As filed with the Securities and Exchange Commission on June 29, 1998.
Registration No. 333-52279
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________
CARDINAL FINANCIAL CORPORATION
(Name of small business issuer in its charter)
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Virginia 6021 54-1874630
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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10641 Lee Highway
Fairfax, Virginia 22030
(703) 934-9200
(Address and telephone number of registrant's principal executive offices
and principal place of business)
L. Burwell Gunn, Jr.
President and Chief Executive Officer
Cardinal Financial Corporation
10641 Lee Highway
Fairfax, Virginia 22030
(703) 934-9200
(Name, address and telephone number of agent for service)
Copies of Communications to:
Wayne A. Whitham, Jr., Esquire George P. Whitley, Esquire
R. Brian Ball, Esquire LeClair Ryan
Williams, Mullen, Christian & Dobbins 707 E. Main Street, 11th Floor
1021 East Cary Street, 16th Floor Richmond, Virginia 23219
Richmond, Virginia 23219 (804) 783-2003
(804) 643-1991
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED JUNE 29, 1998
2,600,000 Shares
[CARDINAL FINANCIAL CORPORATION LOGO APPEARS HERE]
Common Stock
All of the shares of common stock, $1.00 par value (the "Common
Stock"), offered hereby are being sold by Cardinal Financial Corporation (the
"Company"). Prior to this Offering, there has been no public market for the
Common Stock. The Common Stock has been approved for listing on The Nasdaq
SmallCap Market under the symbol "CFNL."
It is anticipated that the public offering price for the Common Stock
will be in the range of $10.00 to $11.00 per share. See "Underwriting" for the
factors considered in determining the public offering price.
See "RISK FACTORS" beginning on page 6 for a discussion of certain
factors that should be considered by prospective purchasers of the Common Stock
offered hereby.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE BANK
INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting Proceeds to the
Price to Public Discount (1) Company (2)
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Per Share........................... $ $ $
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Total (3)........................... $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $________.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
390,000 additional shares of Common Stock at the Price to Public less the
Underwriting Discount solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, total Underwriting
Discount, and total Proceeds to the Company will be $______, $______ and
$______, respectively. See "Underwriting."
The shares of Common Stock are being offered by the several
Underwriters named herein, subject to prior sale, when, as and if delivered to
and accepted by them and subject to certain conditions. The Underwriters reserve
the right to reject orders in whole or in part and to withdraw, cancel, or
modify the offer without notice. It is expected that certificates for the shares
will be available for delivery against payment therefor on or about
______________, 1998, at the offices of Scott & Stringfellow, Inc., Richmond,
Virginia.
Scott & Stringfellow, Inc.
Interstate/Johnson Lane
Corporation
Ferris, Baker Watts
Incorporated
The date of this Prospectus is _____________, 1998
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[GRAPHIC OMITTED (MAP OF NORTHERN VIRGINIA)]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE
"UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Company's consolidated financial statements and notes
thereto appearing elsewhere in this Prospectus. Unless the context indicates
otherwise, the information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. Prospective investors should consider
carefully the information set forth under the heading "Risk Factors."
This Prospectus contains forward-looking statements that discuss
certain risks and uncertainties and other factors that may cause the Company's
actual results to differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those factors set forth under the heading "Risk
Factors."
The Company
Cardinal Financial Corporation is a bank holding company headquartered
in Fairfax, Virginia which currently operates Cardinal Bank, N.A. ("Cardinal
Bank") in Fairfax, Virginia and intends to organize and establish three
community banks in the Manassas/Prince William County, Reston/Loudoun County and
Alexandria/Arlington County markets in northern Virginia (the "Additional Banks"
and with Cardinal Bank, collectively, the "Banks"). Collectively, these markets
are among the most affluent and fastest growing areas in Virginia.
The Company intends to pursue a community banking strategy by offering
a broad range of banking products to individuals, professionals and small to
medium-sized businesses, with an emphasis on personalized service and local
decision-making authority. Management's expansion strategy includes attracting
experienced local management teams who will have significant decision-making
authority at the local bank level and local independent boards of directors
consisting of individuals with strong community affiliations and extensive
business backgrounds and business development potential in the identified
markets. Each management team will operate in a manner that provides responsive,
personalized services. The Company will provide credit policies and procedures
as well as centralized back office functions to provide corporate, technological
and marketing support to the Banks.
The Company was formed in late 1997, principally in response to
perceived opportunities resulting from the takeovers of several Virginia-based
banks by regional bank holding companies. Since January 1, 1997, four community
banks headquartered in northern Virginia have been acquired, and the acquisition
of a fifth community bank is pending. Collectively, these banks had deposits of
approximately $1.0 billion. Moreover, in 1997 three statewide banks, Central
Fidelity National Bank, Signet Bank, N.A. and Jefferson National Bank, with
substantial northern Virginia operations were acquired by large out-of-state
bank holding companies. At June 30, 1997, those three acquired statewide banks
had deposits in the Company's targeted market area of approximately $1.75
billion.
In the Company's market area, the bank consolidations have been
accompanied by the dissolution of local boards of directors and relocation or
termination of management and customer service professionals. The Company
believes that local banking industry consolidation has disrupted customer
relationships as the larger regional financial institutions increasingly focus
on larger corporate customers, standardized loan and deposit products and other
services. Generally, these products and services are offered through less
personalized delivery systems, which has created the demand for high quality,
personalized services to small and medium-sized businesses and professionals. In
addition, consolidation in the local market has created opportunities to attract
experienced bankers from banks that have been acquired. Furthermore, uncertainty
over possible future acquisitions has enabled the
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Company to attract officers from banks that have not been acquired. As a result
of these factors, management believes the Company has a rare opportunity to
attract its targeted banking customers and experienced management personnel
within the Company's identified markets.
The Company's business strategy is to successfully penetrate selected
northern Virginia markets by operating a locally-oriented organization of
independently managed community banks, combined with technological, marketing,
financial and managerial support at the holding company level. The major
elements of this strategy include:
Expand the Company's market share in the central Fairfax County market
through Cardinal Bank;
Establish loan production offices in the Company's three additional
identified markets in anticipation of future openings of the Additional
Banks;
Target small and medium-sized business customers, professionals and
individuals that demand the attention and service which a
community-oriented bank is well suited to provide;
Deliver a broad array of modern banking products and services using
up-to-date technology and a decentralized operating strategy with local
decision-making; and
Maintain centralized support functions, including back office
operations, credit policies and procedures, investment portfolio
management, administration, and human resources and training to
maximize operating efficiencies and facilitate responsiveness to
customers. Each of the Additional Banks will operate with a uniformity
of service and products that will be associated with the "Cardinal"
name.
The Company's Board of Directors consists of 11 individuals, seven of
whom formerly were founding directors of First Patriot Bankshares Corporation,
the holding company for Patriot National Bank, headquartered in Reston,
Virginia. First Patriot was organized in 1990 and in 1997 was acquired by an
out-of-state bank holding company. John H. Rust, Jr., the Company's Chairman,
served as Chairman of First Patriot. Until he joined the Company in late 1997,
L. Burwell Gunn, Jr., the Company's President and Chief Executive Officer,
served as Executive Vice President and Commercial Division head for the Greater
Washington Region for Crestar Bank. The last 13 years of Mr. Gunn's 25 year
career with Crestar all involved service in the northern Virginia area. Each of
the Company's five other executive officers has 14 or more years of banking
experience in northern Virginia. The Company's directors and executive officers
have made a significant investment in the Company. This financial commitment by
management, coupled with the Company's strategy, is intended to result in an
organization that is focused on creating shareholder value. See "Management."
The Company raised $10.57 million from the sale of Common Stock in a
private placement. Proceeds of such private placement have been used in part for
organizational and pre-opening expenses, and proceeds totaling $8.0 million were
used to capitalize Cardinal Bank, which opened on June 8, 1998. The Company
intends to use the proceeds of this Offering to open three additional community
banks. Each of the Additional Banks will operate under the "Cardinal" name with
appropriate modifiers to denote its distinct market area. The first Additional
Bank is expected to be in the City of Manassas (the "Manassas/Prince William
Bank") and will serve Manassas and Prince William County. The other Additional
Banks will be in western Fairfax County (the "Reston/Loudoun Bank"), serving
western Fairfax County and Loudoun County, and in either the City of Alexandria
or Arlington County (the "Alexandria/Arlington Bank"), serving the Alexandria
and Arlington communities. The Company intends that the Manassas/Prince William
Bank will open in the first quarter of 1999. Either the Reston/Loudoun Bank or
the Alexandria/Arlington Bank is expected to open in the third quarter of 1999,
and the other will open in the first quarter of 2000. The order in which the
Additional Banks
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open, and their respective opening dates, will be influenced by a variety of
factors, including the availability of suitable sites and the receipt of proper
regulatory approvals.
Prior to opening the Additional Banks, the Company intends to
establish, through its Cardinal Bank subsidiary, loan production offices in
Manassas, Alexandria and the Reston area of Fairfax County to establish customer
relationships, brand awareness and a pipeline of loan business. The loan
production offices are expected to be staffed by personnel who will ultimately
be employed by the respective Additional Banks when they open for business.
The Company believes that each Bank's ability to compete with other
financial institutions in its respective market area will be enhanced by its
posture as a locally managed bank with a broad base of local ownership. The
proposed directors of each of the Additional Banks, most of whom reside or work
in the market area in which their respective Banks will operate, own a
significant amount of Common Stock. In addition, the Company anticipates a
significant percentage of the shares of Common Stock sold in the Offering will
be sold to individuals residing in the areas served or to be served by the
Banks. The Company believes that local ownership of the Common Stock is a highly
effective means of attracting customers and fostering loyalty to the Banks.
The address of the Company's principal executive offices is 10641 Lee
Highway, Fairfax, Virginia 22030, and the Company's telephone number at such
address is (703) 934-9200.
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The Offering
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Common Stock offered...................................... 2,600,000 shares (1)
Common Stock outstanding prior to the Offering............ 1,409,509 shares
Common Stock to be outstanding after the Offering......... 4,009,509 shares (1)
Use of Proceeds........................................... To capitalize and fund certain costs incurred in the
organization of the Additional Banks, and for other
general corporate purposes. See "Use of Proceeds."
Nasdaq SmallCap Market symbol............................. "CFNL"
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___________________
(1) Excludes up to 390,000 shares of Common Stock which may be sold by the
Company upon exercise of the over-allotment option granted to the
Underwriters. See "Underwriting."
Risk Factors
An investment in the securities offered hereby involves substantial
risks including, among others, the risks associated with the lack of any
operating history of each Bank. See "Risk Factors."
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SUMMARY FINANCIAL DATA
The following summary financial data for the three months ended March
31, 1998 are derived from the financial statements and other data of the
Company. The financial statements were audited by KPMG Peat Marwick, LLP,
independent auditors. The summary financial data should be read in conjunction
with the financial statements of the Company, including the accompanying notes,
included elsewhere herein.
March 31, 1998
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Balance Sheet Data:
Cash and cash equivalents.............................. $9,676,049
Other assets........................................... 485,272
-----------
Total assets........................................... 10,161,321
Total liabilities...................................... 36,458
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Shareholders' equity................................... $10,124,863
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Income Statement Data:
Net interest income.................................... $99,620
Total expenses......................................... 284,920
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Net income (loss)...................................... $(185,300)
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RISK FACTORS
Prospective investors should consider carefully, in addition to the
other information contained in this Prospectus, the following risk factors
before purchasing shares of the Common Stock offered hereby. This Prospectus
contains certain forward-looking statements, which statements can be identified
by the use of forward-looking terminology such as "may," "will," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
comparable terminology. The Company cautions readers that the following
important factors, among others, in some cases have affected, and in the future
could affect, the Company's actual results and could cause the Company's actual
results in 1998 and beyond to differ materially from those expressed in any
forward-looking statements made herein.
No Operating History for the Banks. Cardinal Bank opened on June 8,
1998. None of the Additional Banks is even in the organizational stage. As a
bank holding company, the Company's profitability will depend entirely upon the
operations of the Banks. The operations of the Banks will be subject to the
risks inherent in the establishment of a new business and, specifically, of a
new bank. The likelihood of the success of each of the Banks must be considered
in light of the expenses, complications, and delays frequently encountered in
connection with the development of a new bank and the competitive environment in
which each Bank will operate. Typically, new banks incur substantial initial
expenses and often are not profitable on an annual basis until several years
after commencing business. While implementing its growth strategy, the Company
does not anticipate profitable operations on a consolidated basis for three
years. To commence business, each of the Banks must also attract and retain
officers and employees. There can be no assurance that any of the Banks will
ever operate profitably or that the impact of one or more of their respective
operations will not have a material adverse impact on the results of operations
and financial condition of the Company.
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Dependence on Bank Directors. The Company believes that the successful
development and initial operation of each Bank will also be largely dependent
upon the efforts of its proposed directors, most of whom have been identified.
See "Management." None of the proposed directors of the Additional Banks is
obligated to serve as a director of, or to otherwise remain associated with, his
or her Bank. The failure of the proposed directors to continue to participate in
the management of the Additional Banks could have a material adverse effect on
the operations of such Banks and the Company.
No Assurance of Regulatory Approvals for the Additional Banks. The
Company must secure the approval of the Board of Governors of the Federal
Reserve System (the "Federal Reserve") and of the Virginia State Corporation
Commission (the "SCC") to own the common stock of each Additional Bank. Each
Additional Bank must also obtain approval of its charter application from the
Office of the Comptroller of the Currency (the "OCC") and approval of its
application for deposit insurance from the Federal Deposit Insurance Corporation
(the "FDIC"). No assurances can be given as to when or whether any or all of
such approvals will be obtained.
The Company anticipates that final approval of the applications for the
Manassas/Prince William Bank, the Reston/Loudoun Bank, and the
Alexandria/Arlington Bank will be conditioned upon a minimum capitalization of
each Bank of approximately $8.0 million. The OCC has the authority to require
more or less capital. If more capital were required, the Company would likely
fund the increased capitalization through the use of net proceeds from the
Offering or through loans from third-party financial institutions (subject to
obtaining regulatory approval). There can be no assurance, however, that the
Company would be able to obtain third-party financing on acceptable terms or in
amounts sufficient to fund any increase in mandated capitalization minimums. The
use by the Company of borrowed funds for capitalization of the Banks will be
less favorable to the Company's financial condition than the use of Offering
proceeds for this purpose. See "Business" and "Government Supervision and
Regulation."
If one or more of the Additional Banks do not receive the necessary
regulatory approvals, the Company will devote the proceeds of this Offering to
support the growth of Cardinal Bank and such of the Additional Banks that
receive the necessary approvals and open for business. The Company anticipates
that such growth would be achieved through branching. Additionally, if the
organization of one or more of the Additional Banks is not completed, the
Company may devote part of the proceeds of this Offering to the acquisition of a
controlling interest in one or more existing banks. The Company has not
identified any existing bank that it would seek to acquire or merge with in such
event.
Lack of Established Trading Market and Possible Volatility of Stock
Price. Prior to this Offering, there has been no market for the Common Stock.
There can be no assurance as to the liquidity of any markets that may develop
for the Common Stock, the ability of holders of Common Stock to sell their
securities, or the price at which holders would be able to sell their
securities. The initial public offering price of the Common Stock has been
determined solely by negotiations among the Company and Scott & Stringfellow,
Inc., Interstate/Johnson Lane Corporation and Ferris, Baker Watts Incorporated
as representatives (the "Representatives") of the several underwriters named in
this Prospectus (the "Underwriters") and may bear no relationship to the market
price of the Common Stock after this Offering. See "Underwriting." The market
price of the Common Stock could be subject to significant fluctuations in
response to variations in quarterly and yearly operating results (which could
include substantial operating losses in the near term as a result of the
pre-opening expenses associated with each Additional Bank and the start-up
losses expected from Cardinal Bank), general trends in the Company's industry,
and other factors. Furthermore, it is likely that in some future quarter
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the Company's operating results will be below the expectations of public market
analysts and investors. In such an event, the price of the Common Stock would
likely be materially adversely affected. In addition, the stock market in recent
years has experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of affected
companies. These broad fluctuations may adversely affect the market price of the
Common Stock.
Dependence on Senior Management. The Company's development to date has
been largely the result of contributions of certain of the senior executive
officers of the Company and its subsidiaries, including John H. Rust, Jr.,
Chairman of the Company's Board of Directors, L. Burwell Gunn, Jr., the
Company's President and Chief Executive Officer, Joseph L. Borrelli, the
Company's Chief Financial Officer, F. Kevin Reynolds, the Executive Vice
President and Senior Lending Officer of Cardinal Bank, who, subject to
regulatory approval, is slated to be the President of Cardinal Bank and
Christopher W. Bergstrom, the Executive Vice President of the Company, who,
subject to regulatory approval, is slated to be the President of the
Manassas/Prince William Bank. The loss of the services of one or more of such
individuals could have a material adverse effect on the Company's business and
development. No assurance can be given that replacements for any of these
officers could be employed if these officers' services were no longer available.
Mr. Gunn is the only executive officer with an employment contract. The Company
does not maintain and has no plans to maintain key man life insurance on its
senior officers. See "Management."
No Dividends. The Company has not paid cash dividends on its Common
Stock and in the near-term intends to retain any future earnings to finance its
growth. As the Company's business operations will be conducted almost
exclusively through the Banks, the Company's ability to pay dividends on the
Common Stock in the future will be directly dependent on the dividends paid by
the Banks to the Company. The ability of the Banks to pay dividends to the
Company will be subject to the profitability of the Banks and to government
regulations that limit the aggregate amount of cash dividends paid to
shareholders based on retained earnings and then-current income levels. There
can be no assurance that the Banks' future earnings will support dividend
payments to the Company. Additionally, there is no restriction on the ability of
the Company to issue shares of stock with preferential dividend rights in the
future. See "Dividend Policy," "Government Supervision and Regulation -- Payment
of Dividends," and "Description of Capital Stock - Preferred Stock."
Dilution. Purchasers of Common Stock in the Offering will experience
immediate dilution of $1.69 in the net tangible book value per share of the
Common Stock from the public offering price assuming a public offering price of
$10.50 per share. Moreover, in the near-term, the Company expects that the
organization of the Additional Banks will result in dilution of the Company's
return on equity and earnings per share. See "Dilution."
Strong Competition. The Banks will encounter strong competition from
the financial institutions, including other new banks, in their respective
primary market areas. In addition, established financial institutions not
already operating in any of the Banks' primary market areas may, under Virginia
law, open branches in such areas at future dates. In the conduct of certain
aspects of their respective banking businesses, the Banks also will compete with
savings institutions, credit unions, mortgage banking companies, consumer
finance companies, insurance companies, and other institutions, some of which
are not subject to the same degree of regulation and restriction imposed upon
the Banks. Many of these competitors have substantially greater resources and
lending limits than the Banks will have and offer certain services that the
Banks will not provide. In addition, many of these competitors have numerous
branch offices located throughout their extended market areas which provide them
with a competitive advantage which the Banks will not have. Furthermore, as a
consequence of legislation
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enacted by the United States Congress, out-of-state banks are allowed to
commence operations and compete in the Banks' market areas. No assurance can be
given that such competition will not have an adverse impact on the financial
condition and results of operations of the Banks or that the Banks will
ultimately be able to successfully compete with other financial institutions in
their respective markets. See "Business -- Competition" and "Government
Supervision and Regulation -- Interstate Banking."
Credit Risk; Adequacy of Allowance for Loan Losses. There are certain
risks inherent in making all loans, including risks with respect to the period
of time over which loans may be repaid, risks resulting from changes in economic
and industry conditions, risks inherent in dealing with individual borrowers,
and, in the case of a collateralized loan, risks resulting from uncertainties
about the future value of the collateral. Each Bank will maintain an allowance
for loan losses based on, among other things, historical experience, an
evaluation of economic conditions, and regular reviews of delinquencies and loan
portfolio quality. Management's judgment as to the adequacy of the allowance is
based upon a number of assumptions about future events which it believes to be
reasonable but which may or may not be valid. Thus, there can be no assurance
that charge-offs in future periods will not exceed the allowance for loan losses
or that additional increases in the allowance for loan losses will not be
required. Additions to the allowance for loan losses would result in a decrease
of the Company's net income and, possibly, its capital.
Potential Adverse Impact of Changes in Interest Rates. The Company's
profitability will be dependent to a large extent on the net interest income of
the Banks, which is the difference between the respective Banks' interest income
on interest-earning assets and the Banks' interest expense on interest-bearing
liabilities. The Company, like most financial institution holding companies,
will continue to be affected by changes in general interest rate levels and
other economic factors beyond the Company's control.
Dependence on Local Economic Conditions. The success of the Company is
dependent to a certain extent upon the general economic conditions in the
geographic markets served by the Banks. Although the Company expects that
economic conditions will continue to be favorable in these markets, no assurance
can be given that these economic conditions will continue. Adverse changes in
economic conditions in the geographic markets that the Banks serve would likely
impair the Banks' ability to collect loans and could otherwise have a negative
effect on the financial condition of the Company. See "Business -- Market
Areas."
Anti-Takeover Provisions. Certain provisions of the Company's Articles
of Incorporation could delay or frustrate the removal of incumbent directors and
could make a merger, tender offer or proxy contest involving the Company more
difficult, even if such events could be perceived as beneficial to the interests
of the shareholders. These provisions, among others, provide for staggered terms
for the Board of Directors, provide that directors may be removed only for cause
and only by the affirmative vote of the holders of more than two-thirds of the
Company's outstanding voting stock, authorize the Board of Directors to fix the
rights and preferences of the shares of the Company's preferred stock, and limit
the ability of shareholders to call a special meeting. In addition, certain
provisions of state and federal law may also have the effect of discouraging or
prohibiting a future takeover attempt in which shareholders of the Company might
otherwise receive a substantial premium for their shares over then-current
market prices. To the extent that these provisions are effective in discouraging
or preventing takeover attempts, they may tend to reduce the market price for
the Common Stock offered hereby. See "Description of Capital Stock."
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Management Ownership and Control. Directors and executive officers of
the Company and proposed directors of the Additional Banks currently own in the
aggregate approximately 46% of the outstanding shares of Common Stock, although
such individuals' percentage ownership is expected to decline to less than 17%
following the Offering. To the extent they vote together, the directors and
executive officers of the Company and the Banks will have the ability to exert
significant influence over the election of the Company's Board of Directors and
other corporate actions requiring shareholder approval. See "Management --
Ownership of the Common Stock."
Elimination of Director and Officer Liability. The Company's Articles
of Incorporation eliminate the monetary liability of directors and officers to
the Company and its shareholders to the maximum extent permitted by Virginia
law. Under Virginia law, the liability of a director or officer who engages in
willful misconduct, a knowing violation of the criminal law or any federal or
state securities law is not limited. Except in these cases, the liability of the
Company's officers and directors is eliminated, which means, for example, that
they cannot be held liable for monetary damages for negligent or grossly
negligent acts.
Government Regulation. The banking industry is subject to extensive
governmental supervision, regulation and control, which has materially affected
the business of financial institutions in the past and is likely to do so in the
future. Regulations affecting the banking industry may be changed at any time,
and the interpretation of those regulations by examining authorities of the
banking industry is also subject to change. There can be no assurance that
future changes in legislation, administrative regulations or governmental policy
will not adversely affect the banking industry and the business of the Company.
See "Government-Supervision and Regulation."
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,600,000 shares of
Common Stock in the Offering are estimated to be approximately $25.2 million
($29.0 million if the Underwriters' over-allotment option is exercised in full),
based upon an assumed public offering price of $10.50 per share and after
deducting the underwriting discount and expenses payable by the Company. Of
these net proceeds, the Company intends to use approximately $8.0 million to
capitalize each of the Additional Banks, in each case upon receipt of final
regulatory approvals.
Any remaining balance of the net proceeds from the Offering will be
available for general corporate purposes aimed primarily at the expansion of the
Company's business. While the Company does not intend actively to search for
opportunities to expand into additional markets, it may consider opportunities
that arise from time to time, which could occur through acquisitions of existing
institutions or branches. The Company has no specific acquisition plans at the
current time other than the Additional Banks. See "Business -- Growth Strategy."
Pending the capitalization of the Additional Banks, the Company will
lend all or part of the net proceeds of the Offering to Cardinal Bank, which
will invest such funds in short or medium-term interest-bearing securities or
loans, including loans that are originated by loan production offices in the
market areas of the Additional Banks. As and when the Company requires funds to
capitalize an Additional Bank, Cardinal Bank will repay to the Company proceeds
of this Offering previously loaned by the Company to Cardinal Bank.
10
<PAGE>
If one or more of the Additional Banks do not receive the necessary
regulatory approvals, the Company will devote the proceeds of this Offering to
support the growth of Cardinal Bank and such of the Additional Banks that
receive the necessary approvals and open for business. The Company anticipates
that such growth would be achieved through branching. Additionally, if the
organization of one or more of the Additional Banks is not completed, the
Company may devote part of the proceeds of this Offering to the acquisition of a
controlling interest in one or more existing banks. The Company has not
identified any existing bank that it would seek to acquire or merge with in such
event.
MARKET FOR COMMON STOCK
The Common Stock has been approved for listing on The Nasdaq SmallCap
Market under the symbol "CFNL," subject to official notice of issuance. Prior to
this Offering, no shares of Common Stock have traded. As of the date of this
Prospectus, there were 1,409,509 shares of Common Stock outstanding held by
approximately 88 shareholders of record.
DIVIDEND POLICY
The Company has not declared or distributed any cash dividends to its
shareholders and it is not likely that any cash dividends will be declared for
several years. The Board of Directors of the Company intends to follow a policy
of retaining any earnings to provide funds to operate and expand the business of
the Company and the Banks for the foreseeable future. The future dividend policy
of the Company is subject to the discretion of the Board of Directors and will
depend upon a number of factors, including future earnings, financial condition,
cash requirements, and general business conditions. The Company's ability to
distribute cash dividends will depend entirely upon the Banks' abilities to pay
dividends to the Company. As national banks, the Banks will be subject to legal
limitations on the amount of dividends each is permitted to pay. Furthermore,
neither the Banks nor the Company may declare or pay a cash dividend on any of
their capital stock if they are insolvent or if the payment of the dividend
would render them insolvent or unable to pay their obligations as they become
due in the ordinary course of business. See "Government Supervision and
Regulation - Payment of Dividends."
DILUTION
At March 31, 1998, the Company had a net tangible book value of
approximately $10.12 million, or $7.18 per share. Net tangible book value per
share represents the amount of the Company's shareholders' equity, less
intangible assets, divided by the number of shares of Common Stock outstanding.
Dilution per share to new investors represents the difference between the amount
per share paid by purchasers of shares of Common Stock in the Offering made
hereby and the pro forma net tangible book value per share of Common Stock
immediately after completion of the Offering. After (i) giving effect to the
sale by the Company of 2,600,000 shares of Common Stock offered hereby at an
assumed public offering price of $10.50 per share, (ii) deducting estimated
offering expenses, and (iii) giving effect to the application of the estimated
net proceeds as set forth under "Use of Proceeds," the pro forma net tangible
book value of the Company at March 31, 1998 would have been approximately $35.33
million, or $8.81 per share. This represents an immediate increase in net
tangible book value of $1.63 per share to existing shareholders and an immediate
dilution of $1.69 per share to new investors. The following table illustrates
this per share dilution:
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Assumed public offering price per share.............................. $10.50
Net tangible book value per share at March 31, 1998.................. 7.18
Increase per share attributable to new investors..................... 1.63
-----
Pro forma net tangible book value per share after the Offering....... 8.81
Dilution per share to new investors.................................. 1.69
-----
$10.50
=====
</TABLE>
Assuming the Underwriters' over-allotment option is exercised in full,
pro forma net tangible book value upon completion of the Offering would be $8.90
per share, the immediate increase in pro forma net tangible book value of shares
to existing shareholders would be $1.72 per share, and the immediate dilution to
new investors would be $1.60 per share.
The following table sets forth on a pro forma basis, as of March 31,
1998 (a) the number of shares of Common Stock purchased from the Company prior
to the Offering and the number of shares purchased in the Offering, and (b) the
total consideration and average price per share paid to the Company with respect
to Common Stock held by the existing shareholders of the Company and to be paid
by new investors in the Offering at an assumed public offering price of $10.50
per share.
<TABLE>
<CAPTION>
Average
Price Per
Shares Purchased (1) Total Consideration Share
--------------------------- ------------------------------- ------------------
Number Percent Amount Percent
<S> <C> <C> <C> <C> <C>
Existing shareholders.................. 1,409,509 35.2% $10,571,000 27.9% $7.50
New investors.......................... 2,600,000 64.8% 27,300,000 72.1% $10.50
--------- ----- ---------- -----
Total................................ 4,009,509 100.0% $37,871,000 100.0%
========= ====== =========== ======
</TABLE>
_____________________
(1) Excludes up to 390,000 shares of Common Stock which may be sold by the
Company upon exercise of the over-allotment option granted to the
Underwriters. See "Underwriting."
All shares of Common Stock outstanding on March 31, 1998 were issued in
a private placement, are restricted and may be resold only in accordance with
Securities and Exchange Commission Rule 144. See "Description of Capital Stock -
Shares Eligible for Future Sale."
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 1998, and as adjusted to reflect the sale of 2,600,000
shares of Common Stock pursuant to the Offering at an assumed public offering
price of $10.50 per share, based on the midpoint of the anticipated range of the
public offering price for the Common Stock, and the application of the net
proceeds therefrom as set forth under "Use of Proceeds."
12
<PAGE>
<TABLE>
<CAPTION>
March 31, 1998 (1)
--------------------------------
Actual As Adjusted
<S> <C> <C>
Shareholders' equity:
Common stock, $1.00 par value; 50,000,000 shares
authorized, 1,409,509 shares issued; 4,009,509 shares
issued, as adjusted.......................................... $1,409,509 $4,009,509
Preferred stock, $1.00 par value; 10,000,000 shares
authorized; none issued...................................... - -
Uncollected subscriptions receivable (2)....................... (99,977) (99,977)
Additional paid-in capital..................................... 9,145,809 31,754,809
Accumulated deficit............................................ (330,478) (330,478)
----------- ---------
Total shareholders' equity..................................... $10,124,863 $35,333,863
=========== ===========
</TABLE>
_________________________
(1) Excludes up to 390,000 shares of Common Stock which may be sold by the
Company upon exercise of the over-allotment option granted to the
Underwriters. See "Underwriting."
(2) Represents stock subscriptions for which payment had not been received at
May 4, 1998. Since May 4, 1998, all such subscriptions have been paid.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company was in a development stage until Cardinal Bank commenced
operations on June 8, 1998. The Company has funded its start-up and organization
costs through $10.57 million raised in a private placement of Common Stock. For
the periods ended December 31, 1997 and March 31, 1998, net losses were $145,178
and $185,300, respectively. While implementing its growth strategy, the Company
does not anticipate profitable operations on a consolidated basis for three
years. At March 31, 1998, shareholders' equity was $10.12 million. Cash and cash
equivalents totaled $9.68 million at March 31, 1998, of which $8.0 million was
used to capitalize Cardinal Bank, which opened on June 8, 1998. The Company
believes that the net proceeds of the Offering will satisfy the Company's cash
requirements and enable it to capitalize the Additional Banks. Accordingly, the
Company does not anticipate that it will be necessary to raise additional funds
for the operation of the Company and the Banks over the next 36 months. For
additional information regarding material expenditures during such period, see
"Use of Proceeds." For additional information regarding the plan of operations
for the Company and the Banks, see "Business" and "Management."
Year 2000 Compliance
As the year 2000 approaches, an important business issue has emerged
regarding how existing software programs and operating systems can accommodate
this date value. Many existing application software products were designed to
accommodate a two-digit year. For example, "98" is stored on the systems and
represents 1998 and "00" represents 1900. The Company utilizes a third-party
vendor for processing its primary banking applications. In addition, the Company
also uses several other third-party vendors for ancillary computer applications.
All third party vendors for the Company's banking applications either are
already Year 2000 ready or are in the process of modifying, upgrading or
replacing their computer applications to ensure Year 2000 compliance. Because
the Company was
13
<PAGE>
recently formed, all its data processing equipment is new and is Year 2000
ready. The Company does not expect to incur any material expense to replace data
processing equipment. The Company has a Year 2000 compliance program where it
reviews the Year 2000 issues that may be faced by its third-party vendors. Under
such program, the Company is examining the need for modifications or replacement
of all non-Year 2000 ready pieces of software. Because the Company is new, it
has had the opportunity to screen its third-party vendors and those it has
chosen either are Year 2000 ready or in the process of becoming compliant. All
of the Company's data processing vendor contracts have Year 2000 clauses, which
allow the Company to test for compliance and to cancel without penalty if a
vendor does not meet its Year 2000 compliance plan. The Company's Year 2000
compliance program provides that all critical data processing applications will
be tested and that testing will be completed on or before March 31, 1999. If any
software is not Year 2000 ready at March 31, 1999, the vendor contract will be
terminated and an alternative vendor will be selected. The Company has
identified alternative vendors, should they be necessary. The Company's loan
policy includes Year 2000 risk management parameters and, because the Company is
new, it has no Year 2000 credit risk at this time. The Company does not
currently expect that the cost of its Year 2000 compliance program, including
possible remediation costs, will be material to its financial condition and
expects that it will satisfy such compliance program without material disruption
of its operations. In the event that the Company's significant vendors,
including its correspondent, The Federal Reserve Bank of Richmond, do not
successfully and timely achieve Year 2000 compliance, however, the Company's
business, results of operations or financial condition would be adversely
affected.
BUSINESS
General
Cardinal Financial Corporation is a bank holding company headquartered
in Fairfax, Virginia which currently operates Cardinal Bank in Fairfax, Virginia
and intends to organize and establish three community banks in the
Manassas/Prince William County, Reston/Loudoun County and Alexandria/Arlington
County markets in northern Virginia. Collectively, these markets are among the
most affluent and fastest growing areas in Virginia.
The Company intends to pursue a community banking strategy by offering
a broad range of banking products to individuals, professionals and small to
medium-sized businesses, with an emphasis on personalized service and local
decision-making authority. Management's expansion strategy includes attracting
experienced local management teams who will have significant decision-making
authority at the local bank level and local independent boards of directors
consisting of individuals with strong community affiliations and extensive
business backgrounds and business development potential in the identified
markets. Each management team will operate in a manner that provides responsive,
personalized services. The Company will provide credit policies and procedures
as well as centralized back office functions to provide corporate, technological
and marketing support to the Banks.
The Company was formed in late 1997, principally in response to
perceived opportunities resulting from the takeovers of several Virginia-based
banks by regional bank holding companies. Since January 1, 1997, four community
banks headquartered in northern Virginia have been acquired, and the acquisition
of a fifth community bank is pending. Collectively, these banks had deposits of
approximately $1.0 billion. Moreover, in 1997 three statewide banks, Central
Fidelity National Bank, Signet Bank, N.A. and Jefferson National Bank, with
substantial northern Virginia operations were acquired by large out-of-state
bank holding companies. At June 30, 1997, those three acquired statewide banks
had deposits in the Company's targeted market area of approximately $1.75
billion.
14
<PAGE>
In the Company's market area, the bank consolidations have been
accompanied by the dissolution of local boards of directors and relocation or
termination of management and customer service professionals. The Company
believes that local industry consolidation has disrupted customer relationships
as the larger regional financial institutions increasingly focus on larger
corporate customers, standardized loan and deposit products and other services.
Generally, these products and services are offered through less personalized
delivery systems, which has created the demand for high quality, personalized
services to small and medium-sized businesses and professionals. In addition,
consolidation in the local market has created opportunities to attract
experienced bankers. Bank acquisitions have dislocated experienced and talented
management personnel due to the elimination of redundant functions and the drive
to achieve cost savings. Additionally, uncertainty over possible future
acquisitions has helped enable the Company to attract officers from banks that
have not been acquired. As a result of these factors, management believes the
Company has a rare opportunity to attract its targeted banking customers and
experienced management personnel within the Company's identified markets.
Initial Capitalization of the Company. The Company raised $10.57
million from the sale of Common Stock in a private placement. Proceeds of such
private placement have been used in part for organizational and pre-opening
expenses, and proceeds totaling $8.0 million were used to capitalize Cardinal
Bank, which opened on June 8, 1998. The Company intends to use the proceeds of
this Offering to open three additional community banks by capitalizing such
banks and seeking local deposits to fund loan growth. The Company plans to
establish the Additional Banks in the Manassas/Prince William County market, the
Reston/Loudoun County market and the Alexandria/Arlington County market. The
Company anticipates the Additional Banks will open during the first quarter of
1999, in the third quarter of 1999 and in the first quarter of 2000,
respectively. Although it is expected that the Manassas / Prince William Bank
will be the first Additional Bank to open, no firm decisions have been made. The
order in which the Additional Banks open, and their respective opening dates,
may be influenced by a variety of factors, including the availability of
suitable sites and the receipt of regulatory approvals.
Experienced Board and Management. The Company's Board of Directors
consists of 11 individuals, seven of whom formerly were founding directors of
First Patriot Bankshares Corporation, the holding company for Patriot National
Bank, headquartered in Reston, Virginia. First Patriot was organized in 1990 and
in 1997 was acquired by an out-of-state bank holding company. John H. Rust, Jr.,
the Company's Chairman, served as Chairman of First Patriot. Company directors
who were former First Patriot directors include the chairs of First Patriot's
loan, audit, strategic planning, compensation and marketing committees. Until he
joined the Company in late 1997, L. Burwell Gunn, Jr., the Company's President
and Chief Executive Officer, served as Executive Vice President and Commercial
Division head for the Greater Washington Region for Crestar Bank. The last 13
years of Mr. Gunn's 25 year career with Crestar all involved service in the
northern Virginia area. Each of the Company's five other executive officers has
14 or more years of banking experience in northern Virginia. See "Management."
Strategy of the Company
The Company's business strategy is to successfully penetrate selected
northern Virginia markets by operating a locally-oriented organization of
independently managed community banks. The major elements of this strategy
include:
15
<PAGE>
Expand the Company's market share in the central Fairfax County market
through Cardinal Bank;
Establish loan production offices in the Company's three additional
identified markets in anticipation of future openings of the Additional
Banks;
Target small and medium-sized business customers, professionals and
individuals that demand the attention and service which a
community-oriented bank is well suited to provide;
Deliver a broad array of modern banking products and services using
up-to-date technology and a decentralized operating strategy with local
decision-making; and
Maintain centralized support functions, including back office
operations, credit policies and procedures, investment portfolio
management, administration, and human resources and training to
maximize operating efficiencies and facilitate responsiveness to
customers. Each of the Additional Banks will operate with a uniformity
of service and products that will be associated with the "Cardinal"
name.
Management intends to gain market share by attracting customers through
a superior level of prompt and personalized banking service. The goal of the
Company's organizers and management is to create a customer-driven financial
institution that provides high value to its customers by delivering customized,
quality products and services. Management believes that such an institution will
appeal to customers who prefer to conduct their banking business with a
locally-managed financial institution that demonstrates both a genuine interest
in their financial affairs and an ability to cater to their financial needs.
The Company's directors and executive officers have made a significant
investment in the Company. This financial commitment by management, coupled with
the Company's strategy, is intended to result in an organization that is focused
on creating shareholder value.
Decentralized Operating Strategy. The foundation of the Company's
strategy is to operate a multi-community bank organization which emphasizes
decision-making at the local bank level combined with strong corporate,
technological, marketing, financial and managerial support. The Company's
operating model is for each bank to operate with local management and boards of
directors consisting of individuals with extensive knowledge of the local
community and the authority to make credit decisions. The Company believes this
operating strategy will enable the Banks to attract customers who wish to
conduct their business with a locally owned and managed institution with strong
ties and an active commitment to the community.
Centralized Corporate Support. The Company will provide oversight and
various services to the Banks, including technology, finance and accounting,
human resources, credit administration, internal audit, compliance, loan review,
marketing, retail administration, administrative support, policies and
procedures, product development and item processing. By providing such services
and oversight, the Company expects not only to achieve monetary savings,
compared to the costs if the Banks were individually responsible for such
functions, but also expects to achieve a uniformity of operations and service
that will be associated with the "Cardinal" name in the Company's northern
Virginia markets. The Banks' principal focus will be to generate deposits and
loans. This corporate support system will enable the Company to achieve
administrative economies of scale while capitalizing on the responsiveness to
client needs of its decentralized community bank network. With the support from
its significant investment in infrastructure, particularly a management
information system which will link the Company to the Banks and facilitate data
processing, compliance, and reporting requirements, the Company believes it has
the operational and administrative capacity to accommodate the Additional Banks
and effectively manage the Company's growth for the foreseeable future.
16
<PAGE>
Growth Strategy
Following the Offering, the Company intends to focus on the development
of the Additional Banks and the growth of Cardinal Bank. Each Bank's growth is
expected to come from within such Bank's primary service area through loan and
deposit business. The Company will focus on acquiring market share, particularly
from large bank holding companies, by emphasizing local management and
decision-making and through delivering personalized services to business
customers and individuals. Specifically, the Company's competitive strategy will
consist of approving loan requests quickly with a local loan committee,
operating with flexible, but prudent, lending policies, personalizing service by
establishing a long-term banking relationship with the customer, and maintaining
the requisite personnel to ensure a high level of service. While the Company
does not currently intend to actively search for expansion opportunities beyond
its designated markets, the Company may consider opportunities that arise from
time to time, which could occur through acquisitions of existing institutions or
branches. The Company has no specific acquisition plans at the current time
other than the establishment of the Additional Banks.
The Company intends to organize and open three additional community
banks in northern Virginia and anticipates that all such banks will be national
banks. Each of the Additional Banks will operate under the "Cardinal" name with
appropriate modifiers to denote its distinct market area. The first Additional
Bank is expected to be the Manassas/Prince William Bank and will serve Manassas
and Prince William County. The other Additional Banks will be the Reston/Loudoun
Bank, serving western Fairfax County and Loudoun County, and the
Alexandria/Arlington Bank, serving the Alexandria and Arlington communities. The
Company intends that the Manassas/Prince William Bank will open in the first
quarter of 1999. Either the Reston/Loudoun Bank or the Alexandria/Arlington Bank
is expected to open in the third quarter of 1999, and the other will open in the
first quarter of 2000. Although it is expected the Manassas/Prince William Bank
will be the first Additional Bank to open, no firm decisions have been made. The
order in which the Additional Banks open, and their respective opening dates,
will be influenced by a variety of factors, including the availability of
suitable sites and the receipt of proper regulatory approvals.
Prior to opening the Additional Banks, management of the Company first
will identify an individual who will serve as the president, as well as
additional individuals who will serve on the local board of directors. The
Company believes that a management team that is familiar with the needs of its
community can provide higher quality personalized service to its customers. The
local management team will have a significant amount of decision-making
authority and will be accessible to its customers. As a result of the
consolidation trend in the northern Virginia area, the Company's management
believes there are significant opportunities to attract experienced bank
managers who would like to join an institution promoting a community banking
concept.
In addition, prior to opening the Additional Banks, the Company intends
to establish, through its Cardinal Bank subsidiary, loan production offices in
Manassas, Alexandria and the Reston area of Fairfax County to establish customer
relationships, brand awareness and a pipeline of loan business. The loan
production offices are expected to be staffed by personnel who will ultimately
be employed by the respective Additional Banks when they open for business.
Loans originated in the loan production offices are expected to be transferred
by Cardinal Bank to the respective Additional Banks when they are opened.
Each Bank will have a local board of directors which will be comprised
of prominent members of the community, including business leaders and
professionals. These directors not only will operate
17
<PAGE>
the Banks, but also will act as ambassadors of their respective Banks within the
community and will be expected to promote the business development of each bank.
The directors and officers of the Company and the proposed directors of the
Additional Banks are active in the civic, charitable and social organizations
located in the local communities. It is anticipated that members of the local
management teams will hold leadership positions in a number of community
organizations, and continue to volunteer for other positions in the future.
The Company believes that each Bank's ability to compete with other
financial institutions in its respective market area will be enhanced by its
posture as a locally managed bank with a broad base of local ownership. The
proposed directors of each of the Additional Banks, most of whom reside or work
in the market area in which their respective Banks will operate, own a
significant amount of Common Stock. In addition, the Company anticipates a
significant percentage of the shares of Common Stock sold in the Offering will
be sold to individuals residing in the areas served or to be served by the
Banks. The Company believes that local ownership of the Company's Common Stock
is a highly effective means of attracting customers and fostering loyalty to the
Banks.
Market Areas
The target market includes areas in and around Fairfax County including
the independent cities of Fairfax and Alexandria, as well as Arlington County,
Manassas, and Prince William and Loudoun counties. Interstates 95, 495, and 66
all pass through the market area and provide efficient access to other regions
of the state. Prominent local newspapers, the Washington Post and Washington
Times, and a number of radio and television stations provide diverse media
outlets. The broad exposure of television, print media and radio offer several
opportunities to explore effective advertising and public relations avenues for
the Company.
The Company plans to establish banking operations in four locations in
the broad target market, each representing a separate market. These distinct,
but contiguous markets are: (1) the City of Fairfax and central Fairfax County;
(2) the City of Manassas and Prince William County; (3) the City of Alexandria
and Arlington County; and, (4) Reston and Herndon (both in western Fairfax
County), together with Loudoun County. As of 1997, Fairfax County, the city of
Fairfax, Prince William County, the city of Manassas, Arlington County, the city
of Alexandria and Loudoun County each ranked in the top ten for Virginia in
median household income, and collectively the population of the area represented
24.4% of the state's total population. State income tax receipts for the area
represented 37.9% of the total income tax receipts collected by Virginia in
1995.
Central Fairfax County and City of Fairfax
The Fairfax market includes the city of Fairfax as well as suburban
Vienna, Merrifield and Tysons Corner. Fairfax County and the city of Fairfax,
when combined, had a population of 933,309 in 1997, which represented an 11.3%
increase from 838,206 in 1990. In 1997, Fairfax County had a median household
income of $73,108, and the city of Fairfax had a median household income of
$62,656, which ranked them first and third, respectively, in Virginia. Fairfax
County's median household income exceeded the state median of $30,854 by 136.9%
and represented growth of 23.1% since 1990. Likewise, the city of Fairfax's
median household income exceeded the state median by 103.1% and represented
growth of 22.9% since 1990. Collectively as of June 30, 1997, Fairfax County and
the city of Fairfax had $10.9 billion of total commercial bank and thrift
deposits with 62.1% concentrated with the top four financial institutions. The
market has over 75 million square feet of office space, another 35 million
square feet of industrial/hybrid space and, when viewed together, represents the
sixth largest office space market in the country.
18
<PAGE>
Prince William County and City of Manassas
The Prince William County market includes the city of Manassas. When
combined, Prince William County and the city of Manassas had a population of
286,750 in 1997, which represented a 17.7% increase from 243,643 in 1990. In
1997, Prince William County had a median household income of $56,642, and the
city of Manassas had a median household income of $54,733, which ranked them
fifth and eighth, respectively, in Virginia. Prince William County's median
household income exceeded the state median by 83.6% and represented growth of
14.7% since 1990. Likewise, the city of Manassas' median household income
exceeded the state median by 77.4% and represented growth of 17.3% since 1990.
Collectively as of June 30, 1997, Prince William County and the city of Manassas
had $1.4 billion of total commercial bank and thrift deposits with 70.3%
concentrated with the top four financial institutions. The market had a civilian
labor force of approximately 135,000 with the most common job classifications
being professional services, retail trade, construction and government. Major
employers include Dominion Semi-Conductor (a joint venture between IBM and
Toshiba), Lockheed Martin, Prince William Hospital, GTE and Giant Food.
Arlington County and City of Alexandria
This market includes Arlington County, the city of Alexandria,
Springfield and the Newington/Lorton area. When combined, Arlington County and
the city of Alexandria had a population of 294,264 in 1997, which represented a
4.3% increase from 282,119 in 1990. In 1997, Arlington County had a median
household income of $55,590, and the city of Alexandria had a median household
income of $51,589, which ranked them sixth and tenth, respectively, in Virginia.
Arlington County's median household income exceeded the state median by 80.2%
and represented growth of 24.4% since 1990. Likewise, the city of Alexandria's
median household income exceeded the state median by 67.2% and represented
growth of 24.4% since 1990. Collectively as of June 30, 1997, Arlington County
and the city of Alexandria had $4.9 billion of total commercial bank and thrift
deposits with 66.0% concentrated with the top four financial institutions. The
market's employment is well-distributed between the public and private sector.
Significant public sector employers include the U.S. Department of Defense, the
city of Alexandria, and the Washington Metropolitan Transit Authority. Major
private sector employers include MCI Telecommunications, USAirways and the
Washington Post.
Western Fairfax / Loudoun County
The western Fairfax market includes Reston, Herndon, Chantilly and
Dulles, which are all located in close proximity to Dulles International
Airport. This market has a large inventory of office space comprised of
industrial/hybrid space, hotel space and retail space. Major employers in the
western Fairfax market include American Mobile Satellite Corporation, Cordant,
Student Loan Marketing Association (Sallie Mae), Oracle Systems, United Parcel
Service, Aetna Life Insurance, Computer Sciences Corporation, AT&T, Electronic
Data Systems and Volt Technical Services.
Loudoun County had a population of 128,719 in 1997, which represented a
49.4% increase from 86,129 in 1990. In 1997, Loudoun County had a median
household income of $58,938, which ranked it fourth in Virginia, exceeded the
state median by 91.0%, and represented growth of 12.8% since 1990. As of June
30, 1997, Loudoun County had $1.0 billion of total deposits with 59.9%
concentrated with the top four banking institutions.
19
<PAGE>
The Banks
Cardinal Bank opened on June 8, 1998, and the Company intends to open
the Additional Banks by capitalizing each of the Additional Banks with
approximately $8.0 million and seeking local deposits to fund loan growth.
The Banks will engage in the commercial banking business in their
respective communities. The Company believes that there is a demand for, and
that the northern Virginia communities described herein will support, new
locally operated community banks. Although the Company could obtain a banking
presence in the identified markets by opening branch offices of Cardinal Bank,
management of the Company believes that separate banks with their own local
boards of directors and their own policies, tailored to the local market, is a
preferable approach. Each Bank will provide personalized banking services, with
emphasis on the financial needs and objectives of individuals, professionals and
small to medium-sized businesses. Additionally, substantially all credit and
related decisions will be made by the Banks' local management and board of
directors, thereby facilitating prompt response.
The principal business of each Bank will be to accept deposits from the
public and to make loans and other investments. The principal sources of funds
for each Bank's loans and investments are expected to be demand, time, savings
and other deposits, repayment of loans, and borrowings. In addition, a portion
of the net proceeds of this Offering, once contributed to the capital of each
Additional Bank, will be used by each Additional Bank to fund loans. The
principal source of income for each Bank is expected to be interest collected on
loans and other investments. The principal expenses of each Bank are expected to
be interest paid on savings and other deposits, employee compensation, office
expenses, and other overhead expenses. Initially, the Banks will not offer
trust, fiduciary or investment services.
The Company is committed to providing high quality banking products and
services to the Banks' customers and has made a significant investment in its
advanced automated operating accounting system which supports virtually every
banking function. The system provides the technology that fully automates the
branches, processes bank transactions, mortgages, loans and electronic banking,
conducts data base and direct response marketing, provides cash management
solutions, streamlined reporting and reconciliation support as well as sales
support.
With this investment in technology, the Company offers Internet-based
delivery products for both consumers and commercial customers. Customers can
open accounts, apply for loans, check balances, check account history, transfer
funds, download images of checks, pay bills, download active statements into
QuickenTM or Microsoft MoneyTM, use interactive calculators and transmit e-mail
with the Company over the Internet. This is an inexpensive way for the Company
to expand its geographic borders and branch activities while providing the kind
of services one would expect from the larger banks.
The Company also offers customers the convenience of digital imaged
checks that make it easy to reconcile statements, organize and store account
information while streamlining the back office. Every item is imaged and
available for inspection. Among the many features, check imaging allows for
instant statement reconstruction for research which can be faxed or e-mailed
directly to a customer's personal computer.
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Customers
Management believes that the recent bank consolidation within northern
Virginia provides a significant opportunity to build a successful,
locally-oriented franchise. Management of the Company further believes that many
of the larger financial institutions do not emphasize a high level of
personalized service to the small and medium-sized commercial, professional or
individual retail customers. The Company intends to focus its marketing efforts
on attracting small and medium-sized businesses and professionals, such as
physicians, accountants and attorneys. Because the Company intends to focus on
businesses and professionals, management believes that the majority of its loan
portfolio will be in the commercial area with an emphasis placed on originating
sound, profitable commercial and industrial loans secured by real estate,
accounts receivable, inventory, property, plant and equipment.
Although the Company expects to concentrate its lending to commercial
businesses, management also anticipates that it will attract a significant
amount of professional and consumer business. Management expects that many of
its customers will be the principals of the small and medium-sized businesses
for whom the Banks will provide banking services. Management intends to
emphasize "relationship banking" in order that each customer will identify and
establish a comfort level with bank officers who come to understand their
customers' business and financial needs in depth. Management intends to develop
its retail business with individuals who appreciate a higher level of personal
service, contact with their lending officer and responsive decision-making. It
is further expected that most of the Company's business will be developed
through its lending officers and local boards of directors and by pursuing an
aggressive strategy of making calls on customers throughout the market area.
Products and Services
The Company intends to offer a broad array of banking products and
services to its customers. The proceeds from the Offering will enable the
Company to proceed to organize the Additional Banks. Cardinal Bank currently
provides, and the Additional Banks are expected to provide, products and
services that are substantially similar to those set forth below.
Loans. Through each Bank, the Company intends to offer a wide range of
short to long-term commercial and consumer loans, which are described in further
detail below. The Company has established pre-determined percentage levels as
targets for the division of the Company's loan portfolio across the various
categories of loans. The Company expects that commercial loans, commercial
mortgage loans, residential mortgage loans, consumer loans and credit card and
other loans will account for approximately 35%, 20%, 30%, 8% and 7%,
respectively, of its loan portfolio. The Company believes that this initial
division reflects the current credit demands of its markets and provides a
sufficient amount of diversification to avoid over-reliance on one category. The
Company may adjust these levels from time to time as the credit demands of the
community change and as each Bank's business evolves.
Credit Policies. With respect to each Bank's loan portfolio, the
Company will oversee credit operations while still granting local authority to
each Bank. The Company's chief credit officer will be primarily responsible for
maintaining a quality loan portfolio and developing a strong credit culture
throughout the entire organization. The chief credit officer will be responsible
for developing and updating the credit policies and procedures for the
organization. The Board of Directors of any Bank
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may make exceptions to these credit policies and procedures as appropriate, but
any such exception must be documented and made for sound business reasons.
Credit quality will be controlled by the chief credit officer through
compliance with the Company's credit policies and procedures. The Company's
risk-decision process will be actively managed in a disciplined fashion to
maintain an acceptable risk profile characterized by soundness, diversity,
quality, prudence, balance and accountability. The Company's credit approval
process will consist of specific authorities granted to the lending officers.
Loans exceeding a particular lending officer's level of authority will be
reviewed and considered for approval by an officers' loan committee and, then, a
Bank's Board of Directors. In addition, the chief credit officer will work
closely with each lending officer at the Bank level to ensure that the business
being solicited is of the quality and structure that fits the Company's desired
risk profile.
Under its credit policies, the Company will generally limit the
concentration of credit risk by a particular Bank in any loan or group of loans
to 20% of that Bank's capital. Such concentration limit pertains to any group of
borrowers related as to the source of repayment or any one specific industry.
Furthermore, each Bank will establish limits on the total amount of that Bank's
outstanding loans to one borrower, which will be set below legal lending limits.
Any loan that a Bank proposes to make that will exceed such established limits
will require the prior approval of the Company's Board of Directors.
Commercial Loans. The Company expects to make commercial loans to
qualified businesses in its market area. The Company's commercial lending will
consist primarily of commercial and industrial loans for the financing of
accounts receivable, inventory, property, plant and equipment. The Company also
expects to offer Small Business Administration guaranteed loans ("SBA loans")
and factoring arrangements to certain of its customers.
Commercial business loans generally have a higher degree of risk than
residential mortgage loans, but have commensurately higher yields. Residential
mortgage loans generally are made on the basis of the borrower's ability to make
repayment from his employment and other income and are secured by real estate
whose value tends to be easily ascertainable. In contrast, commercial business
loans typically are made on the basis of the borrower's ability to make
repayment from cash flow from its business and are secured by business assets,
such as commercial real estate, accounts receivable, equipment and inventory. As
a result, the availability of funds for the repayment of commercial business
loans may be substantially dependent on the success of the business itself.
Further, the collateral for commercial business loans may depreciate over time
and cannot be appraised with as much precision as residential real estate.
To manage these risks, the Company's policy is to secure commercial
loans with both the assets of the borrowing business and other additional
collateral and guarantees that may be available. In addition, the Company will
actively monitor certain measures of the borrower, including advance rate, cash
flow, collateral value and other appropriate credit factors.
Commercial Mortgage Loans. The Company also expects to originate
commercial mortgage loans. These loans are primarily secured by various types of
commercial real estate, including office, retail, warehouse, industrial and
other non-residential types of properties and are made to the owner and/or
occupiers of such property. The Company expects these loans to have maturities
generally ranging from one to 10 years.
Commercial mortgage lending entails significant additional risk,
compared with residential mortgage lending. Commercial mortgage loans typically
involve larger loan balances concentrated with
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single borrowers or groups of related borrowers. Additionally, the payment
experience on loans secured by income producing properties is typically
dependent on the successful operation of a business or a real estate project and
thus may be subject, to a greater extent, to adverse conditions in the real
estate market or in the economy generally. The Company's commercial real estate
loan underwriting criteria require an examination of debt service coverage
ratios, the borrower's creditworthiness and prior credit history and reputation,
and the Company generally requires personal guarantees or endorsements of
borrowers. The Company also carefully considers the location of the security
property.
The Company expects that loan-to-value ratios for commercial mortgage
loans will not exceed 75%, with higher ratios permitted if the borrower has
unusually strong general liquidity, net worth and cash flow. Loan-to-value
ratios will not exceed 85% or, if a SBA guaranty has been obtained, 90%.
Residential Mortgage Loans. The Company expects that its residential
mortgage loans will consist of residential first and second mortgage loans,
residential construction loans and home equity lines of credit and term loans
secured by first and second mortgages on the residences of borrowers for home
improvements, education and other personal expenditures. Management expects that
the Company will make mortgage loans with a variety of terms, including fixed
and floating or variable rates and a variety of maturities. Maturities for
construction loans will generally range from six to 12 months for residential
property and from 12 to 18 months for non-residential and multi-family
properties.
Residential mortgage loans generally are made on the basis of the
borrower's ability to make repayment from his employment and other income and
are secured by real estate whose value tends to be easily ascertainable. These
loans will be made consistent with the Company's appraisal policy and real
estate lending policy, which will detail maximum loan-to-value ratios and
maturities. Loans for owner-occupied property will generally be made with a
loan-to-value ratio of up to 80% for first liens and 75% for junior liens.
Higher loan-to-value ratios may be allowed based on the borrower's unusually
strong general liquidity, net worth and cash flow. Loan-to-value ratios for home
equity lines of credit will generally not exceed 75%. If the loan-to-value ratio
exceeds 90% for residential mortgage loans, the Company will obtain appropriate
credit enhancement in the form of either mortgage insurance or readily
marketable collateral.
Construction lending entails significant additional risks, compared
with residential mortgage lending. Construction loans often involve larger loan
balances concentrated with single borrowers or groups of related borrowers.
Construction loans also involve additional risks attributable to the fact that
loan funds are advanced upon the security of property under construction, which
is of uncertain value prior to the completion of construction. Thus, it is more
difficult to evaluate accurately the total loan funds required to complete a
project and related loan-to-value ratios. To minimize the risks associated with
construction lending, the Company limits loan-to-value ratios for residential
property to 85% and for non-residential property and multi-family properties to
80%, in addition to its usual credit analysis of its borrowers.
Management expects that the loan-to-value ratios described above will
be sufficient to compensate for fluctuations in the real estate market to
minimize the risk of loss.
Consumer Loans. The Company expects that its consumer loans will
consist primarily of installment loans to individuals for personal, family and
household purposes. The specific types of consumer loans expected to be made by
the Banks include home improvement loans, debt consolidation loans and general
consumer lending.
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Consumer loans may entail greater risk than residential mortgage loans
do, particularly in the case of consumer loans that are unsecured, such as lines
of credit, or secured by rapidly depreciable assets such as automobiles. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. The remaining deficiency
often does not warrant further substantial collection efforts against the
borrower. In addition, consumer loan collections are dependent on the borrower's
continuing financial stability, and thus are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the
application of various federal and state laws, including federal and state
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. Such loans may also give rise to claims and defenses by a consumer
loan borrower against an assignee of such loan such as the Company, and a
borrower may be able to assert against such assignee claims and defenses that it
has against the seller of the underlying collateral.
The Company's policy for consumer loans is to accept moderate risk
while minimizing losses, primarily through a careful analysis of the borrower.
In evaluating consumer loans, the Company will require its lending officers to
review the borrower's level and stability of income, past credit history and the
impact of these factors on the ability of the borrower to repay the loan in a
timely manner. In addition, the Company will require that its banking officers
maintain an appropriate margin between the loan amount and collateral value. The
Company expects that many of its consumer loans will be made to the principals
of the small and medium-sized businesses for whom the Banks provide banking
services.
Credit Card and Other Loans. The Company also expects to issue credit
cards to certain of its customers. In determining to whom it will issue credit
cards, the Company intends to evaluate the borrower's level and stability of
income, past credit history and other factors. Finally, the Company expects to
make additional loans that may not be classified in one of the above categories.
In making such loans, the Company will attempt to ensure that the borrower meets
the Company's credit quality standards.
Deposits. Management intends to offer a broad range of interest-bearing
and noninterest-bearing deposit accounts, including commercial and retail
checking accounts, money market accounts, individual retirement accounts,
regular interest-bearing savings accounts and certificates of deposit with a
range of maturity date options. Management anticipates that the primary sources
of deposits will be small and medium-sized businesses and individuals within an
identified market. In each identified market, senior management will have the
authority to set rates within specified parameters in order to remain
competitive with other financial institutions. All deposits will be insured by
the FDIC up to the maximum amount permitted by law. The Company expects to
implement a service charge fee schedule, which will be competitive with other
financial institutions in a Bank's market area, covering such matters as
maintenance fees on checking accounts, per item processing fees on checking
accounts, returned check charges and other similar fees.
Specialized Consumer Services. Management intends to offer specialized
products and services to its customers, such as lock boxes, travelers checks and
safe deposit services.
Courier Services. The Company expects to offer courier services to its
business customers. Courier services permit the Company to provide the
convenience and personalized service its customers require by scheduling
pick-ups of deposits.
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Telephone and Internet Banking. The Company believes that there is a
strong demand within its market for telephone banking and internet banking. Both
services allow customers to access detailed account information, execute
transactions and pay bills electronically. Management believes that these
services are particularly attractive for its customers, as it will enable them
to conduct their banking business and monitor their bank accounts from remote
locations. Management of the Company believes that telephone and internet
banking will assist the Banks in attracting and retaining customers and will
also encourage its customers to maintain their total banking relationships with
the Company.
Automatic Teller Machines ("ATMs"). The Company plans to have an ATM at
each office of each Bank. Management intends to make other financial
institutions' ATMs available to its customers and to offer customers a certain
number of free ATM transactions per month.
Other Products and Services. The Company intends to evaluate other
services such as trust services, brokerage and investment services, insurance,
and other permissible activities. Management expects to introduce these services
as they become economically viable.
Competition
Banks generally compete with other financial institutions through the
selection of banking products and services offered, the pricing of services, the
level of service provided, the convenience and availability of services, and the
degree of expertise and the personal manner in which services are offered.
Virginia law permits statewide branching by banks. Consequently, commercial
banking in Virginia is highly competitive. Many large banking organizations,
several of which are controlled by out-of-state holding companies, currently
operate in the Company's targeted market areas. In addition, competition between
commercial banks and thrift institutions (savings institutions and credit
unions) has intensified significantly by the elimination of many previous
distinctions between the various types of financial institutions and the
expanded powers and increased activity of thrift institutions in areas of
banking which previously had been the sole domain of commercial banks. Recent
legislation, together with other regulatory changes by the primary regulators of
the various financial institutions, has resulted in the almost total elimination
of practical distinctions between a commercial bank and a thrift institution.
Consequently, competition among financial institutions of all types is largely
unlimited with respect to legal ability and authority to provide most financial
services. Furthermore, as a consequence of legislation recently enacted by the
United States Congress, out-of-state banks not previously allowed to operate in
Virginia are allowed to commence operations and compete in the Company's
targeted market areas. See "Government Supervision and Regulation -- Interstate
Banking and Branching."
Each of the Banks will face competition from other banks, as well as
thrift institutions, consumer finance companies, insurance companies and other
institutions in the Banks' respective market areas. Some of these competitors
are not subject to the same degree of regulation and restriction imposed upon
the Banks. Many of these competitors also have broader geographic markets and
substantially greater resources and lending limits than the Banks and offer
certain services such as trust banking that the Banks are not expected to
provide in the near term. In addition, many of these competitors have numerous
branch offices located throughout the extended market areas of the Banks that
the Company believes may provide these competitors with an advantage in
geographic convenience that the Banks do not have at present. Such competitors
may also be in a position to make more effective use of media advertising,
support services, and electronic technology than can the Banks. Currently there
are 27 other commercial banks, 7 savings institutions, and 30 credit unions
operating in the Company's targeted market areas.
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Legal Proceedings
In the ordinary course of operations, the Company and the Banks expect
to be parties to various legal proceedings. At present, there are no pending or
threatened proceedings against the Company or any of the Banks which, if
determined adversely, would have a material effect on the business, results of
operations, or financial position of the Company or any of the Banks.
Properties
The Company's headquarters and Cardinal Bank's office is at 10641 Lee
Highway, Fairfax, Virginia. The premises are held under a 10 year lease, which
began January 1, 1998. The building, which the Company has substantially
renovated, is a three-story brick structure, containing 9,000 square feet. It
has five teller stations, one drive-through window and a walk-up ATM and night
depository.
Employees
At May 31, 1998, the Company had 14 full time employees, none of which
is represented by a union or covered by a collective bargaining agreement.
Management considers employee relations to be good.
MANAGEMENT
Directors and Executive Officers of the Company
Currently, the Company's Board of Directors includes 11 directors. The
following sets forth certain information regarding the Company's executive
officers and directors as of the date of this Prospectus and for previous
periods of at least five years. The Company's Articles of Incorporation provide
for a classified Board of Directors, so that, as nearly as possible, one-third
of the directors are elected each year to serve three-year terms. Executive
officers of the Company serve at the discretion of the Company's Board of
Directors.
<TABLE>
<CAPTION>
Director Term
Name Age Position Since Expires
---- --- -------- ----- -------
<S> <C> <C> <C> <C>
Robert M. Barlow 68 Director and Vice Chairman 1997 2000
Wayne W. Broadwater 74 Director 1997 2001
Nancy K. Falck 68 Director and Secretary 1997 1999
L. Burwell Gunn, Jr. 53 Director, President and Chief Executive 1997 1999
Officer
Anne B. Hazel 58 Director 1997 2000
Harvey W. Huntzinger 71 Director 1997 2001
Jones V. Isaac 66 Director 1997 1999
Dale B. Peck 52 Director 1997 2000
James D. Russo 51 Director and Treasurer 1997 2000
John H. Rust, Jr. 50 Director and Chairman 1997 2001
H. Steve Swink, Ph.D. 56 Director 1997 1999
</TABLE>
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Biographical information for each of the Directors is set forth below.
With the exception of Messrs. Gunn, Peck and Swink and Mrs. Hazel, all of the
Directors were formerly directors of First Patriot Bankshares Corporation, a
Virginia corporation and the holding company for Patriot National Bank,
headquartered in Reston, Virginia ("First Patriot"). On August 1, 1997, United
Bankshares, Inc., a West Virginia corporation ("UBS"), acquired First Patriot in
a Merger, pursuant to which, among other things, each shareholder of First
Patriot received a cash payment for his or her shares and Patriot National Bank
merged into United Bank, a subsidiary of UBS.
Robert M. Barlow served as Vice Chairman of First Patriot and Patriot
National Bank. Mr. Barlow also served as Chairman of the Director's Loan
Committee for Patriot National Bank. Mr. Barlow was the founder and principal
shareholder of a group of companies engaged in construction, manufacturing and
real estate in northern Virginia for the past 38 years. In 1995, he sold these
ventures and is now retired.
Wayne W. Broadwater served as Chairman of the Marketing Committee for
Patriot National Bank. A retired U.S. Navy Master Chief Petty Officer, he served
as President and CEO of Shipmates, Ltd., a chain of tool and equipment rental
and sales companies that he founded in 1972 until its sale in 1997. He is past
President of the National Capital Area Rental Association. He is involved in
civic organizations such as the Chamber of Commerce, the American Legion, Fleet
Reserve Association and the Izaak Walton League.
Nancy K. Falck was Secretary of First Patriot and Patriot National
Bank. Ms. Falck also served as Chairman of the Compensation Committee for
Patriot National Bank. She is a former member of the Fairfax County Board of
Supervisors (1980-1987) and Fairfax County School Board (1976-1979). Ms. Falck
worked in Virginia as a research bacteriologist and also spent time as a high
school teacher. She is active in community affairs and is past President of the
Board of Directors of the Family Respite Center (a day program that helps people
with Alzheimer's disease) and is a Commissioner on the Fairfax Area Council on
Aging. She has also served as past president of such associations as the
Northern Virginia Mental Health Association, the Social Center for Psychiatric
Rehabilitation, the Washington Council of Governments and the Junior League of
Northern Virginia. From 1970 to 1978, she served on the Board of Visitors of the
College of William and Mary.
L. Burwell Gunn, Jr. is President and Chief Executive Officer of the
Company, having recently completed 25 years of service with Crestar Bank. Mr.
Gunn has managed a wide variety of diverse commercial banking functions
including equipment leasing, trade finance/international banking, special assets
(loan workouts) and lower, middle and upper market commercial functions. He left
Crestar as Executive Vice President and Commercial Division Head for Greater
Washington Region. He has served on the Boards of Directors for United Virginia
Leasing Corporation and Crestar Bank, N.A. He is a past Chairman of the Board of
Directors for the Fairfax County Chamber of Commerce and serves on the boards of
many local civic and charitable entities. Mr. Gunn was honorably discharged from
the U.S. Army in 1972 as a Captain.
Anne B. Hazel serves as a Director of the Corcoran Museum of Art,
Washington, D.C., the Florida House, Washington, D.C., the Morikani Museum and
Japanese Gardens Foundation, Delray Beach, Florida and the Concert Hall at
Mizner Park, Boca Raton, Florida. In addition Mrs. Hazel is active with the UNC
Alumni Association, the Boca Raton Historical Society, the Junior Leagues of
Boca Raton, Florida and Washington, D.C. among many other civic endeavors. In
the past she has held management positions with the Boca Raton Historical
Society, the Boca Raton Community
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Redevelopment Agency and The Morikani Museum and Japanese Gardens. Mrs. Hazel
graduated from the University of North Carolina with a BA in English and Art
History.
Harvey W. Huntzinger served as Chairman of the Strategic Planning
Committee for First Patriot. He served in the U.S. Army from 1946 to 1967 in
numerous command, staff and management jobs relative to aviation operations,
research, development and engineering. Upon retirement, he joined TRW's
engineering department in support of a helicopter research development and
prototyping phase. He is a founder of National Systems Management Corporation,
which was organized in 1972, and has been President and CEO since 1983.
Jones V. Isaac was Treasurer of First Patriot. Mr. Isaac also served
several terms as Chairman of the Audit Committee for Patriot National Bank. Mr.
Isaac was the Administrator of Finance and Administration for the Construction
Specifications Institute where he was employed from 1967 until 1995. In this
capacity, Mr. Isaac was responsible for the financial, budgetary, office and
building administration of CSI, as well as the administration of its staff
benefits programs. Currently, Mr. Isaac is President of Isaac Enterprises, Inc.,
a service oriented firm incorporated in the State of Maryland.
Dale B. Peck is a partner with Beers & Cutler, PLLC, Certified Public
Accountants. Prior to joining his present firm, Mr. Peck founded and operated
his own practice. In addition, he has functioned as Chief Financial Officer for
a group of financial services companies and began his career with Arthur
Andersen & Co. in 1968. A graduate of Old Dominion University, Mr. Peck has
served as Chairman of the Board of Directors for the Fairfax County Chamber of
Commerce, has been an Advisory Board member of George Mason Bank and many civic
and charitable associations.
James D. Russo served a term as Chairman of the Audit Committee for
Patriot National Bank. Mr. Russo is currently the Senior Vice President, Chief
Financial Officer and Treasurer of Shire Laboratories, Inc. ("Shire"), and has
held these positions since May 1994. Shire, a pharmaceutical research and
development company, creates and uses its advanced drug delivery technologies to
develop clinically needed, cost effective therapeutic products suited to the
managed care market. Prior to joining Shire, Mr. Russo served as Senior Vice
President, Chief Financial Officer and Treasurer of Versar, Inc. in Springfield,
Virginia from 1992 to 1994. Mr. Russo was the Senior Vice President and Chief
Financial Officer of ICF Kaiser International, Inc. from 1986 to 1992. From 1981
to 1986, Mr. Russo was Vice President of Finance and Treasurer and served on the
Board of Directors of PRC Engineering, Inc. in New York, a subsidiary of
Planning Research Corporation, where he managed the international financial
operations of the consulting engineering firm.
John H. Rust, Jr. was Chairman of the Board of First Patriot and
Patriot National Bank. Mr. Rust also served as Chairman of the Executive
Committee for First Patriot and Patriot National Bank. Mr. Rust is currently of
counsel in the law firm of McCandlish and Lillard. Mr. Rust is a member of the
Virginia House of Delegates, the former Vice Chairman of the Virginia State
Board of Elections and a former President of the Central Fairfax Chamber of
Commerce.
H. Steve Swink, Ph.D. is the President of the coffee, vending and
roasting group of U.S. Office Products Company, the largest supplier of
breakroom products in America. Prior to joining U.S. Office Products, Dr. Swink
served as Vice President and Chief Operating Officer for Coffee Butler Service,
Inc. headquartered in Alexandria, Virginia. Under his leadership, Coffee Butler
grew to become one of the top three independently owned coffee products
companies in the nation. Dr. Swink has a distinguished record of public service
and currently serves on the Board of Directors of the American
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Heart Association/Northern Virginia Chapter, the Cultural Alliance of
Washington, D.C., The Fairfax Symphony Orchestra, The Fairfax County Chamber of
Commerce (Past Chairman), and the Northern Virginia Community Foundation. He is
also an active member of the Greater Washington Board of Trade, and is involved
with a number of other civic and professional organizations. Dr. Swink holds
Bachelor of Science and Master of Education degrees from Mississippi State
University and received his Doctorate of Philosophy from Georgia State
University.
Executive Officers Who Are Not Directors
Joseph L. Borrelli, CPA - Mr. Borrelli (age 50) is the Chief Financial
Officer for the Company and Cardinal Bank. Mr. Borrelli has over 25 years of
accounting and banking experience beginning with Deloitte & Touche (formerly
Haskins & Sells) conducting audits of banks and in senior financial management
positions with Citibank, Perpetual Savings, John Hanson Savings and Crestar
Bank. His most recent position was with Crestar Bank as the Regional Finance
Manager for the greater Washington Region. He is past President of the D.C.
Chapter of Financial Executives Institute and is a member of the American
Institute of CPA's and the Virginia Society of CPA's.
F. Kevin Reynolds - Mr. Reynolds (age 38) is Executive Vice President
and Senior Lending Officer of Cardinal Bank and, subject to regulatory approval,
is slated to become the President of Cardinal Bank. Mr. Reynolds has served in a
variety of positions in his 15 years of banking experience beginning as a credit
analyst and commercial trainee at the National Bank of Washington. After leaving
to join American Security Bank he gained experience in lending to government
contractors, real estate developers, and businesses. In 1991 Mr. Reynolds joined
George Mason Bank to help create the commercial lending group and became the
senior lending officer responsible for all facets of the bank's commercial
lending business. In addition to his many civic activities, Mr. Reynolds is the
current Chairman of the American Heart Association, Northern Virginia and is
Treasurer and Vice President of Westwood Country Club.
Christopher W. Bergstrom - Mr. Bergstrom (age 38) is an Executive Vice
President and Commercial Lending Officer of the Company and, subject to
regulatory approval, is slated to be President of the Manassas/Prince William
Bank when it opens. Mr. Bergstrom will establish a loan production office in
Prince William County, his home. Mr. Bergstrom had a 16-year career at Crestar
Bank where he served in a variety of retail and commercial functions. He has
managed several commercial lending groups in addition to gaining experience in
sales management, credit administration, planning and budgeting, and personnel
recruitment. In addition, he has served in a variety of civic roles, including
serving on the Boards of Directors of the Arlington and Alexandria Chambers of
Commerce and the Advisory Board of the McIntire School of Commerce's Center for
Small and Emerging Business.
Eleanor Schmidt - Ms. Schmidt (age 37) is a Vice President and Retail
Banking Head of the Company with over 17 years of branch and operational
experience with NationsBank. She has managed multiple branches in the Fairfax
area serving a large and diverse deposit and loan base. She is experienced in
retail banking, retail operations, branch security, and consumer compliance and
customer service. She has been a leader in the Fairfax community for the past 15
years in a variety of business and civic organizations and currently serves on
the Industrial Development Authority in the City of Fairfax, is a member of the
Central Fairfax Chamber of Commerce, the Fairfax County Chamber of Commerce, the
Leadership Fairfax Class of 1998, and is active with the Kiwanis Club of
Fairfax. She is the treasurer of the City of Fairfax Chocolate Lover's Festival
Committee and serves on the Fairfax
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City Independence Day Celebration Committee. She has been honored as an
outstanding volunteer in the City of Fairfax for the past two years.
Carl E. Dodson - Mr. Dodson (age 43) joined the Company in May 1998 as
its Senior Vice President and Chief Credit Officer and has 14 years of
commercial banking experience. Mr. Dodson began his career as one of the
founding officers of Palmer National Bank ("Palmer") in Washington, D.C. At
Palmer, in addition to being the senior commercial lending officer, Mr. Dodson
implemented procedures involving the lending function of Palmer, including
establishing the loan review, credit operations and credit administration
functions. While at Palmer, he oversaw the growth of its loan portfolio to $100
million before Palmer's sale to George Mason Bank ("George Mason") in 1996. At
that time, he joined George Mason as Senior Vice President of Credit
Administration. In 1997, Mr. Dodson left George Mason to become Chief Financial
Officer of C.C. Pace Resources, Inc. Mr. Dodson received a B.A. in economics
from the University of Virginia and a M.B.A. from the University of Virginia's
Darden School of Business Administration.
Security Ownership of Management
The following table sets forth information as of March 31, 1998
regarding the number of shares of Common Stock beneficially owned by all
directors and by all directors and executive officers as a group. Beneficial
ownership includes shares, if any, held in the name of the spouse, minor
children or other relatives of the nominee living in such person's home, as well
as shares, if any, held in the name of another person under an arrangement
whereby the director or executive officer can vest title in himself at once or
at some future time.
<TABLE>
<CAPTION>
Common Stock
Name Beneficially Owned Percentage of Class
---- ------------------ -------------------
<S> <C> <C>
Robert M. Barlow 67,500 4.79%
Wayne W. Broadwater 27,000 1.92
Nancy K. Falck 26,667 1.89
L. Burwell Gunn, Jr. 18,500 1.31
Anne B. Hazel 13,334 0.95
Harvey W. Huntzinger 67,500 4.79
Jones V. Isaac 30,000 2.13
Dale B. Peck 26,667 1.89
James D. Russo 53,600 3.80
John H. Rust, Jr. 35,000 2.48
H. Steve Swink, Ph.D. 30,000 2.13
All present executive officers and
directors as a group (16 persons) 437,101 31.01%
</TABLE>
The percentage ownership of directors and executive officers is
expected to decline to less than 11% following the Offering.
Security Ownership of Certain Beneficial Owners
No one is known to be the beneficial owner of more than five percent of
the issued and outstanding Common Stock of the Company.
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<PAGE>
Executive Compensation
The following table shows, for the fiscal year ended December 31, 1997,
the cash compensation paid by the Company, as well as certain other compensation
paid or accrued for that year, to the named Executive Officer in all capacities
in which he served:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation(1)
-------------------------------------
All Other
Year Salary(2) Bonus Compensation(3)
---- --------- ----- ---------------
<S> <C> <C> <C> <C>
L. Burwell Gunn, Jr. 1997 $27,174 $25,000 $ 981
President and Chief Executive Officer
- ----------------
</TABLE>
(1) All benefits that might be considered of a personal nature did not exceed
the lesser of $50,000 or 10% of total annual salary and bonus for the
officer named in the table.
(2) Amount reflects a partial year. Mr. Gunn's annual salary is $150,000.
(3) Amounts reflect COBRA payments to Mr. Gunn's former employer to continue
insurance benefits.
Compensation and Other Employment Arrangements
On September 30, 1997, Mr. Gunn entered into an employment contract to
serve as President and Chief Executive Officer of both the Company and Cardinal
Bank and to perform such services and duties as each entity's Board of Directors
may designate. Under the contract, Mr. Gunn is entitled to an annual base salary
of $150,000. Any increases in base salary are at the discretion of the Boards of
Directors. In addition, Mr. Gunn earned a bonus in 1997 of $25,000 in connection
with the completion of various aspects of the organization of the Company and
Cardinal Bank, and may be entitled to up to an additional $50,000 in connection
with the first year of operations of the Company and Cardinal Bank, and up to
$50,000 per year for future performance.
The contract is for a term of three years and may be extended for at
least two additional years. Mr. Gunn serves at the pleasure of the Company's
Board of Directors. If, during the term of the contract, Mr. Gunn's employment
is terminated without cause, Mr. Gunn will be entitled to a severance payment
equal to his annual base salary at that time. The contract also provides for
certain non-competition covenants for a period of one year following Mr. Gunn's
termination.
During each year under his three-year employment contract, Mr. Gunn
will be granted an option to purchase 7,048 shares of Common Stock at $7.50 per
share; however, the grant of any option for any particular year shall be
conditioned on the Company's financial performance's exceeding certain amounts
budgeted for that year.
Neither the Company nor Cardinal Bank provides any compensation to its
directors for service on the respective Board of Directors.
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<PAGE>
Any future transactions between the Company and its officers and
directors, as well as transactions with any person who acquires five percent or
more of the Company's voting stock will be on substantially the same terms,
including interest rates and security for loans, as those prevailing at the time
for comparable transactions with others.
Bank Directors
With the exception of Mrs. Hazel and Dr. Swink, the directors of the
Company also are the directors of Cardinal Bank. The Company intends that at
least one Company director will serve on the Board of each Additional Bank. The
Company has identified a number of individuals who have indicated their
willingness to serve as organizers and directors of the Additional Banks. As
none of the Additional Banks is yet in the organizational stage, the composition
of the Boards of the Additional Banks has not been finally determined and no
individual may serve as an Additional Bank director without regulatory approval.
The Company expects that the directors of the Additional Banks will include the
following individuals.
George E. Barlow (age 41) is currently President and co-owner of
Division 7, Inc. and Vice-President and co-owner of Prospect Waterproofing
Company. Serving the construction industry, Division 7, Inc. is a materials
distribution company and Prospect Waterproofing Co. is a waterproofing specialty
subcontractor. Prior to the purchase of Division 7 and Prospect in 1994, Mr.
Barlow was Chief Executive Officer of Insulated Building Systems, Inc., a
manufacturer and fabricator of insulation products. Mr. Barlow is a graduate of
The Wharton School of the University of Pennsylvania and has an MBA from The
Goizueta Business School of Emory University.
David L. Broadwater (age 40) is managing partner of Broadwater
Investments II, Real Estate Development and Management Co. located in northern
Virginia. Prior to forming his present firm, Mr. Broadwater served as Vice
President of Operations of Shipmates, Ltd. a large equipment rental and sales
company headquartered in Manassas, Virginia.
Russell A. DeCarlo, DDS (age 53), a lifetime area resident, is
self-employed with a private dental practice in northern Virginia for the past
27 years. After completing undergraduate studies at the University of Virginia,
Dr. DeCarlo graduated from the Medical College of Virginia in 1969 and completed
military service in the USN 1969/71. He was an initial investor and member of
the Advisory Board of Patriot National Bank since its inception in 1990. Dr.
DeCarlo has served on several Boards of Directors for residential and business
properties, including Pinecrest Office Park and Edsall Terrace in Alexandria,
Virginia and Angelfish Condo in Ocean City, Maryland.
Theresa A. Gascoigne (age 48) is a graduate of the University of
Maryland with a B.A. in Business Administration and the Washington School for
Secretaries. She worked for Securities Investor Protection Corporation, The
American Federation of State, County and Municipal Employees, The Construction
Specifications Institute and the Early California Industries. She is a member of
the Country Club of Fairfax and many civic and charitable organizations in
Virginia.
Roy F. Goggin, Jr. (age 53) established his own certified public
accounting firm in 1988. His accounting experience spans over 25 years.
Specializing in taxation and accounting, his practice serves a wide spectrum of
small and medium-sized businesses in northern Virginia. He received his B.S. in
Business Administration from Virginia Commonwealth University and his M.S. in
Taxation from American University in Washington, D.C. He is active in a variety
of professional and civic endeavors and is a past President of the Falls Church
Rotary Club.
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<PAGE>
Andrew P. Hinton (age 47) is an attorney with the United States
Government, and has responsibilities involving adjudication of administrative
appeals in an administrative tribunal within the Department of Veterans Affairs.
Previously, he worked for 16 years at the International Monetary Fund (the
"IMF"), providing financial and economic expertise in support of the IMF's
country lending programs. Mr. Hinton also has real estate business experience
since 1973, with involvement in land development and brokerage, redevelopment
and sale of inner-city residential buildings, and financial analytic support for
prospective office building projects. He founded and was President of Washington
Capital Realty, Inc., involved in non-residential real estate brokerage. In
addition to Mr. Hinton's legal training, he holds an MBA in finance and an M.A.
in economics, both from Virginia Tech in Blacksburg, Virginia. Mr. Hinton is
active in several northern Virginia community organizations.
Mervin D. Issac (age 34) is currently Senior Manager of Operations at
Cable & Wireless, Inc. Cable & Wireless ("C&W") is an industry leader in the
Global Telecommunications industry. He is responsible for all private line,
data, internet and voice operations at C&W. Prior to his management position, he
was a Senior Data Engineer at C&W responsible for capacity planning, network
architecture, traffic flow engineering and network resilience design. Mr. Isaac
also served in the United States Navy from 1982-1987 as an aviation electronic
technician.
Earl F. Lockwood (age 67) is co-founder, Chairman, President and Chief
Executive Officer of Betac International Corporation which he formed in 1980.
Betac is a worldwide technology firm located in Alexandria, Virginia. Mr.
Lockwood is a graduate of the College of Engineering, University of Kentucky. He
also attended the International School of Nuclear Science and Engineering at the
University of Chicago. Mr. Lockwood is a Director of the Professional Services
Council, Chairman of the Board of the Securities Affairs Support Association,
Senior Advisory Board for the Joint Military Intelligence College Foundation,
Inc. and the Board of Trustees of Hampton-Sydney College.
Virginia C. Mars (age 68) is a former teacher and was a Director of
Mars Foundation until 1990. For years she has been very active in a number of
civic and charitable endeavors. Mrs. Mars currently serves on the Boards of
Vassar College, the Wildlife Preservation Trust International, the McLean
Revitalization Corporation, The Cathedral Chapter, Washington National Cathedral
and Cathedral Choral Society and the National Symphony Orchestra, where she
earned the distinction of being the only woman to serve as president. In
addition, she has served on the Boards of the American University, Johns Hopkins
University American Contemporary German Studies, and the Langley School of
McLean, among many others. Mrs. Mars received her B.A. and teacher certification
from Vassar.
John R. Muha, II (age 40) graduated from George Mason University in
1981 with a Bachelor of Science degree in Business Administration. Mr. Muha's
career in insurance began as a bond underwriter with the Chubb Group. In 1994 he
co-founded Franey, Parr & Muha, Inc., and currently serves as its President. Mr.
Muha is a member of the Board of Directors and serves as the Underwriting
Chairman for Crab Apple Insurance Company and is a member of the Professional
Insurance Agents Association. He is an Accredited Advisor in insurance and
serves on the advisory boards of several insurance carriers. Mr. Muha is a
member of the George Mason University Patriot Club, the Fairfax Chamber of
Commerce, the National Association of Industrial and Office Parks and St.
Timothy's Church.
Philip M. Reilly (age 56) is the Vice President, Finance and Chief
Financial Officer of Kol Bio-Medical Instruments, a regional marketer and
distributor of high technology medical devices. A former
33
<PAGE>
Marine Corps Officer and Vietnam veteran, he holds an MBA in Finance from the
N.Y.U. Stern School of Business. He serves on the Executive Committee and Board
of Directors of the Medmarc Insurance Company. Currently the Vice Chairman of
the Virginia Health Care Foundation, he is a past Chairman of the Fairfax County
Chamber of Commerce, the Fairfax Arts Council, the Fairfax-Falls Church United
Way and is a past awardee of the Washington Post Cup as Fairfax County's Citizen
of the Year. He also served as Vice Chairman - North of the Virginia Chamber of
Commerce, and chaired the Virginia Business Health Care Task Force.
John A. Rollison, III (age 47) is President of Rollison Tire and Auto,
a business he has owned and operated since 1972 in Woodbridge, Virginia. Mr.
Rollison is a member of the House of Delegates representing the 52nd District in
Prince William County. He is a director of the Prince William Chamber of
Commerce and an Alternate Commissioner on the Interstate Commission on the
Potomac River Basin. Mr. Rollison is a graduate of Virginia Polytechnic
Institute and State University.
Dietmar S. Tech (age 55) is a founder and principal owner of LSA
Incorporated, which was organized in 1982, and since then has been the President
in charge of corporate operations and head of the LSA Photonics and Optical
Wireless Communications Division. LSA provides systems engineering, acquisition
management, and technical support services to the Government and industry. Prior
to founding LSA, Mr. Tech was a Director of Operations with SYSCON Incorporated
supporting various Navy airlaunched weapon system programs. From 1966 through
1971 Mr. Tech held various positions from analyst through Department Head with
Litton Ingalls Shipbuilding Division supporting the development of the LHA,
Spruance Class Destroyers, and Surface Effect Ship. From 1962 to 1966 Mr. Tech
worked for the Department of the Navy as an operations research analyst
addressing logistics systems design and effectiveness issues. He received a
degree in Physics from Rutgers University in 1964.
William T. Theros (age 48) was the former owner of McLean Rentals,
Inc., a major equipment rental dealer in the northern Virginia region. He sold
McLean Rentals, Inc. in 1996 after growing the firm from one to nine locations
and currently works with his son at Theros Equipment, Inc., which sells large
construction equipment. Previous to his owning McLean Rentals, Inc., he spent
seven years with the Montgomery County Police Department. He graduated from
University of Maryland with a Bachelor of Science degree in Criminal Justice,
then furthered his studies at George Washington University, graduating with a
Masters of Science in Special Studies - Criminal Justice.
Ms. Jana Yeates (age 56) is the founder and co-owner of Employment
Enterprises, Inc., the parent company of Temporary Solutions, Inc. and Checks &
Balances, Inc. a $40+ million employment services enterprise located in
Manassas, Virginia. Temporary Solutions, Inc. continually ranks as one of the
Top 50 women-owned businesses in the Washington metropolitan area, as published
by the Washington Business Journal. Ms. Yeates has received numerous business
awards including being recognized as "Entrepreneur of the Year" by Inc. Magazine
and Ernst & Young, and by being inducted into the "Entrepreneur Hall of Fame" at
the University of North Carolina. In addition to serving on numerous state and
local advisory and civic boards, she is a past President of the Prince William
County Greater Manassas Chamber of Commerce, and serves on the Boards of
Directors of Prince William Health Systems, Prince William Hospital Board, and
the Manassas Chapter of the American Red Cross among others.
34
<PAGE>
GOVERNMENT SUPERVISION AND REGULATION
The following discussion is a summary of the principal laws and
regulations that comprise the regulatory framework applicable to the Company and
the Banks. Other laws and regulations that govern various aspects of the
operations of banks and bank holding companies are not described herein,
although violations of such laws and regulations could result in supervisory
enforcement action against the Company or a Bank. The following descriptions, as
well as descriptions of laws and regulations contained elsewhere in this
Prospectus, summarize the material terms of the principal laws and regulations
and are qualified in their entirety by reference to applicable laws and
regulations.
As a bank holding company, the Company is subject to regulation under
the Bank Holding Company Act of 1956 (as amended, the "BHCA") and the
examination and reporting requirements of the Federal Reserve. Under the BHCA, a
bank holding company may not directly or indirectly acquire ownership or control
of more than 5% of the voting shares or substantially all of the assets of any
additional bank or merge or consolidate with another bank holding company
without the prior approval of the Federal Reserve. The BHCA also generally
limits the activities of a bank holding company to that of banking, managing or
controlling banks, or any other activity which is determined to be so closely
related to banking or to managing or controlling banks that an exception is
allowed for those activities.
As a national bank, Cardinal Bank is subject to regulation, supervision
and examination by the OCC. The Additional Banks also are expected to be
national banks, supervised by the OCC in the same fashion and to the same extent
as Cardinal Bank. Cardinal Bank is also subject to regulation, supervision and
examination by the FDIC. Federal law also governs the activities in which the
Banks may engage, the investments they may make and limits the aggregate amount
of loans that may be granted to one borrower to 15% of a bank's capital and
surplus. Various consumer and compliance laws and regulations also affect the
Banks' operations.
The earnings of the Banks, and therefore the earnings of the Company,
are affected by general economic conditions, management policies and the
legislative and governmental actions of various regulatory authorities,
including those referred to above.
The OCC will conduct regular examinations of the Banks, reviewing such
matters as the adequacy of loan loss reserves, quality of loans and investments,
management practices, compliance with laws, and other aspects of their
operations. In addition to these regular examinations, the Banks must furnish
the OCC with periodic reports containing a full and accurate statement of its
affairs. Supervision, regulation and examination of banks by these agencies are
intended primarily for the protection of depositors rather than shareholders.
Insurance of Accounts, Assessments and Regulation by the FDIC. The
deposits of Cardinal Bank are insured by the FDIC up to the limits set forth
under applicable law. The deposits of Cardinal Bank are subject to the deposit
insurance assessments of the Bank Insurance Fund ("BIF") of the FDIC. The
Additional Banks will be subject to the same assessments.
The FDIC has implemented a risk-based deposit insurance assessment
system under which the assessment rate for an insured institutions may vary
according to regulatory capital levels of the institution and other factors
(including supervisory evaluations). Depository institutions insured by the BIF
that are "well capitalized", are required to pay only the statutory minimum
assessment of $2,000 annually for deposit insurance, while all other banks are
required to pay premiums ranging from .03%
35
<PAGE>
to .30% of domestic deposits. These rate schedules are subject to future
adjustments by the FDIC. In addition, the FDIC has authority to impose special
assessments from time to time. However, because the legislation enacted in 1996
requires that both Savings Association Insurance Fund ("SAIF") insured and
BIF-insured deposits pay a pro rata portion of the interest due on the
obligations issued by the Financing Corporation ("FICO"), the FDIC is assessing
BIF-insured deposits an additional 1.30 basis points per $100 of deposits to
cover those obligations.
The FDIC is authorized to prohibit any BIF-insured institution from
engaging in any activity that the FDIC determines by regulation or order to pose
a serious threat to the respective insurance fund. Also, the FDIC may initiate
enforcement actions against banks, after first giving the institution's primary
regulatory authority an opportunity to take such action. The FDIC may terminate
the deposit insurance of any depository institution if it determines, after a
hearing, that the institution has engaged or is engaging in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, order or any condition imposed in
writing by the FDIC. It also may suspend deposit insurance temporarily during
the hearing process for the permanent termination of insurance, if the
institution has no tangible capital. If deposit insurance is terminated, the
deposits at the institution at the time of termination, less subsequent
withdrawals, shall continue to be insured for a period from six months to two
years, as determined by the FDIC. Management is aware of no existing
circumstances that could result in termination of Cardinal Bank's deposit
insurance.
Capital. The OCC and the Federal Reserve have issued risk-based and
leverage capital guidelines applicable to banking organizations they supervise.
Under the risk-based capital requirements, the Company and Cardinal Bank are
each generally required to maintain a minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) of 8%. At least half of the total capital is to be
composed of common equity, retained earnings and qualifying perpetual preferred
stock, less certain intangibles ("Tier 1 capital"). The remainder may consist of
certain subordinated debt, certain hybrid capital instruments and other
qualifying preferred stock and a limited amount of the loan loss allowance
("Tier 2 capital" and, together with Tier 1 capital, "total capital").
In addition, each of the Federal banking regulatory agencies has
established minimum leverage capital ratio requirements for banking
organizations. These requirements provide for a minimum leverage ratio of Tier 1
capital to adjusted average quarterly assets equal to 3% for bank holding
companies that are rated a composite "1" and 4% for all other bank holding
companies. Bank holding companies are expected to maintain higher than minimum
capital ratios if they have supervisory, financial, operational or managerial
weaknesses, or if they are anticipating or experiencing significant growth.
The risk-based capital standards of the OCC and the Federal Reserve
explicitly identify concentrations of credit risk and the risk arising from
non-traditional activities, as well as an institution's ability to manage these
risks, as important factors to be taken into account by the agency in assessing
an institution's overall capital adequacy. The capital guidelines also provide
that an institution's exposure to a decline in the economic value of its capital
due to changes in interest rates be considered by the agency as a factor in
evaluating a bank's capital adequacy. The OCC and the Federal Reserve also have
recently issued additional capital guidelines for bank holding companies that
engage in certain trading activities.
36
<PAGE>
Other Safety and Soundness Regulations. 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 depositors of such
depository institutions and to the FDIC insurance funds in the event the
depository institution becomes in danger of default or is 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
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 the BIF as a result of the
default of a commonly controlled insured depository institution or for any
assistance provided by the FDIC to a commonly controlled insured depository
institution in danger of default. The FDIC may decline to enforce the
cross-guarantee provision if it determines that a waiver is in the best
interests of the BIF. The FDIC's claim for reimbursement is superior to claims
of shareholders 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 banking agencies also have broad powers under current
Federal law to take prompt corrective action to resolve problems of insured
depository institutions. The Federal Deposit Insurance Act requires that the
federal banking agencies establish five capital levels for insured depository
institutions - "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." It also
requires or permits such agencies to take certain supervisory actions should an
insured institution's capital level fall. For example, an "adequately
capitalized" institution is restricted from accepting brokered deposits. An
"undercapitalized" or "significantly undercapitalized" institution must develop
a capital restoration plan and is subject to a number of mandatory and
discretionary supervisory actions. These powers and authorities are in addition
to the traditional powers of the Federal banking agencies to deal with
undercapitalized institutions.
Federal regulatory authorities also have broad enforcement powers over
the Company and the Banks, including the power to impose fines and other civil
and criminal penalties, and to appoint a receiver in order to conserve the
assets of any such institution for the benefit of depositors and other
creditors.
Payment of Dividends. The Company is a legal entity separate and
distinct from the Banks. Virtually all of the revenues of the Company will
result from dividends paid to the Company by the Banks. Under OCC regulations a
national bank may not declare a dividend in excess of its undivided profits,
which will mean that each Bank must recover any start-up losses before it may
pay a dividend to the Company. Additionally, a national bank may not declare a
dividend if the total amount of all dividends, including the proposed dividend,
declared by the national bank in any calendar year exceeds the total of the
national bank's retained net income of that year to date, combined with its
retained net income of the two preceding years, unless the dividend is approved
by the OCC. A national bank may not declare or pay any dividend if, after making
the dividend, the national bank would be "undercapitalized," as defined in
regulations of the OCC. The Company is subject to state laws that limit the
amount of dividends it can pay. In addition, the Company is subject to various
general regulatory policies relating to the payment of dividends, including
requirements to maintain adequate capital above regulatory minimums. The Federal
Reserve has indicated that banking organizations should generally pay dividends
only if (1) the organization's net income available to common shareholders over
the past year has been sufficient to fund fully the dividends and (2) the
prospective
37
<PAGE>
rate of earnings retention appears consistent with the organization's capital
needs, asset quality and overall financial condition. The Company expects that
these laws, regulations or policies will materially impact the ability of the
Banks and, therefore, the Company to pay dividends in the early years of
operations.
Community Reinvestment. The requirements of the Community Reinvestment
Act ("CRA") are applicable to the Bank. 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. A financial
institution's efforts in meeting community credit needs currently are evaluated
as part of the examination process pursuant to twelve assessment factors. These
factors also are considered in evaluating mergers, acquisitions and applications
to open a branch or facility.
Interstate Banking and Branching. Current Federal law authorizes
interstate acquisitions of banks and bank holding companies without geographic
limitation. Effective June 1, 1997, a bank headquartered in one state is able to
merge with a bank headquartered in another state, as long as neither of the
states has opted out of such interstate merger authority prior to such date.
States are authorized to enact laws permitting such interstate bank merger
transactions prior to June 1, 1997, as well as authorizing a bank to establish
"de novo" interstate branches. Virginia enacted early "opt in" laws, permitting
interstate bank merger transactions. Once a bank has established branches in a
state through an interstate merger transaction, the bank may establish and
acquire additional branches at any location in the state where a bank
headquartered in that state could have established or acquired branches under
applicable Federal or state law.
Economic and Monetary Polices. The operations of the Company are
affected not only by general economic conditions, but also by the economic and
monetary policies of various regulatory authorities. In particular, the Federal
Reserve regulates money, credit and interest rates in order to influence general
economic conditions. These policies have a significant influence on overall
growth and distribution of loans, investments and deposits and affect interest
rates charged on loans or paid for time and savings deposits. Federal Reserve
monetary policies have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future.
DESCRIPTION OF CAPITAL STOCK
The following summary description of the material features of the
capital stock of the Company is qualified in its entirety by reference to
applicable provisions of Virginia law and the Articles of Incorporation of the
Company (the "Articles") and the Bylaws of the Company (the "Bylaws"), which are
exhibits to the Registration Statement on file with the Commission.
Authorized and Outstanding Capital Stock
The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, par value $1.00 per share, and 10,000,000 shares of
Preferred Stock, par value $1.00 per share. Immediately following the closing of
the offering, the Company estimates that there will be an aggregate of 4,009,509
shares of Common Stock issued and outstanding and no shares of Preferred Stock
issued and outstanding. As of March 31, 1998, there were 1,409,509 shares of
Common Stock issued and outstanding held by approximately 88 holders of record.
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<PAGE>
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters voted on by shareholders, including elections of directors, and possess
exclusively all voting power except as otherwise required by law or provided in
any resolution adopted by the Company's Board of Directors with respect to any
class or series of Preferred Stock. The Articles do not provide for cumulative
voting for the election of directors. Subject to any preferential rights of any
outstanding class or series of Preferred Stock designated by the Company's Board
of Directors from time to time, the holders of Common Stock are entitled to such
dividends as may be declared from time to time by the Company's Board of
Directors from funds available therefore, and upon liquidation will be entitled
to receive pro rata all assets of the Company available for distribution to such
holders. The holders of Common Stock have no preemptive or other subscription
rights, and there are no conversion rights or redemption or sinking fund
provisions with respect to the Common Stock.
Preferred Stock
The Company's Board of Directors is authorized, without further action
of the shareholders of the Company, to provide for the issuance of shares of
Preferred Stock, in one or more classes or series, and to fix for each such
class or series such designations, rights and preferences as are stated in the
resolution adopted by the Company's Board of Directors providing for the
issuance of such class or series and as are not prohibited by law. Such
Preferred Stock shall rank prior to the Common Stock as to dividend rights and
liquidation preferences. Preferred Stock may have full or limited voting rights
and may be convertible into shares of Common Stock, which could adversely affect
the voting power of the holders of Common Stock. In addition, the issuance of
Preferred Stock by the Board of Directors could be utilized, under certain
circumstances, as a method of preventing a takeover of the Company. There are no
shares of Preferred Stock outstanding and the Company has no present plan or
agreement for the issuance of Preferred Stock, although it may determine to do
so in the future.
Certain Provisions of the Company's Articles of Incorporation and Bylaws
The Articles and Bylaws contain provisions, in addition to the
authority of the Board of Directors to issue shares of Preferred Stock without
shareholder action, that may have the effect of delaying or preventing a change
in control of the Company. The Articles and Bylaws provide, subject to the
rights of any holders of Preferred Stock: (i) that the Board of Directors shall
be divided into three classes and at each annual meeting of shareholders
thereafter one class shall be elected each year to serve a three-year term; (ii)
that directors may be removed only for cause and only by the affirmative vote of
holders of more than two-thirds of the Company's outstanding voting stock; (iii)
that a vacancy on the Board shall be filled by the remaining directors; and (iv)
that special meetings of the shareholders may be called only by the President,
by the Chairman of the Board, or by the Board of Directors and may not be called
by the shareholders. The Bylaws require advance notification for a shareholder
to bring business before a shareholders' meeting or to nominate a person for
election as a director.
The Articles also require that any amendment to the Articles or any
merger or share exchange to which the Company is a party or any direct or
indirect sale, lease, exchange or other disposition of all or substantially all
of the Company's property, other than in the usual and regular course of
business, must be approved by the affirmative vote of a majority of the votes
entitled to be cast by each voting group entitled to vote on such amendment or
transaction; provided, however, that if such amendment or transaction is
approved by less than two-thirds of the Company's Directors, holders of more
than two-thirds of the issued and outstanding shares of the Company's Common
Stock must vote in favor of such amendment or transaction.
39
<PAGE>
Affiliated Transactions
The Virginia Stock Corporation Act (the "Virginia Act") contains
provisions governing "Affiliated Transactions" designed to deter certain
coercive two-tier takeovers of Virginia corporations. Affiliated Transactions
include certain mergers and share exchanges, material dispositions of corporate
assets not in the ordinary course of business, any dissolution of the
corporation proposed by or on behalf of an "Interested Shareholder" (as defined
below), or reclassifications, including reverse stock splits, recapitalizations
or mergers of the corporation with its subsidiaries which have the effect of
increasing the percentage of voting shares beneficially owned by an Interested
Shareholder by more than 5%. For purposes of the Virginia Act, an "Interested
Shareholder" is defined as any beneficial owner of more than 10% of any class of
the voting securities of a Virginia corporation.
Subject to certain exceptions discussed below, the provisions governing
Affiliated Transactions require that, for three years following the date upon
which any shareholder becomes an Interested Shareholder, a Virginia corporation
cannot engage in an Affiliated Transaction with such Interested Shareholder
unless approved by the affirmative vote of the holders of more than two-thirds
of the outstanding shares of the corporation entitled to vote, other than the
shares beneficially owned by the Interested Shareholder, and by a majority (but
not less than two) of the "Disinterested Directors." A "Disinterested Director"
means, with respect to a particular Interested Shareholder, a member of a
corporation's board of directors who (i) was a member before the later of
January 1, 1988 and the date on which an Interested Shareholder became an
Interested Shareholder and (ii) was recommended for election by, or was elected
to fill a vacancy and received the affirmative vote of, a majority of the
Disinterested Directors then on the corporation's board of directors. At the
expiration of the three year period, these provisions require approval of
Affiliated Transactions by the affirmative vote of the holders of more than
two-thirds of the outstanding shares of the corporation entitled to vote, other
than those beneficially owned by the Interested Shareholder.
The principal exceptions to the special voting requirement apply to
Affiliated Transactions occurring after the three-year period has expired and
require either that the transaction be approved by a majority of the
Disinterested Directors or that the transaction satisfy certain fair price
requirements of the statute. In general, the fair price requirements provide
that the shareholders must receive the highest per share price for their shares
as was paid by the Interested Shareholder for his shares or the fair market
value of their shares, whichever is higher. The fair price requirements also
require that, during the three years preceding the announcement of the proposed
Affiliated Transaction, all required dividends have been paid and no special
financial accommodations have been accorded the Interested Shareholder, unless
approved by a majority of the Disinterested Directors.
None of the foregoing limitations and special voting requirements
applies to an Affiliated Transaction with an Interested Shareholder (i) who was
an Interested Shareholder on the date the corporation first became subject to
the provisions of the Virginia Act governing Affiliated Transactions by virtue
of its having 300 shareholders of record or (ii) whose acquisition of shares
making such a person an Interested Shareholder was approved by a majority of the
corporation's Disinterested Directors.
The provisions of the Virginia Act governing Affiliated Transactions
are inapplicable to transactions with the Company until the Company has more
than 300 shareholders of record. In addition, the Affiliated Transactions
provisions provide that, by affirmative vote of a majority of the voting shares
other than shares owned by any Interested Shareholder, a corporation may adopt,
by meeting certain voting requirements, an amendment to its articles of
incorporation or bylaws providing
40
<PAGE>
that the Affiliated Transactions provisions shall not apply to the corporation.
The Company has not adopted such an amendment.
Control Share Acquisitions
The Virginia Act contains provisions regulating certain "control share
acquisitions," which are transactions causing the voting strength of any person
acquiring beneficial ownership of shares of a public corporation in Virginia to
meet or exceed certain threshold percentages (20%, 33-1/3% or 50%) of the total
votes entitled to be cast for the election of directors. Shares acquired in a
control share acquisition have no voting rights unless granted by a majority
vote of all outstanding shares other than those held by the acquiring person or
any officer or employee director of the corporation. The acquiring person may
require that a special meeting of the shareholders be held to consider the grant
of voting rights to the shares acquired in the control share acquisition. If the
acquiring person's shares are not accorded voting rights (or if no request for a
special meeting is made by an acquiror), the corporation may, if authorized by
its charter and bylaws prior to the control share acquisition, purchase the
acquiring person's shares at their cost to the acquiring person. If voting
rights are approved and the acquiring person controls 50% or more of the voting
power, all shareholders other than the acquiring person have dissenters' rights
which enable them to receive the "fair value" of their shares. "Fair value" is
not less than the highest price paid in the control share acquisition. The
provisions of the Virginia Act relating to control share acquisitions are
inapplicable to a corporation until it has more than 300 shareholders. The
Virginia Act permits corporations to opt-out of its provisions by adopting a
bylaw or charter provision prior to a control share acquisition stating that the
control share provisions of the Virginia Act shall not apply. The Company's
Bylaws contain a provision opting-out of the control share provisions of the
Virginia Act.
Liability and Indemnification of Directors and Officers
As permitted by the Virginia Act, the Articles contain provisions which
indemnify directors and officers of the Company to the full extent permitted by
Virginia law and eliminate the personal liability of directors and officers for
monetary damages to the Company or its shareholders for breach of their
fiduciary duties, except to the extent such indemnification or elimination of
liability is prohibited by the Virginia Act. These provisions do not limit or
eliminate the rights of the Company or any shareholder to seek an injunction or
any other non-monetary relief in the event of a breach of a director's or
officer's fiduciary duty. In addition, these provisions apply only to claims
against a director or officer arising out of his role as a director or officer
and do not relieve a director or officer from liability if he engaged in willful
misconduct or a knowing violation of the criminal law or any federal or state
securities law.
In addition, the Articles provide for the indemnification of both
directors and officers for expenses incurred by them in connection with the
defense or settlement of claims asserted against them in their capacities as
directors and officers. This right of indemnification extends to judgments or
penalties assessed against them. The Company has limited its exposure to
liability for indemnification of directors and officers by purchasing directors
and officers liability insurance coverage.
Transfer Agent and Registrar
American Stock Transfer & Trust Company will serve as transfer agent
and registrar for the Common Stock.
41
<PAGE>
Shares Eligible for Future Sale
Upon consummation of the Offering, the Company will have 4,009,509
shares of Common Stock outstanding. All of the shares issued in the Offering
(plus any shares issued upon the exercise of the Underwriters' over-allotment
option) will be freely tradeable without restriction or registration under the
Securities Act of 1933, as amended (the "Securities Act"), unless owned by an
affiliate of the Company, subject to the lock-up agreements described below. All
shares issued prior to the Offering, as well as any other shares held by
"affiliates" of the Company are subject to resale restrictions under the
Securities Act. An affiliate of an issuer is defined in Rule 144 under the
Securities Act as a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with the
issuer. Rule 405 under the Securities Act defines the term "control" to mean the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of the person whether through the ownership of
voting securities, by contract, or otherwise. All directors and executive
officers of the Company will likely be deemed to be affiliates. See "Management
- -- Ownership of the Common Stock." Shares held by affiliates and shares issued
prior to the Offering may be eligible for sale in the open market without
registration in accordance with the provisions of Rule 144. Upon consummation of
the Offering, the shares of Common Stock issued prior to the Offering will be
"restricted securities," within the meaning of Rule 144.
In general, under Rule 144 any person (or persons whose shares are
aggregated) who has beneficially owned restricted securities for at least one
year, including affiliates, and any affiliate who holds shares sold in a public
offering, may sell, within any three-month period, a number of such shares that
does not exceed the greater of (i) 1% of the then outstanding shares of the
Common Stock or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the sale. Rule 144 also requires that
the securities must be sold in "brokers' transactions," as defined in the
Securities Act, and the person selling the securities may not solicit orders or
make any payment in connection with the offer or sale of securities to any
person other than the broker who executes the order to sell the securities.
After restricted securities are held for two years, a person who is not deemed
an affiliate of the Company is entitled to sell such shares under Rule 144
without regard to the volume and manner of sale limitations described above.
Sales of shares by affiliates will continue to be subject to the volume and
manner of sale limitations.
No prediction can be made of the effect, if any, that future sales of
shares of Common Stock, or the availability of shares for future sales, will
have on the market price prevailing from time to time. Sales of substantial
amounts of shares of Common Stock, or the perception that such sales could
occur, could adversely affect the prevailing market price of the shares.
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, the underwriters named below (the "Underwriters"), for whom Scott &
Stringfellow, Inc., Interstate/Johnson Lane Corporation and Ferris, Baker Watts
Incorporated, are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company, and the Company has agreed to
sell to the Underwriters named below, the respective number of shares of Common
Stock set forth opposite each Underwriter's name below:
42
<PAGE>
Underwriter Number of Shares
Scott & Stringfellow, Inc............................
Interstate/Johnson Lane Corporation..................
Ferris, Baker Watts Incorporated.....................
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase and pay for all of the
shares of Common Stock if any are purchased.
The Underwriters propose to offer the Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain securities dealers at such price less a concession not
in excess of $ per share. The Underwriters may allow, and such selected dealers
may reallow, a concession not in excess of $ per share to certain brokers and
dealers. After the offering, the price to public, concession, allowance and
reallowance may be changed by the Representatives. The Underwriters have agreed
that they will not sell shares of Common Stock in the Offering to any one
purchaser if such purchaser would beneficially own more than five percent of the
issued and outstanding shares of Common Stock after the Offering.
The Company has granted to the Underwriters an option, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to
390,000 additional shares of Common Stock to cover over-allotments, if any, at
the same price per share as the initial shares to be purchased by the
Underwriters from the Company. To the extent the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments, if any, made in connection with the
Offering.
The executive officers and directors of the Company, have agreed that
they will not offer, sell, contract to sell or grant an option to purchase or
otherwise dispose of any shares of the Common Stock, options or warrants to
acquire shares of Common Stock or any securities exercisable for or convertible
into Common Stock owned by them or acquired in the Offering, in the open market
or otherwise, for a period of 90 days from the date of this Prospectus, without
the prior written consent of the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities or to contribute to payments that the Underwriters may be required
to make in respect thereof.
Prior to the Offering, there has been no market for the Common Stock.
The Common Stock has been approved for listing on The Nasdaq SmallCap Market;
however, there can be no assurance that an active trading market for the Common
Stock will develop or be sustained. See "Market for Common Stock." The public
offering price for the Common Stock will be determined by negotiation between
the Company and the Underwriters. Among the factors that will be considered in
such negotiations are the prospects for the Company and the industry in which it
competes, an assessment of the Company's management, its proposed operations,
the prospects for future earnings of the Company, the present state of the
Company's development, the general condition of the securities markets at the
time of the Offering, the demand for the Common Stock, and the market prices of
and demand for the publicly-traded common stock of comparable companies in
recent periods. The Underwriters intend to make a market in the Common Stock
following completion of the Offering.
43
<PAGE>
In order to facilitate the Offering of the Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Common Stock. Specifically, the Underwriters may
overallot in connection with the Offering creating a short position in the
Common Stock for its own account. In addition, to cover overallotments or to
stabilize the price of the Common Stock, the Underwriters may bid for, and
purchase, shares of Common Stock in the open market. Finally, the Underwriters
may reclaim selling concessions allowed to a dealer for distributing the Common
Stock in the Offering, if the Underwriters repurchase previously distributed
Common Stock in transactions to cover short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the Common Stock above independent market levels. The
Underwriters are not required to engage in these activities, and may end any of
these activities at any time.
LEGAL OPINIONS
Certain legal matters in connection with the Common Stock offered
hereby are being passed upon for the Company by Williams, Mullen Christian &
Dobbins, P.C., Richmond, Virginia. Certain legal matters in connection with the
Offering are being passed upon for the Underwriters by LeClair Ryan, A
Professional Corporation, Richmond, Virginia.
EXPERTS
The balance sheets of the Company as of March 31, 1998 and December 31,
1997 and the statements of operations, shareholders' equity, and cash flows of
the Company for the period from January 1, 1998 to March 31, 1998 and for the
period from November 24, 1997 (date of inception) to December 31, 1997 have been
included in this Prospectus in reliance on the report of KPMG Peat Marwick LLP,
independent accountants, upon the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the United States Securities and Exchange
Commission (the "Commission") a Registration Statement on Form SB-2 (the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. For further information with respect to the Company and
the Common Stock offered by this Prospectus, reference is made to the
Registration Statement and the exhibits filed as a part thereof. The
Registration Statement, including exhibits, may be inspected without charge at
the public reference facilities maintained by the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices
located at CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of all or part of the Registration Statement may be obtained from the
Commission's principal office in Washington, D.C. upon payment of the prescribed
fees. Statements contained in this Prospectus as to the contents of any contract
or other documents referred to are not necessarily complete, and in each
instance reference is made to the copy of the contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
44
<PAGE>
Prior to the Offering, the Company has not been subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and accordingly has not filed reports and other
information pursuant thereto with the Commission. As a result of the Offering,
however, the Company will become subject to the informational requirements of
the Exchange Act and will furnish the reports and other information required
thereby to the Commission. The Company also will furnish annual reports to its
shareholders containing audited financial statements of the Company, as well as
quarterly reports containing unaudited financial information.
45
<PAGE>
CARDINAL FINANCIAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Page
Independent Auditors' Report................................................................................................ F-2
Balance Sheet as of march 31, 1998 and December 31, 1997.................................................................... F-3
Statements of Operations for the period ended January 1, 1998 to March 31, 1998 and the period from November
24, 1997 (date of inception) to December 31, 1997......................................................................... F-4
Statements of Shareholders' Equity for the period ended January 1, 1998 to March 31, 1998 and the period from
November 24, 1997 (date of inception) to December 31, 1997................................................................ F-5
Statements of Cash Flows for the period ended January 1, 1998 to March 31, 1998 and the period from November
24, 1997 (date of Inception) to December 31, 1997......................................................................... F-6
Notes to Financial Statements............................................................................................... F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
Cardinal Financial Corporation:
We have audited the accompanying balance sheets of Cardinal Financial
Corporation (the Company) as of March 31, 1998 and December 31, 1997, and the
related statements of operations, shareholders' equity, and cash flows for the
period from January 1, 1998 to March 31, 1998 and for the period from November
24, 1997 (date of inception) to December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cardinal Financial Corporation
as of March 31, 1998 and December 31, 1997, and the results of its operations
and its cash flows for the period from January 1, 1998 to March 31, 1998 and for
the period from November 24, 1997 (date of inception) to December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Washington, DC
April 29, 1998
F-2
<PAGE>
CARDINAL FINANCIAL CORPORATION
Balance Sheets
March 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
March 31, December 31,
Assets 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 9,676,049 4,283,454
Subscriptions receivable (note 2) 202,132 4,509,652
Property and equipment, net (note 3) 279,700 -
Other assets 3,440 2,740
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 10,161,321 8,795,846
- ---------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- ---------------------------------------------------------------------------------------------------------------------
Liabilities:
Borrowings (note 4) $ - 185,000
Accounts payable and accrued expenses 36,458 59,591
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 36,458 244,591
- ---------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Common stock, $1 par value, 50,000,000 shares authorized,
1,409,509 and 1,174,988 outstanding at March 31, 1998
and December 31, 1997, respectively 1,409,509 1,174,988
Uncollected subscriptions receivable (99,977) (99,977)
Additional paid in capital 9,145,809 7,621,422
Accumulated deficit (330,478) (145,178)
- ---------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 10,124,863 8,551,255
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 10,161,321 8,795,846
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CARDINAL FINANCIAL CORPORATION
Statements of Operations
For the period ended January 1, 1998 to March 31, 1998 and the period from
November 24, 1997 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
March 31, December 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income - interest income $ 101,236 7,041
Expense - interest on borrowing 1,616 2,724
- ---------------------------------------------------------------------------------------------------------------
Net interest income 99,620 4,317
Other expenses:
Salary and benefits 120,289 66,918
Occupancy 58,497 42,500
Professional fees 61,461 18,142
Other operating expenses 44,673 21,935
- ---------------------------------------------------------------------------------------------------------------
Total expenses 284,920 149,495
- ---------------------------------------------------------------------------------------------------------------
Net loss before income taxes (185,300) (145,178)
Provision for income taxes (note 6) - -
- ---------------------------------------------------------------------------------------------------------------
Net loss $ (185,300) (145,178)
- ---------------------------------------------------------------------------------------------------------------
Basic and diluted loss per common share (0.14) (0.12)
Weighted-average shares outstanding 1,370,422 1,174,988
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CARDINAL FINANCIAL CORPORATION
Statements of Shareholders' Equity
For the period ended January 1, 1998 to March 31, 1998 and the period from
November 24, 1997 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Common Additional Uncollected
stock paid-in Accumulated subscription
subscribed capital deficit receivable Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, November 24, 1997 $ - - - - -
Issuance of 1,174,988 shares of common stock
par value $1, at $7.50 per share, net of costs 1,174,988 7,621,422 - (99,977) 8,696,433
Net loss - - (145,178) - (145,178)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 1,174,988 7,621,422 (145,178) (99,977) 8,551,255
Issuance of 234,521 shares of common stock par
value $1, at $7.50 per share, net of costs 234,521 1,524,387 - - 1,758,908
Net loss - - (185,300) - (185,300)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 $ 1,409,509 9,145,809 (330,478) (99,977) 10,124,863
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
CARDINAL FINANCIAL CORPORATION
Statements of Cash Flows
For the period ended January 1, 1998 to March 31, 1998 and the period from
November 24, 1997 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (185,300) (145,178)
Adjustments to reconcile net loss to net cash operating activities:
Depreciation 2,500 -
Increase in other assets (700) (2,740)
Increase (decrease) in accounts payable and
accrued expenses (23,133) 59,591
- --------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (206,633) (88,327)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities - purchase of fixed assets (282,200) -
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from stock issuance, net 1,758,908 8,696,433
Decrease (increase) in subscription receivables 4,307,520 (4,509,652)
(Repayment) proceeds of borrowings (185,000) 185,000
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,881,428 4,371,781
- --------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 5,392,595 4,283,454
Cash and cash equivalents at beginning of period 4,283,454 -
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 9,676,049 4,283,454
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
CARDINAL FINANCIAL CORPORATION
Notes to Financial Statements
March 31, 1998 and December 31, 1997
===============================================================================
(1) Organization and Summary of Significant Accounting Policies
Organization
Cardinal Financial Corporation (the "Company") was incorporated
November 24, 1997 under the laws of the Commonwealth of Virginia as a
holding company whose activities will consist of investment in a wholly
owned subsidiary, Cardinal Bank, National Association (the "Bank")
which was established in April 1998. In connection with the formation
of the Company, 50,000,000 shares of $1 par value stock were authorized
and 1,409,509 and 1,174,988 were outstanding as of March 31, 1998 and
December 31, 1997, respectively.
Basis of Financial Statement Presentation
The financial statements have been prepared on the accrual basis and in
conformity with generally accepted accounting principles. In preparing
the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the date of the balance sheet and revenues and expenses for the
period. Actual results could differ significantly from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company has defined cash and
cash equivalents as those amounts included in a money market account
and due from banks.
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Amortization of leasehold improvements
is computed using the straight-line method over the useful lives of the
improvements or the lease term, whichever is shorter. Depreciation of
property and equipment is computed using the straight-line method over
their estimated useful lives ranging from 3 to 7 years.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
(Continued)
F-7
<PAGE>
CARDINAL FINANCIAL CORPORATION
Notes to Financial Statements
===============================================================================
(1) Continued
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings per Share. SFAS
No. 128 replaced the calculation of primary and fully-diluted earnings
per share with basic and diluted earnings per share. Basic and diluted
loss per common share was computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the
periods. There were no common stock equivalents outstanding at March
31, 1998 and December 31, 1997, respectively.
New Accounting Standards
On January 1, 1998 the Company implemented Statement of Financial
Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive
Income. The disclosures required under SFAS 130 have been excluded from
the financial statements since the Company had no items of
Comprehensive income at March 31, 1998.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities (SOP 98-5). SOP 98-5 requires that costs incurred during
start-up activities, including organization costs, be expensed as
incurred. SOP 98-5 is effective for financial statements for fiscal
years beginning after December 15, 1998, but the Company has elected
early adoption.
(2) Subscription Receivable
Subscription receivable represent stock subscribed for which payment
has yet to be received. Subscription receivable of $202,132 at March
31, 1998 and $4,509,652 at December 31, 1997 were collected as of April
29, 1998.
(3) Property and Equipment, Net
Property and equipment at March 31, 1998 consists of the following:
Furniture and equipment $ 128,795
Leasehold improvements 153,405
-----------------------------------------------------------------------
282,200
Accumulated depreciation 2,500
-----------------------------------------------------------------------
$ 279,700
-----------------------------------------------------------------------
(Continued)
F-8
<PAGE>
CARDINAL FINANCIAL CORPORATION
Notes to Financial Statements
===============================================================================
(4) Borrowings
The Company borrowed $185,000 from related parties in order to begin
operations. The interest rate on the borrowings is 8.5 percent. The
Company repaid the borrowings plus accrued interest in January 1998.
(5) Commitments
The Company entered into a lease for office space for a term of ten
years beginning January 1998. This lease is subject to annual
increases, as well as allocations of real estate taxes and certain
operating expenses.
Minimum future rental payments under the noncancelable operating lease
are as follows:
Amount
-------------------------------------------------------
April 1, 1998 to December 31, 1998 $ 33,452
1999 86,130
2000 106,457
2001 109,650
2002 112,933
Thereafter 617,463
-------------------------------------------------------
$ 1,066,085
-------------------------------------------------------
The rent expense for the three months ended March 31, 1998 was $16,726
and $0 for the period ended December 31, 1997.
(6) Provision for Income Taxes
The provision for income taxes consists of the following:
March 31, 1998 December 31, 1997
-----------------------------------------------------------------------
Current $ - -
Deferred - -
-----------------------------------------------------------------------
$ - -
-----------------------------------------------------------------------
(Continued)
F-9
<PAGE>
CARDINAL FINANCIAL CORPORATION
Notes to Financial Statements
===============================================================================
(6) Continued
The provisions for income taxes are reconciled to the amount computed
by applying the federal corporate tax rate of 34 percent to income
before taxes as follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
----------------------------------------------------------------------------------------------
<S> <C> <C>
Income tax (benefit) at federal corporate rate $ (63,002) (40,861)
Nondeductible expenses 171 1,947
Change in valuation allowance 62,831 38,914
----------------------------------------------------------------------------------------------
$ - -
----------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences between the financial
reporting basis and income tax basis of assets and liabilities relate
to the following:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Organization and other costs $ 13,829 14,570
Net operating loss carryforwards 89,521 24,344
----------------------------------------------------------------------------------------------
Total gross deferred assets 103,350 38,914
Less valuation allowance (101,745) (38,914)
----------------------------------------------------------------------------------------------
Net deferred tax assets 1,605 -
Deferred tax liabilities:
Depreciation 1,605 -
----------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 1,605 -
----------------------------------------------------------------------------------------------
Net deferred tax asset - -
----------------------------------------------------------------------------------------------
</TABLE>
Deferred income taxes reflect temporary differences in the recognition
of revenue and expenses for tax reporting and financial statement
purposes, principally because certain items, such as depreciation and
amortization are recognized in different periods for financial
reporting and tax return purposes. A valuation allowance in the amount
of $101,745 has been established for deferred tax assets, as
realization is dependent upon generating future taxable income.
The Company has a net operating loss carryforward of approximately
$263,000 at March 31, 1998.
================================================================================
F-10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
=============================================== ===============================================
No dealer, salesman or other person has been
authorized to give any information or to make
any representation not contained in this
Prospectus, and if given or made, such
information or representation must not be
relied upon as having been authorized by the
Company. This Prospectus does not constitute 2,600,000 Shares
an offer to sell or a solicitation of an offer
to buy any securities other than those
specifically offered hereby or an offer or
solicitation in any jurisdiction to any person [CARDINAL FINANCIAL CORPORATION LOGO]
to whom it is unlawful to make an offer or
solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall,
under any circumstances, create any Common Stock
implication that there has been no change in
the affairs of the Company since the date
hereof or that the information herein is
correct as of any time subsequent to its date
or the date hereof.
______________________
Table of Contents __________________
Page
PROSPECTUS
Prospectus Summary...........................3 __________________
Summary Financial Data.......................6
Risk Factors.................................6
Use of Proceeds.............................10
Market for Common Stock.....................11
Dividend Policy.............................11
Dilution....................................11
Capitalization..............................12 Scott & Stringfellow, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...............................13 Interstate/Johnson Lane
Business....................................14 Corporation
Management..................................26
Government Supervision and Regulation.......35
Description of Capital Stock................38 Ferris, Baker Watts
Underwriting................................42 Incorporated
Legal Opinions..............................44
Experts.....................................44
Available Information.......................44
Index to Financial Statements..............F-1 , 1998
Until , 1998, all dealers effecting
transactions in the Common Stock, whether or
not participating in this distribution, may be
required to deliver a Prospectus. This is in
addition to the obligation of dealers to
deliver a Prospectus when acting as
Underwriter and with respect to their unsold
allotments or subscriptions.
=============================================== ===============================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 25. Other Expenses of Issuance and Distribution
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee..............................................$ 9,735*
National Association of Securities Dealers Examination Fee.......................................$ 3,789*
NASDAQ SmallCap Market Listing Fee...............................................................$ 9,400*
Printing Expenses................................................................................$10,000
Accounting Fees and Expenses.....................................................................$40,000
Legal Fees and Expenses..........................................................................$60,000
Blue Sky Fees and Expenses.......................................................................$10,000
Miscellaneous Expenses...........................................................................$10,000
Total...........................................................................................$152,924
=======
</TABLE>
- ---------------
* Represents actual expenses. All other expenses are estimates.
Item 27. Exhibits
The following exhibits are filed on behalf of the Registrant as part of
this Registration Statement:
Exhibit No. Description
1 Form of Underwriting Agreement *
3.1 Articles of Incorporation
3.2 Bylaws
4 Form of Stock Certificate *
5 Opinion of Williams, Mullen, Christian & Dobbins, P.C. *
10 Employment Contract for L. Burwell Gunn, Jr.
21 List of Subsidiaries
23.1 Consent of Williams, Mullen, Christian & Dobbins, P.C.
(included in Exhibit 5 above) *
23.2 Consent of KPMG Peat Marwick LLP*
24 Powers of Attorney (included on signature page)
27 Financial Data Schedule
- --------------------------
* Filed herewith.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Fairfax, Commonwealth of Virginia, on June 16, 1998.
CARDINAL FINANCIAL CORPORATION
By: /s/ L. Burwell Gunn, Jr.
-------------------------------------
L. Burwell Gunn, Jr.
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ L. Burwell Gunn President, Chief Executive Officer
- ---------------------------------------- and Director June 16, 1998
L. Burwell Gunn (Principal Executive Officer)
/s/ Joseph L. Borrelli (Principal Financial Officer and June 16, 1998
- ---------------------------------------- Principal Accounting Officer)
Joseph L. Borrelli
* Director
- ----------------------------------------
Robert M. Barlow
* Director
- ----------------------------------------
Wayne W. Broadwater
* Director
- ----------------------------------------
Nancy K. Falck
<PAGE>
* Director
- ----------------------------------------
Anne B. Hazel
* Director
- ----------------------------------------
Harvey W. Huntzinger
* Director
- ----------------------------------------
Jones V. Isaac
* Director
- ----------------------------------------
Dale B. Peck
* Director
- ----------------------------------------
James D. Russo
* Director
- ----------------------------------------
John H. Rust, Jr.
* Director
- ----------------------------------------
H. Steve Swink
</TABLE>
* L. Burwell Gunn, Jr., by signing his name hereto, signs this document
on behalf of each of the persons indicated by an asterisk above pursuant to
powers of attorney duly executed by such persons and previously filed with the
Securities and Exchange Commission as part of the Registration Statement.
Date: June 16, 1998 /s/ L. Burwell Gunn, Jr.
-----------------------------------------
L. Burwell Gunn, Jr.
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
1 Form of Underwriting Agreement *
3.1 Articles of Incorporation
3.2 Bylaws
4 Form of Stock Certificate *
5 Opinion of Williams, Mullen, Christian & Dobbins, P.C. *
10 Employment Contract for L. Burwell Gunn, Jr.
21 List of Subsidiaries
23.1 Consent of Williams, Mullen, Christian & Dobbins, P.C.
(included in Exhibit 5 above) *
23.2 Consent of KPMG Peat Marwick LLP*
24 Powers of Attorney (included on signature page)
27 Financial Data Schedule
- --------------------------
* Filed herewith.
Exhibit 1
[FORM OF UNDERWRITING AGREEMENT]
____________ Shares
CARDINAL FINANCIAL CORPORATION
Common Stock
___________________________
Underwriting Agreement
___________________________
SCOTT & STRINGFELLOW, INC.
As Representative of the Several
Underwriters Named in Schedule I hereto
909 East Main Street
Richmond, Virginia 23219 ____________, 1998
Dear Sirs:
Cardinal Financial Corporation, a Virginia corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to Scott & Stringfellow, Inc. (the "Representative") and the several other
underwriters named in Schedule I hereto (collectively, with the Representative,
the "Underwriters") an aggregate of ________ shares (the "Firm Securities") of
Common Stock, $1.00 par value per share, of the Company (the "Common Stock")
and, at the election of the Underwriters, up to ________ additional shares (the
"Optional Securities") of Common Stock. The Firm Securities and the Optional
Securities that the Underwriters elect to purchase pursuant to Section 2 hereof
are collectively called the "Securities."
1. Representations and Warranties.
The Company represents and warrants to, and agrees with the several
Underwriters that:
<PAGE>
(a) In connection with the transactions contemplated by this
Underwriting Agreement (the "Agreement"), a registration statement on Form SB-2
(File No. ___________) and as a part thereof a preliminary prospectus, in
respect of the Securities has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act") and has
been filed with the Securities and Exchange Commission (the "Commission") in the
form heretofore delivered to you; such registration statement, as amended, has
been declared effective by the Commission; no other document with respect to
such registration statement has heretofore been filed with the Commission; and
no stop order suspending the effectiveness of such registration statement has
been issued and no proceeding for that purpose has been instituted or threatened
by the Commission (any preliminary prospectus included in such registration
statement or filed with the Commission pursuant to Rule 424(a) under the Act
being hereinafter called a "Preliminary Prospectus"; the various parts of such
registration statement, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 5(a) of this
Agreement and deemed by virtue of Rule 430A under the Act to be a part of the
registration statement at the time it was declared effective, each as amended at
the time such part became effective, being herein called collectively the
"Registration Statement" and the final prospectus, in the form first filed
pursuant to Rule 424(b), being hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
amendments or supplements thereto will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable filing
date as to the Prospectus and any amendment or supplement thereto contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in
-2-
<PAGE>
conformity with information furnished in writing to the Company by or on behalf
of any Underwriter through you expressly for use therein;
(d) Neither the Company nor its wholly-owned subsidiary bank,
Cardinal Bank, N.A., a national banking association (the "Bank"), has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or expressly contemplated in the Prospectus;
(e) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise set forth or
expressly contemplated therein, (i) there has not been any change in the capital
stock or long term debt of the Company or the Bank, respectively, or any
material adverse change, or any development involving a prospective material
adverse change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and the
Bank taken as a whole and (ii) there have been no transactions entered into by
the Company or the Bank, other than transactions entered into in the ordinary
course of business, that are material with respect to the Company and the Bank
taken as a whole;
(f) The Company and the Bank have good and marketable title to all
real property and good and marketable title to all personal property owned by
them, in each case free and clear of all liens, encumbrances and defects except
such as are described in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made and proposed to be
made of such property by the Company and the Bank; and any real property and
buildings held under lease by the Company and the Bank are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and the Bank;
(g) The Company and the Bank have been duly incorporated and are
validly existing as corporations in good standing under the laws of their
respective jurisdictions of incorporation, with power and authority (corporate
and other) to own or lease their respective properties and conduct their
respective businesses as described in the Prospectus; and each has been duly
qualified as a foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to require such
qualification, except where the failure to so qualify would not result in a
material adverse effect on the Company and the Bank taken as a whole; and each
of the Company and the Bank holds all material licenses, certificates,
authorizations and permits from governmental authorities necessary for the
conduct of its business as described in the Prospectus;
-3-
<PAGE>
(h) The Company has an authorized capitalization as set forth in the
Prospectus; all of the issued shares of capital stock of the Company have been
duly and validly authorized and issued, are fully paid and nonassessable and
conform to the description of the capital stock of the Company contained in the
Prospectus; there are no preemptive or other rights to subscribe for or to
purchase any securities of the Company under the Articles of Incorporation of
the Company or under Virginia law; except as described in the Prospectus, there
are no warrants, options or other rights to purchase any securities of the
Company which have been granted by the Company; and neither the filing of the
Registration Statement nor the offering or sale of the Securities as
contemplated by this Agreement gives rise to any rights for or relating to the
registration of any securities of the Company;
(i) All outstanding shares of capital stock of the Bank are owned by
the Company free and clear of any perfected security interest and any other
security interests, claims, liens or encumbrances; and, other than the Bank, the
Company does not own or control, directly or indirectly, any corporation,
association or other entity;
(j) The Securities have been duly authorized and, when issued and
delivered against payment therefor as provided herein, will be validly issued
and fully paid and nonassessable and will conform to the description of the
Securities contained in the Prospectus;
(k) The issuance and sale of the Securities being issued at each
Delivery Date (as hereinafter defined) by the Company and the performance of
this Agreement and the consummation by the Company of the other transactions
herein contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or the Bank pursuant to, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the Company
or the Bank is a party or by which the Company or the Bank is bound or to which
any of the property or assets of the Company or the Bank is subject, nor will
such action result in any violation of the provisions of the Articles of
Incorporation or Bylaws of the Company or the Articles of Association or Bylaws
of the Bank or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or the Bank or
any of their respective properties; and no consent, approval, authorization,
order, registration or qualification of or with any such court or governmental
agency or body is required for the issuance and sale of the Securities or the
consummation by the Company of the transactions contemplated by this Agreement,
except such consents, approvals, authorizations, orders, registrations or
qualifications as may be required under the Act, under state securities or Blue
Sky laws, and under the rules of the
-4-
<PAGE>
National Association of Securities Dealers, Inc. (the "NASD") in connection with
the purchase and distribution of the Securities by the Underwriters;
(l) There are no legal or governmental proceedings pending to which
the Company or the Bank is a party or of which any of their respective property
or assets is subject, which, if determined adversely to the Company or the Bank,
would individually or in the aggregate, have a material adverse effect on the
financial position, stockholders' equity or results of operations of the Company
and the Bank taken as a whole and, to the best of the Company's knowledge, no
such proceedings are threatened or contemplated by governmental authorities or
by others;
(m) KPMG Peat Marwick LLP, which has certified certain financial
statements of the Company and the Bank, are independent public accountants
within the meaning of the Act and the rules and regulations of the Commission
thereunder;
(n) All employee benefit plans established, maintained or
contributed to by the Company or the Bank comply in all material respects with
all applicable requirements of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and no such plan has incurred or assumed an
"accumulated funding deficiency" within the meaning of Section 302 of ERISA or
has incurred or assumed any material liability to the Pension Benefit Guaranty
Corporation;
(o) The consolidated financial statements of the Company, together
with related notes, as set forth in the Registration Statement present fairly
the consolidated financial position and the results of operations of the Company
at the indicated dates and for the indicated periods, all in accordance with
generally accepted accounting principles, consistently applied throughout the
periods presented except as noted in such financial statements and the notes
thereon, and all adjustments necessary for a fair presentation of results for
such periods have been made; and the selected financial information included in
the Prospectus presents fairly the information shown therein and has been
compiled on a basis consistent with the financial statements presented therein;
(p) The Company and the Bank have filed all federal, state, local
and foreign income and franchise tax returns that have been required to filed
(or have received extensions with respect thereto) other than those filings
being contested in good faith, and have paid, or made adequate reserves for, all
taxes indicated by said returns and all assessments received by them to the
extent that such taxes have become due and are not being contested in good
faith;
(q) No relationship, direct or indirect, exists between or among the
Company and the Bank, on the one hand, and the directors, officers,
shareholders,
-5-
<PAGE>
customers or suppliers of the Company or the Bank, on the other hand, that is
required by the Act or by the rules and regulations thereunder to be described
in the Registration Statement and the Prospectus which is not so described;
(r) The Company and the Bank have not taken and will not take,
directly or indirectly, any action which is designed to or which has constituted
or which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities;
(s) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding agreement of the Company in
accordance with its terms; and
(t) The Securities have been approved for trading, subject to notice
of issuance, on the SmallCap Market of the Nasdaq System.
2. Purchase and Sale of the Securities.
Subject to the terms and conditions herein set forth, (a) the Company
agrees to sell to the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at a purchase price per
share of $_____ , the number of Firm Securities (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying the aggregate number of
Firm Securities to be sold by the Company by a fraction, the numerator of which
is the aggregate number of Firm Securities to be purchased by such Underwriter
as set forth opposite the name of such Underwriter in Schedule I hereto, and the
denominator of which is the aggregate number of Firm Securities to be purchased
by all the Underwriters from the Company hereunder and (b) in the event and to
the extent that the Underwriters shall exercise the election to purchase
Optional Securities as provided below, the Company agrees to sell to the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at the same purchase price set forth in clause (a) of
this Section 2, that portion of the number of Optional Securities as to which
such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional
Securities by a fraction, the numerator of which is the maximum number of
Optional Securities which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto, and the denominator
of which is the maximum number of Optional Securities which all of the
Underwriters are entitled to purchase hereunder .
The Company grants the Underwriters the right to purchase at their
election up to _______________ Optional Securities, at the purchase price per
share set forth in the preceding paragraph, for the sole purpose of covering
overallotments in the sale of the
-6-
<PAGE>
Firm Securities. Any such election to purchase the Optional Securities may be
exercised no more than once by written notice from you to the Company, given
within a period of 30 days after the date of this Agreement, setting forth the
aggregate amount of the Optional Securities to be purchased and the date on
which such Optional Securities are to be delivered, as determined by you but in
no event earlier than the First Delivery Date (as defined in Section 4 hereof)
or, unless you otherwise agree in writing, earlier than two or later than seven
business days after the date of such notice.
3. Offering by the Underwriters.
Upon authorization by you of the release of the Firm Securities, the
Underwriters propose to offer the Firm Securities for sale upon the terms and
conditions set forth in the Prospectus.
4. Delivery and Payment.
Certificates in definitive form for the Securities to be purchased by
each Underwriter hereunder, and in such denominations and registered in such
names as you may request upon at least two business days' prior notice to the
Company, shall be delivered by or on behalf of the Company to you for the
account of each Underwriter, against payment of the purchase price therefor by
certified or official bank check in next day funds (unless the Company desires
settlement in same day funds, in which case the Company shall pay the
Underwriters for any costs associated with settlement in same day funds), all at
the offices of Scott & Stringfellow, Inc., 909 East Main Street, Richmond,
Virginia. The time and date of such delivery and payment shall be, with respect
to the Firm Securities, 10:00 a.m., Richmond, Virginia time, on
__________________, 1998, or at such other time and date as you and the Company
may agree upon writing and, with respect to the Optional Securities, 10:00 a.m.,
Richmond, Virginia time, on the date specified by you in the written notice of
the Underwriters' election to purchase such Optional Securities, or at such
other time and date as you and the Company may agree upon in writing. Such time
and date for delivery of the Firm Securities is herein called the "First
Delivery Date," such time and date for delivery of the Optional Securities, if
not the First Delivery Date, is herein called the "Second Delivery Date," and
each such time and date for delivery is herein called a "Delivery Date." Such
certificates will be made available to the Underwriters for checking and
packaging at least twenty-four hours prior to each Delivery Date at the offices
of Scott & Stringfellow, Inc. in Richmond, Virginia or such other location
designated by the Underwriters to the Company.
5. Agreements of the Company.
The Company agrees with the Underwriters:
-7-
<PAGE>
(a) To prepare the Prospectus in a form reasonably approved by you
and to file such Prospectus pursuant to Rule 424(b) under the Act within the
time period prescribed or, if applicable, such earlier time as may be required
by Rule 430A under the Act; to make no amendment or supplement to the
Registration Statement or Prospectus which shall be reasonably disapproved by
you promptly after reasonable notice thereof; to advise you, promptly after it
receives notice thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish you with
copies thereof; to file promptly all reports and any definitive proxy or
information statements required to be filed by the Company with the Commission
subsequent to the date of the Prospectus and for so long as the delivery of a
prospectus is required in connection with the offering or sale of the
Securities; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or suspending
any such qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) Promptly from time to time to take such actions as you may
reasonably request to qualify the Securities for offering and sale under the
securities laws of such jurisdictions as you have requested and to comply with
such laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Securities, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) To furnish the Underwriters with copies of the Registration
Statement and the Prospectus in such quantities as you may from time to time
reasonably request during such period following the date hereof as a prospectus
is required to be delivered in connection with offers or sales of Securities,
and, if the delivery of a prospectus is required and if at such time any event
shall have occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be necessary
during such period to amend or supplement the Prospectus in order to comply with
the Act, to notify you and upon your request prepare and furnish without charge
to each
-8-
<PAGE>
Underwriter and to any dealer in securities as many copies as you may from time
to time reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such
compliance;
(d) As soon as practicable, but not later than the Availability Date
(as defined below), to make generally available to its security holders and
deliver to you an earnings statement covering a period of at least 12 months
beginning after the effective date of the Registration Statement which will
satisfy the provisions of Section 11(a) of the Act (for the purpose of this
subsection 5(d) only, "Availability Date" means the 45th day after the end of
the fourth fiscal quarter following the fiscal quarter that includes the
effective date of the Registration Statement, except that, if such fourth fiscal
quarter is the last quarter of the Company's fiscal year, "Availability Date"
means the 90th day after the end of such fourth fiscal quarter);
(e) To furnish to the holders of the Securities as soon as
practicable after the end of the each fiscal year an annual report (including a
balance sheet and statements of operations, changes in stockholders' equity and
cash flows of the Company and its consolidated subsidiaries certified by
independent public accountants) and, as soon as practicable after the end of
each of the first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its consolidated
subsidiaries for such quarter in reasonable detail;
(f) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to shareholders, and deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed or the NASD;
and (ii) such additional information concerning the business and financial
condition of the Company as you may from time to time reasonably request;
(g) For a period of 120 days from the effective date of the
Registration Statement, not to offer, sell, contract to sell or otherwise
dispose of any securities of the Company which are substantially similar to the
Securities (other than the Securities or pursuant to (i) employee stock option
or stockholder dividend reinvestment plans, (ii) merger and acquisition
transactions, or (iii) currently outstanding warrants) without your prior
written consent;
(h) To apply the net proceeds from the sale of the Securities for
the purposes set forth in the Prospectus;
-9-
<PAGE>
(i) To notify the Representative of the the filing of a registration
statement wit the Commission pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended, to furnish the Representative with a copy of such
registration statement, and promptly inform the Representative of its
effectiveness; and
(j) To use its best efforts to cause the Common Stock to be approved
for quotation on the Nasdaq SmallCap Market (the "Nasdaq System").
6. Payment of Expenses.
The Company agrees with the several Underwriters that the Company will
pay or cause to be paid the following, whether or not the transactions
contemplated hereunder are consummated or this Agreement is terminated: (i) the
fees, disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Securities under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or
reproducing this Agreement, the Blue Sky Survey and any other documents in
connection with the offering, purchase, sale and delivery of the Securities;
(iii) all expenses in connection with the qualification of the Securities for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the reasonable fees and disbursements of counsel for the
Underwriter in connection with such qualification and in connection with the
Blue Sky Survey; (iv) the filing fees incident to securing any required review
by the NASD of the terms of the sale of the Securities; (v) the cost of
preparing stock certificates; (vi) the costs or expenses of any transfer agent
or registrar; (vii) all fees relating to the quotation of the Securities on the
Nasdaq System; and (viii) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section. It is understood, however, that except as provided
in this Section, Section 8 and Section 10 hereof, the Underwriters will pay all
of their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Securities by them, and any advertising
expenses connected with any offers they may make.
7. Conditions to Obligations of the Underwriters.
The obligations of each Underwriter hereunder, as to the Securities to
be delivered at each Delivery Date, shall be subject, in its discretion, to the
condition that all representations and warranties and other statements of the
Company are, at and as of the date hereof and each Delivery Date, true and
correct and the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
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<PAGE>
(a) The Registration Statement is effective; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b), the
Prospectus, and any such supplement, will be filed in the manner and within the
time period required by Rule 424(b); no stop order suspending the effectiveness
of the Registration Statement shall have been issued and no proceeding for that
purpose shall have been initiated or, to the knowledge of the Company,
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) On each Delivery Date, LeClair Ryan, A Professional Corporation,
counsel for the Underwriters, shall have furnished to you such opinion or
opinions, dated such dates, with respect to the incorporation of the Company,
the validity of the Securities being issued on such Delivery Date, the
Registration Statement, the Prospectus, and other related matters as you may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(c) On each Delivery Date, Williams, Mullen, Christian & Dobbins,
counsel for the Company, shall have furnished to you their written opinion,
dated such dates, in form and substance satisfactory to you, to the effect that:
(i) The Company and the Bank have been duly incorporated and
are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation, with corporate power
and authority to own or lease their respective properties and conduct
their respective businesses as described in the Prospectus; and the
Company and the Bank are duly qualified to do business and are in good
standing in each jurisdiction in which it owns or leases properties or
conducts business so as to require such qualification;
(ii) The Company has an authorized capitalization as set forth
under the caption "Description of Capital Stock" in the Prospectus, and
all of the issued shares of capital stock of the Company have been duly
and validly authorized and issued, are fully paid and nonassessable and
conform to the description contained in the Prospectus; there are no
preemptive or similar rights to subscribe for or to purchase any
securities of the Company under the Articles of Incorporation of the
Company or under Virginia law; except as described in the Prospectus,
there are no warrants or options to purchase any securities of the
Company which have been granted by the Company; to the best of such
counsel's knowledge, neither the filing of the Registration Statement
nor the offering or sale of the Securities as contemplated by this
Agreement gives
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<PAGE>
rise to any rights for or relating to the registration of any
securities of the Company; and the form of the certificates evidencing
the Securities complies with all formal requirements of Virginia law;
(iii) The Registration Statement has been declared effective
under the Act and, to the best knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceeding for that purpose has been instituted or
threatened under the Act;
(iv) The Securities have been duly authorized and, when issued
and delivered against payment therefor as provided herein, will be
validly issued and fully paid and nonassessable and conform to the
description of the Securities contained in the Prospectus, as amended
or supplemented;
(v) All outstanding shares of capital stock of the Bank are
owned by the Company free and clear of any perfected security
interests, claims, liens or encumbrances;
(vi) To the best of such counsel's knowledge, there are no
legal or governmental proceedings pending to which the Company or the
Bank is a party or of which any property or assets of the Company or
the Bank is subject which, if determined adversely to the Company or
Bank, would individually or in the aggregate, have a material adverse
effect on the financial position, stockholders' equity or results of
operations of the Company and the Bank taken as a whole; and, to the
best of such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) The issue and sale of the Securities and the performance
of this Agreement by the Company and the consummation of the other
transactions contemplated by this Agreement will not result in a breach
or violation of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or
Bank pursuant to, any material indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel to
which the Company or Bank is a party or by which the Company or Bank is
bound or to which any of the property or assets of the Company or Bank
is subject, nor will such action result in any violation of the
provisions of the Articles of Incorporation or Bylaws of the Company or
the Articles of Association or Bylaws of the Bank or of any statute or
any order, rule or
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<PAGE>
regulation known to such counsel of any court or governmental agency or
body having jurisdiction over the Company or Bank or any of their
respective properties;
(ix) No consent, approval, authorization, order, registration
or qualification of or with any court or governmental agency or body is
required for the issuance and sale of the Securities by the Company or
the consummation by the Company of the other transactions contemplated
by this Agreement, except such as have been obtained under the Act,
such as may be required under state securities or Blue Sky laws, and
under the rules of the NASD in connection with the purchase and
distribution of the Securities by the Underwriters; and
(x) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to
such Delivery Date (other than the financial statements and related
schedules and other financial and statistical information included
therein and information furnished for use therein, as to which such
counsel need express no opinion) comply as to form in all material
respects with the requirements of the Act and the rules and regulations
thereunder; nothing has come to their attention which leads them to
believe that, as of the effective date of the Registration Statement
and as of each Delivery Date, either the Registration Statement or the
Prospectus or, as of its date, any further amendment or supplement
thereto made by the Company prior to the Delivery Date (in each case,
other than the financial statements and the related schedules and other
financial and statistical information included therein, as to which
such counsel need express no opinion) contains an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. With
respect to such statement, such counsel may state that their belief is
based upon the procedures set forth therein, but is without independent
check or verification.
In rendering such opinion, such counsel may rely as to matters of fact, to the
extent deemed proper, on certificates of responsible officers of the Company and
the Bank and public officials.
(d) At 10:00 a.m., Richmond, Virginia time, on the date of this
Agreement and also at each Delivery Date, KPMG Peat Marwick LLP shall have
furnished to you a letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the effect set forth in
Annex I hereto;
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<PAGE>
(e) (i) Neither the Company nor the Bank shall have sustained since
the date of the latest audited financial statements included in the Prospectus,
any material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or expressly contemplated in the Prospectus, and (ii) since the respective
dates as of which information is given in the Prospectus there shall not have
been any change in the capital stock or long-term debt of the Company or the
Bank or any change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position, stockholders'
equity or results of operation of the Company or the Bank taken as a whole
otherwise than as set forth or contemplated in the Prospectus, the effect of
which, in any such case described in clause (i) or (ii), is in your judgment so
material and adverse as to make it impracticable or inadvisable to proceed with
the public offering or the delivery of the Securities being issued at such
Delivery Date on the terms and in the manner contemplated by the Prospectus; and
(f) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or the Nasdaq System; (ii) a general
moratorium on commercial banking activities in New York or Virginia declared by
federal, New York State or Virginia authorities; (iii) the outbreak or
escalation of hostilities involving the United States or the declaration by the
United States of a national emergency or war, if any such event specified in
this clause (iii) would have such a materially adverse effect, in your judgment,
as to make it impracticable or inadvisable to proceed with the offering or the
delivery of the Securities on the terms and in the manner contemplated in the
Prospectus; or (iv) such a material adverse change in general economic,
political, financial or international conditions affecting financial markets in
the United States having a material adverse impact on trading prices of
securities in general, as, in your judgment, makes it impracticable or
inadvisable to proceed with the offering or delivery of the Securities on the
terms and in the manner contemplated in the Prospectus.
(g) The Company shall have furnished or caused to be furnished to
you copies of agreements between the Company and each of the executive officers
and directors of the Company specified by you, in form and content satisfactory
to you, pursuant to which such persons agree not to offer, sell, or contract to
sell, or otherwise dispose of, any shares of Common Stock beneficially owned by
them or any securities convertible into, or exchangeable for, Common Stock on or
before the 120th day after the date of this Agreement without your prior written
consent;
(h) The Company shall have furnished or caused to be furnished to
you on the date of this Agreement and on the Delivery Date certificates of
officers of the Company satisfactory to you as to the accuracy of the
representations and warranties of
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<PAGE>
the Company herein at and as of the date hereof and the Delivery Date, as to the
performance by the Company of all of its obligations hereunder to be performed
at or prior to the Delivery Date, as to the matters set forth in subsections (a)
and (e) of this Section and as to such other matters as you may reasonably
request; and
(i) The Common Stock shall have been approved for trading on the
Nasdaq System.
8. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any breach of any representation, warranty, agreement
or covenant of the Company herein contained or (ii) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by it in connection with
investigating, preparing to defend or defending, or appearing as a third party
witness in connection with, any such action or claims as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by you expressly
for use therein. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims damages or liabilities, joint or several, to which
the Company may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in any Preliminary Prospectus, Registration Statement or
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<PAGE>
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through you expressly for use therein; and will reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating, preparing to defend or defending, or appearing as a third party
witness in connection with, any such action or claim as such expenses are
incurred. This indemnity agreement will be in addition to any liability which
any Underwriter may otherwise have. The Company acknowledges that for purposes
of this Section 8 the statement set forth in ______________ on the cover page of
the Prospectus, the statement on page __ of the Prospectus concerning
stabilization and over-allotment by the Underwriter, and under the heading
"Underwriting" in the Preliminary Prospectus and the Prospectus constitute the
only information furnished in writing by or on behalf of the several
Underwriters for inclusion in the Preliminary Prospectus or the Prospectus, and
you confirm, as the Representative, confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection, unless and to the
extent that such indemnifying party did not otherwise learn of such action and
such failure results in the forfeiture by the indemnifying party of substantial
rights and defenses. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have been advised by counsel
that representation of such indemnified party and the indemnifying party would
present such counsel with a conflict of interest under applicable standards of
professional conduct due to actual or potential differing interests between
them, the indemnified party or parties shall have the right to select separate
counsel to defend such action on behalf of such indemnified party or parties. It
is understood that the indemnifying party shall, in connection with any such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm or
attorneys together with appropriate local counsel at any time for all
indemnified parties not having actual or potential differing interests with any
indemnified party. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to appoint counsel to defend such action
and
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<PAGE>
approval by the indemnified party of such counsel, the indemnifying party will
not be liable for any settlement entered into without its consent and will not
be liable to such indemnified party under this Section 8 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed separate
counsel in accordance with the proviso to the next preceding sentence, (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action or (iii) the indemnifying party
has authorized in writing the employment of counsel for the indemnified party at
the expense of the indemnifying party; and except that, if clause (i) or (iii)
is applicable, such liability shall be only in respect of the counsel referred
to in such clause (i) or (iii). Notwithstanding the immediately preceding
sentence and the third preceding sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its consent if (i)
such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Securities. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
and footnote ___ thereto on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact
-17-
<PAGE>
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (d) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) the provisions of the Agreement Among
Underwriters shall govern contribution among the Underwriters, (ii) no
Underwriter (except as provided in the Agreement Among Underwriters) shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. Notwithstanding the
provisions of this subsection (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations under this subsection (d) are
several in proportion to their respective underwriting obligations and not
joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each officer, director, employee and
agent of the Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company within the meaning of the Act.
9. Substitution of Underwriters.
(a) If any of the Underwriters fail (other than for a reason
sufficient to justify the termination of this Agreement) to purchase on the
Delivery Date the Securities agreed to be purchased on such Delivery Date by
such Underwriter, the remaining Underwriters may find one or more substitute
underwriters to purchase such
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<PAGE>
Securities or make such other arrangements as the remaining Underwriters deem
advisable or the remaining Underwriters may agree to purchase such Securities
upon the terms set forth in this Agreement. If no such arrangements have been
made within 36 hours after such Delivery Date, the Company will be entitled to
an additional period of 24 hours within which to find one or more substitute
underwriters reasonably satisfactory to the remaining Underwriters to purchase
such Securities on the terms set forth in this Agreement.
(b) In any such case, the remaining Underwriters or the Company will
have the right to postpone the Delivery Date for not more than five business
days in order that necessary changes and arrangements (including any necessary
amendments or supplements to the Registration Statement or Prospectus) may be
effected by the remaining Underwriters and the Company. If neither the
nondefaulting Underwriters nor the Company makes arrangements pursuant to this
Section 9 within the period stated for the purchase of the Securities that the
defaulting Underwriters agreed to purchase, this Agreement will terminate
without liability on the part of the nondefaulting Underwriters to the Company
and without liability on the part of the Company, except in both cases, as
provided in Sections 5, 8 and 11. This Section 9 will not affect the liability
of the defaulting Underwriters to the Company or the nondefaulting Underwriters
arising out of such default. A substitute underwriter will become an Underwriter
for all purposes of this Agreement.
10. Representations and Warranties to Survive.
The respective indemnities, agreements, representations, warranties and
other statements of the Company and the several Underwriters, as set forth in
this Agreement or made by them, respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement or any investigation (or any statement as to the results
thereof) made by or on behalf of the Underwriters or any controlling person of
any Underwriter, or the Company, or any officer or director or controlling
person of the Company, and shall survive delivery of and payment for the
Securities.
11. Termination and Payment of Expenses.
(a) This Agreement shall be subject to termination in your absolute
discretion, by notice given to the Company prior to the delivery of any payment
for the Securities, if prior to such time there shall have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York
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Stock Exchange or the Nasdaq System; (ii) a general moratorium on commercial
banking activities in New York or District of Columbia declared by federal, New
York State or District of Columbia authorities; (iii) the outbreak or escalation
of hostilities involving the United States or the declaration by the United
States of a national emergency or war, if any such event specified in this
clause (iii) would have such a materially adverse effect, in your judgment, as
to make it impracticable or inadvisable to proceed with the offering or the
delivery of the Securities on the terms and in the manner contemplated in the
Prospectus; or (iv) such a material adverse change in general economic,
political, financial or international conditions affecting financial markets in
the United States having a material adverse impact on trading prices of
securities in general, as, in your judgment, makes it impracticable or
inadvisable to proceed with the offering or delivery of the Securities on the
terms and in the manner contemplated in the Prospectus.
(b) If this Agreement shall be terminated pursuant to Section 10
hereof, the Company shall not then be under any liability to any Underwriter
except as provided in Section 6 and Section 8 hereof; but if for any other
reason the sale of the Securities provided for herein is not consummated because
any condition to the obligations of the Underwriters set forth in Section 7
hereof is not satisfied, because of any termination pursuant to this Section 11
or because of any refusal, inability or failure on the part of the Company to
perform any agreements herein or comply with the provisions hereof other than by
reason of a default by any of the Underwriters, the Company will be responsible
for and will reimburse the Underwriters upon demand for all out-of-pocket
expenses, including fees and disbursements of counsel, reasonably incurred by
the Underwriters in connection with the proposed purchase, sale and delivery of
the Securities. Nothing in this Section 10 shall be deemed to relieve the
Underwriter of its liability, if any, to the Company for damages occasioned by
its default hereunder.
12. Notices.
In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you. All statements, requests, notices and agreements hereunder shall
be in writing or by telegram if promptly confirmed in writing, and if to the
Underwriters shall be sufficient in all respects if delivered or sent by mail,
telex or facsimile transmission to Scott & Stringfellow, Inc., 909 East Main
Street, Richmond, Virginia 23219, Attention: Corporate Finance Department; and
if to the Company shall be sufficient in all respects if delivered or sent by
mail, telex or facsimile transmission to the address of the Company set forth in
the Prospectus, Attention: __________________. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof provided, however,
that any notice to any Underwriter pursuant to Section 12 hereof
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<PAGE>
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter, which will be supplied to the Company by you upon request.
13. Successors.
This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters and the Company and, to the extent provided in Sections 8
and 11 hereof, the officers and directors of the Company, the officers and
directors, employees and agents of any Underwriter and each person who controls
the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Securities from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time of the Essence.
Time shall be of the essence in this Agreement.
15. Business Day.
As used herein, the term "business day" shall mean any day when the
Commission's office in Washington, D.C. is open for business.
16. Applicable Law.
This Agreement shall be construed in accordance with the laws of the
State of New York.
17. Captions.
The captions included in this Agreement are included solely for
convenience of reference and shall not be deemed to be a part of this Agreement.
18. Counterparts.
This Agreement may be executed by any one or more of the parties in any
number of counterparts, each of which shall be deemed to be an original, but all
such counterparts shall together constitute one and the same instrument.
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<PAGE>
If the foregoing is in accordance with your understanding, please sign
and return to us two counterparts hereof, and upon the acceptance hereof by you,
this letter and such acceptance hereof shall constitute a binding agreement
among each of the Underwriters and the Company. It is understood that your
acceptance of this Agreement on behalf of each of the Underwriters is pursuant
to the authority set forth in a form of Agreement Among Underwriters, the form
of which will be submitted to the Company for examination, upon request, but
without warranty on your part as to the authority of the signers thereof.
Very truly yours,
CARDINAL FINANCIAL CORPORATION
By: _____________________________________
L. Burwell Gunn, Jr.
President and Chief Executive Officer
Accepted as of the date hereof
at Richmond, Virginia:
SCOTT & STRINGFELLOW, INC.
As Representative of the Underwriters
By: ___________________________________
Name: _________________________________
Title: ________________________________
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SCHEDULE I
Underwriters
<TABLE>
<CAPTION>
<S> <C> <C>
Optional Securities
to be Purchased if
Firm Securities Maximum Option
Underwriter to be Purchased Exercised
- ----------- --------------- ---------
Scott & Stringfellow, Inc.
Interstate/Johnson Lane Corporation
Ferris, Baker Watts Incorporated
</TABLE>
TOTAL
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ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, KPMG Peat
Marwick LLP shall furnish letters to the Representative to the effect that:
1. They are independent public accountants with respect to the
Company and its subsidiary within the meaning of the Act and the applicable
published rules and regulations thereunder;
2. In their opinion, the consolidated audited financial statements
audited by them and included in the Registration Statement or the Prospectus
comply as to form in all material respects with the applicable accounting
requirements of the Act or the Securities Exchange Act of 1934, as amended, as
applicable, and the related published rules and regulations thereunder;
3. On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards, consisting
of a reading of the latest unaudited financial statements made available by the
Company, inspection of the minute books of the Company and the Bank since the
date of the latest audited financial statements included in the Prospectus,
inquiries of officials of the Company and the Bank responsible for financial and
accounting matters and such other inquiries and procedures as may be specified
in such letter, nothing came to their attention that caused them to believe
that:
(A) the unaudited consolidated financial statements included
in the Registration Statement or the Prospectus do not comply as to
form in all material respects with the applicable accounting
requirements of the Act and published rules and regulations thereunder
or are not presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the
audited consolidated financial statements included in the Registration
Statement or Prospectus;
(B) (i) as of a specified date not more than five calendar
days prior to the date of delivery of such letter, there have been any
changes in the capital stock, short-term debt or long-term debt of the
Company, or any decreases in consolidated total assets or stockholders'
equity as compared with amounts shown on the most recent consolidated
balance sheet included in the Registration Statement or Prospectus, and
(ii) for the period from the date of the most recent consolidated
financial statements included in the Registration Statement or
Prospectus to such specified date there were any decreases in
consolidated net interest income or the total or per share amounts of
net income as compared with the corresponding period in the preceding
year, except in each case for
-24-
<PAGE>
increases or decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and
4. In addition to the audit referenced in their report included in
the Registration Statement and the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to above,
they have carried out certain specified procedures, not constituting an audit in
accordance with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information which are derived from the
general accounting records of the Company and the Bank, which appear in any
Preliminary Prospectus, the Prospectus, or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the Representative, and
have compared certain of such amounts, percentages and financial information
with the accounting records of the Company and have found them to be in
agreement.
-25-
Exhibit 4
NUMBER SHARES
[CARDINAL FINANCIAL CORPORATION LOGO]
SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF VIRGINIA
CARDINAL FINANICAL CORPORATION
The Corporation is authorized to issue 50,000,000 Common Shares -
Par Value $1.00 each
This certifies that _____________________________________ is the owner of
______________________________________ fully paid and non-assessable Shares of
the above Corporation transferable only on the books of the Coproration by the
holder hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized offiers and to be sealed with the Seal of the
Corporation.
Dated __________________________
______________________________ ______________________________
SECRETARY/TREASURER PRESIDENT
<PAGE>
The shares of stock represented by the certificate have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and no transfer, sale, assignement, pledge, hypothecation or other disposition
of the shares represented by the certificate may be made except (A) pursuant to
an effective registration statement under the Secruties Act and any applicable
state securities laws or (B) pursuant to an exemption from the provisions of
Section 5 of the Securities Act, and the rules and regulations in effect
thereunder, and applicable state securities laws.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ___________Custodian____________(Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act_________________(State)
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received, the undersigned hereby sells, assigns and transfers unto _____________________________________
| |
____________________________________________________________________________|_____________________________________|
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
___________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________Shares
represented by the within Certificate, and hereby irrevocably constitutes and appoints_________________________
_____________________________________________________________________________________ Attorney to transfer the said
Shares on the books of the within-named Corporation with full power of substitution in the premises.
Dated_________________________________
In presence of _________________________________________
______________________________________
</TABLE>
Exhibit 5 and 23.1
[WILLIAMS, MULLEN, CHRISTIAN & DOBBINS LETTERHEAD]
June 26, 1998
Board of Directors
Cardinal Financial Corporation
10641 Lee Highway
Fairfax, VA 22030
Ladies and Gentlemen:
This letter is in reference to the Registration Statement on Form SB-2,
as amended, (the "Registration Statement") filed by Cardinal Financial
Corporation (the "Company") with the Securities and Exchange Commission (the
"Commission") for the registration under the Securities Act of 1933, as amended
(the "Act"), of 2,990,000 shares of the Company's common stock, par value $1.00
per share (the "Common Stock"), which shares are proposed to be offered to the
public pursuant to an Underwriting Agreement filed as an exhibit to the
Registration Statement (the "Offering").
We have examined such corporate proceedings, records and documents as
we considered necessary for the purposes of this opinion.
The opinion expressed herein is limited in all respects to the
application of the law of the Commonwealth of Virginia.
Based on the foregoing, and subject to the limitations and
qualifications set forth herein, it is our opinion that the aforementioned
shares of Common Stock, when issued against payment therefor pursuant to the
Offering, will be validly issued, fully paid and non-assessable under the laws
of the Commonwealth of Virginia.
Our opinion is expressed as of the date that shares of Common Stock are
issued pursuant to the Offering against payment therefor, and we do not assume
any obligation to update or supplement our opinion to reflect any fact or
circumstance subsequently arising or any change in law subsequently occurring
after such date. We hereby consent to the filing of
<PAGE>
this opinion with the Commission as an exhibit to the Registration Statement and
to the reference to us under the caption "Legal Opinions" in the Prospectus
forming a part of the Registration Statement.
Very truly yours,
WILLIAMS, MULLEN, CHRISTIAN &
DOBBINS
By: _________________________________
Exhibit 23.2
The Board of Directors
Cardinal Financial Corporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Washington, D.C.
June 26, 1998
