Registration No. 333-_____
As filed with the Securities and Exchange Commission on September 10, 1999.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form SB-2
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 (applied for)
(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 code, of intended principal place of business)
principal executive offices)
Copies to:
Cecil R. McCullar Douglas W. Densmore
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
(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. [ ]
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. [ ]
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CALCULATION OF REGISTRATION FEE
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Title of each class Proposed Proposed maximum
of securities to be Amount to be maximum offering aggregate offering Amount of
registered registered(1) price per unit price(2) Registration Fee
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Common Stock (1) 1,087,500 shs N/A $10,875,000 $3,023.20
Common Stock, (2) (2) (2) (2)
Purchase Warrants (2)
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(1) This Registration Statement covers the issuance of the 912,500 shares
of common stock to the general public and 87,500 Units to be issued to
the organizers/directors consisting of 87,500 shares to the
organizers/directors, as well as shares subject to an additional 87,500
warrants to purchase common stock at a price of $10.00 per share,
issued to the organizers/directors, all expected to be issued in
connection with the transactions described herein.
(2) Warrants are included in the Units to be issued to the
organizers/directors. The organizers/directors of this company, instead
of common stock, will receive in the offering Units, each Unit
consisting of one share of common stock and one warrant to purchase
common stock at some point in the future at a price of $10.00 per
share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES 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:
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TO THE PUBLIC: TO BANKSHARES' ORGANIZERS/DIRECTORS:
A minimum of 537,500 and a maximum of 912,500 shares 87,500 units at $10.00 per unit. Each unit
of common stock of Smith River Bankshares, Inc., at consists of:
$10.00 per share o one share of common stock; and
o one warrant to purchase a share of common
stock in the future at $10.00 per share.
Smith River Bankshares, Inc. We are a newly-formed holding company organized to own the
Suite 12 shares of Smith River Community Bank, N.A., a proposed national
Patrick Henry Mall bank in Martinsville, Virginia. We have received conditional
730 East Church Street approval for a national bank charter, but the bank does not yet
Martinsville, VA 24112 have a charter.
Telephone: (540) 632-8092
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.
The Offering
Per Share Total (Minimum) Total (Maximum)
--------- --------------- ---------------
Public Price $ 10.00 $ 5,375,000 $ 9,125,000
Plus: Proceeds from units 875,000 875,000
Total proceeds to Bankshares
before expenses $ 10.00 $ 6,250,000 $ 10,000,000
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We expect that the shares will be sold directly by the 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
_____________, 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.
BANKSHARES AND SMITH RIVER
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 on January 14, 1999, in Virginia with
the name of First Community National BanCorp., Inc. On July 8, 1999, the company
changed its named to Smith River Bankshares, Inc. On March 31, 1999, Smith River
filed an application for a charter to be granted by the Office of the
Comptroller of the Currency and an application with the FDIC for insurance of
its deposits. We received preliminary charter approval from the Comptroller of
the Currency on August 4, 1999. Once the charter is granted and insurance is
issued, Bankshares will apply to the Board of Governors of the Federal Reserve
System for authority to become a bank holding company and Smith River will apply
to the Federal Reserve for membership.
We hope to secure all regulatory approvals by the end of November, 1999. Soon
after that, if all of the units and at least the minimum number of shares are
sold, the bank will open, and Smith River 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 from the Controller of the Currency to establish a branch of Smith
River 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
Bankshares was organized by a group of businesspersons residing and doing
business in City of Martinsville and Henry County, Virginia. They formed FCNB
LLC, a Virginia limited liability company, for the initial organizational
process. Twelve of the organizers have agreed to serve as directors of
Bankshares and Smith River. These organizers/directors have also advanced funds
to FCNB, LLC 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 them, see "Management--Directors and
Executive Officers."
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, they may lose all or
part of their investment in FCNB, LLC. which is presently estimated to be
approximately $433,000. It is in recognition of these financial risks and their
willingness to serve as directors without pay until Smith River 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
opens for business. See "Certain Transactions."
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
Bankshares and Smith River. As part of his incentive compensation, on the date
Smith River 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."
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HIGHLIGHTS OF THE OFFERING
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SECURITIES OFFERED...............................912,500 shares of common stock and
87,500 units consisting of one
share of common stock and one
warrant to purchase a share of
common stock.
SHARES OUTSTANDING AT AUGUST 31, 1999............12 shares owned by the organizers/directors. These shares will
be repurchased by 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......................$85,000
NET PROCEEDS.....................................$6,165,000, if the units and the minimum offering are sold, or
$9,915,000, if the units and the maximum offering are sold.
PLAN OF DISTRIBUTION.............................The directors of 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, except that the minimum and maximum limits
may be waived for any investor(s) by Bankshares 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 FCNB, LLC, expected
to be about $85,000;
o To repay the organizational expenses incurred by FCNB, LLC, 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 $117,000
to establish the working capital of Bankshares.
o The Bank will also repay from its capital organizational and
pre-opening expenses incurred by Bankshares or FCNB, LLC on its behalf,
expected to be about $300,000.
If the ultimate proceeds of the offering are greater than $6,250,000, then 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
Bankshares.
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RISK FACTORS
Investing in 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 carefully consider the following factors, among
others:
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YOU MAY BE OVERPAYING FOR We fixed the offering price at $10.00 per share on the basis of
THE SHARES BECAUSE THE the start-up capital needs of Smith River and
OFFERING PRICE CANNOT BE offering prices of other newly-organized bank holding
SUPPORTED BY VALUE OF companies. This price bears no relationship to assets, book value,
ASSETS OR EARNINGS. earnings or other established criteria of value. As a result, you may be
overpaying for the shares.
WE WILL BE A NEW BANKING Bankshares, the issuer of your shares, is a new
BUSINESS IN A COMPETITIVE business whose success will depend on Smith River's
ENVIRONMENT; LOSSES ARE operations. Smith River is also a new business that will
LIKELY TO OCCUR FOR AT be successful only if the income earned on loans and investment securities
LEAST THE FIRST FULL YEAR and from fees is greater than the interest paid on
OF OPERATIONS deposits and other sources of funds and general operating expenses.
In order to create and maintain income greater than
interest paid and other expenses, commonly called
"spread," Smith River will have to contend with the
following:
WE COULD BE AT A o As a new bank in an established market Smith River will be competing
DISADVANTAGE WHEN for deposits with many older financial institutions. These institutions
COMPETING FOR DEPOSITS AND may have competitive advantages over Smith River because they have greater
LOANS. capitalization and other resources and they can offer potential depositors
more convenient depositary facilities and borrowers higher lending limits and certain
other customer services which Smith River may not be able to offer. Smith River may have to
pay more to attract deposits. This would hurt our earnings. Even so, we can offer you no
assurance that Smith River will be successful in attracting the deposits it will need to
sustain its growth.
IN MAKING LOANS, WE COULD o By the same token, as a new bank, Smith River will be competing for
BE DEALING WITH loan business with older and larger financial institutions. Unlike these
UNFAMILIAR, SMALLER institutions, Smith River will be creating lending relationships with
BORROWERS - WHO COULD customers seeking to establish new banking relationships and without a
CAUSE EXCESSIVE LOAN previous history with Smith River. Moreover, small to medium businesses and
LOSSES. 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's loan portfolio can be fully evaluated, and we can offer you no assurance that
Smith River will not incur excessive loan losses.
AS A FINANCIAL INSTITUTION
WE COULD BE AFFECTED o The spread earned by Smith River will be materially affected not only
ADVERSELY BY GLOBAL by trends in the economy of its primary source area, the City of
ECONOMIC TRENDS AND Martinsville and Henry County, but also national and international trends
POLICIES. 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's control may adversely affect that spread.
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BECAUSE WE WILL BE o Success in a commercial banking business is particularly dependent on
COMPETING FOR PERSONNEL employing experienced and service-oriented personnel at all levels. We
WITH LARGER FINANCIAL intend and are already making efforts to hire experienced lending and
INSTITUTIONS, WE MAY NOT operations officers, but have no assurance that we can staff Smith River
BE ABLE TO ATTRACT GOOD with appropriate personnel when Smith River opens for business. We do
EMPLOYEES. have an employment agreement with Andy McCullar, a very experienced
banker, who is one of the organizers and our President and Chief Executive Officer.
WE COULD BE AFFECTED BY
UNEXPECTED COMPETITION IF
THE LAW CHANGES. o Because of the Glass-Steagal Act, the commercial banking business has
enjoyed legal barriers to entry by non-banking enterprises. It is
possible that the United States Congress will enact laws that reform the
financial services industry in the near future. If this happens, Smith
River 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 and Bankshares probably will not diversify into a non-banking
business in the near future.
WE WILL NOT BE ABLE TO o Banking is part of the technology revolution. Larger and more
COMPETE FOR SOME TIME WITH established banks have a head start in preparing for new forms of bank
MORE ESTABLISHED FINANCIAL services offered through the internet and other nontraditional media.
INSTITUTIONS OFFERING They also have greater resources to devote to this
TECHNOLOGICALLY ADVANCED effort. It may be some time before Smith River can compete
BANKING effectively for this type of business, if at all.
WE DO NOT EXPECT TO BE o We do not expect to be profitable on a current
PROFITABLE UNTIL, AT basis over an entire year until at least the
BEST, THE THIRD FULL YEAR OF third full year of operations, if at all.
OPERATION.
Smith River will be a so-called "community" bank. In other words, we will exploit personal contacts
by our directors, officers and our shareholders, as well as appropriately focused advertising and
promotional activities, to appeal to businesses and individuals in search of the 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.
NO UNDERWRITER WILL The shares we are offering will be sold directly by Bankshares' Board of
NEGOTIATE THE OFFERING Directors without help from an underwriter or placement agent, at least
PRICE WITH US OR CHECK ON initially. This may reduce our chances of meeting the minimum offering level,
THE STATEMENTS WE MAKE. and it may mean that we sell fewer shares than we could have done with an
THIS CAN ALLOW AN INFLATED underwriter. Underwriters also usually negotiate the share offering price with
PRICE AND MAY REDUCE THE the issuer and check on the accuracy of the issuer's statements to investors.
SHARES SOLD. 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, we are a new company without
SELLING YOUR SHARES a public market for its shares, and we do not expect an active trading market
BECAUSE OF THE ABSENCE OF for the shares to be developed for at least one year after the offering. As a
A PUBLIC MARKET OR BECAUSE result, if you decide to sell 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.
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WE ARE DEPENDENT ON KEY The success of Smith River depends on our ability to attract and keep quality
EMPLOYEES, INCLUDING MR. employees. We are particularly dependent in the early years on the leadership
MCCULLAR. of Andy McCullar, who is described below under "Management". As a new bank,
Smith River 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.
BANKSHARES' Your interests as an investor in Bankshares may be different from Bankshares'
MANAGEMENT MAY HAVE management. Yet, management will exercise significant control over the
INTERESTS THAT MAY BE selection of the Board of Directors and Bankshares' policies. They will be able
DIFFERENT FROM YOURS, AND to exercise control, because after the offering the officers and directors will
MANAGEMENT CONTROLS own between 8.75% and 14% of the total shares outstanding, depending on the
BANKSHARES 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.
OUR SMALL MARKET AREA Our primary market area is Martinsville, Virginia and Henry County, Virginia.
PLACES US AT GREATER RISK This market consists of approximately 393 square miles and 72,000 people.
OF A REGIONAL ECONOMIC Practically, our initial offices will serve only a portion of this market.
PROBLEM, SUCH AS A FLOOD Accordingly, a regional disaster, like a flood or a tornado, or a regional
OR THE CLOSING OF A LARGE economic problem like the closure of a large local employer could hurt our
LOCAL EMPLOYER, HAVING A performance. Martinsville and Henry County have a diverse economic base, but
LARGE EFFECT ON OUR some large employers in our area, such as Tultex, Incorporated and local
PERFORMANCE. furniture manufacturers, have a lot of employees and impact many local
businesses. Smith River 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.
IT WILL BE DIFFICULT FOR Our Articles of Incorporation and Bylaws contain certain anti-takeover
ANYONE TO TAKE OVER provisions. These provisions include:
BANKSHARES. o The power vested in the Board of Directors to fix the terms of any
preferred stock in its sole discretion.
o Staggered terms for the directors where only a third of them stand
for re-election in any given year.
o The requirement that 80% of the shareholders approve mergers and
similar transactions involving a person who owns at least 5% of
Bankshares' common stock unless the transaction is approved by a
majority of directors who are not affiliated with the large shareholder
and who were directors before the large shareholder acquired his 5%
interest or unless certain conditions regarding what is being offered to
Bankshares' shareholders by the large shareholder in the transaction are met.
o The fact that directors can only be removed, prior to the end of their term,
for cause and only if at least two-thirds of all holders of Bankshares'
common stock approve.
o The power of the remaining directors (even if less than a quorum) to fill
any vacancy on the board of directors.
o The limitation on the size of the board to no more than 25.
o The requirement that at least 80% of each class of shares with the
right to vote must approve a change to certain provisions of the Articles
or adopt different Bylaws, unless that provision is first approved by the board.
o The power vested in the board of directors by a majority of a quorum to change
the Bylaws.
These provisions may discourage non-negotiated takeover attempts which you might consider to be in
your best interest. They will also tend to perpetuate existing management. See, "Description
of Securities - Defensive Anti-takeover Provisions" on page 29.
YOUR INVESTMENT MAY BE Bankshares does not have preemptive rights. This means that you will not be
DILUTED AND ACQUIRERS MAY entitled automatically to buy additional shares if shares are offered to others.
BE DISCOURAGED FROM As a result, when the organizers/directors exercise their warrants and key
ACQUIRING BANKSHARES employees exercise their stock options, your interest in Bankshares will be
BECAUSE OF THE WARRANTS diluted. Also, because potential acquirers would have to pay more for the total
AND STOCK OPTIONS. stock of Bankshares due to the warrants and options, they might be discouraged
from making the acquisition. See "Certain Transactions - Warrants and Stock
Options" on pages 25 and 26.
WE DO NOT PLAN TO PAY Bankshares can only pay dividends if it receives dividends from Smith River, and
DIVIDENDS IN THE NEAR there will be regulatory restrictions on the amount of dividends Smith River can
FUTURE AND IN ANY EVENT pay. See, "Dividend Policy", page 12. Also, we intend to preserve capital to
FOR AT LEAST 4 YEARS. facilitate growth and expansion. As a result, you should not expect receiving
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 existing computer systems
COULD INTERRUPT OUR use only the last two digits to refer to a year. These computers programs do
BUSINESS OR CREATE OTHER not recognize a year that begins with "20" instead of "19." Those systems may
SERIOUS PROBLEMS AT A read the year 2000 as "1900" or not recognize it at all. If not corrected, any
CRITICAL EARLY STAGE OF computer applications and other technology-based systems could fail or create
OUR FORMATION 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'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 17.
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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, 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.
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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's business
plan;
o the effect of changing economic conditions, particularly changes in interest
rates;
o changes in government regulations, tax rates and similar matters;
o our ability to attract and retain quality employees; and
o other risks which may be described in our future filings with the SEC. We do
not promise to update forward-looking information to reflect actual results or
changes in assumptions or other factors that could affect those statements.
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 to. 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 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, as escrow agent.
Bankshares and Smith River require regulatory approvals from the
Federal Reserve, the office of the Comptroller of the Currency and the FDIC
before Smith River may commence banking operations. In addition, Bankshares must
have regulatory approvals from the Federal Reserve and the Virginia Bureau of
Financial Institutions to invest in the stock of Smith River. These regulatory
approvals generally are conditioned upon satisfaction of certain post-approval
conditions, the most relevant of which is that Smith River's main banking
facility be leased and opened for business within 18 months after its charter is
preliminarily approved. Because final approval of Smith River's charter is
conditioned on raising funds to capitalize Smith River at $6,000,000, and to pay
organizational and preopening expenses, Bankshares expects to issue shares in
this offering before it has obtained all regulatory approvals for Smith River to
begin the business. If Bankshares issues the shares subscribed 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 does not open
by that date for any reason, 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 Bankshares and Smith River.
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 exceed 4.99% of the total number of shares outstanding upon
completion of the offering, unless this limitation is waived by Bankshares.
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.
<PAGE>
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 will be sold only by
the directors and authorized representatives of 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 under the Securities Exchange Act,
these checks will be transmitted to the escrow agent not 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.
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 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 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.
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 issued and no subscription proceeds
will be released from escrow to Bankshares, unless all the units have been sold
and Bankshares has accepted subscriptions and received payment for at least
537,500 shares, Bankshares has received regulatory approvals from the Federal
Reserve and the Virginia Bureau of Financial Institutions to own Smith River's
stock, and Smith River has received approval from the FDIC for insurance of its
deposits and preliminary charter approval from the OCC. Smith River 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 Bankshares and Smith River over and above the interest earned on
subscription proceeds, will be borne by the organizers if all subscriptions are
canceled.
<PAGE>
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
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 Bankshares,
however, will be less than ten ($10.00) dollars per share, due to organizational
expenses involved in opening Smith River. 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 ($10.00)
dollars per share. Similarly, the Board has already agreed to and intends to
issue to Mr. McCullar on the date Smith River opens options to purchase 30,000
shares of common stock, 10,000 of which will become exercisable on each of the
first three anniversaries of Smith River's opening at the fair market value of
the stock on the date of grant. Any holder of 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 the fair market
value when Smith River opens. If our stock market value 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 and could have a material
effect on the value of the stock you hold. See "Certain Transactions-Warrants
and Stock Options" at pages 25-26.
USE OF PROCEEDS
We have been funding organizational expenses and offering expenses from
the $240,000 capital contribution made to FCNB, LLC by the organizers/directors
to date. We expect total organizational and offering expenses to be about
$433,000. We will continue to incur organizational and offering expenses through
the date of the completion of the offering and release of subscription proceeds
from escrow. The organizers/directors have committed to make additional periodic
contributions to FCNB, LLC 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 escrow and Smith River is capitalized by the end of
January, 2000.
<PAGE>
<TABLE>
<CAPTION>
Minimum Maximum
Offering Offering
<S> <C>
Offering Proceeds(1)........................................$6,250,000(1) $10,000,000(2)
========== ===========
Anticipated use of proceeds by Bankshares:
Offering expenses(3).......................................85,000 85,000
Organizational expenses(4).................................48,000 48,000
Working capital...........................................117,000 1,992,000
Capitalization of Smith River through purchase of
common stock of Smith River........................... 6,000,000 7,875,000
---------- ----------
Total ...................................................$6,250,000 $10,000,000
========== ===========
Anticipated use of capital by Smith River:
Organizational and pre-opening expenses............... $ 300,000 $ 300,000
Furniture, fixtures and equipment...................... 300,000 300,000
Working capital.........................................5,400,000 7,275,000
---------- -----------
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.
(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 Bankshares. These funds will be used by Bankshares to pay its
offering expenses of approximately $85,000 and its organizational expenses of
approximately $48,000. The balance of the funds will be used by Bankshares for
two purposes: between approximately $117,000 (minimum offering) and $1,992,000
(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. Smith River will use approximately $300,000 to
reimburse Bankshares for amounts it has paid on its own or to FCNB, LLC for the
Bank's organizational costs and pre-opening expenses and approximately $100,000
to reimburse Bankshares for the cost of equipping the Bank's main office. Smith
River's organizational expenses, estimated at $76,000, include consulting and
legal fees, marketing and traveling expenses. Smith River's pre-opening expenses
estimated at $224,000, include salaries, benefits, rent, utilities, telephone
expenses and supplies. Smith River will use approximately $200,000 to furnish
and equip the proposed Bassett, Virginia branch, if it is approved. The balance
of the Bank's proceeds, estimated at $5,400,000 (minimum offering) and
$7,275,000 (maximum offering) will be used for general banking business.
We intend to use the working capital of Bankshares as estimated in the
table above primarily as a source to add to the working capital of Smith River
whenever an addition may be necessary. We will also use it to pay professional
fees, licensing fees, office expenses and, if we complete the maximum offering,
for possible future acquisitions although we do not anticipate any at this time.
The above table contains estimates only and assumes that Smith River
will be capitalized by the end of January, 2000. A change in that date and other
circumstances on which the assumptions underlying these estimates have been
based may cause the actual use of proceeds to vary from these estimates.
<PAGE>
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 Bankshares by Smith River.
Smith River similarly does not anticipate paying cash dividends to 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 is also
limited by regulatory requirements and limitations. See, "Supervision and
Regulation" on page 18.
In summary, we can give no assurances that any dividends will be declared by
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 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.
BANKSHARES
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 Bankshares'
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
September 15, 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. Bankshares' permanent offices will continue to be at the
same location. When it opens, Smith River's main banking facility will be
located nearby at East Church Street and Booker Road in Martinsville, Virginia.
Bankshares is 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
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'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, which, in turn, will depend upon
the level of deposits and total assets of Smith River. Smith River'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 were to grow at a more rapid rate than
anticipated, Smith River'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.
<PAGE>
SMITH RIVER COMMUNITY BANK, N.A.
GENERAL
Smith River 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 applied for both the charter and
deposit insurance on March 31, 1999, and we received preliminary charter
approval from the Comptroller of the Currency on August 4,1999, and expect to
receive deposit insurance approval from the FDIC in September, 1999.
Smith River's initial capitalization will be provided from the net
proceeds of the offering by Bankshares' purchasing at least 600,000 shares of
Smith River's common stock. The purchase price per share is $10.00.
Immediately upon obtaining all regulatory approvals and being
capitalized, Smith River will engage in attracting deposits from the general
public and will make commercial, consumer and real estate loans. We anticipate
that Smith River will commence operations by the end of December, 1999, 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'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's personalized services. Smith River intends to emphasize a high degree of
personalized client service in order to be able to serve each customer's banking
needs. Smith River'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 continually evaluate all banking services as to their
profitability and make an effort to modify Smith River's business plan if the
original plan does not prove successful.
We believe that Smith River'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's operations will become profitable.
PRIMARY SERVICE AREA
The primary service area of Smith River 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.
<PAGE>
COMPETITION
Smith River 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 will not provide directly but might
offer indirectly through correspondent institutions.
As of June 30, 1998, there were ten commercial banks and two savings
banks and savings and loan institutions 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.
On June 30, 1998, commercial banks held 93.7% of the banking deposits
in the market while thrifts 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 branching
and proprietary ATM networks which 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 institutions. See, "Supervision and
Regulation - Recent Legislative Developments" on page 20.
EMPLOYEES
As of the date of this prospectus, Andy McCullar, the President and
Chief Executive Officer of Bankshares, Brenda Smith, Senior Vice President -
Chief Financial Officer of Bankshares, and Francia Brown, administrative
assistant, 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 24. 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 will employ
approximately fourteen (14) full-time employees of whom, it is estimated, that
five (5) will be officers.
PROPERTY
On April 6, 1999, we entered into two leases. One lease is for
Bankshares' executive offices and the other lease is for the main banking office
of Smith River. Bankshares' 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'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 Bankshares' 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'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 anticipates spending $100,000 for additional furnishings and
equipment for this office as well as for the acquisition and installation of an
ATM.
<PAGE>
Smith River 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 9:00 a.m. to 12:00 noon on
Saturday 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 later. 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 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 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 $200,000.
None of the leases contain options to renew. Consequently, it is
possible that Bankshares and/or Smith River 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 would have an adverse effect.
BANKING SERVICES GENERALLY
Smith River 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 will be insured to the maximum
extent provided by law through the FDIC. Smith River 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 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 intends to have proprietary ATM's at both its
main bank office and at the proposed Bassett branch. Smith River also plans on
offering internet banking services when economically viable to do so.
LENDING ACTIVITIES
Smith River 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 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 will
develop a loan approval process which will provide for various 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 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.
<PAGE>
Under the national banking laws, Smith River 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'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's loan
policy, when developed, may establish a lower lending limit.
Smith River 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'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 may also offer
to commercial customers equipment leasing and factoring through the Community
Bankers Bank, located in Richmond, Virginia.
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 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'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 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'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. 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;
<PAGE>
however, this ratio may be exceeded in the initial period of operation. We
anticipate that Smith River'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'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 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. These will include
savings accounts, transaction accounts and time deposits.
Initially, Smith River 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 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
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 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 also expects to put clauses in all
contracts protecting itself against the potential problem. Smith River 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 will
include Y2K risk management parameters in its loan policy, minimizing the issue
as a part of Smith River's credit risk.
In short, Smith River does not believe this Y2K issue will have a
material effect on Smith River'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's vendors or
customers, the Federal Reserve Bank of Richmond, or other regulator agencies do
not achieve Y2K compliance in time, Smith River's business and financial
condition would be adversely affected.
INCOME TAXES
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 form
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
<PAGE>
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 year 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
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. We anticipate that we will receive regulatory
approval to open Smith River during the first quarter of 2000, assuming this
offering is successful. There can be no assurance, however, that we will receive
approval or that Smith River will open.
Prior to this offering, the only material source of funds for
Bankshares has been the investments by the organizers/directors through FCNB,
LLC, a Virginia limited liability company which they formed for this purpose. As
of July 31, 1999, we have received gross proceeds of $240,000 from the
organizers/directors through FCNB, LLC. These advances and additional advances,
which we estimate will be a total of $433,000, will be repaid by Bankshares and
Smith River from the proceeds of the offering, if it is successful.
Bankshares is newly formed and it has, and Smith River when it is
formed will have, no prior operating history. Our operating results will depend
on operating results of Smith River. Smith River'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 will incur operating expenses, and there are no assurances as to when, if
ever, Smith River will generate sufficient revenues to 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 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 will
employ approximately fourteen (14) full time employees. See "Business -
Employees" on page 14.
We have entered into three leases, one of which is for the executive
offices of Bankshares. The other two leases are for the anticipated main banking
office and another branch office of Smith River. We are currently paying rent on
all three leases. We expect to spend approximately $100,000 on the main banking
office for additional furnishings and an ATM. We also expect to spend
approximately $200,000 for leasehold improvements, furniture and equipment, and
an ATM for the branch banking office. See page 14 and 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 BANKSHARES
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, Bankshares will be required to file with the Federal Reserve
periodic reports and information regarding its business operations and those of
<PAGE>
Smith River. Bankshares must also provide the Virginia Financial Institutions
Bureau with information regarding itself and Smith River. Bankshares and Smith
River will also be examined by the Federal Reserve and 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.
Bankshares would be compelled by the Federal Reserve to invest
additional capital in the event Smith River 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 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, 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
Smith River 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'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 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 may not pay dividends at all until its surplus equals its
stated capital. The only exception is if Smith River 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's
ability to pay dividends may adversely impact Bankshares' ability to pay
dividends to its shareholders.
Smith River'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's deposits will be insured by the FDIC for a maximum of
$100,000 per depositor. For this protection, Smith River 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's profitability. In case of member banks like Smith River, the Federal
Reserve has the authority to prevent the continuance or development of unsound
and unsafe banking practices and to approve conversions, mergers and
<PAGE>
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 will also have to
comply with rules that restrict preferential loans by the bank to "insiders,"
require Smith River 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 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 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 would then be required to
maintain a 5 percent leverage capital ratio. These regulations can impact Smith
River by requiring it to hold more capital and thereby inhibit its ability to
grow.
MONETARY POLICY
Banking is a business that depends on interest rate differentials. The
difference between the interest rates paid by Smith River 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's earnings.
The earnings and growth of Smith River 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 the Board of Directors of Bankshares 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
<PAGE>
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
certain information about the current executive officers, directors and
organizers of 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, when it is organized. Unlike Bankshares, the term of
Smith River directors is uniformly one year.
<PAGE>
<TABLE>
<CAPTION>
NUMBER
OF
POSITION WITH PRINCIPAL OCCUPATION SHARES(%)/ DOLLAR AMOUNT
NAME/AGE BANKSHARES LAST 5 YEARS WARRANTS(%)1 OF SUBSCRIPTION
-------- ------------- ------------ ------------ ---------------
<S> <C>
CLASS A DIRECTORS - TERM EXPIRES 2002
J. E. Bassett, Jr./67 Director Retired/formerly Vice 10,000 (1.6%) $100,000
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
Morton W. Lester/65 Director President-The Lester 10,000 (1.6%) $100,000
Corp.; Vice President 10,000 (3.2%)
- Motor Imports, Inc.
Cecil R. McCullar/62 Director, President - First 10,000 (1.6%) $100,000
President and American FSB 10,000 (3.2%)
Chief Executive
Officer
CLASS B DIRECTORS - TERM EXPIRES 2001
Patricia H. Brammer/66 Director Realtor 5,000 (.8%) $ 50,000
5,000 (1.6%)
George R. Nelson, Jr./62 Director Owner - Nelson Ford, 10,000 (1.6%) $100,000
Inc./G.R. 10,000 (3.2%)
Chevrolet,Inc./Nelson
Mazda Subaru/ Nelson
Pontiac, Buick, GMC,
Inc.
Douglas E. Riddle/55 Director Owner - Riddle 5,000 (.8%) $ 50,000
Chrysler, Plymouth, 5,000 (1.6%)
Dodge, Honda
Milford A. Weaver/74 Director Owner, Virginia 4,000 (.6%) $ 40,000
Blower Company 4,000 (1.2%)
CLASS C DIRECTORS - TERM EXPIRES 2000
Jessee D. Cahill, Sr./68 Director Real Estate Broker/ 10,000 (1.6%) $100,000
General Contractor 10,000 (3.2%)
Roxann B. Miller/66 Director Principal - Dillon 6,000 (1.0%) $ 60,000
Insurance Agency 6,000 (2.0%)
Jimmie R. Mills/62 Director President - Jim Mills 5,000 (.8%) $ 50,000
Lincoln-Mercury-Jeep 5,000 (1.6%)
Joe C. Philpott/68 Director Retired/Exc. Vice 2,500 (.4%) $ 25,000
President-Manufacturing; 2,500 (.8%)
Bassett Furniture ----- ----- --------
TOTAL 87,500 (14%) $875,000
87,500 (28%)
</TABLE>
- --------
1 Based on minimum offering percentage. Share % includes only shares;
warrant % includes both shares and warrants, assuming all warrants are
exercised.
<PAGE>
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 its is necessary to complete the
minimum offering or shares which may be purchased by any additional directors or
officers of Bankshares or Smith River.
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 N.C. State College 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. 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
<PAGE>
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 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
<PAGE>
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 (age 40) began work as the Senior Vice President and Chief
Financial Officer of Bankshares and Smith River 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
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
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 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 Bankshares and, when it is organized,
Smith River.
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). 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
Bankshares/Smith River without cause or by Mr. McCullar for good
reason, Bankshares 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 Bankshares/Smith River
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 opens for business, will be granted options to purchase
30,000 shares of 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
Bankshares and Smith River 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.
<PAGE>
OPTIONS
The following table indicates the options to be granted to Mr.
McCullar. Mr. McCullar will be granted on the date Smith River opens for
business the option to purchase 10,000 shares of common stock for each of the
first three years of Smith River's operations. Each of the options will have a
ten-year term from the date they become exercisable. The options will be
exercisable by Mr. McCullar if he is employed as President and Chief Executive
Officer of 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.
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
Bankshares' Articles of Incorporation contain a provision which, in
accordance with Virginia law, eliminates the personal liability of directors or
officers to 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
|X| willful misconduct
|X| knowing violation of criminal law
|X| 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, insofar as indemnification of directors, officers
and controlling persons for liabilities arising under the Securities Act of
1933, that type of indemnification is against public policy and is, therefore,
unenforceable.
Bankshares' 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 Bankshares, as a director or officer of Bankshares (or is sued
because he or she was serving as a director, officer or employee of another
entity, such as Smith River at the request of Bankshares), Bankshares must
indemnify him or her for liabilities and expenses except for:
|X| willful misconduct
|X| knowing violation of criminal law.
Generally, Bankshares must also cover expense 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.
<PAGE>
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 of their equity
investment in FCNB, LLC, 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 purchase, at any time within
ten years from the date Smith River 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 opened for
business, so long as the organizer/director has served continuously as a
director of Bankshares and Smith River 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 Bankshares, or a sale by Bankshares 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.
The organizers/directors will have received the warrants as
consideration for taking financial risks and for serving as directors without
compensation until Smith River 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 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 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.
<PAGE>
STOCK OPTIONS
Bankshares will grant to Mr. McCullar on the day Smith River 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 at the
conclusion of the respective year of Smith River 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, 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 Bankshares and Smith River. 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.
ORGANIZATIONAL SUBSCRIPTIONS
To complete the organization of 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.
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. It will be the policy of Smith
River 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 to any officer, director or
controlling person of Smith River 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 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'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'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'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's locale.
<PAGE>
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. It has also prepared the business plan and policies
and procedures manual for Smith River. Bank Resources will also assist in the
preparation of Bankshares' and Smith River'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's charter is approved.
DESCRIPTION OF SECURITIES
COMMON STOCK
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 and are not entitled to cumulate their
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 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
Bankshares is authorized by its Articles of Incorporation to issue up
to 10,000,000 shares of preferred stock, no par value per share. 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
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.
<PAGE>
TRANSFER AGENT AND REGISTRAR
Unless we are required by law or administrative action to appoint an
independent transfer agent and registrar, Smith River 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, 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 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 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 essentially
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 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 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
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.
<PAGE>
REMOVAL OF DIRECTORS
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
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.
APPROVAL OF CERTAIN BUSINESS TRANSACTIONS
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 Bankshares and
an entity owning 5% or more of Bankshares' 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 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
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
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 Bankshares from making a tender offer or other attempt to gain
control of Bankshares.
LEGAL MATTERS
The legality of the shares and units is being passed upon for
Bankshares by Flippin, Densmore, Morse, Rutherford & Jessee, a Professional
Corporation, 1800 First Union Tower, Drawer 1200, Roanoke, Virginia 24011.
EXPERTS
The financial statements of Bankshares as of June 30, 1999, and from
the date of inception, January 14, 1999 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
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 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 reports and information filed by 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.
<PAGE>
SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Index to Financial Statements
<TABLE>
<S> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Balance Sheet
June 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
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
==========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Statement of Loss
For the Period December 15, 1998
(Date of Inception)
Through June 30, 1999
<TABLE>
<CAPTION>
REVENUES
<S> <C>
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)
============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
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
<TABLE>
<CAPTION>
Deficit
Number Accumulated
of During the Total
Common Common Development Shareholders'
Shares Stock Stage Deficit
------ ----- ----- -------
<S> <C>
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)
====== ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-4
<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
<TABLE>
<CAPTION>
Cash Flows From Operating Activities
<S> <C>
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
=========
</TABLE>
See accompanying notes to financial statements.
F-5
<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 the 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. 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-6
<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.
(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-7
<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-8
<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
Market for Common Stock.......................................................12
Business......................................................................12
Management's Plan of Operation................................................18
Supervision and Regulation....................................................18
Management....................................................................20
Certain Transactions..........................................................26
Description of Securities.....................................................28
Legal Matters.................................................................30
Experts.......................................................................31
Additional Information........................................................31
Index to Financial Statements................................................F-1
----------
Until ______________, all dealers that buy, sell or trade these securities,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
(END OF BACK COVER)
<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>
ITEM 2. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration fees $ 3,023.20
Blue sky fees and expenses (estimated) 13,000.00
Escrow Agent Fee (estimated) 7,500.00
Printing Expenses (estimated) 5,000.00
Legal Fees and Expenses (estimated) *
Accounting Fees (estimated) *
Miscellaneous Expenses (estimated) *
----------
TOTAL $ *
*To be provided by amendment
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, 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, discounts or
commissions paid with respect to these transactions. Bankshares intends to
repurchase these shares at the original purchase price upon the successful
completion of the offering.
<PAGE>
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 Bankshares. Accordingly,
these sales constituted transactions by Bankshares 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.
ITEM 5. INDEX TO EXHIBITS
The following exhibits are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
Number Description of Exhibit
- ------ ----------------------
<S> <C>
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* Organizer 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.
23.1 Consent of McLeod & Company.
<PAGE>
23.2 Consent of Flippin, Densmore, Morse, Rutherford & Jessee, (included in Exhibit 5).
27 Financial Data Disclosure Schedule
</TABLE>
- ----------------
*To be filed as an exhibit
<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 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Martinsville, Commonwealth of Virginia, on September 13, 1999.
SMITH RIVER BANKSHARES, INC.
By: /s/ 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>
/s/ Cecil R. McCullar President and Chief September 13, 1999
- ---------------------------------- Executive Officer, Director
Cecil R. (Andy) McCullar
/s/ Brenda H. Smith Senior Vice President/ September 13, 1999
- ---------------------------------- Chief Financial Officer
Brenda H. Smith
/s/ Mervyn R. King Director, Chairman of September 13, 1999
- ---------------------------------- the Board of Directors
Mervyn R. King
/s/ J. E. Bassett, Jr. Director September 13, 1999
- ----------------------------------
J. E. Bassett, Jr.
/s/ Patricia H. Brammer Director September 13, 1999
- ----------------------------------
Patricia H. Brammer
/s/ Jesse D. Cahill, Sr. Director September 13, 1999
- ----------------------------------
Jesse D. Cahill, Sr.
/s/ Morton W. Lester Director September 13, 1999
- ----------------------------------
Morton W. Lester
/s/ Roxann B. Miller Director September 13, 1999
- ----------------------------------
Roxann B. Miller
/s/ Jimmie R. Mills Director September 13, 1999
- ----------------------------------
Jimmie R. Mills
/s/ George R. Nelson, Jr. Director September 13, 1999
- ----------------------------------
George R. Nelson, Jr.
/s/ Joe C. Philpott Director September 13, 1999
- ----------------------------------
Joe C. Philpott
Director
- ----------------------------------
Doug Riddle
/s/ Milford A. Weaver Director September 13, 1999
- ----------------------------------
Milford A. Weaver
</TABLE>
Exhibit 3.1
RESTATED
ARTICLES OF INCORPORATION
OF
Smith River Bankshares, Inc.
1. The name of the Corporation is Smith River Bankshares, Inc.
2. (a) The aggregate number of shares which the Corporation is
authorized to issue is as follows:
Class Number of Shares
----- ----------------
Common 10,000,000
Preferred 10,000,000
(b) The Board of Directors of the Corporation (the "Board of
Directors") may, by amending these Articles of Incorporation (the "Articles") by
filing Articles of Amendment with the Virginia State Corporation Commission, fix
in whole or in part the preferences, limitations and rights, within the limits
set by law, of (i) any class of shares, before the issuance of any shares of
that class, or (ii) one or more series within a class, before the issuance of
any shares within that series.
(c) The preferred stock (including any shares of preferred
stock restored to the status of authorized but unissued preferred stock
undesignated as to series pursuant to this Article 2(c)) may be divided into one
or more series and issued from time to time with such preferences, privileges,
limitations, and relative rights as shall be fixed and determined by the Board
of Directors. Without limiting the generality of the foregoing, the Board of
Directors is expressly authorized to the fullest extent permitted from time to
time by law to fix:
<PAGE>
(i) the distinctive serial designations and the
division of shares of preferred stock into one or more series and the number of
shares of a particular series, which may be increased or decreased (but not
below the number of shares thereof then outstanding);
(ii) the rate or amount (or the method of determining
the rate or amount) and times at which, the form in which, and the preferences
and conditions under which, dividends shall be payable on shares of a particular
series, the status of such dividends as cumulative, partially cumulative, or
noncumulative, the date or dates from which dividends, if cumulative, shall
accumulate, and the status of such series as participating or nonparticipating
with shares of other classes or series;
(iii) the price or prices at which, the consideration
for which, the period or periods within which and the terms and conditions, if
any, upon which the shares of a particular series may be redeemed, in whole or
in part, at the option of the Corporation or otherwise;
(iv) the amount or amounts and rights and
preferences, if any, to which the Holders (as defined in Article 3 below) of
shares of a particular series are entitled or shall have upon any involuntary or
voluntary liquidation, dissolution or winding up of the Corporation;
(v) the rights and preferences over or otherwise in
relation to any other class or series (including other series of preferred
stock), as to the right to receive dividends and/or the right to receive
payments out of the net assets of the Corporation upon any involuntary or
voluntary liquidation, dissolution or winding up of the Corporation;
<PAGE>
(vi) the right, if any, of the Holders of a
particular series, the Corporation or another person to convert or cause
conversion of shares of such series into shares of other classes or series or
into other securities, cash, indebtedness or other property, or to exchange or
cause exchange of such shares for shares of other classes or series or other
securities, cash, indebtedness or other property, and the terms and conditions,
if any, including the price or prices or the rate or rates of conversion and
exchange, and the terms and conditions or adjustments, if any, at which such
conversion or exchange may be made or caused;
(vii) the obligation, if any, of the Corporation to
redeem, purchase or otherwise acquire, in whole or in part, shares of a
particular series for a sinking fund or otherwise, the terms and conditions
thereof, if any, including the price or prices and the nature of the
consideration payable for such shares so redeemed, purchased or otherwise
acquired;
(viii) the voting rights, if any, including special,
conditional or limited voting rights, of the shares of a particular series in
addition to those required by law, including the number of votes per share and
any requirement for the approval by the Holders of shares of all series of
preferred stock, or of the shares of one or more series thereof, or of both, in
an amount greater than a majority, up to such amount as is in accordance with
applicable law or these Articles, as a condition to specified corporate action
or amendments to the Articles; and
<PAGE>
(ix) any other preferences, limitations and relative
rights which may be so determined by resolution or resolutions of the Board of
Directors.
Shares of preferred stock shall rank prior or superior to the
common stock in respect of the right to receive dividends and/or the right to
receive payments out of the net assets of the Corporation upon any involuntary
or voluntary liquidation, dissolution or winding up of the Corporation. All
shares of preferred stock redeemed, purchased or otherwise acquired by the
Corporation (including shares surrendered for conversion or exchange) shall be
cancelled and thereupon restored to the status of authorized but unissued shares
of preferred stock undesignated as to series.
(d) The Holders of common stock, to the exclusion of any
other class of stock of the Corporation, have sole and full power to vote for
the election of directors and for all other purposes without limitation except
only (i) as otherwise expressly provided in the serial designation of any series
of preferred stock, (ii) as otherwise expressly provided in these Articles and
(iii) as otherwise expressly provided by the then existing laws of the
Commonwealth of Virginia. The Holders of common stock will have one vote for
each share of common stock held by them. The outstanding shares of common stock,
upon dissolution, liquidation or winding up of the Corporation, entitle their
Holders to share, pro rata, based on the number of shares owned, in the
Corporation's assets remaining after payment or provisions for payment of all
debts and liabilities of the Corporation, and after provisions for the
outstanding shares of any class of stock or other security having senior
liquidation rights to the common stock.
<PAGE>
(e) No Holder of shares of stock of any class of the
Corporation will have any preemptive or preferential right of subscription to
any shares of any class of stock of the Corporation, whether now or hereafter
authorized, or to any obligations of the Corporation convertible into stock of
the Corporation, issued or sold, nor any right of subscription to any thereof.
3. (a) Subject to the rights of Holders of any series of preferred
stock to elect directors under specified circumstances:
(i) The number of directors of the Corporation, not
less than five nor more than twenty-five, shall be set by the Bylaws; provided
that, in the absence of a provision in the Bylaws fixing the number of
directors, the number of directors shall be fifteen. The directors shall be
divided into three classes as nearly equal in number as possible, with the term
of office of directors of the first class to expire at the first annual meeting
of the shareholders after their election, that of the second class to expire at
the second annual meeting after their election, and that of the third class to
expire at the third annual meeting after their election. At each annual meeting
after such classification, the number of directors equal to the number of the
class whose term expires at the time of such meeting shall be elected to hold
office until the third succeeding annual meeting of shareholders and until their
respective successors are elected and shall qualify. In the event of any
increase or decrease in the number of directors fixed by the Bylaws, all classes
of directors shall be increased or decreased as equally as may be possible.
<PAGE>
(ii) Newly-created directorships resulting from an
increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office, or other cause shall be filled by the affirmative vote of a
majority of the directors then in office, whether or not a quorum. No decrease
in the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director. A director may be removed from office only for
cause and only by the affirmative vote of the Holders of not less than
two-thirds of each class of the voting stock of the Corporation then outstanding
at a meeting called for that purpose.
(b) The power to adopt, alter, amend or repeal Bylaws is
vested in the Board of Directors, which may take such action by the vote of a
majority of the directors present and voting at a meeting at which a quorum is
present, provided that if, as of the date such action shall occur, there is an
Interested Shareholder, such majority must include a majority of the Continuing
Directors. The Bylaws may contain any provision respecting the affairs,
business, governance or other matters relating to the Corporation not
inconsistent with the express provisions of these Articles. Shareholders, by the
affirmative vote of the Holders of not less than 80 percent of each class of the
voting stock of the Corporation then outstanding, may (i) adopt new Bylaws, or
(ii) alter, amend or repeal Bylaws adopted by either the shareholders or the
Board, and (iii) prescribe that any Bylaw made by them shall not be altered,
amended or repealed by the Board (provided that if the shareholders do not so
prescribe, any Bylaw made by them may be altered, amended or repealed by the
Board).
(c) The affirmative vote of the Holders of not less than 80
percent of each class of the voting stock of the Corporation then outstanding
shall be required to amend or repeal this Article 3 or adopt any provision of
the Articles or Bylaws inconsistent with this Article 3.
<PAGE>
(d) For purposes of this Article 3:
(i) "Person" means any individual, firm, corporation
or other entity.
(ii) "Interested Shareholder" means (A) any Person
(other than the Corporation, a Subsidiary, or any profit-sharing, employee stock
ownership or employee benefit plan of the Corporation or a Subsidiary, or any
trustee of or fiduciary with respect to any such plan acting in such capacity)
that is the direct or indirect beneficial owner (as defined in Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934 ("`34 Act") the date these
Articles first became effective) of five percent or more of the outstanding
capital stock of the Corporation entitled to vote for the election of directors,
and (B) any Affiliate or Associate of any such Person.
(iii) "Affiliate" and "Associate" shall have the
respective meanings given those terms in Rule 12b-2 of the General Rules and
Regulations under the `34 Act as in effect on the date these Articles first
became effective.
(iv) "Subsidiary" means any business entity, 50
percent or more of which is directly or indirectly owned by the Corporation.
(v) "Continuing Director" means any member of the
Board of Directors who is neither an Interested Shareholder nor affiliated with
an Interested Shareholder and who was a member of the Board of Directors
immediately prior to the time that the Interested Shareholder became an
Interested Shareholder.
(vi) "Holders" means the holders of all classes and
series of the capital stock of the Corporation, except as otherwise specifically
provided herein.
4. To the full extent that the laws of the Commonwealth of Virginia, as
they now or may hereafter exist, permit the limitation or elimination of the
liability of directors or officers, no director or officer of the Corporation
shall be liable to the Corporation or its shareholders for any monetary damages.
5. (a) The Corporation shall indemnify a director or officer of the
Corporation who is or was a party to any 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 Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other profit or non-profit
enterprise against all liabilities and expenses incurred in the proceeding,
except such liabilities and expenses as are incurred because of his willful
misconduct or knowing violation of the criminal law. Unless a determination has
been made that indemnification is not permissible, the Corporation shall make
advances and reimbursement for expenses incurred by a director or officer in a
proceeding upon receipt of an undertaking from him to repay the same if it is
ultimately determined that he is not entitled to indemnification. Such
undertaking shall be an unlimited unsecured general obligation of the director
or officer and shall be accepted without reference to his ability to make
repayment. The Board of Directors is hereby empowered to contract in advance to
indemnify and advance the expenses of any director or officer. The termination
of any proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent shall not, by itself, create a presumption
that the director or officer did not meet the standard of conduct entitling him
to indemnity hereunder.
<PAGE>
(b) The Board of Directors is hereby empowered to cause the
Corporation to indemnify and make advances and reimbursement for expenses (or
contract in advance for the same) incurred by any person not specified in
paragraph (a) of this Article 5 who was or is a party to any proceeding, by
reason of the fact that he is or was an employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other profit or non-profit enterprise, to the same
extent as if such person were specified as one to whom indemnification is
granted in paragraph (a) of this Article.
(c) The Corporation may purchase and maintain insurance to
indemnify it against the whole or any portion of the liability assumed by it in
accordance with this Article and may also procure insurance, in such amounts as
the Board of Directors may determine, on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against or incurred by such
person in any such capacity or arising from his status as such, whether or not
the Corporation would have power to indemnify him against such liability under
the provisions of this Article.
<PAGE>
(d) Except as hereinafter provided, all determinations as to
the permissibility of indemnification and advances and reimbursement for
expenses (including contracts with respect thereto) shall be made by a majority
vote of a quorum consisting of directors not at the time parties to the
proceeding. In the event such a quorum cannot be obtained to make any
determination as to the permissibility of indemnification and advances and
reimbursement for expenses with respect to any claim for indemnification
(including contracts with respect thereto), or in the event there has been a
change in the composition of a majority of the Board of Directors after the date
of the alleged act with respect to which indemnification is claimed, such
determination shall be made by special legal counsel agreed upon by the Board of
Directors and the proposed indemnitee. If the Board of Directors and the
proposed indemnitee are unable to agree upon such special legal counsel, the
Board of Directors and the proposed indemnitee each shall select a nominee, and
the nominees shall select such special legal counsel.
<PAGE>
(e) The provisions of this Article shall be applicable to all
actions, claims, suits or proceedings commenced after the adoption hereof,
whether arising from any action taken or failure to act before or after such
adoption. No amendment, modification or repeal of this Article shall diminish
the rights provided hereby or diminish the right to indemnification with respect
to any claim, issue or matter in any then pending or subsequent proceeding that
is based in any material respect on any alleged action or failure to act prior
to such amendment, modification or repeal.
(f) Except to the extent inconsistent with this Article,
terms used herein shall have the same meanings assigned them in the
Indemnification Article of the Virginia Stock Corporation Act, as now in effect
or hereafter amended or replaced. Without limitation, it is expressly understood
that reference herein to directors, officers, employees or agents shall include
former directors, officers, employees and agents and their respective heirs,
executors and administrators.
6. (a) Any Business Combination shall require only such affirmative vote
by the Holders as is required by applicable law and any other provision of the
Articles, exclusive of Section (b) of this Article 6, if the conditions of
either of paragraphs (i) or (ii) are met:
(i) The Business Combination has been approved by a
vote of a majority of the directors, including a majority of all the Continuing
Directors; or
(ii) All of the following conditions have been
satisfied:
<PAGE>
(A) The Holders shall receive the aggregate
amount of (x) cash and (y) fair market value (as of the date of the consummation
of the Business Combination) of consideration other than cash, at least equal to
the highest per share price (including any brokerage commissions, transfer taxes
and soliciting dealers' assessing fees) paid by the Interested Shareholder for
any shares of such class or series of stock acquired by the Interested
Shareholder. However, if the highest preferential amount per share of a series
of preferred stock to which the Holders thereof would be entitled in the event
of any voluntary or-involuntary liquidation, dissolution or winding up of the
affairs of the Corporation (regardless of whether the Business Combination
constitutes such an event) is greater than such aggregate amount, Holders of
such series of preferred stock shall receive at least the highest preferential
amount per share applicable to such series of preferred stock; and
(B) The consideration to be received by
Holders of any class or series of outstanding common or preferred stock shall be
in cash or in the same form as the Interested Shareholder has previously paid
for shares of such class or series of stock. If the Interested Shareholder has
paid for shares of any class or series of stock with varying forms of
consideration, the form of consideration given for such class or series of stock
in the Business Combination shall be either cash or the form used to acquire the
largest number of shares of such class or series of stock previously acquired by
the Interested Shareholder; and
<PAGE>
(C) A proxy statement satisfying the
requirements of the `34 Act and the rules and regulations thereunder (or any
subsequent provisions replacing the `34 Act and such rules and regulations)
shall be mailed to the shareholders of the Corporation at least 45 days prior to
the holding of any meeting of shareholders of the Corporation to vote upon the
Business Combination (whether or not such proxy or information statement is
required pursuant to the `34 Act or any subsequent provisions) and shall contain
in the forepart thereof in a prominent place any recommendations as to the
advisability (or inadvisability) of the Business Combination which the
Continuing Directors may choose to state and, if deemed advisable by a majority
of the Continuing Directors, an opinion of a reputable investment banking firm
as to the fairness (or lack of fairness) of the terms of such Business
Combination from the point of view of the Holders of any class or series of
voting stock of the Corporation other than the Interested Shareholder (such
investment banking firm to be selected by a majority of the Continuing
Directors, to be furnished with all information it reasonably requests and to be
paid by the Corporation a reasonable fee for its services upon receipt by the
Corporation of such opinion).
(b) If the provisions of paragraph (a) of this Article 6 have
not been satisfied, any Business Combination shall require the affirmative vote
of the Holders of at least 80 percent of each class of the voting stock of the
Corporation then outstanding. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that some lesser
percentage may be specified by law or in any agreement of the Corporation with
any national securities exchange or otherwise.
<PAGE>
(c) For the purposes of this Article 6:
(i) "Business Combination" means any of the
following:
(A) Any merger or consolidation of the
Corporation or any Subsidiary with or into (x) any Interested Shareholder, or
(y) any other Corporation which, after such merger or consolidation, would be an
Interested Shareholder; or
(B) Any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in one transaction or a series of related
transactions) to or with any Interested Shareholder of any assets of the
Corporation or any Subsidiary when such assets have an aggregate fair market
value of $500,000 or more; or
(C) The issuance or transfer to any
Interested Shareholder by the Corporation or any Subsidiary (in one transaction
or a series of related transactions) of any equity securities of the Corporation
or any Subsidiary where any such equity securities have an aggregate fair market
value of $500,000 or more; or
(D) The adoption of any plan or proposal for
the liquidation or dissolution of the Corporation; or
(E) Any reclassification of securities
(including any preferred stock split) or recapitalization of the Corporation or
any merger or consolidation of the Corporation with any of its Subsidiaries or
any similar transaction (whether or not with or into or otherwise involving an
Interested Shareholder) which has the effect of directly or indirectly
increasing the percentage of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Shareholder; or
<PAGE>
(F) Any agreement, contract, or other
arrangement providing for any of the transactions described in this definition
of a "Business Combination;" or
(G) The Corporation or any of its
Subsidiaries entering into a partnership agreement with any Interested
Shareholder.
(ii) The terms "Person," "Interested Shareholder,"
"Affiliate," "Associate," "Subsidiary," "Continuing Director" and "Holders," as
used in this Article 6, shall have the meanings and be as defined in Article 3
of these Articles.
(d) A majority of the Continuing Directors shall have the
power to make all determinations with respect to this Article 6, including,
without limitation, determining which transactions are Business Combinations,
the Persons who are Interested Shareholders, the time at which an Interested
Shareholder became an Interested Shareholder, the fair market value of any
assets, securities or other property, and whether a Person is an Affiliate or
Associate of another, and any such determinations of such Continuing Directors
shall be conclusive and binding.
(e) Nothing contained in this Article 6 shall be construed to
relieve any Interested Shareholder from any fiduciary obligation imposed by law.
(f) Notwithstanding any other provisions of these Articles or
of the Bylaws of the Corporation (and in addition to any other vote that may be
required by law or the Bylaws of the Corporation), the affirmative vote of the
Holders of not less than 80 percent of each class of the voting stock of the
Corporation then outstanding shall be required in order to amend or repeal this
Article 6 or adopt any provision inconsistent herewith.
7. Unless a greater vote is required by law, by these Articles, or by
resolution of the Board as a condition to its submission of a proposed amendment
to these Articles for shareholder approval, any amendment to these Articles
which must be adopted by shareholders shall be so adopted upon being approved by
a majority of all the votes cast on the amendment by each voting group entitled
to vote on the transaction at a meeting at which a quorum of the voting group
exists.
8. The Corporation's initial registered office shall be located in the
City of Roanoke at 1800 First Union Tower, 10 South Jefferson Street, Roanoke,
Virginia 24011. The Corporation's initial registered agent shall be Douglas W.
Densmore, whose address is the same as the Corporation's registered office and
who is a resident of Virginia and a member of the Virginia State Bar.
Exhibit 3.2
BYLAWS
OF
Smith River Bankshares, Inc.
MARTINSVILLE, VIRGINIA
Adopted August 5, 1999
<PAGE>
ARTICLE I. SHAREHOLDERS
SECTION 1.1. Annual Meeting. The annual meeting of the shareholders to
elect directors and for the transaction of such other business as may properly
come before the meeting shall be held on the third Thursday of April of each
year or, if such date falls on a legal holiday, the next business day.
SECTION 1.2. Special Meetings. Special meetings of shareholders may be
called by the Chairman of the Board of Directors, the President or by a majority
of the Board of Directors. Business transacted at all special meetings shall be
confined to the purpose(s) stated in the notice.
SECTION 1.3. Place of Meeting. The Board of Directors (the "Board") may
designate any place inside or outside Virginia for any annual or special meeting
of the shareholders. If no designation is made, the meeting will be at the
principal office of the Corporation.
SECTION 1.4. Notice of Meeting. Except as otherwise required by the
Virginia Stock Corporation Act, as now in effect or hereafter from time to time
amended (the "Act"), written notice stating the time and location of the
meeting, and, in case of a special meeting, the purpose(s) of the meeting, shall
be delivered not less than ten nor more than sixty days before the meeting date,
either personally or by mail, to each shareholder of record entitled to vote at
such meeting. If mailed, the notice will be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
shareholder at his address as it appears on the stock transfer books of the
Corporation.
SECTION 1.5. Closing of Transfer Books or Fixing of Record Date. For
the purpose of determining shareholders entitled to notice of or vote at any
shareholders' meeting, or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to determine shareholders for any other
proper purpose, the Board may close the stock transfer books for a stated period
not to exceed seventy days. If the stock transfer books are closed to determine
shareholders entitled to notice of or vote at a shareholders' meeting, such
books shall be closed for at least ten days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board may fix in advance a date
as the record date for a determination of shareholders, such date to be not more
than seventy days, and in case of a shareholders' meeting, not less than ten
days, prior to the date on which the particular action requiring a determination
of shareholders is to be taken. If the stock transfer books are not closed and
no record date is fixed for the determination of shareholders entitled to notice
of or vote at a shareholders' meeting, or shareholders entitled to receive
payment of a dividend, the day before the notice of the meeting is mailed or the
date on which the resolution of the Board declaring such dividend is adopted, as
the case may be, shall be the record date for the determination of shareholders.
Any determination of shareholders entitled to vote at a shareholders' meeting
made as provided in this Section shall apply to any adjournment thereof, unless
the Board fixes a new record date, which it shall do if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting.
<PAGE>
SECTION 1.6. Presiding Officer and the Secretary. The President or, in
his absence, an officer designated by the Board, shall preside at all
shareholder meetings, and the Secretary shall serve as secretary. Otherwise, a
chairman or secretary shall be elected by a majority vote of the shareholders
present to act in the absence of those officers.
SECTION 1.7. Voting Lists. The Secretary or other person having charge
of the stock transfer books of the Corporation shall make, at least ten days
before each shareholders' meeting, a complete list of the shareholders entitled
to vote at such meeting, or any adjournment thereof, with the address of and the
number of shares held by each, which list, for a period of ten days prior to
such meeting, shall be kept on file at the registered office of the Corporation
and shall be subject to inspection by any shareholder at any time during usual
business hours, subject to any limitations on such right provided by the Act or
other provisions of law. Such list shall also be produced and kept open at the
time and place of the meeting for inspection by any shareholder during the whole
time of the meeting for the purposes thereof. The original stock transfer book
is prima facie evidence as to the shareholders who are entitled to examine such
list or transfer books or to vote at any shareholders' meeting.
SECTION 1.8. Quorum. Unless otherwise provided in the Corporation's
Articles of Incorporation (the "Articles"), a majority of the outstanding shares
of the Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a shareholders' meeting. If less than a quorum is present
at a meeting, a majority of the shares so represented may adjourn the meeting
from time to time without further notice. At such adjourned meeting at which a
quorum is present or represented, any business may be transacted which might
have been transacted at the original meeting. If a quorum exists, action on a
matter by a voting group is approved if the votes cast within the voting group
favoring the action exceed the votes cast opposing the action, unless the vote
of a greater number is required by the Act or the Articles, and except that in
the election of directors those receiving the greatest number of votes cast by
the shares entitled to vote shall be deemed elected, even though not receiving a
majority.
SECTION 1.9. Proxies. At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the Secretary before
or at the meeting. No proxy shall be valid after eleven months from the date of
its execution, unless otherwise provided in the proxy.
<PAGE>
SECTION 1.10 Action by Shareholders Without a Meeting. Any action
required to be taken at a meeting of the shareholders of the Corporation, or any
action which may be taken at a meeting of the shareholders, may be taken without
a meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with respect to the subject
matter thereof.
SECTION 1.11 Shareholder Proposals. No business shall be transacted at
any meeting of shareholders, except such business as shall be (a) specified in
the notice of meeting given as provided in Section 1.4 of this Article I; (b)
otherwise brought before the meeting by or at the direction of the Board; or (c)
otherwise brought before the meeting by a shareholder of record of the
Corporation entitled to vote at the meeting in compliance with the procedure set
forth in this Section 1.11. For business to be brought before a meeting by a
shareholder pursuant to (c) above, the shareholder must have given timely notice
in writing to the President of the Corporation. To be timely, a shareholder's
notice shall be delivered to, or mailed and received at, the principal executive
offices of the Corporation not less than sixty days nor more than ninety days
prior to the meeting; provided, however, in the event that less than seventy
days' notice or prior public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder to be timely must be so received
not later than the close of business on the tenth day following the day on which
such notice of the date of the meeting or such public disclosure was made.
Notice shall be deemed to have been given more than seventy days in advance of
an annual meeting of shareholders if the annual meeting is called on the date
indicated by Section 1.1 of this Article I without regard to when public
disclosure thereof is made. Notice of actions to be brought before a meeting
pursuant to (c) above shall set forth, as to each matter the shareholder
proposes to bring before the meeting: a brief description of the business
desired to be brought before the meeting and the reasons for bringing such
business before the meeting; and as to the shareholder giving the notice, (i)
the name and address, as they appear on the Corporation's books, of such
shareholder, (ii) the classes and number of shares of the Corporation which are
owned of record and beneficially by such shareholder, and (iii) any material
interest of such shareholder in such business other than his interest as a
shareholder of the Corporation. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted on a shareholder proposal or nomination
except in accordance with the provisions set forth in this Section 1.11. The
requirements of this Section are in addition to any other requirements
established by law and do not impair the effect of the requirements of Section
1.2 of these Bylaws relating to business permitted to be transacted at special
shareholders' meetings. The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that any business was not properly brought
before the meeting in accordance with the provisions prescribed by these Bylaws
and, if he should so determine, he shall so declare to the meeting and any such
business not so properly brought before the meeting shall not be transacted.
<PAGE>
ARTICLE II. BOARD OF DIRECTORS
SECTION 2.1. General Powers. The business and affairs of the
Corporation shall be managed and administered by the Board of Directors. Except
as limited by the Act, all corporate powers shall be vested in and exercised by
the Board.
SECTION 2.2. Number, Tenure and Qualifications. The number of directors
of the Corporation shall be twelve. The number of directors may be increased or
decreased from time to time by amendment of these Bylaws within the variable
range established by the Articles. At each annual meeting of shareholders, the
number of directors equal to the number of the class whose term expires at the
time of such meeting shall be elected to hold office until the third succeeding
annual meeting and until their successors shall have been elected and qualify.
SECTION 2.3. Regular Meetings. A meeting of the Board shall be held
immediately after each annual meeting of shareholders without notice other than
that given by these Bylaws, at which meeting there shall be elected at least a
President, a Secretary, a Treasurer and a Chairman of the Board of Directors,
who shall hold such offices until the first meeting of the Board following the
next annual meeting of shareholders and until their successors shall be elected
and qualify or until their earlier resignation or removal. The Chairman of the
Board of Directors shall be elected from the Board of Directors for a term of
one year and is not subject to re-election within five years from the date on
which his or her most recent term of office as Chairman ended. Regular meetings
of the Board shall be held as provided by resolution of the Board.
SECTION 2.4. Special Meetings. Special meetings of the Board may be
called by or at the request of the Chairman, the President or by a majority of
the Board. The person or persons calling a special meeting of the Board may fix
any place inside or outside Virginia as the place for holding that special
meeting.
SECTION 2.5. Action by Directors Without a Meeting; Telephonic
Attendance. Any action of the Board, or of any committee of the Board, may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the directors, or by all of the members of the
committee, as the case may be. Directors may participate in meetings of the
Board and committees of the Board by, and such meetings may be conducted
through, the use of any means of communication by which all directors
participating may simultaneously hear each other during the meeting. Directors
so participating are deemed to be present in person at the meeting and will be
counted in determining whether a quorum is present.
<PAGE>
SECTION 2.6. Notice. Notice of any special meeting (which notice need
not state the purpose of or business to be conducted at the meeting) shall be
given by written notice delivered personally or mailed to each director at his
business address, or by telephone, facsimile or telegram. If notice is by
personal delivery, facsimile or telephone, the delivery, facsimile transmission
or telephone call shall be at least two days prior to the special meeting. If
notice is given by mail or telegram, such notice shall be deposited in the
United States mail, postage prepaid, addressed to each director at his business
address or delivered to the telegraph company, as the case may be, at least five
days prior to the special meeting.
SECTION 2.7. Quorum. Except as may otherwise be provided in the
Articles or in these Bylaws, a majority of the full Board or of the full
membership of any committee thereof shall constitute a quorum for the
transaction of business at any meeting of the Board or such committee, as the
case may be. If less than such majority is present at a meeting, a majority of
directors present may adjourn the meeting from time to time without further
notice.
SECTION 2.8. Committees. By resolution, the Board shall designate from
among Board members an Executive Committee, which shall exercise all of the
authority of the Board except as limited by law, the Articles or the Board
itself. The Board may designate from among its members other committees for such
purposes and with such powers as the Board may determine. All committees shall
keep regular minutes of their meetings and shall report their actions to the
Board at its next regular meeting.
SECTION 2.9. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
or any committee thereof, unless the Articles or these Bylaws require the vote
of a greater number of directors.
SECTION 2.10. Vacancies. Any vacancy occurring on the Board, including
a vacancy resulting from an increase in the number of directors, may be filled
by the affirmative vote of a majority of the remaining directors, though less
than a quorum of the Board. If a vacancy is filled by the shareholders, a vacant
office held by a director elected by a voting group of shareholders shall be
filled by a vote of only the holders of that voting group.
SECTION 2.11. Compensation. Payment to the directors for the expense,
if any, of attendance at meetings of the Board, and of a fixed sum for
attendance at meetings of the Board or a stated salary as director may be
authorized by Board resolution. Members of special or standing committees may be
authorized by Board resolution to receive like compensation for attending
meetings.
<PAGE>
SECTION 2.12. Retirement. No person shall stand for election or
re-election to the Board who has reached the age of 75 years prior to the date
of the regular annual meeting of the shareholders at which an election of
directors is held, and no person who has reached the age of 75 years may be
elected to fill a vacancy on or as an addition to the Board.
SECTION 2.13. Honorary Directors. The Board shall not appoint any
Honorary Director, Honorary Chairman, Honorary President, or Honorary Officer.
ARTICLE III. OFFICERS
SECTION 3.1. Generally. The officers of the Corporation shall include a
President, a Secretary and a Treasurer. Except as provided in these Bylaws, all
such officers shall be elected by the Board of Directors. Any one or more
offices may be held by the same person.
SECTION 3.2. President. The Board shall appoint a President of the
Corporation to serve at the pleasure of the Board. The President shall supervise
the carrying out of the policies adopted or approved by the Board and shall be
the Chief Executive Officer of the Corporation. The President shall have general
executive powers, as well as the specific powers conferred by these Bylaws. The
President shall also have and may exercise such further powers and duties as
from time to time may be conferred upon or assigned to him by the Board.
SECTION 3.3. Secretary. The Board shall appoint a Secretary to serve
at the pleasure of the Board. The Secretary shall: (a) keep the minutes of the
shareholders', Board and committee meetings in one or more books provided for
that purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws and as required by law; (c) be custodian of the
corporate records and the Corporation's seal and see that the Corporation's seal
is affixed to all documents for which it is required; (d) sign with the
President or other designated officer stock certificates of the Corporation
issued as authorized by resolution of the Board; (e) have general charge of the
stock transfer books and shareholder list of the Corporation; and (f) in general
perform all duties incident to the office of Secretary and such other duties as
may from time to time be assigned to him by the President or the Board.
SECTION 3.4. Treasurer. The Board shall appoint a Treasurer, and if
required by the Board, the Treasurer shall give a bond for the faithful
discharge of his duties in such sum and with such surety or sureties as the
Board shall determine. He shall: (a) have charge and custody of and be
responsible for all funds and securities of the Corporation; (b) receive and
give receipts for monies due and payable to the Corporation from any source
whatsoever, and deposit all such monies in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected by the Board;
and (c) in general perform all of the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him by the
President or the Board.
<PAGE>
SECTION 3.5. Other Officers. The Board may appoint one or more Vice
Presidents (including Senior Vice Presidents, Assistant Vice Presidents and the
like), one or more Assistant Secretaries, one or more Assistant Treasurers and
such other officers and assistant officers as it deems appropriate to
transacting the business of the Corporation. Such officers shall exercise such
powers and perform such duties as pertain to their offices or are assigned to
them by the President, any other superior officer or the Board. The Board may by
resolution authorize any duly appointed officer to appoint one or more officers
or assistant officers.
SECTION 3.6. Removal. Any officer or agent may be removed by the Board
at any time, with or without cause, whenever the Board in its sole discretion
shall consider that the best interests of the Corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Any officer or agent appointed by another officer
may be removed at any time, with or without cause, by the Board or by such
appointing officer whenever the Board or such appointing officer, in its or his
sole discretion, shall consider that the best interests of the Corporation shall
be served thereby.
SECTION 3.7. Vacancies. The Board may fill any vacancy occurring in the
offices of the Corporation at any regular meeting of the Board or at a special
meeting of the Board called for that purpose. An officer elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office.
SECTION 3.8. Salaries. The salaries of the officers shall be fixed from
time to time by the Board. The President, or any other officer duly authorized
by the Board or the President, may fix the salaries of the employees who are not
officers, subject to the approval of the Board.
<PAGE>
ARTICLE IV. STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 4.1. Certificates for Shares. The Board will determine the form
of certificates representing shares of the Corporation. Such certificates shall
bear the signature (or a facsimile thereof if such certificates are
countersigned by an appropriate party in accordance with the Act) of the
President or a Vice President and the Secretary or an Assistant Secretary and
shall bear the corporate seal or a facsimile thereof. All stock certificates
shall be consecutively numbered or otherwise identified. The name and address of
the person to whom the shares represented thereby are issued, and the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer shall
be canceled, and no new certificates will be issued until the former certificate
for a like number of shares has been surrendered and canceled, except that a
replacement for a lost, destroyed or mutilated certificate may be issued upon
such terms and indemnity to the Corporation as the Board prescribes. No stock
certificate will be issued, and no dividend payment will be made, for fractional
shares of common stock.
SECTION 4.2. Transfer of Shares. Transfer of shares shall be made only
on the stock transfer books of the Corporation by the holder of record or by his
legal representative, who must furnish evidence of authority satisfactory to the
Corporation, and on surrender for cancellation of the certificate for such
shares. The Corporation may treat the holder of record of any share or shares of
stock as the holder in fact thereof and accordingly is not bound to recognize
any equitable or other claim to or interest in such shares on the part of any
other person, whether or not it shall have notice thereof, except as expressly
provided by the laws of the Commonwealth of Virginia.
ARTICLE V. CONTRACTS, LOANS,
CHECKS AND DEPOSITS
The President shall have by virtue of his office "full signing
authority" and shall have the power to sign, countersign, attest, affix the
corporate seal, to acknowledge, endorse, guarantee signatures upon and deliver
checks, drafts, agreements, contracts, indentures, mortgages, deeds,
conveyances, transfers, certificates, declarations, receipts, discharges,
releases, satisfactions, settlements, petitions, schedules, accounts,
affidavits, bonds, undertakings, proxies and other documents, securities, chases
in action and instruments of every kind and description on behalf of the
Corporation in its corporate or any fiduciary capacity. The President shall be
authorized to grant in writing to individual officers and employees signing
authority on behalf of the Corporation in its corporate or any fiduciary
capacity, limited as he in his discretion deems necessary.
<PAGE>
ARTICLE VI. BOOKS AND RECORDS
The Board shall determine from time to time whether, and, if allowed,
when and under what conditions and regulations, the accounts and books of the
Corporation (except such as may by statute be specifically opened to
inspection), or any of them, shall be opened to the inspection of the
shareholders, and the shareholders' rights in this respect are and shall be
restricted and limited accordingly.
ARTICLE VII. SEAL
The Board may authorize the use of a corporate seal, but failure to use
the seal shall not affect the validity of any instrument. The use of a facsimile
of a seal, or the affixing of a scroll by way of a seal, or the execution of a
document containing words importing a sealed document shall be of the same force
as if actually sealed by physically affixing an impression of a seal.
ARTICLE VIII. WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or
director of the Corporation under the provisions of these Bylaws, the Articles
or the Act, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice. Attendance at or
participation in any shareholders' meeting by a shareholder, or at any Board or
Board committee meeting by a director, waives any required notice unless
objection is timely made as provided by the Act.
(SEAL) ---------------------------------
Secretary
Exhibit 4.1
WARRANT PLAN ADOPTED BY THE COMPANY
ON JULY 27, 1999
As amended on August 26, 1999
<PAGE>
WARRANT PLAN
OF
SMITH RIVER BANKSHARES, INC.
ARTICLE I
PURPOSE OF THE PLAN
The Board of Directors of Smith River Bankshares, Inc. ("Company")
has determined that it is in the best interests of the Company to issue Warrants
to the Company's organizers to purchase the Company's Common Stock in connection
with the Company's initial public offering of Common Stock ("Initial Stock
Offering"). The Company proposes to issue up to 87,500 shares of Common Stock
and Warrants to purchase Common Stock in Units in the respective amount to each
organizer set forth on Exhibit A hereto (as to each such organizer, the "Initial
Warrants"). Each Unit will contain one share of Common Stock and one Warrant
which will entitle the holder thereof to purchase additional Common Stock
subject to the terms and conditions hereof. Therefore, the Board of Directors,
in order to provide for the above, has adopted this Warrant Plan ("Plan") on the
date set forth herein.
ARTICLE II
SCOPE OF THE PLAN
Section 1. Definitions. Unless the context clearly indicates otherwise,
the following terms have the meanings set forth below:
1.01. "Board" means the Board of Directors of the Company.
1.02. "Change in Control" means a change in control occurring after
Commencement Date of a nature that would be required to be reported (assuming
such event has not been "previously reported") in response to Item 1(a) of the
Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act");
provided that, notwithstanding the foregoing and without limitation, such a
change in control shall be deemed to have occurred at such time after the
Opening Date as (a) any Person is or becomes the "beneficial owner" (as defined
in Rule 13d-3 or Rule 13d-5 under the Exchange Act as in effect on June 1,
1999), directly or indirectly of 20% or more of the combined voting power of the
Company's voting securities; (b) the Incumbent Board ceases for any reason to
constitute at least the majority of the Board, provided that any person becoming
a director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least 75%
of the directors comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is named as
a nominee for director, without objection to such nomination) shall be, for
purposes of Section 1.02 considered as though such person were a member of the
Incumbent Board; (c) all or substantially all of the assets of the Company or
the assets of Smith River Community Bank, N.A. are sold, transferred or conveyed
<PAGE>
by any means, including but not limited to direct purchase or merger, if the
transferee is not controlled by the Company. (For purposes of the foregoing
"control" means the ownership of more than 50% of the combined voting power of
such entity's voting securities); or (d) the Company is merged or consolidated
with another corporation or entity and as a result of such merger or
consolidation less than 75% of the outstanding voting securities of the
surviving or resulting corporation or entity shall be owned in the aggregate by
the former shareholders of the Company. Notwithstanding anything in the
foregoing to the contrary, no change in control shall be deemed to have occurred
for purposes of this Plan by virtue of any transaction after the Commencement
Date (x) arranged or caused by a federal bank regulatory agency possessing
appropriate jurisdiction on the grounds of failing financial condition of the
Company or Smith River Community Bank, N.A. which results in the acquisition,
directly or indirectly, of 20% or more of the combined voting power of the
Company's voting securities by any Person or (y) which results in the Company,
any subsidiary of the Company or any profit sharing plan, employee stock
ownership plan or employee benefit plan of the Company or any of its
subsidiaries (or any trustee of or fiduciary with respect to any such plan
acting in such capacity) acquiring, directly or indirectly, 20% or more of the
combined voting power of the Company's voting securities.
1.03. "Common Stock" means the common stock (no par value) of the
Company.
1.04. "Commencement Date" means the date Smith River Community Bank,
N.A. opens for business.
1.05. "Expiration Date" shall be 5:00 p.m. Eastern Standard Time on the
tenth anniversary of the Commencement Date.
1.06. "Incumbent Board" means the Board as constituted on the date this
Plan is adopted.
1.07. "Person" has the meaning ascribed to that term in Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934.
1.08. "Plan" means this Warrant Plan as adopted by the Board as set
forth herein and as amended from time to time.
1.09. "Warrant" means the right to purchase additional shares of Common
Stock pursuant to this Plan.
<PAGE>
1.10. "Warrant Certificate" means the evidence of ownership of
Warrants, as executed and issued by the Company in substantially the form
attached hereto as Exhibit B.
Section 2. Warrants. There is hereby authorized 87,500 Warrants, each
of which shall be redeemable for one share of Common Stock of the Company.
Warrants shall be included only in Units offered by the Company in its Initial
Stock Offering and may be issued only to those persons set forth on Exhibit A
hereto in the amount of the Initial Warrants set forth on Exhibit A with respect
to them. Any Warrants not issued in connection with the Initial Stock Offering
shall automatically expire.
Section 3. Form of Warrants. The certificates evidencing the Warrants
(the "Warrant Certificates") shall be substantially in the form set forth in
Exhibit B attached hereto, and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with provisions of this Plan, or as may be required
to comply with any law, or with any rule or regulation made pursuant thereto, or
to conform to usage. Each Warrant Certificate shall entitle the registered
holder thereof, subject to the provisions of this Plan and of such Warrant
Certificate, to purchase (when exercisable and prior to the Expiration Date) one
fully paid and non-assessable share of Common Stock for each Warrant evidenced
by such Warrant Certificate, at $10.00 per share.
Section 4. Issuance of Warrants. The Warrant Certificates when issued
shall be dated and signed on behalf of the Company, manually or by facsimile
signature, by its Chairman of the Board or President, and by its Secretary or an
Assistant Secretary under its corporate seal, if any. The seal of the Company,
if any, may be in the form of a facsimile thereof and may be impressed, affixed,
imprinted or otherwise reproduced on the Warrants.
Section 5. Registration of Warrant Certificates; Registered Owners. The
Company shall maintain or cause to be maintained books for registration of
ownership and permitted transfer of ownership of the Warrant Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Warrant Certificates and the number of Warrants evidenced by each
such Warrant Certificate. The Company may deem and treat the registered holder
of a Warrant Certificate as the absolute owner thereof and of the Warrants
evidenced thereby (notwithstanding any notation of ownership or other writing
thereon made by anyone), for the purpose of any exercise of such Warrants and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
Section 6. Transfers and Exchanges. The Warrants shall not be
transferable by the holder except by operation of the law. The Warrants may be
detached from the Unit of which they are a part and the Common Stock forming the
other part of the Unit sold or otherwise transferred separately.
Section 7. Mutilated, Destroyed, Lost or Stolen Warrant Certificates.
Upon receipt by the Company of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in the case of loss, theft or destruction, receipt by the Company of indemnity
or security reasonably satisfactory to them, and reimbursement to them of all
reasonable expenses incidental thereto, and, in the case of mutilation, upon
surrender and cancellation of the Warrant Certificate, the Company shall deliver
a new Warrant Certificate of like tenor representing in the aggregate the same
number of Warrants.
Section 8. Payment of Taxes. With respect to any Warrant, the Company
will pay all documentary stamp taxes attributable to the initial issuance of
shares of Common Stock upon the exercise of the Warrant; provided, however, that
the Company shall not be required to pay any tax or taxes which may be payable
in respect of any transfer involved in the issue of any Warrant or any
certificates for shares of Common Stock in a name other than that of the
registered holder of the Warrant or Warrant Certificate surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or deliver
such Warrant or certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount of such tax if
any, or shall have established to the satisfaction of the Company that such tax
if required, has been paid.
Section 9. Exercise, Purchase Price and Duration of Warrants. Subject
to the provisions of this Plan, the holder of a Warrant shall have the right to
purchase from the Company (and the Company shall issue and sell to that holder)
one fully paid and non-assessable share of Common Stock for each Warrant the
holder is then entitled to exercise hereunder at the initial exercise price of
$10.00 per share (subject to adjustment as provided in Section 11 hereof), upon
the surrender of the Warrant Certificate evidencing such Warrant to the Company
on any business day prior to 5:00 p.m. Eastern Standard Time on or before the
Expiration Date, with the Form of Election to Exercise on the reverse thereof
duly completed and executed, and payment of the Exercise Price in lawful money
of the United States of America in cash or by cashiers' or certified check
payable to the Company. The holder may exercise its rights under the Warrants
only as follows: (a) no Warrant may be exercised prior to the first anniversary
of the Commencement Date; (b) beginning on the first anniversary of the
Commencement Date, 33-1/3% of the Initial Warrants may be exercised by the
holder; (c) beginning on the second anniversary of the Commencement Date, an
additional 33-1/3% of the Initial Warrants may be exercised by the holder; and
(d) beginning on the third anniversary date of the Commencement Date, the last
33-1/3% of the Initial Warrants may be exercised by each holder and, in each
<PAGE>
case, (i) the holder has continuously served as a director of the Company and
Smith River Community Bank, N.A. since the Commencement Date through the date
such Warrants become exercisable; and (ii) the holder has attended at least 75%
of all meetings of the boards of directors of the Company and Smith River
Community Bank, N.A. during such period. Notwithstanding the foregoing or
anything to the contrary in this Plan all of the Initial Warrants shall
automatically and unconditionally become immediately exercisable upon a Change
in Control of the Company. The exercise price and the shares of Common Stock
issuable upon exercise of a Warrant shall be subject to adjustment from time to
time in the manner specified in Section 11 and, as initially established or as
so adjusted, are referred to herein as the "Exercise Price" and the "Shares",
respectively. The Warrants shall be so exercisable either as an entirety or from
time to time in part at the election of the registered holder thereof except
that the Company shall not be required to issue certificates in denominations of
less than 100 shares. In the event that fewer than all Warrants evidenced by a
Warrant Certificate are exercised at any time prior to 5:00 p.m. Eastern
Standard Time on the Expiration Date a new Warrant Certificate will be issued
for the Warrants not so exercised.
No payments or adjustments shall be made for any cash dividends,
whether paid or declared, on Shares issuable on the exercise of a Warrant.
No fractional Shares shall be issued upon exercise of Warrant,
but, in lieu thereof, there shall be paid to the registered holder of the
Warrant Certificate evidencing such Warrant or other person designated on the
Form of Election to Exercise as soon as practicable after date of surrender, an
amount in cash equal to the fraction of the current market value of a share of
Common Stock equal to the fraction of a Share to which such Warrant related. For
such purpose, the current market value of a Share shall be the book value of the
Common Stock as of the last day of the month immediately preceding the date of
the Election to Exercise.
Subject to Section 8 hereof, upon surrender of a Warrant
Certificate, with the Form of Election to Exercise duly completed and executed,
together with payment of the Exercise Price, the Company shall issue and deliver
the full number of Shares issuable upon exercise of the Warrants tendered for
exercise. Shares shall be deemed to have been issued, and any Person so
designated by the registered holder shall be deemed to have become the holder of
record of a Share, as of the date of the surrender of the Warrant Certificate to
which the Share relates and payment of the appropriate Exercise Price; provided,
however, if the date of surrender of a Warrant Certificate shall occur within
any period during which the transfer books for the Company's Common Stock are
closed for any purpose, such Person shall not be deemed to have become a holder
of record of a Share until the opening of business on the day of reopening said
transfer books, and certificates representing such Shares shall not be issuable
until such day.
<PAGE>
Section 10. Reservation of Shares. The Company will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock, for the purpose of enabling it to
satisfy any obligation to issue Shares upon exercise of Warrants, through the
close of business on the Expiration Date, the number of Shares deliverable upon
the exercise of all outstanding Warrants.
The Company covenants that all Shares issued upon exercise of the
Warrants will, upon issuance in accordance with the terms of this Agreement, be
fully paid and non-assessable.
The shares allocated for such Warrants were included for Registration
under the Securities Act of 1993, and Rule 415 adopted thereunder, in a
registration of securities filed by the Company with the Securities and Exchange
Commission on ___________.
Section 11. Adjustment of Exercise Price and Number of Shares
Purchasable. The Exercise Price and the number of Shares which may be purchased
upon the exercise of each Warrant are subject to adjustment from time to time
upon the occurrence, after the date hereof, if the Company shall (i) declare a
dividend on the Common Stock payable in shares of common stock, (ii) subdivide
the outstanding Common Stock into a greater number of shares or (iii) combine
the outstanding Common Stock into a smaller number of shares, then the Exercise
Price in effect on the record date for that dividend or on the effective date of
that subdivision or combination, and/or the number and kind of shares of capital
stock issuable on that date, shall be proportionately adjusted so that the
holder of any Warrant exercised after such time shall be entitled to receive
solely the aggregate number and kind of shares of capital stock which, if the
Warrant had been exercised immediately prior to that date, such holder would
have owned upon exercise and been entitled to receive by virtue of that
dividend, subdivision, or combination. The foregoing adjustments shall be made
by the Company successively whenever any event listed above shall occur.
Section 12. Notices to Warrant Holders. Upon any adjustment to the
Exercise Price pursuant to Section 11 hereof, the Company within twenty calendar
days thereafter shall cause to be given to the registered holders of outstanding
Warrant Certificates at their respective addresses appearing on the Warrant
Certificate register written notice of the adjustments by first-class mail,
postage prepaid.
Section 13. Supplements and Amendments. The Company may from time to
time supplement or amend this Plan without the consent or concurrence of or
notice to any holders of Warrant Certificates or Warrants in order to cure any
ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein, to correct any defective
provision, clerical omission, mistake or manifest error herein contained, or to
make any other provision with respect to matters or questions arising under this
Plan which shall not be inconsistent with the provisions of the Warrant
Certificates; provided that such action shall not adversely affect the interests
of the holders of the Warrant Certificates or Warrants.
Section 14. Governing Law. This Plan and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Virginia and for all purposes shall be governed by, construed and
enforced in accordance with the laws of said State.
<PAGE>
Section 15. Benefits of This Plan. Nothing in this Plan shall be
construed to give to any person or corporation other than the Company and the
registered holders of the Warrant Certificates or Warrants any legal or
equitable right, remedy or claim under this Plan; this Plan shall be for the
sole and exclusive benefit of the Company and the registered holders of the
Warrant Certificates.
Section 16. Forfeiture. If at any time while the Warrants are
outstanding, the Board of Governors of the Federal Reserve System makes a formal
capital call on the Company or the Comptroller of the Currency makes a formal
capital call on Smith River Community Bank, N.A., the holder will be required to
exercise all exercisable Warrants in whole or part as may be needed for
additional required capital or the Warrants shall be forfeited. The number of
Shares as to which the Warrants shall be exercised by each holder to meet the
capital call will be calculated pro rata on the basis of the number of Shares
subject to Warrant. The exercise price for Shares purchased upon such exercise
shall be equal to the greater of $10 per Share or the then current book value
per share of the Shares. Any Warrants not required to be exercised under the
terms of any such capital call may be exercised under the original terms of this
Agreement.
Adopted by the Board of Directors of Smith River Bankshares, Inc.
On the 27th day of July, 1999.
<PAGE>
Amended by the Board of Directors of Smith River Bankshares, Inc.
On the 26th day of August, 1999.
<PAGE>
Exhibit A
Warrant Plan - Smith River Bankshares, Inc.
Recipients Initial Warrants
---------- ----------------
J. E. Bassett, Jr 10,000
Patricia H. Brammer 5,000
Jesse D. Cahill, Sr 10,000
Mervyn R. King 10,000
Morton W. Lester 10,000
Cecil R. McCullar 10,000
Roxann B. Miller 6,000
Jimmie R. Mills 5,000
George R. Nelson, Jr 10,000
Joe C. Philpott 2,500
Doug Riddle 5,000
Milford A. Weaver 4,000
-------
Total 87,500
<PAGE>
CERTIFICATE NO.
NUMBER OF WARRANTS:
WARRANT CERTIFICATE FOR PURCHASE OF
COMMON STOCK (NO PAR VALUE) OF
SMITH RIVER BANKSHARES, INC.
(See Reverse side for Summary of Terms of Warrant Plan)
THIS CERTIFIES THAT, for value received, _________________________
is the owner of the number of Warrants set forth above, each of which entitles
the owner to purchase, subject to the terms and conditions hereof and of the
Warrant Plan referred to herein, prior to the Expiration Date (as herein
defined), one share of Common Stock, no par value per share ("Shares"), of Smith
River Bankshares, Inc., a Virginia corporation ("Company") at $10.00 per share
("Exercise Price"), payable to the Company in cash, or by cashiers check or
other official bank check. Exercisable Warrants may be exercised by delivery and
surrender of this Warrant Certificate, along with the form of Election to
Exercise on the reverse hereof duly completed and executed together with payment
of the Exercise Price at the office of the Company or its duly appointed agent.
The Warrants evidenced by this Warrant Certificate are NOT TRANSFERABLE except
as specifically permitted by the Warrant Plan.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject to all of the terms, provisions and
conditions of that certain Warrant Plan dated as of July 27, 1999 (hereinafter
called the "Warrant Plan"), as amended on August 26, 1999, adopted by the
Company, to all of which terms, provisions and conditions the registered holder
of this Warrant Certificate consents by acceptance hereof. The Warrant Plan and
the summary of its terms set forth on the reverse side of this Warrant
Certificate are hereby incorporated into this Warrant Certificate by reference
and made a part hereof. The Warrant Plan sets forth the terms and conditions
under which the exercise price for a Warrant, the number of shares to be
received upon exercise of a Warrant, or both, may be adjusted. Reference is
hereby made to the Warrant Plan for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Company and the holders of the Warrant Certificates or Warrants and all Warrants
and Warrant Certificates are subject, in all respects, to the same. In the event
of any conflict between the provisions of this Warrant Certificate and the
Warrant Plan, the provisions of the Warrant Plan shall control.
<PAGE>
Copies of the Warrant Plan are available for inspection at the
Company's Office, or may be obtained upon written request addressed to the
Secretary, Smith River Bankshares, Inc.,
______________________________________________________. The Company shall not be
required upon the exercise of the Warrants evidenced by this Warrant Certificate
to issue fractions of Warrants or Shares, but shall make adjustments therefor in
cash on the basis of the current market value of any fractional interest as
provided in the Warrant Plan.
The Warrants evidenced by this Warrant Certificate shall expire at 5:00 p.m.
Eastern Standard Time on ______________________ or sooner if called by The
Board of Directors pursuant to the Warrant Plan. The day and time of expiration
is referred to herein as the "Expiration Date".
IN WITNESS WHEREOF, Smith River Bankshares, Inc. has caused this
certificate to be executed by the signature of its duly authorized officers and
has caused its corporate seal to be hereunto affixed.
Dated: ______________ _____________________________________
President
_____________________________________
Secretary/Treasurer
<PAGE>
Exhibit 4.1
(Reverse Side of Warrant Certificate)
SMITH RIVER BANKSHARES, INC.
Summary of Terms of Warrant Plan
The Warrant Plan provides that, upon the occurrence of certain
events, the initial exercise price set forth on the face of this Warrant
Certificate may, subject to specified conditions, be adjusted (such exercise
price, as initially established or as adjusted from time to time, is referred to
herein as the "Exercise Price"). If the Exercise Price is adjusted, the Warrant
Plan provides that the number of shares which can be purchased upon the exercise
of each Warrant represented by this Warrant Certificate and the type of
securities or other property subject to purchase upon the exercise of each
Warrant represented by this Warrant Certificate are subject to modification or
adjustment.
The Warrants evidenced by this Warrant Certificate may not be
immediately exercisable and may not be exercisable at all unless and until the
conditions to the same, as specified in the Warrant Plan, occur. The Warrant
Plan also permits acceleration of the right to exercise the Warrants evidenced
by this Warrant Certificate in the event of a Change of Control of the Company
(as defined in the Warrant Plan).
The Warrants evidenced by this Warrant Certificate shall expire at
5:00 p.m. Local Time on _________________, or sooner if called in accordance
with the Warrant Plan.
In the event that upon any exercise the number of Warrants exercised
shall be fewer than the total number of Warrants represented hereby, the Company
shall issue to the registered holder a new Warrant Certificate evidencing the
Warrants not so exercised.
No payment or adjustment will be made for any cash dividends, whether
paid or declared, on any Shares issuable upon exercise of a Warrant. The Company
shall not be required to issue fractions of Shares or any certificates which
evidence fractional Shares. In lieu of a fractional Share, if any, the Company
shall pay to the registered holder of a Warrant with regard to which the
fractional Share would be issuable, an amount in cash equal to the same fraction
of the current market value (as determined pursuant to the Warrant Plan) of a
Share.
The Company may deem and treat the registered holder of this Warrant
Certificate as the absolute owner hereof and of the Warrants represented by this
Warrant Certificate (notwithstanding any notation of ownership or other writing
hereon made by anyone) for the purposes of any exercise of such Warrants and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
<PAGE>
Prior to the exercise of the Warrants represented hereby, the
registered holder of this Warrant Certificate, shall not be entitled to vote on
or be deemed the holder of Common Stock or any other securities of the Company
which may at any time be issuable on the exercise hereof for any purpose, and
nothing contained in the Warrant Plan or herein shall be construed to confer
upon the holder of this Warrant Certificate, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue of
stock, reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger, conveyance or otherwise) or to receive notice
of meetings or other actions, affecting stockholders or to receive dividends or
subscription rights or otherwise.
ELECTION TO EXERCISE
The undersigned hereby irrevocably elects to exercise Warrants
evidenced by this warrant Certificate, to purchase full Shares of the Common
Stock of the Company ("Shares") and herewith tenders payment for such Shares in
the amount of $_________ in accordance with the terms hereof. The undersigned
requests that a certificate representing such Shares be registered in the name
of ____________________________ and that the Certificate be delivered as
follows:
_____________________________________
Name (Please Print)
Whose address is _____________________________________
Address (Please Print)
______________________________________________
Delivery Address (if different) (Please Print)
<PAGE>
If said Shares are fewer than all the Shares purchasable hereunder, the
undersigned requests that a new Warrant Certificate evidencing the right to
purchase the balance of the Shares be registered in the name of the undersigned,
whose address is listed below.
______________________________________________
Name of Registered Holder of Warrant (Please Print)
______________________________________________
Address (Please Print)
______________________________________________
Delivery Address (if different) (Please Print)
______________ _____________________________________
Dated Signature
- ----------------------------
(Social Security or Other Taxpayer
Identification Number of Holder)
Signature Guaranteed:
- ----------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever. If the holder hereof is hereby electing to
exercise fewer than all Warrants represented by this Warrant Certificate and is
requesting that a new Warrant Certificate evidencing the Warrants not exercised
be registered in a name other than that in which this Warrant Certificate is
registered, the signature of the holder of this Warrant Certificate must be
guaranteed.
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") 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, and represents that this subscription is made solely on
the basis of the information contained in the Prospectus and is not made in
reliance on any inducement, representation or statement not contained in the
Prospectus. The undersigned understands that no person (including any officer or
director) has authority to give any information or make any representation not
contained in the Prospectus, and if given or made, such information and
representations should not be relied upon as having been made by the Company or
its officers or directors. 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.
<PAGE>
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 Shares Subscribed at $10.00 per Share
- -----------------------------------
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 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, and represents that this subscription is made solely on
the basis of the information contained in the Prospectus and is not made in
reliance on any inducement, representation or statement not contained in the
Prospectus. The undersigned understands that no person (including any officer or
director) has authority to give any information or make any representation not
contained in the Prospectus, and if given or made, such information and
representations should not be relied upon as having been made by the Company or
its officers or directors. This Subscription Agreement and the Prospectus
contain the entire agreement and understanding among the undersigned, the
<PAGE>
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.
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
DOUGLAS W. DENSMORE
(540) 510-3024
[email protected]
September 10, 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-1 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-1 (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 10, 1999, or as soon thereafter
as possible, 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.
<PAGE>
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
pursuant to proper resolution of the Board of Directors of the Company and 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 10.2
THIS LEASE, made this 6th day of April, 1999, between R. C. Realty
Corp. (hereinafter called Lessor) and First Community National Bank (hereinafter
called Lessee) which terms "Lessor" and Lessee" shall include, wherever the
context admits or requires, singular or plural, and their heirs, legal
representatives, successors and assigns of the respective parties;
WITNESSETH:
PREMISES
That the Lessor, in consideration of the covenants of the Lessee, does
hereby lease and demise unto said Lessee and Lessee hereby agrees to take and
lease from the Lessor, for the terms hereinafter specified the following
described premises:
That certain store building (Unit 12) containing approximately 2,000
square feet of area located in the Patrick Henry Mall shopping center
development located at 730 East Church Street in the City of Martinsville,
Virginia as marked in red on the attached Exhibit A.
TERM
For the Lessee to have and to hold from May 1, 1999 to July 31, 2002
unless terminated prior to this date by Lessee giving Lessor written notice
ninety (90) days in advance of termination. This lease is granted and accepted
upon the following terms, covenants, conditions and stipulations:
RENTAL
1. The Lessee agrees to pay to the Lessor as rental for the demised
premises during the term of the lease the following amounts: the rent for May,
June and July, 1999 is $750.00 per month and thereafter, during the remainder of
this lease, the rent shall be $1,000.00 per month. The rental shall be due and
payable in advance on the first of each and every calendar month of the lease
term, and any extensions thereof. The first month's payment shall be payable at
the signing of this lease.
USE
2. The demised premises shall be used primarily as executive offices
for First Community National Bank. Lessee's employees, customers and invitees
are granted full use of the common areas of the shopping center. Lessee at all
times shall fully and promptly comply with all laws, ordinances and regulations
of every lawful authority having jurisdiction of said premises and the character
and manner of operation of the business conducted in or at said premises.
<PAGE>
UTILITIES
3. The Lessee agrees to pay for all utilities used by Lessee at the
demised premises. Lessor shall at all times provide access to utilities.
LESSEE'S REPAIRS
4. The Lessee accepts the premises "as is". Lessee agrees to keep the
interior of the demised premises, along with the florescent fixtures, windows
and exterior plate glass in good condition and repair excepting all repairs
which are made necessary by reason of fire and other unavoidable casualties and
reasonable wear and tear.
LESSOR'S REPAIRS
5. The Lessor shall, at its cost and expense, keep and maintain the
common areas (including the parking area) in good condition and repair, and
shall maintain the exterior of the Lessee's building, including the roof,
gutter, downspouts, masonry walls, foundation and structural members in good
condition and repair, and shall make any and all structural repairs to the
exterior of said premises.
SIGNS
6. Lessee may place, erect and maintain, with the approval of the
Lessor, signs under the canopy in front of their store, but the signs must be
compatible with signs of adjoining Lessees and not obstruct the view of other
signs. Signs under canopy must be uniform in size and design for all Lessees.
All signs shall remain the property of Lessee and may be removed at any time
during the term of this lease, or any extensions thereof, provided Lessee shall
repair or reimburse Lessor for the cost of any damage to the demised premises
resulting from the installation or removal of such signs.
FIXTURES AND INTERIOR ALTERATIONS
7. The Lessee, at its own expense and with the written approval of
Lessor which shall not be unreasonably withheld, may from time to time during
the term of this lease, make any interior alterations, additions, and
improvements in and to the demised premises which it may deem necessary or
desirable and which do not adversely affect the structural integrity thereof,
but it shall make them in a good workmanlike manner and in accordance with all
valid requirements of municipal or other governmental authorities. All permanent
structural improvements shall belong to the Lessor and become a part of the
premises upon termination or expiration of this lease.
Lessee may construct and build or install in said premises any
and all racks, counters, shelves, and other fixtures and equipment of any kind
and nature as may be necessary or desirable in the Lessee's business, which
racks, counters, shelves, and other fixtures and equipment shall at all times be
and remain the property of the Lessee and Lessee shall have the right to remove
all or any part of same from said premises at any time; provided Lessee shall
repair or reimburse Lessor for the cost of repairing any damage to said premises
resulting from the installation or removal of such items.
<PAGE>
INDEMNIFICATION
8. Lessee agrees to indemnify and save harmless the Lessor from any
claim or loss by reason of accident or damage to any person or property
happening on or about demised premises.
CLEANLINESS
9. Lessee shall at all times keep the interior of the building in a
reasonably neat and orderly condition and shall keep the walkway, entryways and
delivery areas adjoining the building reasonably clean and free from rubbish,
dirt, snow, and ice. Lessee will not make or suffer any waste of the premises or
permit anything to be done in or upon the demised premises creating a nuisance
thereon, and Lessee further agrees to permit Lessor or its agent at all
reasonable times to enter upon the premises for making repairs and for examining
or showing the same to prospective purchasers and/or Lessees with a minimum 24
hour notice given to Lessee by Lessor.
QUIET ENJOYMENT
10. The Lessor covenants, warrants and represents that upon
commencement of the lease term, the shopping center, including the demised
premises, will be free and clear of all liens and encumbrances superior to the
leasehold hereby created; that the lessor has full right; and power to execute
and perform this lease and to grant the estate demised herein; and that the
Lessee on paying the rent herein reserved and performing the covenants and
agreements hereof shall peaceably and quietly have, hold and enjoy the demised
premises and all rights, easements, appurtenances and privileges belonging or in
any way appertaining thereto during the full term of this lease and any
extensions thereof.
DEFAULT
11. In the event the Lessee should fail to pay any of the monthly
installments of rent reserved herein for a period of more than ten (10) days
after the same shall become due and payable, or if the Lessee shall fail to keep
or shall violate any other condition, stipulation or agreement contained, on the
part of the Lessee to be kept and performed, and if either such failure or
violation shall have continued for a period of thirty (30) days after the Lessee
shall have received written notice by certified or registered mail at its office
address hereinafter designated, from the Lessor to pay such rent or to cure such
violation of failure, then, in any such event, the Lessor, at its option, may
either (a) terminate this lease, or (b) re-enter the demised premises by summary
proceeding or otherwise expel Lessee and remove all property therefrom and relet
the premises at the best possible rent obtainable, making reasonable efforts and
receive the rent therefrom; but Lessee shall remain liable for the deficiency,
if any, between Lessee's rent hereunder and the price obtained by Lessor on
reletting. However, a default shall be deemed cured if the Lessee in good faith
commences performance requisite to cure same within thirty (30) days after
receipt of notice and thereafter continuously and with reasonable diligence
proceeds to complete the performance required to cure such default.
<PAGE>
NOTICES
12. All notices required to be given to the Lessor hereunder shall be
sent by registered or certified mail to, and all rent payments shall be made to
Lessor at P.O. Box 952, Martinsville, VA 24114 or to such other address as
Lessor may direct from time to time by written notice forwarded to Lessee by
registered or certified mail.
All notices required to be given to Lessee shall be sent by
registered or certified mail to Lessee, c/o Cecil R. McCullar, 5401 Flintlock
Lane, Roanoke, Virginia 24014, or to such other address as Lessee may direct
from time to time by written notice forwarded to Lessor by registered or
certified mail.
END OF TENANCY
13. The Lessee will yield up the demised premises and all additions
thereto (except sign, equipment and trade fixtures installed by the Lessee at
its expense) at the termination of the tenancy in as good and tenable condition
as the same are at the beginning of Lessee's occupancy, reasonable wear and
tear, damages by fire and other casualties and condemnation appropriation by
eminent domain excepted, and also excepting any damage, disrepair and other
condition that the Lessor is obligated hereunder to repair and correct.
TAXES
14. All taxes, assessments and charges on land or improvements and
obligations secured by mortgage or other lien upon the demises premises of the
shopping center shall be promptly paid by the Lessor when due.
<PAGE>
BENEFITS
15. This lease and all covenants and provisions thereof shall inure to
the benefit of and be binding upon the heirs, legal representatives, successor,
and assigns of the parties hereto. Each provision hereof shall be deemed both a
covenant and a condition and shall run with the land.
HVAC REPAIRS
16. Lessor will have the heating, ventilating and air conditioning
systems serviced and put in first class operating condition upon the signing of
this lease. Lessee will assume responsibility for any routine maintenance and
repairs and agrees to provide and insure regular routine maintenance to the
units by securing a maintenance contract with a qualified HVAC contractor.
However, Lessor agrees to accept responsibility for repair or replacement of
units in excess of $250.00 per occurrence during the lease term provided Lessee
has maintained units on a regular basis.
DAMAGE BY FIRE OR CASUALTY
17. During the term of this lease Lessor agrees to carry standard form
"All Risk" property insurance on the building wherein the premises are situated
for full replacement thereof and shall provide Lessee with a certificate of
insurance reflecting such coverage, if requested.
If premises or a portion thereof shall be destroyed or injured
by any cause and such destruction or injury could reasonably be repaired within
90 days thereafter, Lessor shall with diligence undertake and substantially
complete repairs within 90 days after the happening of such destruction or
injury. If Lessee shall be deprived of the occupancy of any portion of the
premises due to any destruction or injury but can nevertheless continue to
engage in its regular business, a rental abatement shall be allowed in
proportion to the area rendered untenantable and continuing until premises are
restored. No rent shall be payable during any period that Lessee is unable to
engage in its regular business.
If the destruction or injury cannot reasonably be repaired
within 90 days after the happening thereof, Lessor shall notify Lessee within 30
days after the happening of such destruction or injury whether or not Lessor
will repair or rebuild. If Lessor elects not to repair or rebuild, this lease
shall be terminated. If Lessor shall elect to repair or rebuild, Lessor shall
specify the time within which repairs or reconstruction will be completed and
Lessee shall have the option within 30 days after the receipt of such notice to
elect either to terminate this lease and further liability thereunder or to
extend the term or renewal term of this lease by a period of time equivalent to
the period from the happening of such destruction or injury until the premises
are restored to their former condition. In the event Lessee elects to extend the
term of the lease, Lessor shall restore the premises to their former condition
within the time specified in the notice and Lessee shall be entitled to an
abatement of rent in the manner hereinbefore described.
<PAGE>
WAIVER OF SUBROGATION
18. Lessor and Lessee agree (to the extent that such agreement does not
invalidate coverage under any policy of insurance) that, in the event the
demised premises, or any part hereof, are damaged or destroyed by fire or other
casualty that is covered by insurance of the Lessor or Lessee, or the
sub-lessee's assignees or transferees or Lessee, the rights of any party against
the other or against the employees, agents or licensee of any part, with respect
to such damage or destruction and with respect to any loss resulting therefrom,
including the interruption of the business of any parties, are hereby waived to
the extent of the coverage of said insurance. Lessor and Lessee further agree
that all policies of fire, extended coverage, business interruption and other
insurance covering the demised premises or the contents therein shall, if
possible, provide that the insurance shall not be impaired if the insureds have
waived their rights of recovery from any person or persons prior to the date and
time of loss or damage. Any additions premiums for such clause or endorsement
shall be paid by the primary insured.
CONTINGENCY CLAUSE
19. If for any reason Lessee is prevented from organizing and opening
as planned this lease may be cancelled by notifying Lessor in writing.
COMPLETE AGREEMENT
20. This written lease contains the complete agreement of the parties
to the leasing of the demised premises. No waiver or any breach of covenant
herein shall be construed as a waiver of the covenant itself or any subsequent
breach thereof.
IN WITNESS WHEREOF, the Lessor and Lessee have executed this agreement
the day and year first above written.
Signed, sealed and delivered in the presence of
____________________________________
________________________ ____________________________________
SECRETARY PRESIDENT
____________________________________
________________________ ____________________________________
SECRETARY PRESIDENT
Exhibit 10.3
THIS LEASE, made this 6th day of April, 1999, between R. C. Realty
Corp. (hereinafter called Lessor) and First Community National Bank (hereinafter
called Lessee) which terms "Lessor" and Lessee" shall include, wherever the
context admits or requires, singular or plural, and their heirs, legal
representatives, successors and assigns of the respective parties;
WITNESSETH:
PREMISES
That the Lessor, in consideration of the covenants of the Lessee, does
hereby lease and demise unto said Lessee and Lessee hereby agrees to take and
lease from the Lessor, for the terms hereinafter specified the following
described premises:
That certain store building containing approximately 2,486 square feet
of area located in the Patrick Henry Mall shopping center development located on
East Church Street in the City of Martinsville, Virginia formerly occupied by
Piedmont Trust Bank as marked in red on the attached Exhibit A.
TERM
For the Lessee to have and to hold for a period of three years
commencing August 1, 1999 and terminating July 31, 2002. This lease is granted
and accepted upon the following terms, covenants, conditions and stipulations:
RENTAL
1. The Lessee agrees to pay to the Lessor as rental for the demised
premises during the term of the lease $30,000.00 per annum with monthly payments
of $2,500.00. The rental shall be paid in twelve equal monthly installments
which shall be due and payable in advance on the first of each and every
calendar month of the lease term, and any extensions thereof.
USE
2. The demised premises shall be used for banking and banking services.
Lessee's employees, customers and invitees are granted full use of the common
areas of the shopping center. Lessee at all times shall fully and promptly
comply with all laws, ordinances and regulations of every lawful authority
having jurisdiction of said premises and the character and manner of operation
of the business conducted in or at said premises.
<PAGE>
UTILITIES
3. The Lessee agrees to pay for all utilities used by Lessee at the
demised premises. Lessor shall at all times provide access to utilities.
LESSEE'S REPAIRS
4. The Lessee agrees to keep the interior of the demised premises,
along with the florescent fixtures, windows and exterior plate glass in good
condition and repair excepting all repairs which are made necessary by reason of
fire and other unavoidable casualties and reasonable wear and tear. Lessee will
provide for its interior cleaning and janitorial services.
LESSOR'S REPAIRS
5. The Lessor shall, at its cost and expense, keep and maintain the
common areas (including the parking area) in good condition and repair. Lessor
will keep and maintain the foundation and structural members in good condition
and repair, and shall make any and all structural repairs to the exterior of
said premises. Lessor will keep and maintain the roof, gutter, downspouts in
good condition and repair. Lessor also accepts responsibility for maintenance of
the exterior of the building, parking areas, snow removal and landscaping except
as provided under Paragraph 10.
SIGNS
6. Lessee may place, erect and maintain, with the approval of the
Lessor, signs on the demised premises, but the signs must be compatible with
signs of adjoining Lessees and not obstruct the view of other signs. All signs
shall remain the property of Lessee and may be removed at any time during the
term of this lease, or any extensions thereof, provided Lessee shall repair or
reimburse Lessor for the cost of any damage to the demised premises resulting
from the installation or removal of such signs.
FURNITURE AND EQUIPMENT
7. Furniture and equipment left from the tenancy of Piedmont Trust Bank
will remain the property of Lessor. Lessee will have the right to use furniture
and equipment during the term of this lease. Lessee agrees to not remove any
furniture or equipment from the demised premises without notifying Lessor.
Lessor will compile a list of residual furniture and equipment prior to
occupancy.
<PAGE>
FIXTURES AND INTERIOR ALTERATIONS
8. The Lessee, at its own expense and with written permission of Lessor
which shall not be unreasonably withheld, may from time to time during the term
of this lease, make any interior alterations, additions, and improvements in and
to the demised premises which it may deem necessary or desirable and which do
not adversely affect the structural integrity thereof, but it shall make them in
a good workmanlike manner and in accordance with all valid requirements of
municipal or other governmental authorities. All permanent structural
improvements shall belong to the Lessor and become a part of the premises upon
termination or expiration of this lease.
Lessee may construct and build or install in said premises any
and all racks, counters, shelves, and other fixtures and equipment of any kind
and nature as may be necessary or desirable in the Lessee's business, which
racks, counters, shelves, and other fixtures and equipment shall at all times be
and remain the property of the Lessee and Lessee shall have the right to remove
all or any part of same from said premises at any time; provided Lessee shall
repair or reimburse Lessor for the cost of repairing any damage to said premises
resulting from the installation or removal of such items.
INDEMNIFICATION
9. Lessee agrees to indemnify and save harmless the Lessor from any
claim or loss by reason of accident or damage to any person or property
happening on or about demised premises.
CLEANLINESS
10. Lessee shall at all times keep the interior of the building in a
reasonably neat and orderly condition and shall keep the walkway, entryways and
delivery areas adjoining the building reasonably clean and free from rubbish,
dirt, snow, and ice. Lessee will not make or suffer any waste of the premises or
permit anything to be done in or upon the demised premises creating a nuisance
thereon, and Lessee further agrees to permit Lessor or its agent at all
reasonable times to enter upon the premises for making repairs and for examining
or showing the same to prospective purchasers and/or Lessees.
QUIET ENJOYMENT
11. The Lessor covenants, warrants and represents that upon
commencement of the lease term, the shopping center, including the demised
premises, will be free and clear of all liens and encumbrances superior to the
leasehold hereby created; that the lessor has full right; and power to execute
and perform this lease and to grant the estate demised herein; and that the
Lessee on paying the rent herein reserved and performing the covenants and
agreements hereof shall peaceably and quietly have, hold and enjoy the demised
premises and all rights, easements, appurtenances and privileges belonging or in
any way appertaining thereto during the full term of this lease and any
extensions thereof.
<PAGE>
DEFAULT
12. In the event the Lessee should fail to pay any of the monthly
installments of rent reserved herein for a period of more than ten (10) days
after the same shall become due and payable, or if the Lessee shall fail to keep
or shall violate any other condition, stipulation or agreement contained, on the
part of the Lessee to be kept and performed, and if either such failure or
violation shall have continued for a period of thirty (30) days after the Lessee
shall have received written notice by certified or registered mail at its office
address hereinafter designated, from the Lessor to pay such rent or to cure such
violation of failure, then, in any such event, the Lessor, at its option, may
either (a) terminate this lease, or (b) re-enter the demised premises by summary
proceeding or otherwise expel Lessee and remove all property therefrom and relet
the premises at the best possible rent obtainable, making reasonable efforts and
receive the rent therefrom; but Lessee shall remain liable for the deficiency,
if any, between Lessee's rent hereunder and the price obtained by Lessor on
reletting. However, a default shall be deemed cured if the Lessee in good faith
commences performance requisite to cure same within thirty (30) days after
receipt of notice and thereafter continuously and with reasonable diligence
proceeds to complete the performance required to cure such default.
NOTICES
13. All notices required to be given to the Lessor hereunder shall be
sent by registered or certified mail to, and all rent payments shall be made to
Lessor at P.O. Box 952, Martinsville, VA 24114 or to such other address as
Lessor may direct from time to time by written notice forwarded to Lessee by
registered or certified mail.
All notices required to be given to Lessee shall be sent by
registered or certified mail to Lessee, c/o Cecil R. McCullar, 5401 Flintlock
Lane, Roanoke, Virginia 24014, or to such other address as Lessee may direct
from time to time by written notice forwarded to Lessor by registered or
certified mail.
END OF TENANCY
14. The Lessee will yield up the demised premises, residual furniture
and equipment and all additions thereto (except sign, equipment and trade
fixtures installed by the Lessee at its expense) at the termination of the
tenancy in as good and tenable condition as the same are at the beginning of
Lessee's occupancy, reasonable wear and tear, damages by fire and other
casualties and condemnation appropriation by eminent domain excepted, and also
excepting any damage, disrepair and other condition that the Lessor is obligated
hereunder to repair and correct.
<PAGE>
TAXES
15. All taxes, assessments and charges on land or improvements and
obligations secured by mortgage or other lien upon the demises premises of the
shopping center shall be promptly paid by the Lessor when due. Lessee will,
however, reimburse Lessor the amount of tax increase attributable to any
improvements to the demised premises made by Lessee over the 1998 tax amount.
BENEFITS
16. This lease and all covenants and provisions thereof shall inure to
the benefit of and be binding upon the heirs, legal representatives, successor,
and assigns of the parties hereto. Each provision hereof shall be deemed both a
covenant and a condition and shall run with the land.
HVAC REPAIRS
17. Lessor will have the heating, ventilating and air conditioning
systems serviced and put in first class operating condition upon the signing of
this lease. Lessee will assume responsibility for any routine maintenance and
repairs and agrees to provide and insure regular routine maintenance to the
units by securing a maintenance contract with a qualified HVAC contractor.
However, Lessor agrees to accept responsibility for repair or replacement of
units in excess of $250.00 per occurrence during the lease term provided Lessee
has maintained units on a regular basis.
RENEWAL OPTIONS
18. Lessee and Lessor will negotiate options to renew this lease after
facilities are open for business.
CENTER'S USE
19. It is understood that buildings in the Patrick Henry Mall will be
leased only to Lessees whose businesses comply with uses allowed under the City
of Martinsville zoning regulations. Lessor specifically agrees to not lease
space for flea markets, car, truck and RV sales, produce stands, circuses, and
parking space for in transit hazardous waste.
<PAGE>
OBSTRUCTION OF VIEW
20. Lessor will not allow any structures to be placed on the common
areas which would obstruct the view of premises from Church Street.
PUBLIC LIABILITY INSURANCE
21. Lessee shall, during the entire term hereof, keep in full force and
effect a policy of public liability and property damage insurance with respect
to claims arising from the use and occupancy of the premises by Lessee, under
which the limits of public liability shall not be less than $1,000,000.00
combined single limit per occurrence or the equivalent thereof. Such policy
shall provide that not less than 30 days written notice be given to Lessor in
advance of the effective date of cancellation, non-renewal or material change in
such policy. A copy of certificate reflecting such insurance coverage shall be
delivered to Lessor upon request thereof.
Lessor shall, during the entire term hereof, keep in full
force and effect a policy of public liability and property damage insurance with
respect to the parking and other common areas of the shopping center under which
the limits of public liability shall not be less than $1,000,000.00 combined
single limit per occurrence or the equivalent thereof. Such policy shall provide
that not less than 30 days written notice be given to Lessee in advance of the
effective date of cancellation, non-renewal or material change in such policy. A
copy of certificate reflecting such insurance coverage shall be delivered to
Lessee upon request thereof.
DAMAGE BY FIRE OR CASUALTY
22. During the term of this lease Lessor agrees to carry standard form
"All Risk" property insurance on the building wherein the premises are situated
for full replacement thereof and shall provide Lessee with a certificate of
insurance reflecting such coverage, if requested.
If premises or a portion thereof shall be destroyed or injured
by any cause and such destruction or injury could reasonably be repaired within
90 days thereafter, Lessor shall with diligence undertake and substantially
complete repairs within 90 days after the happening of such destruction or
injury. If Lessee shall be deprived of the occupancy of any portion of the
premises due to any destruction or injury but can nevertheless continue to
engage in its regular business, a rental abatement shall be allowed in
proportion to the area rendered untenantable and continuing until premises are
restored. No rent shall be payable during any period that Lessee is unable to
engage in its regular business.
<PAGE>
If the destruction or injury cannot reasonably be repaired
within 90 days after the happening thereof, Lessor shall notify Lessee within 30
days after the happening of such destruction or injury whether or not Lessor
will repair or rebuild. If Lessor elects not to repair or rebuild, this lease
shall be terminated. If Lessor shall elect to repair or rebuild, Lessor shall
specify the time within which repairs or reconstruction will be completed and
Lessee shall have the option within 30 days after the receipt of such notice to
elect either to terminate this lease and further liability thereunder or to
extend the term or renewal term of this lease by a period of time equivalent to
the period from the happening of such destruction or injury until the premises
are restored to their former condition. In the event Lessee elects to extend the
term of the lease, Lessor shall restore the premises to their former condition
within the time specified in the notice and Lessee shall be entitled to an
abatement of rent in the manner hereinbefore described.
WAIVER OF SUBROGATION
23. Lessor and Lessee agree (to the extent that such agreement does not
invalidate coverage under any policy of insurance) that, in the event the
demised premises, or any part hereof, are damaged or destroyed by fire or other
casualty that is covered by insurance of the Lessor or Lessee, or the
sub-lessee's assignees or transferees or Lessee, the rights of any party against
the other or against the employees, agents or licensee of any part, with respect
to such damage or destruction and with respect to any loss resulting therefrom,
including the interruption of the business of any parties, are hereby waived to
the extent of the coverage of said insurance. Lessor and Lessee further agree
that all policies of fire, extended coverage, business interruption and other
insurance covering the demised premises or the contents therein shall, if
possible, provide that the insurance shall not be impaired if the insureds have
waived their rights of recovery from any person or persons prior to the date and
time of loss or damage. Any additions premiums for such clause or endorsement
shall be paid by the primary insured.
CONTINGENCY CLAUSE
24. If for any reason Lessee is prevented from organizing and opening
as planned this lease may be cancelled by notifying Lessor in writing.
COMPLETE AGREEMENT
25. This written lease contains the complete agreement of the parties
to the leasing of the demised premises. No waiver or any breach of covenant
herein shall be construed as a waiver of the covenant itself or any subsequent
breach thereof.
IN WITNESS WHEREOF, the Lessor and Lessee have executed this agreement
the day and year first above written.
Signed, sealed and delivered in the presence of
____________________________________
________________________ ____________________________________
SECRETARY PRESIDENT
____________________________________
________________________ ____________________________________
SECRETARY PRESIDENT
Exhibit 10.4
THIS LEASE, made this 6th day of April, 1999, between Jimmie R. &
Margaret D. Mills (hereinafter called Lessor) and First Community National Bank
(hereinafter called Lessee) which terms "Lessor" and Lessee" shall include,
wherever the context admits or requires, singular or plural, and their heirs,
legal representatives, successors and assigns of the respective parties;
WITNESSETH:
PREMISES
That the Lessor, in consideration of the covenants of the Lessee, does
hereby lease and demise unto said Lessee and Lessee hereby agrees to take and
lease from the Lessor, for the terms hereinafter specified the following
described premises:
That parcel of land with improvements thereon located at 380 Riverside
Drive, Bassett, Virginia and legally described as: Parcel "A"; N/E margin of St
Rt 682 & S/E margin of St Rt 57A Horsepasture District; DB 510 PG 685; MB 75 PG
97; 1.435 Acres.
TERM
For the Lessee to have and to hold for a period of three years
commencing with the opening date of the Stanleytown Branch (Commencement Date)
and terminating three years from that date. Beginning June 1, 1999 Lessee agrees
to pay Lessor interim rent to hold premises for Lessee until Commencement Date
when a higher rent will apply. This lease is granted and accepted upon the
following terms, covenants, conditions and stipulations:
RENTAL
1. The Lessee agrees to pay to the Lessor as rental for the demised
premises the following amounts: Interim rent of $500.00 per month beginning June
1, 1999 and continuing until such time as Branch is open for business
(Commencement Date). Beginning on Commencement Date and terminating three years
from that date Lessee shall pay Lessor monthly payments of $2,500.00. The rental
shall be due and payable in advance on the first of each and every calendar
month of the lease term, and any extensions thereof. If Commencement date is not
on the first of the month rental shall be prorated for that partial month.
USE
2. The demised premises shall be used for banking and banking services.
Lessee's employees, customers and invitees are granted full use of the premises.
Lessee at all times shall fully and promptly comply with all laws, ordinances
and regulations of every lawful authority having jurisdiction of said premises
and the character and manner of operation of the business conducted in or at
said premises.
<PAGE>
UTILITIES
3. The Lessee agrees to pay for all utilities used by Lessee at the
demised premises. Lessor shall at all times provide access to utilities.
LESSEE'S REPAIRS
4. The Lessee agrees to keep the interior of the demised premises,
along with the florescent fixtures, windows and exterior plate glass in good
condition and repair excepting all repairs which are made necessary by reason of
fire and other unavoidable casualties and reasonable wear and tear. Lessee will
provide for its interior cleaning and janitorial services.
LESSOR'S REPAIRS
5. The Lessor shall, at its cost and expense, keep and maintain the
common areas (including the parking area) in good condition and repair. Lessor
will keep and maintain the foundation and structural members in good condition
and repair, and shall make any and all structural repairs to the exterior of
said premises. Lessor will keep and maintain the roof, gutter, downspouts in
good condition and repair. Lessor also accepts responsibility for maintenance of
the exterior of the building, parking areas, snow removal and landscaping except
as provided under Paragraph 9.
SIGNS
6. Lessee may place, erect and maintain, with the approval of the
Lessor, signs on the demised premises. All signs shall remain the property of
Lessee and may be removed at any time during the term of this lease, or any
extensions thereof, provided Lessee shall repair or reimburse Lessor for the
cost of any damage to the demised premises resulting from the installation or
removal of such signs.
FIXTURES AND INTERIOR ALTERATIONS
7. The Lessee, at its own expense and with written permission of Lessor
which shall not be unreasonably withheld, may from time to time during the term
of this lease, make any interior alterations, additions, and improvements in and
to the demised premises which it may deem necessary or desirable and which do
not adversely affect the structural integrity thereof, but it shall make them in
a good workmanlike manner and in accordance with all valid requirements of
municipal or other governmental authorities. All permanent structural
improvements shall belong to the Lessor and become a part of the premises upon
termination or expiration of this lease.
<PAGE>
Lessee may construct and build or install in said premises any
and all racks, counters, shelves, and other fixtures and equipment of any kind
and nature as may be necessary or desirable in the Lessee's business, which
racks, counters, shelves, and other fixtures and equipment shall at all times be
and remain the property of the Lessee and Lessee shall have the right to remove
all or any part of same from said premises at any time; provided Lessee shall
repair or reimburse Lessor for the cost of repairing any damage to said premises
resulting from the installation or removal of such items.
INDEMNIFICATION
8. Lessee agrees to indemnify and save harmless the Lessor from any
claim or loss by reason of accident or damage to any person or property
happening on or about demised premises.
CLEANLINESS
9. Lessee shall at all times keep the interior of the building in a
reasonably neat and orderly condition and shall keep the walkway, entryways and
delivery areas adjoining the building reasonably clean and free from rubbish,
dirt, snow, and ice. Lessee will not make or suffer any waste of the premises or
permit anything to be done in or upon the demised premises creating a nuisance
thereon, and Lessee further agrees to permit Lessor or its agent at all
reasonable times to enter upon the premises for making repairs and for examining
or showing the same to prospective purchasers and/or Lessees.
QUIET ENJOYMENT
10. The Lessor covenants, warrants and represents that upon
commencement of the lease term, the demised premises will be free and clear of
all liens and encumbrances superior to the leasehold hereby created; that the
lessor has full right; and power to execute and perform this lease and to grant
the estate demised herein; and that the Lessee on paying the rent herein
reserved and performing the covenants and agreements hereof shall peaceably and
quietly have, hold and enjoy the demised premises and all rights, easements,
appurtenances and privileges belonging or in any way appertaining thereto during
the full term of this lease and any extensions thereof.
DEFAULT
11. In the event the Lessee should fail to pay any of the monthly
installments of rent reserved herein for a period of more than ten (10) days
after the same shall become due and payable, or if the Lessee shall fail to keep
or shall violate any other condition, stipulation or agreement contained, on the
part of the Lessee to be kept and performed, and if either such failure or
violation shall have continued for a period of thirty (30) days after the Lessee
shall have received written notice by certified or registered mail at its office
address hereinafter designated, from the Lessor to pay such rent or to cure such
violation of failure, then, in any such event, the Lessor, at its option, may
either (a) terminate this lease, or (b) re-enter the demised premises by summary
proceeding or otherwise expel Lessee and remove all property therefrom and relet
the premises at the best possible rent obtainable, making reasonable efforts and
receive the rent therefrom; but Lessee shall remain liable for the deficiency,
if any, between Lessee's rent hereunder and the price obtained by Lessor on
reletting. However, a default shall be deemed cured if the Lessee in good faith
commences performance requisite to cure same within thirty (30) days after
receipt of notice and thereafter continuously and with reasonable diligence
proceeds to complete the performance required to cure such default.
<PAGE>
NOTICES
12. All notices required to be given to the Lessor hereunder shall be
sent by registered or certified mail to, and all rent payments shall be made to
Lessor at 193 Colonial Hill Drive, Bassett, VA 24055 or to such other address as
Lessor may direct from time to time by written notice forwarded to Lessee by
registered or certified mail.
All notices required to be given to Lessee shall be sent by
registered or certified mail to Lessee, c/o Cecil R. McCullar, 5401 Flintlock
Lane, Roanoke, Virginia 24014, or to such other address as Lessee may direct
from time to time by written notice forwarded to Lessor by registered or
certified mail.
END OF TENANCY
13. The Lessee will yield up the demised premises and all additions
thereto (except sign, equipment and trade fixtures installed by the Lessee at
its expense) at the termination of the tenancy in as good and tenable condition
as the same are at the beginning of Lessee's occupancy, reasonable wear and
tear, damages by fire and other casualties and condemnation appropriation by
eminent domain excepted, and also excepting any damage, disrepair and other
condition that the Lessor is obligated hereunder to repair and correct.
TAXES
14. All taxes, assessments and charges on land or improvements and
obligations secured by mortgage or other lien upon the demises premises shall be
promptly paid by the Lessor when due. Lessee will, however, reimburse Lessor the
amount of tax increase attributable to any improvements to the demised premises
made by Lessee over the 1998 tax amount.
<PAGE>
BENEFITS
15. This lease and all covenants and provisions thereof shall inure to
the benefit of and be binding upon the heirs, legal representatives, successor,
and assigns of the parties hereto. Each provision hereof shall be deemed both a
covenant and a condition and shall run with the land.
HVAC REPAIRS
16. Lessor will have the heating, ventilating and air conditioning
systems serviced and put in first class operating condition upon the signing of
this lease. Lessee will assume responsibility for any routine maintenance and
repairs and agrees to provide and insure regular routine maintenance to the
units by securing a maintenance contract with a qualified HVAC contractor.
However, Lessor agrees to accept responsibility for repair or replacement of
units in excess of $250.00 per occurrence during the lease term provided Lessee
has maintained units on a regular basis.
RENEWAL OPTIONS
17. Lessee and Lessor will negotiate options to renew this lease after
facilities are open for business.
PUBLIC LIABILITY INSURANCE
18. Lessee shall, during the entire term hereof, keep in full force and
effect a policy of public liability and property damage insurance with respect
to claims arising from the use and occupancy of the premises by Lessee, under
which the limits of public liability shall not be less than $1,000,000.00
combined single limit per occurrence or the equivalent thereof. Such policy
shall provide that not less than 30 days written notice be given to Lessor in
advance of the effective date of cancellation, non-renewal or material change in
such policy. A copy of certificate reflecting such insurance coverage shall be
delivered to Lessor upon request thereof.
Lessor shall, during the entire term hereof, keep in full
force and effect a policy of public liability and property damage insurance with
respect to the premises under which the limits of public liability shall not be
less than $1,000,000.00 combined single limit per occurrence or the equivalent
thereof. Such policy shall provide that not less than 30 days written notice be
given to Lessee in advance of the effective date of cancellation, non-renewal or
material change in such policy. A copy of certificate reflecting such insurance
coverage shall be delivered to Lessee upon request thereof.
<PAGE>
DAMAGE BY FIRE OR CASUALTY
19. During the term of this lease Lessor agrees to carry standard form
"All Risk" property insurance on the building wherein the premises are situated
for full replacement thereof and shall provide Lessee with a certificate of
insurance reflecting such coverage, if requested.
If premises or a portion thereof shall be destroyed or injured
by any cause and such destruction or injury could reasonably be repaired within
90 days thereafter, Lessor shall with diligence undertake and substantially
complete repairs within 90 days after the happening of such destruction or
injury. If Lessee shall be deprived of the occupancy of any portion of the
premises due to any destruction or injury but can nevertheless continue to
engage in its regular business, a rental abatement shall be allowed in
proportion to the area rendered untenantable and continuing until premises are
restored. No rent shall be payable during any period that Lessee is unable to
engage in its regular business.
If the destruction or injury cannot reasonably be repaired
within 90 days after the happening thereof, Lessor shall notify Lessee within 30
days after the happening of such destruction or injury whether or not Lessor
will repair or rebuild. If Lessor elects not to repair or rebuild, this lease
shall be terminated. If Lessor shall elect to repair or rebuild, Lessor shall
specify the time within which repairs or reconstruction will be completed and
Lessee shall have the option within 30 days after the receipt of such notice to
elect either to terminate this lease and further liability thereunder or to
extend the term or renewal term of this lease by a period of time equivalent to
the period from the happening of such destruction or injury until the premises
are restored to their former condition. In the event Lessee elects to extend the
term of the lease, Lessor shall restore the premises to their former condition
within the time specified in the notice and Lessee shall be entitled to an
abatement of rent in the manner hereinbefore described.
WAIVER OF SUBROGATION
20. Lessor and Lessee agree (to the extent that such agreement does not
invalidate coverage under any policy of insurance) that, in the event the
demised premises, or any part hereof, are damaged or destroyed by fire or other
casualty that is covered by insurance of the Lessor or Lessee, or the
sub-lessee's assignees or transferees or Lessee, the rights of any party against
the other or against the employees, agents or licensee of any part, with respect
to such damage or destruction and with respect to any loss resulting therefrom,
including the interruption of the business of any parties, are hereby waived to
the extent of the coverage of said insurance. Lessor and Lessee further agree
that all policies of fire, extended coverage, business interruption and other
insurance covering the demised premises or the contents therein shall, if
possible, provide that the insurance shall not be impaired if the insureds have
waived their rights of recovery from any person or persons prior to the date and
time of loss or damage. Any additions premiums for such clause or endorsement
shall be paid by the primary insured.
<PAGE>
CONTINGENCY CLAUSE
21. If for any reason Lessee is prevented from organizing and receiving
regulatory approval to open this Branch as planned this lease may be cancelled
by notifying Lessor in writing.
COMPLETE AGREEMENT
22. This written lease contains the complete agreement of the parties
to the leasing of the demised premises. No waiver or any breach of covenant
herein shall be construed as a waiver of the covenant itself or any subsequent
breach thereof.
IN WITNESS WHEREOF, the Lessor and Lessee have executed this agreement
the day and year first above written.
Signed, sealed and delivered in the presence of
________________________ ____________________________________
WITNESS
________________________ ____________________________________
WITNESS
____________________________________
________________________ ____________________________________
SECRETARY PRESIDENT
Exhibit 10.5
EMPLOYMENT AGREEMENT BETWEEN
FIRST COMMUNITY NATIONAL BANCORP, INC.
AND CECIL R. MCCULLAR
This Employment Agreement ("Agreement"), dated for purposes of
identification, June 1, 1999, is made and entered into between First Community
National BanCorp., Inc. ("Employer"), a corporation organized for the sole
purpose of organizing and holding the stock of a national banking association to
be chartered through the Office of the Comptroller of the Currency of the United
States ("OCC"), and Cecil R. McCullar ("Employee").
WHEREAS, Employer is in the process of forming a new national banking
association, Community First Bank, N.A. ("Bank");
WHEREAS, Employer desires to employ Employee as President and Chief
Executive Officer of the Employer; WHEREAS, Employer desires the Employee also
to serve as President and Chief Executive Officer of the Bank; and
WHEREAS, Employee is willing to accept such positions with the Employer
and Bank.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the following
capitalized terms have the indicated meanings unless the context clearly
requires otherwise:
<PAGE>
1.01. "Bank Board" means the Board of Directors of the Bank.
1.02. "Board" means the Board of Directors of the Employer.
1.03. "Cause" means (a) the continued failure by Employee to perform
his duties hereunder (other than any such failure resulting from his incapacity
due to physical or mental illness) after a written demand for performance is
delivered to the Employee by the Board (excluding Employee) and which failure
has not been cured as hereinafter provided, which demand specifically identifies
the manner in which the Board believes that Employee has not performed his
duties; or (b) the engaging by the Employee in illegal conduct or any conduct
which is demonstrably and materially injurious to the Employer or Bank; or (c)
the issuance of a removal order or similar order by a governmental regulatory
agency with appropriate jurisdiction prohibiting Employee from participating in
the affairs of the Employer or Bank. Any act or failure to act based upon
authority given pursuant to a resolution duly adopted by the Board or Bank Board
or based upon the advice of counsel for the Employer or Bank shall be
conclusively presumed to be done, or omitted to be done, by the Employee in good
faith and in the best interests of the Employer and Bank and shall not be a
basis for termination for Cause. It is also expressly understood that the
Employee's attention to matters not directly related to the business of the
Employer or Bank shall not provide a basis for termination for Cause so long as
the Board or Bank Board has approved Employee's engagement in such activities.
Upon the issuance of a written demand for performance under this Section,
Employee shall have 30 days in which to correct the deficiency, and if the
Employee corrects such deficiency within this period the deficiency shall not
constitute Cause. If the Employee does not correct the deficiency within the
thirty (30) day period, such deficiency shall constitute Cause for purposes of
the termination of this Agreement, if the Board (without Employee) so decides.
The conditions constituting Cause under Section 1.04 (b) or (c) above shall not
require prior notice, a written demand for performance or an opportunity to
cure.
<PAGE>
1.04. "Date of Termination" means the date Employee's employment
hereunder is deemed terminated as follows: (a) the date specified in the Notice
of Termination in the event that Employee's employment is terminated (whether by
Employee or Employer), other than on account of Employee's death, Disability or
Retirement, (b) if Employee's employment is to be terminated by Employer for
Disability, thirty (30) days after Notice of Termination is given (provided that
in the case of Disability the Employee shall not have returned to the
performance of his duties on a full-time basis during such thirty (30) day
period), (c) if Employee's employment is terminated by death, the date of
Employee's death, or (d) if Employee retires, the date of Employee's Retirement.
1.05. "Disability" means (a) as a result of Employee's inability due to
physical or mental illness, Employee shall have been absent from the full-time
performance of his duties with the Employer and/or Bank for six (6) consecutive
months, and (b) within thirty (30) days after Notice of Termination is given
Employee shall not have returned to the full-time performance of his duties.
<PAGE>
1.06. "Employer" and "Bank" includes any corporation or other entity
which is the surviving or continuing entity in respect of any merger,
consolidation or form of business combination in which the Employer or Bank,
respectively, ceases to exist.
1.07. "Employment Year" means the 12-month period beginning with the
Opening Date and each 12-month period beginning on the annual anniversary of
such Opening Date thereafter.
1.08. "Notice of Termination" means a written notice that Employee's
employment with Employer and Bank is terminated pursuant to Section 1.04(a) that
specifies a date as to which such termination shall be effective, which
effective date (except in the case of termination by Employer for Cause, which
may be made effective as of the date of the Notice of Termination) shall be at
least 15 days after the date of the Notice of Termination.
1.09. "Opening Date" means the first day of the month coinciding with
or following the later of the following three dates, although all of the
following events must occur in order for there to be an Opening Date hereunder:
(a) the Employer has accepted subscriptions and payment in full for a minimum of
625,000 shares of Employer common stock pursuant to the initial public offering
of such stock; (b) the Employer has obtained regulatory approval to acquire the
stock of the Bank and thereafter to become a bank holding company; and (c) the
Bank has received preliminary approval of its application for a charter from the
OCC.
<PAGE>
1.10. "Person" has the meaning ascribed to that term in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
1.11. "Retirement" means Employee's voluntary termination of all
employment hereunder after the attainment of age sixty-five (65).
1.12. "Successor" means any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time)
the Employer's business directly, by merger or consolidation, or indirectly by
purchase of the Employer's voting securities, all or substantially all of its
assets or otherwise.
SECTION II. TERM OF EMPLOYMENT AND DUTIES.
2.01. Employment with Employer and Bank. Employer hereby employs
Employee as of June 1, 1999, as President and Chief Executive Officer of
Employer. Unless this Agreement terminates prior to the Opening Date, Employee's
duties with Bank shall commence on the Opening Date or, if later, the date
Employer (or organizers) receives notification from the OCC that the articles of
association and organization certificate are accepted by the OCC. Employee shall
be expected to perform such services as are generally performed by the president
and chief executive officer of a bank holding company, in the case of Employer,
and of a commercial bank in the case of the Bank. Employer agrees to use its
best efforts to have Employee nominated for the Board and elected to the Bank
Board and to have him serve on the Executive Committee or equivalent committee
of each of such entities.
<PAGE>
2.02. Acceptance of Employment. Employee accepts such employment and
shall devote his full-time, attention and best efforts to the diligent
performance of his duties herein specified and as an officer of Employer and
Bank. While employed hereunder, Employee will not, without the prior express
written consent of the Board, accept employment with any other individual,
corporation, partnership, governmental authority or other entity, or engage in
any other venture for profit which the Board may consider to be in conflict with
Employer's or Bank's best interest or to be in competition with Employer's or
Bank's business, or which may interfere in any way with Employee's performance
of his duties hereunder. It is understood and agreed that Employee has the right
to participate in passive investments including income producing real estate.
2.03. Responsibilities before Opening Date. Prior to the Opening Date,
in his capacity as Employee of Employer, Employee shall use his reasonable best
efforts to promote the timely and efficient means of accomplishing the approval
of the applicable governmental authorities of the Employer' s/Bank's application
for a bank charter, licenses, permits, approvals and similar matters necessary
and appropriate for the Employer and the Bank to engage lawfully in the
commercial banking business and operations contemplated hereby, and the
purchasing or leasing of necessary equipment, furnishings and buildings for the
Employer's and Bank's respective commercial banking operations. Employee shall
act on behalf of Employer in meeting with various persons in connection with
obtaining all licenses and approvals necessary for the Bank and Employer and
assisting in any manner designated by Employer, including arrangements for the
marketing and selling of shares of common stock of the Employer during the
initial offering of such common stock.
<PAGE>
2.04. Term of Employment. Unless Employee's employment with Employer is
terminated prior to the Opening Date, Employee shall be employed by Employer
pursuant hereto until the third year anniversary of the Opening Date unless
Employee's employment is sooner terminated as set forth herein; provided,
however, that beginning with the first anniversary of the Opening Date and each
anniversary thereafter, the term of Employee's employment shall automatically be
extended for one additional Employment Year unless at least ninety (90) days
prior to such anniversary date, the Employer or the Employee shall have given
written notice that the Employee's employment shall not be extended beyond the
current Employment Year.
2.05. Offices. Termination of employment hereunder shall include
termination of employment as President and Chief Executive Officer of both the
Employer and the Bank.
SECTION III. COMPENSATION AND RELATED MATTERS.
3.01. Base Salary. From the date hereof and until the Date of
Termination. Employee shall have an annual base salary of NINETY THOUSAND AND
NO/100 DOLLARS ($90,000.00).
<PAGE>
3.02. Employee Benefits. On and after Opening Date, subject to meeting
applicable eligibility provisions, Employee shall be entitled to medical and
health insurance coverage standard for community banking organizations.
SECTION IV. RIGHTS ON TERMINATION OF EMPLOYMENT.
4.01. Before Opening Date. In the event the Date of Termination occurs
prior to the Opening Date, neither party shall have any liability or further
obligation under this Agreement to the other except for rights earned through
the Date of Termination.
4.02. Termination for Cause by Employer or Termination for Any Reason
by Employee. If Employer terminates Employee's employment for Cause or if
Employee terminates his employment for any reason and in each case the Date of
Termination is after the Opening Date, the Employer shall pay the Employee his
full base salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given. No Notice of Termination is required
hereunder in the event of Employee's death, and the foregoing amounts shall be
determined on the date of death, if applicable.
4.03. Termination by Employer Without Cause After Opening Date. Upon
the termination of the Employee's employment by Employer without Cause, if the
Date of Termination is after the Opening Date, Employer shall pay Employee a
lump sum payment equal to the total base salary that Employee would have earned
had Employee continued in the Employer's employ through the remaining term of
employment, without reference to his termination, such base salary to be at the
rate in effect at the time Notice of Termination is given.
<PAGE>
4.04. Other Terminations. In the event of any termination of Employee's
employment which is not provided for in Section 4.01, 4.02, and 4.03, Employee
shall be entitled to no compensation or other benefits whatsoever beyond the
Date of Termination.
4.05. Offset. The amount of any payment provided for in this Section IV
shall not be reduced, offset or subject to recovery by the Employer, Bank or
Successor by reason of any compensation earned by Employee as the result of
employment by another employer after the Date of Termination, or otherwise.
SECTION V. STOCK OPTIONS.
5.01. Grant of Option. If this Agreement has not terminated prior to
the Opening Date, Employee is hereby granted on the Opening Date (the "Date of
Grant") the following options to purchase Employer common stock, upon the
following terms and conditions, at a purchase price equal to the fair market
value of Employer common stock on the Date of Grant:
(a) The option to acquire 10,000 shares of Employer common
stock which shall be exercisable on or after the first anniversary of the
Opening Date.
(b) The option to acquire 10,000 shares of Employer common
stock which shall be exercisable on or after the second anniversary of the
Opening Date.
(c) The option to acquire 10,000 shares of Employer common
stock which shall be exercisable on or after the third anniversary of the
Opening Date.
<PAGE>
Any option which is not exercisable at the Date of Termination shall
expire on the Date of Termination. All options which may be exercised, but which
have not been exercised shall expire thirty (30) days after the termination of
Employee's employment if such employment is terminated by Employer for Cause or
by Employee for any reason. All options which have not sooner expired shall
expire on the ten-year anniversary of the Date of Grant. In the event of
Employee's death, any options held by him which were exercisable at the time of
his death may be exercised by the person designated in Employee's will or by the
proper legal representative of the Employee. No stock option granted hereunder
shall be transferable by Employee other than by will or the laws of descent and
distribution, and an option may be exercised during the lifetime of Employee
only by him or his guardian or legal representative.
5.02. Restrictions. The options granted hereunder and the shares of
common stock issuable upon exercise of such options have not been registered
under the Securities Act of 1933 ("Securities Act"), or under the Blue Sky or
other securities laws of any state, and cannot be sold or offered for sale
unless subsequently so registered or an exemption from registration is
available. Employee understands that these securities are being issued in
reliance on ss. 4(2) of the Securities Act and other available exemptions from
registration under federal and state securities laws and that he may be required
to hold the securities indefinitely. All certificates representing the
securities shall be subject to stop transfer orders and shall bear an
appropriate restrictive legend. Employee agrees that he will not dispose of any
of the securities except in a manner and fashion which is in total compliance
with the law and unless and until either (i) Employer shall have received an
opinion of legal counsel satisfactory to it that such disposition does not
violate the Securities Act and regulations promulgated thereunder and any
applicable state securities laws or regulations, or (ii) the securities have
been validly registered under the Securities Act and any applicable state Blue
Sky or securities law. The foregoing notwithstanding, Employer shall, at its
expense, register any stock issuable pursuant to the exercise of an option
hereunder under the Securities Act and any applicable state Blue Sky or
securities law upon Employee's request, provided, however, that the federal
registration can be accomplished on Form S-8, and provided further, that such
registration shall in no event occur on a date prior to sixty (60) days after
the close of the Employer's initial public offering of its common stock.
<PAGE>
5.03. Rule 16b-3. This Section V shall only be effective if this
Agreement is approved by the affirmative votes of the holders of the majority of
the securities of the Employer present, or represented, and entitled to vote at
a meeting duly held in accordance with the laws of the Commonwealth of Virginia.
Employer agrees to schedule a timely meeting of its original shareholders to
consider this approval, or in lieu of such meeting, shall timely obtain a
unanimous consent of the original shareholders approving these options. The
transactions under this Section V are intended to comply with Rule 16b-3 (or its
successor), as amended from time to time, promulgated pursuant to the Exchange
Act, and the Employer may, but shall not be required to, submit any proposed
amendment to this Section to its shareholders for their approval to assure
continued compliance if such proposed amendment would (i) materially increase
the benefits accruing to Employee under this Section; (ii) materially increase
the number of securities which may be issued under this Section; or (iii)
materially modify the requirements as to eligibility for participation in this
Section. Furthermore, any portion of this Section dealing with the amount and
price of securities to be awarded or awarded to Employee, which specifies the
timing of awards to Employee, or which sets forth the formula that determines
the amount, price and timing using objective criteria such as earnings of the
issuer, value of the securities, years of service, job classification, and
compensation levels shall not be amended more than once every six months other
than to comply with changes in the Code, the Employee Retirement Income Security
Act of 1974, as amended, or the rules promulgated thereunder.
<PAGE>
5.04. Forfeiture. If at any time while the options are exercisable, the
Board of Governors of the Federal Reserve System makes a formal capital call on
the Employer or the Comptroller of the currency makes a formal capital call on
the Bank, Employee will be required to exercise all exercisable options in whole
or part as may be needed for additional required capital or such exercisable
options shall be forfeited. Any options not required to be exercised under the
terms of any such capital call may be exercised under the original terms of this
Agreement.
5.05. Miscellaneous Considerations. The number of optioned shares shall
be adjusted from time to time to prevent dilution or enlargement of Employee's
rights caused by stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, reorganizations,
liquidations and similar matters. An option may be exercised by giving written
notice of exercise to the Employer specifying the number of shares to be
purchased and by paying in full in cash the exercise price. Upon notification of
the amount due and prior to, or concurrently with, the delivery to Employee of a
certificate representing any shares purchased pursuant to the exercise of an
Option, Employee shall promptly pay to Employer any amount necessary to satisfy
applicable federal, state or local tax requirements.
<PAGE>
SECTION VI. Certain Continuing Rights
6.01. Consulting and Continuation of Health Benefits Rights. After
Employee's Retirement, Employer agrees that, it shall retain Employee in the
capacity of Consultant, until Employee's seventieth (70th) birthday, on mutually
acceptable terms including but not limited to a mutually acceptable retainer and
it shall provide a continuation of Employee's medical and health benefits on at
least as favorable a basis as existing on the date of Employee's Retirement
until Employee's seventieth (70th) birthday.
6.02. Termination of Consulting and Health Benefits Rights. After
Employee's Retirement, Employer may terminate its obligations under Section 6.01
only for Cause or the death or Disability of Employee and such termination shall
be effective on the Date of Termination. Notwithstanding the foregoing, the
rights provided in this Section VI shall automatically terminate at any time
that Employee's employment with Employer terminates.
SECTION VII MISCELLANEOUS.
7.01. Agreement of Employer's Successor. Upon Employee's written
request, Employer will have any Successor, by agreement in form and substance
satisfactory to Employee, assent to the fulfillment by Employer of its
obligations under this Agreement. 7.02. Binding Agreement. This Agreement shall
inure to the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die while any amount would still be
payable to Employee hereunder if the Employee had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to Employee's beneficiary designated in writing and
delivered to Employer, if any, and if none to Employee's estate.
<PAGE>
7.03. Legal Fees. Each party shall pay its own legal fees and related
or other expenses incurred in connection with this Agreement, whether or not
such party prevails, including, without limitation all such fees and expenses,
if any, incurred in contesting or disputing any termination or seeking to obtain
or enforce any right or benefit provided by this Agreement.
7.04. Taxes. All payments to be made to Employee under this Agreement
will be subject to required withholding of federal, state and local and
employment and other taxes.
7.05. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered to Employee or the Chairman of the
Board of Employer or mailed by United States registered mail, return receipt
requested, postage prepaid and addressed, in the case of Employer, to the
attention of the Chairman of the Board at the following address:
First Community National BanCorp., Inc.
730 East Church Street
Martinsville, Virginia
or, in the case of Employee, to the address set forth below the Employee's
signature, provided that all notices may be sent to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
7.06. Modification; Waiver. No provision of this Agreement may be
modified, waived or discharged unless such modification, waiver or discharge is
agreed to in writing signed by Employee and the Chairman of the Board of
Employer. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of a
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the Commonwealth of Virginia.
To the extent that any provision of any other agreement between
Employer or any of its subsidiaries and Employee shall limit, qualify or be
inconsistent with any provision of this Agreement, then for purposes of this
Agreement, while the same shall remain in force, the provision of this Agreement
shall control and such provision of such other agreement shall be deemed to have
been superseded, and to be of no force or effect, as if such other agreement had
been formally amended to the extent necessary to accomplish such purpose.
<PAGE>
7.07. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect. This
Agreement may be executed in several counterparts, each of which shall be deemed
to be an original but all of which together will constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
FIRST COMMUNITY NATIONAL BANCORP., INC.
By: ______________________________
___________________________________
Cecil R. McCullar
Exhibit 10.6
BANK RESOURCES, INC.
================================================================================
Suite 106-36
4290 Bells Ferry Road
Kennesaw, Georgia 30144
(770) 591-7011 Fax (770) 516-9247
December 8, 1998
Organizers & Directors of a Proposed De Novo Bank
Martinsville, Henry County, VA
Ladies and Gentlemen:
We are pleased to offer the following description of the terms our services to
you in connection with the organization of a VA novo bank and bank holding
company to be located in the independent city of Martinsville, VA or in Henry
County, VA. If the terms of our engagement meet with your approval please so
indicate by signing the enclosed copy of this letter and returning it to us for
our files. Our engagement will cover the following:
Assistance With Regulatory Process
We understand that you wish to file a charter application with the Virginia
Bureau of Financial Institutions (the "VA Bureau") or, alternatively, the Office
of the Comptroller of the Currency (the "OCC") (collectively "the regulators")
to organize a new commercial bank (the "charter application") and simultaneously
file an application with the Federal Deposit Insurance Corporation (the "FDIC")
for deposit insurance. We also understand that you wish to file an Application
to become a Bank Holding Company with the Board of Governors of the Federal
Reserve System (the "Fed").
We will determine the specific regulatory steps needed to be taken before
submitting your application and advise you about such matters as the filing
fees, publication of notices, and brief you about the policies and procedures
generally applied by the regulators and the FDIC to evaluate such applications.
We will be responsible for preparing a market analysis for your new bank to
demonstrate that there is a need for the bank and that the convenience of the
community will be enhanced by a new bank. The analysis will include demographic
data for the proposed bank's primary service area, information on your
competition and other relevant information and data which is required to be set
forth in the applications. The market analysis will be contained in and part of
the charter application.
We will prepare a business plan for the new bank including the specific types of
proposed services to be offered by your new bank and the pricing of same. The
business plan will also define the appropriate capital structure for the new
bank and the supporting rationale for the structure.
We will propose draft policies and procedures to cover administrative functions
of the new bank including, but not limited to, lending, investment, security and
audit with a view toward assisting the new bank in passing the field examination
conducted by the regulators, and the FDIC before the applications will be
approved.
We will assist in preparing each Organizers' confidential Interagency
Biographical and Financial Report (the "IBF"), which must be filed with the
charter application, to ensure that such information complies as to form and
completeness with customary regulators, FDIC and Fed review standards. Of course
it will be incumbent upon each Organizer to actively participate in the
preparation of this statement.
We will assist in the preparation of the FR Y-1. We will assist in the
preparation of an Application to become a Bank Holding Company (collectively the
"BHC App") and in preparing an appropriate pro forma balance sheet and income
statements, as required by the Fed. We will assist you in responding to any
questions or requests for additional information from the Fed concerning this
application.
<PAGE>
BANK RESOURCES, INC.
================================================================================
Organizers & Directors
Proposed VA Novo Bank
Henry County, Virginia Page 2 of 5 December 8, 1998
We will help you respond to any questions about the applications from the
regulators, the FDIC and the Fed and work expeditiously to provide additional
information, clarifications, and modifications, as necessary, to the
applications so that the applications are deemed "technically complete" and
"accepted" for processing.
We will work with your legal counsel in the preparation of organizational
documents for the new bank including Articles of Association, by-laws and other
initial documents required to be filed with the regulators. The legal fees will
be your direct responsibility and are not part of our compensation.
In summary, we will assist you with the content, presentation and format of the
charter and deposit insurance applications and biographical and financial
statements. You recognize and understand that the regulators and the FDIC expect
you to be completely familiar and in agreement with the content of the charter
and deposit insurance applications, and that Bank Resources cannot and does not
guarantee that the regulators will approve the proposed bank's charter or that
the FDIC will award deposit insurance.
Term of Engagement
We will continue to provide the aforementioned services until such time as the
proposed bank obtains charter approval from either the regulators and deposit
insurance from the FDIC. You understand and agree, however, that if our services
are required in conjunction with any protests by competing financial
institutions; or, as result of changes in the composition of the organizing
group; or, due to complications with any proposed organizer, director or
proposed executive officer; or, due to modifications in the bank's business plan
after the charter application is filed with the regulators and FDIC then such
services are considered beyond the scope of this engagement letter. If such
additional services are needed, we will bill you on the basis of the number of
hours provided and at our normal and customary rates per hour.
You may, however, elect to terminate this engagement at any time so long as you
are current in the payment of all fees and expense reimbursements required in
the section entitled "Compensation" below and current in the payment of all fees
and expenses (both billed and incurred) in the event that additional services
described in the preceding paragraph are provided. Any such termination will
become effective immediately upon receipt by us of a written notice of
termination. If we have completed the charter application and related materials,
then such termination will not alter the obligation of the organizers to pay all
professional fees contemplated in the following description of "Compensation."
You understand and agree that all payments received prior to such termination
will not be subject to refund. In the event of a termination, we will cease
providing you with all services.
Compensation
We will prepare the bank's charter application and deposit insurance application
which includes the combination feasibility study and business plan, the related
financial projections for the bank's first five years, and assistance with the
preparation of IBF Reports. We will also attend up to six organizational
meetings and also attend the pre-filing meeting with the regulators staff. For
the Charter Application services you agree to pay us professional fees in the
amount of $47,250.00 plus $250.00 per Organizer/Director as follows: $5,250.00
on January 4, 1999; $5.250.00 on the first day of each month for seven months
thereafter; $5,250.00 upon the filing of the BHC application; and, upon the
filing of the charter application, you shall also pay $250.00 per
Organizer/Director. With respect to the payment due upon the filing of the BHC
application, you may pay us $5,250.00 in the form of your common stock.
(However, to comply with SEC regulations, you may be required to provide us with
a check payment and we may be required to provide you with a check payment for
the common stock.) You agree to pay $300.00 immediately for each Organizer or
Director added after the charter application has been filed.
<PAGE>
BANK RESOURCES, INC.
================================================================================
Organizers & Directors
Proposed VA Novo Bank
Henry County, Virginia Page 3 of 5 December 8, 1998
Once the Bank receives final charter approval from the regulators, you shall
grant to us stock options ("Options") to purchase 2,000 shares of the Holding
Company's common stock. The Options shall expire ten years from the date of
award (or the opening of the Bank, whichever is later) and the price each share
of stock purchased shall be $10.00 (the "exercise price").(1)
Notwithstanding anything to the contrary as described above, the Options shall
be awarded under substantially the same terms and conditions as any stock
warrants or stock options which may be awarded to the Organizers of the Bank,
officers or the Board of Directors. However the Options contemplated herein
shall be transferable; subject to "corporate reorganizations" (which may result
in a proportionate increase or decrease in the number of Options and/or the
exercise price); and/or, exercisable in whole or in part. In the event you do
not organize a bank holding company, the Options contemplated herein shall be
issued by the bank.
In the event that the Options described above are not awarded for any reason,
within six months of the date the Bank is chartered, then the Company or the
Bank shall immediately pay Bank Resources, Inc. an amount equal to $1.50 per
option.
Also, we have incurred certain expenses on your behalf in connection with pre
organization activities. You will be invoiced separately for the pre
organization expenses and such invoice will be due and payable upon receipt. In
addition to the professional fees described above, you will be invoiced on or
about the fifth business day of each month for all expenses incurred for your
account including those incurred in connection with pre organization activities.
We expect to incur such expenses as travel, demographic and peer data, express
(Federal Express type delivery) and local courier service, duplication and
binding of numerous copies of the applications and any other related out of
pocket expenses. (Telephone and facsimile charges shall be our responsibility.)
You shall pay a client maintenance fee of $50.00 per month starting January 4,
1999 and continue until the Bank opens for business.
All invoices shall be due and payable upon receipt. A two percent (2%)
administrative fee will be applied to all invoices. You may take a discount
equal to the amount of the administrative fee if we receive your payment within
ten (10) days of invoice date. We apply a late fee of one percent (1%) per month
to all unpaid invoices.
Our fees are not contingent on whether the Charter Application is granted.
Accordingly, we do not warrant or guarantee that the regulators will grant a
charter on your behalf.
Miscellaneous
Because we recognize that our engagement by you will necessarily involve
exposure to confidential information with respect to your proposed bank and the
organizers and directors thereof, we agree to hold such information in
confidence and will not disclose same to third parties without your prior
written consent. Likewise, the terms of our engagement by you and the proposed
bank are confidential. No disclosure may be made to a third party without our
prior written consent, except by reason of legal, accounting, or regulatory
requirements.
- --------------
(1) The number of options and exercise price are based on an initial
offering price per share of $10.00. Should the initial offering price be
different than $10.00 per share, then the exercise price and the number of
options shall be increased or decreased proportionately, as the case may be.
<PAGE>
BANK RESOURCES, INC.
================================================================================
Organizers & Directors
Proposed VA Novo Bank
Henry County, Virginia Page 4 of 5 December 8, 1998
You understand and agree that the terms of our engagement will be governed under
Georgia law and that this letter sets forth all of the terms and conditions with
respect to such engagement. Any amendment or modification of our engagement must
be made in writing and signed by each of us. Neither party to this engagement
may bring an action more than one year after the cause of action arises.
You agree to hold our firm and its employees harmless from any and all
liabilities, costs, and expenses relating to this engagement, and expenses (and
those of our legal counsel) incurred by reason of any action taken or committed
to be taken by us in good faith. In no event will we be liable for incidental or
consequential damages even if we have been advised of the possibility of such
damages.
****************
We very much look forward to working with you on this project and trust that
this letter meets with your approval. Of course, please do not hesitate to
contact the undersigned should you have any questions regarding this matter.
BANK RESOURCES, INC.
By: _________________________
E. Byron Richardson
Principal
Acknowledged, Agreed and Accepted by the undersigned
Organizers on this the effective date hereof the ______ day of , 1998. The
retainer plus the client maintenance fee described above will be paid on January
4, 1999.
Signature Date Signature Date
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<PAGE>
BANK RESOURCES, INC.
================================================================================
Organizers & Directors
Proposed VA Novo Bank
Henry County, Virginia Page 5 of 5 December 8, 1998
Signature Date Signature Date
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Exhibit 10.7
COMMON STOCK
Minimum Shares and Units: Maximum Shares and Units:
625,000 1,000,000
ESCROW AGREEMENT
First Citizens Bank & Trust Company
Attn: Diane Bowden
Corporate Trust Department - DAC61
Post Office Box 29522
Raleigh, North Carolina 27626-0522
Gentlemen:
This letter will confirm the agreement between the undersigned Smith River
Bankshares, Inc, the holding company, (the "Company") for Smith River Community
Bank, N.A. (the "Bank") and First Citizens Bank & Trust Company (the "Escrow
Agent"), whereby the Escrow Agent agrees to act as escrow agent in connection
with a subscription offering for a minimum of 537,500 shares and a maximum of
912,500 shares of the Company's common stock, no par value per share (the
"Shares"), which will be sold for an aggregate purchase price of $10.00 per
Share and 87,500 Units (Units") which will be sold at an aggregate purchase
price of $10.00 per unit, each consisting of one Share and one warrant to
purchase one Share in the future at $10.00 per share (the Purchase Price")
payable in cash or its equivalent. The offer and sale of the Shares and Units
(the "Offering") will be made pursuant to an Offering Circular dated September ,
1999, and any subsequent amendments or supplements thereto (collectively, the
"Offering Circular").
Pursuant to the Offering Circular, prospective investors who desire to subscribe
for Shares and Units (the "Subscribers") will submit written subscription
agreements ("Subscription Offers") substantially in the form accompanying the
Offering Circular. Under the terms of the Offering, each Subscription Offer must
be accompanied by payment in the full amount of $10.00 per Share or Unit
subscribed (the "Expense Deposit"). Subscription Offers will be accepted through
the date set forth on Exhibit A hereto as the Expiration Date (the "Expiration
Date"), which date may be extended by the Company until the date set forth on
Exhibit A hereto as the Extended Expiration Date. The Offering may be closed,
terminated and/or withdrawn prior to the Expiration Date as described in the
Offering Circular. Exhibit A may be amended by mutual agreement of the Company
and the Escrow Agent after the date of this Escrow Agreement to include the
Expiration Date and Extended Expiration Date, their respective signatures
thereto being evidence of such mutual agreement.
In connection with the foregoing, and the Escrow Agent's indicated willingness
to provide services in connection with the Offering as described herein, and in
confirmation of the terms of this escrow arrangement, the parties hereto agree
as follows:
1. Receipt and Delivery of Payments for Subscribed Shares. In
connection with the Offering, and as described in the Offering
Circular, the Subscribers will be instructed to make all
checks or money orders delivered with a Subscription Offer as
an Expense Deposit, or otherwise delivered in payment of the
balance of the Purchase Price of Shares or Units, payable to,
and to forward the same with their executed Subscription
Offers to, the Escrow Agent.
<PAGE>
2. Escrow Account. The Escrow Agent agrees, in the ordinary
course of its business, to make presentment for payment of all
checks or other payment instruments delivered to it as
provided above in Paragraph I above. All funds delivered to or
received by the Escrow Agent as set forth above will be
received and held by it as escrow agent in a separate and
distinct escrow account entitled "Escrow Account for the
Benefit of Subscribers for the Shares of Smith River
Bankshares, Inc. (the "Escrow Account").
3. Release of Escrowed Funds.
(a) Subject to the other terms and conditions of this Agreement,
within two (2) business days following receipt by the Escrow
Agent of the written request of the Company's President, the
Escrow Agent shall deliver to the Company (i) the entire
amount of such Expense Deposits as shall have been deposited
to and remain on deposit in the Escrow Account (or such
lesser amount thereof as shall have been specified in the
written request), or (ii) the entire amount of payments for
the balance of the Purchase Price of Shares and Units as
shall have been deposited to and remain on deposit in the
Escrow Account (or such lesser amount thereof as shall have
been specified in the written request).
However, notwithstanding anything contained herein to the
contrary, no funds shall be released to the Company unless
(i) there has been delivered to the Escrow Agent a copy of
correspondence received from the Office of the Comptroller
of the Currency and the Federal Deposit Insurance
Corporation to the effect that the Bank's charter has been
preliminarily approved and deposit insurance application
has been approved and from the Federal Reserve and
Virginia Bureau of Financial Institutions approving the
Company's ownership of Bank; (ii) the written request for
such release of funds contains or is accompanied by the
written certification of the Company's President that
Subscription Offers have been received and accepted for at
least 537,500 Shares and 87,500 Units, (iii) the Escrow
Agent shall have independently determined that collected
funds have been deposited in the Escrow Account (including
Expense Deposits and payments of the balance of the
Purchase Price of Shares, but excluding any such funds
that have been refunded to subscribers) in an aggregate
amount of at least $6,250,000, and (iv) the Escrow Agent's
fees and charges imposed hereunder to the date of such
proposed release of funds have been paid or otherwise
provided for the Escrow Agent's satisfaction.
(b) If: (i) on the Expiration Date of the Offering (as such
date may be extended as provided in the Offering
Circular), there have not been delivered to the Escrow
Agent copies of Subscription Offers for at least
537,500 Shares and 87,500 Units and deposits to the
Escrow Account of collected funds representing the
aggregate Purchase Price therefor (an aggregate of
$6,250,000) or (ii) the Escrow Agent receives written
notice from the Company's President that the Offering
has otherwise been terminated or withdrawn with no
Shares and Units to be sold, or, (iii) the Escrow Agent
receives written notices from the Company's President
from time to time that certain specified Subscription
Offers will be rejected or accepted for a lesser number
of Shares than the number for which the Purchase Price
has been received, then the Escrow Agent shall promptly
thereafter return the escrowed funds (or the
appropriate portion thereof related to such specified
Subscription Offers) without any deduction for
expenses, charges or fees, to the Subscribers entitled
thereto. Such payments to Subscribers shall be made by
Escrow Agent's check mailed to the Subscribers at their
addresses listed in the Subscription Offers. The
Company's President agrees to give the Escrow Agent
notice of any extension of the Expiration Date prior to
such date.
<PAGE>
4. Investment of Escrowed Funds. Escrowed funds shall be invested
by the Escrow Agent in a First Citizens Bank Trust Department
utilized Money Market Fund that is fully insured by the
Federal Deposit Insurance Corporation or fully collateralized
by the U. S. Government, state or local government securities.
5. Interest on Escrowed Funds. At such time as the Escrow Account
shall be closed and Escrow Agent shall deliver all escrowed
funds remaining in the Escrow Account to the Company, or shall
return all such funds to Subscribers, as provided in Paragraph
3 above, it also shall deliver or make available to the
Company any and all interest or income earned to date on such
funds. All interest or other income earned or paid on funds in
the Escrow Account shall belong to the Company.
6. Fees and Charges. For its ordinary services rendered
hereunder, the Escrow Agent shall be entitled to receive fees
as described in Exhibit A to this Escrow Agreement and which
shall be the obligation of and paid to the Escrow Agent by the
Company.
7. Liability of Escrow Agent. In regard to the performance of the
Escrow Agent's duties hereunder, it is agreed that:
(a) the Escrow Agent shall have no duties, obligations, or
responsibilities hereunder other than those
specifically set forth herein;
(b) nothing herein contained shall be deemed to obligate
the Escrow Agent to pay or transfer any funds hereunder
unless the same has been first received by the Escrow
Agent pursuant to the provisions of this Agreement;
(c) the Escrow Agent shall not be responsible in any manner
for the validity or sufficiency of any Subscription
Offer or any signatures hereto, nor shall the Escrow
Agent be responsible in any manner for the subscribed
for Shares or Units or for the regularity of the
admission of any Subscribers as shareholders of the
Company.
(d) The Escrow Agent shall have no duty or obligation to
disburse any funds represented by any checks delivered
to its hereunder until such funds have been finally
collected;
(e) The Escrow Agent is not deemed a party to, nor is the
Escrow Agent bound by or under any duty or obligation
to inquire into the validity and sufficiency of, any
other agreement, document, circular, certificate, or
instrument which may be referred to herein; and,
(f) The Escrow Agent shall have no liability hereunder to
any person, including the Company or the Bank, for any
mistake of fact or error in judgment, or for any acts
or omissions of any kind unless caused by Escrow
Agent's misconduct, gross negligence or bad faith.
<PAGE>
8. Disputes, Indemnification. In the event of any disagreement
between the parties to this Agreement, or in the event any
other person or entity claims an interest in escrowed funds
held hereunder, and such disagreement or claim results in
conflicting demands or claims being made in connection with
this Agreement or any escrowed funds held hereunder, the
Escrow Agent shall be entitled, at its option, to refuse to
comply with the instructions, demands or claims of the parties
to this Agreement, or of any such parties, so long as such
disagreement or adverse demand or claim shall continue. In
such event, the Escrow Agent shall not be required to make
delivery or other disposition of escrowed funds held
hereunder. Anything herein to the contrary notwithstanding,
the Escrow Agent shall not be or become liable to the parties
to this Agreement, or to any of them, for failure of the
Escrow Agent to comply with the conflicting or adverse demands
or claims of the parties, or any of them, or of any other
person claiming an interest in escrowed funds held hereunder.
The Escrow Agent shall be entitled to continue to refrain and
refuse to deliver or otherwise dispose of the escrowed funds
held hereunder or any part thereof or to otherwise act
hereunder, as stated above, unless (i) the rights of the
parties and all other persons and entities claiming an
interest in escrowed funds held hereunder have been duly
adjudicated in a court having jurisdiction of the parties and
the escrowed funds held hereunder, or (ii) the parties to this
Agreement and such other persons and entities have reached an
agreement resolving their disagreements and conflicting claims
and demands and have notified the Escrow Agent in writing of
such agreement and have provided the Escrow Agent with
indemnity satisfactory to it against any liability, claims or
damages resulting from compliance by the Escrow Agent with
such agreement.
In addition to the foregoing, the Escrow Agent shall have the
right to tender any part of or all of the escrowed funds,
including interest earned, held hereunder into the registry or
custody of any court having jurisdiction. Upon such tender,
the parties hereto agree that the Escrow Agent shall be
discharged from all further duties under this Agreement,
provided, however, that the filing of any such legal
proceeding shall not deprive the Escrow Agent of its fees and
expense hereunder earned or incurred prior to such filing and
discharge of the Escrow Agent of its duties hereunder.
The Company hereby agrees to indemnify and hold the Escrow
Agent and its directors, employees, officers, agents,
successors and assigns harmless from and against any and all
losses, claims, damages, liabilities and expenses, including
without limitation, reasonable costs of investigation and
counsel fees and expenses which may be imposed on the Escrow
Agent or incurred by its in connection with its acceptance of
this appointment as Escrow Agent or the performance of its
duties hereunder. Such indemnity includes, without limitation,
all losses, damages, liabilities and expenses (including
counsel fees and expenses) incurred in connection with any
litigation (whether at trial or appellate levels) arising from
this Agreement or involving the subject matter hereof, unless
caused by or resulting from the Escrow Agent's misconduct,
negligence or bad faith or from other conduct of or actions by
the Escrow Agent for which it is not relieved from liability
under Paragraph 7 above. The indemnification provisions
contained in this Paragraph 8 are in addition to any other
rights any of the indemnified parties may have by law or
otherwise and shall survive termination of this Agreement or
the resignation or removal of the Escrow Agent.
9. Notices and Communications. All notices and communications
hereunder shall be in writing and shall be deemed duly given
if sent by U.S. mail, postage prepaid, or by hand delivery, to
the following parties:
the Escrow Agent: First Citizens Bank & Trust Company
Attention: Diane Bowden
Corporate Trust Department - DAC61
Post Office Box 29522
Raleigh, North Carolina 27626-0522
the Company: Smith River Bankshares, Inc.
730 E. Church Street, #12
P. O. Box 1224
Martinsville, Virginia 24114-1224
<PAGE>
10. Resignation. The Escrow Agent, or any successor hereafter
appointed, may at any time resign by giving thirty (30) days
notice in writing to the parties hereto, and the Escrow Agent
shall be discharged from any duties hereunder upon the
appointment of a successor Escrow Agent. In the event of any
such resignation, a successor Escrow Agent shall be appointed
in writing by the Company's President. Any such successor
Escrow Agent shall deliver to the parties hereto and to the
resigning Escrow Agent written instrument accepting such
appointment hereunder and thereupon. It shall be deemed to be
substituted as a party hereto and succeed to all the rights
and duties of the Escrow Agent hereunder and shall be entitled
to receive all funds and other property then held by the
predecessor Escrow Agent hereunder.
11. Termination. The Company's President may, at any time, and
upon thirty (30) days written notice, may remove the Escrow
Agent from its duties hereunder and appoint a successor Escrow
Agent in the manner provided above, in which event the Escrow
Agent, following such notice period, shall promptly account
and deliver to the successor Escrow Agent so appointed all
funds and obligations held by it and the Escrow Agent shall
thereafter be discharged from any further duties hereunder.
12. General.
(a) This Agreement shall be binding upon, inure to the
benefit of, and be enforceable by the parties and their
respective successors and assigns.
(b) This Agreement contains the entire agreement of the
parties with respect to the subject manner hereof and
may be amended only by an agreement in writing duly
signed by the parties hereto.
(c) This Agreement will be governed by and construed in
accordance with the laws of North Carolina.
(d) This Agreement will remain in full force and effect
until the Escrow Agent has disbursed the entire
escrowed funds in accordance with the terms hereof.
(e) This Agreement may be executed in duplicate, any one
copy of which shall be deemed to be an original.
If the foregoing correctly sets forth the understanding between the
Company and the Escrow Agent, please indicate the Company's and the Escrow
Agent's acceptance thereof in the space provided below for that purpose.
<PAGE>
ACCEPTED AND AGREED TO as of this ___ day of September, 1999.
FIRST CITIZENS BANK & TRUST COMPANY
(Escrow Agent)
By:___________________________________
Title:___________________________________
ACCEPTED AND AGREED TO as of this ___ day of September, 1999.
SMITH RIVER BANKSHARES INC.
(COMPANY)
By:___________________________________
C. R. McCullar
Title: President and CEO
<PAGE>
EXHIBIT A
The subscriber information be delivered to First Citizens in a diskette format
that can be readily accessed by First Citizens, the following fee will be in
effect:
The greater of $2,000 or $5.00 per Subscription Offer for which any funds are
deposited to the Escrow Account. Fees shall be payable at the time the Escrow
Account is closed and all remaining funds are released to the bank or returned
to the Subscribers.
<PAGE>
Amendment to Exhibit A
Expiration Date:
Extended Expiration Date:
Date of this Amendment: , 1999
Smith River Bankshares, Inc. First Citizens Bank & Trust Company
By:_________________________________ By:________________________________
C. R. McCullar
Title: President and CEO Title:_____________________________
Exhibit 21
Subsidiaries of the Registrant
Smith River Bank, N.A., in organization as a national bank - Proposed.
Exhibit No. 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 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
September 7, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS IN THE PROSPECTUS WHICH FORMS PART OF FORM SB-2 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 30,843
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 44,552
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 184,357
<LONG-TERM> 0
0
0
<COMMON> 12
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 44,552
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 1,626
<INTEREST-TOTAL> 1,626
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 141,443
<INCOME-PRETAX> (139,817)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (139,817)
<EPS-BASIC> (11,651)
<EPS-DILUTED> (11,651)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
