As filed with the Securities and Exchange Commission on September 15, 1997
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------
SB BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Virginia 6711 Applied For
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
25253 Lankford Highway
Onley, Virginia 23418
(757) 787-1335
(Address, including zip code, and telephone number, including area
code of registrant's principal executive office)
------------------------
Steven M. Belote
Treasurer
SB Bankshares Corporation
25253 Lankford Highway
Onley, Virginia 23418
(757) 787-1335
(Name, address, including zip code, and telephone number,
including area code of agent for service)
------------------------
Copy to:
George P. Whitley, Esq.
LeClair Ryan, A Professional Corporation
707 East Main Street, 11th Floor
Richmond, Virginia 23219
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [X]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================================
Title of each class of securities Amount to be Proposed maximum Proposed maximum Amount of
to be registered registered (1) offering price per aggregate offering registration
share price(2) fee
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stock, $0.33 par value 1,804,812 $11.25 $20,304,135 $6,152.77
==============================================================================================================================
</TABLE>
(1) The estimated maximum number of shares to be issued.
(2) Estimated solely for purposes of calculating the registration fee and
calculated in accordance with Rule 457(f)(1) based upon: 1,804,812 shares
of Shore Bank Common Stock outstanding; and a market value of Shore Bank
Common Stock as of September 8, 1997 of $11.25 per share.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
SB BANKSHARES CORPORATION
CROSS-REFERENCE SHEET
Pursuant to Rule 404(a) of the Securities Act and Item
501 of Regulation S-B, Showing the Location or
Heading in the Prospectus and Proxy Statement
of the Information Required by part I of Form S-4
<TABLE>
<CAPTION>
Form S-4 Location or Heading in
Item Number and Caption Prospectus and Proxy Statement
----------------------- ------------------------------
<S> <C>
A. Information About the Transaction
1. Forepart of the Registration Statement and
Outside Cover Page of Prospectus Cover Page of Registration Statement; Outside Front Cover
Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information Summary; Selected Financial Information; General
Information; The Proposed Reorganization; The Holding
Company; Shore Bank
4. Terms of the Transaction Summary; The Proposed Reorganization; The Holding Company;
Certain Effects of the Reorganization
5. Pro Forma Financial Information Not Applicable
6. Material Contracts with the Company
Being Acquired Summary; The Proposed Reorganization
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters Not Applicable
8. Interests of Named Experts and Counsel Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Not Applicable
B. Information About the Registrant
10. Information with Respect to S-3 Registrants Not Applicable
11. Incorporation of Certain Information by
Reference Not Applicable
12. Information with Respect to S-2 or S-3
Registrants Not Applicable
13. Incorporation of Certain Information by
Reference Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants Certain Effects of the Reorganization; The Holding Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form S-4 Location or Heading in
Item Number and Caption Prospectus and Proxy Statement
----------------------- ------------------------------
<S> <C>
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3
Companies Not Applicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies Summary; The Proposed Reorganization; Selected Financial
Information; Shore Bank; The Holding Company
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited Summary; General Information; The Proposed Reorganization
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer Not Applicable
</TABLE>
<PAGE>
October __, 1997
Dear Fellow Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
of your Bank on October 28, 1997, at 10:00 a.m., at the office of The Eastern
Shore of Virginia Chamber of Commerce, U.S. Route 13, Melfa, Virginia.
The accompanying Notice and Proxy Statement describe the matters to be
presented at the Annual Meeting. At the Annual Meeting, you will be asked to
consider and vote upon the election of two directors for a term of three years
and the ratification of Goodman & Company, L.L.P., as the Bank's independent
auditors. In addition, you will be asked to consider and approve a proposal to
adopt a holding company form of organization for the Bank by approving an
Agreement and Plan of Reorganization, dated as of September 9, 1997 and attached
as Exhibit A to this Proxy Statement.
Under the holding company proposal, the Bank will become a wholly-owned
subsidiary of SB Bankshares Corporation, a Virginia corporation recently formed
for the purpose of becoming the holding company for the Bank (the "Holding
Company"), and the stockholders of the Bank will become stockholders of the
Holding Company. The Agreement provides that each outstanding share of the
common stock of the Bank will be converted, in a tax-free transaction, into one
share of common stock of the Holding Company. Your percentage equity ownership
in the Holding Company will be exactly the same as your present ownership in the
Bank.
As we indicated in connection with the Bank's recently completed stock
offering, your Board believes the establishment of a holding company form of
ownership will better position the Bank to compete in the markets it serves by
permitting it to offer a broader range of banking products and services and by
providing greater flexibility in operation. The holding company will also
facilitate our previously announced plans to convert the Bank to a commercial
bank.
THE BOARD OF DIRECTORS HAS CONSIDERED AND UNANIMOUSLY APPROVED THE
ESTABLISHMENT OF THE PROPOSED HOLDING COMPANY AS BEING IN THE BEST INTERESTS OF
THE BANK AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD RECOMMENDS THAT YOU VOTE
FOR THE REORGANIZATION OF THE BANK.
The accompanying Proxy Statement and related proxy materials set forth
detailed information concerning the Bank and the proposed transaction to
establish a holding company. Please give them your prompt and careful attention.
We hope you can join us for the Annual Meeting. Whether or not you plan
to attend, please complete, sign and date the enclosed proxy and return it
promptly in the enclosed envelope. Your vote is important, regardless of the
number of shares you own.
We appreciate your continuing loyalty and support.
Sincerely,
Scott C. Harvard
President and Chief Executive Officer
<PAGE>
Shore Bank
25253 Lankford Highway
Onley, Virginia 23418
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on October 28, 1997
To Our Stockholders:
The Annual Meeting of Stockholders of Shore Bank (the "Bank") will be
held at the office of The Eastern Shore of Virginia Chamber of Commerce, U.S.
Route 13, Melfa, Virginia, on October 28, 1997 at 10:00 a.m. for the following
purposes:
1. To approve the reorganization of the Bank into a holding company
form of ownership by approving an Agreement and Plan of
Reorganization, dated as of September 9, 1997, pursuant to which
the Bank will become a wholly-owned subsidiary of SB Bankshares
Corporation, a Virginia corporation (the "Holding Company"), and
each outstanding share of common stock of the Bank will be
converted into one share of common stock of the Holding Company;
2. To elect two Directors to serve for a three year term and until
their successors are elected and qualified;
3. To ratify the selection of Goodman & Company, L.L.P., independent
certified public accountants, as auditors of the Bank for the year
ending December 31, 1998; and
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Only stockholders of record at the close of business on September 10,
1997 will be entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof.
Please mark, sign, date and return your proxy promptly, whether or not
you plan to attend the Annual Meeting. If you attend the Annual Meeting, you may
vote in person even if you have already sent in your proxy.
By Order of the Board of Directors
Vonda Smith
Secretary
Onley, Virginia
October __, 1997
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE THE AGREEMENT.
<PAGE>
SHORE BANK
Onley, Virginia
--------------------------------
PROXY STATEMENT
--------------------------------
INTRODUCTION
This Proxy Statement is furnished to the stockholders of Shore 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 Stockholders to be held
on October 28, 1997, at the time and place set forth in the accompanying Notice
of the Annual Meeting of Stockholders and at any adjournment thereof (the
"Annual Meeting"). This Proxy Statement and the enclosed form of proxy are being
mailed to the stockholders of the Bank on or about October ___, 1997.
At the Annual Meeting, stockholders 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 September 9, 1997 (the
"Agreement"), whereby the Bank will become a wholly-owned subsidiary of SB
Bankshares Corporation, a Virginia corporation recently organized to serve as
the holding company for the Bank (the "Holding Company"). 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 one share 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. In connection with the Reorganization, the Bank plans to
convert from a federally chartered thrift institution to a Virginia chartered
commercial bank. See "The Proposed Reorganization."
At the Annual Meeting, stockholders also will be asked to vote on the
election of two directors to serve for a three year term, and the ratification
of Goodman & Company, L.L.P., as independent certified public accountants for
the Bank for the year ending December 31, 1998.
This Proxy Statement also serves as the Prospectus of the Holding
Company under the Securities Act of 1933, as amended (the "Securities Act") with
respect to the issuance of up to 1,804,812 shares of the Holding Company's
common stock, par value $0.33 per share ("Holding Company Common Stock"), in
connection with the Reorganization.
The principal offices of the Bank and the Holding Company are at 25253
Lankford Highway, Onley, Virginia 23418 (Telephone: (757) 787-1335).
--------------------------------
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 SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY OTHER
GOVERNMENT AGENCY
--------------------------------
The date of this Proxy Statement is October ___, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C>
Available Information................................ 3 Shore Bank........................................... 25
Business.......................................... 25
Summary of the Proxy Statement....................... 4 Market Area....................................... 25
Competition....................................... 26
Selected Financial Information....................... 8 Executive Officers................................ 26
Properties........................................ 27
General Information.................................. 9 Employees......................................... 27
Legal Proceedings................................. 27
The Proposed Reorganization.......................... 10 Description of Capital Stock...................... 27
Summary........................................... 10
Reasons for the Reorganization.................... 10 Election of Directors................................ 28
Description of the Reorganization................. 11 Directors......................................... 28
Anticipated Effective Date of the Board Meetings and Committees..................... 29
Reorganization.................................. 11 Director Compensation............................. 30
Optional Exchange of Stock Certificates........... 12 Compliance with Section 16(a) of the
Financial Resources of the Holding Company........ 12 Securities Exchange Act of 1934................. 30
Absence of Dissenters' Rights..................... 12
Federal Income Tax Consequences................... 12 Ownership of Bank Common Stock....................... 31
Market for Common Stock........................... 13
Effect on Stock Option Plan....................... 13 Executive Compensation............................... 31
Conditions to the Reorganization.................. 14
Amendment, Termination or Waiver.................. 14 Regulation and Supervision........................... 35
Consequences Under Federal Securities Laws........ 14
Appointment of Auditors.............................. 40
Certain Effects of the Reorganization................ 15
Anti-Takeover Effects of Other Matters........................................ 40
Reorganization.................................. 15
Comparison in the Rights of Legal Matters........................................ 41
Stockholders.................................... 15
Historical and Pro Forma Experts.............................................. 41
Capitalization.................................. 22
Regulation and Supervision........................ 23 Stockholder Proposals................................ 41
The Holding Company.................................. 23 Exhibit A
General........................................... 23 Agreement and Plan of Reorganization............ A-1
Management and Operations After Exhibit B
the Reorganization.............................. 23 Articles of Incorporation of SB Bankshares
Corporation..................................... B-1
Description of Capital Stock...................... 24 Exhibit C
Bylaws of SB Bankshares Corporation.............. C-1
</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 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 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 SB Bankshares Corporation 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.
<PAGE>
AVAILABLE INFORMATION
The Bank is subject to the informational reporting requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Office of Thrift Supervision of the United States Department of Treasury
(the "OTS"). Such reports, proxy statements and other information can be
inspected and copied at prescribed rates at the public reference facilities of
the OTS, Information Services Division, 1700 G. Street, N.W., Washington, D.C.
20552. Such reports, proxy statements and other information may be inspected at
the office of the National Association of Securities Dealers Stock Market,
Report Section, 1735 K Street, N.W., Washington, D.C. 20006.
The Bank's Annual Report to Stockholders for the year ended June 30,
1997, which Report includes audited financial statements of the Bank,
accompanies this Proxy Statement. The Bank's Annual Report on Form 10-KSB for
the year ended June 30, 1997 and quarterly reports on Form 10-QSB, as filed with
the OTS, are available free of charge to stockholders who request a copy. All
requests for copies of information should be directed to Steven M. Belote, Vice
President and Chief Financial Officer, at the Bank's Main Office at the address
set forth on the first page of this Proxy Statement or at the following
telephone number: (757) 787-1335.
Pursuant to the Reorganization, the Holding Company will assume certain
securities reporting responsibilities under the Exchange Act similar to the
responsibilities previously performed by the Bank under rules and regulations of
the OTS. Following the Reorganization, the Holding Company must comply with the
reporting requirements of the Securities and Exchange Commission (the "SEC"),
and will file such reports and other information with the SEC, rather than the
OTS.
The Holding Company has filed with the SEC a Registration Statement
(the "Registration Statement") on Form S-4 under the Securities Act relating to
the shares of Holding Company Common Stock to be issued in connection with the
Reorganization. As permitted by the rules and regulations of the SEC, certain
information included in the Registration Statement is omitted from this Proxy
Statement. For further information and reference, the Registration Statement,
including the exhibits and schedules filed as a part thereof, can be inspected
and copied at the public reference room of the SEC, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and copies of such materials can be obtained by
mail from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, at prescribed rates. The SEC maintains an Internet
web site that contains reports, proxy and information statements and other
information regarding issuers who file electronically with the SEC. The address
of that site is http://www.sec.gov. In addition, copies of such materials are
available for inspection and reproduction at the public reference facilities of
the SEC at its New York Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048; and at its Chicago Regional Office, Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
The Holding Company has filed an application with the OTS on Form
H-(e)1-S under the Home Owners' Loan Act, as amended ("HOLA"), which may be
inspected at the public reference facilities maintained by the OTS indicated
above or at the OTS Atlanta Regional Office, 1475 Peachtree Street, N.E.,
Atlanta, Georgia, 30309.
<PAGE>
SUMMARY OF THE PROXY STATEMENT
The following material is qualified in its entirety by the information
appearing elsewhere in this Proxy Statement and the Exhibits hereto.
The Annual Meeting
Date, Time and Place. October 28, 1997 at 10:00 a.m. at the office
of The Eastern Shore of Virginia Chamber of Commerce, U.S. Route 13, Melfa,
Virginia.
Purpose. To adopt the Agreement providing for the establishment of a
holding company structure for the Bank, to elect two directors of the Bank to
serve for a three year term, to ratify the selection of external auditors for
the Bank, and to vote on any other matters which may properly come before the
Annual Meeting.
Record Date. The Board of Directors has fixed the close of business on
September 10, 1997 as the record date (the "Record Date") for the determination
of the holders of Bank Common Stock entitled to receive notice of and to vote at
the Annual Meeting. As of the Record Date, there were 1,804,812 shares of Bank
Common Stock outstanding held by 620 stockholders of record.
Vote Required. The affirmative vote of the holders of a majority of the
shares of Bank Common Stock outstanding as of the Record Date is required to
approve the Agreement. In the election of directors, those receiving the
greatest number of votes will be elected even if they do not receive a majority.
A failure to vote, either by not returning the enclosed proxy or by
checking the "Abstain" box thereon, will have the same effect as a vote against
approval of the Reorganization.
The Reorganization -- Proposal One
General. At the direction of the Bank, the Holding Company was
incorporated on September 8, 1997 under the laws of Virginia to serve as the
holding company for the Bank. At the effective date of the Reorganization,
stockholders of the Bank will automatically become stockholders of the Holding
Company. Outstanding certificates representing shares of the common stock of the
Bank, par value $0.33 per share ("Bank Common Stock"), will thereafter represent
the same number of shares of Holding Company Common Stock. Accordingly,
stockholders will not be requested to surrender their Bank stock certificates
for new certificates upon consummation of the Reorganization. Following the
Reorganization, it is intended the Bank will continue its operations at the same
locations, with the same management and subject to all the rights, obligations
and liabilities of the Bank existing immediately prior to the Reorganization. In
connection with the Reorganization, the Bank plans to convert from a federally
chartered thrift institution to a Virginia chartered commercial bank. 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
the furnishing of financial services. The holding company structure will also
afford certain investment opportunities (including the ability to repurchase its
own shares without adverse tax consequences) that are otherwise not currently
available to the Bank. In addition, the holding company structure will help
facilitate the potential acquisition of other financial institutions and the
conversion of the Bank's charter to a Virginia chartered commercial bank. Upon
consummation of the Reorganization, the Holding Company will be in a position to
take immediate advantage of any acquisition opportunities that may arise,
although no specific acquisition is planned at this time. See "The Proposed
Reorganization -- Reasons for the Reorganization."
<PAGE>
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 of 1986, as amended (the
"Code"), in which no gain or loss will be recognized by a Bank stockholder upon
the receipt of Holding Company Common Stock in exchange for Bank Common Stock.
See "The Proposed Reorganization -- Federal Income Tax Consequences."
Market for the Common Stock. The Bank's Common Stock is listed for
trading on the National Association of Securities Dealers Automated Quotation
("Nasdaq") National Market under the symbol "SHBK." The Holding Company will
apply to have Holding Company Common Stock listed on the Nasdaq National Market
in substitution for the Bank Common Stock, under the same symbol. See "The
Proposed Reorganization -- Market for the Common Stock."
Management of the Holding Company. The Board of Directors of the
Holding Company presently consists and, upon completion of the
Reorganization, is expected to continue to consist of all of the present
directors of the Bank. The officers of the Holding Company will consist of
certain persons now serving as officers of the Bank. See "The Holding Company
- -- Management and Operations After the Reorganization."
Absence of Dissenters' Rights. Stockholders of the Bank will not have
dissenters' appraisal rights in connection with the Reorganization. See "The
Proposed Reorganization -- Absence of Dissenters' Rights."
Conditions for Consummation; Anticipated Effective Date. The Agreement
sets forth a number of conditions that must be met before the Reorganization
will be consummated, including, among others: (i) approval of the Reorganization
by the affirmative vote of the holders of a majority of the outstanding shares
of Bank Common Stock, (ii) approval of the Reorganization by the OTS and any
other federal or state agency having jurisdiction necessary for consummation of
the Reorganization; (iii) receipt of either a ruling from the IRS or an opinion
of counsel that the Reorganization will be treated as a non-taxable transaction
for federal income tax purposes; and (iv) registration of the shares of Holding
Company Common Stock to be issued in the Reorganization under the Securities Act
and the compliance by the Holding Company with all applicable state securities
laws relating to the issuance of the Holding Company Stock. The application for
approval of the Reorganization was filed with the OTS on September __, 1997. The
Reorganization is expected to be consummated on or about December 31, 1997 (the
"Effective Date").
Comparison in the Rights of Stockholders. As a result of the
Reorganization, holders of Bank Common Stock , whose rights are presently
governed by federal law and regulations and the Federal Stock Charter and Bylaws
of the Bank, will become stockholders of the Holding Company, a Virginia
corporation. Accordingly, their rights will be governed by the Virginia Stock
Corporation Act and the Articles of Incorporation (the "Articles of
Incorporation") and Bylaws (the "Bylaws") of the Holding Company. Certain
differences arise from this change of governing law, as well as from
distinctions between the Federal Stock Charter and Bylaws of the Bank and the
Articles of Incorporation and Bylaws of the Holding Company. These differences
relate to the issuance of capital stock, payment of dividends, special meetings
of stockholders, cumulative voting for the election of directors, the rights of
stockholders to exercise dissenters' rights of appraisal, removal of directors,
approval of mergers, consolidations, sale of substantially all assets and
certain business combinations, elimination of voting rights in certain share
acquisitions and amendment of the Federal Stock Charter and Bylaws of the Bank
and the Articles of Incorporation and Bylaws of the Holding Company. See
"Certain Effects of the Reorganization -- Comparison of the Rights of
Stockholders."
<PAGE>
Anti-takeover Effects of the Reorganization. The Holding Company's
Articles of Incorporation and Bylaws 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 include, among others: supermajority voting provisions
for the approval of certain business combinations; certain provisions relating
to meetings of stockholders, including the absence of cumulative voting with
respect to the election of directors and limitations on the ability of
stockholders to call special meetings; the removal of directors; certain
provisions which could eliminate voting rights on certain share acquisitions;
and restrictions on the acquisition or more than 10% of the Holding Company's
equity securities. These provisions, and the ability of the Board of Directors
to issue shares of preferred stock without stockholder approval and to set the
voting rights, preferences and other terms thereof, 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
Articles of Incorporation and Bylaws and provided by the Virginia SCA are
discussed in further detail under "Certain Effects of the Reorganization --
Anti-takeover Effects of the Reorganization" and "-- Comparative Rights of
Stockholders".
Government Regulation and Supervision. Following the Reorganization,
the Holding Company will be subject to regulation by the OTS with respect to its
operations as a savings and loan holding company. The Bank will continue to be
subject to regulation by the OTS and the Federal Deposit Insurance Corporation
(the "FDIC"). Following the planned conversion of the Bank from a federally
chartered savings bank to a Virginia chartered commercial bank, the Bank will be
subject to regulation and examination by the Virginia State Corporation
Commission (the "Virginia SCC") and the Board of Governors of the Federal
Reserve System (the "Federal Reserve"). The Holding Company will then become
subject to regulation by the Federal Reserve under the Bank Holding Company of
1956. See "Certain Effects of the Reorganization -- Regulation and Supervision"
and "Regulation and Supervision."
Conversion to a Commercial Bank Charter. While loans secured by real
estate are expected to remain an important part of the Bank's business, it
expects that in several years its loan portfolio will more closely resemble that
of a commercial bank than a savings institution. The regulations of the OTS that
currently govern the Bank limit the percentage of its assets that may be
invested in commercial and consumer loans. While the Bank does not believe that
such limits would affect its commercial and consumer lending activities in the
short term, after a charter conversion such regulations would not apply to the
Bank. As a commercial bank, no comparable commercial or consumer lending
restrictions would apply to the Bank. In addition to its lending activities, the
Bank actively markets certain deposit products, such as commercial checking,
that are generally not considered a traditional thrift product. Accordingly, the
Bank believes that operating under a commercial bank charter will better suit
the Bank's business plan than will a federal savings bank charter.
Election of Directors -- Proposal Two
The Board of Directors of the Bank consists of eight persons who are
elected to serve three year terms. The terms of Messrs. Richard F. Hall, Jr. and
Scott C. Harvard expire at the Annual Meeting. Mr. Hall, who serves as Chairman
of the Board of the Bank, will not stand for re-election. Messrs. Richard F.
Hall, III, and Scott C. Harvard, the President and Chief Executive Officer of
the Bank and a director since 1985, have been nominated for election to serve as
directors of the Bank for a three-year term. The six directors whose terms do
not expire will continue to serve as directors of the Bank. In the event the
proposed Reorganization is approved, stockholders of the Bank will automatically
become stockholders of the Holding Company upon consummation of the
Reorganization. As Holding Company stockholders, they will be entitled to vote
for the election of directors of the Holding Company, and the Board of Directors
of the Holding Company will, in turn, elect the directors of the Bank. The first
annual meeting of stockholders of the Holding Company is scheduled to be held in
May 1998. Under the terms of the Agreement, on the Effective Date of the
Reorganization, the directors of the Holding Company will be comprised of the
<PAGE>
same individuals who are then serving as directors of the Bank. Similar to the
Bank Board, they will serve for three-year terms. See "The Holding Company
Management and Operations After the Reorganization."
Ratification of Selection of Auditors -- Proposal Three
Goodman & Company, L.L.P., has been selected as independent certified
public accountants for the year ending December 31, 1998, subject to the
ratification by the stockholders. The Holding Company will be on a calendar
year-end, as opposed to the June 30 fiscal year end of the Bank.
Other Matters
Management currently knows of no other business to be brought before
the Annual Meeting. Should any other business properly be presented for action
at the meeting, the shares represented by the enclosed proxy shall be voted by
the persons named therein in accordance with their best judgment and in the best
interests of the Bank.
<PAGE>
SELECTED FINANCIAL INFORMATION
<TABLE>
<S> <C>
Year Ended June 30,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Income Statement Data:
Interest income...................... $ 7,855 $ 7,068 $ 5,679 $ 4,728 $ 4,928
Interest expense..................... 4,240 3,837 2,889 2,668 2,827
Net interest income.................. 3,615 3,231 2,790 2,060 2,101
Provision for loan losses............ 244 150 187 48 72
Noninterest income................... 775 531 435 434 382
Noninterest expense.................. 2,824 2,072 1,817 1,629 1,486
Income taxes......................... 376 568 450 260 333
------- ------- ------- ------- -------
Net income (1)....................... $ 946 $ 972 $ 771 $ 557 $ 592
======== ======== ======== ======== ========
Per Share Data:
Net income (1)....................... $ 0.69 $ 0.71 $ 0.57 $ 0.41 $ 0.44
Cash dividends....................... 0.00 -- -- -- --
Book value at period end............. 6.24 5.47 4.79 4.23 3.82
Tangible book value at period end.... 6.20 5.43 4.75 4.23 3.82
Average shares outstanding (000's) 1,370 1,364 1,364 1,364 1,360
Balance Sheet Data (period end):
Assets............................... $104,637 $ 94,986 $ 80,755 $ 70,934 $ 68,430
Loans, net of unearned income........ 74,135 68,812 66,148 60,658 57,915
Securities........................... 23,420 18,389 6,875 6,102 4,007
Deposits............................. 94,556 86,154 72,525 63,634 61,180
Stockholders' equity................. 8,569 7,455 6,534 5,762 5,205
Performance Ratios:
Return on average assets (1)......... 0.85% 1.07% 1.02% 0.79% 0.89%
Return on average equity (1)......... 11.61 13.86 12.51 10.18 12.08
Net interest margin.................. 3.78 3.79 3.99 3.14 3.17
Efficiency (1) (2)................... 64.33 55.08 56.34 65.32 59.85
Asset Quality Ratios:
Allowance for loan losses to
period end loans................... 1.00% 0.98% 0.84% 0.62% 0.53%
Allowance for loan losses to
non-accrual loans.................. 181.46 239.01 76.45 60.85 69.23
Non-performing assets to period
end loans and foreclosed properties 1.38 0.53 1.27 1.01 0.80
Net charge-offs (recoveries) to
average loans...................... 0.24 0.05 0.01 (0.03) 0.03
Capital and Liquidity Ratios:
Leverage (3)......................... 8.58% 7.85% 8.09% 8.12% 7.61%
Risk-based:
Tier 1 capital...................... 14.56 14.61 14.04 14.63 13.50
Total capital....................... 15.53 15.46 14.81 14.49 14.13
Average loans to average deposits.... 82.31 84.38 93.25 92.08 96.25
</TABLE>
- ------------------------
(1) Excluding the effect to the one-time SAIF assessment of $286,000, net of
related taxes of $161,000, incurred by the Bank on September 30, 1996,
certain financial information for the fiscal year ended June 30, 1997
would be as follows: net income - approximately $1.2 million; net income
per share - $0.90; return on average assets - 1.23%; return on average
equity - 15.62%; efficiency - 54.15%.
(2) Computed by dividing non-interest expense by the sum of net interest
income and non-interest income , net of securities gains or losses.
(3) Computed as a percentage of stockholders' equity to period end assets.
<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, the proxy will
be voted in favor of the Reorganization, for the election of the two nominees
for director and the ratification of the selection of Goodman & Company, L.L.P.,
and in the discretion of the proxy holders as to any other matters which may
properly come before the Annual Meeting. Proxies will extend to, and will be
voted at, any adjourned session of the Annual Meeting.
Execution of a proxy will not affect a stockholder's right to attend
the Annual Meeting and to vote in person. Any stockholder 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 after having withdrawn your
proxy.
Stockholders Entitled to Vote and Vote Required
Only holders of record of Bank Common Stock at the close of business on
September 10, 1997 are entitled to notice of and to vote at the Annual Meeting.
On the record date there were 1,804,812 shares of Bank Common Stock outstanding
and entitled to vote. The Bank has no other class of stock outstanding. Each
share of outstanding Bank Common Stock is entitled to one vote on all matters
presented at the Annual Meeting. A majority of the votes entitled to be cast,
represented in person or by proxy, will constitute a quorum for the transaction
of business.
In order for the Reorganization to become effective, the holders of a
majority of the outstanding shares of Bank Common Stock must vote in favor of
the Reorganization. In the election of directors, those receiving the greatest
number of votes will be elected even if they do not receive a majority.
Stockholders have cumulative voting rights with respect to the election of
directors. Under this procedure, each stockholder is entitled to cast a number
of votes equal to the product of the number of his or her shares owned,
multiplied by the number of directors to be elected. Each stockholder may cast
all of his or her votes for one nominee or may distribute his or her votes among
any number of nominees.
A failure to vote, either by not returning the enclosed proxy or by
checking the "Abstain" box thereon, will have the same effect as a vote against
approval of the Reorganization.
Shares of Bank Common Stock held in street name which have been
designated by brokers on proxy cards as not voted ("broker non-votes") will not
be counted as votes cast and will, therefore, have the same effect as a vote
against approval of the Reorganization. Proxies marked as abstentions or as
broker non-votes, however, will be treated as shares present for purposes of
determining whether a quorum is present.
Directors and executive officers of the Bank and their affiliates,
including Richard F. Hall, III, a nominee for director, beneficially owned
484,838 shares of Bank Common Stock as of the Record Date (exclusive of unissued
shares subject to options), which shares represent 26.9% of the outstanding
shares of Bank Common Stock. The Directors and executive officers of the Bank
have indicated they will vote their shares of Bank Common Stock FOR the
Agreement and the election of the two nominees for director set forth on the
enclosed proxy.
<PAGE>
Solicitation of Proxies
The Bank will bear its own expenses incident to soliciting proxies.
Directors, officers, employees and agents of the Bank acting without special
compensation may solicit proxies in person, by telephone or by mail.
Financial Statements
The Annual Report to Stockholders for the year ended June 30, 1997
accompanies this Proxy Statement to inform stockholders of the Bank's financial
condition and recent financial performance. Additional copies of the Annual
Report will be furnished without charge to stockholders upon written request
directed to the Bank's Vice President and Chief Financial Officer at the address
of the Bank's principal offices.
THE PROPOSED REORGANIZATION -- PROPOSAL ONE
Summary
The formation of a holding company will be accomplished pursuant to an
Agreement and Plan of Reorganization, dated as of September 9, 1997 (the
"Agreement"), whereby the Bank will become a wholly owned subsidiary of SB
Bankshares Corporation (the "Holding Company"), a Virginia corporation formed
for the sole purpose of becoming the holding company for the Bank. Under the
terms of the Agreement, each outstanding share of Bank Common Stock will be
converted, in a tax-free transaction, into one share of Holding Company Common
Stock, and the former holders of Bank Common Stock will become the holders of
all of the outstanding shares of Holding Company Common Stock. The Holding
Company was incorporated in September 1997 and has no prior operating history.
Following the Reorganization, it is intended that the Bank will continue its
operations at the same locations, with the same management, and subject to all
the rights, obligations and liabilities of the Bank existing immediately prior
to the Reorganization. In connection with the Reorganization, the Bank plans to
convert from a federally chartered thrift institution to a Virginia chartered
commercial bank.
The Board of Directors of the Bank unanimously recommends that the
stockholders vote "FOR" approval of the Agreement. The affirmative vote of the
holders of a majority of the issued and outstanding shares of the Bank is
required to approve the Agreement. Abstentions and broker non-votes will not be
considered a vote for, or a vote against, the Agreement.
Reasons for the Reorganization
The Board of Directors of the Bank believes that a holding company
structure will better position the Bank to compete in the markets it serves by
providing the Bank with greater flexibility. Federal regulations limit the types
of businesses in which the Bank may engage and limit the amount which may be
invested by the Bank in subsidiaries. The Bank is also limited in its ability to
engage in certain corporate transactions, such as stock repurchases, by
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable to savings associations but not to their holding companies. While the
Board of Directors believes that stock repurchases could improve market
liquidity and enhance stockholder value, no stock repurchases by the Holding
Company are under consideration.
In addition, the holding company structure will provide a vehicle to
facilitate future combinations with other financial institutions should suitable
opportunities arise for acquisition, expansion or affiliation. The holding
company structure would allow another financial institution to operate on a more
autonomous basis as a wholly-owned subsidiary of the Holding Company rather than
<PAGE>
as a division of the Bank. For example, the acquired institution could retain
its own directors, officers and corporate name, as well as having representation
on the Holding Company Board of Directors. Although there are no pending plans,
agreements or understandings for acquisitions, the Holding Company will be in a
position to take immediate advantage of any acquisition opportunities as they
arise.
Finally, the Board of Directors believes that a holding company
structure will facilitate the Bank's previously announced plans to convert to a
commercial bank charter since the Bank would be a wholly-owned subsidiary of the
Holding Company.
Description of the Reorganization
The Bank incorporated the Holding Company as a wholly-owned subsidiary
under the laws of the Commonwealth of Virginia for the purpose of becoming the
holding company of the Bank upon consummation of the Reorganization. Solely for
purposes of facilitating the Reorganization, the Holding Company will cause to
be organized, subject to OTS approval, SB Interim Federal Savings Bank, a
federal stock savings bank (the "Interim Bank").
The Reorganization will be accomplished pursuant to the Agreement,
dated as of September 9, 1997 by and among the Bank, the Holding Company, the
Interim Bank. The Agreement provides that, contingent upon regulatory and
stockholders' approval, the Reorganization will be accomplished as follows:
(1) The Interim Bank will merge with and into the Bank, with the Bank
continuing as the surviving institution. The stock of the Interim
Bank will be converted into stock of the Bank. The Bank, as the
surviving institution, will retain all incidents of the corporate
existence of the Bank prior to the Reorganization, including its
federal stock charter, bylaws, deposits, loans and offices. The
directors of the Bank shall remain directors of the Bank as the
surviving institution.
(2) The Bank will become a wholly-owned subsidiary of the Holding
Company.
(3) The stockholders of the Bank will become stockholders of the
Holding Company and each share of Bank Common Stock outstanding
prior to the merger of the Interim Bank into the Bank will become
one share of Holding Company Common Stock.
(4) The 100 shares of Holding Company Common Stock held by the Bank
will be canceled.
(5) The shares of Bank Common Stock held by the Holding Company at
the Effective Date will remain as the only issued and outstanding
shares of Bank Common Stock after the Reorganization.
(6) The Interim Bank will cease to exist as a legal entity.
(7) The stockholders of the Holding Company will be those persons who
were stockholders of the Bank immediately prior to the
Reorganization. The Bank, as a wholly-owned subsidiary of the
Holding Company, will continue to carry on its business and
activities as conducted immediately prior to the Reorganization.
Anticipated Effective Date of the Reorganization
The merger of the Interim Bank with and into the Bank and the resulting
holding company formation will become effective on the date specified in the
endorsement of the Articles of Combination relating to the Merger by the
<PAGE>
Corporate Secretary of the OTS pursuant to 12 C.F.R. ss. 552.13(k) (the
"Effective Date"). Subject to the receipt of all requisite regulatory approvals
and the satisfaction of all other conditions to the Reorganization, it is
anticipated that the Reorganization will become effective on or about December
31, 1997.
Optional Exchange of Stock Certificates
After the Effective Date of the Reorganization, certificates evidencing
shares of Bank Common Stock will represent, by operation of law, shares of
Holding Company Common Stock in the ratio of one share of Holding Company Common
Stock for each share of Bank Common Stock previously owned. Former holders of
the Bank Common Stock will not be required to exchange their Bank Common Stock
certificates for Holding Company Common Stock certificates, but will have the
option to do so.
Financial Resources of the Holding Company
The Bank does not currently intend to transfer any material amount of
funds as a capital contribution to the Holding Company prior to the Effective
Date of the Reorganization. Immediately following the Reorganization, the assets
of the Holding Company, on an unconsolidated basis, will consist of all of the
then outstanding shares of Bank Common Stock. However, the Bank anticipates that
following the Reorganization, it will declare and pay a cash dividend of
approximately [$25,000] to the Holding Company, as the Bank's sole stockholder.
While the Bank may in the future transfer funds to the Holding Company, the
amount of funds that may be transferred to the Holding Company by the Bank is
subject to a number of factors, including the Holding Company's and the Bank's
future financial requirements and applicable regulatory restrictions. For
further information on the capital resources of the Bank and the Holding
Company, see "Certain Effects of the Reorganization -- Historical and Pro Forma
Capitalization."
Absence of Dissenters' Rights
Federal law does not entitle a stockholder of the Bank who may oppose
the Reorganization to demand an appraisal of his shares of Bank Common Stock or
exercise dissenters' rights.
Federal Income Tax Consequences
The Reorganization is intended to be a "reorganization" under Section
368(a) of the Code, and the federal income tax consequences summarized below are
based on the assumption that this transaction will qualify as such a
reorganization. One condition to consummation of the Reorganization is the
Bank's receipt of an opinion of LeClair Ryan, A Professional Corporation,
special counsel to the Bank, to the effect that the Reorganization will qualify
as a reorganization under Section 368(a) and will result in the non-recognition
of gain or loss.
The Bank's stockholders will not recognize any gain or loss as a result
of the proposed Reorganization. A stockholder's tax basis in the shares of
Holding Company Common Stock will equal his tax basis in the shares of Bank
Common Stock. The holding period for those shares of Holding Company Common
Stock will include the stockholder's holding period for the shares of Bank
Common Stock, if they are held as a capital asset at the time of the
Reorganization.
Upon consummation of the Reorganization, no gain or loss will be
recognized by the Holding Company or Bank.
The Bank expects that because the Reorganization will constitute a
reorganization within the meaning of Section 368(a) of the Code, its tax bad
debt reserves maintained immediately prior to the Reorganization will not be
required to be recaptured into its taxable income as a result of the
Reorganization.
<PAGE>
The opinion of LeClair Ryan is not binding on the Internal Revenue
Service and such agency could disagree with the conclusions reached in such
opinion. In the event of such disagreements, there can be no assurance that a
stockholder or the Bank would prevail in a judicial proceeding.
The foregoing discussion of federal income tax consequences is a
summary of general information. The Bank's stockholders are urged to consult
their own tax advisors with regard to federal, state and local tax consequences.
Market for the Common Stock; Anticipated Dividend Policy
Since the completion on August 20, 1997 of the Bank's stock, the Bank's
Common Stock has been listed for trading on the Nasdaq National Market under the
symbol "SHBK." The high and the low sales prices since that date and through
September 10, 1997 are $11.88 and $9.13, respectively. The Bank raised
approximately $3.3 million in the stock offering price through the sale of
102,815 shares of Bank Common Stock to its existing stockholders at $7.50 per
share and 328,435 shares of Bank Common Stock to the public at $8.25 per share.
The Holding Company will apply to have Holding Company Common Stock listed on
the Nasdaq National Market in substitution for the Bank Common Stock, under the
same symbol.
Prior to the Bank's stock offering, there was no established public
trading market for the Bank's Common Stock. No brokerage firm regularly made a
market for the Bank's Common Stock, and trades in the Bank's stock occurred
infrequently on a local basis and generally involved a relatively small number
of shares. Based on information made available to the Bank, it believes that the
selling price for the Common Stock ranged during 1995 from $5.14 to $5.83,
during 1996, from $5.50 to $6.16, and from January 1, 1997 through the date it
was listed for trading on the Nasdaq National Market (August 20), from $6.16 to
$8.25. Such transactions may not be representative of all transactions during
the indicated periods or of the actual fair market value of the Common Stock at
the time of such transactions due to the infrequency of trades and the limited
market for the Common Stock.
The Bank has not declared or paid any cash dividends during the past
five fiscal years. The Bank, and the Holding Company following consummation of
the Reorganization, expect to continue to retain all earnings to support the
development and growth of its business. Accordingly, the Bank and the Holding
Company do not anticipate paying any cash dividends in the foreseeable future.
Any future determination as to payment of cash dividends will be at the
discretion of the Board of Directors and will depend on the Bank's and Holding
Company's earnings, financial condition, capital requirements and other factors
relevant to the Board of Directors.
Effect on Stock Option Plan
Upon consummation of the Reorganization, the Stock Option Plan of the
Bank will be continued as and become the option plan of the Holding Company.
Stock options with respect to shares of Bank Common Stock granted under the
Option Plan and outstanding prior to consummation of the Reorganization will
automatically become options to purchase shares of Holding Company Common Stock
upon consummation of the Reorganization, and the Holding Company will assume all
of the Bank's obligations with respect to such outstanding options, with
identical terms and conditions. By voting in favor of the Agreement,
stockholders of the Bank will be approving the adoption by the Holding Company
of the existing Option Plan of the Bank as the option plan of the Holding
Company. As of June 30, 1997 options for a total of 30,000 shares of Bank Common
Stock have been granted under the Option Plan and are currently exercisable
within 60 days of the Record Date.
<PAGE>
Conditions to the Reorganization
The Agreement sets forth a number of conditions which must be met
before the Reorganization will be consummated, including, among others: (i) the
approval of the Agreement by the holders of a majority of the outstanding shares
of Bank Common Stock; (ii) the receipt of either a ruling from the IRS or an
opinion of counsel that the Reorganization will be treated as a nontaxable
transaction under the Code (see "-- Certain Federal Income Tax Consequences");
(iii) the approval of the Reorganization by the OTS and the receipt of all
approvals from any other governmental agencies that may be required for the
consummation of the Reorganization; and (iv) registration of the shares of the
Holding Company Common Stock to be issued in the Reorganization under the
Securities Act and the compliance by the Holding Company with all applicable
state securities laws relating to the issuance of the Holding Company Common
Stock.
Consummation of the Reorganization is subject to OTS approval of the
Holding Company's application to acquire all the outstanding shares of Bank
Common Stock, and the related application to establish and merge the Interim
Bank with and into the Bank in connection with the Reorganization. Such approval
has not been obtained as of the date of this Proxy Statement. It is anticipated
that any OTS approval will be subject to the satisfaction of certain conditions,
including (i) the consummation of the Reorganization by a specified date, (ii)
the absence of any material adverse events or changes in the financial condition
or operations of the Bank prior to the Reorganization, and (iii) the submission
to the OTS of an opinion of the Bank's legal counsel that the Reorganization was
consummated in accordance with all applicable laws and regulations. Although
there can be no assurance, management believes all conditions to OTS approval of
the Reorganization will be satisfied.
Amendment, Termination or Waiver
The Board of Directors of the Bank may cause the Agreement to be
amended or terminated if the Board determines for any reason that such amendment
or termination would be advisable. Such amendment or termination may occur at
any time prior to the filing of Articles of Combination with the OTS, whether
before or after stockholder approval of the Agreement, provided that no such
amendment may be made to the Agreement after stockholder approval if such
amendment is deemed to be materially adverse to the stockholders of the Bank.
Additionally, any of the terms or conditions of the Agreement may be waived by
the party which is entitled to the benefit thereof.
Consequences Under Federal Securities Laws
The Holding Company has filed with the SEC a registration statement
under the Securities Act for the registration of the Holding Company Common
Stock to be issued and exchanged pursuant to the Agreement. This Proxy Statement
constitutes the Prospectus of the Holding Company filed as part of such
registration statement. Upon consummation of the Reorganization, the Holding
Company will register the Holding Company Common Stock under the Exchange Act
and will be required to comply with the insider trading, reporting and proxy
requirements under the Exchange Act. In addition, the Holding Company will be
required to file periodic reports with the SEC instead of filing such reports
with the OTS. The Holding Company will also be subject to the general anti-fraud
provisions of the federal securities laws after the Reorganization.
The registration under the Securities Act of shares of Holding Company
Common Stock to be issued in connection with the Reorganization does not cover
the resale of such shares. The Holding Company Common Stock acquired by persons
who are not affiliates of the Holding Company or the Bank may be resold without
registration. Shares received by affiliates of the Holding Company and the Bank
will be subject to the resale restrictions of Rule 145 under the Securities Act,
which are substantially the same as the restrictions of Rule 144 discussed
below. The Rule 145 restrictions terminate after one year if the Holding Company
<PAGE>
continues to comply with the reporting requirements under the Exchange Act, but
any affiliate of the Bank who becomes an affiliate of the Holding Company will
continue to be subject to the restrictions of Rule 144.
So long as the Holding Company continues to meet the current public
information requirements of Rule 144 under the Securities Act, each affiliate of
the Bank who complies with the other conditions of Rule 144, including those
that require the affiliate sales to be aggregated with those of certain other
persons, would be able to sell in the public market, without registration, in
any three-month period, a number of shares not to exceed the greater of (i) 1%
of the outstanding shares of the Holding Company, or (ii) the average weekly
volume of trading in such shares during the preceding four calendar weeks.
Provision may be made in the future by the Holding Company to permit affiliates
to have their shares registered for sale under the Securities Act under certain
circumstances. Generally, an affiliate is deemed to be a person that directly or
indirectly controls, is controlled by or is under common control with a company.
Although control is a question of fact based on the particular facts of each
situation, directors, executive officers and 10% stockholders are generally
deemed to be affiliates.
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, including the ability of
the Board of Directors to issue shares of preferred stock and to set the voting
rights, preferences and other terms thereof, 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 a majority of
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 reorganization, tender offer or proxy contest, even though such transaction
may be favorable to the interests of stockholders, and could potentially
adversely affect 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 stockholders who will become stockholders of the Holding Company
upon consummation of the Reorganization. The Boards 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 serve to stabilize the composition of the
Board and are similar to provisions currently governing the Bank.
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.
<PAGE>
Comparison in the Rights of Stockholders
If the proposed Reorganization is consummated, the stockholders of the
Bank will become stockholders of the Holding Company. Following the
Reorganization, the rights of the Holding Company's stockholders will be
governed by the Virginia SCA and the Holding Company's Articles of Incorporation
and Bylaws. A copy of the Articles of Incorporation and Bylaws are attached as
Exhibits B and C, respectively, to this Proxy Statement.
Except as described below, stockholders of the Holding Company will
have rights and privileges similar to those of stockholders of the Bank. This
summary is qualified in its entirety by reference to the Articles of
Incorporation and Bylaws of the Bank and the Holding Company and to the Virginia
SCA.
Capital Stock. The Articles of Incorporation of the Holding Company
authorize the issuance of 5,000,000 shares of Holding Company Common Stock and
500,000 shares of Holding Company Preferred Stock without further stockholder
approval. The Charter of the Bank also authorizes the issuance of 5,000,000
shares of common stock and 500,000 shares of preferred stock. Currently, the
Bank has only common stock outstanding and, accordingly, only Holding Company
Common Stock will be issued in the Reorganization.
Voting Rights. The Bank's Charter and Bylaws provide for cumulative
voting in election of directors. If the stockholders of a corporation, including
a savings association, are entitled to cumulative voting, a stockholder may
multiply the number of votes he has by the number of directors for whom he is
entitled to vote and cast the product for a single candidate or distribute the
product among two or more candidates. The effect of cumulative voting can be to
allow a significant minority to propose and elect its candidate to a board of
directors even if the holders of a majority of the shares do not vote in favor
of the minority stockholder's candidate. Thus, cumulative voting can promote
proportional representation of stockholders on a board of directors. The
Articles of Incorporation of the Holding Company do not provide for cumulative
voting rights in the election of directors. The elimination of cumulative voting
allows holders of a majority of the outstanding shares of voting stock to elect
the entire Board of Directors.
The stockholders of the Bank have the right to vote on certain business
combinations to which the Bank is a party or any proposed sale, lease, exchange
or other disposition of all or substantially all of the property of the Bank not
in the usual and regular course of business. After the Reorganization, the
Holding Company could issue its stock in connection with the merger of another
financial institution into the Bank and the stockholders of the Holding Company
would have no right to vote on the transaction, subject to the requirement that
the issuance of stock representing 20% or more of the outstanding shares must be
approved by stockholders as a condition to the continued listing of the stock on
the Nasdaq National Market.
The authority to create and issue separate classes and series of
preferred stock allows a corporation greater flexibility in structuring
financings and acquisitions. While such issuances could, under certain
circumstances, be considered to have the effect of making a change in control
more difficult, any issuance of such stock would be subject to applicable law,
including, without limitation, the duty of the Board of Directors of the Holding
Company to exercise its good faith business judgment in the best interests of
the Holding Company and its stockholders. Under the Articles of Incorporation of
the Holding Company, the Board of Directors of the Holding Company would be
authorized to issue a series of preferred stock with more than one vote, less
than one vote, no vote or one vote per share.
Payment of Dividends. The ability of the Bank to pay dividends on its
capital stock is restricted by OTS regulations and by tax considerations related
to savings institutions such as the Bank. Although the Holding Company is not
subject to these restrictions as a Virginia corporation, such restrictions will
indirectly affect the Holding Company in the same manner because dividends
received from the Bank will be the Holding Company's primary source of funds for
<PAGE>
the payment of dividends to stockholders of the Holding Company at such time as
the Board of Directors of the Holding Company elects to adopt a cash dividend
policy. It is anticipated that the Holding Company will continue the Bank's
current policy of retaining earnings to support the future growth and
development of the Bank.
The Holding Company's ability to pay dividends also will be limited by
restrictions imposed by the Virginia SCA on Virginia corporations. In general,
dividends paid by a Virginia corporation may be paid only if, after giving
effect to the distribution, (i) the corporation is still able to pay its debts
as they become due in the usual course of business, or (ii) the corporation's
total assets are greater than or equal to the sum of its total liabilities plus
(unless the corporation's articles of incorporation permit otherwise) the amount
that would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights, upon the dissolution, of
stockholders whose preferential rights are superior to those receiving the
distribution. Following the Reorganization, the Holding Company's principal
source of income is expected to consist of dividends from the Bank, and the Bank
will continue to be subject to tax and regulatory restrictions on its ability to
pay dividends.
Following the planned conversion of the Bank from a federally chartered
savings bank to a Virginia chartered commercial bank, the Bank will be subject
to certain restrictions on the payment of dividends by the Virginia SCC. Prior
approval from the Virginia SCC would be required if cash dividends declared in
any given year exceed net income for that year plus net income for the prior two
years less all dividends paid during the current year and two prior years. The
payment of dividends by the Bank may also be limited by other factors, such as
requirements to maintain capital above regulatory guidelines and prohibitions
from engaging in an unsafe or unsound practice in conducting its business.
Board of Directors. The Bank's Bylaws and the Articles of Incorporation
of the Holding Company require the Board of Directors of the Bank and the
Holding Company, respectively, to be divided into three classes as nearly equal
in number as possible and that the members of each class be elected for a term
of three years and until their successors are elected and qualified, with one
class being elected annually.
A classified Board of Directors makes it more difficult for
stockholders, including those holding a majority of shares, to force an
immediate change in the composition of a majority of the Board of Directors,
even when the reason for a proposed removal is poor performance. Since the terms
of only approximately one-third of the incumbent directors expire each year, it
requires at least two annual elections for the stockholders to change a
majority, whereas a majority of a non-classified board may be changed in one
year.
The Bylaws of Bank provide that the Board of Directors shall consist of
eight members. There are currently eight directors of the Bank. The Articles of
Incorporation of the Holding Company provide that, except as otherwise fixed by
Articles of Amendment relating to the right of holders of any series of
preferred stock to elect directors, the number of directors shall be fixed in
the Bylaws of the Holding Company. The Bylaws of the Holding Company provide
that the number of directors shall be not less than five (5) nor more than
fifteen (15).
Filling Vacancies on the Board. Under the Bank's Bylaws, vacancies
occurring on its Board of Directors, including vacancies created by newly
created directorships resulting from an increase in the number of directors, may
be filled by the affirmative vote of a majority of the remaining directors, even
if less than a quorum, until the next election of directors by stockholders.
Under the Articles of Incorporation of the Holding Company, newly
created directorships resulting from any increase in the number of directors and
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause, may be filled only by the affirmative
vote of the majority of the remaining directors then in office, even if such
number is less than a quorum of the Board of Directors. This provision enables
incumbent directors to fill vacancies on the Board of Directors of the Holding
Company to the exclusion of the Holding Company's stockholders, regardless of
the reason for the vacancy.
<PAGE>
The provisions of the Articles of Incorporation of the Holding Company
relating to the removal of directors and the filling of vacancies would preclude
a holder of the majority of the voting stock from removing incumbent directors
and simultaneously gaining control of the Board of Directors by filling the
vacancies so created with its own nominees. Accordingly, except with the
concurrence of a majority of the directors remaining in office, persons seeking
majority representation on the Board of Directors of the Holding Company will be
precluded from obtaining such representation either by enlarging the Board of
Directors or by filling the newly created directorships with their own nominees.
Since only approximately one-third of the Holding Company's directors are
elected at any one annual meeting, any hostile bidder, in the context of a
takeover attempt, would have to prevail at two consecutive annual meetings in
connection with director elections in order to replace a majority of the
directors of the Holding Company.
Removal of Directors. OTS Regulations and the Bylaws of the Bank
provide that directors may be removed from office, for cause, by the affirmative
vote of stockholders holding the majority of the shares entitled to vote at an
election of directors. OTS Regulations also provide, however, that if less than
the entire Board of Directors is to be removed, no one director may be removed
if the votes cast against the removal would be sufficient to elect a director of
the class of directors of which the director is a part. The Articles of
Incorporation of the Holding Company provide that any director or the entire
Board of Directors may be removed for cause by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of capital stock
entitled to vote generally in the election of directors at a meeting of the
stockholders called for that purpose.
Special Meetings of Stockholders. Under the Bylaws of the Bank, a
special meeting of stockholders may be called by the President, the Chairman of
the Board or a majority of the Board of Directors, and shall be called at the
request of holders of 10% or more of the Bank's voting stock. The Bylaws of the
Holding Company provide that special meetings of stockholders may be held
whenever called by the President, Chairman of the Board of Directors or by the
Board of Directors, itself, which means that the stockholders of the Holding
Company do not have the right to call special meetings. This provision of the
Bylaws of the Holding Company can be changed only by the same vote that is
required to amend the Articles of Incorporation of the Holding Company. The
inability of stockholders to call a special meeting could affect changes in
control of the Holding Company by delaying the presentation to stockholders of
proposals relating to, or facilitating, such a change in control until the
annual meeting.
Stockholder Nominations and Proposals. The Bank's Bylaws and OTS
regulations generally provide that a stockholder must submit advance notice of
nominations for election as director at an annual meeting of stockholders at
least five days before the date of the meeting. A stockholder may bring up new
business to be taken up at such a meeting only if he or she gives notice to the
Bank at least five days before the date of any such meeting.
Under the Holding Company's Bylaws, notice of a proposed nomination or
a stockholder proposal meeting certain specified requirements must be received
by the Holding Company not less than 60 nor more than 90 days prior to any
meeting of stockholders called for the election of directors, provided in each
case that if fewer than 70 days' notice of the meeting is given to stockholders,
such written notice shall be received not later than the close of the tenth day
following the day on which notice of the meeting was mailed to stockholders.
The Bylaws of the Holding Company require that the stockholder's notice
set forth as to each nominee (i) the name, age, business address and residence
address of such nominee, (ii) the principal occupation or employment of such
nominee, (iii) the class and number of shares of the Holding Company that are
<PAGE>
beneficially owned by such nominee, and (iv) any other information relating to
such nominee that is required under federal securities laws to be disclosed in
solicitations of proxies for the election of directors, or is otherwise required
(including, without limitation, such nominees written consent to being named in
a proxy statement as nominee and to serving as a director if elected). The
Bylaws of the Holding Company further require that the stockholder's notice set
forth as to the stockholder giving the notice (i) the name and address of such
stockholder and (ii) the class and amount of such stockholder's beneficial
ownership of Holding Company capital stock. If the information supplied by
stockholder is deficient in any material aspect or if the foregoing procedure is
not followed, the chairman of the annual meeting may determine that such
stockholder's nomination should not be brought before the annual meeting and
that such nominee shall not be eligible for election as a director of the
Holding Company.
The advance notice procedure of the Bylaws of the Holding Company
affords the Board of Directors the opportunity to consider the qualifications of
the proposed nominees and to inform stockholders about such qualifications.
Although such procedure does not give the Board of Directors of the Holding
Company any power to approve or disapprove of stockholder nominations for
election of directors, it may have the effect of precluding surprise nominations
and a contest for the election of directors if such procedure established by it
is not followed. Furthermore, such procedure may discourage or deter a third
party from conducting a solicitation of proxies to elect its own slate of
directors.
The procedures regarding stockholder proposals and nominations will
provide the Board of Directors of the Holding Company with the information which
will be necessary to evaluate a stockholder proposal or nomination and other
relevant information, such as existing stockholder support, as well as the time
necessary to consider and evaluate such information in advance of the applicable
meeting. The proposed procedures, however, will give incumbent directors advance
notice of a business proposal or nomination. This may make it easier for the
incumbent directors to defeat a stockholder proposal or nomination, even when
certain stockholders view such proposal or nomination as in the best interests
of the Holding Company or its stockholders. The Holding Company's Articles of
Incorporation and Bylaws do not prevent stockholders from making proposals under
the SEC's rules and regulations.
Stockholder Vote Required for Certain Actions. The Virginia SCA
provides that, unless a corporation's articles of incorporation provide for a
higher or lower vote, certain significant corporate actions must be approved by
a vote of more than two-thirds of the votes entitled to be cast on the matter.
These actions include amendments to its articles of incorporation, plans of
reorganization or exchange, sales of substantially all its assets other than in
the ordinary course of business or plans of dissolution ("Fundamental Actions").
Virginia law provides that a corporation's articles of incorporation may either
increase the vote required to approve Fundamental Actions or may decrease the
required vote to not less than a majority of the votes entitled to be cast.
Article VII of the Holding Company's articles decreases the stockholder
vote required to approve Fundamental Actions to 50% 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 that of more than two-thirds of the shares
entitled to vote on the matter. In comparison, the Bank's articles currently
provide that a greater than two-thirds vote is required in all matters involving
Fundamental Actions.
The effect of this provision is to make stockholder approval of
Fundamental Actions less difficult to obtain in the case of Fundamental Actions
favored by the Board of Directors. A lower required stockholder 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
more than two-thirds affirmative vote requirement and therefore more difficult
to obtain. For
<PAGE>
this reason, the provisions of Article VI have anti-takeover implications in
that it makes a Fundamental Action not approved by the Board more difficult to
adopt, even though the holders of a majority of the outstanding shares may
support the Fundamental Action.
Limitations on Liability. The Articles of Incorporation of the Holding
Company provide that to the full extent that Virginia law permits the limitation
or elimination of the liability of directors and officers, they will not be
liable to the Holding Company or its stockholders for any money damages. At this
time Virginia law does not permit any limitation of liability if a director
engages in willful misconduct or a knowing violation of the criminal law or any
federal or state securities law.
These provisions are designed to ensure that the Holding Company will
be able to attract and retain qualified directors and that such directors will
be able to exercise their best business judgment in managing the Holding
Company's affairs, subject to their continuing fiduciary duties to the Holding
Company and its stockholders, in a manner which is not unreasonably impeded by
exposure to the potentially high personal costs or other uncertainties of
litigation. The provisions in the Holding Company's Articles of Incorporation
relating to director liability are intended to reduce, in appropriate cases, the
risk incident to serving as a director and to enable the Holding Company to
elect and retain the persons most qualified to serve as directors. To date, the
Bank has not experienced any difficulty in recruiting or retaining qualified
individuals to serve as directors.
Currently, federal law does not permit federally chartered savings
associations such as the Bank to limit the personal liability of directors in
the manner authorized by Virginia.
Indemnification of Directors, Officers and Employees. To the fullest
extent permitted by Virginia law, the Holding Company's Articles of
Incorporation require it to indemnify any director or officer of the Holding
Company who is made a party to any proceeding because he was or is a director or
officer of the Holding Company against any liability, including reasonable
expenses and legal fees, incurred in the proceeding.
The Holding Company's Articles of Incorporation also provide that the
Holding Company may, but is not obligated to, indemnify its other employees or
agents. The Holding Company must indemnify any person who is or was serving at
the written request of the Holding Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, to the full extent provided by Virginia law. The indemnification
provisions also require the Holding Company to pay reasonable expenses incurred
by a director or officer of the Holding Company in a proceeding in advance of
the final disposition of any such proceeding, provided that the indemnified
person undertakes to repay the Holding Company if it is ultimately determined
that such person was not entitled to indemnification. At this time, Virginia law
does not permit indemnification against willful misconduct or a knowing
violation of the criminal law.
The rights of indemnification provided in the Holding Company's
Articles of Incorporation are not exclusive of any other rights which may be
available under any insurance or other agreement, by vote of stockholders or
disinterested directors or otherwise. In addition, the Articles of Incorporation
authorize the Holding Company to maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Holding Company, whether
or not the Holding Company would have the power to provide indemnification to
such person. The rights of indemnification provided to directors of the Holding
Company could reduce the likelihood of stockholder derivative actions and may
discourage other third party claims against the directors, even if such actions
otherwise would be beneficial to stockholders of the Holding Company.
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
<PAGE>
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 therefor
unenforceable.
OTS regulations govern the power of the Bank to indemnify its
directors, officers and employees. As a federal savings association, the Bank
must indemnify any person against whom an action is brought because he or she
was or is an officer, director or employee if there is a final judgment on the
merits in his or her favor. In other cases, indemnification is permitted only if
a majority of the disinterested directors determine that the person acted in
good faith within the scope of his or her authority as he or she could
reasonably have believed under the circumstances was in the best interests of
the Bank. In no case may the Bank indemnify a director, officer or employee
unless it gives at least 60 days notice to the OTS and, within such period, the
OTS does not object.
Virginia Anti-Takeover Statutes. Virginia has two anti-takeover
statutes in force, the Affiliated Transaction Statute and the Control Share
Acquisitions Statute.
Affiliated Transactions. The Virginia SCA contains provisions governing
"affiliated transactions" (including, among other various transactions, mergers,
share exchanges, sales, leases, or other dispositions of material assets,
issuances of securities, dissolutions, and similar transactions) with an
"interested shareholder" (generally the beneficial owner of more than 10% of any
class of the corporation's outstanding voting shares). During the three years
following the date a shareholder becomes an interested shareholder, any
affiliated transaction with the interested shareholder must be approved by both
a majority of the "disinterested directors" (those directors who were directors
before the interested shareholder became an interested shareholder or who were
recommended for election by a majority of disinterested directors) and by the
affirmative vote of the holders of two-thirds of the corporation's voting shares
other than shares beneficially owned by the interested shareholder. The
foregoing requirements do not apply to affiliated transactions if, among other
things, a majority of the disinterested directors approve the interested
shareholder's acquisition of voting shares making such a person an interested
shareholder prior to such acquisition. Beginning three years after the
shareholder becomes an interested shareholder, the corporation may engage in an
affiliated transaction with the interested shareholder if (i) the transaction is
approved by the holders of two-thirds of the corporation's voting shares, other
than shares beneficially owned by the interested shareholder, (ii) the
affiliated transaction has been approved by a majority of the disinterested
directors, or (iii) subject to certain additional requirements, in the
affiliated transaction the holders of each class or series of voting shares will
receive consideration meeting specified fair price and other requirements
designed to ensure that all shareholders receive fair and equivalent
consideration, regardless of when they tendered their shares.
Control Share Acquisitions. Under the Virginia SCA's control share
acquisitions law, voting rights of shares of stock of a Virginia corporation
acquired by an acquiring person at ownership levels of 20%, 33 1/3%, and 50% of
the outstanding shares may, under certain circumstances, be denied unless
conferred by a special shareholder vote of a majority of the outstanding shares
entitled to vote for directors, other than shares held by the acquiring person
and officers and directors of the corporation or, among other exceptions, such
acquisition of shares is made pursuant to a merger agreement with the
corporation or the corporation's articles of incorporation or by-laws permit the
acquisition of such shares prior to the acquiring person's acquisition thereof.
If authorized in the corporation's articles of incorporation or by-laws, the
statute also permits the corporation to redeem the acquired shares at the
average per share price paid for them if the voting rights are not approved or
if the acquiring person does not file a "control share acquisition statement"
with the corporation within sixty days of the last acquisition of such shares.
If voting rights are approved for control shares comprising more than fifty
percent of the corporation's outstanding stock, objecting shareholders may have
the right to have their shares repurchased by the corporation for "fair value".
<PAGE>
The provisions of the Affiliated Transactions Statute and the Control
Share Acquisition Statute are only applicable to public corporations that have
more than 300 shareholders. Corporations may provide in their articles of
incorporation or bylaws to opt-out of the Control Share Acquisition Statute, but
the Holding Company has not done so.
Historical and Pro Forma Capitalization
The table below sets forth the capitalization of the Bank as of June
30, 1997 and the pro forma capitalization of the Bank and Holding Company as
adjusted to reflect the consummation of the Reorganization.
<TABLE>
<CAPTION>
Holding
Bank Company
---- -------
<S> <C>
Prior to the Reorganization (1)
Number of Shares of Capital Stock:
Authorized:
Common Stock........................................ 5,000,000 5,000,000
Preferred Stock..................................... 500,000 500,000
Issued and Outstanding:
Common Stock........................................ 1,804,812 10
Preferred Stock..................................... -- --
Stockholders' Equity:
Common Stock.......................................... $ 453,277 $33
Surplus............................................... 602,365 967
Undivided Profits..................................... 7,440,458 --
Unrealized Gains/Losses on AFS Securities*............ 72,729 --
------------ ---------------
Total Equity Capital....................................... $ 8,568,827 $1,000
</TABLE>
- -----------------
* Represents securities that are classified as available for sale.
<TABLE>
<CAPTION>
Pro Forma
---------------------------------------------
Holding Company
Combined
Bank with the Bank
---- -------------
<S> <C>
After the Reorganization
Number of Shares of Capital Stock:
Authorized:
Common Stock........................................ 5,000,000 ----------------------
5,000,000
Preferred Stock..................................... 500,000 500,000
Issued and Outstanding:
Common Stock........................................ 1,804,812 1,804,812
Preferred Stock..................................... -- --
----------- -----------
Stockholders' Equity (2):
Common Stock.......................................... $ 453,277 $ 453,277
Surplus............................................... 602,365 602,365
Undivided Profits..................................... 7,440,458 7,440,458
Unrealized Gains/Losses on AFS Securities............. 72,729 72,729
----------- -----------
Total Equity Capital....................................... $ 8,568,827 $ 8,568,827
</TABLE>
<PAGE>
- --------------------------
(1) In order to capitalize the Holding Company, the Bank will purchase 100
shares of Holding Company Common Stock at $10 per share. These shares will
be canceled upon consummation of the Reorganization.
(2) At the Effective Date, each of the issued and outstanding shares of Bank
Common Stock will be converted into and become one share of Holding Company
Common Stock, par value $0.33, and the stockholders of the Bank will
thereupon become stockholders of the Holding Company. The Holding Company
will then own all the outstanding shares of Bank Common Stock.
Regulation and Supervision
The Bank currently is subject to regulation and examination by the OTS,
and it 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 OTS. Following the planned conversion of the Bank to a commercial bank
charter, it will be subject to regulation and examination of the Virginia SCC
and the Federal Reserve. The Holding Company will then become subject to the
regulation and examination of the Federal Reserve under the Bank Holding Company
Act of 1956, as amended (the "BHCA"). The Holding Company also will be under the
jurisdiction of the SEC and certain state securities commissions with respect to
matters relating to the offer and sale of its securities and certain annual and
periodic securities reporting requirements. See "Regulation and Supervision" for
additional information.
THE HOLDING COMPANY
General
The Holding Company was incorporated under the laws of Virginia on
September 8, 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 Common Stock. It
has filed an application with the OTS for prior approval to become a savings
bank holding company. The Holding Company has not yet engaged in business
activity, and there are 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. The Holding Company's offices
will be located in the Bank's offices at 25253 Lankford Highway, Onley,
Virginia. The Holding Company does not, therefore, contemplate any substantial
expenditures for equipment, office space, or additional personnel prior to
consummation of the Reorganization or for the foreseeable future.
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 Reorganization
On the Effective Date, the Holding Company will become the parent
holding company for the Bank.
The Board of Directors of the Holding Company will be comprised of the
same individuals who serve as directors of the Bank, with the exception of Mr.
<PAGE>
Richard F. Hall, Jr. Mr. Richard F. Hall, III, a nominee for director of the
Bank will, if elected at the Annual Meeting, take a seat on the Board of
Directors of the Bank and will also serve as a director of the Holding Company.
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.
Approval of the Reorganization by the stockholders of the Bank at the
Annual Meeting will be deemed to constitute the election of the eight 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:
Class I Class II Class III
------- -------- ---------
Terrell E. Boothe Henry P. Custis, Jr. Richard F. Hall, III
D. Page Elmore Lloyd J. Kellam Scott C. Harvard
A. Jackson Mason L. Dixon Leatherbury
The directors in Class I will serve until the 1998 Annual Meeting of
Stockholders of the Holding Company, and the Class II 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 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 Reorganization, except that the Bank plans to convert
from a federally chartered stock savings bank to a Virginia chartered commercial
bank.
Mr. Henry P. Custis, Jr. will serve as Chairman of the Board of
the Holding Company, Mr. Scott C. Harvard will serve as President and
Chief Executive Officer, and Mr. Steven M. Belote will serve as Vice
President and Chief Financial Officer and Secretary/Treasurer. See
"Management of the Bank" for further information about these individuals and
the other officers of the Bank.
Description of Capital Stock
Stockholders of Holding Company will be entitled to one vote per share
on all matters submitted to stockholders. Stockholders will not possess
cumulative voting rights with respect to the election of directors nor
preemptive rights for the purchase of additional shares. Holding Company
stockholders will be entitled to receive such dividends as may be declared by
the Board of Directors and, in the event of liquidation or dissolution, to
receive the net assets of the Holding Company in proportion to their respective
holdings.
The Holding Company will be authorized to issue 5,000,000 shares of
common stock, par value $0.33 per share. The shares of Holding Company common
stock issued upon the consummation of the Reorganization will be fully paid and
non-assessable when issued.
Additionally, the Holding Company will be authorized to issue 500,000
shares of preferred stock, par value $1.00 per share. The Board of Directors is
authorized pursuant to the Articles of Incorporation of the Holding Company (see
Exhibit B attached hereto) to assign preferences, rights and limitations to the
shares of preferred stock when they are issued. This authority gives the Board
of Directors of the Holding Company flexibility in the structuring and financing
of acquisitions and other financial activities. The Holding Company will also be
able to use the preferred stock to help deter hostile takeover attempts by
assigning certain rights and preferences to the preferred stock that will make
it more difficult for a third party to gain control of the Holding Company.
<PAGE>
There are currently no plans nor do the Boards of Directors of the
Holding Company or Bank anticipate any need in the foreseeable future to issue
shares of preferred stock of the Holding Company following the Reorganization.
See "Certain Effects of the Reorganization - Comparison of the Rights
of Stockholders" for a discussion of the similarities and differences between
the rights and privileges of the stockholders of the Holding Company and the
Bank.
SHORE BANK
Business
Shore Bank is a federally chartered savings bank which began business
in 1961 and is headquartered on the Eastern Shore in Onley, Virginia. The Bank
operates five banking offices on the Eastern Shore of Virginia and Maryland,
including the counties of Accomack and Northampton in Virginia and the
Salisbury/Wicomico County area in Maryland. The Bank plans to open its sixth
office and second in the Salisbury/Wicomico County area in the fourth quarter of
1997. At June 30, 1997, the Bank had assets of $104.6 million, deposits of $94.6
million and stockholders' equity of $8.6 million.
The Bank offers a wide variety of community oriented banking services,
including individual and commercial checking accounts, savings and time
deposits, residential mortgages, commercial and consumer loans, credit card
services and safe deposit boxes. Although residential first mortgage loans
continue to represent the bulk of the Bank's loan portfolio, in recent years the
Bank has focused on diversifying its loan portfolio by building its commercial
and consumer loan portfolios. While residential first mortgage loans represented
65.1% of the loan portfolio at June 30, 1997, down from 80.3% at 1994 year-end,
commercial loans have grown during this same period from 1.7% of the portfolio
at 1994 year-end to 6.9% at June 30, 1997. Consumer loans, including home equity
lines of credit, have also increased during this period from 8.7% to 11.9% of
total loans.
The Bank is a member of the Federal Home Loan Bank of Atlanta and its
deposits are insured by the Savings Association Insurance Fund (the "SAIF") of
the FDIC. The OTS serves as the primary regulator for the Bank.
Market Area
The Bank's Main Office and three additional banking offices are
located in Northampton and Accomack Counties, which comprise the Virginia
portion of the Eastern Shore. Poultry and seafood processing are major
industries in the area, with Perdue Farms, Inc. and Tyson Foods, Inc. being
the area's two largest employers. Agriculture and tourism are also integral
parts of the area's economy.
In 1995, the Bank expanded into the Salisbury/Wicomico County area of
Maryland, which is approximately 60 miles north of the Bank's Main Office in
Onley, Virginia. The Salisbury/Wicomico County area, the Bank's newest market,
is the major economic hub of the Delmarva Peninsula and is centrally located as
a crossroads among Washington, D.C., Norfolk, Virginia, Ocean City and
Baltimore, Maryland and Dover, Delaware. Approximately 215,000 people live
within a 20-mile radius of the City of Salisbury. The area has a diversified
economy and leading employers in the area include Perdue Farms, Inc. (poultry
processing), Dresser Industries (electronic controls), Bayliner Marine (yachts),
and Eaton Corp. (circuit breakers).
<PAGE>
Competition
The Bank faces strong competition both in originating loans and in
attracting deposits. Competition in originating loans comes primarily from
commercial and savings banks, credit unions, mortgage lenders and to a lesser
extent consumer finance companies and credit unions. The Bank competes for loans
principally on the basis of the interest rates and loan fees it charges, the
types of loans it originates and the quality of services it provides to
borrowers.
The Bank faces substantial competition in attracting deposits from
other banks, money market and mutual funds, credit unions and other investment
vehicles. The ability of the Bank to attract and retain deposits depends on its
ability to provide an investment opportunity that satisfies the requirements of
investors as to rate of return, liquidity, risk and other factors. The Bank
competes for these deposits by offering a variety of deposit accounts at
competitive rates, convenient business hours, and being the largest of only two
locally-owned independent banks on the Eastern Shore of Virginia. The Bank
increased its deposits by 9.8% and 18.8% for the years ended June 30, 1997 and
1996, respectively. This deposit growth is a reflection of aggressive pricing,
increased marketing and competitive products and services.
In its market area, the Bank competes with nine regional commercial
banks with multiple offices on the Eastern Shore. These and certain other
non-bank competitors have much greater financial resources, diversified markets,
and branch networks than the Bank and are able to offer similar services at
varying costs with higher lending limits. With nationwide banking, the Bank also
faces the prospect of additional competitors entering its market area.
Executive Officers
The following table sets forth certain information with respect to the
executive officers of the Bank. The executive officers are elected annually by
the Board of Directors. There are no arrangements or understandings between the
Bank and such officers pursuant to which such officers were elected executive
officers of the Bank. No executive officer named below is related to any other
director or executive officer.
<TABLE>
<CAPTION>
Name Age(1) Position(s)
---- ------ -----------
<S> <C>
Scott C. Harvard 42 President and Chief Executive Officer
William T. Hill 62 President - Maryland Division
J. Anderson Duer, Jr. 50 Chief Lending Officer
Steven M. Belote 31 Vice President and Chief Financial Officer
Brenda P. Wallace 40 Vice President and Chief Operating Officer
</TABLE>
- -------------------
(1) As of September 1, 1997.
Set forth below is information with respect to the principal
occupations of the above executive officers during the last five years.
Scott C. Harvard. Mr. Harvard is President and Chief Executive
Officer of the Bank and has held such positions since 1985. Mr. Harvard has
also served as a director of the Bank since 1985.
William T. Hill. Mr. Hill serves as President of the Bank's Maryland
Division. From 1993 to 1996, Mr. Hill was Chief Lending Officer of the Bank.
Prior to joining the Bank, Mr. Hill was Senior Vice President with Second
National Bank, FSB, Salisbury, Maryland, and had been employed at such
institution from 1984 to 1993.
<PAGE>
J. Anderson Duer, Jr. Since 1996, Mr. Duer has had primary
responsibility of the Bank's commercial and consumer lending operations as
the Bank's Chief Lending Officer. Prior thereto, Mr. Duer was Assistant
Vice President and Branch Manager at Crestar Bank, Nassawadox, Virginia. Mr.
Duer was employed by Crestar from 1973 to 1996.
Steven M. Belote. Mr. Belote is Vice President and Chief Financial
Officer of the Bank, holding such positions since 1995. Prior to joining
the Bank, Mr. Belote was an accountant with BDO Seidman LLP, an
accounting firm in Washington, D.C. from 1988 to 1995. Mr. Belote is a
certified public accountant.
Brenda P. Wallace. Ms. Wallace is Vice President and Chief
Operating Officer of the Bank. Ms. Wallace became Vice President in 1987 and
Chief Operating Officer in 1996. Ms. Wallace has been employed at the Bank
since 1977.
Properties
The Main Office of the Bank is located at 25253 Lankford Highway,
Onley, Virginia, a two story colonial brick building built in 1988. The Bank
owns the building free of any encumbrances, but leases the land under an
agreement expiring in 2000, with four five-year renewals. The Bank operates four
other banking offices (three in Virginia and one in Salisbury, Maryland), all of
which are owned free of any encumbrances.
Employees
At June 30, 1997, the Bank had 33 full-time and 16 part-time
employees. The Bank considers relations with its employees to be good.
Legal Proceedings
In the ordinary course of its operations, the Bank is a party to
various legal proceedings. Based upon information currently available,
management believes that such legal proceedings, in the aggregate, will not have
a material adverse effect on the business, financial condition, or results of
operations of the Bank.
Description of Capital Stock
The capital stock of the Bank consists of its Common Stock, par value
$0.33 per share, of which 5,000,000 shares are authorized and 1,804,812 shares
were issued and outstanding as of the Record Date and its preferred stock, par
value $5.00. No shares of preferred stock are outstanding and there are no
current plans to issue any shares of preferred stock.
The holders of Bank Common Stock are entitled to dividends, out of
funds legally available therefor, when and as declared by the Board of
Directors. Holders of Bank Common Stock are entitled to one vote for each share
held. Stockholders possess cumulative voting rights in the election of
directors.
The outstanding shares of Bank Common Stock are fully paid and
non-assessable.
The Bank acts as its own transfer agent for its common stock.
The Bank furnishes its stockholders with annual reports which contain
audited consolidated financial statements for the Bank and summary financial
information for the prior five-year period. See "Certain Effects of the
Reorganization -- Comparison of the Rights of Stockholders" for a discussion of
the similarities and differences between the rights and privileges of the
stockholders of the Holding Company and stockholders of the Bank.
<PAGE>
ELECTION OF DIRECTORS -- PROPOSAL TWO
Directors
The Bank's Board consists of eight directors divided into three classes
who serve staggered three year terms. The two persons named immediately below
have been nominated for election to serve as directors for a three year term.
Mr. Scott C. Harvard, President and Chief Executive Officer of the Bank, has
served as a director of the Bank since 1985. Mr. Richard F. Hall, Jr., who
currently serves as Chairman of the Bank, is not eligible for re-election
pursuant to the age limitation (70) specified in the Bank's Bylaws. Mr. Richard
F. Hall, III has been nominated for the open director position. The persons
named in the proxy will vote for the election of the nominees named below unless
authority is withheld. If for any reason any of the persons named as nominees
below should become unavailable to serve, an event which management does not
anticipate, proxies will be voted for the remaining nominees and such other
person or persons as the Board of Directors may designate.
If the Reorganization is approved by the stockholders, the Holding
Company, as the sole stockholder of the Bank following the Reorganization, will
elect Directors of the Bank at the Bank's annual meeting. However, current
stockholders of the Bank, all of whom will become stockholders of the Holding
Company if the Reorganization is approved and consummated, will be entitled to
vote in the election of the directors of the Holding Company.
The Board of Directors recommends that stockholders vote for the two
nominees set forth below.
<TABLE>
<CAPTION>
Served as
Name (Age) Director Since Positions Held With the Bank
---------- -------------- ----------------------------
<S> <C>
1997 Class (Nominees for Election):
Richard F. Hall, III (44) -- Nominated to serve as a director.
Scott C. Harvard (42) 1985 Director, President and Chief Executive Officer
Other Directors Not Standing for Re-election at this Time:
1998 Class (Directors Serving Until the 1998 Annual Meeting):
Terrell E. Boothe (53) 1985 Director
D. Page Elmore (57) 1995 Director
A. Jackson Mason (63) 1968 Director
1999 Class (Directors Serving Until the 1999 Annual Meeting):
Henry P. Custis, Jr. (51) 1987 Director
Lloyd J. Kellam, III (42) 1992 Director
L. Dixon Leatherbury (47) 1981 Director
</TABLE>
<PAGE>
Set forth below is information with respect to the principal
occupations of the directors and nominees for director of the Bank during the
last five years.
Richard F. Hall, III. Mr. Hall is the sole owner of Lobjolly Farms, a
grain and vegetable farming business located on the Eastern Shore of Virginia.
Mr. Hall purchased Lobjolly Farms in 1977. Since 1992, Mr. Hall has been the
sole owner of Seaside Produce, a produce packaging and brokerage business
located in Accomac, Virginia.
Scott C. Harvard. Mr. Harvard is President and Chief Executive
Officer of the Bank and has held such positions since 1985. Mr. Harvard also
serves on the board of directors of Old Dominion Trust Co., a Virginia
corporation providing trust services located in Norfolk, Virginia.
Terrell E. Boothe. Mr. Boothe has served as President of Terrell
E. Boothe, Inc., a Nationwide Insurance agency located in Chincoteague,
Virginia since 1968. Mr. Boothe is also a licensed real estate broker in the
Commonwealth of Virginia.
D. Page Elmore. Mr. Elmore has served as President and Chief Operating
Officer of Shore Disposal, Inc., a waste management corporation located in
Painter, Virginia since 1971. Mr. Elmore has also served as President and Chief
Operating Officer of James H. Hartman & Sons, Inc., a trucking company,
located in Pocomoke, Maryland since 1974.
A. Jackson Mason. Mr. Mason is President of Mason-Davis Co., Inc., a
diversified real estate services corporation based in Accomac, Virginia, and
has held such position since 1962. Mr. Mason has been involved in the real
estate services business since 1967.
Henry P. Custis, Jr. Mr. Custis is a partner in Custis, Lewis &
Dix, a law firm located in Accomac, Virginia. Mr. Custis has been in the
general practice of law since 1970.
Dr. Lloyd J. Kellam, III. Dr. Kellam has been a practicing physician
at Eastern Shore Physicians and Surgeons in Nasssawadox, Virginia since 1987.
L. Dixon Leatherbury. Mr. Leatherbury is President and General
Manager of Leatherbury Equipment Co., a farm equipment company located in
Cheriton, Virginia, and has been associated with such company since 1977. Mr.
Leatherbury is also President of Wakefield Equipment Co., a farm equipment
company in Wakefield, Virginia, and has served in such capacity since 1996.
In accordance with Article II, Section 14 of the Bylaws, stockholders
intending to nominate director candidates at a stockholder meeting must deliver
notice within specified timeframes and must follow a specific procedure. A
stockholder desiring information on timeframes and procedures should request the
information from the Secretary of the Bank.
Board Meetings and Committees
Regular meetings of the Board of Directors of the Bank are held on at
least a monthly basis and special meetings of the Board of Directors are held
from time-to-time as needed. There were 12 meetings of the Board of Directors
held during the year ended June 30, 1997. No director attended fewer than 75% of
the total number of meetings of the Board of Directors of the Bank during fiscal
1997 and the total number of meetings held by all committees of the Board on
which the director served during such year.
The Board of Directors of the Bank has established various committees,
including Loan, Investment, Audit/Expense Committees, and Compensation.
<PAGE>
Loan Committee. The Loan Committee considers new loan applications
which are in excess of individual officer limits and monitors (with management)
the Bank's loan portfolio. The Loan Committee consists of the President and one
additional director, with the directors rotating their service on this committee
on a monthly basis. The Loan Committee met weekly in fiscal 1997.
Investment Committee. The Investment Committee sets guidelines for the
Bank's investment policies and reviews and decides all investment decisions of
the Bank in excess of $1.0 million. The Investment Committee, which is comprised
of Messrs. Hall, Harvard, Belote and Mason, met twice during fiscal 1997.
Audit/Expense Committee. The Audit/Expense Committee is responsible for
receiving audit and examination reports of the internal accounting staff of the
Bank, the independent public accountants and the banking examiners. The
Audit/Expense Committee met twice in fiscal 1997. The present members of the
Audit/Expense Committee are Messrs. Hall, Harvard, Custis and Boothe.
Compensation Committee. The Compensation Committee reviews senior
management's performance and compensation, and also reviews and sets guidelines
for compensation of all employees. The Compensation Committee, which is
comprised of Messrs. Hall, Harvard, Custis and Boothe, met twice during fiscal
1997.
Director Compensation
During the year ended June 30, 1997, each member of the Board of
Directors of the Bank was paid a monthly fee of $400 regardless of whether he
attended meetings of the Board, except for Richard F. Hall, Jr. who received a
monthly fee of $800 as Chairman of the Board, and Mr. Harvard, who was not
compensated for his service as director. Each director is paid $50 per each
committee meeting attended, except for Mr. Harvard. Beginning October
1997, each member of the Board of Directors of the Bank will receive a monthly
fee of $500 regardless of whether he attends meetings of the Board, except
for Mr. Henry P. Custis, Jr. who will receive a monthly fee of $1,000 as
Chairman of the Board, and Mr. Harvard, who will not be compensated for his
service as director. Each director will be paid $100 per each committee meeting
he attends in fiscal 1998, except for Mr. Harvard.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Pursuant to OTS regulations and Section 16(a) of the Exchange Act,
directors and executive officers of the Bank are required to file reports with
the OTS indicating their holdings of and transactions in Bank Common Stock. To
the Bank's knowledge, based solely on a review of the copies of such reports
furnished to the Bank and written representations that no other reports were
required, insiders of the Bank have complied with all filing requirements since
the Bank became subject to the reporting requirements of the Exchange Act.
<PAGE>
OWNERSHIP OF BANK COMMON STOCK
The following table sets forth, as of September 10, 1997, certain
information as to the shares of Bank Common Stock beneficially owned by each
director and nominee of the Bank and by all directors, nominees and executive
officers of the Bank as a group. Other than Messrs. Richard F. Hall, Jr., and
Henry P. Custis, Jr., who are directors of the Bank and whose beneficial
ownership is set forth in the table below, no stockholder of the Bank owns more
than 5% of the outstanding shares of Bank Common Stock.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent
Ownership (1) of Class
------------- --------
<S> <C>
Terrell E. Boothe............................. 15,600 *
Henry P. Custis, Jr........................... 127,809 (2) 7.1%
D. Page Elmore................................ 1,877 *
Richard F. Hall, Jr........................... 165,000 (2) 9.1
Richard F. Hall, III 55,258 (2) 3.1
Scott C. Harvard.............................. 58,575 (2)(3) 3.3
Dr. Lloyd J. Kellam, III...................... 4,587 (2) *
L. Dixon Leatherbury.......................... 32,950 1.8
A. Jackson Mason.............................. 48,000 (2) 2.7
All directors and executive officers
as a group (13 persons).................... 514,838 (3) 28.5%
</TABLE>
- -----------------
* Represents less than 1% of the Bank's Common Stock.
(1) For purposes of this table, beneficial ownership has been determined in
accordance with the provisions 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, as follows: Richard F. Hall, Jr., 60,000 shares, Mr. Mason, 4,500
shares, Mr. Custis, 2,262 shares, Dr. Kellam, 64 shares, Richard F. Hall,
III., 25,767 shares, and Mr. Harvard, 4,690 shares.
(3) Includes 30,000 shares that may be acquired by Mr. Harvard pursuant to
currently exercisable options granted under the Bank's Stock Option Plan.
EXECUTIVE COMPENSATION
The following table provides a summary of certain information
concerning the compensation paid by the Bank to the President and Chief
Executive Officer of the Bank for services rendered in all capacities during the
year ended June 30, 1997. No other executive officer of the Bank had total
compensation during the fiscal year which exceeded $100,000.
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Securities
Name and Annual Compensation(1) Underlying All Other
Principal Position Year Salary Bonus Options(2) Compensation(3)
------------------ ---- ------ ----- ---------- ---------------
<S> <C>
Scott C. Harvard 1997 $100,000 $20,000 2,535 $11,500
President and Chief 1996 92,500 10,000 12,000 10,600
Executive Officer 1995 90,000 5,000 12,000 --
</TABLE>
- ---------------------------
(1) Does not include certain perquisites and other personal benefits, the
amounts of which are not shown because the aggregate amount of such
compensation during the year did not exceed the lesser of $50,000 or 10% of
total salary and bonus reported for such executive officer.
(2) Consists of awards granted pursuant to the Bank's 1992 Stock Option Plan
during the years indicated, as adjusted for the three-for-one stock split
effected on June 10, 1997, and the two-for-one stock split effected in the
form of a stock dividend on October 15, 1996. This plan does not permit
grants of restricted stock, and it is the only stock-based long term
compensation plan currently in effect.
(3) Represents contribution to the Bank's 401(k) profit sharing plan for the
named executive officer.
The following table sets forth certain information concerning stock
options granted pursuant to the Bank's 1992 Stock Option Plan to the President
and Chief Executive Officer of the Bank during the year ended June 30, 1997.
Option Grants in Last Fiscal Year
Percent of
Number of Total
Shares Options
Underlying Granted to Exercise
Options Employees Price per Expiration
Name Granted in 1997 Share(1) Date(2)
---- ------- ------- -------- -------
Scott C. Harvard 2,535 15.1% $4.73 n/a
(1) The exercise price is based on the book value of a share of Common
Stock at October 31, 1996, as adjusted for the three-for-one stock
split effected on June 10, 1997, and the two-for-one stock split
effected in the form of a stock dividend on October 15, 1996.
(2) In November 1996, Mr. Harvard exercised all stock options granted to
him in fiscal 1997.
<PAGE>
The following table sets forth certain information with respect to the
stock options exercised during the fiscal year ended June 30, 1997, and the
number and value of unexercised options at year-end for the President and Chief
Executive Officer of the Bank. Mr. Harvard exercised stock options for 2,535
shares of Bank Common Stock in fiscal 1997.
Aggregate Option Exercises in Last Fiscal Year and Year-End Option
Values
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Options at Fiscal Year End at Fiscal Year End(1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C>
Scott C. Harvard 2,535 $1,799 30,000 - $49,920 $-
</TABLE>
- ------------------------
(1) Calculated by subtracting the exercise price from the per share book
value of Common Stock of $6.74 at June 30, 1997.
Employment Agreement
On December 1, 1992, the Bank and Mr. Harvard entered into a employment
agreement regarding Mr. Harvard's services to the Bank (the "Agreement"). The
Agreement was initially in effect for a three-year period which expired in 1995.
The Bank has extended such agreement for one-year periods since such expiration
under terms substantially the same as those set forth in the Agreement. The
Agreement provides for an annual base salary to be paid to Mr. Harvard, which
the Board may increase upon its renewal thereof. Pursuant to the Agreement, the
Bank may terminate Mr. Harvard's employment at any time, but any termination by
the Bank other than "termination for cause" as such term is defined in the
Agreement, will not effect Mr. Harvard's right to receive compensation and other
benefits pursuant to the terms of the Agreement. If Mr. Harvard was terminated
for cause during the term of Agreement, he would have no right to receive
compensation or other benefits for any period after such termination. In the
event that Mr. Harvard is terminated without cause, he shall receive his salary
and certain benefits for a period of twelve months from the date of such
termination. The definition of "termination without cause" includes termination
of employment following the sale, liquidation or cessation of the business of
the Bank. Mr. Harvard's base salary for 1997 was $100,000 and for fiscal 1998
is $110,000.
Benefits
401(k) Profit Sharing Plan. The Bank maintains a 401(k) profit sharing
plan (the "401(k) Plan"). The 401(k) Plan is designed to promote the future
economic welfare of the employees of the Bank and to encourage employee savings.
Employee deferrals of salary and employer contributions made under the 401(k)
Plan, together with the income thereon, are accumulated in individual accounts
maintained in trust on behalf of the employee participants, and is made
available to the employee participants upon retirement and under certain other
circumstances as provided in the Plan. Since employee deferrals of salary and
employer contributions made under the 401(k) Plan are made on a tax deferred
basis, employee participants are able to enjoy significant income tax savings by
participating in the 401(k) Plan.
An employee of the Bank becomes eligible to participate in the 401(k)
Plan on the entry date (January 1 or July 1) nearest the date he or she
completes a year of service (provided he or she is at least age 21). A year of
service is a 12 consecutive month period in which the employee works at least
1,000 hours for the Bank. Participants may elect to defer amounts between 2-10%
of their annual compensation to the 401(k) Plan, subject to certain limits
imposed by law. The Bank makes matching contributions equal to 100% of the first
3% of compensation deferred, 50% of the next 3%, and may make additional
discretionary matching contributions. The Bank may also make discretionary
profit sharing contributions, allocated to eligible employees on the basis of
relative compensation, or "qualified non-elective contributions" allocated on
<PAGE>
the basis of relative compensation but only to eligible non-highly compensated
employees. During fiscal 1997, the Bank contributed $63,900 to the 401(k) Plan,
$11,500 of which was for the benefit of Mr. Harvard.
Stock Option Plan. On December 21, 1992, the Board of Directors adopted
the Shore Savings Bank, F.S.B. 1992 Stock Option Plan (the "Stock Option Plan").
The Stock Option Plan is designed to attract and retain qualified personnel in
key positions, provide employees with a proprietary interest in the Bank as an
incentive to contribute to the success of the Bank and reward employees for
outstanding performance and the attainment of targeted goals. The Stock Option
Plan provides for the grant of incentive stock options intended to comply with
the requirements of Section 422 of the Code ("incentive stock options") and
non-qualified stock options.
The Stock Option Plan is administered and interpreted by a committee of
the Board of Directors ("Committee") which is "disinterested" pursuant to
applicable regulations under the Federal securities laws. Unless sooner
terminated, the Stock Option Plan is in effect for a period of ten years from
the date of adoption by the Board of Directors.
Under the Stock Option Plan, the Committee determines which employees
will be granted options, whether such options will be incentive or non-qualified
options, the number of shares subject to each option, whether such options may
be exercised by delivering other shares of Common Stock and when such options
become exercisable. In general, the per share exercise price of an incentive
stock option shall be at least equal to the fair market value of a share of
Common Stock on the date the option is granted. The per share exercise price of
a non-qualified stock option shall be not less than 50% of the fair market value
of a share of Common Stock on the date the option is granted.
Stock options shall become vested and exercisable in the manner
specified by the Committee. In general, each stock option or portion thereof
shall be exercisable at any time on or after it vests and is exercisable until
ten years after its date of grant. Stock options are nontransferable except by
will or the laws of descent and distribution.
Under current provisions of the Code, the federal income tax treatment
of incentive stock options and non-qualified stock options is different. As
regards incentive stock options, an optionee who meets certain holding period
requirements will not recognize income at the time the option is granted or at
the time the options is exercised, and a Federal income tax deduction generally
will not be available to the Bank at any time as a result of such grant or
exercise. With respect to non-qualified stock options, the difference between
the fair market value of the shares subject to the option on the date of
exercise and the option exercise price generally will be treated as compensation
income upon exercise, and the Bank will be entitled to a deduction in the amount
of income so recognized by the optionee.
Transactions with Management
Certain directors and executive officers, members of their immediate
families and corporations, partnerships and other entities with which such
persons are associated, are customers of the Bank. In the ordinary course of
business, the Bank makes loans available to such parties which are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other borrowers, except
that the Bank reduces the interest rate by one percentage point on primary
residential mortgage loans made to full-time employees (at June 30, 1997, Mr.
Harvard, Mr. Belote and Ms. Wallace had $169,124, $85,043, and $113,870,
respectively, of such mortgage loans). It is the belief of management that these
loans neither involve more than the normal risk of collectibility nor present
other unfavorable features. At June 30, 1997, the Bank had 16 loans outstanding
to directors and executive officers of the Bank, members of their immediate
families or affiliated companies in which they are principals. These loans
<PAGE>
totaled approximately $822,000, or approximately 9.6% of the Bank's total net
worth at June 30, 1997. Additionally, at June 30, 1997 the Bank had
approximately $819,000 in loans outstanding to other employees of the Bank and
members of their immediate families.
The law firm of Custis, Lewis & Dix serves as general counsel to the
Bank. Henry P. Custis, Jr., a director of the Bank, is a partner in Custis,
Lewis & Dix.
REGULATION AND SUPERVISION
Set forth below is a brief description of certain laws and regulations
which relate to the regulation of the Holding Company and the Bank in a
post-Reorganization regulatory environment. The discussion addresses certain
laws pertaining to thrift holding companies and their savings institution
subsidiaries, and bank holding companies and their subsidiary banks. The
description of these laws and regulations, as well as descriptions of laws and
regulations contained elsewhere herein, does not purport to be complete and is
qualified in its entirety by reference to applicable laws and regulations.
Upon consummation of the Reorganization, SB Bankshares Corporation will
be a unitary savings and loan holding company subject to the provisions of the
HOLA and the regulations of the OTS. The Bank will continue to be a federally
chartered savings institution subject to the same regulations and OTS oversight
and supervision. Following the planned conversion of the Bank from a federally
chartered savings bank to a Virginia chartered commercial bank, the Bank will be
subject to regulation and examination by the Virginia SCC and the Federal
Reserve. The Holding Company will then become subject to regulation by the
Federal Reserve under the BHCA.
Thrift Holding Companies
General
The Holding Company, as a savings and loan holding company within the
meaning of the HOLA, will be subject to OTS regulations, examinations,
supervision and reporting requirements. As a subsidiary of a savings and loan
holding company, the Bank will be subject to certain restrictions in its
dealings with the Holding Company and affiliates thereof.
Activities Restrictions
There are generally no restrictions on the activities of a savings and
loan holding company which holds only one subsidiary savings association.
However, if the Director of the OTS determines that there is reasonable cause to
believe that the continuation by a savings and loan holding company of an
activity constitutes a serious risk to the financial safety, soundness or
stability of its subsidiary savings association, the Director may impose such
restrictions as deemed necessary to address such risk, including limiting (i)
payment of dividends by the savings association; (ii) transactions between the
savings association and its affiliates; and (iii) any activities of the savings
association that might create a serious risk that the liabilities of the holding
company and its affiliates may be imposed on the savings association.
Notwithstanding the above rules as to permissible business activities of unitary
savings and loan holding companies, if the savings association subsidiary of
such a holding company fails to meet a qualified thrift lender ("QTL") test,
then such unitary holding company also shall become subject to the activities
restrictions applicable to multiple savings and loan holding companies and,
unless the savings association requalifies as a QTL within one year thereafter,
shall register as, and become subject to the restrictions applicable to, a bank
holding company.
<PAGE>
If the Holding Company were to acquire control of another savings
association, other than through merger or other business combination with the
Bank, the Holding Company would thereupon become a multiple savings and loan
holding company. Except where such acquisition is pursuant to the authority to
approve emergency thrift acquisitions and where each subsidiary savings
association meets the QTL test, as set forth below, the activities of the
Holding Company and any of its subsidiaries (other than the Bank or other
subsidiary savings associations) would thereafter be subject to further
restrictions. Among other things, no multiple savings and loan holding company
or subsidiary thereof which is not a savings association shall commence or
continue for a limited period of time after becoming a multiple savings and loan
holding company or subsidiary thereof any business activity, upon prior notice
to, and no objection by the OTS, other than: (i) furnishing or performing
management services for a subsidiary savings association; (ii) conducting an
insurance agency or escrow business; (iii) holding, managing, or liquidating
assets owned by or acquired from a subsidiary savings association; (iv) holding
or managing properties used or occupied by a subsidiary savings association; (v)
acting as trustee under deeds of trust; (vi) those activities authorized by
regulation as of March 5, 1987 to be engaged in by multiple savings and loan
holding companies; or (vii) unless the Director of the OTS by regulation
prohibits or limits such activities for savings and loan holding companies,
those activities authorized by the Federal Reserve as permissible for bank
holding companies. Those activities described in (vii) above also must be
approved by the Director of the OTS prior to being engaged in by a multiple
savings and loan holding company.
Limitations on Transactions with Affiliates
Transactions between savings associations and any affiliate are
governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a
savings association is any company or entity which controls, is controlled by or
is under common control with the savings association. In a holding company
context, the parent holding company of a savings association (such as the
Holding Company) and any companies which are controlled by such parent holding
company are affiliates of the savings association. Generally, Sections 23A and
23B (i) limit the extent to which the savings association or its subsidiaries
may engage in "covered transactions" with any one affiliate to an amount equal
to 10% of such association's capital stock and surplus, and contain an aggregate
limit on all such transactions with all affiliates to an amount equal to 20% of
such capital stock and surplus and (ii) require that all such transactions be on
terms substantially the same, or at least as favorable, to the association or
subsidiary as those provided to a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
similar other types of transactions. In addition to the restrictions imposed by
Sections 23A and 23B, no savings association may (i) loan or otherwise extend
credit to an affiliate, except for any affiliate which engages only in
activities which are permissible for bank holding companies, or (ii) purchase or
invest in any stocks, bonds, debentures, notes or similar obligations of any
affiliate, except for affiliates which are subsidiaries of the savings
association.
In addition, Sections 22(h) and (g) of the Federal Reserve Act places
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater than 10% stockholder of a savings association, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the association's
loans to one borrower limit (generally equal to 15% of the institution's
unimpaired capital and surplus). Section 22(h) also requires that loans to
directors, executive officers and principal stockholders be made on terms
substantially the same as offered in comparable transactions to other persons
(with exceptions made for loan discount programs offered to all employees of the
institution) and also requires prior board approval for certain loans. In
<PAGE>
addition, the aggregate amount of extensions of credit by a savings association
to all insiders cannot exceed the association's unimpaired capital and surplus.
Furthermore, Section 22(g) places additional restrictions on loans to executive
officers. At August 31, 1997, the Bank was in compliance with the above
restrictions.
Restrictions on Acquisitions
Except under limited circumstances, savings and loan holding companies
are prohibited from acquiring, without prior approval of the Director of the
OTS, (i) control of any other savings association or savings and loan holding
company or substantially all the assets thereof or (ii) more than 5% of the
voting shares of a savings association or holding company thereof which is not a
subsidiary. Except with the prior approval of the Director of the OTS, no
director or officer of a savings and loan holding company or person owning or
controlling by proxy or otherwise more than 25% of such company's stock, may
acquire control of any savings association, other than a subsidiary savings
association, or of any other savings and loan holding company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state if (i) the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office located in the state of the association to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
association pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act; or (iii) the statutes of the state in which the
association to be acquired is located specifically permit institutions to be
acquired by the state-chartered associations or savings and loan holding
companies located in the state where the acquiring entity is located (or by a
holding company that controls such state-chartered savings associations).
Bank Holding Companies
Following the planned conversion of the Bank from a federally chartered
savings bank to a Virginia chartered commercial bank, the Bank will become a
subsidiary of the Holding Company, and the Holding Company must register as a
bank holding company under the BHCA, and become subject to regulation by the
Federal Reserve. The Federal Reserve has jurisdiction under the BHCA to approve
any bank or nonbank acquisition, merger or consolidation proposed by a bank
holding company. The BHCA 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.
Federal law permits bank holding companies from any state to acquire
banks and bank holding companies located in any other state. Effective June 1,
1997, interstate bank mergers are permitted, subject to earlier "opt-in" or
"opt-out" action by individual states. The law currently allows interstate
branch acquisitions and de novo branching if permitted by the host state.
Virginia has adopted early "opt-in" legislation that allows interstate bank
mergers. These laws also permit interstate branch acquisitions and de novo
branching in Virginia by out-of-state banks if reciprocal treatment is accorded
Virginia banks in the state of the acquiror.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by federal law
and regulatory policy that are designed to reduce potential loss exposure to the
depositor of such depository institutions and to the FDIC insurance fund in the
event the depository institution becomes in danger of default or in default. For
example, under a policy of the Federal Reserve 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
<PAGE>
otherwise. In addition, the "cross-guarantee" provisions of federal law require
insured depository institutions under common control to reimburse the FDIC for
any loss suffered or reasonably anticipated by either the SAIF or the Bank
Insurance Fund ("BIF") as a result of the default of a commonly controlled
insured depository institution in danger of default. The FDIC may decline to
enforce the cross-guarantee provisions if it determines that a waiver is in the
best interest of the SAIF or the BIF or both. The FDIC's claim for reimbursement
is superior to claims of stockholders of the insured depository institution or
its holding company but is subordinate to claims of depositors, secured
creditors and holders of subordinated debt (other than affiliates) of the
commonly controlled insured depository institution.
The Federal Deposit Insurance Act ("FDIA") also provides that amounts
received from the liquidation or other resolution 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 the Bank.
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 will be subject to regulation and supervision
by the SCC.
Finally, the Holding Company will be subject to the periodic reporting
requirements of the Exchange Act, including but not limited to, filing annual,
quarterly and other current reports with the SEC.
Capital Requirements
The Federal Reserve, the Comptroller of the Currency, and the FDIC have
issued substantially similar risk-based and leverage capital guidelines
applicable to United States banking organizations. In addition, those regulatory
agencies may from time to time require that a banking organization maintain
capital above the minimum levels because of its financial condition or actual or
anticipated growth. Under the risk-based capital requirements of these federal
bank 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 1 capital," which consists principally of common
and certain qualifying preferred shareholders' equity, less certain intangibles
and other adjustments. The remainder "Tier 2 capital" consists of a limited
amount of subordinated and other qualifying debt (including certain hybrid
capital instruments) and a limited amount of the general loan loss allowance.
The Tier 1 and total capital to risk-weighted asset ratios of the Bank as of
June 30, 1997 were 14.56% and 15.53%, respectively, exceeding the minimums
required.
In addition, each of the federal regulatory agencies has established a
minimum leverage capital ratio (Tier 1 capital to average tangible assets).
These guidelines provide for a minimum ratio of 3% for banks and bank 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 the minimum. The Tier 1 capital
leverage ratio of the Bank as of June 30, 1997, was 8.58%. 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.
Banking agencies have recently adopted final regulations which mandate
that regulators take into consideration concentrations of credit risk and risks
from non-traditional activities, as well as an institution's ability to manage
<PAGE>
those risks, when determining the adequacy of an institution's capital. This
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have recently adopted final
regulations requiring regulators to consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. Concurrently, banking agencies have
proposed a methodology for evaluating interest rate risk. After gaining
experience with the proposed measurement process, those banking agencies intend
to propose further regulations to establish an explicit risk-based capital
charge for interest rate risk. The Holding Company and the Bank do not expect
any of these rules, either individually or in the aggregate, to have a material
impact on their respective capital requirements.
Limits on Dividends and Other Payments
The Holding Company will be a legal entity separate and distinct from
the Bank.. The Bank, following the planned charter conversion, will be a state
member bank of the Federal Reserve System. As a result, the Bank will be
regulated by the Federal Reserve and the Virginia SCC. There will be various
regulatory limitations applicable to the payment of dividends by the Bank as
well as the payment of dividends by the Holding Company to its stockholders.
Under applicable laws of Virginia to the Bank, prior approval from the bank
regulatory agencies will be required if cash dividends declared in any given
year exceed net income for that year plus net income for the prior two years
less all dividends paid during the current year and two prior years. The payment
of dividends by the Bank or the Holding Company may also be limited by other
factors, such as requirements to maintain capital above regulatory guidelines.
Bank regulatory agencies have authority to prohibit the Bank or the Holding
Company from engaging in an unsafe or unsound practice in conducting their
business. The payment of dividends, depending upon the financial condition of
the Bank or the Holding Company, could be deemed to constitute such an unsafe or
unsound practice. The Federal Reserve has stated that, as a matter of prudent
banking, a bank or bank holding company should not maintain its existing rate of
cash dividends on common stock unless (1) the organization's net income
available to common stockholders over the past year has been sufficient to fund
fully the dividends and (2) the prospective rate of earnings retention appears
consistent with the organization's capital needs, asset quality, and overall
financial condition.
Under the FDIA, insured depository institutions such as the Bank are
prohibited from making capital distributions, including the payment of
dividends, if, after making such distribution, the institution would become
"undercapitalized" (as such term is used in the statute). Based on the Bank's
current financial condition, it is not anticipated that this provision will have
any impact on its ability to obtain dividends from the Bank.
Following the planned conversion of the Bank from a federally chartered
savings bank to a Virginia chartered commercial bank, the Bank will be
supervised and regularly examined by the Federal Reserve and the Virginia SCC.
The Bank will also be subject to various requirements and restrictions under
federal and state law such as limitations on the types of services that they may
offer, the nature of investments that they make, and the amounts of loans that
may be granted. Various consumer and compliance laws and regulations also will
affect the operations of the Bank. In addition to the impact of regulation, the
Bank will be affected significantly by actions of the Federal Reserve in
attempting to control the money supply and the availability of credit.
The Bank will continue to be subject to the requirements of the
Community Reinvestment Act (the "CRA"). The CRA imposes on financial
institutions an affirmative and ongoing obligation to 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 meeting community credit needs currently are
evaluated as part of the examination process pursuant to twelve assessment
<PAGE>
factors. These factors also are considered in evaluating mergers, acquisitions
and applications to open branches. The Bank has attained an "Satisfactory"
rating on its most recent CRA performance evaluation.
As a result of a 1993 Presidential initiative, each of the federal
banking agencies recently approved a final rule establishing a new framework for
the implementation of CRA. The new rule, which became fully effective on July 1,
1997 will emphasize an institution's performance in meeting community credit
needs. Institutions will be evaluated on the basis of a three pronged lending,
investment and service test, with lending being of primary importance. CRA
ratings will continue to be a matter of public record, and CRA performance will
continue to be evaluated in connection with mergers, acquisitions and branch
applications. Although the new rule is likely to have some impact on the Bank's
business practices, it is not anticipated that any changes will be material.
Deposit Insurance
The planned conversion of the Bank from a federally chartered savings
bank to a Virginia chartered commercial bank will have no effect on the Bank's
status as an institution with insured. deposits. As a federally chartered
savings institution, the Bank's deposits are presently insured by the SAIF. All
deposits made in the Bank after the Bank's conversion to a commercial bank
charter will be insured by the BIF. The Bank will continue to be subject to
insurance assessments imposed by the FDIC. Currently, a risk-based assessment
schedule imposes assessments on BIF deposits, ranging from an annual minimum
payment of $2,000 for well-capitalized institutions to .27% of deposits for
under-capitalized institutions. The Bank currently is assessed as
well-capitalized.
Other Safety and Soundness Regulations
The federal banking agencies have broad powers under 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.
APPOINTMENT OF AUDITORS -- PROPOSAL THREE
On the recommendation of the Audit Committee, the Board of Directors
has appointed Goodman & Company, L.L.P., certified public accountants, as the
Bank's independent auditors for 1998 subject to ratification of the
stockholders. Goodman & Company, L.L.P., rendered audit services to the Bank
during 1997. These services consisted primarily of the examination and audit of
the Bank's financial statements, tax reporting assistance, and other audit and
accounting matters. Stockholders are requested to ratify the selection of
Goodman & Company, L.L.P., at the Annual Meeting.
Representatives of Goodman & Company, L.L.P., are expected to be
present at the Annual Meeting and are expected to be available to respond to
questions during and after the meeting.
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.
<PAGE>
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 LeClair Ryan, A Professional Corporation, Richmond, Virginia, which has acted
as special counsel to the Bank and the Holding Company in connection with the
Reorganization.
EXPERTS
The financial statements of Shore Bank for the year ended June 30, 1997
included in the accompanying Annual Report to Stockholders are incorporated
herein in reliance upon the report of Goodman & Company, L.L.P., certified
public accountants, and upon the authority of said firm as experts in accounting
and auditing.
STOCKHOLDER PROPOSALS
In the event the Reorganization is consummated prior to the scheduled
1998 Annual Meeting of Stockholders of the Bank, the Holding Company will be
conducting such annual meeting of stockholders. Stockholder proposals intended
to be presented at the Bank's 1998 Annual Meeting, or, in lieu thereof, the
Holding Company's 1998 Annual Meeting, must be submitted to the Holding Company
by January 16, 1998 in order to be considered for inclusion in the proxy
materials for such meeting.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as
of September 9, 1997, by and among SHORE BANK, a federally chartered stock
savings bank (the "Bank" or the "Surviving Bank"), SB BANKSHARES CORPORATION, a
Virginia corporation (the "Holding Company"), and SB INTERIM FEDERAL SAVINGS
BANK, a to be formed interim federal stock savings bank (the "Interim Bank").
The Holding Company, the Bank and the Interim Bank are collectively referred to
herein as the "Constituent Corporations".
WITNESSETH:
The parties hereto desire to enter into an Agreement and Plan of
Reorganization whereby the corporate structure of the Bank will be reorganized
into the holding company form of ownership. The result of such reorganization
will be that, immediately after the Effective Date (as defined in Article V
below), all of the issued and outstanding shares of common stock , $0.33 par
value per share, of the Bank ("Bank Common Stock") will be held by the Holding
Company, and the holders of the issued and outstanding shares of Bank Common
Stock will become the holders of the issued and outstanding shares of the common
stock, $0.33 par value per share, of the Holding Company ("Holding Company
Common Stock").
The reorganization of the Bank will be accomplished by the following
steps: (1) the formation by the Bank of a wholly owned subsidiary, the Holding
Company, for the purpose of initially becoming the sole stockholder of a newly
formed interim federal stock savings bank, and subsequently becoming the sole
stockholder of the Bank; (2) the formation of an interim federal stock savings
bank, the Interim Bank, which will be wholly owned by the Holding Company; and
(3) the merger of the Interim Bank into the Bank, with the Bank as the surviving
corporation. Pursuant to such merger: (i) all of the issued and outstanding
shares of Bank Common Stock will automatically be converted by operation of law
on a one-for-one basis into issued and outstanding shares of Holding Company
Common Stock; and (ii) all of the issued and outstanding shares of common stock
of the Interim Bank will automatically converted by operation of law on a
one-for-one basis into an equal number of issued and outstanding shares of Bank
Common Stock, which will be all of the issued and outstanding capital stock of
the Bank.
NOW THEREFORE, in consideration of the mutual agreements set forth
herein, the Constituent Corporations agree as follows:
Article I
The Merger and Related Matters
1.1 The Merger.. On the Effective Date, the Interim Bank will be merged
with and into the Bank (the "Merger"), and the separate existence of the Interim
Bank shall cease, and all the property, rights, powers and franchises then owed
by the Interim Bank , or which would inure to it, shall immediately and
automatically, by operation of law and without any conveyance, transfer or
further action, vest in the Bank. The Bank shall be deemed to be a continuation
of the Interim Bank, and the Bank shall succeed to the rights and obligations of
the Interim Bank.
<PAGE>
1.2 Continued Existence of the Bank. Following the Merger, the
existence of the Bank shall continue unaffected and unimpaired by the Merger,
with all the rights, privileges, immunities and powers, and subject to all the
duties and liabilities, of a corporation organized under the laws of the United
States with a Federal Stock Charter and the Bylaws in the form approved by the
Office of Thrift Supervision (the "OTS"). The Federal Stock Charter and Bylaws
of the Bank, as presently in effect, shall continue in full force and effect and
shall not be changed in any manner whatsoever by the Merger.
1.3 Continued Business of the Bank; Offices. Following the Effective
Date, and subject to the actions of the Board of Directors of the Bank, the
business presently conducted by the Bank will continue to be conducted by it, as
a wholly-owned subsidiary of the Holding Company, and the present directors and
officers of the Bank will continue in their present positions. The locations of
the Main Office and branch offices of the Bank immediately prior to the
Effective Date shall continue to be the locations of the Main Office and branch
offices, respectively, of the Bank from and after the Effective Date.
1.4 Directors. A list of the directors of the Bank, their respective
residence addresses, and terms of office is attached hereto as Schedule A and is
incorporated herein by reference. The number of directors following the Merger
will be eight.
1.5 Savings Accounts. The issuance of savings accounts and
other instruments and obligations by the Bank shall not be affected by the
Merger.
Article II
Conversion of Stock
2.1 Conversion of Stock. The terms and conditions of the Merger and the
manner and basis of converting the respective shares of common stock of the
parties to this Agreement shall be as follows:
(a) Holding Company Common Stock. On the Effective Date, any shares of
Holding Company Common Stock held by the Bank immediately prior to the Effective
Date shall be canceled and shall no longer be deemed outstanding for any
purpose.
(b) Bank Common Stock. On the Effective Date, each share of Bank Common
Stock issued and outstanding immediately prior to the Effective Date shall
automatically by operation of law be converted into and shall become one share
of Holding Company Common Stock.
(c) Interim Bank Common Stock. Each share of common stock of the
Interim Bank issued and outstanding immediately prior to the Effective Date
shall, on the Effective Date, automatically by operation of law be converted
into and shall become one share of Bank Common Stock and shall not be further
converted into shares of Holding Company Common Stock, so that from and after
the Effective Date, all of the issued and outstanding shares of Bank Common
Stock shall be held by the Holding Company.
<PAGE>
(d) Exchange of Bank Common Stock Certificates. From and after the
Effective Date, each holder of an outstanding certificate or certificates that,
prior thereto, represented shares of Bank Common Stock shall, upon surrender of
the such certificate(s) to the designated agent of the Bank, be entitled to
receive, in exchange therefor, a certificate or certificates representing the
number of whole shares of Holding Company Common Stock into which the shares
theretofore represented by the certificate or certificates so surrendered shall
have been converted, as provided in the foregoing provisions of this Article II.
Until so surrendered, each such outstanding certificate that, prior to the
Effective Date, represented shares of Bank Common Stock shall be deemed for all
corporate purposes to evidence the ownership of the number of whole shares of
Holding Company Common Stock into which such shares of Bank Common Stock shall
have been so converted. Former holders of shares of Bank Common Stock will not
be required to exchange their Bank Common Stock certificates for new
certificates evidencing the same number of shares of Holding Company Common
Stock. If in the future the Holding Company decides to effect an exchange of
stock certificates, instructions for such exchange will be sent to all holders
of record of Holding Company Common Stock.
(e) Sole Rights, Etc. On the Effective Date, the holders of
certificates formerly representing Bank Common Stock outstanding on the
Effective Date shall cease to have any rights with respect to the stock of the
Bank, and their sole rights shall be with respect to the Holding Company Common
Stock into which their shares of Bank Common Stock shall have been converted by
the Merger.
2.2 Continued Effectiveness of Stock Option Plan. On the Effective
Date, the Shore Bank 1992 Stock Option Plan (the "Option Plan") shall
automatically, by operation of law, be continued as and become the stock option
plan of the Holding Company. On the Effective Date, each unexercised option to
purchase shares of Bank Common Stock under the Option Plan outstanding at that
time will be automatically converted into an unexercised option, with identical
price, terms and conditions, to purchase an identical number of shares of
Holding Company Common Stock. The Holding Company shall assume all of the Bank's
obligations with respect to the Option Plan. By approving this Agreement,
stockholders of the Bank will be approving the adoption by the Holding Company
of the Option Plan as the stock option plan of the Holding Company.
Article III
Conditions to the Merger; Termination
3.1 Conditions to the Merger. The obligations of the Bank, the Holding
Company and the Interim Bank to effect the Merger shall be subject to
satisfaction of the following conditions:
(a) Stockholder Approvals. To the extent required by applicable law,
the holders of a majority of the outstanding shares of Bank Common Stock shall
have approved the Agreement; the Bank, as the sole stockholder of the Holding
Company, shall have approved this Agreement; and the Holding Company, as the
sole stockholder of the Interim Bank, shall have approved this Agreement. None
of such approvals shall have been revoked at or prior to the Effective Date.
<PAGE>
(b) Securities Registration. The shares of Holding Company Common Stock
to be issued to the holders of Bank Common Stock pursuant to the Merger shall
have been duly registered pursuant to Section 5 of the Securities Act of 1933,
as amended, and the Holding Company shall have complied with all applicable
state securities or "blue sky" laws relating to the issuance of Holding Company
Common Stock.
(c) Approvals, Consents. Any and all approvals from the OTS, the
Securities and Exchange Commission and any other governmental agency having
jurisdiction necessary for the lawful consummation of the Merger and the
issuance and delivery of Holding Company Common Stock as contemplated by this
Agreement shall have been obtained.
(d) Tax Status. The Bank shall have received either (i) a ruling from
the Internal Revenue Service or (ii) an opinion from its special legal counsel,
LeClair Ryan, A Professional Corporation, to the effect that the Merger will be
treated as a non-taxable transaction under applicable provisions of the Internal
Revenue Code of 1986, as amended, and that no gain or loss will be recognized by
the holders of Bank Common Stock upon the exchange of Bank Common Stock held by
them solely for Holding Company Common Stock.
3.2 Termination. This Agreement may be terminated at any time prior to
the Effective Date at the election of any of the parties hereto if any one or
more of the conditions to the obligations of any of them hereunder shall not
have been satisfied and shall have become incapable of fulfillment and shall not
be waived. This Agreement may also be terminated at any time prior to the
Effective Date by the mutual consent of the respective Boards of Directors of
the parties.
3.3 No Further Obligation. Upon termination for any reason, this
Agreement shall be void and of no further effect, and there shall be no
liability by reason of this Agreement or the termination thereof on the part of
any of the parties hereto or their respective directors, officers, employees,
agents or stockholders.
3.4 Costs and Expenses. The Bank shall pay all costs and expenses
incurred by it, the Holding Company and the Interim Bank in connection with this
Agreement and the transactions contemplated hereunder.
Article IV
Effective Date of the Merger
Upon satisfaction or waiver (in accordance with the provisions of this
Agreement) of each of the conditions set forth in Article III, the parties
hereto shall execute and cause to be filed Articles of Combination, and such
certificates or further documents as shall be required by the OTS, with the
Secretary of the OTS and shall cause to be filed with such other federal or
state regulatory agencies all such certificates and other documents as may be
required in the opinion of special counsel to the Bank and the Holding Company.
Upon approval by the OTS and endorsement of such Articles of Combination by the
Secretary of the OTS, the Merger and other transactions contemplated by this
Agreement shall become effective. The "Effective Date" for all purposes
hereunder shall be the date of such endorsement by the Secretary of the OTS.
<PAGE>
Article V
Miscellaneous
5.1 Waiver. Any of the terms or conditions of this Agreement that may
legally be waived may be waived at any time by any party which is entitled to
the benefit thereof, or any of such terms or conditions may be amended or
modified in whole or in part at any time, to the extent authorized by applicable
law, by an agreement in writing, executed in the same manner as this Agreement.
5.2 Amendment. Any of the terms or conditions of this Agreement may be
amended or modified in whole or in part at any time, to the extent permitted by
applicable law, rules and regulations, by an amendment in writing, provided that
any such amendment or modification is not materially adverse to the Bank, the
Holding Company or their stockholders. In the event that any governmental agency
requests or requires that the transactions contemplated herein be modified in
any respect as a condition of providing a necessary regulatory approval or
favorable ruling , or that in the opinion of special counsel to the Bank such
modification is necessary to obtain such approval or ruling, this Agreement may
be modified, at any time before or after adoption thereof by the stockholders of
the Bank by an instrument in writing, provided that the effect of such amendment
would not be materially adverse to the Bank, the Holding Company or their
stockholders.
5.3 Execution by the Interim Bank. The Bank and the Holding Company
acknowledge that, as of the date hereof, the charter of the Interim Bank has not
been issued by the OTS. Accordingly, the Interim Bank does not have the legal
capacity to execute this Agreement. The Holding Company, as the organizer and
sole stockholder of the Interim Bank, agrees to cause the Interim Bank to
execute this Agreement promptly following the corporate organization of the
Interim Bank. The Bank and the Holding Company agree to be bound by this
Agreement prior to and following such execution by the Interim Bank.
5.4 Counterparts. This Agreement may be executed by the parties hereto
in any number of separate counterparts, each of which shall be an original, but
such counterparts together shall constitute but one and the same instrument.
5.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia, except
insofar as the federal law of the United States is deemed to apply.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement and Plan of Reorganization as of the date first above written.
SHORE BANK
By: _____________________
Scott C. Harvard
President
SB BANKSHARES CORPORATION
By: __________________________
Henry P. Custis, Jr.
Chairman of the Board
SB INTERIM FEDERAL SAVINGS BANK
By: ___________________________
Scott C. Harvard
President
<PAGE>
SCHEDULE A
DIRECTORS OF SHORE BANK
Name Residence Address Term to Expire
---- ----------------- --------------
Richard F. Hall, Jr. 1997
Scott C. Harvard 1997
Terrell E. Boothe 1998
D. Page Elmore 1998
A. Jackson Mason 1998
Henry P. Custis, Jr. 1999
Lloyd J. Kellam, III 1999
L. Dixon Leatherbury 1999
<PAGE>
EXHIBIT B
ARTICLES OF INCORPORATION
OF
SB BANKSHARES CORPORATION
I. NAME
The name of the corporation is SB Bankshares Corporation.
II. PURPOSE
The purpose for which the Corporation is formed is to act as a holding
company and to transact any or all lawful business not required to be
specifically stated in these Articles for which corporations may be incorporated
under the Virginia Stock Corporation Act, as amended from time to time.
III. CAPITAL STOCK
The Corporation shall have authority to issue five million (5,000,000)
shares of Common Stock, par value $0.33 per share, and five hundred thousand
(500,000) shares of Preferred Stock, par value $1.00 per share. The rights,
preferences, voting powers and the qualifications, limitations and restrictions
of the authorized stock shall be as follows:
A. Preferred Stock
The Preferred Stock may be issued from time to time in one or more
classes or series, with such distinctive designations, rights and preferences as
shall be stated and expressed herein or in the resolution or resolutions
providing for the issuance of shares of a particular series, and in such
resolution or resolutions providing for the issuance of shares of such series,
the Board of Directors is expressly authorized to fix or establish the basis for
determining:
(a) the maximum number of shares constituting such class or
series, and the designation of such class or series, which
shall be such as to distinguish the shares thereof from the
shares of all other classes and series;
(b) the annual or other periodic dividend rate for such series,
the dividend payment dates and, if cumulative, the dates from
which dividends shall be cumulative, and the extent of
participation rights, if any;
(c) any right to vote with holders of shares of any other series
or class and any right to vote as a class, either generally or
as a condition to specified corporate action;
<PAGE>
(d) the price at, and the terms and conditions on which, shares
may be redeemed;
(e) the amount payable upon shares in event of involuntary
liquidation;
(f) the amount payable upon shares in the event of voluntary
liquidation;
(g) any sinking fund provisions for the redemption or purchase of
shares;
(h) the rights, if any, of the holders of shares of such series to
convert such shares into other classes of stock of the
Corporation, or to exchange such shares for other securities,
and the terms and conditions of any such conversion or
exchange; and
(i) such other rights as may be specified by the Board of
Directors and not prohibited by law.
All shares of Preferred Stock of any one series shall be identical with
each other in all respects except, if so determined by the Board of Directors,
as to the dates from which dividends thereon shall be cumulative; and all shares
of Preferred Stock shall be of equal rank with each other, regardless of series,
and shall be identical with each other in all respects except as provided herein
or in the resolution or resolutions providing for the issuance of a particular
series.
B. Common Stock
Section 1. Subject to the provisions of law and the rights of holders
of shares at the time outstanding of Preferred Stock, the holders of Common
Stock at the time outstanding shall be entitled to receive such dividends at
such times and in such amounts as the Board of Directors may deem advisable.
Section 2. 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 and all preferential amounts to which the holders of shares at the
time outstanding of Preferred Stock shall be entitled, the remaining net assets
of the Corporation shall be distributed ratably among the holders of the shares
at the time outstanding of Common Stock.
Section 3. The holders of Common Stock shall be entitled to one vote
per share on all matters as to which a shareholder vote is taken.
IV. NO PREEMPTIVE RIGHTS
No holder of shares of any class of capital stock of the Corporation
shall have any preemptive or preferential right to subscribe to or purchase (i)
any shares of capital stock of the Corporation, whether now or hereafter
authorized, (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.
<PAGE>
V. DIRECTORS
Section 1. The Board of Directors shall consist of such number of
individuals as may be fixed or provided for by the bylaws of the Corporation.
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. On the
effective date of these articles of incorporation of this Corporation, the
classification of directors of this Corporation shall be implemented as follows:
directors of the first class (Class I) shall be elected to hold office for a
term expiring at the 2000 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 1998 annual meeting of
shareholders. The successors to the class of directors whose terms expires 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 directorship 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 successors 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.
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 more than two-thirds of all votes
entitled to be cast on such transactions by each voting group, entitled to vote
on the transaction.
<PAGE>
VII. 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 to so 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 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.
<PAGE>
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 DIRECTORS
Set forth below are the names and addresses of the individuals who are
to serve as the initial directors of the Corporation:
Name Addresses
---- ---------
Richard F. Hall, III RFD Mt. Custis
Accomac, Virginia 23301
Scott C. Harvard P. O. Box 322
Puncoteague, Virginia 23422
Terrell E. Boothe 4153 Main Street
Chincoteague, Virginia 23336
D. Page Elmore 3692 Devonshire Drive
Salisbury, Maryland 21804
A. Jackson Mason 23318 Back Street
Accomac, Virginia 23301
Henry P. Custis, Jr. 24291 Meadville Drive
Onacock, Virginia 23417
Lloyd J. Kellam, Jr. 15320 King Street
Belle Haven, Virginia 23306
L. Dixon Leatherbury P. O. Box 187
Machipongo, Virginia 23405
<PAGE>
IX. INITIAL REGISTERED OFFICE AND AGENT
The post office address of the initial registered office is Custis,
Lewis & Dix, 23345 Counsel Drive, Accomac, Virginia 23301. The name of the town
in which the initial registered office is located is Accomac, Virginia. The name
of the initial registered agent is Henry P. Custis, Jr., 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.
Dated: September 8, 1997
/s/ George P.Whitley
--------------------
George P. Whitley
Incorporator
<PAGE>
EXHIBIT C
BYLAWS
OF
SB BANKSHARES CORPORATION
ARTICLE I
Meeting of Shareholders
Section 1. Places of Meetings. All meetings of the shareholders shall
be held at such place, either within or without the State of Virginia, as may,
from time to time, be fixed by the Board of Directors.
Section 2. Annual Meetings. The annual meeting of the shareholders, for
the election of directors and transaction of such other business as may come
before the meeting, shall be held in each year on the second Tuesday in May, or
on such other date as the Board of Directors of the Corporation may designate
from time to time.
Section 3. Special Meetings. Special meetings of shareholders for any
purpose or purposes may be called at any time by the Chairman of the Board, by a
majority of the Board of Directors or by the President. At a special meeting no
business shall be transacted and no corporate action shall be taken other than
that stated in the notice of the meeting.
Section 4. Notice of Meetings. Except as otherwise required by law,
written or printed notice stating the place, day and hour of every meeting of
the shareholders and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be mailed not less than ten nor more than
sixty days before the date of the meeting to each shareholder of record entitled
to vote at such meeting, at his address which appears in the share transfer
books of the Corporation.
<PAGE>
Section 5. Quorum. Except as otherwise required by the Articles of
Incorporation, any number of shareholders together holding at least a majority
of the outstanding shares of capital stock entitled to vote with respect to the
business to be transacted, who shall be present in person or represented by
proxy at any meeting duly called, shall constitute a quorum for the transaction
of business. If less than a quorum shall be in attendance at the time for which
a meeting shall have been called, the meeting may be adjourned from time to time
by a majority of the shareholders present or represented by proxy without notice
other than by announcement at the meeting.
Section 6. Voting. At any meeting of the shareholders each shareholder
of a class entitled to vote on the matters coming before the meeting shall have
one vote, in person or by proxy, for each share of capital stock standing in his
or her name on the books of the Corporation at the time of such meeting or on
any date fixed by the Board of Directors not more than seventy (70) days prior
to the meeting. Every proxy shall be in writing, dated and signed by the
shareholder entitled to vote or his duly authorized attorney-in-fact.
Section 7. Voting List. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make, at least ten (10) days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, with the address of
and the number of shares held by each. Such list, for a period of ten (10) days
prior to such meeting, shall be kept on file at the registered office of the
Corporation or at its principal place of business or at the office of its
transfer agent or registrar and shall be subject to inspection by any
shareholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting. The
original stock transfer books shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders. If the requirements of this section have not been
substantially complied with, the meeting shall, on the demand of any shareholder
in person or by proxy, be adjourned until the requirements are complied with.
<PAGE>
Section 8. Shareholder Proposals. To be properly brought before an
annual meeting of shareholders, business must be (i) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (iii) otherwise properly brought before
the meeting by a shareholder as outlined in these Bylaws. In addition to any
other applicable requirements, for business to be properly brought before an
annual meeting by a shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be given, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the Corporation not later than
ninety (90) days in advance of the annual meeting. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting (including the specific proposal to be
presented) and the reasons for conducting such business at the annual meeting,
(ii) the name and record address of the shareholder proposing such business,
(iii) the class and number of shares of the Corporation that are beneficially
owned by the shareholder, and (iv) any material interest of the shareholder in
such business.
<PAGE>
In the event that a shareholder attempts to bring business before an
annual meeting without complying with the provisions of this Section 8, the
Chairman of the meeting shall declare to the meeting that the business was not
properly brought before the meeting in accordance with the foregoing procedures,
and such business shall not be transacted.
No business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Section 8, provided, however,
that nothing in this Section 8 shall be deemed to preclude discussion by any
shareholder of any business properly brought before the annual meeting.
Section 9. Inspectors. An appropriate number of inspectors for any
meeting of shareholders may be appointed by the Chairman of such meeting.
Inspectors so appointed will open and close the polls, will receive and take
charge of proxies and ballots, and will decide all questions as to the
qualifications of voters, validity of proxies and ballots, and the number of
votes properly cast.
ARTICLE II
Directors
Section 1. General Powers. The property, affairs and business of the
Corporation shall be managed under the direction of the Board of Directors, and
except as otherwise expressly provided by law, the Articles of Incorporation or
these Bylaws, all of the powers of the Corporation shall be vested in such
Board.
<PAGE>
Section 2. Number of Directors. The Board of Directors shall be at
least five (5) and no more than fifteen (15) in number.
Section 3. Election of Directors.
(a) Directors shall be elected at the annual meeting of
shareholders to succeed those Directors whose terms have expired and to fill any
vacancies thus existing.
(b) Directors shall hold their offices for terms as set forth
in the Articles of Incorporation and until their successors are elected. Any
Director may be removed from office as set forth in the Articles of
Incorporation.
(c) Any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of the majority of the remaining Directors though
less than a quorum of the Board of Directors.
(d) A majority of the number of Directors in office
immediately prior to the beginning of a meeting of Directors shall constitute a
quorum for the transaction of business at such meeting. The act of a majority of
the Directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
Section 4. Meetings of Directors. Meetings of the Board of Directors
shall be held at places within or without the Commonwealth of Virginia and at
times fixed by resolution of the Board, or upon call of the Chairman of the
Board or the President, and the Secretary or officer performing the Secretary's
duties shall give not less than twenty-four (24) hours' notice by letter,
telegraph or telephone (or in person) of all meetings of the Directors, provided
that notice need not be given of regular meetings held at times and places fixed
by resolution of the Board. An annual meeting of the Board of Directors shall be
held as soon as practicable after the adjournment of the annual meeting of
shareholders. Meetings may be held at any time without notice if all of the
Directors are present, or if those not present waive notice in writing either
before or after the meeting. Directors may be allowed, by resolution of the
Board, a reasonable fee and expenses for attendance at meetings.
<PAGE>
Section 5. Nominations. Subject to the rights of holders of any class
or series of stock having a preference over the common stock as to dividends or
upon liquidation, nominations for the election of Directors shall be made by the
Board of Directors or a committee appointed by the Board of Directors or by any
shareholder entitled to vote in the election of Directors generally. However,
any shareholder entitled to vote in the election of Directors generally may
nominate one or more persons for election as Directors at a meeting only if
written notice of such shareholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation not later than (i)
with respect to an election to be held at an annual meeting of shareholders,
ninety (90) days in advance of such meeting, and (ii) with respect to an
election to be held at a special meeting of shareholders for the election of
Directors, the close of business on the seventh day following the date on which
notice of such meeting is first given to shareholders. Each notice shall set
forth: (a) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the shareholder is a holder of record of stock of the Corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (d) such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as a Director of the Corporation if
so elected. The Chairman of the meeting may refuse to acknowledge the nomination
of any person not made in compliance with the foregoing procedure.
<PAGE>
Section 6. Eligibility. No person shall be eligible for
election as a Director of the Corporation after such person's 70th
birthday.
ARTICLE III
Committees
Section 1. Executive Committee. At such time as it deems appropriate,
the Board of Directors may designate an Executive Committee which shall consist
of three or more Directors, including the Chief Executive Officer. The members
of the Executive Committee shall serve until their successors are designated by
the Board of Directors, until removed or until the Executive Committee is
dissolved by the Board of Directors. All vacancies which may occur in the
Executive Committee shall be filled by the Board of Directors.
When the Board of Directors is not in session, the Executive Committee
shall have all power vested in the Board of Directors by law, the Articles of
Incorporation or these Bylaws, except as otherwise provided in the Virginia
Stock Corporation Act. The Executive Committee shall report at the next regular
or special meeting of the Board of Directors all action which the Executive
Committee may have taken on behalf of the Board since the last regular or
special meeting of the Board of Directors.
<PAGE>
Meetings of the Executive Committee shall be held at such places and at
such times fixed by resolution of the Committee, or upon call of the Chairman or
President. Not less than twelve (12) hours' notice shall be given by letter,
telegraph or telephone (or in person) of all meetings of the Executive
Committee, provided that notice need not be given of regular meetings held at
times and places fixed by resolution of the Committee and that meetings may be
held at any time without notice if all of the members of the Committee are
present or if those not present waive notice in writing either before or after
the meting. A majority of the members of the Executive Committee then serving
shall constitute a quorum for the transaction of business at any meeting.
Section 2. Audit Committee. The Board of Directors at its regular
annual meeting shall designate an Audit Committee which shall consist solely of
two or more Directors independent of management and free from any relationship
that, in the opinion of the Board of Directors, would interfere with the
exercise of independent judgment as a committee member. Vacancies in the
Committee shall be filled by the Board of Directors with Directors meeting the
requirements set forth above, giving consideration to continuity of the
Committee, and members shall be subject to removal by the Board at any time. The
Committee shall fix its own rules of procedures and a majority of the members
serving shall constitute a quorum. The Committee shall meet at least annually.
The Committee shall review the Corporation's financial reporting process,
including accounting policies and procedures. The Committee shall examine the
report of the Corporation's outside auditors, consult with them with respect to
their report and the standards and procedures employed by them in their audit,
report to the Board the results of its study and recommend the selection of
auditors for each fiscal year.
<PAGE>
Section 3. Other Committees of Board. The Board of Directors, by
resolution duly adopted, may establish such other committees of the Board having
limited authority in the management of the affairs of the Corporation as it may
deem advisable and the members, terms and authority of such committees shall be
as set forth in the resolutions establishing the same.
ARTICLE IV
Officers
Section 1. Election. The officers of the Corporation shall consist of a
Chairman of the Board, a President and Chief Executive Officer, one or more Vice
Presidents (any one or more of whom may be designated as Executive Vice
Presidents or Senior Vice Presidents), a Secretary and a Treasurer. In addition,
such other officers as are provided in Section 3 of this Article may from time
to time be elected by the Board of Directors. All officers shall hold office
until the next annual meeting of the Board of Directors or until their
successors are elected. The Chairman of the Board and the President shall be
chosen from among the directors. Any two or more officer positions may be
combined in the same person as the Board of Directors may determine.
Section 2. Removal of Executive Officers; Vacancies. Any officer of the
Corporation may be removed summarily with or without cause, at any time by a
resolution passed at any meeting by affirmative vote of a majority of the number
of directors fixed by these Bylaws. Vacancies may be filled at any meeting of
the Board of Directors.
<PAGE>
Section 3. Other Officers. Other officers may from time to time
be elected by the Board, including, without limitation, one or more Assistant
Secretaries and Assistant Treasurers.
Section 4. Duties. The officers of the Corporation shall have such
duties as generally pertain to their offices, respectively, as well as such
powers and duties as are hereinafter provided and as from time to time shall be
conferred by the Board of Directors. The Board of Directors may require any
officer to give such bond for the faithful performance of his duties as the
Board may see fit.
Section 5. Duties of the Chairman of the Board. The Chairman of the
Board shall serve as the Chairman of the Executive Committee. Except as
otherwise provided in these Bylaws or the resolutions establishing such
committees, he shall be ex officio a member of all committees of the Board with
the power to vote. He shall preside at all meetings of shareholders, the Board
of Directors and the Executive Committee. The Chairman of the Board may sign and
execute in the name of the Corporation deeds, mortgages, bonds, contracts or
other instruments, except in cases where the signing and the execution thereof
shall be expressly delegated by the Board of Directors or by these Bylaws to
some other officer or agent of the Corporation or shall be required by law
otherwise to be signed or executed. In addition, he shall perform all duties
incident to the office of the Chairman of the Board and such other duties as
from time to time may be assigned to him by the Board of Directors.
Section 6. Duties of the President. The President shall be the Chief
Executive Officer of the Corporation and have direct supervision over the
business of the Corporation and its several officers, subject to the Board of
Directors, and shall consult with and report to the Board. Except as otherwise
provided in these Bylaws or the resolutions establishing such committees, he
shall be ex officio a member of all committees of the Board (with the exception
that he shall not be ex officio a member of the Audit Committee nor will he
participate in any deliberations regarding his own compensation on any
compensation committee established by the Board of Directors) with power to
vote, and in the incapacity of the Chairman of the Board, the President shall
perform the duties of the Chairman of the Board and in the incapacity of the
Chairman of the Board or, in the absence of the Chairman of the Board and upon
his designation, the President shall preside at all meetings of shareholders,
the Board of Directors and all committees of the Board of Directors of which he
is a member. The President may sign and execute in the name of the Corporation
deeds, mortgages, bonds, contracts or other instruments, except in cases where
the signing and the execution thereof shall be expressly delegated by the Board
of Directors or by these Bylaws to some other officer or agent of the
Corporation or shall be required by law otherwise to be signed or executed. In
addition, he shall perform all duties incident to the office of the President
and such other duties as from time to time may be assigned to him by the Board
of Director.
<PAGE>
Section 7. Duties of the Vice President. Each Vice President of the
Corporation (including any Executive Vice President and Senior Vice President)
shall have powers and duties as may from time to time be assigned to him by the
Board of Directors or the President. When there shall be more than one Vice
President of the Corporation, the Board of Directors may from time to time
designate one of them to perform the duties of the President in the absence of
the President. Any Vice President of the Corporation may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts and other
instruments, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation or shall be required by law otherwise to be
signed or executed.
Section 8. Duties of the Treasurer. The Treasurer shall have charge and
custody of and be responsible for all funds and securities of the Corporation,
and shall cause all such funds and securities to be deposited in such banks and
depositories as the Board of Directors from time to time may direct. He shall
maintain adequate accounts and records of all assets, liabilities and
transactions of the Corporation in accordance with generally accepted accounting
practices; shall exhibit his accounts and records to any of the directors of the
Corporation at any time upon request at the office of the Corporation; shall
render such statements of his accounts and records and such other statements to
the Board of Directors and officers as often and in such manner as they shall
require; and shall make and file (or supervise the making and filing of) all tax
returns required by law. He shall in general perform all duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him by the Board of Directors or the President.
Section 9. Duties of the Secretary. The Secretary shall act as
secretary of all meetings of the Board of Directors, the Executive Committee and
all other Committees of the Board, and the shareholders of the Corporation, and
shall keep the minutes thereof in the proper book or books to be provided for
that purpose. He shall see that all notices required to be given by the
Corporation are duly given and served; shall have custody of the seal of the
Corporation and shall affix the seal or cause it to be affixed to all
certificates for stock of the Corporation and to all documents the execution of
which on behalf of the Corporation under its corporate seal is duly authorized
in accordance with the provisions of these Bylaws; shall have custody of all
deeds, leases, contracts and other important corporate documents; shall have
charge of the books, records and papers of the Corporation relating to its
organization and management as a Corporation; shall see that the reports,
statements and other documents required by law (except tax returns) are properly
filed; and shall, in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors or the President.
<PAGE>
Section 10. Other Duties of Officers. Any officer of the Corporation
shall have, in addition to the duties prescribed herein or by law, such other
duties as from time to time shall be prescribed by the Board of Directors or the
President.
ARTICLE V
Capital Stock
Section 1. Certificates. The shares of capital stock of the Corporation
shall be evidenced by certificates in forms prescribed by the Board of Directors
and executed in any manner permitted by law and stating thereon the information
required by law. Transfer agents and/or registrars for one or more classes of
the stock of the Corporation may be appointed by the Board of Directors and may
be required to countersign certificates representing stock of such class or
classes. In the event that any officer whose signature or facsimile thereof
shall have been used on a stock certificate shall for any reason cease to be an
officer of the Corporation and such certificate shall not then have been
delivered by the Corporation, the Board of Directors may nevertheless adopt such
certificate and it may then be issued and delivered as though such person had
not ceased to be an officer of the Corporation.
Section 2. Lost, Destroyed and Mutilated Certificates. Holders of the
stock of the Corporation shall immediately notify the Corporation of any loss,
destruction or mutilation of the certificate therefor, and the Board of
Directors may, in its discretion, cause one or more new certificates for the
same number of shares in the aggregate to be issued to such stockholder upon the
surrender of the mutilated certificate or upon satisfactory proof of such loss
or destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
Section 3. Transfer of Stock. The stock of the Corporation shall be
transferable or assignable only on the books of the Corporation by the holders
in person or by attorney on surrender of the certificate for such shares duly
endorsed and, if sought to be transferred by attorney, accompanied by a written
power of attorney to have the same transferred on the books of the Corporation.
The Corporation will recognize the exclusive right of the person registered on
its books as the owner of shares to receive dividends and to vote as such owner.
<PAGE>
Section 4. Fixing Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of the shareholders
or any adjournment thereof, or entitled to receive payment for any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
(70) days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If no record date is fixed for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section such determination shall
apply to any adjournment thereof.
ARTICLE VI
Miscellaneous Provisions
Section 1. Seal. The seal of the Corporation shall consist of a
flat-face circular die, of which there may be any number of counterparts, on
which there shall be engraved in the center the words "SB Bankshares
Corporation."
Section 2. Fiscal Year. The fiscal year of the Corporation shall
end on December 31 of each year, and shall consist of such accounting
periods as may be recommended by the Treasurer and approved by the Executive
Committee.
Section 3. Books and Records. The Corporation shall keep correct and
complete books and records of accounts and shall keep minutes of the proceedings
of its shareholders and Board of Directors; and shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar a record of its shareholders, giving the names and addresses of all
shareholders, and the number, class and series of the shares being held.
The Board of Directors shall, subject to the provisions of Section 7 of
Article I and to the laws of the Commonwealth of Virginia, have the power to
determine from time to time whether and to what extent and under what conditions
and limitations the accounts, records and books of the Corporation, or any of
them, shall be open to the inspection of the shareholders.
<PAGE>
Section 4. Checks, Notes and Drafts. Checks, notes, drafts and other
orders for the payment of money shall be signed by such persons as the Board of
Directors from time to time may authorize. When the Board of Directors so
authorizes, however, the signature of any such person may be a facsimile.
Section 5. Amendment of Bylaws. These Bylaws may be amended, in whole
or in part, by at least a two thirds (2/3) vote of the Board of Directors, or by
the holders of at least two-thirds (2/3) of all shares entitled to vote by each
voting group of the shareholders of the Corporation, at any meeting of the Board
of Directors or of the shareholders, as the case may be, except that the
shareholder vote for Bylaw amendments that have been recommended to the
shareholders by an at least two-thirds (2/3) vote of the Board of Directors
shall require only a majority of all votes entitled to be cast by each voting
group. Bylaws made or amended by the Board of Directors may be altered or
repealed by the shareholders, but shall remain in effect unless and until such
action be taken by the shareholders.
Section 6. Voting of Stock Held. Unless otherwise provided by
resolution of the Board of Directors or of the Executive Committee, the Chairman
of the Board, the President or any Executive Vice President shall from time to
time appoint an attorney or attorneys or agent or agents of this Corporation, in
the name and on behalf of this Corporation, to cast the vote which this
Corporation may be entitled to cast as a shareholder or otherwise in any other
corporation, any of whose stock or securities may be held in this Corporation,
at meetings of the holders of the stock or other securities of such other
corporation, or to consent in writing to any action by any of such other
corporation, and shall instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent and may execute or cause to
be executed on behalf of this Corporation and under its corporate seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the premises; or, in lieu of such appointments, the
Chairman of the Board, the President or any Executive Vice President may attend
in person any meetings off the holders of stock or other securities of any such
other corporation and there vote or exercise any or all power of this
Corporation as the holder of such stock or other securities of such other
corporation.
Section 7. Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors which would be inconsistent with the
Bylaws then in effect, but which is taken or authorized by the affirmative vote
of not less than that number of shares or the number of directors that would be
required to amend these Bylaws so that the Bylaws would be consistent with such
action, shall be given the same effect as if these Bylaws had been temporarily
amended or suspended to the extent necessary to permit the specific action so
taken or authorized.
<PAGE>
Part II -- Information Not Required in Prospectus
Item 20. Indemnification of Officers and Directors
As permitted by the Virginia Stock Corporation Act (Virginia Code
sections 13.1-601 et seq.) (the "Act"), the Registrant's Articles of
Incorporation provides:
Each director and officer shall be indemnified by 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 to be liable
by reason of having been guilty of gross negligence or willful
misconduct in the performance of his duties as such director or
offices. In the event of any other judgment against such director or
officer or in the event of a settlement, the indemnification shall be
made only if the corporation shall be advised, in case none of the
persons involved shall be or has been a director of the corporation, by
the Board of Directors, and otherwise by independent counsel to be
appointed by the Board of Directors, that in its or his opinion such
director or officer was not guilty of gross negligence or willful
misconduct in the performance of his duties and, in the event of a
settlement, that such settlement was, or if still to be made is, in the
best interests of the corporation. If the determination is to be made
by the Board of Directors, it may rely, as to all questions of law, on
the advice of independent counsel. Every reference herein to director
or officer shall include every director or officer or former director
or officer of the corporation and every person who may have served at
its request as a director or officer of another corporation in which
the corporation owns shares of stock or of which it is a creditor or,
in case of a non-stock corporation, to which the corporation
contributes and, in all of such cases, his executors and
administrators. The right of indemnification hereby provided shall not
be exclusive of any other rights to which any director or officer may
be entitled. The aforesaid indemnification shall also apply to an
employee or agent of the corporation.
Section 13.1-698 of the Act provides:
Unless limited by its Articles of Incorporation, a corporation
shall indemnify a director who entirely prevails in the defense of any
proceeding to which he is a party because he is or was a director of
the corporation against reasonable expenses incurred by him in
connection with the proceeding.
Section 13.1.702 of the Act extends such rights to indemnification to officers
of the corporation.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibit Index
Exhibit No. Description of Exhibit
1 Not Applicable
<PAGE>
Exhibit No. Description of Exhibit
2 Agreement and Plan of Reorganization, dated September 9,
1997, by and among Shore Bank, SB Bankshares Corporation
and SB Interim Federal Savings Bank, filed as Exhibit A to
the Proxy Statement/Prospectus included in this Registration
Statement.
3.1 Articles of Incorporation of the Registrant, filed as
Exhibit B to the Proxy Statement/Prospectus included in
this Registration Statement.
3.2 Bylaws of the Registrant, filed as Exhibit C to the
Proxy Statement/Prospectus included in this Registration
Statement.
5 Opinion of LeClair Ryan, A Professional Corporation,
regarding the legality of the securities being registered and
consent.
8 Form of tax opinion of LeClair Ryan, A Professional
Corporation, regarding the tax-free nature of the proposed
transaction.
10 Shore Bank Incentive Stock Option Plan
23 Consent of LeClair Ryan, (included as part of Exhibit 5).
99 Form of proxy of Shore Bank.
(b) No financial statement schedules are required to be filed
herewith pursuant to Item 21(b) of this Form.
Item 22. Undertakings
(a) Item 512 of Regulation S-B.
Rule 415 offerings. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any additional or changed material
information with respect to the plan of distribution.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, to treat each post-effective amendment as a new
registration statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the Town of Onley,
Commonwealth of Virginia on September 11, 1997.
SB BANKSHARES CORPORATION
By: /s/ Scott C. Harvard
------------------------
Scott C. Harvard, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below constitutes and appoints
Scott C. Harvard and Steven M. Belote, and each of them singly, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all registration statements or applications to the
Securities and Exchange Commission, the regulatory authorities of any state in
the United States or any other regulatory authorities as may be necessary to
permit shares of Common Stock of the Company to be offered in the United States
in connection with the proposed reorganization of Shore Bank into a holding
company structure, including without limitation any and all amendments or
post-effective amendments to this registration statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission or any other such regulatory authority,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite or necessary to be done to
enable SB Bankshares Corporation to comply with the provisions of the Securities
Act of 1933, and all requirements of the Securities and Exchange Commission as
well as all other laws, rules and regulations relating to the offer and sale of
securities.
Signature Capacity Date
--------- -------- ----
/s/ Henry P. Custis, Jr. Chairman of the Board September 11, 1997
- --------------------------- and Director
Henry P. Custis, Jr.
/s/ Scott C. Harvard President (Principal Executive September 11, 1997
Scott C. Harvard Officer) and Director
/s/ Steven M. Belote Treasurer (Principal Financial September 11, 1997
- --------------------------- and Accounting Officer)
Steven M. Belote
/s/ Terrell E. Boothe Director September 11, 1997
- ---------------------------
Terrell E. Boothe
/s/ D. Page Elmore Director September 11, 1997
- ---------------------------
D. Page Elmore
/s/ Richard F. Hall, III Director September 11, 1997
- ---------------------------
Richard F. Hall, III
/s/ Lloyd J. Kellam, III Director September 11, 1997
- ---------------------------
Lloyd J. Kellam, III
/s/ L. Dixon Leatherbury Director September 11, 1997
- ---------------------------
L. Dixon Leatherbury
/s/ A. Jackson Mason Director September 11, 1997
- ---------------------------
A. Jackson Mason
EXHIBIT 5
September 12, 1997
SB Bankshares Corporation
25253 Lankford Highway
Onley, Virginia 23418
Ladies and Gentlemen:
We have acted as counsel to SB Bankshares Corporation, a Virginia
corporation (the "Holding Company"), in connection with the preparation of the
Registration Statement on Form S-4 of the Holding Company (the "Registration
Statement") filed with the Securities and Exchange Commission (the
"Commission"), relating to the registration under the Securities Act of 1933, as
amended (the "Securities Act"), of a maximum of 1,804,812 shares (the "Shares")
of the Holding Company's common stock, par value $0.33 per share, issuable
pursuant to the Agreement and Plan of Reorganization, dated as of September 9,
1997 (the "Agreement"), by and among the Holding Company, Shore Bank (the
"Bank"), and SB Interim Federal Savings Bank, whereby each share of common
stock, par value $0.33 per share of the Bank ("Bank Common Stock") will be
exchanged for one share of Holding Company common stock pursuant to the terms
set forth in the Agreement.
In connection with this opinion, we have considered such questions of
law as we have deemed necessary as a basis for the opinions set forth below, and
we have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of the following: (i) the Registration
Statement; (ii) the Articles of Incorporation and By-laws of the Holding
Company, as currently in effect; (iii) certain resolutions of the Board of
Directors of the Holding Company relating to the issuance of the Shares and the
other transactions contemplated by the Registration Statement; (iv) the
Agreement; and (v) such other documents as we have deemed necessary or
appropriate as a basis for the opinion set forth below. In our examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. As to any facts material to this
opinion that we did not independently establish or verify, we have relied upon
statements and representations of officers and other representatives of the
Holding Company and others.
<PAGE>
Based upon the foregoing, we are of the opinion that if and when issued
in exchange for shares of Bank Common Stock pursuant to the terms of the
Agreement and under the circumstances contemplated by the Registration
Statement, the Shares will be validly issued, fully paid and non-assessable.
The law covered by the opinion set forth above is limited to the laws
of the Commonwealth of Virginia and the federal law of the United States of
America.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5 to the Registration Statement and to the reference to our name under
the caption "Legal Matters" in the Proxy Statement/Prospectus constituting a
part of the Registration Statement.
Sincerely,
LECLAIR RYAN
A Professional Corporation
By: /s/ George P. Whitley
----------------------------
George P. Whitley
Vice President
GPW:lsr
EXHIBIT 8
(804) 343-4089
4842.003
FORM OF TAX OPINION
_______________, 1997
Shore Bank SB Bankshares Corporation
25253 Lankford Highway 25253 Lankford Highway
Onley, Virginia 23418 Onley, Virginia 23418
Reorganization of Shore Bank
into a Holding Company Structure
Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization and merger to be effected among SB Bankshares
Corporation, a Virginia corporation (the "Holding Company"), Shore Bank, a
federally chartered stock savings bank (the "Bank"), SB Interim Federal Savings
Bank, an interim federally chartered savings bank organized solely to facilitate
this transaction (the "Interim Bank"), and the stockholders of the Bank's issued
and outstanding shares of common stock pursuant to an Agreement and Plan of
Reorganization, dated as of September 9, 1997 (the "Agreement"), by and among
the Holding Company, the Bank and the Interim Bank.
The Reorganization Transaction
Pursuant to the Agreement and subject to various regulatory approvals,
the Bank will become a wholly-owned subsidiary of the Holding Company pursuant
to a statutory merger of the Interim Bank with and into the Bank, with the Bank
continuing as the surviving entity (the "Reorganization"). As a result of the
Reorganization, the Holding Company will become the parent holding company of
the Bank, and the Bank will continue to conduct its business in substantially
the same manner as prior to the Reorganization.
At the effective date of the Reorganization, each outstanding share of
common stock of the Bank ("Bank Common Stock") will be exchanged for and
converted into one share of common stock of the Holding Company ("Holding
Company Common Stock").
<PAGE>
Examination
In connection with the preparation of this opinion, we have examined
such documents concerning the Reorganization as we have deemed necessary. We
have based our conclusions on the Internal Revenue Code of 1986 (the "Code") and
the regulations promulgated pursuant thereto, each as amended from time to time
and in effect as of the date hereof, as well as existing judicial and
administrative interpretations thereof.
As to various questions of fact material to our opinion, we have relied
upon the representations made in the Agreement as well as the additional
representations set forth below.
Additional Representations
In connection with the proposed Reorganization, the following
additional representations have been made to and relied upon by us in the
preparation of this opinion:
A. The fair market value of Holding Company Common Stock received by
the Bank's stockholders will be approximately equal to the fair market value of
the Bank Common Stock to be surrendered in exchange therefor.
B. To the best knowledge of the management of the Bank, there is no
plan or intention on the part of the Bank's stockholders to sell or otherwise
dispose of Holding Company Common Stock received by them in the Reorganization
that will reduce their holdings of Holding Company Common Stock to a number of
shares having in the aggregate a fair market value of less than 50% percent of
the fair market value of all of the Bank Common Stock held by the Bank's
stockholders on the effective date of the Reorganization.
C. The Holding Company has no plan or intention to reacquire any
Holding Company Common Stock issued in the Reorganization.
D. There is no plan or intention to sell or otherwise dispose of any of
the assets of the Bank, except for dispositions made in the ordinary course of
business or transfers described in Section 368(a)(2)(C) of the Code, the Bank
has no plan or intention to issue additional shares of its capital stock that
would result in the Holding Company's ceasing to own 80 percent of the voting
power of all the Bank voting stock and 80 percent of each class of any the Bank
nonvoting stock, and the Holding Company has no plan to liquidate the Bank, to
merge the Bank into another corporation, or to sell or otherwise dispose of any
of the Bank stock acquired in the Reorganization.
E. Each party to the Reorganization will pay its own expenses, if
any, incurred in connection with the Reorganization.
<PAGE>
F. Following the Reorganization, the Holding Company will continue
the historic business of the Bank.
G. No property will be transferred and no liabilities will be assumed
in the Reorganization.
H. There is no intercorporate indebtedness existing between or among
the Holding Company and the Bank that was issued, acquired or will be settled at
a discount, and in acquiring the Bank Common Stock, the Holding Company will not
assume any liability or take the Bank Common Stock subject to any liability.
I. No dividends or other distributions will be made with respect to
Bank Common Stock immediately before the Reorganization, except for regular,
normal distributions.
J. None of the shares of Holding Company Common Stock received by a
stockholder-employee of the Bank in exchange for Bank Common Stock pursuant to
the Reorganization constitutes or is intended to be compensation for services
rendered, and will not be separate consideration for, or allocable to, any
employment agreement or relationship. None of the compensation received by a
stockholder-employee of the Bank will be separate consideration for, or
allocable to, any of such stockholder-employee's Bank Common Stock. In addition,
any compensation paid to any stockholder-employee of the Bank will constitute
and be intended as compensation for services actually rendered and bargained for
at arm's length, and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
K. No two parties to the Reorganization are investment companies as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code, and for each of the
Holding Company and the Bank, less than 50 percent of the fair market value of
its total assets (excluding cash, cash items, government securities, and stock
and securities in any 50 percent or greater subsidiary) consists of stock and
securities.
L. The Bank is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
M. Upon the consummation of the Reorganization, the Bank will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire any Bank Common Stock.
N. The Holding Company does not own directly or indirectly, nor
has it directly or indirectly owned during the past 5 years, any Bank Common
Stock.
<PAGE>
Opinion
Based upon the foregoing, and with due regard to such legal
considerations as we deem necessary, we are of the opinion that for federal
income tax purposes:
1. The Reorganization will constitute and qualify as a
"reorganization" within the meaning of Section 368(a)(1)(A) of the Code.
2. No gain, other income or loss will be recognized by the Holding
Company (pursuant to Section 1032 of the Code) or the Bank as a result of the
Reorganization.
3. Stockholders of the Bank who receive solely Holding Company Common
Stock in exchange for their shares of Bank Common Stock will recognize no gain
or loss as a result of the Reorganization, as provided in Section 354(a)(1) of
the Code.
4. The tax basis of Holding Company Common Stock received by Bank
stockholders who exchange their Bank Common Stock solely for Holding Company
Common Stock will be the same as the tax basis of the Bank Common Stock
surrendered in exchange therefor, as provided in Section 358(a)(1) of the Code.
5. The holding period of Holding Company Common Stock received by the
Bank's stockholders will include the period during which the Bank Common Stock
surrendered in exchange therefor was held by such Bank stockholders, provided
the Bank Common Stock was held as a capital asset on the date of the exchange.
This opinion is based upon the provisions of the Code, as interpreted
by regulations, administrative rulings, and case law, in effect as of the date
hereof.
This opinion is made in connection with the Reorganization and is
solely for the benefit of the Holding Company, the Bank and the Bank's
stockholders. It may not be relied upon in any other manner or by any other
person.
Very truly yours,
LeClair Ryan
A Professional Corporation
By:
George P. Whitley
Vice President
Exhibit 10
SHORE SAVINGS BANK, F.S.B.
1992 STOCK OPTION PLAN
This 1992 Stock Option Plan, dated November 10, 1992 (the "Plan"),
governs options to purchase with respect to shares of common stock, $1.00 par
value per share (the "Stock"), of Shore Savings Bank, F.S.B., (the "Company")
granted on or after the date hereof by the Company to its employees. The Plan is
intended to encourage ownership of Stock of the Company by such employees so as
to provide additional incentives to promote the success of the Company.
1. Administration of the Plan.
The administration of this Plan shall be under the general supervision
of the board of directors of the Company. Within the limits of this Plan, the
board of directors shall determine the individuals to whom, and the times at
which, options shall be granted, the type of option to be granted, the number of
shares covered by each option, the duration of each option, the price and method
of payment for each option, and the time of times within which (during its term)
all or portions of each option may be exercised. The board of directors may
establish such rules as it deems necessary for the proper administration of this
Plan, make such determinations and interpretations with respect to the Plan and
options rights granted under it as may be necessary or desirable and include
such further provisions or conditions in options granted under this Plan as it
deems advisable. To the extent permitted by law, the board of directors may
delegate its authority under this Plan to a committee of the board. Whenever
options are granted to any employee who is also a director or an officer, a
majority of the board of directors and a majority of the directors acting in the
matter shall be "disinterested persons" as that term is defined in Rule 16b-3
under the Securities Exchange Act of 1934.
2. Shares Subject to the Plan.
The aggregate number of shares of Stock of the Company which may be
optioned under this Plan is 15,000 shares. In the event of a stock dividend,
split-up, combination or reclassification of shares, recapitalization or other
similar capital change relating to the Stock, the maximum aggregate number and
kind of shares of securities of the Company as to which options may be granted
under this Plan and as to which options then outstanding shall be exercisable
and the option price of such options, shall be appropriately adjusted by the
board of directors of the Company (whose determination shall be conclusive) so
that the proportionate number of shares or other securities as to which options
may be granted and the proportionate interest of holders of outstanding options
shall be maintained as before the occurrence of such event.
In the event of a consolidation or merger of the Company with another
corporation, or the sale of exchange of all or substantially all of the assets
of the Company, or a reorganization or liquidation of the Company, each holder
of an outstanding option shall be entitled to receive upon exercise and payment
in accordance with the terms of the option the same shares, securities or
property as he would have been entitled to receive upon the occurrence of such
event if he had been, immediately prior to such event, the holder of the number
of shares of Stock purchasable under his option or, if another corporation shall
be the survivor, such corporation shall substitute therefor substantially
equivalent shares, securities or property of such other corporation.
Whenever options under this Plan lapse or terminate or otherwise become
unexercisable the shares of Stock which were subject to such options may again
be subjected to options under this Plan. The Company shall at all times while
this Plan is in force reserve such number of shares of Stock as will be
sufficient to satisfy the requirements of this Plan.
<PAGE>
3. Grant of Options; Eligible Persons
Options shall be granted under this Plan either as incentive stock
options, as defined in Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code"), or as options which do not meet the requirements of
Section 422A hereinafter referred to as non-statutory stock options. Options may
be granted from time to time by the Company's board of directors, within the
limits set forth in Sections 1 and 2 of this Plan, to all employees of the
Company.
The granting date for each option shall be the date on which it is
approved by the Company's board of director, or such later date as the directors
may specify. No incentive stock options shall be granted hereunder after ten
years from the date hereof, which is the date on which this Plan was approved by
the Company's board of directors.
4. Form of Options.
Options granted hereunder shall be in such form as the board of
directors may from time to time determine (which in the case of incentive stock
options shall conform to the requirements for an incentive stock option
contained in the Code). The form of such options may vary among optionees.
5. Option Price.
In the case of incentive stock options, the price at which shares may
from time to time be optioned shall be determined by the Company's board of
directors, provided that such price: shall not be less than the fair market
value of the Stock on the granting date as determined in good faith by the board
of directors; and provided further that no incentive stock option shall be
granted to any individual who is ineligible to be granted an incentive stock
option because his ownership of stock of the Company exceeds the limitations
set forth in section 422A(b)(6) of the Code unless such option price is at
least 110% of the fair market value of the Stock on the granting date.
In the case of non-statutory stock options, the basic price at which
shares may from time to time be optioned shall be determined by the Company's
board of directors, provided that such basic price shall not be less than fifty
percent (50%) of the fair market value of the Stock on the granting date as
determined in good faith by the board of directors. The board of directors may
subsequently reduce the basic price to obtain an exercise price for a
non-statutory option which takes into account any tax benefit expected to be
realized by the Company due to the grant or exercise of the non-statutory
option; provided that such exercise price shall not be reduced to less than 50%
of the fair market value of the Stock at the time the option was granted.
The board of directors may in its discretion permit the option price to
be paid in whole or in part by a note or in installments or with shares of Stock
of the Company.
6. Term of Option and Dates of Exercise.
The board of directors shall determine the term of all options, the time
or times that options are exercisable and whether they are exercisable in
installments; provided, however, that the term of each incentive stock option
granted under this Plan shall not exceed a period of ten years from the date of
its grant, except that no incentive stock option shall be granted to any
individual who is ineligible to be granted such option because his ownership of
stock of the Company exceeds the limitations set forth in section 422A(b)(6) of
the Code unless the term of his incentive stock option does not exceed a period
of five years from the date of its grant. In the absence of such determination,
the option shall be exercisable at any time or from time to time, in whole or
in part, during the maximum term of such option.
- 2 -
<PAGE>
Options granted under this Plan may provide that the board of directors
in its discretion may provide financial assistance to an optionee who exercises
an option. This assistance may include, but need not be limited to, loans,
guarantees, or permission to pay the option price in installments. The terms of
any such assistance, including the interest rate and terms of repayment, shall
be established by the board of directors in its discretion.
7. Non-transferability
Options granted under this Plan shall not be transferable by the holder
thereof otherwise than by will or the laws of descent and distribution, and
shall be exercisable, during the holder's lifetime, only by him or her.
8. Amendment or Termination.
The Company's board of directors may amend or terminate this Plan at any
time, which amendment may be made subject to shareholder approval when the board
of directors deems it necessary and desirable in order to comply with the Code,
federal or state securities laws or any other rule or regulation.
9. Stockholder Approval.
This Plan is subject to approval by the stockholders of the Company
within twelve months from the date hereof. In the event such approval is not
obtained, all options granted under this Plan shall be void and without effect.
-3-
EXHIBIT 99
SHORE BANK
This Proxy is solicited on behalf of the Board of Directors
The undersigned, revoking all prior proxies, hereby appoints
_________________ and ___________________, or either of them, as proxies with
full power of substitution to represent the undersigned and vote, as designated
below, all the shares of common stock of Shore Bank held of record by the
undersigned on September 10, 1997, at the Annual Meeting of Stockholders to be
held on October 28, 1997, or any adjournment thereof, on each of the following
matters:
1. To approve an Agreement and Plan of Reorganization, dated as of
September 9, 1997, among the Shore Bank, SB Bankshares Corporation, a
newly-formed Virginia corporation established to serve as the holding
company for the Bank, and SB Interim Federal Savings Bank, an interim
federal savings bank formed solely for the purpose of facilitating this
transaction, providing for the reorganization of the Bank into a
holding company structure as described in the accompanying Proxy
Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Has the same effect
as a vote Against)
2. Election of directors.
[ ] FOR all Nominees listed below [ ] WITHHOLD AUTHORITY TO VOTE
FOR THOSE INDICATED BELOW
Scott C. Harvard Richard F. Hall, III
NOTE: You may line through the name of any individual
nominee for whom you wish to withhold your vote. As
explained in the accompanying Proxy Statement,
stockholders have cumulative voting rights with
respect to the election of directors.
3. To ratify the selection of Goodman & Company, L.L.P., independent
certified public accountants, as auditors of the Bank for 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. The Board of
Directors has not been notified of any such matters.
This proxy, when properly executed, will be voted in the manner
directed by the undersigned shareholder. If no direction is made, this proxy
will be voted "FOR" each proposal. All joint owners MUST sign.
Please sign exactly as your name appears on the reverse side of this
proxy card. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
DATED ______________________ ___________________________________________
Signature
- ---------------------------- -------------------------------------------
NUMBER OF SHARES Signature (if jointly owned)
Please mark, sign, date and return this proxy promptly in the enclosed envelope.
