Registration No. 33-86993
As filed with the Securities and Exchange Commission on November 2, 1999.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 2
to Form SB-2
on Form SB-2/A
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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SMITH RIVER BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
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VIRGINIA 6711 54-1956616
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
Suite 12 Suite 12
Patrick Henry Mall Patrick Henry Mall
730 East Church Street 730 East Church Street
Martinsville, Virginia 24112 Martinsville, Virginia 24112
(540) 632-8092 (540) 632-8092
(Address, including zip code, and (Address of principal place of business or
telephone number, including area intended principal place of business)
code, of principal executive offices)
Copies to:
Cecil R. McCullar Douglas W. Densmore and Hugh B. Wellons
Chief Executive Officer Flippin, Densmore, Morse, Rutherford & Jessee
Suite 12 10 South Jefferson Street, Suite 1800
730 East Church Street Roanoke, Virginia 24011
Martinsville, Virginia 24112 (540) 510-3000
(540) 632-8092
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(Name, address, including zip code
and telephone number, including
area code, of agent for service)
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Approximate date of commencement of proposed sale to
the public: From time to time after the effective date of
this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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 of the
Securities Act, please 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, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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INITIAL PUBLIC OFFERING
PROSPECTUS
SMITH RIVER BANKSHARES, INC. IS OFFERING:
TO THE PUBLIC: TO ORGANIZERS/DIRECTORS:
A minimum of 537,500 and a maximum of 87,500 units at $10.00 per unit.
912,500 shares of common stock of Smith Each unit consists of:
River Bankshares, Inc., at $10.00 per o one share of common stock; and
share. The minimum purchase is 100
shares. All funds received will be held o one warrant to purchase a share
by an independent escrow agent. of common stock in the future at
$10.00 per share.
We are a newly-formed holding company organized to own the shares
of Smith River Community Bank, N.A., a proposed national bank in
Martinsville, Virginia. We have received conditional approval for a
national bank charter, but the bank does not yet have a charter.
The organizers/directors may terminate this offering at any time
after selling all 87,500 units and 537,500 shares, and the offering
must terminate after all the units and 912,500 shares are sold. If
we have not sold all the units and 537,500 shares by June 30, 2000,
the offering will terminate, although we reserve the right to
extend the offering to December 31, 2000.
This is our initial public offering, and no public market currently
exists for our shares. The offering price may not reflect the
market price of our shares after the offering. If the market price
of our shares goes below $5 and the shares are not then listed on
an exchange or authorized for quotation on NASDAQ, brokers selling
shares will be required to give buyers additional information. This
requirement may make it more difficult for you to sell shares. We
have no present plans to list our shares on any national or
regional trading exchange.
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The Offering
Per Share Total (Minimum) Total (Maximum)
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Public Price $ 10.00 $ 5,375,000 $ 9,125,000
Plus: Proceeds from units 875,000 875,000
Total proceeds to Bankshares before
organizational and offering expenses $ 10.00 $ 6,250,000 $ 10,000,000
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We expect that the shares will be sold directly by the organizers/directors
without the assistance of an underwriter or placement agent, and no commissions
will be paid for any shares or units sold. However, we reserve the right to
enlist the help of an underwriter or placement agent if necessary to place the
stock. If we do this, total proceeds to us could be reduced by approximately 8%.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY
IF YOU CAN AFFORD A COMPLETE LOSS. See "Risk Factors" beginning on page 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is
November 4 , 1999
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in
this prospectus. To understand this offering fully, you should read the entire
prospectus carefully, including the risk factors and financial statements.
SMITH RIVER BANKSHARES AND SMITH RIVER BANK
OFFICES
Smith River Bankshares, Inc., Suite 12, Patrick Henry Mall, 730 East Church
Street, Martinsville, Virginia 24112.
OUR BUSINESS
We are a newly formed bank holding company. Our business will be to own the
shares of a new national bank we have applied to form in Martinsville, Virginia,
which will be called Smith River Community Bank, N.A. The Bank will operate as a
typical community bank, offering general commercial banking services to medium
and small businesses and consumers in Henry County and the City of Martinsville,
Virginia.
OUR HISTORY AND IMMEDIATE FUTURE PLANS
Smith River Bankshares was incorporated in Virginia . We have already filed our
application for a charter with the Office of the Comptroller of the Currency and
an application with the FDIC for insurance of deposits. We have received
preliminary charter approval from the Comptroller of the Currency and
preliminary approval from the FDIC. Once the charter is granted and insurance is
issued, which will be after we sell at least the minimum amount of stock in this
offering, we will apply to the Federal Reserve System for authority to become a
bank holding company, and Smith River Bank will apply to the Federal Reserve for
membership.
We hope to secure all regulatory approvals by February 2000. Soon after that, if
all of the units and at least the minimum number of shares are sold, the bank
will open. We intend to open Smith River Bank as soon as we have the regulatory
approvals and sell enough stock to appropriately capitalize the bank. When it
opens, Smith River Bank will occupy a leased facility located at East Church
Street and Booker Road in Martinsville as its banking facility and headquarters.
The holding company headquarters will remain nearby at Suite 12, Patrick Henry
Mall, 730 East Church Street, Martinsville, Virginia. The banking facility at
East Church Street and Booker Road was a branch of another bank which closed at
the end of April, 1999. We also expect to apply for permission to establish a
branch of Smith River Bank within six months after we open our main office. This
branch, if approved, will be located at 380 Riverside Drive in Bassett,
Virginia, a former bank branch, which we have under lease.
THE ORGANIZERS/DIRECTORS AND MANAGEMENT
Smith River Bankshares was organized by a group of businesspersons residing and
doing business in the City of Martinsville and Henry County, Virginia. Twelve of
the organizers have agreed to serve as directors of Smith River Bankshares and
Smith River Bank. These organizers/directors have also advanced funds for
organizational and offering expenses.They will not be compensated for their
services until the bank becomes profitable. For the names of and biographical
information about the organizers/directors, see "Management--Directors and
Executive Officers."
BENEFITS TO MANAGEMENT AND ORGANIZERS
The organizers/directors are receiving "units" instead of stock for their
investment. Each unit contains one share of stock and one warrant to purchase a
share of stock for $10.00. If the offering is unsuccessful, the
organizers/directors may lose all or part of their investment, which we
estimate will total approximately $465,000. It is in recognition of these
financial risks and their willingness to serve as directors without pay until
Smith River Bank is profitable that the organizers/ directors can purchase the
units. The warrants that are part of the units will vest over three years
beginning with the date Smith River Bank opens for business.See "Certain
Transactions," page 26.
One of the organizers/directors, Cecil R. (Andy) McCullar, has 35 years banking
experience and will serve as the President and Chief Executive Officer of Smith
River Bankshares and Smith River Bank. As part of his incentive compensation, on
the date Smith River Bank opens for business, Mr. McCullar will be granted
options to purchase 30,000 shares at their fair market value on the date of the
grant, 10,000 of which may be exercised after each of the first three
anniversaries of the bank's opening. These options will survive for 10 years
after they become exercisable. See "Management--Remuneration of Directors and
Officers." Please see "Management - Options" on page 25.
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HIGHLIGHTS OF THE OFFERING
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SECURITIES OFFERED...............................912,500 shares of common stock to the public and
87,500 units, consisting of one share of common stock and one
warrant to purchase a share of common stock, to the organizers/
directors only.
SHARES OUTSTANDING AT AUGUST 31, 1999............12 shares owned by the organizers/directors. These shares will
be repurchased by Smith River Bankshares if the offering is
successful.
SHARES TO BE OUTSTANDING AFTER
THE OFFERING.....................................625,000, if all the units and the 537,500 shares minimum
offering are sold, or
1,000,000, if all the units and the 912,500 shares maximum
offering are sold.
TOTAL PUBLIC PRICE...............................$6,250,000, if all the units and the 537,500 shares minimum
offering are sold, or
$10,000,000, if all the units and the 912,500 shares maximum
offering are sold.
ESTIMATED OFFERING EXPENSES......................$100,000
NET PROCEEDS.....................................$6,150,000, if the units and the minimum offering are sold, or
$9,900,000, if the units and the maximum offering are sold.
PLAN OF DISTRIBUTION.............................The organizers/directors of Smith River Bankshares intend to
sell the shares without the assistance of an underwriter or
placement agent.
INTENTION BY THE ORGANIZERS/DIRECTORS
TO BUY SHARES....................................The organizers/directors intend to buy a total of 87,500 shares
by way of buying the units.
TERMS OF THE OFFERING............................You will subscribe for the shares and the organizers/directors
will subscribe for the units by sending the purchase price to an
escrow agent retained by us. The offering will terminate and
all subscription funds will be returned by the escrow agent to
the subscribers without interest if we have not sold all the
units and the minimum of 537,500 shares by June 30, 2000. We
may, however, extend this deadline, but not beyond December 31,
2000. The minimum investment by one subscriber is 100 shares
and maximum investment is 4.99% of the total shares outstanding
after the offering. The minimum may be waived to accommodate
local potential customers, and the maximum may be waived for
insiders and others if necessary to meet the minimum offering
requirements, both at our discretion and without notice to other
investors.
USE OF PROCEEDS..................................We will use the proceeds of the offering as follows:
o To pay the offering expenses incurred by the
organizers/directors, expected to be about $100,000;
o To repay the organizational expenses incurred by
organizers/directors, expected to be about $48,000;
o To repurchase, at the redemption price of $1.00 per
share, the 12 shares owned by the organizers/directors;
o $6,000,000 to capitalize the bank; and approximately $102,000
to establish the working capital of Smith River Bankshares.
o The Bank will also repay from its capital organizational
and pre-opening expenses incurred by Smith River Bankshares or the
organizers/directors on its behalf, expected to be about $300,000.
If the ultimate proceeds of the offering are greater
than $6,250,000, we will add 50% of the net excess
over $6,250,000 (after deducting expenses) to the
capital of the bank and the remaining 50% to the
working capital of Smith River Bankshares.
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RISK FACTORS
Investing in Smith River Bankshares stock is very risky. You should
invest only if you determine that you can bear a complete loss of your
investment. In your determination, you should consider carefully the following
factors:
YOU MAY BE OVERPAYING FOR We fixed the offering price at $10.00 per share on
THE SHARES BECAUSE THE the basis of the start-up capital needs of Smith
OFFERING PRICE CANNOT BE River Bank and offering prices of other
SUPPORTED BY VALUE OF newly-organized bank holding companies. This price
ASSETS OR EARNINGS. bears no relationship to assets, book value,
earnings or other established criteria of value. As
a result, you may be overpaying for the shares.
WE WILL BE A NEW BANKING Smith River Bankshares, the issuer of your shares,
BUSINESS IN A COMPETITIVE is a new business whose success will depend on
ENVIRONMENT; LOSSES ARE Smith River Bank's operations. Smith River Bank
LIKELY TO OCCUR FOR AT also is a new business that will be successful only
LEAST THE FIRST FULL YEAR if the income earned on loans and investment
OF OPERATIONS AND PROBABLY securities and from fees is greater than the
FOR THREE YEARS. interest paid on deposits and other sources of
funds and general operating expenses. We do not
expect to be profitable on a current basis for an
entire year until at least the third full year of
operations, if at all.
In order to create and maintain income greater than
interest paid and other expenses, commonly called
"spread," Smith River Bank will have to contend
with many factors, which are outlined below.
WE COULD BE AT A As a new bank in an established market, Smith River
DISADVANTAGE WHEN Bank will be competing for deposits with many older
COMPETING FOR DEPOSITS AND financial institutions. These institutions may have
LOANS WITH LARGER competitive advantages over Smith River Bank
INSTITUTIONS THAT HAVE because they have greater capitalization and other
LARGER LENDING LIMITS AND resources. They also can offer potential depositors
ESTABLISHED CUSTOMER more convenient depositary facilities and borrowers
CONTACTS. higher lending limits and certain other customer
services which Smith River Bank may not be able to
offer. Smith River Bank may have to pay more to
attract deposits. This would hurt our earnings.
Even so, we can offer you no assurance that Smith
River Bank will be successful in attracting the
deposits it will need to sustain its growth.
WE WILL BE MAKING We expect a majority of our loans to be commercial
COMMERCIAL AND CONSUMER and consumer loans, which inherently carry more
LOANS, AND IN MAKING risk than real estate based loans. As a new bank,
THESE LOANS WE WILL DEAL Smith River Bank will be competing for loan
WITH UNFAMILIAR, SMALLER business with older and larger financial
BORROWERS. THIS LACK OF institutions. Unlike these institutions, Smith
RELATIONSHIP AND THE SIZE River Bank OF will be creating lending
OF THE BORROWERS COULD relationships with customers seeking to establish
CAUSE EXCESSIVE LOAN new banking relationships and without a previous
LOSSES. history with Smith River Bank. Moreover, small to
medium businesses and consumers will, by and large,
have less capacity than large businesses or wealthy
individuals to repay loans in the event of an
economic downturn or other adversity. For all these
reasons, it will be several years before the
quality of Smith River Bank's loan portfolio can be
fully evaluated, and we can offer you no assurance
that Smith River Bank will not incur excessive loan
losses.
AS A FINANCIAL INSTITUTION The spread earned by Smith River Bank will be
WE COULD BE AFFECTED affected not only by trends in the economy of its
ADVERSELY BY GLOBAL primary source area, the City of Martinsville and
ECONOMIC TRENDS AND Henry County, but also national and international
POLICIES. trends and fluctuations. For example, factors like
interest rates and money supply policies of the
Federal Reserve, inflation, recession,
unemployment, natural resource prices,
international conflicts and other factors beyond
Smith River Bank's control may adversely affect
that spread.
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WE MAY NOT BE ABLE TO Success in a commercial banking business is
ATTRACT GOOD EMPLOYEES particularly dependent on employing experienced and
BECAUSE WE WILL BE service-oriented personnel at all levels. We intend
COMPETING FOR PERSONNEL and are already making efforts to hire experienced
WITH LARGER FINANCIAL lending and operations officers, but have no
INSTITUTIONS. assurance that we can staff Smith River Bank with
appropriate personnel when Smith River Bank opens
for business. We do have an employment agreement
with Andy McCullar, a very experienced banker, who
is one of the organizers/directors and our
President and Chief Executive Officer.
WE COULD BE AFFECTED BY Because of the Glass-Steagal Act, the commercial
UNEXPECTED COMPETITION IF banking business has enjoyed legal barriers to
THE LAW CHANGES AND entry by non-banking enterprises. It is possible
CONGRESS REMOVES SOME that the United States Congress will enact laws
BARRIERS TO NONBANKS that reform the financial services industry in the
PROVIDING BANK SERVICES. near future. If this happens, Smith River Bank may
face even greater competition in its primary
service area from large, well-capitalized
enterprises. At the same time, as entities which
are tightly regulated and without a substantially
large capital base, Smith River Bank and Smith
River Bankshares probably will not diversify into a
non-banking business in the near future.
WE WILL NOT BE ABLE TO Banking is part of the technology revolution.
COMPETE FOR SOME TIME WITH Larger and more established banks have a head start
MORE ESTABLISHED FINANCIAL in preparing for new forms of bank services offered
INSTITUTIONS OFFERING through the internet and other nontraditional
TECHNOLOGICALLY ADVANCED media. They also have greater resources to devote
BANKING to this effort. It may be some time before Smith
River Bank can compete effectively for this type of
business, if at all.
COMMUNITY BANKING IS OUR Smith River Bank will be a so-called "community"
BUSINESS MODEL, AND WE MAY bank. In other words, we will exploit personal
NOT BE SUCCESSFUL IN contacts by our directors, officers and our
ATTRACTING CUSTOMERS AS A shareholders, as well as appropriately focused
"COMMUNITY" BANK. advertising and promotional activities, to appeal
to businesses and individuals in search of
personalized services likely to be offered by an
independent, locally-owned and headquartered
commercial bank. Our overall identity as a
community financial institution is our main selling
point to our community. However, ultimately we may
not be successful in establishing Smith River Bank
as the local community bank, and even if we do
establish the bank, changes in how people bank, due
primarily to technology, may make community banking
less attractive than it has been in the past.
NO UNDERWRITER WILL The shares we are offering will be sold directly by
NEGOTIATE THE OFFERING Smith River Bankshares' Board of Directors without
PRICE WITH US OR CHECK ON help from an underwriter or placement agent, at
THE STATEMENTS WE MAKE. least initially. This may reduce our chances of
THIS CAN ALLOW AN INFLATED meeting the minimum offering level, and it may mean
PRICE AND MAY REDUCE THE that we sell fewer shares than we could have done
SHARES SOLD. with an underwriter. Underwriters also usually
negotiate the share offering price with the issuer
and check on the accuracy of the issuer's
statements to investors. You will not have these
safeguards here. The Board does reserve the right
to engage a broker to help sell stock at a later
date, but if it does, that could reduce net
proceeds by about 8%, due to commissions, and will
be because the directors failed to sell a
sufficient amount of stock on their own. Even if we
hire a broker later, we may not sell the minimum
shares required.
YOU MAY HAVE DIFFICULTY IN Your shares will be freely transferable. However,
SELLING YOUR SHARES we are a new company without a public market for
its shares, and we do not expect an active trading
market for the shares to be developed for at least
one year after
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BECAUSE OF THE ABSENCE OF the offering. As a result, if you decide to sell
PUBLIC MARKET OR BECAUSE your shares you may be required to locate a buyer
THE SHARES MAY BECOME on your own and may not be able to do so.
"PENNY STOCK."
Also, even if a public market develops, if the
trading price falls below $5 per share and the
shares are then not listed on an exchange or
authorized for quotation on NASDAQ, your shares
will be "penny stock." Any broker you ask to sell
your shares will have to give the buyer additional
information and may be unwilling to help you make
the sale. As a result, you may be required to
locate a buyer on your own and may not be able to
do so.
WE ARE DEPENDENT ON KEY The success of Smith River Bank depends on our
EMPLOYEES, INCLUDING MR. ability to attract and keep quality employees. We
MCCULLAR, AND LOSING HIM are particularly dependent in the early years on
COULD MAKE IT DIFFICULT TO the leadership of Andy McCullar, who is described
MANAGE A NEW BANK below under "Management". We intend to obtain "key
SUCCESSFULLY, BECAUSE man" insurance for the benefit of Smith River Bank
QUALIFIED BANK PRESIDENTS for Mr. McCullar. As a new bank, Smith River Bank
ARE HARD TO FIND. will also depend on other employees we have not
hired yet. We cannot assure investors that we will
be successful in recruiting these employees by the
anticipated opening date or at all. Qualified
employees will command competitive salaries. If any
key employee does not perform as expected or
suddenly quits, Smith River's bank operations could
be adversely affected, possibly to the point of
causing the bank to fail. However, we believe that
recent merger activity in local markets and
elsewhere in our region provides opportunities to
find experienced banking personnel.
IF SMITH RIVER BANK FAILS There is a risk that Smith River Bank will not open
TO OPEN SOON, IT WILL as soon as expected or will not open at all. We
INCUR ADDITIONAL COSTS, cannot open until we receive the required
WHICH WILL MAKE IT MORE regulatory approvals and sell the minimum number of
DIFFICULT TO RECOUP YOUR shares. If our opening is delayed past April 2000,
INVESTMENT. IF THE BANK we will incur unplanned expenses, which will make
FAILS TO OPEN, YOUR it more difficult for us to become profitable and
INVESTMENT WILL BE will reduce the value of our stock. This will make
RETURNED TO YOU WITHOUT it harder for you to recover your investment. If
INTEREST. Smith River Bank does not open at all, either due
to regulatory problems or a failure to sell
sufficient shares of common stock, your entire
investment will be returned to you without
interest. You will have lost the possible value of
investing in another venture that might have earned
you a profit.
OUR SMALL MARKET AREA Our primary market area is the City of
PLACES US AT GREATER RISK Martinsville, Virginia and Henry County, Virginia.
OF A REGIONAL ECONOMIC This market consists of approximately 393 square
PROBLEM, SUCH AS A FLOOD miles and 72,000 people. Practically, our initial
OR THE CLOSING OF A LARGE offices will serve only a portion of this market.
LOCAL EMPLOYER, HAVING A Accordingly, a regional disaster, like a flood or a
LARGE EFFECT ON OUR tornado, or a regional economic problem like the
PERFORMANCE. closure of a large local employer could hurt our
performance. The City of Martinsville and Henry
County have a diverse economic base, but some large
employers in our area, such as Tultex, Incorporated
and local furniture manufacturers, have a lot of
employees and impact many local businesses. Smith
River Bank may not lend substantial amounts to any
of the largest companies in this region, but
closure of one of these large employers would hurt
many local businesses and could result in less
business, more defaults, and tougher competition
for financial services. This could make us less
profitable or even result in net losses.
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IT WILL BE DIFFICULT FOR Our Articles of Incorporation and Bylaws contain
ANYONE TO TAKE OVER SMITH certain anti-takeover provisions. These provisions
RIVER BANKSHARES, EVEN IF may discourage non-negotiated takeover attempts
A TAKEOVER WOULD RESULT IN which you might consider to be in your best
MOST SHAREHOLDERS EARNING interest. In addition, the warrants and stock
A PROFIT ON THEIR SHARES. options, because they make the company potentially
more expensive for an acquirer, could discourage a
takeover attempt. Both the anti-takeover provisions
and the warrants and options tend to perpetuate
existing management. See, "Description of
Securities - Defensive Anti-takeover Provisions" on
page 31.
SMITH RIVER BANKSHARES' Your interests as an investor in Smith River
MANAGEMENT MAY HAVE Bankshares may be different from management,
INTERESTS THAT MAY BE because management may want to continue to control
DIFFERENT FROM YOURS, AND the company, even if it means foregoing an
MANAGEMENT CONTROLS SMITH attractive offer you might prefer. Yet, management
RIVER BANKSHARES. will exercise significant control over the
selection of the Board of Directors and company
policies. They will be able to exercise control
because after the offering, the officers and
directors will own between 8.75% and 14% of the
total shares outstanding, depending on the number
of shares sold in the offering, and the
organizers/directors could, through the exercise of
their warrants, acquire an additional 87,500
shares, which would give them 16.1% to 24.6% of
shares outstanding.
YOUR INVESTMENT MAY BE Smith River Bankshares does not have preemptive
DILUTED BECAUSE OF THE rights. This means that you may not be entitled to
WARRANTS AND STOCK OPTIONS buy additional shares if shares are offered to
AND THE ABILITY OF others. Nothing restricts management's ability to
MANAGEMENT TO OFFER STOCK offer additional shares of stock for fair value to
TO OTHERS. others in the future. As a result, when the
organizers/directors exercise their warrants and
key employees exercise their stock options, your
ownership interest in Smith River Bankshares will
be diluted. All of this could result in your share
ownership being diluted. See "The Offering and
Distribution - Dilution" on page 10 and "Certain
Transactions - Warrants and Stock Options" on pages
26 and 27.
WE DO NOT PLAN TO PAY Smith River Bankshares can only pay dividends if it
DIVIDENDS IN THE NEAR receives dividends from Smith River Bank, and there
FUTURE AND IN ANY EVENT will be regulatory restrictions on the amount of
FOR AT LEAST 4 YEARS. dividends Smith River Bank can pay. See, "Dividend
Policy", page 12. Also, we intend to preserve
capital to facilitate growth and expansion. As a
result, you should not expect to receive dividends
in the immediate future and in any event for at
least four years.
THE Y2K COMPUTER GLITCH The "Year 2000" or "Y2K" problem arose because many
COULD INTERRUPT OUR existing computer systems use only the last two
BUSINESS OR CREATE OTHER digits to refer to a year. These computer's
SERIOUS PROBLEMS AT A programs do not recognize a year that begins with
CRITICAL EARLY STAGE OF "20" instead of "19." Those systems may read the
OUR FORMATION year 2000 as "1900" or not recognize it at all. If
not corrected, any computer applications and other
technology-based systems could fail or create
erroneous results. The effects of this problem will
vary from system to system, and the extent to the
potential impact of this problem is not yet known.
The Y2K problem may affect adversely a bank's
operations and its ability to prepare financial
statements. We could experience interruptions in
Smith River Bank's business and significant losses
if we, or a supplier or vendor or loan customer
with whom we contract, are unable to achieve Y2K
readiness before January 1, 2000. See "Business -
Year 2000 Readiness" on page 18.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss future
expectations or state other "forward-looking" information. Those statements
could be affected by known and unknown risks,
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uncertainties and other factors that could cause the actual results to differ
materially from those contemplated by the statements. The forward-looking
information is based on various factors and was derived using numerous
assumptions.
Important factors that may cause actual results to differ from
projections include, for example,
o the success or failure of our efforts to implement Smith River
Bank's business plan;
o the effect of changing economic conditions, particularly changes in
interest rates;
o changes in governmental regulations, tax rates and similar matters;
o our ability to attract and retain quality employees; and other
risks which may be described in our future filings with the SEC.
We are obligated under federal and state securities laws to update
forward-looking information in future filings only to ensure that they are not
misleading regarding any material changes in our situation.
THE OFFERING AND DISTRIBUTION
TERMS OF THE OFFERING
The expiration date of the offering is June 30, 2000. We may extend the
expiration date for up to two 90-day periods, without notice to subscribers, but
not beyond December 31, 2000.
The offering will terminate if by the expiration date at least 537,500
shares, representing the minimum offering, have not been subscribed for. We
reserve the right to terminate the offering before the expiration date even if
the maximum offering of 912,500 shares has not been subscribed for as long as
all the units and the 537,500 minimum number of shares are subscribed for.
All subscription proceeds will be deposited in an escrow account with
First Citizens Bank & Trust Company, who will act as escrow agent.
Smith River Bankshares and Smith River Bank require regulatory
approvals from the Federal Reserve, the Office of the Comptroller of the
Currency and the FDIC before Smith River Bank may commence banking operations.
In addition, Smith River Bankshares must have regulatory approvals from the
Federal Reserve and the Virginia Bureau of Financial Institutions to invest in
the stock of Smith River Bank. These regulatory approvals generally are
conditioned upon satisfaction of certain post-approval conditions, the most
relevant of which is that Smith River Bank's main banking facility be leased and
opened for business within 18 months after its charter is preliminarily approved
and that deposit insurance is effected by September 2000. Because final approval
of Smith River Bank's charter is conditioned on raising funds to capitalize
Smith River Bank at $6,000,000, and to pay organizational and preopening
expenses, Smith River Bankshares expects to issue shares in this offering before
it has obtained all regulatory approvals for Smith River Bank to begin the
business. If Smith River Bankshares issues the shares subscribed for in this
offering and final regulatory approval for banking operations is not obtained
within 18 months after preliminary approval from the OCC, or if Smith River Bank
does not open by that date for any reason, Smith River Bankshares intends to ask
shareholders to approve its liquidation. In this event, shareholders would
receive their share of the funds that are left over, if any, after the payment
of organizational and other preopening expenses and amounts owed creditors. In
this event, a shareholder could lose the entire amount of his investment,
depending on the expenses, costs and debt of Smith River Bankshares and Smith
River Bank.
The organizers/directors intend to subscribe for at least 87,500 units.
Each unit includes one share and the one warrant. The organizers/directors may,
but are not obligated to, purchase additional shares if necessary to complete
the minimum offering. No warrants will accompany these additional shares. No
subscriber will be permitted to purchase in the offering an amount of shares
which would
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exceed 4.99% of the total number of shares outstanding upon completion of the
offering, unless this limitation is waived by Smith River Bankshares. We may
waive the 4.99% maximum subscription only if necessary to sell the minimum
offering amount in order to open the bank.
Interest earned on all subscription proceeds will be kept by us whether
or not subscriptions are accepted or rejected or the minimum offering is
completed.
PLAN OF DISTRIBUTION
This offering is not underwritten. We have not employed any brokers or
sales agents for this offering. We intend that the shares be sold only by the
organizers/directors and authorized representatives of Smith River Bankshares.
They will not receive any commissions or other compensations for these sales.
They will be reimbursed for their reasonable expenses. The fact that this is not
an underwritten offering may reduce our chances of selling the minimum number of
shares required or it may mean that we will not sell as many shares as we could
have sold above the minimum if we had involved an underwriter or broker.
If the directors fail to sell a sufficient number of shares, we reserve
the right to hire a broker at that time to sell the stock. That broker will
charge a commission for any sales made, and may charge other fees as well,
possibly reducing net proceeds by as much as 8%. Even if we hire a broker later,
there is no assurance we will sell enough stock to open.
As stated below, all subscribers' checks must be made payable to the
escrow agent. Consistent with Rule 15c2-4 of the Securities Exchange Act, these
checks will be transmitted to the escrow agent no later than close of the next
business day.
METHOD OF SUBSCRIPTION
The minimum subscription is 100 shares or $1,000, but we reserve the
right to accept subscriptions for less than the minimum subscription. We may
waive the minimum investment requirement to accommodate small investors located
in our market area, in hopes that they will become our customers.
In order to purchase shares, you must:
o Complete and sign the subscription agreement accompanying this
prospectus;
o Make full payment for the purchase price for the shares in United
States currency by check, bank draft or money order payable to
"Smith River Bankshares, Inc. - Escrow Account"; and
o Deliver the subscription agreement, in person or by mail, together
with full payment for the purchase price, to Andy McCullar, Smith
River Bankshares, Inc., Suite 12, 730 East Church Street, P. O. Box
1224, Martinsville, VA 24114-1224
The escrow agent will invest subscription proceeds in one or more bank
money market funds that are insured by the FDIC or collaterialized by U.S.
government, state or local government securities until released from the escrow
account. The escrow agent, by accepting appointment, in no way endorses the
purchase of shares by any person.
The rights and obligations of Smith River Bankshares and the escrow
agent are contained in the Escrow Agreement dated September 8, 1999.
SUBSCRIPTION ACCEPTANCE
Subscriptions are not binding until accepted by us. Deposit of funds in
the escrow account until the satisfaction of the conditions listed above will
not be considered an acceptance of the subscription to which the funds relate.
We reserve the right to accept or reject subscriptions, in whole or in part, in
our
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sole discretion. This permits us to refuse to sell shares to any person
submitting a subscription agreement or to accept part but not all of a
subscription so that a subscriber might ultimately be issued fewer than the full
number of shares for which he or she subscribes. In determining which
subscriptions to accept, in whole or in part, we may take into account the order
in which subscriptions are received and a subscriber's potential to do business
with, or to refer customers to, Smith River Bank.
In the event we reject all or a part of your subscription, the escrow
agent will refund by mail all or the appropriate portion of the amount paid in
by you with the subscription, without interest, promptly after the rejection.
This offering will be terminated, no shares will be issued and no subscription
proceeds will be released from escrow to us unless all the units have been sold
and we have accepted subscriptions and received payment for at least 537,500
shares, we have received regulatory approvals from the Federal Reserve and the
Virginia Bureau of Financial Institutions to own Smith River Bank stock, and
Smith River Bank has received approval from the FDIC for insurance of its
deposits and preliminary charter approval from the OCC. Smith River Bank has
already received preliminary OCC charter approval. If the rest of these
conditions don't occur by December 31, 2000 at the latest or the offering is
terminated early for other reasons, all subscription proceeds will be returned
promptly by mail in full without interest. All costs and expenses of the
offering and of organizing Smith River Bankshares and Smith River Bank over and
above the interest earned on subscription proceeds will be borne by the
organizers/directors if all subscriptions are canceled.
We will issue and mail certificates representing the shares as soon as
practicable after subscription proceeds are released from the escrow account.
DETERMINATION OF OFFERING PRICE
The offering price is arbitrary in terms of value. The
organizers/directors chose a $10.00 per share offering price because that is
consistent with the price set for other de novo community banks in Virginia in
recent years. Also, this price accommodates the small investor, allowing someone
to invest in Smith River Bankshares with only $1,000. We hope this will
encourage City of Martinsville and Henry County residents who are interested in
community banking to invest in us.
DILUTION
Organizers/directors are paying $10.00 per share for the common stock,
the same price offered to you. Accordingly, there is technically no present
dilution in your investment in the common stock. The book value of Smith River
Bankshares, however, will be less than ten ($10.00) dollars per share, due to
organizational expenses involved in opening the bank. Please see "Use of
Proceeds" on page 10.
In addition to the stock purchased, however, the organizers/directors
also are receiving one warrant for each share of stock, at no additional cost to
them. Accordingly, we expect that 87,500 warrants will be issued. Each warrant
will allow the holder to purchase additional shares of stock at ten dollars
($10.00) per share. Similarly, the Board has already agreed to and intends to
issue to Mr. McCullar on the date Smith River Bank opens options to purchase
30,000 shares of common stock at the fair market value of the stock on the date
of grant. One third (10,000) of the options will become exercisable on each of
the first three anniversaries of Smith River Bank's opening. Any holder of these
warrants can trade them for the same number of shares of common stock at a price
per share of $10.00. Mr. McCullar's options may be traded for the same number of
shares of common stock at a price per share equal to the fair market value of
shares of stock when Smith River Bank opens. If the market value of our stock
exceeds these values in the future when the warrants and options are
exercisable, the holders of the warrants and options can obtain additional
shares at less than fair market value at the time of exercise. Depending on the
number exercised, this could influence the market to reduce the trading price of
our stock. See "Certain Transactions-Warrants and Stock Options" at pages 26 and
27.
USE OF PROCEEDS
We have been funding organizational expenses and offering expenses from
the $355,000 capital contribution made by the organizers/directors to date. We
expect total organizational and offering
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expenses to be about $465,000. We will continue to incur organizational and
offering expenses through the date of the completion of the offering and release
of subscription proceeds from the escrow account. The organizers/directors have
committed to make additional periodic contributions to cover the additional
expenses.
The following presentation of use of proceeds of the offering assumes
that all the regulatory approvals are received by us and the offering proceeds
are released from the escrow account and Smith River Bank is fully capitalized
by the end of January, 2000.
<TABLE>
<CAPTION>
Minimum Maximum
Offering Offering
<S> <C> <C> <C>
Offering Proceeds(1)........................................$6,250,000(1) $10,000,000(2)
========== ===========
Anticipated use of proceeds by Smith River Bankshares:
Offering expenses(3).......................................100,000 100,000
Organizational expenses(4)..................................48,000 48,000
Working capital............................................102,000 1,977,000
Capitalization of Smith River Bank
through purchase of common stock of
Smith River Bank....................................... 6,000,000 7,875,000
----------- -----------
Total ....................................................$6,250,000 $10,000,000
========== ===========
Anticipated use of capital by Smith River Bank:
Organizational and pre-opening expenses...............$ 300,000 $ 300,000
Furniture, fixtures and equipment..........................630,000 630,000
Working capital..........................................5,070,000 6,945,000
--------- --------
Total ....................................................$6,000,000 $7,875,000
========= ==========
</TABLE>
- --------------------------------------------------------------------------------
(1) Assuming the sale of 87,500 units and 537,500 shares at a price of $10.00
per unit and share.
(2) Assuming the sale of 87,500 units and 912,500 shares, at a price of $10.00
per unit and share.
(3) Offering expenses consist of various filing fees, printing expenses, escrow
agent fees, and accounting and legal fees and expenses. Through September 30,
1999 approximately $63,000 of offering expenses had been paid or incurred.
(4) These expenses consist of certain consulting and legal fees and regulatory
application fees.
By way of explanation, all subscription proceeds will be released and
become capital of Smith River Bankshares. These funds will be used by Smith
River Bankshares to pay its offering expenses of approximately $100,000 and its
organizational expenses of approximately $48,000. The balance of the funds will
be used by Smith River Bankshares for two purposes: between approximately
$102,000 (minimum offering) and $1,977,000 (maximum offering) will be retained
as working capital and between $6,000,000 (minimum offering) and $7,875,000
(maximum offering) will be used to purchase the stock of Smith River Bank. Smith
River Bank will use approximately $300,000 to reimburse Smith River Bankshares
for amounts it has paid on its own or to FCNB, LLC, a Virginia limited liability
company formed for this purpose, for the Bank's organizational costs and
pre-opening expenses and approximately $410,000 to reimburse Smith River
Bankshares for the cost of equipping the bank's main office and data processing
equipment and software. Smith River Bank's organizational expenses, estimated at
$76,000, include consulting and legal fees, marketing and traveling expenses.
Smith River Bank's pre-opening expenses estimated at $224,000, include salaries,
benefits, rent, utilities, telephone expenses and supplies. Smith River Bank
will use approximately $220,000 to furnish and equip the proposed Bassett,
Virginia branch, if it is approved. The balance of the Bank's proceeds,
estimated at $5,070,000 (minimum offering) and $6,945,000 (maximum offering)
will be used for general banking business as discussed below.
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We expect to use the working capital of Smith River Bank primarily to
fund loans and investments. Management is currently in the process of developing
formal policies covering our investment and lending activities. Based on the
current investment policy, we intend to invest primarily in the following types
of investments: bankers acceptances; bank certificates of deposit; federal
funds; US Treasury bills, notes, and bonds; securities issued by Federal
agencies; mortgage backed securities/mortgage pass through certificates; and
municipal bonds issued by states and local municipalities. The policy
establishes diversification guidelines to avoid undue concentrations. It also
prohibits certain practices considered to carry an unacceptable degree of risk,
such as short-term gains trading, short sales, and options trading. Thus we do
not currently intend to carry investments that would be considered "trading
securities" under the financial accounting standards governing the accounting
for investment securities. We do not intend to seek higher yields by carrying
securities with a relatively high degree of risk, such as those with low credit
ratings. We intend to make consumer loans (such as vehicle loans and home equity
loans/lines of credit), real estate loans (residential and commercial mortgages,
construction and development loans, etc.) and commercial loans (term loans,
letters of credit, and line of credit loans, for example). Over the long term,
we expect that more than half of our loans will be commercial and consumer
loans, which can carry a higher degree of risk than real estate loans.
We intend to use the working capital of Smith River Bankshares as
estimated in the table above primarily as a source to add to the working capital
of Smith River Bank whenever an addition may be necessary. We will also use it
to pay professional fees, licensing fees, office expenses and, if we receive the
maximum offering, for possible future acquisitions, although we do not
anticipate any at this time.
DIVIDEND POLICY
In order to preserve capital to facilitate growth and expansion, we do
not anticipate paying cash dividends on the shares in the immediate future. The
Board of Directors will make a determination whether to pay cash dividends on
the basis of operating results, financial condition, tax considerations, and
other relevant factors. Also, at present, the only source of funds from which we
could pay cash dividends would be dividends paid to Smith River Bankshares by
Smith River Bank. Smith River Bank similarly does not anticipate paying cash
dividends to Smith River Bankshares in the near future in order to preserve its
capital to facilitate growth and expansion of its business. Payment of cash
dividends by Smith River Bank is also limited by regulatory requirements and
limitations. See, "Supervision and Regulation" on page 19.
In summary, we can give no assurances that any dividends will be
declared by Smith River Bankshares or, if declared, what the amount of the
dividends will be or whether the dividends, once declared, would continue.
BUSINESS
MARKET FOR COMMON STOCK
As a newly organized company, we have never issued capital stock,
except for the minimum required to organize Smith River Bankshares. Accordingly,
there is no established market for our stock. Following the completion of the
offering, we do not anticipate that our common stock will be traded actively for
some time. At some point in the future, we will investigate trading
over-the-counter or on an established exchange. We expect that any such trading
on a public exchange will be at least three years in the future and may never
occur.
The development of an active trading market, whether or not a stock is
reported on an exchange, depends on the existence of willing buyers and sellers.
Due to the small size of this offering, it is unlikely that an active trading
market will develop in the near future. Only investors who have a long term
interest should take part in this offering, because investors may not be able to
sell their shares when they desire or at a price equal to or above the price
offered.
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SMITH RIVER BANKSHARES
Smith River Bankshares was incorporated in the Commonwealth of Virginia
on January 14, 1999 under the name of First Community National BanCorp., Inc. On
July 8, 1999, Restated Articles of Incorporation became effective changing the
company name to Smith River Bankshares, Inc. We anticipate filing an application
with the Federal Reserve for authority to become a bank holding company on or
about November 1, 1999.
Our offices are currently located in the Patrick Henry Mall at Suite
12, 730 East Church Street, Martinsville, Virginia, with our telephone number
being (540) 632-8092. Smith River Bankshares' permanent offices will continue to
be at the same location. When it opens, Smith River Bank's main banking facility
will be located nearby at East Church Street and Booker Road in Martinsville,
Virginia.
We will be authorized to engage in any activity available by law to a
corporation, as permitted under applicable Federal and state regulatory
restrictions applicable to the activities of bank holding companies. The holding
company structure will provide us with greater flexibility than Smith River Bank
standing alone would have, to expand and diversify business activities through
newly formed subsidiaries or through acquisitions. While we have no present
plans to engage actively in any other business activities, we will study the
feasibility of establishing or acquiring subsidiaries to engage in other
business activities permitted by law.
Our principal assets will consist initially of the net proceeds of the
offering and Smith River Bank's stock. These assets will be used to fund our
initial activities. Whether we will need additional capital will depend to a
great extent upon the capital needs of Smith River Bank, which, in turn, will
depend upon the level of deposits and total assets of Smith River Bank. Smith
River Bank's capital needs for at least the next three years are expected to be
satisfied from the proceeds of the offering and from normal business operations.
If, after the first three years, Smith River Bank were to grow at a more rapid
rate than anticipated, Smith River Bank's capital needs could exceed the amount
of capital retained by us from the offering. We believe that additional capital
would be available through the sale of additional securities or debt offerings,
but that might not be the case.
SMITH RIVER COMMUNITY BANK, N.A.
GENERAL
Smith River Bank is currently being organized under the National Bank
Act as a nationally chartered commercial bank and member of the Federal Reserve,
whose deposits are insured by the FDIC. Smith River Bank applied for both the
charter and deposit insurance on March 31, 1999. We received preliminary charter
approval from the Comptroller of the Currency on August 4,1999 and we received
preliminary deposit insurance approval from the FDIC on September 14, 1999.
Smith River Bank's initial capitalization will be provided from the net
proceeds of the offering by Smith River Bankshares purchasing at least 600,000
shares of Smith River Bank's common stock. The purchase price per share is
$10.00.
Immediately upon obtaining all regulatory approvals and being
capitalized, Smith River Bank will engage in attracting deposits from the
general public and will make commercial, consumer and real estate loans. We
anticipate that Smith River Bank will commence operations by February 2000,
assuming the completion by that date of at least the minimum offering and sale
of all of the units and receipt of all regulatory approvals.
The organizers developed a market analysis covering the proposed
primary service area and a proprietary business plan that were included in
applications to the regulatory authorities. Smith River Bank's business plan for
its initial years of operation relies principally upon local advertising and
promotional activity and upon personal contacts by its directors, officers and
shareholders to attract business and to acquaint potential customers with Smith
River Bank's personalized services. Smith River Bank intends to emphasize a high
degree of personalized client service in order to be able to serve each
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customer's banking needs. Smith River Bank's marketing approach will emphasize
the advantages of dealing with an independent, locally-owned and headquartered
commercial bank to meet the particular needs of individuals, professionals and
small to medium-sized businesses. We will continue to evaluate all banking
services as to their profitability and make an effort to modify Smith River
Bank's business plan if the original plan does not prove successful.
We believe that Smith River Bank's business plan will make it
profitable by the end of the third year of operations. However, it has been
common in the banking industry for new financial institutions to lose money in
the first several years of operation. There can be no assurance as to when or
whether Smith River Bank's operations will become profitable.
PRIMARY SERVICE AREA
The primary service area of Smith River Bank is Henry County, Virginia,
located in south central Virginia with its southern border on the North Carolina
state line. The City of Martinsville is geographically in the center of the
County. Henry County is the most urbanized of the five counties that comprise
the West Piedmont Economic Development District. In general, the historical
growth trends for the market are not in pace with Virginia's dynamic growth. In
1998, the market had a population of 71,573, a slight decline from 1990. The
number of households increased slightly from 28,610 in 1990 to 28,851 in 1998.
There were approximately 1,636 businesses in the area and the unemployment rate
in February, 1998 was 5.3%. Median household income increased slightly (1.1%)
between 1990 and 1998. For 1998, it is estimated that 74.7% of all households in
the area had incomes above $25,000. The area is heavily dependent on
manufacturing. As of June 30, 1998, the latest date for which statistics are
available, total deposits in the market were $921,466,000.
COMPETITION
Smith River Bank will experience competition in attracting and
retaining business and personal checking and savings accounts, and making
commercial, consumer and real estate loans and providing other services in the
primary service area. The primary factors in competing for bank accounts are
interest rates, the range of financial services offered, convenience of banking
facilities and flexible office hours. Direct competition for bank accounts comes
from other commercial banks, savings institutions, credit unions, brokerage
firms and money market funds. The primary factors in competing for loans are
interest rates, loan origination fees and the range of lending services offered.
Competition for origination of loans normally comes from other commercial banks,
savings institutions, credit unions and mortgage banking firms. These entities
may have competitive advantages as a result of greater resources and higher
lending limits by virtue of their greater capitalization and, in the case of
credit unions, as a result of tax laws. These competitors also may offer their
customers certain services that Smith River Bank will not provide directly but
might offer indirectly through correspondent institutions.
As of June 30, 1998, there were ten commercial banks, two savings and
loan institutions, and only one remaining community bank operating in the
primary service area. Their 23 branches had combined deposits of $921,466,000.
In addition, there are two credit unions operating in the primary service area.
Last year, the largest local institution, Mainstreet Financial Corporation, was
acquired by BB&T Corporation. Crestar Bank, NationsBank, and Central Fidelity
Bank all merged with large national or super regional institutions. First
Citizens Bank and Trust Company and American National Bank and Trust Company
have branches in the area, but oversight is provided from headquarters out of
our market.
On June 30, 1998, commercial banks held 93.7% of the banking deposits
in the market while thrifts and credit unions held the remaining 6.3%. Large
regional and super-regional banks headquartered out of state held nearly 73% of
the deposits in the market. While recent deposit growth in the market has been
modest, the recent acquisition by out of state companies of MainStreet BankGroup
(owner of Piedmont Trust Bank and Bank of Ferrum total of 36.9% of all deposits
in the market) and of Crestar (22.1% of all deposits in the market) create an
opportunity for us as a locally headquartered community bank. Our ability to
take advantage of this opportunity depends on how well we are able to deliver a
high level of personalized banking services that customers want. To some extent
we will be at a disadvantage to larger institutions that can advertise more
extensively and offer a broader range of products and services as a result of
their greater resources. In addition, these larger institutions have
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branching and proprietary ATM networks that we will not be able to duplicate for
some time. We believe, however, that we will be able to take advantage of the
consolidation in the market place and provide personalized, focused banking
services that will be desirable to large segments of bank customers in the
market and which will enable us to compete satisfactorily.
We may encounter increased competition as a result of the enactment of
Virginia legislation implementing the Riegle-Neal Interstate Banking and Branch
Efficiency Act of 1994. In general terms, this legislation lowers the barriers
for entry into Virginia by out-of-state financial institutions. See,
"Supervision and Regulation Recent Legislative Developments" on page 21.
EMPLOYEES
As of the date of this prospectus, Andy McCullar, the President and
Chief Executive Officer of Smith River Bankshares, Brenda Smith, Senior Vice
President - Chief Financial Officer of Smith River Bankshares, Francia Brown,
administrative assistant, and Sonya Smith, operations officer, are the only
persons receiving compensation from us. Mr. McCullar is being paid pursuant to
an employment agreement which covers Mr. McCullar's employment both before and
after release of subscription proceeds from escrow. See, "Management -
Remuneration of Directors and Officers" at page 25. Unless we expand our
operations into other activities permitted by law for a bank holding company, it
is unlikely that we will have many additional employees. During the first year
of operations, we anticipate that Smith River Bank will employ approximately
fourteen (14) full-time employees of whom, it is estimated, five (5) will be
officers.
PROPERTY
On April 6, 1999, we entered into two leases. One lease is for Smith
River Bankshares' executive offices and the other lease is for the main banking
office of Smith River Bank. The executive office lease is for 2,000 square feet
of space located in the Patrick Henry Shopping Mall at Suite 12, 730 East Church
Street in Martinsville, Virginia. Smith River Bank's main office lease covers
nearly 2,486 additional square feet. The executive office lease commenced on May
1, 1999, and the main office lease commenced on August 1, 1999. Both leases
expire on July 31, 2002. The base rental for the executive office lease is $750
per month for May, June and July, 1999, and $1,000 per month thereafter. The
base rental for Smith River Bank's main office lease is $2,500 per month. This
facility is the former branch of another bank and is largely furnished. However,
Smith River Bank anticipates spending $410,000 for additional furnishings and
equipment for this office and for the acquisition and installation of an ATM.
Smith River Bank plans to open from 9:00 a.m. to 5:00 p.m. Monday
through Thursday, 9:00 a.m. to 6:00 p.m. on Friday, and will operate
drive-through banking, 8:00 a.m. to 6:00 p.m. Monday through Friday and 9:00
a.m. to 12:00 noon on Saturdays (except for legal holidays).
We have a lease for a 3,400 square foot facility located at 380
Riverside Drive, in Bassett, Virginia. The facility is a former branch of a bank
which was closed several years ago. The lease commenced on June 1, 1999, and
expires 36 months from then. The base rental is $500 per month but will increase
to $2,500 per month on the date the proposed branch opens at such location, if
approved. Smith River Bank anticipates opening a branch banking facility at this
location in the first half of 2000. We expect to apply for regulatory approval
for the branch within the first three (3) months after Smith River Bank opens
its main office. If we do not receive approval or otherwise are unable to open
the branch, the lease will be terminated. The estimated cost of leasehold
improvements, furniture and equipment, together with the acquisition and
installation of an ATM at this site is $220,000.
None of the leases contain options to renew. Consequently, it is
possible that Smith River Bankshares and/or Smith River Bank may be required to
relocate operations at one or more of these facilities if, at the end of the
lease term we are unable to renegotiate the leases. If this were to occur, the
expenses of relocation and disruption in services could be substantial. Smith
River Bank and the landlords have agreed to discuss renewal options after the
bank opens.
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BANKING SERVICES GENERALLY
Smith River Bank will offer a full range of commercial banking services
to individual, professional and business customers in its primary service area.
These services will include personal and business checking accounts and savings
and other time certificates of deposit. The transaction accounts and time
certificates will be at rates competitive with those offered in the primary
service area. Customer deposits with Smith River Bank will be insured to the
maximum extent provided by law through the FDIC. Smith River Bank plans to issue
both Visa and MasterCard credit cards. The Bank intends to offer night
depository services and to sell traveler's checks issued by an independent
entity and its own cashier's checks. Smith River Bank does not anticipate
offering trust and fiduciary services initially and will rely on trust and
fiduciary services offered by correspondent banks until it determines that it is
profitable to offer these services directly. Smith River Bank intends to have
proprietary ATM's at both its main bank office and at the proposed Bassett
branch. Smith River Bank also plans on offering internet banking services when
economically viable to do so.
LENDING ACTIVITIES
Smith River Bank will seek to attract deposits from the general public
and will use those deposits, together with borrowings and other sources of
funds, to originate and purchase loans. It will offer a full range of short and
medium-term commercial, consumer and real estate loans. Smith River Bank will
attempt to react to prevailing market conditions and demands in its lending
activities, while avoiding excessive concentrations of any particular loan
category. It has not yet fixed specific goals as to lending concentration by
type of loan because its written loan policy is in the process of being
developed. Smith River Bank will develop a loan approval process that will
provide levels of officer lending authority.
The risk of nonpayment of loans is inherent in making all loans.
However, management intends to carefully evaluate all loan applicants and to try
to minimize credit risk exposure with thorough loan application and approval
procedures that will be established for each category of loan prior to beginning
operation. In determining whether to make a loan, Smith River Bank will consider
the borrower's credit history, analyze the borrower's income and ability to
service the loan, and evaluate the need for collateral to secure recovery in the
event of default.
Under the national banking laws, Smith River Bank is limited in the
amount it can loan to a single borrower to no more than 15% of a bank's
statutory capital base, unless the entire amount of the loan is secured by
readily marketable collateral. In no event, however, may the loan be greater
than 25% of a bank's statutory capital base. It is expected that Smith River
Bank's legal lending limit under applicable law for one borrower, based upon its
initial statutory capital base, will be approximately $900,000 for unsecured
loans and $1,500,000 for loans fully secured by readily marketable collateral.
Smith River Bank's loan policy, when developed, may establish a lower lending
limit.
Smith River Bank will maintain an allowance for loan losses based upon
management's assumptions and judgments regarding the ultimate collectibility of
loans in its portfolio and based upon a percentage of the outstanding balances
of specific loans when their ultimate collectibility is considered questionable.
Certain risks with regard to specific categories of loans are described below.
Commercial Loans. Commercial lending activities will be directed
principally toward businesses whose demand for funds will fall within Smith
River Bank's anticipated lending limit. These businesses will include small to
medium-size professional firms, retail and wholesale businesses, light industry
and manufacturing concerns operating in and around the primary service area. The
types of loans provided will include principally term loans with variable
interest rates secured by equipment, inventory, receivables and real estate, as
well as secured and unsecured working capital lines of credit. Repayment of
these loans will be dependent upon the financial success of the business
borrower. Personal guarantees may be obtained from the principals of business
borrowers and/or third parties to further support the borrower's ability to
service the debt and reduce the risk of nonpayment. Smith River Bank may also
offer to commercial customers equipment leasing and factoring through the
Community Bankers Bank, located in Richmond, Virginia.
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<PAGE>
Real Estate Loans. Real estate lending will include commercial and
residential real estate development loans, home improvement loans, home equity
loans and residential mortgage loans. Smith River Bank may originate a limited
number of variable-rate residential and other mortgage loans for its own account
and both variable and fixed-rate residential mortgage loans for resale. The
residential loans will be secured by first mortgages on one-to-four family
residences in the primary service area. Loans secured by second mortgages on a
borrower's residence may also be made.
Consumer Loans. Consumer lending will be made on a secured or unsecured
basis and will be oriented primarily to the requirements of Smith River Bank's
customers, with an emphasis on direct automobile financing, home improvements,
debt consolidation and other personal needs. Consumer loans will generally
involve more risk than first mortgage loans, because the collateral for a
defaulted loan may not provide an adequate source of repayment of the principal
due to damage to the collateral or other loss of value while the remaining
deficiency often does not warrant further collection efforts. In addition,
consumer loan performance is dependent upon the borrower's continued financial
stability and is, therefore, more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Various Federal and state laws,
including Federal and state bankruptcy and insolvency laws, may also limit the
amount that can be recovered.
ASSET AND LIABILITY MANAGEMENT
The primary assets of Smith River Bank will consist of its loan
portfolio and investment accounts. Consistent with the requirements of prudent
banking necessary to maintain liquidity, we will seek to match maturities and
rates of loans and the investment portfolio with those of deposits, although
exact matching is not always possible. We will seek to invest the largest
portion of Smith River Bank's assets in commercial, consumer and real estate
loans. We will price our deposit and loan products competitively and concentrate
on superior service, local management and local decision-making to attract
customers. We will attempt to maintain a positive spread between the interest
earned on investments and loans and the interest costs on deposits. The positive
spread will be achieved primarily by offering floating rate loans, offering
fixed rate loans only when their maturities match the projected maturities of
long term certificates of deposit or other borrowings by Smith River Bank. There
is no assurance we will be able to achieve this plan, particularly in the
initial years of operation, when the market may require us to offer higher rates
on deposits and lower rates on loans in order to attract customers. We
anticipate that loans will be limited to less than 70% of deposits and capital
funds; however, this ratio may be exceeded in the initial period of operation.
We anticipate that Smith River Bank's investment account will consist primarily
of marketable securities of the United States government, Federal agencies and
state and municipal governments, generally with varied maturities.
Smith River Bank's investment policy will provide for a portfolio
divided among issues purchased to meet one or more of the following objectives:
o to complement strategies developed in assets/liquidity management, including
desired liquidity levels;
o to maximize after-tax income from funds not needed for day-to-day operations
and loan demand; and
o to provide collateral necessary for acceptance of public funds.
We anticipate that this policy will allow Smith River Bank to deal with
seasonal deposit fluctuations and to provide for basic liquidity consistent with
loan demand and, when possible, to match maturities with anticipated liquidity
demands. Longer term securities may be selected for a combination of yield and
exemption from Federal income taxation when appropriate. Deposit accounts will
represent the majority of the liabilities of Smith River Bank. These will
include savings accounts, transaction accounts and time deposits.
Initially, Smith River Bank anticipates deriving its income principally
from interest charged on loans and, to a lesser extent, from interest earned on
investments, fees received in connection with the origination of loans and
miscellaneous fees and service charges. Its principal expenses are anticipated
to be interest expense on deposits and operating expenses. The funds for these
activities are anticipated to
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be provided principally by operating revenues, deposit growth, purchase of
Federal funds from other banks, repayment of outstanding loans and sale of loans
and investment securities.
YEAR 2000 READINESS
An important business issue has surfaced relating to how existing
computer software programs and operating systems will accommodate the calendar
change to Year 2000. Many software products were designed to accommodate only a
two-digit year, storing 1998, for example, as "98," and these same programs may
read "00" as 1900 rather than 2000. This is expected to have an adverse effect
on businesses that rely on programs that are not "Year 2000" or Y2K" compliant.
After commencing business, Smith River Bank intends to use third-party
vendors for processing most bank operations and for some other ancillary
products and computer needs. Management intends to purchase equipment that is
warranted for Y2K compliance, and management will ensure that any vendor chosen
uses only bank applications and programs that can handle the coming calendar
change and are Y2K compliant. Smith River Bank also expects to put clauses in
all contracts protecting itself against the potential problem. Smith River Bank
will use internal communications and training to educate employees and keep them
up to date on this subject, and it will use questionnaires and continued
dialogue with all bank customers to make them aware of the issues. Finally,
Smith River Bank will include Y2K risk management parameters in its loan policy,
minimizing the issue as a part of Smith River Bank's credit risk.
In short, Smith River Bank does not believe this Y2K issue will have a
material effect on Smith River Bank's financial condition. We estimate the total
costs to us for Y2K readiness, including equipment testing and employee and
customer education to be less than $25,000. However, if Smith River Bank's
vendors or customers, the Federal Reserve Bank of Richmond, or other regulator
agencies do not achieve Y2K compliance in time, Smith River Bank's business and
financial condition would be adversely affected.
INCOME TAXES
Smith River Bankshares will be subject to both Federal and state income
taxes. While the bank will be subject to Federal income taxes, a bank is exempt
from state income tax in Virginia. Instead, a bank in Virginia must pay a
franchise fee based on the bank's capital level. However, we expect that we will
not have profitable operations until at least the third full year of operations,
if then. Because of this, and because of the substantial start-up costs, we may
have a substantial cumulative net loss before we become profitable. Under
current Federal tax laws, these net operating losses will be available to offset
future taxable profits. Specifically, a net operating loss may be carried
forward for a period of up to 20 years to offset taxable income in those years.
This could reduce our taxes in the initial years of profitability. However, if
the offering is not successful, if required regulatory approvals are not
obtained, or if operations are not ultimately profitable, then it is unlikely
that we will realize any tax benefits.
MANAGEMENT'S PLAN OF OPERATION
Smith River Bankshares was incorporated under the laws of the
Commonwealth of Virginia on January 14, 1999, for the purpose of becoming a bank
holding company that would own all of the outstanding shares of capital stock of
the proposed national bank, Smith River Bank. We anticipate that we will receive
regulatory approval to open Smith River Bank during the first quarter of 2000,
assuming this offering is successful, and open the bank shortly after that.
There can be no assurance, however, that we will receive approval or that Smith
River Bank will open.
Prior to this offering, the only material source of funds for Smith
River Bankshares has been the investments by the organizers/directors for this
purpose. As of October 13, 1999, we have received gross proceeds of $355,000
from the organizers/directors. These advances and additional advances, which we
estimate will be a total of $465,000, will be repaid by Smith River Bankshares
and Smith River Bank from the proceeds of the offering, if it is successful.
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Smith River Bankshares is newly formed and it has, and Smith River Bank
when it is formed will have, no prior operating history. Our operating results
will depend on operating results of Smith River Bank. Smith River Bank's success
and profitability will depend in large part on our ability to attract a customer
base and on the economy in general in Martinsville, Virginia and the surrounding
counties. Smith River Bank will incur operating expenses, and there are no
assurances as to when, if ever, Smith River Bank will make a profit. Assuming
that the minimum net proceeds from the offering are raised, we presently believe
that we will have sufficient capital resources to meet our commitments over the
next twelve months. See "Use of Proceeds" on page 10 and "Business" on page 12.
Unless we expand our operations into other activities permitted by law
for a bank holding company, it is unlikely that Smith River Bankshares will have
many employees beyond Mr. McCullar, President and Chief Executive Officer, Ms.
Smith, Senior Vice President and Chief Financial Officer, and Ms. Brown,
administrative assistant. During the first year of operations, we anticipate
Smith River Bank will employ approximately fourteen (14) full time employees.
See "Business - Employees" on page 15.
We have entered into three leases, one of which is for the executive
offices of Smith River Bankshares. The other two leases are for the anticipated
main banking office and another branch office of Smith River Bank. We are
currently paying rent on all three leases. We expect to spend approximately
$410,000 on the main banking office for additional furnishings and an ATM. We
also expect to spend approximately $220,000 for leasehold improvements,
furniture and equipment, and an ATM for the branch banking office. See page 15
under "Property" for additional details.
SUPERVISION AND REGULATION
We provide the following as a summary of statutes and regulations
affecting bank holding companies. This summary is qualified in its entirety by
reference to these statutes and regulations.
SUPERVISION AND REGULATION OF SMITH RIVER BANKSHARES
Smith River Bankshares will be a bank holding company within the
meaning of the Federal Bank Holding Company Act of 1956 and the Virginia Banking
Act. As a bank holding company, Smith River Bankshares will be required to file
with the Federal Reserve periodic reports and information regarding its business
operations and those of Smith River Bank. Smith River Bankshares must also
provide the Virginia Financial Institutions Bureau with information regarding
itself and Smith River Bank. Smith River Bankshares and Smith River Bank will
also be examined by the Federal Reserve, and Smith River Bankshares will be
examined by the Virginia Bureau of Financial Institutions.
A bank holding company is required by the Federal Bank Holding Company
Act to obtain approval from the Federal Reserve prior to acquiring control of
any bank that it does not already own or engaging in any business other than
banking or managing, controlling or furnishing services to banks and other
subsidiaries authorized by the statute. Similarly, approval of the Virginia
Financial Institutions Bureau is required for certain acquisitions of other
banks and bank holding companies. The Federal Reserve would approve the
ownership of shares by a bank holding company in any company the activities of
which it has determined by order or regulation to be so closely related to
banking or to managing or controlling banks as to be a proper incident thereto.
In other words, regulatory involvement, and frequently approval, is required if
we were to engage in any of the foregoing activities.
Smith River Bankshares would be compelled by the Federal Reserve to
invest additional capital in the event Smith River Bank experiences either
significant loan losses or rapid growth of loans or deposits. The Federal
Reserve requires a bank holding company to act as a source of financial strength
and to take measures to preserve and protect its bank subsidiaries.
As a bank holding company, we will operate under the capital adequacy
guidelines established by the Federal Reserve. Under the Federal Reserve's
current risk-based capital guidelines for bank holding companies, the minimum
required ratio for total capital to risk weighted assets we will be required to
maintain is 8 percent, with at least 4 percent consisting of Tier 1 capital.
Tier 1 capital consists of common and qualifying preferred stock, certain other
qualifying instruments, and minority interests in equity accounts of
consolidated subsidiaries, less goodwill and other intangible assets. Because we
will
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<PAGE>
be a bank holding company with less than $150 million in total consolidated
assets, these guidelines will be applied on a bank only basis. These risk-based
capital guidelines establish minimum standards and bank holding companies
generally are expected to operate well above the minimum standards.
Following completion of the offering, Smith River Bankshares will also
have to comply with the requirements of the Securities Exchange Act of 1934,
which include the filing of annual, quarterly and other reports with the SEC.
SUPERVISION AND REGULATION OF SMITH RIVER BANK
Smith River Bank will be examined and regulated by the Office of the
Comptroller of the Currency and the Federal Reserve. The OCC regulates and
monitors all significant aspects of the Bank's operations. The OCC requires
quarterly reports on Smith River Bank's financial condition and conducts
periodic examinations of the Bank. The cost of complying with these regulations
and reporting requirements can be significant. In addition, some of these
regulations impact investors directly. For example, Smith River Bank may pay
dividends only out of its undivided profits after deducting expenses, including
losses and bad debts. In general, the OCC limits annual dividends to retained
profits of the current year plus two prior years, without OCC approval. In
addition, Smith River Bank may not pay dividends at all until its surplus equals
its stated capital. The only exception is if Smith River Bank has transferred to
surplus no less than 10% of its net profits for the preceding two consecutive
half year periods (for annual dividends) or of the preceding half year period
(for quarterly or half year dividends). Regulatory restrictions on Smith River
Bank's ability to pay dividends may adversely impact Smith River Bankshares'
ability to pay dividends to its shareholders.
Smith River Bank's loan operations, particularly for consumer and
residential real estate loans, are also subject to numerous legal requirements
as are its deposit activities. In addition to regulatory compliance costs, these
laws may create the risk of liability to the Bank for noncompliance.
Smith River Bank's deposits will be insured by the FDIC for a maximum
of $100,000 per depositor. For this protection, Smith River Bank will pay a
semi-annual statutory assessment and will have to comply with the rules and
regulations of the FDIC. These assessments can go up or down, affecting the
Bank's costs, depending on the solvency of the banking industry as a whole. In
addition, the cost of complying with FDIC rules and regulations may negatively
impact Smith River Bank's profitability. In case of member banks like Smith
River Bank, the Federal Reserve has the authority to prevent the continuance or
development of unsound and unsafe banking practices and to approve conversions,
mergers and consolidations. Obtaining regulatory approval of these transactions
can be expensive, time-consuming and may not be ultimately obtainable.
As a member of the Federal Reserve, Smith River Bank will also have to
comply with rules that restrict preferential loans by the bank to "insiders,"
require Smith River Bank to keep information on loans to principal shareholders
and executive officers, and prohibit certain director and officer interlocks
between financial institutions. Also, under the Federal Reserve's current
risk-based capital guidelines for member banks, Smith River Bank will be
required to maintain a minimum ratio of total capital to risk weighted assets of
8 percent, with at least 4% consisting of Tier 1 capital. In addition, the
Federal Reserve requires its member banks to maintain a minimum ratio of Tier 1
capital to average total assets. This capital measure is generally referred to
as the leverage capital ratio. The minimum required leverage capital ratio is 4
percent if the Federal Reserve determines that the institution is not
anticipating or experiencing significant growth and has well-diversified risks
- -- including no undue interest rate exposure, excellent asset quality, high
liquidity and good earnings -- and, in general, is considered a strong banking
organization and rated Composite 1 under the Uniform Financial Institutions
Rating Systems. If Smith River Bank does not satisfy any of these criteria it
may be required to maintain a ratio of total capital to risk-based assets of 10
percent and a ratio of Tier 1 capital to risk-based assets of at least 6
percent. Smith River Bank would then be required to maintain a 5 percent
leverage capital ratio. These regulations can impact Smith River Bank by
requiring it to hold more capital and thereby inhibit its ability to grow.
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<PAGE>
MONETARY POLICY
Banking is a business that depends on interest rate differentials. The
difference between the interest rates paid by Smith River Bank on its deposits
and other borrowings and the interest rate received on loans extended to its
customers and on securities held in its portfolio comprises the major portion of
Smith River Bank's earnings.
The earnings and growth of Smith River Bank will be affected not only
by general economic conditions, both domestic and foreign, but also by the
monetary and fiscal policies of the United States and its agencies, particularly
the Federal Reserve. The Federal Reserve implements national monetary policy by
its open market operations in United States government securities, adjustments
in the amount of industry reserves that banks and other financial institutions
are required to maintain and adjustments to the discount rates applicable to
borrowings by banks from the Federal Reserve. The actions of the Federal Reserve
in these areas influence the growth of bank loans, investments and deposits and
also affect interest rates charged and paid on deposits. We cannot predict the
nature and impact of any future changes in monetary policies.
RECENT LEGISLATIVE DEVELOPMENTS
The United States Congress periodically adopts legislation that impacts
both banks and other financial institutions. Legislation of this type could
further deregulate the financial services industry and lift remaining geographic
restrictions on banks and bank holding companies and current prohibitions
against banks engaging in certain non-banking activities and nonbanks engaging
in banking activities. These legislative changes could place us in more direct
competition with other financial institutions, including mutual funds,
securities brokerage firms, insurance companies and investment banking firms. On
the other hand, legislation could impose further restrictions on banks which
might limit the services or products banks offer, the manner in which they may
be offered, or the cost of offering them. Because of these uncertainties, we
cannot predict what legislation might be enacted, and if enacted, the effect
thereof.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current members of our Board of Directors are twelve organizers.
They are divided into three classes that serve staggered three-year terms. The
members of one class are elected at each annual meeting of shareholders and hold
office until the third annual meeting following their election or until
successors are elected and qualified. The term of the Class A Directors expires
2002, term of the Class B directors expires in 2001, and the term of the Class C
directors expires in 2000. The following tables set forth material information
about the current executive officers, directors and organizers of Smith River
Bankshares. They are also expected to be the principal shareholders. We intend
that the same persons will serve on the Board of Directors of Smith River Bank,
when it is organized. Unlike Smith River Bankshares, the term of Smith River
Bank directors is uniformly one year.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION NUMBER OF DOLLAR
NAME/AGE SMITH RIVER LAST 5 YEARS SHARES(%)/ AMOUNT OF
-------- BANKSHARES ------------ WARRANTS(%) SUBSCRIPTION
---------- AND OPTIONS (%) ------------
AFTER OFFERING (1)
------------------
<S> <C> <C> <C> <C> <C>
CLASS A DIRECTORS - TERM EXPIRES 2002
J. E. Bassett, Director Retired/formerly Vice 10,000 (1.6%) $100,000
Jr./67 President-Quality 10,000 (3.2%)
Control, Bassett
Furniture
Mervyn R. King/65 Director Retired/Anesthes-iologist 10,000 (1.6%) $100,000
and President M. R. 10,000 (3.2%)
King & Assoc.s
</TABLE>
- --------
(1) Based on minimum offering percentage. Share % includes only shares; warrant
% includes both shares and warrants, assuming all warrants are exercised.
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<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION NUMBER OF DOLLAR
NAME/AGE SMITH RIVER LAST 5 YEARS SHARES(%)/ AMOUNT OF
-------- BANKSHARES ------------ WARRANTS(%) SUBSCRIPTION
---------- AND OPTIONS (%) ------------
AFTER OFFERING (1)
------------------
<S> <C> <C> <C> <C> <C>
Morton W. Director President-The Lester 10,000 (1.6%) $100,000
Lester/65 Corp.; Vice President 10,000 (3.2%)
- Motor Imports, Inc.
Cecil R. Director, President - First 10,000 (1.6%) $100,000
McCullar/62 President and American FSB 10,000 (3.2%)
Chief Executive 30,000(2) (8.0%)
Officer
CLASS B DIRECTORS - TERM EXPIRES 2001
Patricia H. Director Retired Realtor 5,000 (.8%) $ 50,000
Brammer/66 5,000 (1.6%)
George R. Director Owner - Nelson Ford, 10,000 (1.6%) $100,000
Nelson, Jr./62 Inc./G.R. 10,000 (3.2%)
Chevrolet,Inc./Nelson
Mazda Subaru/ Nelson
Pontiac, Buick, GMC,
Inc.
Douglas E. Director Owner - Riddle 5,000 (.8%) $ 50,000
Riddle/55 Chrysler, Plymouth, 5,000 (1.6%)
Dodge, Honda
Milford A. Director Owner, Virginia 4,000 (.6%) $ 40,000
Weaver/74 Blower Company 4,000 (1.2%)
CLASS C DIRECTORS - TERM EXPIRES 2000
Jessee D. Director Real Estate Broker/ 10,000 (1.6%) $100,000
Cahill, Sr./68 General Contractor 10,000 (3.2%)
Roxann B. Director Principal - Dillon 6,000 (1.0%) $ 60,000
Miller/66 Insurance Agency 6,000 (2.0%)
Jimmie R. Director President - Jim Mills 5,000 (.8%) $ 50,000
Mills/62 Lincoln-Mercury-Jeep 5,000 (1.6%)
Joe C. Director Retired/Exc. Vice 2,500 (.4%) $ 25,000
Philpott/68 President-Manufacturing; 2,500 (.8%)
Bassett Furniture
EXECUTIVE OFFICER NOT A DIRECTOR
Brenda H. Senior Vice Vice President and
Smith/40 President and Corp. Controller,
Chief Financial Main-street Financial -- --% --
Officer Corp. ---------- ------- ----------
TOTAL 87,500 (14%) $875,000
87,500 (28%)
</TABLE>
All of the shares listed above are only commitments to purchase by the
organizers/directors, and no shares are yet owned. Except as otherwise
indicated, the persons named in the above table will have sole voting and
investment power as to all shares shown as beneficially owned by them. Also,
these numbers do not reflect any additional shares which the organizers may
purchase if it is necessary to complete the minimum offering or shares which may
be purchased by any additional directors or officers of Smith River Bankshares
or Smith River Bank.
- ------------
(2) In addition to his subscription, Mr. McCullar will receive 30,000 options to
purchase a share of common stock at $10.00 per share, 10,000 options exercisable
at each of the first, second, and third anniversary of the bank opening.
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The business experience of each of the directors is described below.
J. E. Bassett, Jr., retired, was employed for almost 43 years by
Bassett Furniture Industries. He was a director of the company, a plant manager,
and later a Vice President - Quality Control. He was a director of First Bassett
Bank and Trust, an advisory board member of Dominion Bank and an advisory board
member of First Union Bank. He has held Directorships in Bassett Mirror Company,
Blue Ridge Hardware & Supply Company, Roy Stone Trucking Company, Dominion
Ornamental Company, Techni-Cast Corporation and Bassett Land and Lumber Company.
He received his BS from North Carolina State University in Furniture
Manufacturing and Management in 1955. He was a member of the Board of Visitors
of James Madison University, and the Alumni Board of North Carolina State
University.
Patricia H. Brammer has been a resident of Henry County for forty-five
years. She has been a successful realtor and was a member of the National
Million Dollar Real Estate Club. Mrs. Brammer has been very active in outside
affairs such as Christ Episcopal Church and Garden State Garden Club. Other
activities include fund raising for cancer, heart fund, the local Red Cross
Blood Mobile, Chamber of Commerce and as a hospital volunteer along with
different school functions.
Jesse D. Cahill, Sr. has been a Real Estate Broker and General
Contractor since 1959. He has been president of Martinsville-Henry County
Realtors Association, Real Estate Commissioner of Real Estate for the State of
Virginia, President of Rocuda Finance Company, member and director of Virginia
Financial Services, and Past Chairman of Martinsville-Henry County Economic
Development Corporation. He graduated from Bassett High School and Steeds
College of Commerce. He is an Elder and Board Chairman of Fort Trial Christian
Church.
Mervyn R. King, MD., retired anesthesiologist, was founder and
President of M. R. King and Associates, Inc., a company that provided anesthesia
and related services to Memorial Hospital of Martinsville and Henry County for
29 years. He presently owns or is co-owner and CEO of the following businesses:
Countryside Manor, Inc. (a nursing home), Countryside Village Retirement
Community, Inc., Countryside Properties LP (a real estate holding company),
Martinsville Nissan, Inc., Peaksview Buick, Pontiac, and GMC Trucks, Inc., and
Inside Track Co. (an antique business and a design and manufacturing company of
toy train display cases). He received his BS degree in Chemistry from Lynchburg
College and his Medical Degree from the University of Virginia. He also took his
anesthesia residency at the University of Virginia. Following his residency, he
served as Captain in the U.S. Air Force for two years. Dr. King was Henry County
Board of Supervisor Tiebreaker for eight years. He served on the Board of
Directors of Memorial Hospital of Martinsville and Henry County for six years.
Five of those years he was on the Board's Finance Committee. He is presently a
member of First Presbyterian Church in Martinsville, Rangeley Ruritan Club,
Piedmont Arts Association, Mental Health Association, and Martinsville-Henry
County Historical Society.
Morton W. Lester is President of The Lester Corporation, a real estate
investment and property management company, and Vice President of Motor Imports,
Inc. He received his BS in Business from Virginia Polytechnic Institute and
State University. Mr. Lester previously served on the boards of Virginia
National Bank of Martinsville and Henry County, NationsBank of Martinsville,
First Federal Savings and Loan Association of Danville, Charter Federal Savings
Bank of Bristol, and First American Federal Savings Bank of Roanoke. Mr. Lester
is a former elected member of the Martinsville City Council and a past director
of the Martinsville-Henry County Chamber of Commerce. He is a past director of
Averett College, and served in Kiwanis for 30 years. He currently serves on the
Blue Ridge Airport Authority, and served as its chairman for 23 years. He served
as the first President of the Virginia Air Museum, and is a past President of
the Virginia Aeronautical Historical Society, both of Richmond. Mr. Lester was
inducted into the Virginia Aviation Hall of Fame in 1991.
Cecil R. (Andy) McCullar has worked for several banks. Most recently he
was the President and CEO of First American FSB, a $450 million thrift which is
a wholly owned subsidiary of First American Corporation from 1995 to 1998, and
Charter Federal Savings Bank, which was a $750 million thrift with 28 branches
throughout southwest Virginia and Knoxville, Tennessee from 1993 to 1995. He
also was a Retail Executive Officer for Dominion Bank, NA from 1984 to 1993. He
was located in Martinsville, Virginia for four of the nine years. With Dominion,
he was responsible for the management of a $1.6 billion region and managed 48
branches within Virginia and supervised the CEO's of two wholly owned
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<PAGE>
subsidiary banks in Rogersville and Newport, Tennessee. From 1962 to 1984, he
worked for Virginia National Bank (and its successors) where he held various
positions in Branch Management, Human Resources, Credit Review and National
Accounts. His educational background includes attending Old Dominion University
from 1956-1959, from which he received the "Distinguished Alumni Award" in 1995.
He also attended the ABA National Personnel School in Memphis, Tennessee in
1974; the ABA National Commercial Lending School with the University of Oklahoma
in 1976; and Stonier Graduate School of Banking, with Rutgers University in New
Brunswick in 1986. He is a member of the Board of Visitors with Emory & Henry
College in Emory, Virginia.
Roxann B. Miller is a principal stockholder in Dillon Insurance Agency.
She is a lifetime resident of Henry County. Ms. Miller has served eight years on
the Patrick Henry Community College Foundation Board and was Vice President. She
is a former schoolteacher and has been active in numerous civic organizations.
Jimmie R. Mills is currently president of Jim Mills
Lincoln-Mercury-Jeep, a new vehicle franchise dealer since 1985. Previously he
was President of Jeb Stuart Ford-Mercury, Inc. and Vice President/General
Manager of Lester & Mills Pontiac-AMC-Jeep, Inc. Mr. Mills is a charter member
of Thomasson Heights Baptist Church, Collinsville, Virginia.
George R. Nelson, Jr. became owner and operator of Nelson Ford, Inc. in
1975. He is also owner and operator of G R Chevrolet, Inc., and Nelson Mazda
Subaru, Nelson Pontiac, Buick, GMC, Inc. He also owns Homes By Nelson, and is a
member of Pleasant Grove Christian Church.
Joe C. Philpott, retired, worked for Bassett Furniture Industries for
42 years, retiring as Executive Vice President of Manufacturing. He served on
the Board of Directors of Bassett Furniture Industries for several years. Mr.
Philpott graduated from the University of Richmond in 1953. He served in the
U.S. Army in Germany from 1953 to 1955. He attended the Harvard Business School
Advance Managers Program in 1984 and 1985. Mr. Philpott was past president of
Bassett Kiwanis Club, Bassett Country Club, W. M. Bassett Community Center and
the Bassett Public Library.
Douglas E. Riddle, a native of Henry County, has been in the automotive
business for over thirty-five years. He is the owner of Riddle Chrysler,
Plymouth, Dodge Honda. Mr. Riddle has been active in civic and local affairs.
Milford A. Weaver is present owner and co-founder of Virginia Blower
Company in Collinsville and Galax, Virginia, and is currently serving as its
Chairman of the Board. Mr. Weaver graduated from the University of Richmond
School of Business with a BS degree in Business Administration (major in
Accounting) after serving in the Navy during World War II as a radarman. During
his business career he was very active in community, business, educational,
professional, and church activities. He has served on the following: Board of
Directors of First Bassett Bank & Trust prior to its sale to Dominion
Bankshares, Board of Directors of Patrick Henry Community College, Board of
Directors (two terms) for Martinsville Henry County Chamber of Commerce, Board
of Directors for Collinsville Recreation Center, and Board of Directors of Local
Habitat for Humanity and Board of Hope Harbor Christian Home for Alcoholics. Mr.
Weaver is currently a member of several professional associations connected with
Air Pollution Control. He has served on the Board of Associates of Averett
College and a member of Villa Heights Baptist Church where he served as Chairman
of Building and Steering Committee, Finance Committee, Deacon Chairman, and
Director of Sunday School. He also recently served a four-year term on the
Virginia Baptist General Board in Richmond, Virginia serving on its Business
Committee. Mr. Weaver, for many years, was a member of the Lions Club. For this
past year (1998), the Martinsville- Henry County Chamber of Commerce chose Mr.
Weaver as the Outstanding Small Business Man of the Year.
Executive Officers Who are Not Directors
Brenda Smith began work as the Senior Vice President and Chief
Financial Officer of Smith River Bankshares and Smith River Bank on August 30,
1999. From 1995 to 1999 Ms. Smith was Vice President, Corporate Controller and
Assistant Secretary of MainStreet Financial Corporation, a $2 billion multi-bank
holding company headquartered in Martinsville, Virginia. From 1988 to 1995, she
was an
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accounting officer for Piedmont Trust Bank, a subsidiary bank of MainStreet
Financial Corporation. Between 1981 and 1988, Ms. Smith was Controller and
Assistant Secretary of Savers Life Insurance Company in Winston-Salem, North
Carolina. Ms. Smith, as Corporate Controller for MainStreet, was responsible for
all financial reporting to management, external auditors, bank regulators, the
Securities and Exchange Commission and the Internal Revenue Service. She was
also directly responsible for daily accounting activities, bank operations,
accounts payable, fixed assets and other financial activities.
REMUNERATION OF DIRECTORS AND OFFICERS
Our directors, other than Andy McCullar, have not received and will not
receive fees or other compensation in connection with the organization of Smith
River Bankshares. They will not be paid fees for their service on or at meetings
of the Board of Directors or committees during the initial years of operation.
However, Andy McCullar and Smith River Bankshares have entered into an
employment agreement dated June 1, 1999.
BASIC TERMS
The agreement sets forth the terms for Mr. McCullar to be employed as
president and chief executive officer of Smith River Bankshares and, when it is
organized, Smith River Bank.
o The agreement will have a rolling three year term (that is, unless
terminated at least 90 days prior to each anniversary date, the
contract term will be extended automatically for an additional year so
that it will have a three year remaining term as of the anniversary
date). Smith River Bankshares may terminate the agreement without
further liability if we don't raise the minimum capital.
o After that, if Mr. McCullar's employment is terminated by Smith River
Bankshares/Smith River Bank without cause or by Mr. McCullar for good
reason, the company will pay a lump sum equal to the total base salary
through the remainder of the three year term. Otherwise, Mr. McCullar
would be paid only through the date of termination.
o If Mr. McCullar's employment is terminated by Smith River
Bankshares/Smith River Bank without cause or by Mr. McCullar without
good reason, Mr. McCullar may not engage in the banking business within
a 100 mile radius of the City of Martinsville, Virginia for a period of
three years.
o Mr. McCullar will be paid a $90,000 base annual salary and, on the date
Smith River Bank opens for business, will be granted options to
purchase 30,000 shares of Smith River Bankshares' stock, 10,000 of
which will be exercisable at the end of each of the first three years
thereafter at the fair market value of the stock at the time of the
grant.
The employment agreement also enables Mr. McCullar to become a consultant to
Smith River Bankshares and Smith River Bank after retirement until he reaches
the age of 70. Mr. McCullar would continue to receive a mutually agreed
compensation as consultant. During the period of his employment and consultancy,
he would also receive company paid health insurance. The employment and
consultancy arrangements would terminate upon Mr. McCullar's death or
disability.
OPTIONS
The following table indicates the options to be granted to Mr.
McCullar. Mr. McCullar will be granted on the date Smith River Bank opens for
business the option to purchase 30,000 shares in total, 10,000 shares of common
stock for each of the first three years of Smith River Bank's operations. Each
of the options will have a ten-year term from the date they become exercisable
and will expire 30 days after employment is terminated under certain
circumstances . The options will be exercisable by Mr. McCullar if he is
employed as President and Chief Executive Officer of Smith River Bankshares and
the bank on the first anniversary of the day the bank opens for business (the
first 10,000 options) and on each of the next two anniversaries (for each of the
next two 10,000 option grants). We are not obligated to or intend to register
for resale the shares underlying these options.
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Shares Exercise
Underlying the Options Price Per Share Date of Exercise
---------------------- --------------- ----------------
30,000 Fair Market Value N/A
on Date of Grant
LIMITATION ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Smith River Bankshares' Articles of Incorporation contain a provision
which, in accordance with Virginia law, eliminates the personal liability of
directors or officers to Smith River Bankshares and its shareholders for
monetary damages for any breach of their duty as directors. This provision
provides that a director will not be personally liable for monetary damages for
a breach of his or her duty as a director, except for liabilities for
o willful misconduct
o knowing violation of criminal law
o knowing violation of federal or state securities law
Liability for monetary damages remains unaffected by that provision if
liability is based on any of these grounds. The provision does not eliminate a
director's fiduciary duty, nor does it preclude a shareholder from pursuing
injunctive or other equitable remedies. The provision was prompted in part by
adverse changes in the cost and availability of director and officer liability
insurance and by a concern over difficulties in attracting and retaining
qualified directors. We believe this provision is essential to maintain and
improve our ability to attract and retain competent directors.
We are advised that indemnification of directors, officers and
controlling persons for liabilities arising under the Securities Act of 1933 is
against public policy and is, therefore, unenforceable.
Our Articles of Incorporation also provide for indemnification of
directors and officers as permitted by Virginia law. If a director or officer is
sued, even by Smith River Bankshares, as a director or officer of the company
(or is sued because he or she was serving as a director, officer or employee of
another entity, such as Smith River Bank at the request of the company), Smith
River Bankshares must indemnify him or her for liabilities and expenses except
for cases involving:
o willful misconduct
o knowing violation of criminal law.
Generally, we must also cover expenses prior to a final decision if the director
or officer agrees to pay the amount back if it is ultimately decided he or she
wasn't entitled to the advance.
CERTAIN TRANSACTIONS
ORGANIZERS/DIRECTORS' SHARES
Consistent with the certain Organizer's Contribution Agreement dated
December 8, 1998, the organizers/directors intend to subscribe for 87,500 units,
each including one share and one warrant. The organizers/directors may, but are
not obligated to, purchase additional shares if it is necessary to complete the
minimum offering. Shares purchased in this offering by organizers/directors are
being purchased for investment purposes and not for resale.
WARRANTS
In recognition of the risk of loss to the organizers/directors of their
equity investment, for the purpose of paying for certain organizational and
other preopening expenses before proceeds are released from escrow if the
offering is not successful, as well as an incentive for them to serve as
directors, each organizer/director will receive a warrant. The warrant will be
added to each share purchased by each organizer/director to create the unit.
Each warrant will entitle the organizer/director to
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purchase, at any time within ten years from the date Smith River Bank opens for
business, an additional share at $10.00 per share.
The warrants are not immediately exercisable. The right to exercise the
warrants will vest for one-third (1/3) of the shares covered by the warrants on
each of the first three anniversaries of the date Smith River Bank opens for
business, so long as the organizer/director has served continuously as a
director of Smith River Bankshares and Smith River Bank from its opening until
the particular anniversary and has attended a minimum of 75% of the Board of
Directors meetings during the period. However, all the warrants will become
vested upon the change in control of Smith River Bankshares, or a sale by the
company of all or substantially all its assets. The warrants are detachable and
the shares with which they were originally issued as a unit may be separately
transferred. The warrants are generally not transferable except by operation of
law. Bankshares has the right, upon notice from any regulatory authority, to
require immediate exercise or forfeiture of the warrants if the exercise is
reasonably necessary in order to inject additional capital into Smith River
Bank.
The organizers/directors will have received the warrants as
consideration for taking financial risks and for serving as directors without
compensation until Smith River Bank is profitable. The number of warrants due to
each organizer/director will not be based on the number of shares sold by the
organizer/director in the offering, but on the number of shares purchased by the
organizer/director in the offering. Accordingly, the warrants should not be
construed as compensation to the organizers/directors for purposes of Rule 3a4-1
under the Securities Exchange Act.
These warrants and stock options could have a dilutive effect on the
value of your stock. The warrants issued are at $10.00 per share and the options
promised to Mr. McCullar are at fair market value on the date of grant (the date
Smith River Bank opens). In other words, someone holding these warrants or
options can trade the warrants for the same number of shares of common stock at
a price per share of $10.00 or, in the case of Mr. McCullar's options, at their
fair market value when Smith River Bank opens. If the fair market value of our
stock does not exceed these values when the warrants or options are exercisable,
it is unlikely warrants or options will be exercised. However, if our stock
market value exceeds these values when the warrants or options are exercisable
at some point in the future, these holders of warrants and options can obtain
additional shares (equal to the warrants or options held) for less than the fair
market value at that time. Depending on the number exercised, this could
influence the market to reduce the trading price of our stock, and it could have
a material effect on the market capitalization of our stock per share at that
time. In addition, increasing the shares outstanding could, at least
temporarily, drag down important ratios like earnings per share and return on
investment per share.
STOCK OPTIONS
Bankshares will grant to Mr. McCullar on the day Smith River Bank opens
for business an option to purchase, at their fair market value on the date of
the grant, 10,000 shares of common stock for each of the Bank's first three
years of operation. The options will be exercisable only if Mr. McCullar is
employed as President and Chief Executive Officer of Bankshares and Smith River
Bank at the conclusion of the respective year of Smith River Bank operations
when such options first become exercisable. These options must be exercised
within ten years from the date they become exercisable and will expire 30 days
after employment is terminated under certain circumstances.
In addition, Smith River Bankshares is considering adopting a stock
option plan under which stock options may be issued by the Board of Directors to
certain key employees of the company and Smith River Bank. The total number of
shares to be issued under this plan will in no event exceed 10% of the total
number of shares outstanding immediately after the offering. The options would
enable the recipient to purchase stock at a price equal to the greater of the
fair market value or 100% of the book value per share at the time the option is
granted. The Board of Directors or a committee would administer the stock option
plan and fix the terms of each option.
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ORGANIZATIONAL SUBSCRIPTIONS
To complete the organization of Smith River Bankshares, the
organizers/directors have subscribed for 12 shares at a price of $1.00 per
share. Upon release of the offering proceeds from escrow, we intend to
repurchase all of these organizational shares at their original purchase price.
ADVANCES FROM THE ORGANIZERS/DIRECTORS
To date, all costs associated with forming Smith River Bankshares and
Smith River Bank have been funded by advances from FCNB, LLC, the limited
liability company set up for this purpose and funded by the
organizers/directors. These include attorneys' fees, consulting fees,
feasibility studies, market analysis, rent, salary and other costs. The source
of all of these advances has been funds invested by the organizers/directors.
Amounts advanced through October 13, 1999 totaled approximately $355,000. It is
the intent of the organizers/directors that all remaining costs incurred prior
to the successful completion of Smith River Bankshares' proposed sale of the
stock will continue to be funded by advances from the organizers/directors.
After the sale of the stock, all funds advanced by the organizers/directors are
to be reimbursed by Smith River Bankshares without interest. If the offering of
stock is not successful in raising the minimum capitalization required, or if
required regulatory approvals are not obtained, Smith River Bankshares will be
unable to reimburse the organizers/directors for most of the expenses.
LENDING AND OTHER MATTERS
It is anticipated that our directors and officers, and the associated
businesses and other organizations will have banking transactions in the
ordinary course of business with Smith River Bank. It will be the policy of
Smith River Bank that any loans or other commitments to those persons or
entities will be made in accordance with applicable law and on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons or entities of similar
standing. Directors with a personal interest in any loan will be excluded from
the approval decision. All future transactions with affiliates will be on terms
no less favorable than could be obtained from an unaffiliated third party and
will be approved by a majority of directors including a majority of
disinterested directors, when the law requires.
In addition, each loan by Smith River Bank to any officer, director or
controlling person of Smith River Bank or any of its affiliates may be made only
in compliance with the following conditions: The loan
o will be evidenced by a promissory note naming Smith River Bank as payee and
will contain an annual percentage rate which is reasonably comparable to
that normally charged to non-affiliates by other commercial lenders for
similar loans made in Smith River Bank's locale;
o will be repaid according to appropriate amortization schedules and contain
default provisions comparable to those normally used by other commercial
lenders for similar loans made to non-affiliates in Smith River Bank's
locale;
o will be made only if credit reports and financial statements, or other
reasonable investigation appropriate in light of the nature and terms of
the loan and which meet the loan policies normally used by other commercial
lenders for similar loans made to non-affiliates in Smith River Bank's
locale, show the loan to be collectible and the borrower a satisfactory
credit risk; and
o the purpose of the loan and the disbursement of proceeds are reviewed and
monitored in a manner comparable to that normally used by other commercial
lenders for similar loans made in Smith River Bank's locale.
CONSULTING AGREEMENT
On December 8, 1998, we entered into a consulting agreement with Bank
Resources, Inc. Under the consulting agreement, Bank Resources has assisted in
the preparation of the charter application and the application for FDIC deposit
insurance for Smith River Bank. It has also prepared the business plan
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and policies and procedures manual for Smith River Bank. Bank Resources will
also assist in the preparation of Smith River Bankshares' and Smith River Bank's
applications to the Federal Reserve.
Under the consulting agreement, we will have paid Bank Resources the
aggregate of approximately $54,000 when Smith River Bank's charter is approved.
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DESCRIPTION OF SECURITIES
COMMON STOCK
Smith River Bankshares is authorized by our Articles of Incorporation
to issue 10,000,000 shares of common stock, no par value.
If you subscribe, you will be entitled to one vote per share on all
matters to be voted on by shareholders. You will not be entitled to cumulate
your votes in the election of directors, which means that the holders of a
majority of the shares voting for the election of directors can elect all of the
directors then standing for election should they choose to do so. Shareholders
are entitled to receive dividends, if any, declared from time to time by the
Board of Directors from funds legally available. Shareholders are entitled to
share pro rata in any distribution to the holders of common stock in the event
of any liquidation, dissolution or winding-up of Smith River Bankshares.
Shareholders have no preemptive or other subscription or conversion
rights. The shares have no redemption or sinking fund provisions. Upon payment
therefor, the shares will be fully paid and non assessable.
PREFERRED STOCK
Smith River Bankshares is authorized by its Articles of Incorporation
to issue up to 10,000,000 shares of preferred stock, no par value. No shares of
preferred stock have been issued. The Board of Directors may, in its sole
discretion and without further action by the shareholders, from time to time,
direct the issuance of preferred stock, in one or more series, for any proper
corporate purpose with those preferences, voting powers, conversion rights,
qualifications, special or relative rights and privileges as the Board of
Directors may determine. These terms of the preferred stock could adversely
affect the voting power or other rights of holders of the shares. Satisfaction
of any dividend preferences on outstanding preferred stock would reduce the
amount of funds available for the payment of dividends on the shares. In
addition, the holders of preferred stock would normally be entitled to receive a
preference payment in the event of any liquidation, dissolution or winding-up of
Smith River Bankshares before any payment is made to the holders of the shares.
The Board of Directors has no present plans or understandings for the issuance
of any preferred stock and does not intend to issue any preferred stock at this
time.
WARRANTS
The warrants to be issued as part of the units are detachable ten-year
rights to purchase one share at $10.00 per share. The warrants will be issued
pursuant to the Warrant Plan adopted by the Board of Directors of Smith River
Bankshares on July 27, 1999, and amended on August 26, 1999. The warrants, when
issued, will be represented by separate warrant agreements.
UNITS
The organizers/directors will receive a total of 87,500 units at the conclusion
of this offering, instead of common stock. The units have no intrinsic value in
themselves, but each consists of one share of common stock and one warrant, as
described above.
TRANSFER AGENT AND REGISTRAR
Unless we are required by law or administrative action to appoint an
independent transfer agent and registrar, Smith River Bank will act as transfer
agent and registrar for the shares.
REPORTS TO SHAREHOLDERS
We intend to furnish the shareholders with annual reports containing
audited financial statements and quarterly reports containing unaudited
financial information.
SECURITIES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Smith River Bankshares will have
87,500 warrants and a minimum of 625,000 shares and a maximum of 1,000,000
shares outstanding. The warrants are generally not transferable except by
operation of law. However, the warrants may be detached from the
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shares to which they are joined as part of these units. All of these shares
(including shares detached from warrants) will be freely tradable without
restriction or registration under the Securities Act of 1933, except for shares
of persons who, because they are directors, officers or 10% or more
shareholders, are "affiliates" of Smith River Bankshares, as that term is
defined under Rule 144. The shares owned by these "affiliates" will carry with
them restrictions on resale under the Securities Act as so-called "controlled
securities". Note that the shares issuable upon the exercise of stock options or
warrants will be "restricted securities". Both "controlled securities" and
"restricted securities" are eligible for sale in the open market only under Rule
144.
In general, under Rule 144, a person who has beneficially owned
restricted securities for at least one year would be entitled to sell, within
any three month period, in transactions executed by a broker or dealer on an
exchange or in the over-the-counter market, the number of securities that does
not exceed the greater of 1% of the securities then outstanding or the average
weekly trading volume of the securities in the market during the four calendar
weeks preceding the sale. Non-affiliates who have held their restricted
securities for at least two years would be entitled to sell those securities
under Rule 144 without regard to the volume limitation.
DEFENSIVE ANTI-TAKEOVER PROVISIONS
GENERAL
The provisions of Smith River Bankshares' Articles of Incorporation and
Bylaws described below will have an "anti-takeover" effect. We believe that the
provisions described below are prudent and will reduce our vulnerability to
takeover attempts and certain other transactions that may not be negotiated with
and approved by the Board of Directors. We believe that it is in the best
interest of Smith River Bankshares and our shareholders to encourage potential
acquirers to negotiate directly with the Board and that these provisions will
encourage negotiations and discourage hostile takeover attempts. It is also our
view that these "anti-takeover" provisions should not discourage persons from
proposing an acquisition or other transaction at prices reflective of the true
value of Smith River Bankshares that is in the best interest of all
shareholders. To be sure, the Board of Directors has a fiduciary obligation to
act in the best interest of the corporation in determining corporate action
without regard to these provisions.
DIRECTORSHIPS
Our Board of Directors is divided into three classes that must be as
close to equal in size as possible. The members of each class serve three-year
terms with each class being elected in successive years. Our Bylaws provide that
the size of the Board, within the five to twenty-five member range specified in
the Articles of Incorporation, is 12. This number may be changed only by
amending the Bylaw which the directors are permitted to do by a majority of a
quorum but which the shareholders may only do by at least an 80% vote of each
class of voting stock. The Articles of Incorporation also provide that any
vacancies on the Board of Directors, including a vacancy created by increasing
the number of directors, shall be filled by majority vote of directors in
office. It would require at least an 80% vote of each class of voting stock to
change this provision.
REMOVAL OF DIRECTORS
Smith River Bankshares' Articles of Incorporation provide that no
director may be removed except for cause and then only by the vote of holders of
at least two-thirds of the outstanding voting stock entitled to vote.
SPECIAL MEETINGS OF SHAREHOLDERS
Smith River Bankshares' Bylaws provide that a special meeting of
shareholders may be called by the Chairman of the Board, the President or by a
majority vote of the directors. It would require the vote of at least 80% of
each class of voting stock to change this Bylaw.
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APPROVAL OF CERTAIN BUSINESS TRANSACTIONS
Smith River Bankshares' Articles of Incorporation provide that the vote
of holders of at least 80% of each class of the outstanding voting stock is
required to approve certain mergers and other business combinations involving
Smith River Bankshares and an entity owning 5% or more of the company's voting
stock. However, if the proposed transaction is approved by the vote of at least
two-thirds of the directors then in office and the vote of a majority of the
members of the Board who are not affiliated with the large shareholder and who
were directors before the large shareholder acquired his or her 5% interest, it
will require only the minimum affirmative vote of shareholders required by law.
The same is true if certain conditions regarding what Smith River Bankshares'
shareholders will receive in the transaction are satisfied, even if the majority
of Board members fail to approve it.
AMENDMENT OF THE ARTICLES OF INCORPORATION
Smith River Bankshares' Articles of Incorporation authorize the
alteration, amendment or repeal of certain Articles by the affirmative vote of
holders of at least 80% of the outstanding voting stock. The alteration,
amendment or repeal of other Articles requires approval by the holders of only a
majority of a quorum of each group entitled to vote on the amendment.
AMENDMENT OF THE BYLAWS
Smith River Bankshares' Articles of Incorporation provide that the
Bylaws may be altered, amended or repealed, or new Bylaws adopted, by the Board
of Directors or the shareholders at a duly constituted meeting. This action by
the Board of Directors requires the vote of a majority of a quorum. This action
by the shareholders requires the affirmative vote of holders of at least 80% of
each class of the outstanding voting stock.
PREFERRED STOCK
The preferred stock, which could be issued in one or more series and
with appropriate voting, conversion or other rights, could discourage possible
acquirers of Smith River Bankshares from making a tender offer or other attempt
to gain control of the company.
LEGAL MATTERS
The legality of the shares and units is being passed upon for Smith
River Bankshares by Flippin, Densmore, Morse, Rutherford & Jessee, a
Professional Corporation, 1800 First Union Tower, Drawer 1200, Roanoke, Virginia
24011.
EXPERTS
The financial statements of Smith River Bankshares as of June 30, 1999,
and from the date of inception, December 15, 1998 through June 30, 1999, have
been included in this prospectus in reliance upon the report of McLeod &
Company, independent certified public accountants, which has been given upon the
authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
Smith River Bankshares has filed with the SEC a Registration Statement
under the Securities Act covering the securities offered in this offering. As
permitted by the rules and regulations of the SEC, this prospectus does not
contain all of the information contained in the Registration Statement and its
exhibits and reference is made to the Registration Statement and the exhibits
for further information concerning Smith River Bankshares and the securities.
Each statement contained in this prospectus as to the contents of a document
filed as an exhibit to the Registration Statement is qualified by reference to
the exhibit for a complete statement of its terms and conditions. Copies of this
material, as well as periodic
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reports and information filed by Smith River Bankshares, can be obtained upon
payment of the fees prescribed by the SEC, or may be examined at the offices of
the SEC without charge, at
o the public reference facilities in Washington, D.C. at Judiciary Plaza,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549;
o the Northeast Regional Office in New York at 7 World Trade Center, Suite
1300, New York, New York 10048; and
o the Midwest Regional Office in Chicago, Illinois at 500 West Madison
Street, Suite 1400, Chicago, Illinois 66661-2511.
The SEC maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants like us that
file electronically with the SEC. The address of SEC's site is
http://www.sec.gov.
Upon request, we will provide without charge to each person to whom a
copy of this prospectus is delivered, a copy of any or all of the documents
which are incorporated here by reference, other than exhibits to the documents
themselves, unless those exhibits are specifically incorporated by reference
into the documents. Requests should be directed to Cecil R. McCullar, President,
at our principal executive offices.
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SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Index to Financial Statements
Independent Auditors' Report F-2
Financial Statements:
Balance Sheet as of June 30, 1999 F-3
Statement of Loss for the Period December 15, 1998
(date of inception) through June 30, 1999 F-4
Statement of Shareholders' Deficit for the Period December 15, 1998
(date of inception) through June 30, 1999 F-5
Statement of Cash Flows for the Period December 15, 1998
(date of inception) through June 30, 1999 F-6
Notes to Financial Statements F-7
All schedules have been omitted because they are inapplicable or the required
information is provided in the financial statements, including the notes
thereto.
F-1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
Smith River Bankshares, Inc.
We have audited the accompanying balance sheet of Smith River Bankshares, Inc.,
a development stage enterprise, as of June 30, 1999, and the related statements
of loss, shareholders' deficit and cash flows for the period December 15, 1998
(date of inception) through June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 Smith River Bankshares, Inc. as
of June 30, 1999, and the results of its operations and its cash flows for the
period December 15, 1998 (date of inception) through June 30, 1999, in
conformity with generally accepted accounting principles.
McLeod & Company
Roanoke, Virginia
July 26, 1999
F-2
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SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Balance Sheet
June 30, 1999
ASSETS
Cash $ 30,843
Deferred stock issuance costs 11,200
Deposits and prepaid expenses 602
---------
Total current assets 42,645
Furniture and fixtures 1,907
---------
Total Assets $ 44,552
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable and accrued expenses $ 34,357
Advances from related parties 150,000
---------
Total Liabilities 184,357
Shareholders' equity:
Preferred stock, no par value. Authorized
10,000,000 shares; none issued -
Common stock, no par value. Authorized
10,000,000 shares; issued and outstanding
12 shares 12
Deficit accumulated during the development
stage (139,817)
---------
Total shareholders' deficit (139,805)
---------
Total Liabilities and Shareholders' Deficit $ 44,552
==========
See accompanying notes to financial statements.
F-3
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SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Statement of Loss
For the Period December 15, 1998
(Date of Inception)
Through June 30, 1999
REVENUES
Interest income $ 1,626
-----------
EXPENSES
Salaries and employee benefits 53,206
Occupancy expense, supplies and other 8,592
Professional fees 62,120
Regulatory application fees 17,525
----------
Total expenses 141,443
---------
Net Loss $(139,817)
=========
Net Loss Per Share $ (11,651)
=============
See accompanying notes to financial statements.
F-4
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SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Statement of Shareholders' Deficit
For the Period December 15, 1998
(Date of Inception)
Through June 30, 1999
Deficit
Number Accumulated
of During the Total
Common Common Development Shareholders'
Shares Stock Stage Deficit
Issuance of common stock 12 $ 12 - 12
Net loss since inception - - (139,817) (139,817)
------- -------- ------- -------
Balances at
June 30, 1999 12 $ 12 (139,817) (139,805)
====== ======= ======= =======
See accompanying notes to financial statements.
F-5
Page 38
<PAGE>
SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Statement of Cash Flows
For the Period December 15, 1998
(Date of Inception)
Through June 30, 1999
Cash Flows From Operating Activities
Net loss $(139,817)
Increase in deposits and prepaid expenses (602)
Increase in accounts payable and accrued expenses 34,357
---------
Net cash used by operating activities (106,062)
---------
Cash Flows From Investing Activities
Purchase of fixed assets (1,907)
---------
Net cash used by investing activities (1,907)
---------
Cash Flows From Financing Activities
Proceeds from advances from related parties 150,000
Proceeds from issuance of common stock 12
Costs of stock issuance (11,200)
----------
Net cash provided by financing activities 138,812
---------
Net increase in cash 30,843
Cash at inception -
---------
Cash at end of period $ 30,843
========
See accompanying notes to financial statements.
F-6
Page 39
<PAGE>
SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
June 30, 1999
1. SUMMARY OF ACCOUNTING POLICIES
(a) General
Smith River Bankshares, Inc. (the "Company"), a development stage
enterprise, was incorporated as a Virginia corporation effective
January 14, 1999, primarily to serve as a holding company for
Smith River Community Bank, N.A. (the "Bank"), upon formation of
the Bank. Prior to the formation of the Company, the Company's
shareholders (the "Organizers") formed FCNB LLC (the "LLC"), a
limited liability company, to organize the Company and the Bank
and provide for financing of organizational and other costs. The
financial statements reflect the operations of the Company and the
LLC since the date of formation, December 15, 1998. The Company is
in the process of completing the filing applications necessary to
form the Bank with the applicable regulatory authorities. The
Company anticipates raising between $6,250,000 and $10,000,000
through a public sale of its common stock. Subject to the
regulatory approval of the Bank's formation, the Company plans to
acquire all of the common stock of the Bank with the proceeds from
the sale of its common stock. Following the acquisition, the
business of the Company will be conducted through the Bank, which
will be its wholly-owned subsidiary. The Company's year end is
December 31. The Bank's market area will be south central
Virginia.
The offering also contemplates that the shares purchased by the
Organizers (maximum of 87,500 shares) would each have one common
stock warrant attached. The warrants will vest over a three year
period. Each warrant would entitle the holder to purchase one
share of common stock for $10.
The Company is totally dependent upon the successful completion of
the proposed offering as well as securing all required regulatory
approvals for its ability to commence its intended banking
operations. Based on current facts and circumstances, the
Organizers believe that the $6,250,000 minimum amount of capital
to be raised from the proposed sale of its common stock will be
sufficient to permit the Company to conduct its initial operations
as currently planned. To the extent the total capital raised in
this offering exceeds the $6,250,000 minimum, additional funds
will be available to invest in loans, securities and other earning
assets, subject to the limitations of the board's investment and
lending policies. Such additional capital could also provide
additional funds to enable the Bank to open additional branches.
Preliminary approval from the Office of the Comptroller of the
Currency ("OCC") has been obtained, but banking operations may not
begin until final OCC approval has been secured. Other regulatory
approvals, including the Federal Reserve and the Federal Deposit
Insurance Corporation ("FDIC"), are also required.
(b) Organizational Costs
The American Institute of CPA's has issued Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities." In general,
the SOP requires that organizational and similar start-up costs be
expensed. Examples of such costs that have been incurred by the
Company are legal fees, consulting fees, and application fees paid
to regulatory agencies. Prior to the effective date of the SOP,
generally accepted accounting principles permitted such costs to
be capitalized and amortized to expense. The Company adopted the
requirements of the SOP from its inception and has expensed
organizational costs.
F-7
Page 40
<PAGE>
SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(c) Deferred Stock Issuance Costs
The costs incurred through June 30, 1999 related to registering
and issuing the securities being offered are included in the
balance sheet under "deferred stock issuance costs." Such costs
are comprised primarily of professional fees and will be charged
against paid-in-capital upon the successful completion of the
stock offering. Approximately $52,000 of additional stock issuance
costs were incurred after June 30, 1999 through September 30,
1999, which was comprised primarily of professional fees and
securities registration fees.
(d) Income Taxes
The Company is subject to federal income taxes. No taxes have been
accrued or paid because of operating losses incurred during the
development stage, and the Company has not completed an operating
period requiring the filing of a tax return. No deferred tax
assets have been recorded to recognize potential future tax
benefits of (1) losses to date, and (2) future deductions for tax
purposes of organizational costs, because any deferred tax asset
would be fully offset by a valuation allowance under Statement of
Financial Accounting Standards No. 109. Such a valuation allowance
would be required in order to reflect the high degree of
uncertainty regarding the ultimate realization of the related tax
benefits.
(e) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. ADVANCES FROM RELATED PARTIES
Through June 30, 1999, all costs and disbursements associated with
forming the Company and the Bank, including attorneys' fees, consulting
fees, feasibility studies, market analysis, rent, salary and other
costs, have been funded by advances from the LLC. Amounts advanced by
the LLC through June 30, 1999 totaled $150,000. Upon successful
completion of the Company's proposed sale of common stock, these and
future funds advanced by the LLC are to be reimbursed by the Company,
without interest. If the offering of stock is not successful in raising
the minimum capitalization required, or if required regulatory
approvals are not obtained, the Company will be unable to reimburse the
LLC for most of the expenses, and the Organizers (who are members of
the LLC) will bear those costs.
3. LINE OF CREDIT
As of June 30, 1999 the Company had a commitment for a line of credit
from another bank providing for a maximum borrowing of $250,000. The
line was unsecured and guaranteed by the Organizers. The purpose of the
line was to provide start-up working capital pending the successful
sale of the Company's common stock. The commitment had an expiration
date of June 30, 2000. However, through June 30, 1999 the Company had
not borrowed any funds under the line, and the Organizers have since
decided to cancel it based on the expectation that any additional
capital needs during the period prior to the sale of stock will be
funded from additional investments by the Organizers.
F-8
Page 41
<PAGE>
SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
4. LEASES AND COMMITMENTS
The Company has entered into a lease for administrative office space
with a term beginning May 1, 1999 and expiring in 39 months. Rent for
the first three months is $750 per month, and thereafter increasing to
$1,000 per month. The Company may cancel the lease with 90 days'
notice.
The Company has also entered into separate leases for property to be
used as bank branches. One lease has a term of 36 months commencing
August 1, 1999, and requires a monthly rental of $2,500. The other
lease has a term of 36 months beginning when the branch begins
operations. At that point, the monthly rental will be $2,500. Prior to
that date, interim monthly rent of $500 is payable beginning June 1999.
Both leases are cancelable by the Company if it is unable to organize
and commence operations as planned. Total rent expense for all leases
totaled $2,000 for the period from inception to June 30, 1999.
The Company has entered into an employment agreement with its President
and Chief Executive Officer. The agreement has a three year term and is
automatically extended by one year if not terminated at least 90 days
prior to each anniversary date. It provides for a base annual salary of
$90,000. Additionally, after operations begin, 30,000 stock options
will be granted to the officer. One-third of the options will become
exercisable in each of the three years following the inception of
operations. The exercise price for all such options will be the fair
market value of the stock on the date of grant. Under the terms of the
agreement, the individual will continue in a consulting capacity after
the end of the period of employment.
F-9
Page 42
<PAGE>
Table of Contents
Prospectus Summary.....................................................2
Highlights of Offering.................................................3
Risk Factors...........................................................4
The Offering...........................................................8
Dilution..............................................................10
Use of Proceeds.......................................................10
Dividend Policy.......................................................12
Business..............................................................12
Market for Common Stock...............................................12
Management's Plan of Operation........................................18
Supervision and Regulation............................................19
Management............................................................21
Certain Transactions..................................................26
Description of Securities.............................................29
Legal Matters.........................................................31
Experts...............................................................31
Additional Information................................................31
Index to Financial Statements........................................F-1
----------
Until June 30, 2000, all dealers that buy, sell or trade these
securities, whether or not participating in this distribution, may be required
to deliver a prospectus.
(END OF BACK COVER)
Page 43
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 1...INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 13.1-692.1 of the Code of Virginia, 1950, as amended, places a
limitation on the liability of officers and directors of a corporation in any
proceeding brought by or in the right of the corporation or brought by or on
behalf of shareholders of the corporation. The damages asserted against an
officer or director arising out of a single transaction, occurrence, or course
of conduct shall not exceed the greater of $100,000 or the amount of cash
compensation received by the officer or director from the corporation during the
12 months immediately preceding the act or omission for which liability was
imposed. The statute also authorizes the corporation, in its articles of
incorporation or, if approved by the shareholders, in its bylaws, to provide for
a different specific monetary limit on, or to eliminate entirely, liability. The
liability of an officer or director shall not be limited or eliminated if the
officer or director engaged in willful misconduct or a knowing violation of the
criminal law or any federal or state securities law. The Company's Articles of
Incorporation contain a provision which eliminates, to the full extent that the
laws of the Commonwealth of Virginia permit, the liability of an officer or
director to the Company or its shareholders for monetary damages for any breach
of duty as a director or officer.
The Company's Articles of Incorporation also require the Company to
indemnify any director or officer who is or was a party to a proceeding,
including a proceeding by or in the right of the corporation, by reason of the
fact that he is or was such a director or officer or is or was serving at the
request of the Company as a director, officer, employee or agent of another
entity. Directors and officers of the Company are entitled to be indemnified
against all liabilities and expenses incurred by the director or officer in the
proceeding, except such liabilities and expenses as are incurred because of his
or her willful misconduct or knowing violation of the criminal law. Unless a
determination has been made that indemnification is not permissible, a director
or officer also is entitled to have the Company make advances and reimbursement
for expenses prior to final disposition of the proceeding upon receipt of a
written undertaking from the director or officer to repay the amounts advanced
or reimbursed if it is ultimately determined that he or she is not entitled to
indemnification. The Board of Directors of the Company also has the authority to
extend to employees, agents, and other persons serving at the request of the
Company the same indemnification rights held by directors and officers, subject
to all of the accompanying conditions and obligations.
Virginia Code ss. 13.1-700.1 permits a court, upon application of a
director or officer, to review the Company's determination as to a director's or
officer's request for advances, reimbursement or indemnification. If it
determines that the director or officer is entitled to such advances,
reimbursement or indemnification, the court may order the Company to make
advances and/or reimbursement for expenses or to provide indemnification, in
which case the court shall also order the Company to pay the officer's or
director's reasonable expenses incurred to obtain the order. With respect to a
proceeding by or in the right of the corporation, the court may order
indemnification to the extent of the officer's or director's reasonable expenses
if it determines that, considering all the relevant circumstances, the officer
or director is entitled to indemnification even though he or she was adjudged
liable, and may also order the Company to pay the officer's and director's
reasonable expenses incurred to obtain the order.
The Company has the power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another entity, against any liability asserted
against or incurred by such person, in any such capacity or arising from his or
her status as such, whether or not the Company would have the power to indemnify
such person against such liability under the Articles of Incorporation.
Page 44
<PAGE>
ITEM 2 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration fees $ 3,023.20
Blue sky fees and expenses (estimated) 5,000.00
Escrow Agent Fee (estimated) 7,500.00
Printing Expenses (estimated) 5,000.00
Legal Fees and Expenses (estimated) 40,000.00
Accounting Fees (estimated) 25,000.00
Miscellaneous Expenses (estimated) 14,476.80
-------------
TOTAL $100,000.00
ITEM 3. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes as follows:
(1) The Registrant will file, during any period in which it offers
or sells securities, a post-effective amendment to this
Registration Statement to:
(i) include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933, as amended (the
"Securities Act");
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the Registration
Statement; and
(iii) include any additional or changed material information
in the plan of distribution.
(2) The Registrant will, for determining liability under the
Securities Act, treat each post-effective amendment as a new
registration statement of the securities offered, and the
Offering of the securities at that time to be the initial bona
fide Offering.
(3) The Registrant will file a post-effective amendment to remove
from registration any of the securities that remain unsold at
the end of the Offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
ITEM 4. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR.
On March 1, 1999, Smith River Bankshares issued an aggregate of 15
shares of common stock to the organizers. (This was done solely to facilitate
the organization.) Three directors resigned for personal reasons (health and
travel restrictions) early in the process, and their shares were canceled,
leaving 12 shares outstanding. In each case the subscriber was a resident of the
Commonwealth of Virginia and paid $1 per share. There were no underwriting fees,
discounts or commissions paid with
Page 45
<PAGE>
respect to these transactions. Smith River Bankshares intends to repurchase
these shares at the original purchase price upon the successful completion of
the offering.
The sales were made to persons who had access to the kind of
information which registration would disclose and who did not purchase the
shares for resale to the public. Also, these sales were made solely for the
purposes of completing the initial organization of Smith River Bankshares.
Accordingly, these sales constituted transactions by the company not involving a
public offering, separate and apart from this offering, which were exempt from
registration under Section 4(2) of the Securities Act of 1933. These securities
were also exempt from registration as part of an interstate issue under Section
3(a)(11) of the Securities Act of 1933.
In addition, Smith River Bankshares has agreed to grant McCullar options to
purchase 30,000 shares of common stock when Smith River Bank opens for business,
but these options will not vest immediately. Options to purchase 10,000 shares
will vest in each of the first, second, and third anniversiaries of the bank's
opening. The exercise price will be the market price at that time, probably
$10.00 per share. If Smith River Bank does not open, no options will be granted.
ITEM 5. INDEX TO EXHIBITS
The following exhibits are filed as part of this Registration
Statement:
Number Description of Exhibit
- ------ ---------------------
3.1* Restated Articles of Incorporation of the Registrant, dated
July 8, 1999.
3.2* By-Laws of the Registrant, dated August 5, 1999.
4.1* Warrant Plan and Certificate as adopted July 27, 1999 and
amended August 26, 1999.
4.2 Provisions in Registrant's Articles of Incorporation and
Bylaws defining the rights of Holders of the Registrant's
common stock (included in Exhibits 3.1 and 3.2, respectively).
4.3 Form of Shares Subscription Agreement (included as Appendix A
to the Prospectus)
4.4 Form of Units Subscription Agreement (included as Appendix B
to the Prospectus)
5 Opinion of Flippin, Densmore, Morse, Rutherford & Jessee
regarding the legality of the securities to be offered.
10.1* Contribution Agreement among the Organizers, dated as of
December 8, 1998.
10.2* Lease dated April 6, 1999, with respect to the proposed
executive office of the Registrant.
10.3* Lease dated April 6, 1999, with respect to the proposed main
banking office of Smith River Community Bank, N.A.
10.4* Lease dated May 6, 1999, with respect to the possible branch
office of Smith River Community Bank, N.A.
10.5* Employment Agreement between the Registrant and Cecil R.
McCullar, dated as of June 1, 1999.
10.6* Consulting Agreement between the Registrant and Bank
Resources, Inc., dated December 8, 1998.
10.7* Escrow Agreement between First Citizens Bank & Trust Company
and the Registrant, dated September 8, 1999.
10.8* Software license and service agreement between FISERV
Solutions, Inc. and the Registrant dated September 1999.
10.9* Software license and maintenance agreement between Concentrex,
Inc./CFI Pro Services, Inc. and the Registrant, dated
September 27, 1999.
Page 46
<PAGE>
23.1 Consent of McLeod & Company.
23.2 Consent of Flippin, Densmore, Morse, Rutherford & Jessee,
(included in Exhibit 5).
27* Financial Data Disclosure Schedule
- ----------------
* (Filed previously.)
Page 47
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing a Form SB-2/A and has authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Martinsville, Commonwealth of Virginia, on November 2, 1999.
SMITH RIVER BANKSHARES, INC.
By: Cecil R. McCullar
----------------------------------------------------------------------
Cecil R. (Andy) McCullar, President and Chief Executive Officer
Under the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ------ ----
<S> <C> <C> <C>
Cecil R. McCullar 11/02/99
- -------------------------------------- President and Chief -----------
Cecil R. (Andy) McCullar Executive Officer, Director
Brenda H. Smith 11/02/99
- -------------------------------------- Senior Vice President/ ------------
Brenda H. Smith Chief Financial Office
- -------------------------------------- Director, Chairman of ------------
Mervyn R. King the Board of Directors
J. E. Bassett, Jr. Director 11/02/99
- -------------------------------------- ------------
J. E. Bassett, Jr.
- -------------------------------------- Director -----------
Patricia H. Brammer
Jesse D. Cahill, Sr. Director 11/02/99
- -------------------------------------- -----------
Jesse D. Cahill, Sr.
Morton W. Lester Director 11/02/99
- -------------------------------------- -----------
Morton W. Lester
Roxann B. Miller Director 11/02/99
- -------------------------------------- -----------
Roxann B. Miller
Director
- -------------------------------------- -----------
Jimmie R. Mills
- -------------------------------------- Director ------------
George R. Nelson, Jr.
Joe C. Philpott Director 11/02/99
- -------------------------------------- -----------
Joe C. Philpott
Doug Riddle 11/02/99
- -------------------------------------- Director -----------
Doug Riddle
Milford A. Weaver 11/02/99
- -------------------------------------- Director -----------
Milford A. Weaver
</TABLE>
Page 48
Exhibit 4.3
SMITH RIVER BANKSHARES, INC.
SHARES SUBSCRIPTION AGREEMENT
To: Smith River Bankshares, Inc.
Suite 12
730 East Church Street
Martinsville, Virginia 24114
Attn: Andy McCullar, President
Gentlemen:
You have informed me that Smith River Bankshares, Inc., a Virginia
corporation (the "Company"), is offering 912,500 shares of the Company's Common
Stock ("Shares") to the public at a price of $10.00 per Share payable as
provided herein and as described in and offered pursuant to the Prospectus
furnished to the undersigned herewith (the "Prospectus").
1. Subscription. Subject to the terms and conditions hereof, the
undersigned hereby tenders this subscription, together with payment indicated
below in United States currency by check, bank draft or money order payable to
"Smith River Bankshares, Inc. - Escrow Account", representing the payment of
$10.00 per Share for the number of Shares indicated below. The total
subscription price must be paid at the time the Subscription Agreement is
executed.
2. Acceptance of Subscription. It is understood and agreed that the
Company shall have the right to accept or reject this subscription in whole or
in part, for any reason whatsoever. The Company may reduce the number of Shares
for which the undersigned has subscribed, indicating acceptance of less than all
of the Shares subscribed on its written form of acceptance.
3. Acknowledgments. The undersigned hereby acknowledges receipt of a
copy of the Prospectus. This Subscription Agreement and the Prospectus
contain the entire agreement and understanding among the undersigned, the
officers and directors and the Company with respect to the offering and sale of
Shares to the undersigned. This Subscription Agreement creates a legally binding
obligation, and the undersigned agrees to be bound by the terms of this
Agreement.
4. Revocation. The undersigned agrees that once this Subscription
Agreement is tendered to the Company it may not be withdrawn by the undersigned
and that this Agreement shall survive the death or disability of the
undersigned.
<PAGE>
5. Governing Law. This Agreement is governed by Virginia law (other
than its principles of conflict of laws).
By executing this Agreement, the subscriber is not waiving any rights
he or she may have under federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934.
Please indicate in the space provided below ("Registration
Instructions") the exact name or names and address in which the stock
certificate representing Shares subscribed for hereunder should be registered.
- --------------------------------------------
No. of Shares Subscribed at $10.00 per Share
- --------------------------------------------
Total (Funds Tendered)
- --------------------------------------------
(Signature of Subscriber)
- --------------------------------------------
Name (Please Print)
- --------------------------------------------
(Signature of Subscriber)
- --------------------------------------------
Name (Please Print)
Date:
Residence Address:
- --------------------------------------------
- --------------------------------------------
City, State and Zip Code
- --------------------------------------------
Social Security Number or other
Taxpayer Identification Number
<PAGE>
REGISTRATION INSTRUCTIONS
Name:___________________________________
Mailing Address:___________________________________________________
___________________________________________________
Social Security Number of Taxpayer Identification Number:__________________
If certificates will be registered in more than one name, please print the full
name of each person or entity and indicate the type of legal ownership by using
the following abbreviations. If you fail to identify the type of legal
ownership, certificates for subscriptions made in the name of two or more
persons will be issued in the names of such persons as joint tenants with right
of survivorship, and not as tenants in common.
TEN COM - As Tenants in Common TEN ENT - As Tenants by the Entireties
JT TEN - As Joint Tenants with Right of Survivorship and not as Tenants in
Common UNIF GIFT MIN ACT - Under Uniform Gifts to Minor Act,
Custodian: __________________________________
Minor:______________________________________
INFORMATION: BANKING INTERESTS FOR SMITH RIVER BANK, N.A.
(IN ORGANIZATION)
(Note: The following information would be helpful in our organizational efforts,
and, if submitted, will be treated confidentially.)
Would you and/or your business be interested in becoming a depositor in Smith
River Bank?
Personal Account Yes [ ] No [ ]
Business Account Yes [ ] No [ ]
I will be interested in the following service(s) to be offered by the Bank:
[ ] Checking Account [ ] Certificate of Deposit
[ ] Business [ ] Commercial Loan
[ ] Personal [ ] Personal Loan
[ ] Savings Account [ ] Safe Deposit Box
[ ] Money Market Accounts [ ] Other:
Exhibit 4.4
SMITH RIVER BANKSHARES, INC.
UNITS SUBSCRIPTION AGREEMENT
To: Smith River Bankshares, Inc.
Suite 12
730 East Church Street
Martinsville, Virginia 24114
Attn: Andy McCullar, President
Gentlemen:
You have informed me that Smith River Bankshares, Inc., a Virginia
corporation (the "Company"), is offering 87,500 units, each consisting of one
share of the Company's Common Stock and a warrant to purchase one share of the
Company's Common Stock at a price of $10.00 per unit payable as provided herein
and as described in and offered pursuant to the Prospectus furnished to the
undersigned herewith (the "Prospectus").
1. Subscription. Subject to the terms and conditions hereof, the
undersigned hereby tenders this subscription, together with payment indicated
below in United States currency by check, bank draft or money order payable to
"Smith River Bankshares, Inc. - Escrow Account", representing the payment of
$10.00 per unit for the number of units indicated below. The total subscription
price must be paid at the time the Subscription Agreement is executed.
2. Acceptance of Subscription. It is understood and agreed that the
Company shall have the right to accept or reject this subscription in whole or
in part, for any reason whatsoever. The Company may reduce the number of Shares
for which the undersigned has subscribed, indicating acceptance of less than all
of the Shares subscribed on its written form of acceptance.
3. Acknowledgments. The undersigned hereby acknowledges receipt of a
copy of the Prospectus. This Subscription Agreement and the Prospectus
contain the entire agreement and understanding among the undersigned, the
officers and directors and the Company with respect to the offering
<PAGE>
and sale of Shares to the undersigned. This Subscription Agreement creates a
legally binding obligation, and the undersigned agrees to be bound by the terms
of this Agreement.
4. Revocation. The undersigned agrees that once this Subscription
Agreement is tendered to the Company it may not be withdrawn by the undersigned
and that this Agreement shall survive the death or disability of the
undersigned.
5. Governing Law. This Agreement is governed by Virginia law (other
than its principles of conflict of laws).
By executing this Agreement, the subscriber is not waiving any rights
he or she may have under federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934.
Please indicate in the space provided below ("Registration
Instructions") the exact name or names and address in which the stock
certificate representing Shares subscribed for hereunder should be registered.
- --------------------------------------------
No. of units Subscribed at $10.00 per unit
- --------------------------------------------
Total (Funds Tendered)
- --------------------------------------------
(Signature of Subscriber)
- --------------------------------------------
Name (Please Print)
- --------------------------------------------
(Signature of Subscriber)
- --------------------------------------------
Name (Please Print)
Date:
<PAGE>
Residence Address:
- --------------------------------------------
- --------------------------------------------
City, State and Zip Code
- --------------------------------------------
Social Security Number or other
Taxpayer Identification Number
REGISTRATION INSTRUCTIONS
Name:___________________________________
Mailing Address:___________________________________________________
___________________________________________________
Social Security Number of Taxpayer Identification Number:__________________
If certificates will be registered in more than one name, please print the full
name of each person or entity and indicate the type of legal ownership by using
the following abbreviations. If you fail to identify the type of legal
ownership, certificates for subscriptions made in the name of two or more
persons will be issued in the names of such persons as joint tenants with right
of survivorship, and not as tenants in common.
TEN COM - As Tenants in Common TEN ENT - As Tenants by the Entireties
JT TEN - As Joint Tenants with Right of Survivorship and not as Tenants in
Common UNIF GIFT MIN ACT - Under Uniform Gifts to Minor Act,
Custodian: __________________________________
Minor:______________________________________
Exhibit 5
---------
HUGH B. WELLONS
(540) 510-3057
[email protected]
November 2, 1999
Board of Directors
Smith River Bankshares, Inc.
Suite 12
Patrick Henry Mall
730 East Church Street
Martinsville, Virginia 24112
Re: Registration Statement on Form SB-2 with respect to a maximum
of 912,500 shares of common stock of Smith River Bankshares,
Inc. (the "Company") and 87,500 units, each unit consisting of
one share of common stock and one warrant to acquire one share
of common stock of the Company
Gentlemen:
We have acted as counsel for you in connection with preparation of the
registration statement on Form SB-2 and any amendments thereto (the
"Registration Statement"), pursuant to the provisions of the Securities Act of
1933, as amended, being filed with the Securities and Exchange Commission on
September 13, 1999, in respect of a maximum of 912,500 shares of Company common
stock and 87,500 units, each unit consisting of one share of common stock and
one warrant to acquire one share of common stock of the Company and, as such,
have examined the same and the exhibits being filed therewith.
We are generally familiar with your corporate affairs, including your
organization and the conduct of the corporate proceedings relating thereto. We
also have examined such of your corporate records as we have deemed necessary as
the basis for this opinion. Based upon the foregoing, it is our opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the Commonwealth of Virginia.
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2. The 1,087,500 shares of Company Common Stock, which are the subject
of the Registration Statement including the maximum of 912,500 shares of Company
common stock to be offered to the public, the 87,500 shares of the Company
common stock included as part of the units to be issued to organizers/directors,
and warrants issued to organizers/directors to purchase an additional 87,500
shares at $10.00/share have been duly and validly authorized, and when issued
upon the terms as set forth in the Registration Statement, will be legally
issued, fully paid and non-assessable.
The foregoing opinion is contingent upon the Registration Statement
becoming effective. We consent to its use as an exhibit to the Registration
Statement and to reference to this firm in the Prospectus, the Registration
Statement and any amendments thereto.
Sincerely,
Flippin, Densmore, Morse, Rutherford & Jessee
Exhibit No. 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on
Form SB-2/A of our report dated July 26, 1999 on our audit of
the financial statements of Smith River Bankshares, Inc., a
development stage enterprise, as of June 30, 1999 and for the
period December 15, 1998 (date of inception) through June 30,
1999. We also consent to the reference to our firm under the
caption "Experts".
MCLEOD & COMPANY
Roanoke, Virginia
November 2, 1999
