares of Holding Company common
stock, par value $3 per share, to be issued to the shareholders of the Bank in
exchange for their shares of Bank common stock. The Holding Company has filed a
Registration Statement under the Securities Act of 1933 with the Securities and
Exchange Commission with respect to the shares of Holding Company common stock
to be issued in connection with the Reorganization.
At the Annual Meeting, you also will vote on the election of all of
the directors of the Bank for the coming year. With the exception of the
election of Herman P. Rogers, Jr. to replace Hugh W. Rosser, who is retiring,
the same individuals are currently serving as directors of the Bank.
The principal offices of the Bank and the Holding Company are at 622
Broad Street, Altavista, Virginia 24517 (telephone: (804) 369-3000).
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
The date of this Proxy Statement / Prospectus is February __, 1997.
<PAGE>
AVAILABLE INFORMATION
The First National Bank is not currently subject to the informational
reporting requirements of the rules and regulations of the Office of the
Comptroller of the Currency (the "OCC") or any other agency.
Pinnacle Bankshares Corporation, the proposed one-bank holding company
that will become the parent corporation of the Bank, has filed with the
Securities and Exchange Commission ("SEC") a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the shares of Holding Company Common Stock
issuable in the Reorganization. As permitted by the rules and regulations of the
Commission, this Proxy Statement/Prospectus omits certain information contained
in the Registration Statement. For further information and reference, the
Registration Statement and the exhibits thereto may be inspected without charge
at the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained from the Commission at
prescribed rates.
Pursuant to the Reorganization, the Holding Company will be subject to
reporting responsibilities under the Exchange Act. Following the Reorganization,
the Holding Company must comply with the reporting requirements of the SEC, and
will file such reports and information with the SEC.
The Bank's Annual Report (including financial statements) for the year
ended December 31, 1996, which Report includes audited consolidated financial
statements of the Bank for the two years ended December 31, 1996 and five-year
summary financial information is included with this Proxy Statement/Prospectus
in connection with the 1997 Annual Meeting of Shareholders. The Annual Report is
prepared in conformity with generally accepted accounting principles. Copies of
the Bank's audited financial statements, and unaudited quarterly reports to
shareholders and call reports will be available for inspection by shareholders
at the Annual Meeting. Copies of all financial statements will be made available
upon request. In addition, copies of the Bylaws of the Holding Company will be
available for inspection at the Annual Meeting and will be provided upon request
prior to the meeting. All requests for copies of information should be directed
to the Bank's Chief Financial Officer at the Bank's Main Office at the address
set forth on the first page of this Proxy Statement/Prospectus or by telephone
to Dawn P. Crusinberry at (804) 369-3000.
-2-
<PAGE>
TABLE OF CONTENTS
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Page Page
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Summary of the Proxy Statement/Prospectus........ 4 Indemnification of Directors and
Officers....................................... 19
General Information.............................. 7 Pinnacle Bank, N.A. ............................. 20
Use and Revocation of Proxies.................. 7 Description of Holding Company Capital
Shareholders Entitled to Vote and Stock........................................ 20
Vote Required................................ 7 Market for the Holding Company's
Solicitation of Proxies........................ 7 Common Stock................................... 21
Financial Statements........................... 7
First National Bank of Altavista
The Proposed Reorganization...................... 8 Business.......................................... 22
Description of the Reorganization.............. 8 Securities Ownership of Centain
Reasons for the Reorganization................. 8 Beneficial Owners.............................. 22
Anticipated Effective Date of the Election of Directors; Management................. 22
Reorganization............................... 9 Meetings and Committees of the
Conversion and Exchange of Stock............... 9 Board of Directors.............................. 24
Federal Income Tax Consequences................ 9 Executive Compensation............................ 25
Required Regulatory Approvals.................. 10 Transactions with Management...................... 25
Possible Abandonment of the Performance Graph................................. 25
Reorganization............................... 10 Principal Security Holders........................ 25
Rights of Dissenting Shareholders.............. 10
Supervision and Regulation.......................... 25
Certain Effects of the General........................................... 25
Reorganization................................. 11 The Holding Company............................... 26
Anti-Takover Effects of the Reorganization.... 11 The First National Bank of Altavista and the
Comparison in the Rights of Continuing Bank................................... 28
Shareholders................................. 11
Historical and Pro Forma
Capitalization............................... 16 Appointment of Auditors............................. 30
Regulation and Supervision..................... 18
Other Matters....................................... 31
The Holding Company.............................. 18
General........................................ 18 Legal Matters....................................... 31
Management and Operations After
the Merger................................... 18 Experts............................................. 31
Shareholder Proposals............................... 31
</TABLE>
No person has been authorized to give any information or to make any
representations not contained herein and, if given or made, such information or
representations must not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell any securities other
than the securities to which it relates or an offer to sell any securities
covered by this Proxy Statement/Prospectus in any jurisdiction where, or to any
person to whom, it is unlawful to make such an offer. Neither the delivery
hereof nor any distribution of securities of Pinnacle Bankshares Corporation
(the "Holding Company") made hereunder shall, under any circumstances, create an
implication that there has been no change in the facts herein set forth since
the date hereof.
-3-
<PAGE>
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
The following material is qualified in its entirety by the information
appearing elsewhere in this Proxy Statement/Prospectus and the Exhibits hereto.
Annual Meeting
Date, Time and Place. April 8, 1997 at 11:30 am. at the Fellowship
Hall of Altavista Presbyterian Church, located at 707 Broad Street,
Altavista, Virginia.
Purpose. To adopt the Agreement providing for the establishment of a
holding company structure for the Bank. The affirmative vote of more than
two-thirds of the outstanding shares of Bank common stock will be required to
approve the Agreement. In addition, shareholders will vote to elect directors of
the Bank for a one year term and until their successors are elected and
qualified.
The Reorganization
At the direction of the Board of Directors of the Bank, the Holding
Company was incorporated on January 22, 1997 under the laws of Virginia to serve
as the holding company for the Bank. A new national banking association also has
been organized as a wholly-owned subsidiary of the Holding Company for the sole
purpose of serving as a vehicle in the formation of the proposed holding company
for the Bank. Pursuant to the Agreement, the Bank will be merged into the
newly-organized bank. The bank resulting from that merger (the "Continuing
Bank") will conduct its business in substantially the same manner and from the
same offices as the Bank did prior to the Reorganization. At the effective date
of the Reorganization, shareholders of the Bank will automatically become
shareholders of the Holding Company and will receive three shares of Holding
Company common stock in exchange for each share of Bank common stock they hold.
See "The Proposed Reorganization - Description of the Reorganization."
Reasons for the Reorganization
The Board of Directors believes the establishment of a holding company
structure for the Bank will provide greater flexibility in responding to the
expanding financial needs of the Bank's customers and in meeting increasing and
ever-changing forms of competition for financial services. The holding company
structure will also afford certain investment opportunities and options that are
otherwise not available currently to the Bank. See "The Proposed Reorganization
- - Reasons for the Reorganization."
Federal Income Tax Consequences
The Reorganization is intended to qualify for federal income tax
purposes as a tax-free "reorganization" under Section 368(a)(1)(A) of the
Internal Revenue Code in which no gain or loss will be recognized by a Bank
shareholder upon the receipt of Holding Company common stock in exchange for
Bank common stock. See "The Proposed Reorganization Federal Income Tax
Consequences."
Comparison in the Rights of Shareholders
As set forth herein, there are certain material differences between
your rights as a Bank shareholder and your rights as a Holding Company
shareholder. The differences are described in detail under "Certain Effects of
the Reorganization - Comparison of the Rights of Shareholders." For instance,
shareholders of the Bank currently have preemptive rights to acquire additional
shares of Bank stock and cumulative voting rights in the election of directors.
The shareholders of the Holding Company will not be entitled to these rights. In
addition, in order to enhance the Holding Company's flexibility in raising
additional capital and in negotiating for the acquisition of other businesses,
its Articles of Incorporation contain provisions that vary in several respects
from the current Articles of Association of the Bank. Listed below are the major
differences.
-4-
<PAGE>
First, the Holding Company will be authorized to issue up to 3,000,000
shares of common stock while the Bank is currently authorized to issue 350,000
shares of common stock. Second, directors of the Holding Company will serve
staggered, three-year terms, instead of one-year terms which Bank directors
currently serve, and may be removed only for cause and by vote of holders of
two-thirds of Holding Company common stock. Third, the Holding Company may have
a minimum of three directors, while the Bank must have at least five. It is
currently contemplated that the Holding Company will have eleven directors
initially. Fourth, the Holding Company's Articles of Incorporation provide for
changes in the requirements of shareholder approvals for certain fundamental
corporate transactions. Last, the directors and officers of the Holding Company
will be entitled to greater rights of indemnification and protected to a greater
extent from liability in shareholder and derivative actions than current Bank
directors. See "Certain Effects of the Reorganization - Comparison of the Rights
of Shareholders."
Anti-takeover Effect of the Reorganization
The Holding Company's Articles of Incorporation and the Virginia Stock
Corporation Act (the "Virginia SCA") contain certain provisions designed to
enhance the ability of the Board of Directors to deal with attempts to acquire
control of the Holding Company. These provisions may be deemed to have an
anti-takeover effect and may discourage takeover attempts which have not been
approved by the Board of Directors. The protective provisions contained in the
Holding Company's Articles of Incorporation and provided by the Virginia SCA are
discussed in further detail under "Certain Effects of the Reorganization -
Comparison of the Rights of Shareholders."
Government Regulation and Supervision
After the effective date, the Holding Company will be subject to the
Bank Holding Company Act of 1956, as amended (the "BHCA of 1956"), and will be
subject to regulation by the Board of Governors of the Federal Reserve System
(the "FRB") with respect to its operations as a bank holding company. The
Continuing Bank will continue to be subject to regulation by the OCC. See
"Regulation and Supervision."
Rights of Dissenting Shareholders
Those shareholders of the Bank who object to the Reorganization will be
entitled to dissenters' rights to receive the fair value of their shares
pursuant to the National Bank Act.
Conditions for Consummation; Anticipated Effective Date; Termination
The consummation of the Reorganization is subject to, among other
things, (i) the affirmative vote of more than two-thirds of the outstanding
shares of Bank common stock, and (ii) the approval by the OCC and the FRB.
Applications for approval of the Reorganization were filed with the OCC and the
FRB on January __, 1997, and the Reorganization is expected to be consummated on
or about [May 1, 1997] (the "Effective Date"). The Reorganization may be
terminated by either the Holding Company, Pinnacle Bank or the Bank prior to the
approval of the Agreement by the shareholders of such party or by the mutual
consent of the Boards of Directors of the Holding Company, Pinnacle Bank and the
Bank after any required shareholder approvals are received. See "The Proposed
Reorganization - Possible Abandonment of the Reorganization."
-5-
<PAGE>
Selected Historical Financial Information
of First National Bank
<TABLE>
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Years Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except ratios and per share amounts)
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Income Statement Data:
Net interest income $4,749 $4,388 $4,595 $4,163 $3,908
Provision for loan losses 205 240 200 210 247
Other income 378 192 340 363 359
Other expenses 2,764 2,712 2,581 2,370 2,214
Income tax expense 573 438 626 546 513
Net income $1,585 $1,190 $1,528 $1,401 $1,292
Per Share Data: (3)
Net income $6.61 $4.97 $6.38 $5.84 $5.39
Cash dividends 1.78 1.68 1.54 1.33 1.10
Book value $52.81 $48.86 $42.53 $39.94 $35.43
Balance Sheet Data:
Assets $124,951 $119,380 $116,024 $115,888 $114,593
Loan, net of unearned income
and allowance for loan losses 79,842 75,484 73,063 65,293 57,213
Total investment securities (1) 35,766 34,647 34,613 38,708 34,730
Deposits 111,204 106,678 104,952 105,551 105,396
Stockholders' equity (2) $12,657 $11,709 $10,194 $9,573 $8,492
Average shares outstanding (3) 239,675 239,675 239,675 239,675 239,675
Performance Ratios:
Return on average assets 1.30% 1.01% 1.29% 1.21% 1.17%
Return on average equity 13.01% 10.87% 15.46% 15.51% 13.99%
Dividend payout 26.93% 33.80% 24.14% 22.77% 20.41%
Capital Ratios:
Leverage 10.14% 9.63% 8.89% 8.18% 7.25%
Risk-based:
Tier 1 capital 15.79% 15.06% 14.45% 14.09% 14.08%
Total capital 16.63% 15.88% 15.22% 14.87% 14.62%
Average equity to
average assets 10.01% 9.27% 8.33% 7.78% 7.20%
</TABLE>
- -------------
(1) Investment securities at December 31, 1995 and 1996 reflect an increase of
$300, and a decrease of $18, respectively, representing net unrealized
gains in 1995 and net unrealized losses in 1996. Such amounts resulted from
the adoption in 1994 of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
See Note 3 of the 1996 audited financial statements of the Bank.
(2) Stockholders' Equity at December 31, 1995 and 1996 reflects an increase of
$198, and a decrease of $12, representing net unrealized gains in 1995 and
net unrealized losses in 1996. Such amounts resulted from the adoption in
1994 of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." See Note 3 of the
1996 audited financial statements of the Bank.
(3) All share and per share data have been retroactively adjusted to reflect
stock dividends.
-6-
<PAGE>
GENERAL INFORMATION
Use and Revocation of Proxies
If the enclosed proxy is properly executed and returned in time for
voting at the Annual Meeting, the shares represented thereby will be voted in
accordance with such instructions. If no instructions are given in a returned,
executed proxy, the proxy will be voted in favor of the Reorganization, and in
the discretion of the proxy holders as to any other matters which may properly
come before the meeting. Proxies will extend to, and will be voted at, any
properly adjourned session of the Annual Meeting, unless otherwise revoked.
Execution of a proxy will not affect a shareholder's right to attend
the Annual Meeting and to vote in person. Any shareholder who has executed and
returned a proxy and for any reason desires to revoke it may do so at any time
before the proxy is exercised by filing with the Secretary of the Bank an
instrument revoking it or a duly exercised proxy bearing a later date, or by
attending the Annual Meeting and voting in person.
Shareholders Entitled to Vote and Vote Required
Only holders of record of Bank common stock at the close of business on
February __, 1997 are entitled to vote at the Annual Meeting. On the record date
there were 239,675 shares of Bank common stock, par value $2.00 per share,
outstanding and entitled to vote. Each share of outstanding Bank common stock is
entitled to one vote on all matters presented at the Annual Meeting. In order
for the Reorganization to become effective, more than two-thirds of the
outstanding shares of Bank common stock must be voted in favor of the
Reorganization. On all other matters, an affirmative vote by the holders of a
majority of shares represented at the meeting is be required for such approvals.
Directors, executive officers and their affiliates beneficially own and
may vote 12,134 of the outstanding shares of the Bank's stock entitled to vote
on the Reorganization, which shares represent 5.1% of the votes required to
approve the Reorganization.
Solicitation of Proxies
The Bank will bear its own expenses incident to soliciting proxies.
Directors, officers, employees and agents of the Bank acting without commission
or other special compensation may solicit proxies in person, by telephone or by
mail.
Financial Statements
The Annual Report to Shareholders for the year ended December 31, 1996
is included with this Proxy Statement/Prospectus to inform shareholders of the
Bank's recent financial performance. Additional copies of the reports will be
furnished without charge to shareholders upon written request directed to the
Bank's Cashier at the address set forth at the end of this Proxy
Statement/Prospectus. The above-referenced financial statements will be
available at the Annual Meeting for inspection by shareholders. Additional
financial information will be provided upon request. Please refer to the
instructions in "Available Information" above.
-7-
<PAGE>
THE PROPOSED REORGANIZATION
Description of the Reorganization
The Board of Directors of the Bank has unanimously approved the
proposed Reorganization whereby the business of the Bank will be conducted under
a holding company structure. The Holding Company was organized in January of
this year under the laws of Virginia at the direction of the Board of Directors
of the Bank to serve as the holding company for the Bank. In addition, Pinnacle
Bank filed an application with the OCC to be organized in late January 1997 at
the direction of the Board of Directors of the Holding Company.
The Bank, Pinnacle Bank and the Holding Company have entered into the
Agreement under the terms of which the Bank will be merged into Pinnacle Bank,
with the bank resulting from the Reorganization to continue the business of the
Bank as a wholly-owned subsidiary of the Holding Company. (Since the identities
and business of both the Bank and Pinnacle Bank will be merged into one entity
that will continue after the Reorganization as one bank, the bank surviving the
Reorganization is referred to in this Proxy Statement/Prospectus as the
"Continuing Bank".) Pinnacle Bank will be the Continuing Bank pursuant to the
Reorganization. Pinnacle Bank is a national banking association formed as an
interim bank solely to effectuate the Reorganization. Pursuant to the
Reorganization, the Bank will be merged into Pinnacle Bank, and Pinnacle Bank's
Articles of Association and Bylaws which are substantially identical to the
Bank's Articles of Association and Bylaws, will become the Articles of
Association and Bylaws of the surviving subsidiary bank. In addition, Pinnacle
Bank will change its name to The First National Bank of Altavista as a part of
the consummation of the Reorganization. Upon consummation of the Reorganization,
shareholders of the Bank automatically will become shareholders of the Holding
Company and will receive three shares of Holding Company common stock for each
share of Bank common stock they held at the Effective Date.
The Continuing Bank will conduct its business in the same manner as the
Bank prior to the Reorganization. In addition, the Continuing Bank will succeed
to and hold all the rights, franchises and interests in and to every type of
property (real, personal, and mixed) that were held by both the Bank and
Pinnacle Bank immediately prior to the Reorganization. The Continuing Bank also
will be liable for all liabilities of the Bank and Pinnacle Bank at the time of
the Reorganization. (Pinnacle Bank will not incur any significant liabilities
pursuant to the Reorganization nor will it open for business prior to the
Reorganization). The officers and personnel of the Bank will continue in their
same capacity with the Continuing Bank.
The Bank will pay all expenses incurred in connection with the
Reorganization, including the costs of organizing the Holding Company and
Pinnacle Bank.
Reasons for the Reorganization
The financial services industry is one of the most rapidly changing
segments of the American economy. Historical distinctions between various types
of financial institutions are eroding rapidly as a result of legislative changes
and changing regulatory philosophies. In addition, traditional restrictions on
branch banking have given way to multi-state banking and multi-bank holding
companies. Accordingly, banks are subject to aggressive competition from a wide
variety of institutions offering an expansive array of financial products and
services. Current laws and regulations applicable to banks limit their ability
to supplement traditional financial services and products and to diversify into
other banking-related ventures in response to increasing competition and
changing customer needs.
The laws and regulations applicable to bank holding companies, however,
allow holding companies greater flexibility in expanding their markets and in
increasing the variety of services they and their subsidiaries provide their
customers. Thus, Management and the Board of Directors of the Bank believe that
the new corporate structure will enhance the institution's ability to compete
under existing laws and regulations and to respond effectively to changing
market conditions.
Currently, neither the Bank nor the Holding Company has made any
commitment to expand significantly its market through the acquisition of
existing banks or to engage in activities other than those currently conducted
-8-
<PAGE>
by the Bank. If the Reorganization is approved, the Board anticipates that the
Holding Company structure will provide a mechanism to facilitate future
combinations with other financial institutions, should suitable opportunities
arise for acquisition, expansion or affiliation. In addition, the Holding
Company structure may provide opportunities to engage in new activities related
to banking.
Anticipated Effective Date of the Reorganization
If the holders of more than two-thirds of the outstanding shares of
Bank common stock approve the Agreement, the Reorganization will become
effective upon satisfaction of certain conditions and the receipt of required
regulatory approvals, including approval by the FRB and the OCC. Applications
for approval of the Reorganization have been filed with the FRB and the OCC.
Subject to receipt of all requisite regulatory approvals and the satisfaction of
all other conditions to the Reorganization, the objective is to have the
Reorganization declared effective on or about [May 1, 1997] ( the "Effective
Date").
Conversion and Exchange of Stock
On the Effective Date, shareholders of the Bank will become
shareholders of the Holding Company. Each share of Bank common stock, par value
$2.00 per share, will be converted into three shares of Holding Company common
stock, par value of $3.00 per share (the "Exchange Ratio"). Outstanding
certificates representing shares of Bank common stock will thereafter represent
three shares of Holding Company common stock. Upon consummation of the
Reorganization, promptly after the Effective Date, the Holding Company, as the
exchange agent, will mail to Bank Common Stock shareholders who hold stock
immediately prior to the Effective Date a letter of transmittal and instructions
related to the exchange of their Bank Common Stock certificates representing the
number of shares of Holding Company Common Stock into which their Bank Common
Stock has been converted as a result of the Reorganization.
BANK SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE SUCH INSTRUCTIONS.
Federal Income Tax Consequences
The Reorganization is intended to qualify as a "reorganization" under
Section 368(a)(1)(A) of the Internal Revenue Code, and the federal income tax
consequences summarized below are based on that assumption. One condition to
consummation of the Reorganization is the Bank's receipt of an opinion of Mays &
Valentine, counsel to the Bank and Holding Company, to the effect that the
Reorganization will qualify as a reorganization under Section 368(a)(1)(A) and
that, for the Bank's shareholders who receive Holding Company common stock for
their Bank common stock, the exchange will result in the non-recognition of gain
or loss.
The Bank's shareholders will not recognize any gain or loss on the
exchange of Bank common stock solely for Holding Company common stock. A
shareholder's tax basis in the shares of Holding Company common stock received
in exchange for his Bank common stock will equal his tax basis in the shares of
Bank common stock exchanged therefor. The holding period for those shares of
Holding Company common stock will include the shareholder's holding period for
the shares of Bank common stock exchanged therefor, if they are held as a
capital asset at the time of the exchange.
Upon consummation of the Reorganization, no gain or loss will be
recognized by the Holding Company or Bank.
The foregoing discussion of federal income tax consequences is a
summary of general information. Due to the individual nature of the tax
consequences of a Reorganization, each Bank shareholder is urged to consult his
or her own tax advisor with regard to federal, state and local tax consequences
of the Reorganization.
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<PAGE>
Required Regulatory Approvals
The Reorganization must be approved by the FRB and the OCC. Management
of the Bank has filed the required applications for approval of the
Reorganization with the appropriate regulatory authorities. Subject to the
approval of the FRB and the OCC and the satisfaction of all other conditions to
the Reorganization, Management believes that the Reorganization will be declared
effective on or about [May 1, 1997].
Possible Abandonment of the Reorganization
Consummation of the Reorganization is subject to obtaining the required
shareholder approval and various regulatory approvals. The Agreement may be
terminated by the unilateral action of the Boards of Directors of the Bank,
Pinnacle Bank or the Holding Company prior to the approval of the Agreement by
the shareholders or by the mutual consent of the respective Boards of Directors
of the Bank, Pinnacle Bank and the Holding Company after any required
shareholder approval has been received.
Rights of Dissenting Shareholders
Pursuant to 12 U.S.C. ss. 215a(b), the holders of Bank Common Stock are
entitled to dissent and obtain payment for the fair value of their shares in the
event that the Reorganization is consummated. If (a) the Agreement and the
Reorganization are approved by the requisite number of holders of Bank Common
Stock; and (b) the Reorganization receives all necessary regulatory approvals,
then any shareholder of the Bank who has voted against the Reorganization at the
Annual Meeting, or who has given notice in writing at or prior to such meeting
to the presiding officer that he or she dissents from the Reorganization, shall
be entitled to receive the value of the shares so held, upon written request
made to the Bank at any time before thirty days after the date of consummation
of the Reorganization, accompanied by surrender of his or her stock
certificates.
The value of the shares of any dissenting shareholder shall be
ascertained, as of the Effective Date of the Reorganization, by an appraisal
made by a committee of three persons, composed of (1) one appraiser selected by
the vote of a majority of the stockholders who dissent and are entitled to
payment in cash; (2) one appraiser selected by the directors of the Bank; and
(3) one appraiser selected by the two appraisers so selected. The valuation
agreed upon by any two of the appraisers shall govern. If the value so fixed
shall not be satisfactory to any dissenting shareholder who has requested the
payment, that shareholder may, within five days after being notified of the
appraised value of the shares, appeal to the OCC, who shall cause a reappraisal
to be made. Any such reappraisal shall be final and binding as to the value of
the shares of the appellant.
If, within 90 days from the date of consummation of the Reorganization,
for any reason one or more of the appraisers is not selected as provided above,
or the appraisers fail to determine the value of such shares, the OCC shall,
upon written request of any interested party, cause an appraisal to be made
which shall be final and binding on all parties. The expenses of the OCC in
making the reappraisal or the appraisal, as the case may be, shall be paid by
the Holding Company. The value of the shares ascertained shall be promptly paid
to the dissenting shareholders by the Holding Company. The shares of stock of
the Holding Company which would have been delivered to such dissenting
shareholders had they not requested payment shall be sold by the Holding Company
at an advertised public auction, and the Holding Company shall have the right to
purchase any of such shares at such public auction, if it is the highest bidder
therefore, for the purpose of reselling such shares within thirty days
thereafter to such person or persons and at such price not less than par as its
Board of Directors by resolution may determine. If the shares are sold at public
auction at a price greater than the amount paid to the dissenting shareholders,
the excess in such sale price shall be paid to such dissenting shareholders. The
provisions of this subsection shall apply only to shareholders of (and to stock
owned by them in) the Bank, merged into the Continuing Bank, in exchange for
Holding Company Common Stock.
The foregoing discussion describes the provisions of the National Bank
Act, 12 U.S.C. ss. 215a(b), deemed material by the Bank; however, shareholders
are urged to review the section in its entirety, which is included as Exhibit B
to this Proxy Statement/Prospectus. Any shareholder who intends to dissent from
-10-
<PAGE>
the Reorganization should review the text of those provisions carefully and also
should consult with his or her attorney. No further notice of the events giving
rise to dissenter's rights or any steps associated therewith will be furnished
to Bank shareholders, except as indicated above or otherwise required by law.
Any dissenting shareholder who exercises his or her right to be paid
the fair value of his or her shares will recognize gain or loss, if any, for
federal income tax purposes upon the receipt of cash for his or her shares. The
amount of gain or loss and its character as ordinary income or capital gain will
be determined in accordance with applicable provisions of the Internal Revenue
Code. See "The Reorganization - Certain Federal Income Tax Consequences."
CERTAIN EFFECTS OF THE REORGANIZATION
Anti-Takeover Effects of the Reorganization
The Holding Company's Articles of Incorporation and the Virginia SCA
contain certain provisions designed to enhance the ability of the Board of
Directors to deal with attempts to acquire control of the Holding Company. These
provisions, which are discussed in greater detail below, may be deemed to have
an anti-takeover effect and may discourage takeover attempts which have not been
approved by the Board of Directors (including takeovers which certain
stockholders may deem to be in their best interest). To the extent that such
takeover attempts are discouraged, temporary fluctuations in the market price of
Holding Company Common Stock resulting from actual or rumored takeover attempts
may be inhibited. These provisions also could discourage or make more difficult
a merger, tender offer or proxy contest, even though such transaction may be
favorable to the interests of stockholders, and potentially could affect
adversely the market price of Holding Company Common Stock.
The provisions included in the Holding Company's Articles are not
adopted in response to or with knowledge of any takeover attempts or
"unfriendly" efforts to gain control of the Bank. The Boards of the Bank and
Holding Company propose these provisions in order to provide standard corporate
protections common among bank holding companies and in the best interests of
current Bank shareholders who will become shareholders of the Holding Company
upon consummation of the Reorganization. Also, there are no additional plans to
adopt other anti-takeover provisions following the Reorganization. The Board of
the Bank and the Holding Company unanimously adopted these proposed provisions.
However, the Holding Company Board members do have an interest in adoption of
the provisions pursuant to the Reorganization. Provisions providing for
staggered Board terms and removal of directors only for cause may stabilize the
composition of the board.
The protective provisions contained in the Holding Company's Articles
and provided by the Virginia SCA are summarized in further detail in the
sections immediately below. This summary is necessarily general and is not
intended to be a complete description of all the features and consequences of
those provisions, and is qualified in its entirety by reference to the Holding
Company's Articles and the statutory provisions contained in the Virginia SCA.
Comparison in the Rights of Shareholders
General. The Bank is a national bank subject to the provisions of the
National Bank Act (the "NBA"). Shareholders of the Bank, whose rights are
governed respectively by the Bank's Articles of Association and Bylaws will
become shareholders of the Holding Company upon consummation of the
Reorganization. The rights of such shareholders will then be governed by the
Holding Company's Articles, the Holding Company's Bylaws and by the Virginia
SCA.
Except as set forth below, there are no material differences between
the rights of the Bank's shareholders and the rights of shareholders receiving
Holding Company Common Stock in the Reorganization. This summary is qualified in
its entirety by reference to the Articles of Association and Bylaws of the Bank
and to the NBA and the Articles of Incorporation and Bylaws of the Holding
Company and the Virginia SCA.
Authorized Capital. The Bank's Articles of Association (the "Bank
Articles") authorize the issuance of up to 350,000 shares of Bank Common Stock,
par value $2.00 per share, of which 239,675 shares were issued and outstanding
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<PAGE>
as of December 31, 1996. Neither the Bank nor the Holding Company is authorized
to issue shares of preferred stock. The Holding Company's Articles will
authorize the issuance of up to 3,000,000 shares of Holding Company Common
Stock, par value $3.00 per share, of which no shares were issued and outstanding
as of the date of these proxy materials.
Shareholder Vote Required for Certain Actions. The Virginia SCA and the
NBA provide that an amendment to a corporation's or bank's charter must be
approved by each voting group entitled to vote on the proposed amendment. Under
the Virginia SCA and the NBA, an amendment to a bank's articles of incorporation
or association must be approved by more than two-thirds of all votes entitled to
be cast by that voting group. However, in Virginia, a bank's articles of
incorporation may require a greater vote or a lesser vote, which may not be less
than a majority, by each voting group entitled to vote on the transaction.
The Bank Articles provide that an amendment of the Bank's Articles may
be approved by shareholders owning a majority of the stock in the Bank,
consistent with applicable laws. Other fundamental matters, such as mergers,
dissolution, sale of substantially all the assets, etc. (referred to hereinafter
as "Fundamental Actions"), must be approved by 80% of the shares outstanding.
The 80% voting requirement is not applicable if a Fundamental Action is approved
by a majority of the Board, in which case a Fundamental Action requires the
affirmative vote of two-thirds of the outstanding Bank shares. The Bank's Bylaws
may be amended at any regular meeting of the Board of Directors by a majority
vote of the directors in office.
Similarly, the Holding Company's Articles decrease the shareholder vote
required to approve Fundamental Actions to a majority of the shares entitled to
be cast, provided that two-thirds of the members of the Board of Directors then
in office have approved and recommended the Fundamental Action. In the absence
of such approval and recommendation by the Board, the vote required for approval
of Fundamental Actions is increased to 80% or more of the shares entitled to
vote on the matter.
The effect of this provision is to make shareholder approval of
Fundamental Actions less difficult to obtain in the case of Fundamental Actions
favored by the Board of Directors. A lower required shareholder vote will
benefit the Holding Company in terms of cost savings related to the solicitation
efforts necessary to obtain a more than two-thirds vote. If, however, the
incumbent Board does not approve a Fundamental Action by at least a two-thirds
vote, this provision will make approval of the Fundamental Action subject to the
80% affirmative vote requirement and therefore more difficult to obtain. For
this reason, the provisions of the Holding Company's Articles have anti-takeover
implications in that it makes a Fundamental Action not substantially favored by
the Board more difficult to adopt.
The Holding Company Articles provide that an amendment of the Articles
may be approved by a vote of a majority of shareholders entitled to vote at a
meeting at which a quorum of the voting group is present, provided that the
transaction has been approved and recommended by at least two-thirds of the
directors in office at the time of such approval. If the amendment is not so
approved, the amendment must be approved by the vote of 80% or more of all votes
entitled to be cast by each voting group entitled to vote on the amendment. The
Holding Company's Bylaws provide that the power to amend the Bylaws is vested in
the Board of Directors. Thus, the Holding Company's Bylaws may be amended by a
majority of the directors present at a meeting which was properly called and at
which a quorum is present. Also, under the Virginia SCA, the Bylaws may be
amended by action of a majority of the shareholders.
Size and Classification of Board of Directors. The Bank's Articles
provide for a board of directors consisting of not less than 5 nor more than 25
individuals, the exact number to be fixed from time to time by a resolution of a
majority of the full Bank Board or by resolution of the shareholders at any
annual or special meeting. The Bank Board, however, may not increase the number
of directors by more than two between shareholders' meetings. The NBA requires
that each director own Bank common stock having a par value of not less than
$1,000, or stock in like amount of the bank's holding company.
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<PAGE>
The Holding Company's Articles provide for a board of directors
consisting of a minimum of 3 and a maximum of 15 individuals. The Holding
Company's Articles provide that directors are divided into three classes as
nearly equal as possible, to be elected to consecutive three-year terms, with
the first class' term expiring in 1998. Directors of a class whose term expires,
or their replacements, will be elected at the next annual meeting of
shareholders.
Vacancies and Removal of Directors. The Bank's Bylaws provide that
vacancies on the Board of Directors may be filled by a majority vote of the
remaining directors. The NBA provides that any director appointed following a
vacancy shall hold office until the next election of directors. Neither the NBA
nor the Bank Articles or Bylaws provide for the removal of directors.
The Holding Company Articles provide that the directors then in office,
whether or not a quorum, may fill a vacancy by majority vote, and the
successor's class will coincide with the class of the director whose vacancy was
filled. The successor will serve until the next annual meeting of shareholders,
at which time the successor will be up for election to serve for the remaining
term of the vacated directorship. Holding Company directors may be removed only
for cause and with the affirmative vote of at least two-thirds of the
outstanding shares entitled to vote.
Director Liability and Indemnification. The Bank Articles provide that
the Bank may indemnify a director or officer made a party to a proceeding
because he is or was a director of officer of the bank if he is adjudged to have
been not guilty of or liable for gross negligence, willful misconduct or
criminal acts in the performance of his duties to the Bank. The Bank may not
indemnify a director or officer in connection with a proceeding by or in the
right of the Bank if he is judged liable, in connection with an administrative
proceeding by a bank regulatory agency which results in a final order assessing
civil money penalties requiring payments to the Bank or requiring removal or
prohibiting participation in the Bank's affairs, or in connection with a
proceeding charging personal benefit to the director or officer in which he is
adjudged liable.
The Bank must indemnify a director or officer for reasonable expenses
if he entirely prevails in the defense of a proceeding brought because he is an
officer or director. In addition, the Bank may advance expenses for defending
such a proceeding under certain circumstances, especially when the matter is a
regulatory action and a majority of the disinterested directors conclude that
the director or officer is substantially likely to succeed and has the ability
to repay if necessary. Also, the individual may apply to a court for an order
directing the Bank to make advances or reimburse expenses.
The Bank may not indemnify a director or officer unless a determination
is made that he or she met the required standard of conduct (i) by a majority of
a quorum of the board, (ii) if a quorum cannot be obtained, by a majority of a
committee consisting of two or more disinterested directors, (iii) by special
legal counsel selected by the board or the disinterested directors, or (iv) by
shareholders who are not parties to the proceeding. Insurance on behalf of
directors and officers may be carried by the Bank, except no such insurance may
cover civil money penalties, payments due to the Bank, or removal from office or
restriction of activities with the Bank. The Bank may make any further indemnity
it deems proper, except no indemnity is available for willful misconduct or a
knowing violation of criminal law.
The Virginia SCA provides that in any proceeding brought by or in the
right of a corporation or brought by or on behalf of shareholders of a
corporation, the damages assessed against an officer or director arising out of
a single transaction, occurrence or course of conduct may not exceed the lesser
of (i) the monetary amount, including the elimination of liability, specified in
the articles of incorporation or, if approved by the shareholders, in the bylaws
as a limitation on or elimination of the liability of the officer or director;
or (ii) the greater of (a) $100,000 or (b) the amount of cash compensation
received by the officer or director from the corporation during the twelve
months immediately preceding the act or omission for which liability was
imposed. The liability of an officer or director is not limited under the
Virginia SCA or a corporation's articles of incorporation and bylaws if the
officer or director engaged in willful misconduct or a knowing violation of the
criminal law or of any federal or state securities law.
The Holding Company Articles provide that to the full extent permitted
by the Virginia SCA each director and officer shall be indemnified against
liabilities, penalties and claims imposed by reason of that person serving as a
director or officer of the Holding Company, except as to matters for which he is
finally adjudged liable due to willful misconduct or knowing violation of
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<PAGE>
criminal law. The Holding Company Articles also provide that liability of each
director and officer shall be limited to the full extent permitted by the
Virginia SCA in any proceeding brought by a shareholder in the right of the
Holding Company or brought by or on behalf of shareholders of the Holding
Company, except that liability shall not be limited in the case of willful
misconduct or a knowing violation of criminal or securities laws on the part of
the director or officer. Finally, a majority of a quorum of the disinterested
directors may indemnify or contract to indemnify any person against liabilities,
fines, penalties and claims imposed or asserted due to that person acting as an
employee, agent or consultant of the Holding Company, to the same extent such
indemnification may be available to a director or officer.
Special Meetings of Shareholders. The Bank's Articles provide that
special meetings of the shareholders may be called by the Board of Directors or
by five or more shareholders owning, in the aggregate, not less than 50% of the
outstanding stock of the Bank. The Virginia SCA provides that a special meeting
of shareholders may be held at the request of the chairman of the board of
directors, the president, the board of directors or the person or persons
authorized to do so by the articles of incorporation or bylaws. The Holding
Company's Bylaws provide that special meetings of the shareholders may be called
by the Board of Directors, the Chairman of the Board or the President.
Director Nominations. It is the practice of the Bank for the board to
appoint a committee to consider candidates for board election, and that
committee presents a recommendation for the board's consideration. The entire
board then determines which candidate(s) should be nominated for the
shareholders' approval. The Bank's Bylaws provide that a director may not stand
for election after his or her seventieth birthday. Any director nomination,
other than those made on behalf of existing management, must be stated in
writing and filed with the President of the Bank and with the OCC not less than
14 days nor more than 50 days prior to the date of the shareholder meeting. The
notice must contain certain information relating to the nominee for director.
Nominations not made in accordance with the requirements will not be considered
at the meeting.
The Holding Company's Bylaws provide that nominations may be made by
the Board or by any eligible shareholder. No person who will be age 70 or older
on the date set for election shall be eligible for nomination for Director. In
order for a shareholder to make a nomination, he or she must provide certain
information with respect to his or her eligibility to submit a nomination,
certain information about the nominee and certain enumerated information
required under the Holding Company bylaws on a timely basis in advance of any
annual meeting. Due to the specificity of the information required, and the
timeliness of the submission of such information, any deficiency in or variance
from the requirements set forth in the Bylaws may result in the Holding Company
not recognizing such nomination submission.
Shareholder Proposals. The Bank's Articles and Bylaws do not contain
any requirements relating to the timing or content of shareholder proposals for
shareholder vote.
The Holding Company's Bylaws contain requirements relating to the
timing or content of shareholder proposals for shareholder vote consistent with
Rule 14a-8 of the regulations promulgated by the SEC under the Exchange Act. The
Exchange Act provides that shareholders who own at least 1% or $1,000 of market
value of voting securities of a registrant, which will include the Holding
Company, may make a proposal for a vote at a shareholders' meeting if the
proposal is received on a timely basis and may not otherwise be omitted by the
registrant, all as described in more detail in that rule. The timing and content
of shareholder proposals are very specifically set forth in the Holding
Company's Bylaws. Failure to adhere to the strict requirements in the Bylaws may
result in the Holding Company disregarding the proposal.
Shareholder Voting Rights in General. The Bank's Articles provide
shareholder preemptive rights and the Bylaws provide cumulative voting. The NBA
provides that shareholders of all national banks, including the Bank, shall have
cumulative voting in the election of directors and shareholder preemptive rights
unless otherwise negated by the Bank's Articles of Association. The Holding
Company articles do not provide cumulative voting to shareholders, and the
Articles expressly deny shareholder preemptive rights. See "Description of
Holding Company Capital Stock."
State Anti-Takeover Statutes. The NBA does not provide any specific
anti-takeover statutes to national banking associations, like the Bank. The
Virginia SCA restricts transactions between a corporation and its affiliates and
potential acquirors. The summary below is necessarily general and is not
intended to be a complete description of all the features and consequences of
those provisions, and is qualified in its entirety by reference to the statutory
provisions contained in the Virginia SCA. The Virginia SCA will apply to the
Holding Company upon organization.
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<PAGE>
Affiliated Transactions. The Virginia SCA contains provisions governing
"Affiliated Transactions," found at Sections 13.1-725 - 727.1 of the Virginia
SCA. Affiliated Transactions include certain mergers and share exchanges,
certain material dispositions of corporate assets not in the ordinary course of
business, any dissolution of a corporation proposed by or on behalf of an
Interested Shareholder (as defined below), and reclassifications, including
reverse stock splits, recapitalizations or mergers of a corporation with its
subsidiaries, or distributions or other transactions which have the effect of
increasing the percentage of voting shares beneficially owned by an Interested
Shareholder by more than 5%. For purposes of the Virginia SCA, an Interested
Shareholder is defined as any beneficial owner of more than 10% of any class of
the voting securities of a Virginia corporation.
Subject to certain exceptions discussed below, the provisions governing
Affiliated Transactions require that, for three years following the date upon
which any shareholder becomes an Interested Shareholder, any Affiliated
Transaction must be approved by the affirmative vote of holders of two-thirds of
the outstanding shares of the corporation entitled to vote, other than the
shares beneficially owned by the Interested Shareholder, and by a majority (but
not less than two) of the Disinterested Directors (as defined below). A
Disinterested Director is defined in the Virginia SCA as a member of a
corporation's board of directors who (i) was a member before the later of
January 1, 1988 or the date on which an Interested Shareholder became an
Interested Shareholder and (ii) was recommended for election by, or was elected
to fill a vacancy and received the affirmative vote of, a majority of the
Disinterested Directors then on the corporation's board of directors. At the
expiration of the three year period after a shareholder becomes an Interested
Shareholder, these provisions require approval of the Affiliated Transaction by
the affirmative vote of the holders of two-thirds of the outstanding shares of
the corporation entitled to vote, other than those beneficially owned by the
Interested Shareholder.
The principal exceptions to the special voting requirement apply to
Affiliated Transactions occurring after the three year period has expired and
require either that the transaction be approved by a majority of the
corporation's Disinterested Directors or that the transaction satisfy certain
fair price requirements of the statute. In general, the fair price requirements
provide that the shareholders must receive the higher of: the highest per share
price for their shares as was paid by the Interested Shareholder for his or its
shares, or the fair market value of the shares. The fair price requirements also
require that, during the three years preceding the announcement of the proposed
Affiliated Transaction, all required dividends have been paid and no special
financial accommodations have been accorded the interested Shareholder, unless
approved by a majority of the Disinterested Directors.
None of the foregoing limitations and special voting requirements
applies to a transaction with an Interested Shareholder who has been an
Interested Shareholder continuously since the effective date of the statute
(January 26, 1988) or who became an Interested Shareholder by gift or
inheritance from such a person or whose acquisition of shares making such person
an Interested Shareholder was approved by a majority of the Disinterested
Directors of the corporation.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the Virginia SCA provides that, by affirmative vote
of a majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation may adopt, by meeting certain voting requirements, an
amendment to its articles of incorporation or bylaws providing that the
Affiliated Transactions provisions shall not apply to the corporation. The
Holding Company has not adopted such an amendment. There are no Interested
Shareholders as defined by the Virginia SCA.
Control Share Acquisitions. The Virginia Control Share Acquisitions
statute, found at Sections 13.1-728 - 728.8 of the Virginia SCA, also is
designed to afford shareholders of a public company incorporated in Virginia
protection against certain types of non-negotiated acquisitions in which a
person, entity or group ("Acquiring Person") seeks to gain voting control of
that corporation. With certain enumerated exceptions, the statute applies to
acquisitions of shares of a corporation which would result in an Acquiring
Persons ownership of the corporation's shares entitled to vote in the election
of directors falling within any one of the following ranges: 20% to 33-1/3%,
33-1/3% to 50% or 50% or more (a "Control Share Acquisition"). Shares that are
the subject of a Control Share Acquisition ("Control Shares") will not be
entitled to voting rights unless the holders of a majority of the "Disinterested
Shares" vote at an annual or special meeting of shareholders of the corporation
to accord the Control Shares with voting rights. Disinterested Shares do not
include shares owned by the Acquiring Person or by officers and inside directors
of the target company. Under certain circumstances, the statute permits an
Acquiring Person to call a special shareholders' meeting for the purpose of
considering granting voting rights to the holders of the Control Shares. As a
condition to having this matter considered at either an annual or special
meeting, the Acquiring Person must provide shareholders with detailed
disclosures about his identity, the method and financing of the Control Share
Acquisition and any plans to engage in certain transactions with, or to make
fundamental changes to, the corporation, its management or business. Under
certain circumstances, the statute grants dissenters' rights to shareholders who
vote against granting voting rights to the Control Shares. The Virginia Control
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<PAGE>
Share Acquisitions Statute also enables a corporation to make provisions for
redemption of Control Shares with no voting rights. A corporation may opt-out of
the statute, which the Holding Company has not done, by so providing in its
articles of incorporation or bylaws. Among the acquisitions specifically
excluded from the statute are acquisitions which are a part of certain
negotiated transactions to which the corporation is a party and which, in the
case of mergers or share exchanges, have been approved by the corporation's
shareholders under other provisions of the Virginia SCA.
Dissenters' Rights. For a description of the respective rights for
dissenting shareholders of the Bank, see "The Reorganization - Appraisal Rights
for Dissenting Shareholders." Shareholders of the Holding Company will have
substantially less rights in this regard than shareholders of the Bank.
Historical and Pro Forma Capitalization
The table below sets forth the capitalization of the Bank as of
December 31, 1996 and the pro forma capitalization of the Bank and Holding
Company as adjusted to reflect the consummation of the Reorganization.
Liabilities other than those related to the new line of credit are not shown
below because the merger is not expected to have any effect on other
liabilities.
Historical
<TABLE>
<CAPTION>
Holding
Bank Company
Prior to the Reorganization ------ -------
<S> <C>
Borrowings under line of credit............................... $ 0 $300,000(4)
=========== =======
Number of shares of Capital Stock
Authorized
Common Stock(1)............................................... 350,000 5,000
Issued and Outstanding
Common Stock(2)............................................... 239,675 25
Shareholders' Equity
Common Stock(2)...................................... $ 479,000 $ 75
Surplus(2)........................................... 2,016,000 425
Retained Earnings.................................... 10,174,000 0
Net Unrealized Losses on
Securities Available-for-Sale,
Net of Tax Effect................................. (12,000) 0
--------- --
Total Shareholders' Equity.................................... $ 12,657,000 $ 500
=========== ====
</TABLE>
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Pro Forma
<TABLE>
<CAPTION>
Holding Company
Combined
Bank with the Bank
After the Reorganization ------ ---------------
<S> <C>
Borrowings under line of credit $ 0 $ 0(4)
============ ==============
Number of Shares of Capital Stock
Authorized
Common Stock(1)............................................... 350,000 3,000,000
Issued and Outstanding
Common Stock.................................................. 239,675 719,025
Shareholders' Equity(3)(5)
Common Stock......................................... $ 479,000 $ 2,157,000
Surplus.............................................. 2,016,000 338,000
Retained Earnings.................................... 10,174,000 10,174,000
Net Unrealized Losses on
Securities Available-for-Sale,
Net of Tax Effect................................. (12,000) (12,000)
--------- ---------
Total Shareholders' Equity.................................... $ 12,657,000 $ 12,657,000
=========== ============
</TABLE>
- ----------------
(1) The Holding Company is currently authorized to issue 5,000 shares of
common stock. Prior to the Effective Date of the Reorganization, the
Articles of Incorporation of the Holding Company will be amended in the
form attached hereto as Appendix I to Exhibit A to increase the number
of authorized shares of common stock to 3,000,000.
(2) In order to capitalize the Holding Company, the five organizing
directors of the Holding Company, Messrs. Gilliam, Tyler, Bohannon,
Finch and Kent, each have purchased five shares of Holding Company
stock at $20.00 per share. These shares will be redeemed by the Holding
Company at $20.00 per share after consummation of the Reorganization.
(3) At the Effective Date, each of the issued and outstanding shares of
Bank common stock will be converted into and become three shares of
Holding Company common stock, par value $3.00, and the shareholders of
the Bank will thereupon become shareholders of the Holding Company. The
Holding Company will then own all the outstanding shares of Bank common
stock.
(4) The Holding Company has arranged to draw upon a $300,000 line of credit
provided by a correspondent bank to capitalize the Interim Bank. It is
anticipated that the Holding Company will not draw upon the line of
credit until several days before the effective date of the Merger. The
capital of the Interim Bank will not be retained in the Continuing
Bank. Such line of credit borrowings will be repaid immediately after
the Effective Date of the Reorganization from funds provided by a
special dividend from the Continuing Bank to the Holding Company.
Because of the short duration of borrowings outstanding under the line,
the resulting interest expense is expected to be minimal.
(5) The amount representing the par value of the additional shares issued
and the three-for-one conversion was transferred from Surplus to Common
Stock.
-17-
<PAGE>
Regulation and Supervision
The Bank currently is subject to regulation and examination by the OCC,
and the Continuing Bank will continue to be subject to such regulation and
examination after the Reorganization. In addition, the Holding Company will be
subject to regulation by the FRB under the BHCA of 1956 and by the SCC under the
Virginia Banking Act. The Holding Company also will be under the jurisdiction of
the Securities and Exchange Commission and certain state securities commissions
with respect to matters relating to the offer and sale of its securities. See
"Regulation and Supervision" for additional information.
THE HOLDING COMPANY
General
The Holding Company was incorporated under the laws of Virginia on
January 22, 1997 at the direction of the Board of Directors of the Bank for the
purpose of acquiring all of the outstanding shares of the Bank's common stock.
It will be required to file an application with the FRB for prior approval to
become a bank holding company, and application with the OCC for permission to
merge the Bank into Pinnacle Bank, and an application with the SCC for approval
of the proposed Reorganization. The Holding Company has not yet engaged in
business activity (see "The Proposed Reorganization - Reasons for the
Reorganization"). With the exception of this purchase of stock, the Holding
Company has no current plans to engage in any activities other than acting as a
holding company for the common stock of the Bank.
The Holding Company owns no properties and therefore, as necessary,
will use the Bank's existing premises, facilities and personnel. The Holding
Company's needs in this regard are expected to be minimal, and the Holding
Company will reimburse the Bank for such expenses, determined in accordance with
generally accepted accounting principles. The Holding Company's offices will be
located in the Bank's offices at 622 Broad Street, Altavista, Virginia. The
Holding Company does not, therefore, contemplate any substantial expenditures
for equipment, plant, or additional personnel, prior to consummation of the
Reorganization, during 1997 or for the foreseeable future.
After consummation of the Reorganization, the Holding Company will
continue to follow the Bank's present policy of paying dividends as and when
determined by the Board of Directors after consideration of the earnings,
general economic conditions, the financial condition of the business, and other
factors as might be appropriate in determining dividend policy. The Holding
Company's payment of dividends will be entirely dependent upon the Bank's
performance and dividend policy. Also, the Bank is subject to certain
limitations under state and federal banking laws with respect to payment of
dividends which may adversely affect payment of dividends. However, management
does not anticipate that the Reorganization will affect current levels of
dividend payments.
The Holding Company is not a party to any pending legal proceedings
before any court, administrative agency or other tribunal. Further, the Holding
Company is not aware of any material litigation which is threatened against it
or the Bank in any court, administrative agency, or other tribunal.
Management and Operations After the Merger
On the effective date of the Reorganization, the Bank will be merged
into Pinnacle Bank. The separate existence of the Bank will cease and Pinnacle
Bank will change its name to First National Bank. The Holding Company will then
serve as the parent holding company for the Continuing Bank.
-18-
<PAGE>
The Board of Directors of the Holding Company, after the Merger,
initially will be comprised of eleven members. At the direction of the Board of
Directors of the Bank, the incorporator of the Holding Company designated the
following persons to serve as the initial directors of the Holding Company up to
and following consummation of the Reorganization:
Alvah P. Bohannon, III R. B. Hancock, Jr. Carroll E. Shelton
John P. Erb James P. Kent, Jr. Kenneth S. Tyler, Jr.
Robert L. Finch Percy O. Moore John L. Waller
Robert H. Gilliam, Jr. Herman P. Rogers, Jr.
The Board of Directors of the Bank in authorizing the formation of the
Holding Company was not aware of any family relationship between any director or
person nominated to become a director of the Holding Company; nor was the Board
of Directors of the Bank aware of any involvement in legal proceedings which are
material to any impairment of the ability or integrity of any director or person
nominated to become such director.
Approval of the Reorganization by the shareholders of the Bank at the
Annual Meeting will be deemed to constitute the election of the five designees
as directors of the Holding Company at the Effective Date. The Holding Company
Board is divided into three classes, and directors are elected to serve
staggered three-year terms. The classes into which the directors will be divided
are as follows:
<TABLE>
<CAPTION>
Class I Class II Class III
<S> <C>
John P. Erb Alvah P. Bohannon, III Herman P. Rogers, Jr.
Robert L. Finch James P. Kent, Jr. Carroll E. Shelton
Robert H. Gilliam, Jr. Percy O. Moore Kenneth S. Tyler, Jr.
R. B. Hancock, Jr. John L. Waller
</TABLE>
The directors in Class I will serve until the 1998 Annual Meeting of
Shareholders of the Holding Company, and the Class II directors and Class III
directors will serve until the 1999 and 2000 Annual Meetings, respectively.
The Board of Directors, officers and employees of the Bank will not
change as a result of the Reorganization.
Following the Reorganization, the Continuing Bank will keep its
existing name and office locations and will continue to carry on its banking
businesses in the same manner as before the Merger.
The five members of the proposed Holding Company Board currently serve
as members of the Board of Directors of the Bank. See "Management of the Bank -
Directors" for a description of the initial directors' principal occupations for
the past five years, their ages, the years in which they were first elected to
the Board of Directors of the Bank and the number of shares of Bank common stock
beneficially held by each of them.
At its initial meeting following the Reorganization, the Holding
Company Board will appoint Mr. Gilliam to serve as President and Chief Executive
Officer, Mr. Shelton to serve as the Vice President, and Dawn P. Crusinberry to
serve as Secretary, Treasurer and Chief Financial Officer.
Indemnification of Directors and Officers
As mentioned above in "Comparison of the Rights of Shareholders -
Director Liability and Indemnification," the Holding Company's Articles of
Incorporation provide for the indemnification of the directors and officers. The
Holding Company's Articles provide for indemnification of the directors and
officers to the full extent permitted by the Virginia SCA as in effect from time
to time. As of July 1, 1987, the Virginia SCA permits a corporation to provide
in its articles of incorporation or a shareholder-approved bylaw for the
mandatory indemnification of its directors and officers against liability
incurred in all proceedings, including derivative proceedings, arising out of
their service to the corporation so long as they have not engaged in willful
misconduct or a knowing violation of the criminal law. Accordingly, the Holding
Company is required to indemnify its directors and officers in all such
proceedings if they have not violated this standard.
-19-
<PAGE>
In addition, the Holding Company's Articles of Incorporation eliminates
the liability of the directors and officers of the Holding Company for monetary
damages in connection with a derivative or shareholder proceeding. The
limitation of liability in the Holding Company's Articles does not apply in the
event the director or officer has engaged in willful misconduct or a knowing
violation of the criminal law or a federal or state securities law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Holding Company pursuant to the foregoing provisions, the Holding Company has
been informed 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.
Pinnacle Bank, N.A.
Pinnacle Bank, N.A. ("Pinnacle Bank") has been organized as a
subsidiary of the Holding Company solely for the purpose of implementing the
Reorganization. In accordance with the Agreement, the Bank will be merged with
and into Pinnacle Bank, and the surviving bank will continue the business of the
Bank as a wholly-owned subsidiary of the Holding Company. Like the Bank,
Pinnacle Bank has been organized as a national banking association. It is
anticipated that the funds necessary to capitalize Pinnacle Bank will be
provided by the Holding Company and its five initial directors from the proceeds
of a loan made by a correspondent banking institution. Upon the effective date
of the Reorganization, the shares required to capitalize Pinnacle Bank will be
retired and the loan will be repaid. Pinnacle Bank owns no property and has no
employees. The Holding Company has agreed to cause Pinnacle Bank to take all
necessary action for approval of the Reorganization.
Description of Holding Company Capital Stock
Authorized and Outstanding Capital Stock. The Holding Company is
authorized to issue up to 3,000,000 shares of its common stock, par value $3.00
per share. As of December 31, 1996, the Bank had 239,675 shares of Common Stock
outstanding held by 347 shareholders of record. No shares of preferred stock
were issued or authorized by the Bank. Following the Reorganization the Holding
Company will have 719.025 shares of Common Stock outstanding, based upon an
exchange ratio of three-for-one. The following summary description of the
capital stock of the Holding Company is qualified in its entirety by reference
to the Articles of Incorporation of the Holding Company (the "Holding Company's
Articles") and the Holding Company's Bylaws, copies of which are available for
inspection as exhibits to the registration statement filed with the SEC in
conjunction with this Proxy Statement/Prospectus.
Common Stock. The holders of Holding Company Common Stock are entitled
to one vote per share on all matters submitted to a vote of shareholders.
Subject to certain limitations on the payment of dividends, holders of Holding
Company Common Stock are entitled to receive dividends when declared by the
Holding Company's Board of Directors for which funds are legally available.
All shares of Holding Company Common Stock to be issued in the
Reorganization are fully paid (or will be fully paid) and nonassessable. Holders
of common stock will not be entitled to cumulative voting rights. Therefore, the
holders of a majority of the shares voted in the election of directors can elect
all of the directors then standing for election. Holders of common stock have no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to the common stock.
-20-
<PAGE>
See "Certain Effects of the Reorganization - Comparison of the Rights
of Shareholders" for a discussion of the similarities and differences between
the rights and privileges of the shareholders of the Holding Company and the
Bank.
Market for the Holding Company Common Stock
No established public trading market currently exists for the Bank's
common stock. No brokerage firm regularly makes a market for the Bank common
stock. The stock is infrequently traded, and the current market for the stock is
limited. The Bank is prohibited by law from holding or purchasing its own shares
except in limited circumstances upon the approval of shareholders.
Similarly, there will be no established public trading market for
Holding Company common stock. Unlike the Bank, however, the Holding Company will
generally be able to purchase its own shares. In some circumstances, a bank
holding company may not purchase its own shares without giving prior notice to
the FRB. Specifically, if the Holding Company desires to purchase as much as 10%
(in value) of its own stock in any 12-month period, it may be required in some
instances to obtain approval for so doing from the Federal Reserve Board.
Otherwise, the Holding Company is restricted by sound business judgment, its
prior commitments, and the consolidated financial condition of the Holding
Company and its subsidiaries. In no event may a Virginia corporation purchase
its own shares when the corporation is insolvent or when such a purchase would
make it insolvent.
-21-
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Business
The Bank was organized as a national bank in 1908 and commenced its
general banking operations in December of that year, providing services to
commercial and agricultural businesses and individuals in the Altavista area.
With an emphasis on personal service, the Bank today offers a broad
range of commercial and retail banking products and services including checking,
savings and time deposits, individual retirement accounts, merchant bankcard
processing, residential and commercial mortgages, home equity loans, consumer
installment loans, agricultural loans, investment loans, small business loans,
commercial lines of credit and letters of credit.
The Bank serves a trade area consisting primarily of southern Campbell
County, northern Pittsylvania County and southeastern Bedford County from
facilities located in the Town of Altavista. The main office is located in the
downtown area at 622 Broad Street, with a drive-in facility at 418 Main Street.
The Bank's Vista Branch is at 1307 Main Street, situated on a front parcel at
Town & Country Shopping Center. The Bank has automated teller machines with
on-line network service at the drive-in office and at the Vista Branch. The Bank
owns all of its facilities and there are no mortgages or liens against any of
its real or personal property.
Securities Ownership of Certain Beneficial Owners
No shareholder of the Bank owns 5% or more of the outstanding common
stock. For information regarding securities ownership by members of the Bank's
Board of Directors and management, please see "First National Bank Election of
Directors; Management."
ELECTION OF DIRECTORS; MANAGEMENT
All shareholders of the Bank are also encouraged to vote on the
election of the Bank's Board of Directors. All shareholders may exercise
cumulative voting rights in the election of the Bank's Board of Directors. With
eleven Directors to be elected at the meeting, each shareholder will be entitled
to vote eleven times the number of shares they own on the record date. These
votes may be accumulated and voted for any number of Directors between one and
eleven individuals. In order to exercise your cumulative voting rights, you
should strike out any number of the Board nominated Directors on the Proxy. You
may then accumulate all of your remaining votes on the remaining votes on the
remaining nominees to serve as members of the Bank's Board of Directors. If you
elect to exercise your cumulative voting rights, you should clearly state the
number of votes you intend to cast opposite the individual's name on the Proxy.
Your right to exercise cumulative voting is entirely in your discretion;
otherwise, your votes will be split among the Board nominees to elect as many as
possible.
Nominees for Election. The following table sets forth certain
information concerning the individuals nominated to serve as directors of the
Bank as of the date of the mailing of this Proxy Statement/Prospectus. With the
exception of Herman P. Rogers, Jr., the replacement director for Hugh W. Rosser
who is retiring, each of these persons listed below currently serves as a
Director of the Bank. They were elected March 12, 1996, to serve until the next
annual meeting of the shareholders. All directors of the Bank received an annual
retainer of $3,000 in 1996 and, in addition, the outside directors received
$125.00 for each committee meeting attended.
-22-
<PAGE>
<TABLE>
<CAPTION>
Common Shares of Ownership as a
Director of Bank Percentage of
Name (Age) and Principal Occupation Bank Beneficially Common Stock
Address Last Five Years Since Owned (1)(2) Outstanding
-------- -------------------- ----------- ------------ -----------
<S> <C>
Alvah P. Bohannon, III, 49 President 1985 640 *
Altavista, Virginia Altavista Motors, Inc.
John P. Erb, 53 Assistant 1989 567 (3) *
Altavista, Virginia Superintendent
Campbell County Schools
Robert L. Finch, 66 Former 1986 804 (4) *
Altavista, Virginia President & Treasurer
Finch & Finch, Inc.
Robert H. Gilliam, Jr., 51 President & CEO 1979 1,248 *
Lynch Station, Virginia The First National Bank
of Altavista
R. B. Hancock, Jr., 46 President & Owner 1994 585 (5) *
Huddleston, Virginia R.B.H., Inc. d/b/a
Napa Auto Parts
James P. Kent, Jr., 57 Partner 1980 2,841 (6) *
Hurt, Virginia Kent & Kent
Percy O. Moore, 63 Retired 1989 567 (3) *
Altavista, Virginia Customer Service Supervisor
Herman P. Rogers, Jr., 53 Plant Manager N.A 500 (3) *
Lynch Station, Virginia BGF Industries, Inc.
Carroll E. Shelton, 46 Senior Vice President 1990 987 (3) *
Hurt, Virginia The First National Bank
of Altavista
Kenneth S. Tyler, Jr., 56 President & CEO 1976 597 *
Altavista, Virginia The Lane Company, Inc.
John L. Waller, 53 Owner & Operator 1989 567 (7) *
Hurt, Virginia Waller Farms, Inc.
All directors and executive 12,134 5.1%
officers as a group (15 persons)
</TABLE>
-23-
<PAGE>
- ------------------
* Less than 1.0%; based on total outstanding shares of 239,675 shares as
of the date of this Proxy Statement/Prospectus.
(1) For purposes of this table, beneficial ownership has been determined
in accordance with the provision of Rule 13d-3 of the Securities
Exchange Act of 1934 under which, in general, a person is deemed to be
the beneficial owner of a security if he has or shares the power to
vote or direct the voting of the security or the power to dispose of or
direct the disposition of the security, or if he has the right to
acquire beneficial ownership of the security within sixty days.
(2) Includes shares held by affiliated corporations, close relatives, and
children, and shares held jointly with spouses or as custodians or
trustees for children.
(3) Shares held jointly with spouse.
(4) 154 of the reported shares as held jointly with spouse and 5 shares
held solely in spouse's name.
(5) 525 of the reported shares held jointly with spouse and 60 shares held
as custodian for minor child.
(6) 275 of the reported shares held solely in spouse's name.
(7) 26 of the reported shares held in name of majority children living at
home.
Meetings and Committees of the Board of Directors. The Board of
Directors conducts its business through meetings of the Board and through its
committees. During calendar year 1996, the Board of Directors held 13 meetings.
No director attended fewer than 75 percent of the total meetings of the Board of
Directors and committees on which he or she served during this period. A brief
description of each of the committees of the Bank follows.
Planning Committee. The Planning Committee's reviews and makes
recommendation to the board on matters affecting the future direction of the
Bank. Members of the Planning Committee are Messrs. Erb, Finch, Kent,
Tyler, Shelton and Gilliam, and they met eleven times in 1996.
Loan Committee. The Loan Committee formulates and oversees the loan
policy of the Bank. The Loan Committee has the power to discount and purchase
bills, notes and other debt, to buy and sell bills of exchange, and to examine
and approve loans and discounts. Members of the Loan Committee are Messrs. Erb,
Kent, Rosser, Waller, Shelton and Gilliam, and they met fourteen times in 1996.
Investment Committee. The Investment Committee is responsible for the
investment policy of the bank and reviews the investment portfolio of the bank
on an annual basis. Members of the Investment Committee are Messrs.
Bohannon, Finch, Rosser, Tyler, Shelton and Gilliam, and they met five times in
1996.
Audit Committee. The Audit Committee meets to review reports of the
Bank's internal auditor who reports directly to the Audit Committee and reviews
the annual report of the Bank's independent auditors. Members of the Audit
Committee are Messrs. Bohannon, Finch, Hancock, Moore and Waller, and they met
four times in 1996.
Personnel Committee. The Personnel Committee reviews officer and
employee compensation and employee benefit plans and makes recommendations to
the board concerning such matters. The Personnel Committee makes
recommendations as to the employment of officers of the bank. Members of the
Personnel Committee are Messrs. Erb, Hancock, Moore, Tyler and Gilliam, and
they met three times in 1996.
Nominating Committee. The Nominating Committee's duties include
consideration of candidates for board election. The Nominating Committee makes a
recommendation to the board concerning candidates for any vacancy that may occur
and the entire board then determines which candidate(s) should be nominated for
the shareholders' approval. Members of the Nominating Committee are Messrs. Erb,
Kent, Tyler and Gilliam, and they met one time in 1996. While the Board of
Directors will consider nominees recommended by shareholders, it has not
actively solicited recommendations from the Bank's shareholders for nominees,
nor has it established any procedures for this purpose.
-24-
<PAGE>
Executive Compensation. The following table provides information
concerning Mr. Gilliam, President and CEO, the only executive officer of the
Bank whose compensation exceeded $100,000 for any of the three years ended
December 31, 1996.
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
Name and
Principal All Other
Position Year Salary($)(1) Bonus($) Compensation($)(2)
-------- ---- ------------ -------- ------------------
<S> <C>
Robert H. Gilliam, Jr. 1996 106,150 12,378 1,855
President & Chief 1995 101,650 8,924 1,247
Executive Officer 1994 95,550 11,178 454
</TABLE>
(1) Includes a Board retainer of $3,000 in 1996, $2,500 in 1995 and $2,400
in 1994.
(2) Cost (based on IRS uniform cost table) of more than $50,000 of
group-term life insurance provided by employer.
Transactions with Management. Directors and officers of the Bank and
persons with whom they are associated have had, and expect to have in the
future, banking transactions with the Bank in the ordinary course of their
businesses. In the opinion of management of the Bank, all such loans and
commitments for loans were made on substantially the same terms, including
interest rates, collateral and repayment terms as those prevailing at the same
time for comparable transactions with other persons were made in the ordinary
course of business, and do not involve more than a normal risk of collectibility
or present other unfavorable features.
Principal Security Holders. The Bank knows of no person or group that
beneficially owned more than five percent of the outstanding shares of Common
Stock as of February __, 1997.
SUPERVISION AND REGULATION
General
Financial institutions and their holding companies are extensively
regulated under federal and state law. Consequently, the growth and earnings
performance of the Holding Company and the Bank can be affected not only by
management decisions and general economic conditions, but also by the statutes
administered by, and the regulations and policies of, various governmental
regulatory authorities including, but not limited to, the Federal Reserve, the
FDIC, the OCC, the Internal Revenue Service, federal and state taxing
authorities, and the SEC. The effect of such statutes, regulations and policies
can be significant, and cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to
financial institutions and their holding companies regulate, among other things,
the scope of business, investments, reserves against deposits, capital levels
relative to operations, the nature and amount of collateral for loans, the
establishment of branches, mergers, consolidations and dividends. The system of
supervision and regulation applicable to the Holding Company and the Bank
establishes a comprehensive framework for their respective operations and is
intended primarily for the protection of the FDIC's deposit insurance funds and
the depositors, rather than the shareholders, of the Bank.
The following references to material statutes and regulations affecting
the Holding Company and the Bank are brief summaries thereof and do not purport
to be complete, and are qualified in their entirety by reference to such
statutes and regulations. Any change in applicable law or regulations may have a
material effect on the business of the Holding Company and the Bank.
-25-
<PAGE>
The Holding Company
Bank Holding Companies
As a result of the Reorganization, the Bank will become a subsidiary of
the Holding Company, and the Holding Company must register as a bank holding
company under the BHC Act and become subject to regulation by the FRB. The FRB
has jurisdiction under the BHC Act to approve any bank or nonbank acquisition,
merger or consolidation proposed by a bank holding company. The BHC Act
generally limits the activities of a bank holding company and its subsidiaries
to that of banking, managing or controlling banks, or any other activity which
is so closely related to banking, or to managing or controlling banks, as to be
a proper incident thereto.
The BHC Act currently prohibits the FRB from approving an application
from a bank holding company to acquire shares of a bank located outside the
state in which the operations of the holding company's principal bank subsidiary
is principally located, unless such an acquisition is expressly authorized by
statute of the state where the bank whose shares are to be acquired is located.
However, under recently enacted federal legislation, the restriction on
interstate acquisitions was abolished effective September 1996, and bank holding
companies from any state are able to acquire banks and bank holding companies
located in any other state, subject to certain conditions, including nationwide
and state imposed concentration limits. Banks also will be able to branch across
state lines by acquisition, merger or de novo, effective May 1, 1997 (unless
state law permits such interstate branching at an earlier date), provided
certain conditions are met, including that applicable state law must expressly
permit such interstate branching.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries that are
designed to reduce potential loss exposure to the depositors of the depository
institutions and to the FDIC insurance fund. For example, under a policy of the
FRB with respect to bank holding company operations, a bank holding company is
required to serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. A bank holding
company's failure to meet its obligations to serve as a source of strength to
its subsidiary banks will generally be considered by the Federal Reserve Board
to be an unsafe and unsound banking practice or a violation of the Federal
Reserve Board's regulations or both.
Banking laws also provide that amounts received from the liquidation or
other dissolution of any insured depository institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit liabilities of
the institution prior to payment of any other general or unsecured senior
liability, subordinated liability, general creditor or stockholder. This
provision would give depositors a preference over general and subordinated
creditors and stockholders in the event a receiver is appointed to distribute
the assets of any bank or bank subsidiary.
The Holding Company also will be required to register in Virginia with
the SCC under the financial institution holding company laws of Virginia.
Accordingly, the Holding Company, and to a limited extent the Bank, will be
subject to regulation and supervision by the SCC.
Finally, the Holding Company will be subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended, including but
not limited to, filing annual, quarterly and other current reports with the
Securities and Exchange Commission.
Regulatory Capital Requirements
All financial institutions are required to maintain minimum levels of
regulatory capital. The FRB and OCC have established substantially similar
risk-based and leveraged capital standards for financial institutions they
regulate. These regulatory agencies also may impose capital requirements in
excess of these standards on a case-by-case basis for various reasons, including
financial condition or actual or anticipated growth. Under the risk-based
capital requirements of these regulatory agencies, the Bank is required to
maintain a minimum ratio of total capital to risk-weighted assets of at least
8%. At least half of the total capital is required to be "Tier l capital", which
consists principally of common and certain qualifying preferred shareholders'
equity, less certain intangibles and other adjustments. The remainder, "Tier 2
capital", consists of a limited amount of subordinated and other qualifying debt
(including certain hybrid capital instruments) and a limited amount of the
general loan loss reserve. The Tier 1 and total capital to risk-weighted assets
ratios of the Bank on a pro forma combined basis following the Reorganization as
-26-
<PAGE>
of December 31, 1996 are 15.79% and 16.63%, respectively, exceeding the minimums
required. Based upon the applicable FRB and OCC regulations, at December 31,
1996, the Holding Company and the Bank would be considered "well capitalized".
(See, the "Capital Ratios" table in this section below.)
In addition, the federal regulatory agencies have established a minimum
leveraged capital ratio (Tier 1 capital to adjusted total assets). These
guidelines provide for a minimum leveraged capital ratio of 3% for banks and
their respective holding companies that meet certain specified criteria,
including that they have the highest regulatory examination rating and are not
contemplating significant growth or expansion. All other institutions are
expected to maintain a leverage ratio of at least 100 to 200 basis points above
that minimum. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets. The leverage ratio of the
Bank as of December 31, 1996, was 7.14% above the minimum requirements.
Each federal regulatory agency is required to revise its risk-based
capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk and the risks of nontraditional
activities, as well as reflect the actual performance and expected risk of loss
on multifamily mortgages. The FRB has solicited comments on a proposed framework
for implementing the interest rate risk component of the risk-based capital
guidelines. Under the proposal, an institution's assets, liabilities, and
off-balance sheet positions would be weighted by risk factors that approximate
the instruments' price sensitivity to a 100 basis point change in interest
rates. Institutions with interest rate risk exposure in excess of a threshold
level would be required to hold additional capital proportional to that risk. In
1995, the FRB and the OCC solicited comments on a proposed revision to the
risk-based capital guidelines to take account of concentration of credit risk
and the risk of nontraditional activities. The revision proposed to amend each
agency's risk-based capital standards by explicitly identifying concentration of
credit risk and the risk arising from nontraditional activities, as well as an
institution's ability to manage those risks, as important factors to be taken
into account by the agency in assessing an institution's overall capital
adequacy. The proposal was adopted as a final rule by the FRB and the OCC and
subsequently became effective on January 17, 1996. The Holding Company and the
Bank do not expect the final rule to have a material impact on their respective
capital requirements; however, one or more of the applicable federal regulatory
agencies may, as an integral part of their examination process, require either
the Holding Company or the Bank to provide additional capital based on such
agency's judgment of information available at the time of examination.
The following table summarizes the minimum regulatory and current
capital ratios for the Holding Company, on a consolidated basis, and the Bank,
at December 31, 1996, and also the pro forma combined capital ratios as of
December 31, 1996.
Capital Ratios
First
Regulatory National Pro Forma
Minimum Current Combined
---------- -------- ---------
Risk-based capital (1)
Tier 1(2)............................. 4.00% 15.79 15.79
Total(2).............................. 8.00 16.63 16.63
Leverage (2)............................. 3.00 10.14 10.14
Total shareholders' equity
to total assets....................... N/A 10.13 10.13
(1) The pro forma risk-based capital ratios have been computed using pro
forma combined historical data for the Holding Company and the Bank at
December 31, 1996.
(2) Risk-based capital ratios and leverage ratios are applicable only to
the Bank.
-27-
<PAGE>
Limits on Dividends and Other Payments
Certain state law restrictions are imposed on distributions of
dividends to shareholders of the Holding Company. The Holding Company's
shareholders are entitled to receive dividends as declared by the Holding
Company's Board of Directors in accordance with Section 13.1-653 of the Code of
Virginia. Generally, distributions are made out of surplus, or if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Dividend payments therefore may be
limited in accordance with the provisions of the Virginia SCA and of the Holding
Company's Articles.
Banks likewise have limitations imposed upon all dividends, including
cash dividends, payments to repurchase or otherwise acquire its shares, payments
to shareholders of another institution in a cash-out merger, and other
distributions charged against capital. Under applicable federal laws, the
Comptroller of the Currency restricts, without prior approval, the total
dividend payments of the Bank in any calendar year to the net profits of that
year, as defined, combined with the net profits for the two preceding years. As
of December 31, 1996, the Bank had approximately $1,945,000 available for
dividends, which following the Reorganization could be paid to the Holding
Company.
Following the consummation of the Reorganization, the Holding Company's
ability to pay dividends to its shareholders will depend on dividends paid to it
by the Bank. Based on the Bank's current financial condition, the Holding
Company expects that the above-described provisions will have no impact on the
Holding Company's ability to obtain dividends from the Bank or on the Holding
Company's ability to pay dividends to its shareholders.
The First National Bank of Altavista and the Continuing Bank
In addition to the regulatory provisions regarding holding companies
addressed above, the Bank is subject to extensive regulation as well. The Bank
and the Continuing Bank (the "Banks") are federally chartered national banks,
and as such they are subject to regulation by the OCC. The Banks must file
reports with the OCC concerning its activities and financial condition, and in
addition obtain regulatory approval before entering into certain transactions
such as mergers with or acquisitions of other financial institutions. The Banks'
deposit accounts are insured up to applicable limits by the FDIC. (See,
"--Insurance of Accounts, Assessments and Regulation by the FDIC"). The OCC, as
the primary regulator of national banks, has enforcement authority over all
national banks. The FDIC also has authority to impose enforcement action on such
banks and all "institution-affiliated parties", including directors, officers,
controlling stockholders, and other persons or entities participating in the
affairs of the national banks, as well as attorneys, appraisers and accountants
who knowingly or recklessly participate in wrongful action likely to harm an
insured institution. The OCC conducts periodic examinations to evaluate each
national bank's compliance with various regulatory requirements. The OCC
completed its most recent regular supervisory examination on January 21, 1997.
The Banks also are members of the FRB.
National banks have restrictions on their investment and lending
authorities. Secured or unsecured loans for commercial, corporate, business or
agricultural purposes are subject to limitations on amount based upon the
institution's capital. In addition, the aggregate amount of all loans secured by
liens on nonresidential real property may not exceed prescribed multiples of the
institution's regulatory capital; however, an institution may be permitted to
exceed a specific lending limit only if the OCC determines that relief from this
restriction poses no significant risk to the safe and sound operation of the
national bank and is consistent with prudent operating practices. National banks
may make loans for personal, family or household purposes, but such loans and
investments are also subject to limitations. At December 31, 1996, the Bank was
in compliance with each of the applicable limitations and requirements.
Additional limitations are imposed on the aggregate amount of loans
that a national bank may make to any one borrower, including relating entities.
With certain limited exceptions, a loan-to-one-borrower not fully secured by
collateral having a market value at least equal to the amount of the loan may
not exceed 15% of the banks unimpaired capital and surplus. A
loan-to-one-borrower fully secured by readily marketable collateral at least
equal in value to the amount of the loan outstanding may not exceed an
additional 10% of the bank's unimpaired capital and surplus. At December 31,
1996, the maximum amount which the Bank could have loaned unsecured to one
borrower (and related entities) under the limit imposed was $1,984,000. At
December 31, 1996, the Bank had no borrowers to which it had outstanding loans
in excess of its loans-to-one-borrower limit.
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<PAGE>
Insurance of Accounts, Assessments and Regulation by the FDIC
The Bank is a nationally-chartered bank whose primary regulator is the
OCC. However, the Bank is a member of the Bank Insurance Fund ("BIF") of the
FDIC, except certain of its deposits acquired from CorEast Savings Bank are
insured by the Savings Association Insurance Fund ("SAIF"). As a BIF insured
institution with certain SAIF insured deposits, the Bank is subject to FDIC
rules and regulations as administrator of the BIF and SAIF. The Bank's deposits
are insured up to $100,000 per insured depositor (as defined by law and
regulation). As insurer, the FDIC is authorized to conduct examinations of and
to require reporting by BIF institutions. The actual assessment to be paid by
each BIF member is based on the institution's assessment risk classification and
whether the institution is considered by its supervisory agency to be
financially sound or to have supervisory concerns.
On March 6, 1992, the Bank, as a BIF insured institution, acquired the
obligation to pay deposits owed by CorEast as a SAIF insured institution. This
transaction was effected under the "Oakar" amendment to the Federal Deposit
Insurance Act (the "FDI Act"), which provides for, among other things, that the
buyer of SAIF deposits, in this case the Bank, becomes subject to the assessment
by the seller's insurance fund (the SAIF) as to the acquired deposits which must
remain insured by the seller's insurance fund, thus becoming the secondary fund
of the buyer.
As a BIF institution, the Bank's BIF assessment rate falls within a
range of 0.00% to 0.31% of BIF insured deposits depending upon, among other
things, the institution's regulatory capital levels and other factors which
relate to the institution's perceived risk to the insurance funds administered
by the FDIC. The Bank is currently classified as "well-capitalized" and
therefore pays the lowest amount allowed.
SAIF deposits have traditionally been scheduled at higher insurance
rates than BIF deposits. Under prior assessment schedules, SAIF rates have
ranged from 23 basis points for institutions in the best assessment risk
classification to 31 basis points for institutions in the least favorable one.
This schedule has recently been adjusted to implement the risk-based assessment
program required by amendments to the FDI Act. The new schedule has been
designed to increase the reserve ratio of the SAIF - the ratio of the SAIF's net
worth to aggregate SAIF-insured deposits, to the designated reserve ratio
("DRR"). The DRR is a target ratio that has a fixed value for each year. The
value is either 1.25 percent or such higher percentage as the FDIC determines to
be justified for that year by circumstances raising a significant risk of
substantial future losses to the SAIF. The assessment rates for the BIF were
much lower than the comparable rates for the SAIF, because the BIF's reserve
ratio had already reached the DRR. The disparity created incentives for
institutions to move deposits from SAIF-insured status to BIF-insured status,
and raised the question of whether a shrinking SAIF-assessable deposit base
could continue both to service the interest on FICO debt and to capitalize the
SAIF.
In response to these circumstances, Congress adopted the Deposit
Insurance Funds Act of 1996 (the "Funds Act"), on September 30, 1996. The Funds
Act called for the FDIC to impose a one-time special assessment on
SAIF-assessable deposits to raise the SAIF's reserve ratio to the DRR as of
October 1, 1996. The Funds Act also ended the link between the amounts assessed
by the Financing Corporation ("FICO"), an FDIC corporation formed to assist the
FDIC with changes in the methods of assessment and other matters, and the
amounts authorized to be assessed by the SAIF, effective January 1, 1997.
The Funds Act also separates, effective January 1, 1997, the FICO
assessment to service the interest on certain related bond obligations from the
SAIF assessment. The amount assessed on individual institutions by the FICO will
be in addition to the amount paid for deposit insurance according to the FDIC's
risk-related assessment rate schedules. However, between October 1, 1996, and
January 1, 1997, any amount required by the FICO will be deducted from the
amounts the FDIC is authorized to assess SAIF-member savings associations, and
must not be assessed against Sasser and BIF-member Oakar institutions. FICO
assessment rates for the first semiannual period of 1997 were set at 1.30 basis
points annually for BIF-assessable deposits and 6.48 basis points annually for
SAIF-assessable deposits. These rates may be adjusted quarterly to reflect
changes in assessment bases for the BIF and the SAIF. By law, the FICO rate on
BIF-assessable deposits must be one-fifth the rate on SAIF-assessable deposits
until the insurance funds are merged or until January 1, 2000, whichever occurs
first. The rule establishes a SAIF rate schedule of 0 to 27 basis points
effective for BIF-member Oakar institutions on October 1, 1996, and effective
for all institutions beginning January 1, 1997. The Bank does not expect that
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<PAGE>
the revised BIF and SAIF risk-based assessment schedules will have a materially
adverse effect on earnings following the Reorganization.
The FDIC is authorized to prohibit any BIF-insured institution from
engaging in any activity that the FDIC determines by regulation or order to pose
a serious threat to the insurance fund. Also, the FDIC may initiate enforcement
actions against banks after first giving the institution's primary regulatory
authority an opportunity to take such action. The FDIC may terminate the deposit
insurance of any depository institution, including the Bank, if it determines,
after a hearing, that the institution has engaged or is engaging in unsafe or
unsound practices, is in an unsafe or unsound condition to continue operations,
or has violated any applicable law, regulation, order or any condition imposed
in writing by the FDIC. It also may suspend deposit insurance temporarily during
the hearing process for the permanent termination of insurance, if the
institution has no tangible capital. If deposit insurance is terminated, the
deposits at the institution at the time of termination, less subsequent
withdrawals, shall continue to be insured for a period from six months to two
years, as determined by the FDIC. Management is aware of no existing
circumstances that could result in termination of the Bank's deposit insurance.
Other Safety and Soundness Regulations
The federal banking agencies have broad powers under current federal
law to take prompt corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized," as such terms are defined under uniform regulations defining
such capital levels issued by each of the federal banking agencies.
Each of the federal banking agencies also must develop regulations
addressing certain safety and soundness standards for insured depository
institutions and depository institution holding companies, including
compensation standards, operational and managerial standards, asset quality,
earnings and stock valuation. The federal banking agencies have issued a joint
notice of proposed rulemaking, which requested comment on the implementation of
these standards. The proposed rule sets forth general operational and managerial
standards in the areas of internal controls, information systems and internal
audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth and compensation, fees and benefits. The proposal contemplates that
each federal agency would determine compliance with these standards through the
examination process, and if necessary to correct weaknesses, require an
institution to file a written safety and soundness compliance plan. The Holding
Company has not yet determined the effect that the proposed rule would have on
its operations and the operations of its depository institution subsidiaries if
it is enacted substantially as proposed.
Community Reinvestment
The requirements of the Community Reinvestment Act ("CRA") affect the
Bank. The CRA imposes on financial institutions an affirmative obligation to
help meet the credit needs of their local communities, including low- and
moderate-income neighborhoods, consistent with the safe and sound operation of
those institutions. Each financial institution's efforts in helping meet
community credit needs currently is evaluated as part of the examination process
pursuant to a new regulation recently adopted by the banking regulatory
agencies. Under the new regulation a financial institution's efforts in helping
meet its community's credit needs are evaluated according to a three-pronged
test (lending, investment and service) which replaces the twelve assessment
factors used previously. The grade received by a bank is considered in
evaluating mergers, acquisitions and applications to open a branch or facility.
To the best knowledge of the Bank, it is meeting its obligations under the CRA.
APPOINTMENT OF AUDITORS
-30-
<PAGE>
KPMG Peat Marwick LLP ("KPMG") served as the Bank's independent
certified public accountant for calendar year 1996. The Board of Directors
approved the reappointment of KPMG to serve as the Bank's auditors for calendar
year 1997. KPMG's opinion on the Bank's 1996 financial statements was
unqualified.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Annual Meeting other than those matters described above. However, if any other
matters should properly come before the Annual Meeting, it is intended that
proxies in the accompanying form will be voted in respect thereof in accordance
with the judgment of the person or persons voting the proxies.
LEGAL MATTERS
The legality of Holding Company common stock to be issued pursuant to
the Reorganization will be passed upon for the Holding Company by the law firm
of Mays & Valentine, Richmond, Virginia, which has acted as counsel to the Bank
and the Holding Company in connection with the Reorganization.
EXPERTS
The financial statements of The First National Bank of Altavista as of
December 31, 1996 and 1995 and for the years then ended have been included
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
SHAREHOLDER PROPOSALS
As currently contemplated, the Reorganization will be consummated in
the second quarter of 1997. Therefore, assuming the reorganization described
herein is approved, the Holding Company will be conducting the 1998 Annual
Meeting of Shareholders. Shareholder proposals intended to be presented at the
Holding Company's 1998 Annual Meeting must be submitted to the Holding Company
by October 10, 1997 in order to be considered for inclusion in the proxy
materials for such meeting.
-31-
<PAGE>
APPENDIX I
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PINNACLE BANKSHARES CORPORATION
I. NAME
The name of the Corporation is Pinnacle Bankshares Corporation.
II. PURPOSE
The purpose for which the Corporation is organized is to act
as a bank holding company and to transact any and all lawful business, not
required to be specifically stated in the Articles of Incorporation, for which
corporations may be incorporated under the Virginia Stock Corporation Act.
III. CAPITAL STOCK
Section 1. The Corporation shall have authority to issue three
million (3,000,000) shares of Common Stock, par value $3.00 per share.
Section 2. Subject to the provisions of law, the holders of
Common Stock at the time outstanding shall be entitled to receive such dividends
at such times and in much amounts as the Board of Directors may deem advisable.
Section 3. In the event of any liquidation, dissolution or
winding up (whether voluntary or involuntary) of the Corporation, after the
payment or provision for payment in full for all debts and other liabilities of
the Corporation, the remaining net assets of the Corporation shall be
distributed ratably among the holders of the shares at the time outstanding of
Common Stock.
<PAGE>
Section 4. The holders of Common Stock shall be entitled to
one vote per share on all matters as to which a stockholder vote is taken.
IV. NO PREEMPTIVE RIGHTS
No holder of capital stock of the corporation of any class
shall have any preemptive right to subscribe to or purchase (i) any shares of
capital stock of the Corporation, (ii) any securities convertible into such
shares or (iii) any options, warrants or rights to purchase such shares or
securities convertible into any such shares.
V. DIRECTORS
Section 1. The Board of Directors shall consist of a minimum
of three (3) and a maximum of fifteen (15) individuals, and the number of
directors may be fixed or changed from time to time within such range by the
Board of Directors.
Section 2. The Board of Directors shall be divided into three
classes, Class I, Class II, and Class III as nearly equal in number as possible.
Directors of the first class (Class I) shall be elected to hold office for a
term expiring at the 1998 annual meeting of the shareholders; directors of the
second class (Class II) shall be elected for a term expiring at the 1999 annual
meeting of the shareholders, and directors of the third class (Class III) shall
be elected to hold office for a term expiring at the 2000 annual meeting of
shareholders. The successors to the class of directors whose terms expire shall
be identified as being of the same class as the directors they succeed and
elected to hold office for a term expiring at the third succeeding annual
meeting of shareholders. When the number of directors is changed, any newly
created directorships or any decrease in directorships shall be apportioned
among the classes by the Board of Directors as to make all classes as nearly
equal as possible.
Section 3. Directors of the Corporation may be removed only
for cause and with the affirmative vote of at least two-thirds of the
outstanding shares entitled to vote.
Section 4. If the office of any director shall become vacant,
the directors at the time in office, whether or not a quorum, may, by majority
vote of the directors then in office, choose a successor who shall hold office
until the next annual meeting of stockholders. In such event, the successor
elected by the stockholders at that annual meeting shall hold office for a term
that shall coincide with the remaining term of the class of directors to which
that person has been elected. Vacancies resulting from the increase in the
number of directors shall be filled in the same manner.
<PAGE>
VI. SHAREHOLDER APPROVAL OF CERTAIN TRANSACTIONS
Any amendment of the Corporation's Articles of Incorporation,
a plan of merger or exchange, a transaction involving the sale of all or
substantially all the Corporation's assets other than in the regular course of
business and a plan of dissolution shall be approved by the vote of a majority
of all the votes entitled to be cast on such transactions by each voting group
entitled to vote on the transaction at a meeting at which a quorum of the voting
group is present, provided that the transaction has been approved and
recommended by at least two-thirds of the directors in office at the time of
such approval and recommendation. If the transaction is not so approved and
recommended, then the transaction shall be approved by the vote of eighty
percent (80%) or more of all votes entitled to be cast on such transactions by
each voting group entitled to vote on the transaction.
VII. LIMIT ON LIABILITY AND INDEMNIFICATION
Section 1. To the full extent that the Virginia Stock
Corporation Act, as it exists on the date hereof or may hereafter be amended,
permits the limitation or elimination of the liability of directors or officers,
a director or officer of the Corporation shall not be liable to the Corporation
or its shareholders for monetary damages.
Section 2. To the full extent permitted and in the manner
prescribed by the Virginia Stock Corporation Act, the Corporation shall
indemnify each director or officer of the Corporation against liabilities,
fines, penalties and claims imposed upon or asserted against him (including
amounts paid in settlement) by reason of having been such director or officer,
whether or not then continuing so to be, and against all expenses (including
counsel fees) reasonably incurred by him in connection therewith, except in
relation to matters as to which he shall have been finally adjudged liable by
reason of his willful misconduct or a knowing violation of criminal law in the
performance of his duty as such director or officer. The Board of Directors is
hereby empowered, by majority vote of a quorum of disinterested directors, to
contract in advance to indemnify any director or officer.
Section 3. The Board of Directors is hereby empowered, by
majority vote of a quorum of disinterested directors, to cause the Corporation
to indemnify or contract in advance to indemnify any person not specified in
Section 2 of this Article against liabilities, fines, penalties and claims
imposed upon or asserted against him (including amounts paid in settlement) by
reason of having been an employee, agent or consultant of the Corporation,
whether or not then continuing so to be, and against all expenses (including
counsel fees) reasonably incurred by him in connection therewith, to the same
extent as if such person were specified as one to whom indemnification is
granted in Section 2.
Section 4. The Corporation may purchase and maintain insurance
to indemnify it against the whole or any portion of the liability assumed by it
in accordance with this Article and may also procure insurance, in such amounts
<PAGE>
as the Board of Directors may determine, on behalf of any person who is or was a
director, officer, employee, agent or consultant of the Corporation against any
liability asserted against or incurred by any such person in any such capacity
or arising from his status as such, whether or not the Corporation would have
power to indemnify him against such liability under the provisions of this
Article.
Section 5. In the event there has been a change in the
composition of a majority of the Board of Directors after the date of the
alleged act or omission with respect to which indemnification is claimed, any
determination as to indemnification and advancement of expenses with respect to
any claim for indemnification made pursuant to Sections 2 or 3 of this Article
VI shall be made by special legal counsel agreed upon by the Board of Directors
and the proposed indemnitee. If the Board of Directors and the proposed
indemnitee are unable to agree upon such special legal counsel, the Board of
Directors and the proposed indemnitee each shall select a nominee, and the
nominees shall select such special legal counsel.
Section 6. No amendment, modification or repeal of this
Article shall diminish the rights provided hereby or diminish the right to
indemnification with respect to any claim, issue or matter in any then pending
or subsequent proceeding that is based in any material respect on any alleged
action or failure to act occurring before the adoption of such amendment,
modification or repeal.
Section 7. Every reference herein to director, officer,
employee, agent or consultant shall include (i) every director, officer,
employee, agent, or consultant of the Corporation or any corporation the
majority of the voting stock of which is owned directly or indirectly by the
Corporation, (ii) every former director, officer, employee, agent, or consultant
of the Corporation, (iii) every person who may have served at the request of or
on behalf of the Corporation as a director, officer, employee, agent, consultant
or trustee of another corporation, partnership, joint venture, trust or other
entity, and (iv) in all of such cases, his executors and administrators.
VIII. INITIAL REGISTERED OFFICE AND AGENT
The post office address of the initial registered office is
23rd Floor, 1111 East Main Street, Richmond, Virginia 23219. The name of the
City in which the initial registered office is located is Richmond. The name of
the initial registered agent is Fred W. Palmore, III, whose business office is
the same as the registered office and who is a resident of Virginia and a member
of the Virginia State Bar.
Date: ______________, 1997
_________________________________
Timothy P. Veith
Incorporator
<PAGE>
Part II - Information Not Required in Prospectus
Item 21. Exhibits and Financial Statement Schedules
The following exhibits are hereby amended by this pre-effective amendment:
Exhibit No. Description of Exhibit
3(i) The Amended and Restated Articles of Incorporation of
the Registrant, included as Appendix I to Exhibit A
to the Proxy Statement / Prospectus.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this amendment to its initial Form S-4 registration statement
(Registration No. 333-20399) to be signed on its behalf by the undersigned,
thereunto duly authorized, in Altavista, Virginia, on January 29, 1997.
PINNACLE BANKSHARES CORPORATION
Altavista, Virginia
by: /s/ Robert H. Gilliam, Jr.
----------------------------------
Robert H. Gilliam, Jr.
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed by the following persons
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C>
President and Chief Executive Officer
/s/ Robert H. Gilliam, Jr. (Principal Executive Officer) and Director January 29, 1997
- -------------------------------------------
Robert H. Gilliam, Jr.
Secretary, Treasurer and Chief Financial
Officer (Principal Financial
/s/ Dawn P. Crusinberry. and Accounting Officer) January 29, 1997
- -------------------------------------------
Dawn P. Crusinberry
/s/ Alvah P. Bohannon, Jr. Director January 29, 1997
- -------------------------------------------
Alvah P. Bohannon, III
/s/ Robert L. Finch Director January 29, 1997
- -------------------------------------------
Robert L. Finch
/s/ James P. Kent, Jr. Director January 29, 1997
- -------------------------------------------
James P. Kent, Jr.
/s/ Kenneth S. Tyler, Jr. Director January 29, 1997
- -------------------------------------------
Kenneth S. Tyler, Jr.
</TABLE>
II-2
