Registration No. 33-86993
As filed with the Securities and Exchange Commission on October 22, 1999.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form SB-2/A
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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SMITH RIVER BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
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VIRGINIA 6711 54-1956616
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
Suite 12 Suite 12
Patrick Henry Mall Patrick Henry Mall
730 East Church Street 730 East Church Street
Martinsville, Virginia 24112 Martinsville, Virginia 24112
(540) 632-8092 (540) 632-8092
(Address, including zip code, and (Address of principal place of business or
telephone number, including area intended principal place of business)
code, of principal executive offices)
Copies to:
Cecil R. McCullar Douglas W. Densmore and Hugh B. Wellons
Chief Executive Officer Flippin, Densmore, Morse, Rutherford & Jessee
Suite 12 10 South Jefferson Street, Suite 1800
730 East Church Street Roanoke, Virginia 24011
Martinsville, Virginia 24112 (540) 510-3000
(540) 632-8092
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(Name, address, including zip code
and telephone number, including
area code, of agent for service)
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Approximate date of commencement of proposed sale to
the public: From time to time after the effective date of
this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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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. [ ]
CALCULATION OF REGISTRATION FEE
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Title of each class Proposed Proposed maximum Amount of
of securities to be Amount to be maximum offering aggregate offering Registration
registered registered(1) price per unit price(2) 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)
Units (3) 87,500 units(3) N/A(3) N/A(3) N/A(3)
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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.
(3) The Units are added merely to insure that they are included in the
registration. The filing fee will not change as a result of the Units
being included, because the Units have no inherent value of their own.
The filing fee was paid with the original filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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INITIAL PUBLIC OFFERING
PROSPECTUS
SMITH RIVER BANKSHARES, INC. IS OFFERING:
TO THE PUBLIC: TO ORGANIZERS/DIRECTORS:
A minimum of 537,500 and a maximum of 87,500 units at $10.00 per unit.
912,500 shares of common stock of Smith Each unit consists of:
River Bankshares, Inc., at $10.00 per 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 shares of Smith River
Community Bank, N.A., a proposed national
bank in Martinsville, Virginia. We have
received conditional approval for a
national bank charter, but the bank does
not yet have a charter.
The organizers/directors may terminate this
offering at any time after selling all
87,500 units and 537,500 shares, and the
offering must terminate after all the units
and 912,500 shares are sold. If we have not
sold all the units and 537,500 shares by
June 30, 2000, the offering will terminate,
although we reserve the right to extend the
offering to December 31, 2000.
This is our initial public offering, and no
public market currently exists for our
shares. The offering price may not reflect
the market price of our shares after the
offering. If the market price of our shares
goes below $5 and the shares are not then
listed on an exchange or authorized for
quotation on NASDAQ, brokers selling shares
will be required to give buyers additional
information. This requirement may make it
more difficult for you to sell shares. We
have no present plans to list our shares on
any national or regional trading exchange.
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The Offering
Per Share Total (Minimum) Total (Maximum)
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Public Price $ 10.00 $ 5,375,000 $ 9,125,000
Plus: Proceeds from units 875,000 875,000
Total proceeds to Bankshares before
organizational and offering expenses $ 10.00 $ 6,250,000 $ 10,000,000
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We expect that the shares will be sold directly by the organizers/directors
without the assistance of an underwriter or placement agent, and no commissions
will be paid for any shares or units sold. However, we reserve the right to
enlist the help of an underwriter or placement agent if necessary to place the
stock. If we do this, total proceeds to us could be reduced by approximately 8%.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY
IF YOU CAN AFFORD A COMPLETE LOSS. See "Risk Factors" beginning on page 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is
_____________, 1999
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in
this prospectus. To understand this offering fully, you should read the entire
prospectus carefully, including the risk factors and financial statements.
SMITH RIVER BANKSHARES AND SMITH RIVER BANK
OFFICES
Smith River Bankshares, Inc., Suite 12, Patrick Henry Mall, 730 East Church
Street, Martinsville, Virginia 24112.
OUR BUSINESS
We are a newly formed bank holding company. Our business will be to own the
shares of a new national bank we have applied to form in Martinsville, Virginia,
which will be called Smith River Community Bank, N.A. The Bank will operate as a
typical community bank, offering general commercial banking services to medium
and small businesses and consumers in Henry County and the City of Martinsville,
Virginia.
OUR HISTORY AND IMMEDIATE FUTURE PLANS
Smith River Bankshares was incorporated in Virginia early this year. We have
already filed our application for a charter with the Office of the Comptroller
of the Currency and an application with the FDIC for insurance of deposits. We
have received preliminary charter approval from the Comptroller of the Currency
and preliminary approval from the FDIC. Once the charter is granted and
insurance is issued, which will be after we sell at least the minimum amount of
stock in this offering, we will apply to the Federal Reserve System for
authority to become a bank holding company, and Smith River Bank will apply to
the Federal Reserve for membership.
We hope to secure all regulatory approvals by February 2000. Soon after that, if
all of the units and at least the minimum number of shares are sold, the bank
will open. We intend to open Smith River Bank as soon as we have the regulatory
approvals and sell enough stock to appropriately capitalize the bank. When it
opens, Smith River Bank will occupy a leased facility located at East Church
Street and Booker Road in Martinsville as its banking facility and headquarters.
The holding company headquarters will remain nearby at Suite 12, Patrick Henry
Mall, 730 East Church Street, Martinsville, Virginia. The banking facility at
East Church Street and Booker Road was a branch of another bank which closed at
the end of April, 1999. We also expect to apply for permission to establish a
branch of Smith River Bank within six months after we open our main office. This
branch, if approved, will be located at 380 Riverside Drive in Bassett,
Virginia, a former bank branch, which we have under lease.
THE ORGANIZERS/DIRECTORS AND MANAGEMENT
Smith River Bankshares was organized by a group of businesspersons residing and
doing business in the City of Martinsville and Henry County, Virginia. Twelve of
the organizers have agreed to serve as directors of Smith River Bankshares and
Smith River Bank. These organizers/directors have also advanced funds for
organizational and offering expenses.They will not be compensated for their
services until the bank becomes profitable. For the names of and biographical
information about the organizers/directors, see "Management--Directors and
Executive Officers."
BENEFITS TO MANAGEMENT AND ORGANIZERS
The organizers/directors are receiving "units" instead of stock for their
investment. Each unit contains one share of stock and one warrant to purchase a
share of stock for $10.00. If the offering is unsuccessful, the
organizers/directors may lose all or part of their investment, which we
estimate will total approximately $465,000. It is in recognition of these
financial risks and their willingness to serve as directors without pay until
Smith River Bank is profitable that the organizers/ directors can purchase the
units. The warrants that are part of the units will vest over three years
beginning with the date Smith River Bank opens for business.See "Certain
Transactions," page 26.
One of the organizers/directors, Cecil R. (Andy) McCullar, has 35 years banking
experience and will serve as the President and Chief Executive Officer of Smith
River Bankshares and Smith River Bank. As part of his incentive compensation, on
the date Smith River Bank opens for business, Mr. McCullar will be granted
options to purchase 30,000 shares at their fair market value on the date of the
grant, 10,000 of which may be exercised after each of the first three
anniversaries of the bank's opening. These options will survive for 10 years
after they become exercisable. See "Management--Remuneration of Directors and
Officers." Please see "Management - Options" on page 25.
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HIGHLIGHTS OF THE OFFERING
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SECURITIES OFFERED...............................912,500 shares of common stock to the public and
87,500 units, consisting of one share of common stock and one
warrant to purchase a share of common stock, to the organizers/
directors only.
SHARES OUTSTANDING AT AUGUST 31, 1999............12 shares owned by the organizers/directors. These shares will
be repurchased by Smith River Bankshares if the offering is
successful.
SHARES TO BE OUTSTANDING AFTER
THE OFFERING.....................................625,000, if all the units and the 537,500 shares minimum
offering are sold, or
1,000,000, if all the units and the 912,500 shares maximum
offering are sold.
TOTAL PUBLIC PRICE...............................$6,250,000, if all the units and the 537,500 shares minimum
offering are sold, or
$10,000,000, if all the units and the 912,500 shares maximum
offering are sold.
ESTIMATED OFFERING EXPENSES......................$100,000
NET PROCEEDS.....................................$6,150,000, if the units and the minimum offering are sold, or
$9,900,000, if the units and the maximum offering are sold.
PLAN OF DISTRIBUTION.............................The organizers/directors of Smith River Bankshares intend to
sell the shares without the assistance of an underwriter or
placement agent.
INTENTION BY THE ORGANIZERS/DIRECTORS
TO BUY SHARES....................................The organizers/directors intend to buy a total of 87,500 shares
by way of buying the units.
TERMS OF THE OFFERING............................You will subscribe for the shares and the organizers/directors
will subscribe for the units by sending the purchase price to an
escrow agent retained by us. The offering will terminate and
all subscription funds will be returned by the escrow agent to
the subscribers without interest if we have not sold all the
units and the minimum of 537,500 shares by June 30, 2000. We
may, however, extend this deadline, but not beyond December 31,
2000. The minimum investment by one subscriber is 100 shares
and maximum investment is 4.99% of the total shares outstanding
after the offering, except that the minimum and maximum limits
may be waived for any investor(s) by Smith River 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 the
organizers/directors, expected to be about $100,000;
o To repay the organizational expenses incurred by
organizers/directors, expected to be about $48,000;
o To repurchase, at the redemption price of $1.00 per
share, the 12 shares owned by the organizers/directors;
o $6,000,000 to capitalize the bank; and approximately $102,000
to establish the working capital of Smith River Bankshares.
o The Bank will also repay from its capital organizational
and pre-opening expenses incurred by Smith River Bankshares or the
organizers/directors on its behalf, expected to be about $300,000.
If the ultimate proceeds of the offering are greater
than $6,250,000, we will add 50% of the net excess
over $6,250,000 (after deducting expenses) to the
capital of the bank and the remaining 50% to the
working capital of Smith River Bankshares.
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RISK FACTORS
Investing in Smith River Bankshares stock is very risky. You should
invest only if you determine that you can bear a complete loss of your
investment. In your determination, you should consider carefully the following
factors:
YOU MAY BE OVERPAYING FOR We fixed the offering price at $10.00 per share on
THE SHARES BECAUSE THE the basis of the start-up capital needs of Smith
OFFERING PRICE CANNOT BE River Bank and offering prices of other
SUPPORTED BY VALUE OF newly-organized bank holding companies. This price
ASSETS OR EARNINGS. bears no relationship to assets, book value,
earnings or other established criteria of value. As
a result, you may be overpaying for the shares.
WE WILL BE A NEW BANKING Smith River Bankshares, the issuer of your shares,
BUSINESS IN A COMPETITIVE is a new business whose success will depend on
ENVIRONMENT; LOSSES ARE Smith River Bank's operations. Smith River Bank
LIKELY TO OCCUR FOR AT also is a new business that will be successful only
LEAST THE FIRST FULL YEAR if the income earned on loans and investment
OF OPERATIONS AND PROBABLY securities and from fees is greater than the
FOR THREE YEARS. interest paid on deposits and other sources of
funds and general operating expenses. We do not
expect to be profitable on a current basis for an
entire year until at least the third full year of
operations, if at all.
In order to create and maintain income greater than
interest paid and other expenses, commonly called
"spread," Smith River Bank will have to contend
with many factors, which are outlined below.
WE COULD BE AT A As a new bank in an established market, Smith River
DISADVANTAGE WHEN Bank will be competing for deposits with many older
COMPETING FOR DEPOSITS AND financial institutions. These institutions may have
LOANS WITH LARGER competitive advantages over Smith River Bank
INSTITUTIONS THAT HAVE because they have greater capitalization and other
LARGER LENDING LIMITS AND resources. They also can offer potential depositors
ESTABLISHED CUSTOMER more convenient depositary facilities and borrowers
CONTACTS. higher lending limits and certain other customer
services which Smith River Bank may not be able to
offer. Smith River Bank may have to pay more to
attract deposits. This would hurt our earnings.
Even so, we can offer you no assurance that Smith
River Bank will be successful in attracting the
deposits it will need to sustain its growth.
IN MAKING LOANS, WE MAY As a new bank, Smith River Bank will be competing
BE DEALING WITH for loan business with older and larger financial
UNFAMILIAR, SMALLER institutions. Unlike these institutions, Smith
BORROWERS, AND THIS LACK OF River Bank OF will be creating lending
RELATIONSHIP AND THE relationships with customers seeking to establish
SIZE OF THE BORROWERS new banking relationships and without a previous
COULD CAUSE EXCESSIVE LOAN history with Smith River Bank. Moreover, small to
LOSSES. medium businesses and consumers will, by and large,
have less capacity than large businesses or wealthy
individuals to repay loans in the event of an
economic downturn or other adversity. For all these
reasons, it will be several years before the
quality of Smith River Bank's loan portfolio can be
fully evaluated, and we can offer you no assurance
that Smith River Bank will not incur excessive loan
losses.
AS A FINANCIAL INSTITUTION The spread earned by Smith River Bank will be
WE COULD BE AFFECTED affected not only by trends in the economy of its
ADVERSELY BY GLOBAL primary source area, the City of Martinsville and
ECONOMIC TRENDS AND Henry County, but also national and international
POLICIES. trends and fluctuations. For example, factors like
interest rates and money supply policies of the
Federal Reserve, inflation, recession,
unemployment, natural resource prices,
international conflicts and other factors beyond
Smith River Bank's control may adversely affect
that spread.
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WE MAY NOT BE ABLE TO Success in a commercial banking business is
ATTRACT GOOD EMPLOYEES particularly dependent on employing experienced and
BECAUSE WE WILL BE service-oriented personnel at all levels. We intend
COMPETING FOR PERSONNEL and are already making efforts to hire experienced
WITH LARGER FINANCIAL lending and operations officers, but have no
INSTITUTIONS. assurance that we can staff Smith River Bank with
appropriate personnel when Smith River Bank opens
for business. We do have an employment agreement
with Andy McCullar, a very experienced banker, who
is one of the organizers/directors and our
President and Chief Executive Officer.
WE COULD BE AFFECTED BY Because of the Glass-Steagal Act, the commercial
UNEXPECTED COMPETITION IF banking business has enjoyed legal barriers to
THE LAW CHANGES AND entry by non-banking enterprises. It is possible
CONGRESS REMOVES SOME that the United States Congress will enact laws
BARRIERS TO NONBANKS that reform the financial services industry in the
PROVIDING BANK SERVICES. near future. If this happens, Smith River Bank may
face even greater competition in its primary
service area from large, well-capitalized
enterprises. At the same time, as entities which
are tightly regulated and without a substantially
large capital base, Smith River Bank and Smith
River Bankshares probably will not diversify into a
non-banking business in the near future.
WE WILL NOT BE ABLE TO Banking is part of the technology revolution.
COMPETE FOR SOME TIME WITH Larger and more established banks have a head start
MORE ESTABLISHED FINANCIAL in preparing for new forms of bank services offered
INSTITUTIONS OFFERING through the internet and other nontraditional
TECHNOLOGICALLY ADVANCED media. They also have greater resources to devote
BANKING to this effort. It may be some time before Smith
River Bank can compete effectively for this type of
business, if at all.
COMMUNITY BANKING IS OUR Smith River Bank will be a so-called "community"
BUSINESS MODEL, AND WE MAY bank. In other words, we will exploit personal
NOT BE SUCCESSFUL IN contacts by our directors, officers and our
ATTRACTING CUSTOMERS AS A shareholders, as well as appropriately focused
"COMMUNITY" BANK. advertising and promotional activities, to appeal
to businesses and individuals in search of
personalized services likely to be offered by an
independent, locally-owned and headquartered
commercial bank. Our overall identity as a
community financial institution is our main selling
point to our community. However, ultimately we may
not be successful in establishing Smith River Bank
as the local community bank, and even if we do
establish the bank, changes in how people bank, due
primarily to technology, may make community banking
less attractive than it has been in the past.
NO UNDERWRITER WILL The shares we are offering will be sold directly by
NEGOTIATE THE OFFERING Smith River Bankshares' Board of Directors without
PRICE WITH US OR CHECK ON help from an underwriter or placement agent, at
THE STATEMENTS WE MAKE. least initially. This may reduce our chances of
THIS CAN ALLOW AN INFLATED meeting the minimum offering level, and it may mean
PRICE AND MAY REDUCE THE that we sell fewer shares than we could have done
SHARES SOLD. with an underwriter. Underwriters also usually
negotiate the share offering price with the issuer
and check on the accuracy of the issuer's
statements to investors. You will not have these
safeguards here. The Board does reserve the right
to engage a broker to help sell stock at a later
date, but if it does, that could reduce net
proceeds by about 8%, due to commissions, and will
be because the directors failed to sell a
sufficient amount of stock on their own. Even if we
hire a broker later, we may not sell the minimum
shares required.
YOU MAY HAVE DIFFICULTY IN Your shares will be freely transferable. However,
SELLING YOUR SHARES we are a new company without a public market for
its shares, and we do not expect an active trading
market for the shares to be developed for at least
one year after
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BECAUSE OF THE ABSENCE OF the offering. As a result, if you decide to sell
PUBLIC MARKET OR BECAUSE your shares you may be required to locate a buyer
THE SHARES MAY BECOME on your own and may not be able to do so.
"PENNY STOCK."
Also, even if a public market develops, if the
trading price falls below $5 per share and the
shares are then not listed on an exchange or
authorized for quotation on NASDAQ, your shares
will be "penny stock." Any broker you ask to sell
your shares will have to give the buyer additional
information and may be unwilling to help you make
the sale. As a result, you may be required to
locate a buyer on your own and may not be able to
do so.
WE ARE DEPENDENT ON KEY The success of Smith River Bank depends on our
EMPLOYEES, INCLUDING MR. ability to attract and keep quality employees. We
MCCULLAR, AND LOSING HIM are particularly dependent in the early years on
COULD MAKE IT DIFFICULT TO the leadership of Andy McCullar, who is described
MANAGE A NEW BANK below under "Management". We intend to obtain "key
SUCCESSFULLY, BECAUSE man" insurance for the benefit of Smith River Bank
QUALIFIED BANK PRESIDENTS for Mr. McCullar. As a new bank, Smith River Bank
ARE HARD TO FIND. will also depend on other employees we have not
hired yet. We cannot assure investors that we will
be successful in recruiting these employees by the
anticipated opening date or at all. Qualified
employees will command competitive salaries. If any
key employee does not perform as expected or
suddenly quits, Smith River's bank operations could
be adversely affected, possibly to the point of
causing the bank to fail. However, we believe that
recent merger activity in local markets and
elsewhere in our region provides opportunities to
find experienced banking personnel.
IF SMITH RIVER BANK FAILS There is a risk that Smith River Bank will not open
TO OPEN SOON, IT WILL as soon as expected or will not open at all. We
INCUR ADDITIONAL COSTS, cannot open until we receive the required
WHICH WILL MAKE IT MORE regulatory approvals and sell the minimum number of
DIFFICULT TO RECOUP YOUR shares. If our opening is delayed past April 2000,
INVESTMENT. IF THE BANK we will incur unplanned expenses, which will make
FAILS TO OPEN, YOUR it more difficult for us to become profitable and
INVESTMENT WILL BE will reduce the value of our stock. This will make
RETURNED TO YOU WITHOUT it harder for you to recover your investment. If
INTEREST. Smith River Bank does not open at all, either due
to regulatory problems or a failure to sell
sufficient shares of common stock, your investment
will be returned to you without interest. You will
have lost the possible value of investing in
another venture that might have earned you a
profit.
OUR SMALL MARKET AREA Our primary market area is the City of
PLACES US AT GREATER RISK Martinsville, Virginia and Henry County, Virginia.
OF A REGIONAL ECONOMIC This market consists of approximately 393 square
PROBLEM, SUCH AS A FLOOD miles and 72,000 people. Practically, our initial
OR THE CLOSING OF A LARGE offices will serve only a portion of this market.
LOCAL EMPLOYER, HAVING A Accordingly, a regional disaster, like a flood or a
LARGE EFFECT ON OUR tornado, or a regional economic problem like the
PERFORMANCE. closure of a large local employer could hurt our
performance. The City of Martinsville and Henry
County have a diverse economic base, but some large
employers in our area, such as Tultex, Incorporated
and local furniture manufacturers, have a lot of
employees and impact many local businesses. Smith
River Bank may not lend substantial amounts to any
of the largest companies in this region, but
closure of one of these large employers would hurt
many local businesses and could result in less
business, more defaults, and tougher competition
for financial services. This could make us less
profitable or even result in net losses.
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IT WILL BE DIFFICULT FOR Our Articles of Incorporation and Bylaws contain
ANYONE TO TAKE OVER SMITH certain anti-takeover provisions. These provisions
RIVER BANKSHARES, EVEN IF may discourage non-negotiated takeover attempts
A TAKEOVER WOULD RESULT IN which you might consider to be in your best
MOST SHAREHOLDERS EARNING interest. In addition, the warrants and stock
A PROFIT ON THEIR SHARES. options, because they make the company potentially
more expensive for an acquirer, could discourage a
takeover attempt. Both the anti-takeover provisions
and the warrants and options tend to perpetuate
existing management. See, "Description of
Securities - Defensive Anti-takeover Provisions" on
page 31.
SMITH RIVER BANKSHARES' Your interests as an investor in Smith River
MANAGEMENT MAY HAVE Bankshares may be different from management,
INTERESTS THAT MAY BE because management may want to continue to control
DIFFERENT FROM YOURS, AND the company, even if it means foregoing an
MANAGEMENT CONTROLS SMITH attractive offer you might prefer. Yet, management
RIVER BANKSHARES. will exercise significant control over the
selection of the Board of Directors and company
policies. They will be able to exercise control
because after the offering, the officers and
directors will own between 8.75% and 14% of the
total shares outstanding, depending on the number
of shares sold in the offering, and the
organizers/directors could, through the exercise of
their warrants, acquire an additional 87,500
shares, which would give them 16.1% to 24.6% of
shares outstanding.
YOUR INVESTMENT MAY BE Smith River Bankshares does not have preemptive
DILUTED BECAUSE OF THE rights. This means that you may not be entitled to
WARRANTS AND STOCK OPTIONS buy additional shares if shares are offered to
AND THE ABILITY OF others. Nothing restricts management's ability to
MANAGEMENT TO OFFER STOCK offer additional shares of stock for fair value to
TO OTHERS. others in the future. As a result, when the
organizers/directors exercise their warrants and
key employees exercise their stock options, your
ownership interest in Smith River Bankshares will
be diluted. All of this could result in your share
ownership being diluted. See "The Offering and
Distribution - Dilution" on page 10 and "Certain
Transactions - Warrants and Stock Options" on pages
26 and 27.
WE DO NOT PLAN TO PAY Smith River Bankshares can only pay dividends if it
DIVIDENDS IN THE NEAR receives dividends from Smith River Bank, and there
FUTURE AND IN ANY EVENT will be regulatory restrictions on the amount of
FOR AT LEAST 4 YEARS. dividends Smith River Bank can pay. See, "Dividend
Policy", page 12. Also, we intend to preserve
capital to facilitate growth and expansion. As a
result, you should not expect to receive dividends
in the immediate future and in any event for at
least four years.
THE Y2K COMPUTER GLITCH The "Year 2000" or "Y2K" problem arose because many
COULD INTERRUPT OUR existing computer systems use only the last two
BUSINESS OR CREATE OTHER digits to refer to a year. These computer's
SERIOUS PROBLEMS AT A programs do not recognize a year that begins with
CRITICAL EARLY STAGE OF "20" instead of "19." Those systems may read the
OUR FORMATION year 2000 as "1900" or not recognize it at all. If
not corrected, any computer applications and other
technology-based systems could fail or create
erroneous results. The effects of this problem will
vary from system to system, and the extent to the
potential impact of this problem is not yet known.
The Y2K problem may affect adversely a bank's
operations and its ability to prepare financial
statements. We could experience interruptions in
Smith River Bank's business and significant losses
if we, or a supplier or vendor or loan customer
with whom we contract, are unable to achieve Y2K
readiness before January 1, 2000. See "Business -
Year 2000 Readiness" on page 18.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss future
expectations or state other "forward-looking" information. Those statements
could be affected by known and unknown risks,
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uncertainties and other factors that could cause the actual results to differ
materially from those contemplated by the statements. The forward-looking
information is based on various factors and was derived using numerous
assumptions.
Important factors that may cause actual results to differ from
projections include, for example,
o the success or failure of our efforts to implement Smith River
Bank's business plan;
o the effect of changing economic conditions, particularly changes in
interest rates;
o changes in governmental regulations, tax rates and similar matters;
o our ability to attract and retain quality employees; and other
risks which may be described in our future filings with the SEC.
We do not promise to update forward-looking information to reflect
actual results or changes in assumptions or other factors that could affect
those statements. However, we are obligated under federal and state securities
laws to update forward-looking information in future filings to ensure that they
are not misleading regarding any material changes in our situation.
THE OFFERING AND DISTRIBUTION
TERMS OF THE OFFERING
The expiration date of the offering is June 30, 2000. We may extend the
expiration date for up to two 90-day periods, without notice to subscribers, but
not beyond December 31, 2000.
The offering will terminate if by the expiration date at least 537,500
shares, representing the minimum offering, have not been subscribed for. We
reserve the right to terminate the offering before the expiration date even if
the maximum offering of 912,500 shares has not been subscribed for as long as
all the units and the 537,500 minimum number of shares are subscribed for.
All subscription proceeds will be deposited in an escrow account with
First Citizens Bank & Trust Company, who will act as escrow agent.
Smith River Bankshares and Smith River Bank require regulatory
approvals from the Federal Reserve, the Office of the Comptroller of the
Currency and the FDIC before Smith River Bank may commence banking operations.
In addition, Smith River Bankshares must have regulatory approvals from the
Federal Reserve and the Virginia Bureau of Financial Institutions to invest in
the stock of Smith River Bank. These regulatory approvals generally are
conditioned upon satisfaction of certain post-approval conditions, the most
relevant of which is that Smith River Bank's main banking facility be leased and
opened for business within 18 months after its charter is preliminarily approved
and that deposit insurance is effected by September 2000. Because final approval
of Smith River Bank's charter is conditioned on raising funds to capitalize
Smith River Bank at $6,000,000, and to pay organizational and preopening
expenses, Smith River Bankshares expects to issue shares in this offering before
it has obtained all regulatory approvals for Smith River Bank to begin the
business. If Smith River Bankshares issues the shares subscribed for in this
offering and final regulatory approval for banking operations is not obtained
within 18 months after preliminary approval from the OCC, or if Smith River Bank
does not open by that date for any reason, Smith River Bankshares intends to ask
shareholders to approve its liquidation. In this event, shareholders would
receive their share of the funds that are left over, if any, after the payment
of organizational and other preopening expenses and amounts owed creditors. In
this event, a shareholder could lose the entire amount of his investment,
depending on the expenses, costs and debt of Smith River Bankshares and Smith
River Bank.
The organizers/directors intend to subscribe for at least 87,500 units.
Each unit includes one share and the one warrant. The organizers/directors may,
but are not obligated to, purchase additional shares if necessary to complete
the minimum offering. No warrants will accompany these additional shares. No
subscriber will be permitted to purchase in the offering an amount of shares
which would
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exceed 4.99% of the total number of shares outstanding upon completion of the
offering, unless this limitation is waived by Smith River Bankshares. We may
waive the 4.99% maximum subscription only if necessary to sell the minimum
offering amount in order to open the bank.
Interest earned on all subscription proceeds will be kept by us whether
or not subscriptions are accepted or rejected or the minimum offering is
completed.
PLAN OF DISTRIBUTION
This offering is not underwritten. We have not employed any brokers or
sales agents for this offering. We intend that the shares be sold only by the
organizers/directors and authorized representatives of Smith River Bankshares.
They will not receive any commissions or other compensations for these sales.
They will be reimbursed for their reasonable expenses. The fact that this is not
an underwritten offering may reduce our chances of selling the minimum number of
shares required or it may mean that we will not sell as many shares as we could
have sold above the minimum if we had involved an underwriter or broker.
If the directors fail to sell a sufficient number of shares, we reserve
the right to hire a broker at that time to sell the stock. That broker will
charge a commission for any sales made, and may charge other fees as well,
possibly reducing net proceeds by as much as 8%. Even if we hire a broker later,
there is no assurance we will sell enough stock to open.
As stated below, all subscribers' checks must be made payable to the
escrow agent. Consistent with Rule 15c2-4 of the Securities Exchange Act, these
checks will be transmitted to the escrow agent no later than close of the next
business day.
METHOD OF SUBSCRIPTION
The minimum subscription is 100 shares or $1,000, but we reserve the
right to accept subscriptions for less than the minimum subscription. We may
waive the minimum investment requirement to accommodate small investors located
in our market area, in hopes that they will become our customers.
In order to purchase shares, you must:
o Complete and sign the subscription agreement accompanying this
prospectus;
o Make full payment for the purchase price for the shares in United
States currency by check, bank draft or money order payable to
"Smith River Bankshares, Inc. - Escrow Account"; and
o Deliver the subscription agreement, in person or by mail, together
with full payment for the purchase price, to Andy McCullar, Smith
River Bankshares, Inc., Suite 12, 730 East Church Street, P. O. Box
1224, Martinsville, VA 24114-1224
The escrow agent will invest subscription proceeds in one or more bank
money market funds that are insured by the FDIC or collaterialized by U.S.
government, state or local government securities until released from the escrow
account. The escrow agent, by accepting appointment, in no way endorses the
purchase of shares by any person.
The rights and obligations of Smith River Bankshares and the escrow
agent are contained in the Escrow Agreement dated September 8, 1999.
SUBSCRIPTION ACCEPTANCE
Subscriptions are not binding until accepted by us. Deposit of funds in
the escrow account until the satisfaction of the conditions listed above will
not be considered an acceptance of the subscription to which the funds relate.
We reserve the right to accept or reject subscriptions, in whole or in part, in
our
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sole discretion. This permits us to refuse to sell shares to any person
submitting a subscription agreement or to accept part but not all of a
subscription so that a subscriber might ultimately be issued fewer than the full
number of shares for which he or she subscribes. In determining which
subscriptions to accept, in whole or in part, we may take into account the order
in which subscriptions are received and a subscriber's potential to do business
with, or to refer customers to, Smith River Bank.
In the event we reject all or a part of your subscription, the escrow
agent will refund by mail all or the appropriate portion of the amount paid in
by you with the subscription, without interest, promptly after the rejection.
This offering will be terminated, no shares will be issued and no subscription
proceeds will be released from escrow to us unless all the units have been sold
and we have accepted subscriptions and received payment for at least 537,500
shares, we have received regulatory approvals from the Federal Reserve and the
Virginia Bureau of Financial Institutions to own Smith River Bank stock, and
Smith River Bank has received approval from the FDIC for insurance of its
deposits and preliminary charter approval from the OCC. Smith River Bank has
already received preliminary OCC charter approval. If the rest of these
conditions don't occur by December 31, 2000 at the latest or the offering is
terminated early for other reasons, all subscription proceeds will be returned
promptly by mail in full without interest. All costs and expenses of the
offering and of organizing Smith River Bankshares and Smith River Bank over and
above the interest earned on subscription proceeds will be borne by the
organizers/directors if all subscriptions are canceled.
We will issue and mail certificates representing the shares as soon as
practicable after subscription proceeds are released from the escrow account.
DETERMINATION OF OFFERING PRICE
The offering price is arbitrary in terms of value. The
organizers/directors chose a $10.00 per share offering price because that is
consistent with the price set for other de novo community banks in Virginia in
recent years. Also, this price accommodates the small investor, allowing someone
to invest in Smith River Bankshares with only $1,000. We hope this will
encourage City of Martinsville and Henry County residents who are interested in
community banking to invest in us.
DILUTION
Organizers/directors are paying $10.00 per share for the common stock,
the same price offered to you. Accordingly, there is technically no present
dilution in your investment in the common stock. The book value of Smith River
Bankshares, however, will be less than ten ($10.00) dollars per share, due to
organizational expenses involved in opening the bank. Please see "Use of
Proceeds" on page 10.
In addition to the stock purchased, however, the organizers/directors
also are receiving one warrant for each share of stock, at no additional cost to
them. Accordingly, we expect that 87,500 warrants will be issued. Each warrant
will allow the holder to purchase additional shares of stock at ten dollars
($10.00) per share. Similarly, the Board has already agreed to and intends to
issue to Mr. McCullar on the date Smith River Bank opens options to purchase
30,000 shares of common stock at the fair market value of the stock on the date
of grant. One third (10,000) of the options will become exercisable on each of
the first three anniversaries of Smith River Bank's opening. Any holder of these
warrants can trade them for the same number of shares of common stock at a price
per share of $10.00. Mr. McCullar's options may be traded for the same number of
shares of common stock at a price per share equal to the fair market value of
shares of stock when Smith River Bank opens. If the market value of our stock
exceeds these values in the future when the warrants and options are
exercisable, the holders of the warrants and options can obtain additional
shares at less than fair market value at the time of exercise. Depending on the
number exercised, this could influence the market to reduce the trading price of
our stock. See "Certain Transactions-Warrants and Stock Options" at pages 26 and
27.
USE OF PROCEEDS
We have been funding organizational expenses and offering expenses from
the $355,000 capital contribution made by the organizers/directors to date. We
expect total organizational and offering
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expenses to be about $465,000. We will continue to incur organizational and
offering expenses through the date of the completion of the offering and release
of subscription proceeds from the escrow account. The organizers/directors have
committed to make additional periodic contributions to cover the additional
expenses.
The following presentation of use of proceeds of the offering assumes
that all the regulatory approvals are received by us and the offering proceeds
are released from the escrow account and Smith River Bank is fully capitalized
by the end of January, 2000.
<TABLE>
<CAPTION>
Minimum Maximum
Offering Offering
<S> <C> <C> <C>
Offering Proceeds(1)........................................$6,250,000(1) $10,000,000(2)
========== ===========
Anticipated use of proceeds by Smith River Bankshares:
Offering expenses(3).......................................100,000 100,000
Organizational expenses(4)..................................48,000 48,000
Working capital............................................102,000 1,977,000
Capitalization of Smith River Bank
through purchase of common stock of
Smith River Bank....................................... 6,000,000 7,875,000
----------- -----------
Total ....................................................$6,250,000 $10,000,000
========== ===========
Anticipated use of capital by Smith River Bank:
Organizational and pre-opening expenses...............$ 300,000 $ 300,000
Furniture, fixtures and equipment..........................630,000 630,000
Working capital..........................................5,070,000 6,945,000
--------- --------
Total ....................................................$6,000,000 $7,875,000
========= ==========
</TABLE>
- --------------------------------------------------------------------------------
(1) Assuming the sale of 87,500 units and 537,500 shares at a price of $10.00
per unit and share.
(2) Assuming the sale of 87,500 units and 912,500 shares, at a price of $10.00
per unit and share.
(3) Offering expenses consist of various filing fees, printing expenses, escrow
agent fees, and accounting and legal fees and expenses. Through September 30,
1999 approximately $63,000 of offering expenses had been paid or incurred.
(4) These expenses consist of certain consulting and legal fees and regulatory
application fees.
By way of explanation, all subscription proceeds will be released and
become capital of Smith River Bankshares. These funds will be used by Smith
River Bankshares to pay its offering expenses of approximately $100,000 and its
organizational expenses of approximately $48,000. The balance of the funds will
be used by Smith River Bankshares for two purposes: between approximately
$102,000 (minimum offering) and $1,977,000 (maximum offering) will be retained
as working capital and between $6,000,000 (minimum offering) and $7,875,000
(maximum offering) will be used to purchase the stock of Smith River Bank. Smith
River Bank will use approximately $300,000 to reimburse Smith River Bankshares
for amounts it has paid on its own or to FCNB, LLC, a Virginia limited liability
company formed for this purpose, for the Bank's organizational costs and
pre-opening expenses and approximately $410,000 to reimburse Smith River
Bankshares for the cost of equipping the bank's main office and data processing
equipment and software. Smith River Bank's organizational expenses, estimated at
$76,000, include consulting and legal fees, marketing and traveling expenses.
Smith River Bank's pre-opening expenses estimated at $224,000, include salaries,
benefits, rent, utilities, telephone expenses and supplies. Smith River Bank
will use approximately $220,000 to furnish and equip the proposed Bassett,
Virginia branch, if it is approved. The balance of the Bank's proceeds,
estimated at $5,070,000 (minimum offering) and $6,945,000 (maximum offering)
will be used for general banking business as discussed below.
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We expect to use the working capital of Smith River Bank primarily to
fund loans and investments. Management is currently in the process of developing
formal policies covering our investment and lending activities. Based on the
current investment policy, we intend to invest primarily in the following types
of investments: bankers acceptances; bank certificates of deposit; federal
funds; US Treasury bills, notes, and bonds; securities issued by Federal
agencies; mortgage backed securities/mortgage pass through certificates; and
municipal bonds issued by states and local municipalities. The policy
establishes diversification guidelines to avoid undue concentrations. It also
prohibits certain practices considered to carry an unacceptable degree of risk,
such as short-term gains trading, short sales, and options trading. Thus we do
not currently intend to carry investments that would be considered "trading
securities" under the financial accounting standards governing the accounting
for investment securities. We do not intend to seek higher yields by carrying
securities with a relatively high degree of risk, such as those with low credit
ratings. We intend to make consumer loans (such as vehicle loans and home equity
loans/lines of credit), real estate loans (residential and commercial mortgages,
construction and development loans, etc.) and commercial loans (term loans,
letters of credit, and line of credit loans, for example). Over the long term,
we expect most of our loans will be commercial and consumer loans, which can
carry a higher degree of risk than real estate loans.
We intend to use the working capital of Smith River Bankshares as
estimated in the table above primarily as a source to add to the working capital
of Smith River Bank whenever an addition may be necessary. We will also use it
to pay professional fees, licensing fees, office expenses and, if we receive the
maximum offering, for possible future acquisitions, although we do not
anticipate any at this time.
DIVIDEND POLICY
In order to preserve capital to facilitate growth and expansion, we do
not anticipate paying cash dividends on the shares in the immediate future. The
Board of Directors will make a determination whether to pay cash dividends on
the basis of operating results, financial condition, tax considerations, and
other relevant factors. Also, at present, the only source of funds from which we
could pay cash dividends would be dividends paid to Smith River Bankshares by
Smith River Bank. Smith River Bank similarly does not anticipate paying cash
dividends to Smith River Bankshares in the near future in order to preserve its
capital to facilitate growth and expansion of its business. Payment of cash
dividends by Smith River Bank is also limited by regulatory requirements and
limitations. See, "Supervision and Regulation" on page 19.
In summary, we can give no assurances that any dividends will be
declared by Smith River Bankshares or, if declared, what the amount of the
dividends will be or whether the dividends, once declared, would continue.
BUSINESS
MARKET FOR COMMON STOCK
As a newly organized company, we have never issued capital stock,
except for the minimum required to organize Smith River Bankshares. Accordingly,
there is no established market for our stock. Following the completion of the
offering, we do not anticipate that our common stock will be traded actively for
some time. At some point in the future, we will investigate trading
over-the-counter or on an established exchange. We expect that any such trading
on a public exchange will be at least three years in the future and may never
occur.
The development of an active trading market, whether or not a stock is
reported on an exchange, depends on the existence of willing buyers and sellers.
Due to the small size of this offering, it is unlikely that an active trading
market will develop in the near future. Only investors who have a long term
interest should take part in this offering, because investors may not be able to
sell their shares when they desire or at a price equal to or above the price
offered.
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SMITH RIVER BANKSHARES
Smith River Bankshares was incorporated in the Commonwealth of Virginia
on January 14, 1999 under the name of First Community National BanCorp., Inc. On
July 8, 1999, Restated Articles of Incorporation became effective changing the
company name to Smith River Bankshares, Inc. We anticipate filing an application
with the Federal Reserve for authority to become a bank holding company on or
about November 1, 1999.
Our offices are currently located in the Patrick Henry Mall at Suite
12, 730 East Church Street, Martinsville, Virginia, with our telephone number
being (540) 632-8092. Smith River Bankshares' permanent offices will continue to
be at the same location. When it opens, Smith River Bank's main banking facility
will be located nearby at East Church Street and Booker Road in Martinsville,
Virginia.
We will be authorized to engage in any activity available by law to a
corporation, as permitted under applicable Federal and state regulatory
restrictions applicable to the activities of bank holding companies. The holding
company structure will provide us with greater flexibility than Smith River Bank
standing alone would have, to expand and diversify business activities through
newly formed subsidiaries or through acquisitions. While we have no present
plans to engage actively in any other business activities, we will study the
feasibility of establishing or acquiring subsidiaries to engage in other
business activities permitted by law.
Our principal assets will consist initially of the net proceeds of the
offering and Smith River Bank's stock. These assets will be used to fund our
initial activities. Whether we will need additional capital will depend to a
great extent upon the capital needs of Smith River Bank, which, in turn, will
depend upon the level of deposits and total assets of Smith River Bank. Smith
River Bank's capital needs for at least the next three years are expected to be
satisfied from the proceeds of the offering and from normal business operations.
If, after the first three years, Smith River Bank were to grow at a more rapid
rate than anticipated, Smith River Bank's capital needs could exceed the amount
of capital retained by us from the offering. We believe that additional capital
would be available through the sale of additional securities or debt offerings,
but that might not be the case.
SMITH RIVER COMMUNITY BANK, N.A.
GENERAL
Smith River Bank is currently being organized under the National Bank
Act as a nationally chartered commercial bank and member of the Federal Reserve,
whose deposits are insured by the FDIC. Smith River Bank applied for both the
charter and deposit insurance on March 31, 1999. We received preliminary charter
approval from the Comptroller of the Currency on August 4,1999 and we received
preliminary deposit insurance approval from the FDIC on September 14, 1999.
Smith River Bank's initial capitalization will be provided from the net
proceeds of the offering by Smith River Bankshares purchasing at least 600,000
shares of Smith River Bank's common stock. The purchase price per share is
$10.00.
Immediately upon obtaining all regulatory approvals and being
capitalized, Smith River Bank will engage in attracting deposits from the
general public and will make commercial, consumer and real estate loans. We
anticipate that Smith River Bank will commence operations by February 2000,
assuming the completion by that date of at least the minimum offering and sale
of all of the units and receipt of all regulatory approvals.
The organizers developed a market analysis covering the proposed
primary service area and a proprietary business plan that were included in
applications to the regulatory authorities. Smith River Bank's business plan for
its initial years of operation relies principally upon local advertising and
promotional activity and upon personal contacts by its directors, officers and
shareholders to attract business and to acquaint potential customers with Smith
River Bank's personalized services. Smith River Bank intends to emphasize a high
degree of personalized client service in order to be able to serve each
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customer's banking needs. Smith River Bank's marketing approach will emphasize
the advantages of dealing with an independent, locally-owned and headquartered
commercial bank to meet the particular needs of individuals, professionals and
small to medium-sized businesses. We will continue to evaluate all banking
services as to their profitability and make an effort to modify Smith River
Bank's business plan if the original plan does not prove successful.
We believe that Smith River Bank's business plan will make it
profitable by the end of the third year of operations. However, it has been
common in the banking industry for new financial institutions to lose money in
the first several years of operation. There can be no assurance as to when or
whether Smith River Bank's operations will become profitable.
PRIMARY SERVICE AREA
The primary service area of Smith River Bank is Henry County, Virginia,
located in south central Virginia with its southern border on the North Carolina
state line. The City of Martinsville is geographically in the center of the
County. Henry County is the most urbanized of the five counties that comprise
the West Piedmont Economic Development District. In general, the historical
growth trends for the market are not in pace with Virginia's dynamic growth. In
1998, the market had a population of 71,573, a slight decline from 1990. The
number of households increased slightly from 28,610 in 1990 to 28,851 in 1998.
There were approximately 1,636 businesses in the area and the unemployment rate
in February, 1998 was 5.3%. Median household income increased slightly (1.1%)
between 1990 and 1998. For 1998, it is estimated that 74.7% of all households in
the area had incomes above $25,000. The area is heavily dependent on
manufacturing. As of June 30, 1998, the latest date for which statistics are
available, total deposits in the market were $921,466,000.
COMPETITION
Smith River Bank will experience competition in attracting and
retaining business and personal checking and savings accounts, and making
commercial, consumer and real estate loans and providing other services in the
primary service area. The primary factors in competing for bank accounts are
interest rates, the range of financial services offered, convenience of banking
facilities and flexible office hours. Direct competition for bank accounts comes
from other commercial banks, savings institutions, credit unions, brokerage
firms and money market funds. The primary factors in competing for loans are
interest rates, loan origination fees and the range of lending services offered.
Competition for origination of loans normally comes from other commercial banks,
savings institutions, credit unions and mortgage banking firms. These entities
may have competitive advantages as a result of greater resources and higher
lending limits by virtue of their greater capitalization and, in the case of
credit unions, as a result of tax laws. These competitors also may offer their
customers certain services that Smith River Bank will not provide directly but
might offer indirectly through correspondent institutions.
As of June 30, 1998, there were ten commercial banks, two savings and
loan institutions, and only one remaining community bank operating in the
primary service area. Their 23 branches had combined deposits of $921,466,000.
In addition, there are two credit unions operating in the primary service area.
Last year, the largest local institution, Mainstreet Financial Corporation, was
acquired by BB&T Corporation. Crestar Bank, NationsBank, and Central Fidelity
Bank all merged with large national or super regional institutions. First
Citizens Bank and Trust Company and American National Bank and Trust Company
have branches in the area, but oversight is provided from headquarters out of
our market.
On June 30, 1998, commercial banks held 93.7% of the banking deposits
in the market while thrifts and credit unions held the remaining 6.3%. Large
regional and super-regional banks headquartered out of state held nearly 73% of
the deposits in the market. While recent deposit growth in the market has been
modest, the recent acquisition by out of state companies of MainStreet BankGroup
(owner of Piedmont Trust Bank and Bank of Ferrum total of 36.9% of all deposits
in the market) and of Crestar (22.1% of all deposits in the market) create an
opportunity for us as a locally headquartered community bank. Our ability to
take advantage of this opportunity depends on how well we are able to deliver a
high level of personalized banking services that customers want. To some extent
we will be at a disadvantage to larger institutions that can advertise more
extensively and offer a broader range of products and services as a result of
their greater resources. In addition, these larger institutions have
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branching and proprietary ATM networks that we will not be able to duplicate for
some time. We believe, however, that we will be able to take advantage of the
consolidation in the market place and provide personalized, focused banking
services that will be desirable to large segments of bank customers in the
market and which will enable us to compete satisfactorily.
We may encounter increased competition as a result of the enactment of
Virginia legislation implementing the Riegle-Neal Interstate Banking and Branch
Efficiency Act of 1994. In general terms, this legislation lowers the barriers
for entry into Virginia by out-of-state financial institutions. See,
"Supervision and Regulation Recent Legislative Developments" on page 21.
EMPLOYEES
As of the date of this prospectus, Andy McCullar, the President and
Chief Executive Officer of Smith River Bankshares, Brenda Smith, Senior Vice
President - Chief Financial Officer of Smith River Bankshares, 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 25. Unless we expand our operations into other activities permitted by
law for a bank holding company, it is unlikely that we will have many additional
employees. During the first year of operations, we anticipate that Smith River
Bank will employ approximately fourteen (14) full-time employees of whom, it is
estimated, five (5) will be officers.
PROPERTY
On April 6, 1999, we entered into two leases. One lease is for Smith
River Bankshares' executive offices and the other lease is for the main banking
office of Smith River Bank. The executive office lease is for 2,000 square feet
of space located in the Patrick Henry Shopping Mall at Suite 12, 730 East Church
Street in Martinsville, Virginia. Smith River Bank's main office lease covers
nearly 2,486 additional square feet. The executive office lease commenced on May
1, 1999, and the main office lease commenced on August 1, 1999. Both leases
expire on July 31, 2002. The base rental for the executive office lease is $750
per month for May, June and July, 1999, and $1,000 per month thereafter. The
base rental for Smith River Bank's main office lease is $2,500 per month. This
facility is the former branch of another bank and is largely furnished. However,
Smith River Bank anticipates spending $410,000 for additional furnishings and
equipment for this office and for the acquisition and installation of an ATM.
Smith River Bank plans to open from 9:00 a.m. to 5:00 p.m. Monday
through Thursday, 9:00 a.m. to 6:00 p.m. on Friday, and will operate
drive-through banking, 8:00 a.m. to 6:00 p.m. Monday through Friday and 9:00
a.m. to 12:00 noon on Saturdays (except for legal holidays).
We have a lease for a 3,400 square foot facility located at 380
Riverside Drive, in Bassett, Virginia. The facility is a former branch of a bank
which was closed several years ago. The lease commenced on June 1, 1999, and
expires 36 months from then. The base rental is $500 per month but will increase
to $2,500 per month on the date the proposed branch opens at such location, if
approved. Smith River Bank anticipates opening a branch banking facility at this
location in the first half of 2000. We expect to apply for regulatory approval
for the branch within the first three (3) months after Smith River Bank opens
its main office. If we do not receive approval or otherwise are unable to open
the branch, the lease will be terminated. The estimated cost of leasehold
improvements, furniture and equipment, together with the acquisition and
installation of an ATM at this site is $220,000.
None of the leases contain options to renew. Consequently, it is
possible that Smith River Bankshares and/or Smith River Bank may be required to
relocate operations at one or more of these facilities if, at the end of the
lease term we are unable to renegotiate the leases. If this were to occur, the
expenses of relocation and disruption in services could be substantial. Smith
River Bank and the landlords have agreed to discuss renewal options after the
bank opens.
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BANKING SERVICES GENERALLY
Smith River Bank will offer a full range of commercial banking services
to individual, professional and business customers in its primary service area.
These services will include personal and business checking accounts and savings
and other time certificates of deposit. The transaction accounts and time
certificates will be at rates competitive with those offered in the primary
service area. Customer deposits with Smith River Bank will be insured to the
maximum extent provided by law through the FDIC. Smith River Bank plans to issue
both Visa and MasterCard credit cards. The Bank intends to offer night
depository services and to sell traveler's checks issued by an independent
entity and its own cashier's checks. Smith River Bank does not anticipate
offering trust and fiduciary services initially and will rely on trust and
fiduciary services offered by correspondent banks until it determines that it is
profitable to offer these services directly. Smith River Bank intends to have
proprietary ATM's at both its main bank office and at the proposed Bassett
branch. Smith River Bank also plans on offering internet banking services when
economically viable to do so.
LENDING ACTIVITIES
Smith River Bank will seek to attract deposits from the general public
and will use those deposits, together with borrowings and other sources of
funds, to originate and purchase loans. It will offer a full range of short and
medium-term commercial, consumer and real estate loans. Smith River Bank will
attempt to react to prevailing market conditions and demands in its lending
activities, while avoiding excessive concentrations of any particular loan
category. It has not yet fixed specific goals as to lending concentration by
type of loan because its written loan policy is in the process of being
developed. Smith River Bank will develop a loan approval process that will
provide levels of officer lending authority.
The risk of nonpayment of loans is inherent in making all loans.
However, management intends to carefully evaluate all loan applicants and to try
to minimize credit risk exposure with thorough loan application and approval
procedures that will be established for each category of loan prior to beginning
operation. In determining whether to make a loan, Smith River Bank will consider
the borrower's credit history, analyze the borrower's income and ability to
service the loan, and evaluate the need for collateral to secure recovery in the
event of default.
Under the national banking laws, Smith River Bank is limited in the
amount it can loan to a single borrower to no more than 15% of a bank's
statutory capital base, unless the entire amount of the loan is secured by
readily marketable collateral. In no event, however, may the loan be greater
than 25% of a bank's statutory capital base. It is expected that Smith River
Bank's legal lending limit under applicable law for one borrower, based upon its
initial statutory capital base, will be approximately $900,000 for unsecured
loans and $1,500,000 for loans fully secured by readily marketable collateral.
Smith River Bank's loan policy, when developed, may establish a lower lending
limit.
Smith River Bank will maintain an allowance for loan losses based upon
management's assumptions and judgments regarding the ultimate collectibility of
loans in its portfolio and based upon a percentage of the outstanding balances
of specific loans when their ultimate collectibility is considered questionable.
Certain risks with regard to specific categories of loans are described below.
Commercial Loans. Commercial lending activities will be directed
principally toward businesses whose demand for funds will fall within Smith
River Bank's anticipated lending limit. These businesses will include small to
medium-size professional firms, retail and wholesale businesses, light industry
and manufacturing concerns operating in and around the primary service area. The
types of loans provided will include principally term loans with variable
interest rates secured by equipment, inventory, receivables and real estate, as
well as secured and unsecured working capital lines of credit. Repayment of
these loans will be dependent upon the financial success of the business
borrower. Personal guarantees may be obtained from the principals of business
borrowers and/or third parties to further support the borrower's ability to
service the debt and reduce the risk of nonpayment. Smith River Bank may also
offer to commercial customers equipment leasing and factoring through the
Community Bankers Bank, located in Richmond, Virginia.
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Real Estate Loans. Real estate lending will include commercial and
residential real estate development loans, home improvement loans, home equity
loans and residential mortgage loans. Smith River Bank may originate a limited
number of variable-rate residential and other mortgage loans for its own account
and both variable and fixed-rate residential mortgage loans for resale. The
residential loans will be secured by first mortgages on one-to-four family
residences in the primary service area. Loans secured by second mortgages on a
borrower's residence may also be made.
Consumer Loans. Consumer lending will be made on a secured or unsecured
basis and will be oriented primarily to the requirements of Smith River Bank's
customers, with an emphasis on direct automobile financing, home improvements,
debt consolidation and other personal needs. Consumer loans will generally
involve more risk than first mortgage loans, because the collateral for a
defaulted loan may not provide an adequate source of repayment of the principal
due to damage to the collateral or other loss of value while the remaining
deficiency often does not warrant further collection efforts. In addition,
consumer loan performance is dependent upon the borrower's continued financial
stability and is, therefore, more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Various Federal and state laws,
including Federal and state bankruptcy and insolvency laws, may also limit the
amount that can be recovered.
ASSET AND LIABILITY MANAGEMENT
The primary assets of Smith River Bank will consist of its loan
portfolio and investment accounts. Consistent with the requirements of prudent
banking necessary to maintain liquidity, we will seek to match maturities and
rates of loans and the investment portfolio with those of deposits, although
exact matching is not always possible. We will seek to invest the largest
portion of Smith River Bank's assets in commercial, consumer and real estate
loans. We will price our deposit and loan products competitively and concentrate
on superior service, local management and local decision-making to attract
customers. We will attempt to maintain a positive spread between the interest
earned on investments and loans and the interest costs on deposits. The positive
spread will be achieved primarily by offering floating rate loans, offering
fixed rate loans only when their maturities match the projected maturities of
long term certificates of deposit or other borrowings by Smith River Bank. There
is no assurance we will be able to achieve this plan, particularly in the
initial years of operation, when the market may require us to offer higher rates
on deposits and lower rates on loans in order to attract customers. We
anticipate that loans will be limited to less than 70% of deposits and capital
funds; however, this ratio may be exceeded in the initial period of operation.
We anticipate that Smith River Bank's investment account will consist primarily
of marketable securities of the United States government, Federal agencies and
state and municipal governments, generally with varied maturities.
Smith River Bank's investment policy will provide for a portfolio
divided among issues purchased to meet one or more of the following objectives:
o to complement strategies developed in assets/liquidity management, including
desired liquidity levels;
o to maximize after-tax income from funds not needed for day-to-day operations
and loan demand; and
o to provide collateral necessary for acceptance of public funds.
We anticipate that this policy will allow Smith River Bank to deal with
seasonal deposit fluctuations and to provide for basic liquidity consistent with
loan demand and, when possible, to match maturities with anticipated liquidity
demands. Longer term securities may be selected for a combination of yield and
exemption from Federal income taxation when appropriate. Deposit accounts will
represent the majority of the liabilities of Smith River Bank. These will
include savings accounts, transaction accounts and time deposits.
Initially, Smith River Bank anticipates deriving its income principally
from interest charged on loans and, to a lesser extent, from interest earned on
investments, fees received in connection with the origination of loans and
miscellaneous fees and service charges. Its principal expenses are anticipated
to be interest expense on deposits and operating expenses. The funds for these
activities are anticipated to
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be provided principally by operating revenues, deposit growth, purchase of
Federal funds from other banks, repayment of outstanding loans and sale of loans
and investment securities.
YEAR 2000 READINESS
An important business issue has surfaced relating to how existing
computer software programs and operating systems will accommodate the calendar
change to Year 2000. Many software products were designed to accommodate only a
two-digit year, storing 1998, for example, as "98," and these same programs may
read "00" as 1900 rather than 2000. This is expected to have an adverse effect
on businesses that rely on programs that are not "Year 2000" or Y2K" compliant.
After commencing business, Smith River Bank intends to use third-party
vendors for processing most bank operations and for some other ancillary
products and computer needs. Management intends to purchase equipment that is
warranted for Y2K compliance, and management will ensure that any vendor chosen
uses only bank applications and programs that can handle the coming calendar
change and are Y2K compliant. Smith River Bank also expects to put clauses in
all contracts protecting itself against the potential problem. Smith River Bank
will use internal communications and training to educate employees and keep them
up to date on this subject, and it will use questionnaires and continued
dialogue with all bank customers to make them aware of the issues. Finally,
Smith River Bank will include Y2K risk management parameters in its loan policy,
minimizing the issue as a part of Smith River Bank's credit risk.
In short, Smith River Bank does not believe this Y2K issue will have a
material effect on Smith River Bank's financial condition. We estimate the total
costs to us for Y2K readiness, including equipment testing and employee and
customer education to be less than $25,000. However, if Smith River Bank's
vendors or customers, the Federal Reserve Bank of Richmond, or other regulator
agencies do not achieve Y2K compliance in time, Smith River Bank's business and
financial condition would be adversely affected.
INCOME TAXES
Smith River Bankshares will be subject to both Federal and state income
taxes. While the bank will be subject to Federal income taxes, a bank is exempt
from state income tax in Virginia. Instead, a bank in Virginia must pay a
franchise fee based on the bank's capital level. However, we expect that we will
not have profitable operations until at least the third full year of operations,
if then. Because of this, and because of the substantial start-up costs, we may
have a substantial cumulative net loss before we become profitable. Under
current Federal tax laws, these net operating losses will be available to offset
future taxable profits. Specifically, a net operating loss may be carried
forward for a period of up to 20 years to offset taxable income in those years.
This could reduce our taxes in the initial years of profitability. However, if
the offering is not successful, if required regulatory approvals are not
obtained, or if operations are not ultimately profitable, then it is unlikely
that we will realize any tax benefits.
MANAGEMENT'S PLAN OF OPERATION
Smith River Bankshares was incorporated under the laws of the
Commonwealth of Virginia on January 14, 1999, for the purpose of becoming a bank
holding company that would own all of the outstanding shares of capital stock of
the proposed national bank, Smith River Bank. We anticipate that we will receive
regulatory approval to open Smith River Bank during the first quarter of 2000,
assuming this offering is successful, and open the bank shortly after that.
There can be no assurance, however, that we will receive approval or that Smith
River Bank will open.
Prior to this offering, the only material source of funds for Smith
River Bankshares has been the investments by the organizers/directors for this
purpose. As of October 13, 1999, we have received gross proceeds of $355,000
from the organizers/directors. These advances and additional advances, which we
estimate will be a total of $465,000, will be repaid by Smith River Bankshares
and Smith River Bank from the proceeds of the offering, if it is successful.
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Smith River Bankshares is newly formed and it has, and Smith River Bank
when it is formed will have, no prior operating history. Our operating results
will depend on operating results of Smith River Bank. Smith River Bank's success
and profitability will depend in large part on our ability to attract a customer
base and on the economy in general in Martinsville, Virginia and the surrounding
counties. Smith River Bank will incur operating expenses, and there are no
assurances as to when, if ever, Smith River Bank will make a profit. Assuming
that the minimum net proceeds from the offering are raised, we presently believe
that we will have sufficient capital resources to meet our commitments over the
next twelve months. See "Use of Proceeds" on page 10 and "Business" on page 12.
Unless we expand our operations into other activities permitted by law
for a bank holding company, it is unlikely that Smith River Bankshares will have
many employees beyond Mr. McCullar, President and Chief Executive Officer, Ms.
Smith, Senior Vice President and Chief Financial Officer, and Ms. Brown,
administrative assistant. During the first year of operations, we anticipate
Smith River Bank will employ approximately fourteen (14) full time employees.
See "Business - Employees" on page 15.
We have entered into three leases, one of which is for the executive
offices of Smith River Bankshares. The other two leases are for the anticipated
main banking office and another branch office of Smith River Bank. We are
currently paying rent on all three leases. We expect to spend approximately
$410,000 on the main banking office for additional furnishings and an ATM. We
also expect to spend approximately $220,000 for leasehold improvements,
furniture and equipment, and an ATM for the branch banking office. See page 15
under "Property" for additional details.
SUPERVISION AND REGULATION
We provide the following as a summary of statutes and regulations
affecting bank holding companies. This summary is qualified in its entirety by
reference to these statutes and regulations.
SUPERVISION AND REGULATION OF SMITH RIVER BANKSHARES
Smith River Bankshares will be a bank holding company within the
meaning of the Federal Bank Holding Company Act of 1956 and the Virginia Banking
Act. As a bank holding company, Smith River Bankshares will be required to file
with the Federal Reserve periodic reports and information regarding its business
operations and those of Smith River Bank. Smith River Bankshares must also
provide the Virginia Financial Institutions Bureau with information regarding
itself and Smith River Bank. Smith River Bankshares and Smith River Bank will
also be examined by the Federal Reserve, and Smith River Bankshares will be
examined by the Virginia Bureau of Financial Institutions.
A bank holding company is required by the Federal Bank Holding Company
Act to obtain approval from the Federal Reserve prior to acquiring control of
any bank that it does not already own or engaging in any business other than
banking or managing, controlling or furnishing services to banks and other
subsidiaries authorized by the statute. Similarly, approval of the Virginia
Financial Institutions Bureau is required for certain acquisitions of other
banks and bank holding companies. The Federal Reserve would approve the
ownership of shares by a bank holding company in any company the activities of
which it has determined by order or regulation to be so closely related to
banking or to managing or controlling banks as to be a proper incident thereto.
In other words, regulatory involvement, and frequently approval, is required if
we were to engage in any of the foregoing activities.
Smith River Bankshares would be compelled by the Federal Reserve to
invest additional capital in the event Smith River Bank experiences either
significant loan losses or rapid growth of loans or deposits. The Federal
Reserve requires a bank holding company to act as a source of financial strength
and to take measures to preserve and protect its bank subsidiaries.
As a bank holding company, we will operate under the capital adequacy
guidelines established by the Federal Reserve. Under the Federal Reserve's
current risk-based capital guidelines for bank holding companies, the minimum
required ratio for total capital to risk weighted assets we will be required to
maintain is 8 percent, with at least 4 percent consisting of Tier 1 capital.
Tier 1 capital consists of common and qualifying preferred stock, certain other
qualifying instruments, and minority interests in equity accounts of
consolidated subsidiaries, less goodwill and other intangible assets. Because we
will
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be a bank holding company with less than $150 million in total consolidated
assets, these guidelines will be applied on a bank only basis. These risk-based
capital guidelines establish minimum standards and bank holding companies
generally are expected to operate well above the minimum standards.
Following completion of the offering, Smith River Bankshares will also
have to comply with the requirements of the Securities Exchange Act of 1934,
which include the filing of annual, quarterly and other reports with the SEC.
SUPERVISION AND REGULATION OF SMITH RIVER BANK
Smith River Bank will be examined and regulated by the Office of the
Comptroller of the Currency and the Federal Reserve. The OCC regulates and
monitors all significant aspects of the Bank's operations. The OCC requires
quarterly reports on Smith River Bank's financial condition and conducts
periodic examinations of the Bank. The cost of complying with these regulations
and reporting requirements can be significant. In addition, some of these
regulations impact investors directly. For example, Smith River Bank may pay
dividends only out of its undivided profits after deducting expenses, including
losses and bad debts. In general, the OCC limits annual dividends to retained
profits of the current year plus two prior years, without OCC approval. In
addition, Smith River Bank may not pay dividends at all until its surplus equals
its stated capital. The only exception is if Smith River Bank has transferred to
surplus no less than 10% of its net profits for the preceding two consecutive
half year periods (for annual dividends) or of the preceding half year period
(for quarterly or half year dividends). Regulatory restrictions on Smith River
Bank's ability to pay dividends may adversely impact Smith River Bankshares'
ability to pay dividends to its shareholders.
Smith River Bank's loan operations, particularly for consumer and
residential real estate loans, are also subject to numerous legal requirements
as are its deposit activities. In addition to regulatory compliance costs, these
laws may create the risk of liability to the Bank for noncompliance.
Smith River Bank's deposits will be insured by the FDIC for a maximum
of $100,000 per depositor. For this protection, Smith River Bank will pay a
semi-annual statutory assessment and will have to comply with the rules and
regulations of the FDIC. These assessments can go up or down, affecting the
Bank's costs, depending on the solvency of the banking industry as a whole. In
addition, the cost of complying with FDIC rules and regulations may negatively
impact Smith River Bank's profitability. In case of member banks like Smith
River Bank, the Federal Reserve has the authority to prevent the continuance or
development of unsound and unsafe banking practices and to approve conversions,
mergers and consolidations. Obtaining regulatory approval of these transactions
can be expensive, time-consuming and may not be ultimately obtainable.
As a member of the Federal Reserve, Smith River Bank will also have to
comply with rules that restrict preferential loans by the bank to "insiders,"
require Smith River Bank to keep information on loans to principal shareholders
and executive officers, and prohibit certain director and officer interlocks
between financial institutions. Also, under the Federal Reserve's current
risk-based capital guidelines for member banks, Smith River Bank will be
required to maintain a minimum ratio of total capital to risk weighted assets of
8 percent, with at least 4% consisting of Tier 1 capital. In addition, the
Federal Reserve requires its member banks to maintain a minimum ratio of Tier 1
capital to average total assets. This capital measure is generally referred to
as the leverage capital ratio. The minimum required leverage capital ratio is 4
percent if the Federal Reserve determines that the institution is not
anticipating or experiencing significant growth and has well-diversified risks
- -- including no undue interest rate exposure, excellent asset quality, high
liquidity and good earnings -- and, in general, is considered a strong banking
organization and rated Composite 1 under the Uniform Financial Institutions
Rating Systems. If Smith River Bank does not satisfy any of these criteria it
may be required to maintain a ratio of total capital to risk-based assets of 10
percent and a ratio of Tier 1 capital to risk-based assets of at least 6
percent. Smith River Bank would then be required to maintain a 5 percent
leverage capital ratio. These regulations can impact Smith River Bank by
requiring it to hold more capital and thereby inhibit its ability to grow.
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<PAGE>
MONETARY POLICY
Banking is a business that depends on interest rate differentials. The
difference between the interest rates paid by Smith River Bank on its deposits
and other borrowings and the interest rate received on loans extended to its
customers and on securities held in its portfolio comprises the major portion of
Smith River Bank's earnings.
The earnings and growth of Smith River Bank will be affected not only
by general economic conditions, both domestic and foreign, but also by the
monetary and fiscal policies of the United States and its agencies, particularly
the Federal Reserve. The Federal Reserve implements national monetary policy by
its open market operations in United States government securities, adjustments
in the amount of industry reserves that banks and other financial institutions
are required to maintain and adjustments to the discount rates applicable to
borrowings by banks from the Federal Reserve. The actions of the Federal Reserve
in these areas influence the growth of bank loans, investments and deposits and
also affect interest rates charged and paid on deposits. We cannot predict the
nature and impact of any future changes in monetary policies.
RECENT LEGISLATIVE DEVELOPMENTS
The United States Congress periodically adopts legislation that impacts
both banks and other financial institutions. Legislation of this type could
further deregulate the financial services industry and lift remaining geographic
restrictions on banks and bank holding companies and current prohibitions
against banks engaging in certain non-banking activities and nonbanks engaging
in banking activities. These legislative changes could place us in more direct
competition with other financial institutions, including mutual funds,
securities brokerage firms, insurance companies and investment banking firms. On
the other hand, legislation could impose further restrictions on banks which
might limit the services or products banks offer, the manner in which they may
be offered, or the cost of offering them. Because of these uncertainties, we
cannot predict what legislation might be enacted, and if enacted, the effect
thereof.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current members of our Board of Directors are twelve organizers.
They are divided into three classes that serve staggered three-year terms. The
members of one class are elected at each annual meeting of shareholders and hold
office until the third annual meeting following their election or until
successors are elected and qualified. The term of the Class A Directors expires
2002, term of the Class B directors expires in 2001, and the term of the Class C
directors expires in 2000. The following tables set forth material information
about the current executive officers, directors and organizers of Smith River
Bankshares. They are also expected to be the principal shareholders. We intend
that the same persons will serve on the Board of Directors of Smith River Bank,
when it is organized. Unlike Smith River Bankshares, the term of Smith River
Bank directors is uniformly one year.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION NUMBER OF DOLLAR
NAME/AGE SMITH RIVER LAST 5 YEARS SHARES(%)/ AMOUNT OF
-------- ------------ ------------ WARRANTS(%) SUBSCRIPTION
BANKSHARES AND OPTIONS (%)(1) ------------
------------ ------------------
<S> <C> <C> <C> <C> <C>
CLASS A DIRECTORS - TERM EXPIRES 2002
J. E. Bassett, Director Retired/formerly Vice 10,000 (1.6%) $100,000
Jr./67 President-Quality 10,000 (3.2%)
Control, Bassett
Furniture
Mervyn R. King/65 Director Retired/Anesthes-iologist 10,000 (1.6%) $100,000
and President M. R. 10,000 (3.2%)
King & Assoc.s
</TABLE>
- --------
(1) Based on minimum offering percentage. Share % includes only shares; warrant
% includes both shares and warrants, assuming all warrants are exercised.
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<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION NUMBER OF DOLLAR
NAME/AGE SMITH RIVER LAST 5 YEARS SHARES(%)/ AMOUNT OF
-------- ------------ ------------ WARRANTS(%) SUBSCRIPTION
BANKSHARES AND OPTIONS (%)(1) ------------
------------ ------------------
<S> <C> <C> <C> <C> <C>
Morton W. Director President-The Lester 10,000 (1.6%) $100,000
Lester/65 Corp.; Vice President 10,000 (3.2%)
- Motor Imports, Inc.
Cecil R. Director, President - First 10,000 (1.6%) $100,000
McCullar/62 President and American FSB 10,000 (3.2%)
Chief Executive 30,000(2) (8.0%)
Officer
CLASS B DIRECTORS - TERM EXPIRES 2001
Patricia H. Director Retired Realtor 5,000 (.8%) $ 50,000
Brammer/66 5,000 (1.6%)
George R. Director Owner - Nelson Ford, 10,000 (1.6%) $100,000
Nelson, Jr./62 Inc./G.R. 10,000 (3.2%)
Chevrolet,Inc./Nelson
Mazda Subaru/ Nelson
Pontiac, Buick, GMC,
Inc.
Douglas E. Director Owner - Riddle 5,000 (.8%) $ 50,000
Riddle/55 Chrysler, Plymouth, 5,000 (1.6%)
Dodge, Honda
Milford A. Director Owner, Virginia 4,000 (.6%) $ 40,000
Weaver/74 Blower Company 4,000 (1.2%)
CLASS C DIRECTORS - TERM EXPIRES 2000
Jessee D. Director Real Estate Broker/ 10,000 (1.6%) $100,000
Cahill, Sr./68 General Contractor 10,000 (3.2%)
Roxann B. Director Principal - Dillon 6,000 (1.0%) $ 60,000
Miller/66 Insurance Agency 6,000 (2.0%)
Jimmie R. Director President - Jim Mills 5,000 (.8%) $ 50,000
Mills/62 Lincoln-Mercury-Jeep 5,000 (1.6%)
Joe C. Director Retired/Exc. Vice 2,500 (.4%) $ 25,000
Philpott/68 President-Manufacturing; 2,500 (.8%)
Bassett Furniture
EXECUTIVE OFFICER NOT A DIRECTOR
Brenda H. Senior Vice Vice President and
Smith/40 President and Corp. Controller,
Chief Financial Main-street Financial -- --% --
Officer Corp. ---------- ------- ----------
TOTAL 87,500 (14%) $875,000
87,500 (28%)
</TABLE>
All of the shares listed above are only subscribed for, not yet owned.
Except as otherwise indicated, the persons named in the above table will have
sole voting and investment power as to all shares shown as beneficially owned by
them. Also, these numbers do not reflect any additional shares which the
organizers may purchase if it is necessary to complete the minimum offering or
shares which may be purchased by any additional directors or officers of Smith
River Bankshares or Smith River Bank.
- ------------
(2) In addition to his subscription, Mr. McCullar will receive 30,000 options to
purchase a share of common stock at $10.00 per share, 10,000 options exercisable
at each of the first, second, and third anniversary of the bank opening.
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The business experience of each of the directors is described below.
J. E. Bassett, Jr., retired, was employed for almost 43 years by
Bassett Furniture Industries. He was a director of the company, a plant manager,
and later a Vice President - Quality Control. He was a director of First Bassett
Bank and Trust, an advisory board member of Dominion Bank and an advisory board
member of First Union Bank. He has held Directorships in Bassett Mirror Company,
Blue Ridge Hardware & Supply Company, Roy Stone Trucking Company, Dominion
Ornamental Company, Techni-Cast Corporation and Bassett Land and Lumber Company.
He received his BS from North Carolina State University in Furniture
Manufacturing and Management in 1955. He was a member of the Board of Visitors
of James Madison University, and the Alumni Board of North Carolina State
University.
Patricia H. Brammer has been a resident of Henry County for forty-five
years. She has been a successful realtor and was a member of the National
Million Dollar Real Estate Club. Mrs. Brammer has been very active in outside
affairs such as Christ Episcopal Church and Garden State Garden Club. Other
activities include fund raising for cancer, heart fund, the local Red Cross
Blood Mobile, Chamber of Commerce and as a hospital volunteer along with
different school functions.
Jesse D. Cahill, Sr. has been a Real Estate Broker and General
Contractor since 1959. He has been president of Martinsville-Henry County
Realtors Association, Real Estate Commissioner of Real Estate for the State of
Virginia, President of Rocuda Finance Company, member and director of Virginia
Financial Services, and Past Chairman of Martinsville-Henry County Economic
Development Corporation. He graduated from Bassett High School and Steeds
College of Commerce. He is an Elder and Board Chairman of Fort Trial Christian
Church.
Mervyn R. King, MD., retired anesthesiologist, was founder and
President of M. R. King and Associates, Inc., a company that provided anesthesia
and related services to Memorial Hospital of Martinsville and Henry County for
29 years. He presently owns or is co-owner and CEO of the following businesses:
Countryside Manor, Inc. (a nursing home), Countryside Village Retirement
Community, Inc., Countryside Properties LP (a real estate holding company),
Martinsville Nissan, Inc., Peaksview Buick, Pontiac, and GMC Trucks, Inc., and
Inside Track Co. (an antique business and a design and manufacturing company of
toy train display cases). He received his BS degree in Chemistry from Lynchburg
College and his Medical Degree from the University of Virginia. He also took his
anesthesia residency at the University of Virginia. Following his residency, he
served as Captain in the U.S. Air Force for two years. Dr. King was Henry County
Board of Supervisor Tiebreaker for eight years. He served on the Board of
Directors of Memorial Hospital of Martinsville and Henry County for six years.
Five of those years he was on the Board's Finance Committee. He is presently a
member of First Presbyterian Church in Martinsville, Rangeley Ruritan Club,
Piedmont Arts Association, Mental Health Association, and Martinsville-Henry
County Historical Society.
Morton W. Lester is President of The Lester Corporation, a real estate
investment and property management company, and Vice President of Motor Imports,
Inc. He received his BS in Business from Virginia Polytechnic Institute and
State University. Mr. Lester previously served on the boards of Virginia
National Bank of Martinsville and Henry County, NationsBank of Martinsville,
First Federal Savings and Loan Association of Danville, Charter Federal Savings
Bank of Bristol, and First American Federal Savings Bank of Roanoke. Mr. Lester
is a former elected member of the Martinsville City Council and a past director
of the Martinsville-Henry County Chamber of Commerce. He is a past director of
Averett College, and served in Kiwanis for 30 years. He currently serves on the
Blue Ridge Airport Authority, and served as its chairman for 23 years. He served
as the first President of the Virginia Air Museum, and is a past President of
the Virginia Aeronautical Historical Society, both of Richmond. Mr. Lester was
inducted into the Virginia Aviation Hall of Fame in 1991.
Cecil R. (Andy) McCullar has worked for several banks. Most recently he
was the President and CEO of First American FSB, a $450 million thrift which is
a wholly owned subsidiary of First American Corporation from 1995 to 1998, and
Charter Federal Savings Bank, which was a $750 million thrift with 28 branches
throughout southwest Virginia and Knoxville, Tennessee from 1993 to 1995. He
also was a Retail Executive Officer for Dominion Bank, NA from 1984 to 1993. He
was located in Martinsville, Virginia for four of the nine years. With Dominion,
he was responsible for the management of a $1.6 billion region and managed 48
branches within Virginia and supervised the CEO's of two wholly owned
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subsidiary banks in Rogersville and Newport, Tennessee. From 1962 to 1984, he
worked for Virginia National Bank (and its successors) where he held various
positions in Branch Management, Human Resources, Credit Review and National
Accounts. His educational background includes attending Old Dominion University
from 1956-1959, from which he received the "Distinguished Alumni Award" in 1995.
He also attended the ABA National Personnel School in Memphis, Tennessee in
1974; the ABA National Commercial Lending School with the University of Oklahoma
in 1976; and Stonier Graduate School of Banking, with Rutgers University in New
Brunswick in 1986. He is a member of the Board of Visitors with Emory & Henry
College in Emory, Virginia.
Roxann B. Miller is a principal stockholder in Dillon Insurance Agency.
She is a lifetime resident of Henry County. Ms. Miller has served eight years on
the Patrick Henry Community College Foundation Board and was Vice President. She
is a former schoolteacher and has been active in numerous civic organizations.
Jimmie R. Mills is currently president of Jim Mills
Lincoln-Mercury-Jeep, a new vehicle franchise dealer since 1985. Previously he
was President of Jeb Stuart Ford-Mercury, Inc. and Vice President/General
Manager of Lester & Mills Pontiac-AMC-Jeep, Inc. Mr. Mills is a charter member
of Thomasson Heights Baptist Church, Collinsville, Virginia.
George R. Nelson, Jr. became owner and operator of Nelson Ford, Inc. in
1975. He is also owner and operator of G R Chevrolet, Inc., and Nelson Mazda
Subaru, Nelson Pontiac, Buick, GMC, Inc. He also owns Homes By Nelson, and is a
member of Pleasant Grove Christian Church.
Joe C. Philpott, retired, worked for Bassett Furniture Industries for
42 years, retiring as Executive Vice President of Manufacturing. He served on
the Board of Directors of Bassett Furniture Industries for several years. Mr.
Philpott graduated from the University of Richmond in 1953. He served in the
U.S. Army in Germany from 1953 to 1955. He attended the Harvard Business School
Advance Managers Program in 1984 and 1985. Mr. Philpott was past president of
Bassett Kiwanis Club, Bassett Country Club, W. M. Bassett Community Center and
the Bassett Public Library.
Douglas E. Riddle, a native of Henry County, has been in the automotive
business for over thirty-five years. He is the owner of Riddle Chrysler,
Plymouth, Dodge Honda. Mr. Riddle has been active in civic and local affairs.
Milford A. Weaver is present owner and co-founder of Virginia Blower
Company in Collinsville and Galax, Virginia, and is currently serving as its
Chairman of the Board. Mr. Weaver graduated from the University of Richmond
School of Business with a BS degree in Business Administration (major in
Accounting) after serving in the Navy during World War II as a radarman. During
his business career he was very active in community, business, educational,
professional, and church activities. He has served on the following: Board of
Directors of First Bassett Bank & Trust prior to its sale to Dominion
Bankshares, Board of Directors of Patrick Henry Community College, Board of
Directors (two terms) for Martinsville Henry County Chamber of Commerce, Board
of Directors for Collinsville Recreation Center, and Board of Directors of Local
Habitat for Humanity and Board of Hope Harbor Christian Home for Alcoholics. Mr.
Weaver is currently a member of several professional associations connected with
Air Pollution Control. He has served on the Board of Associates of Averett
College and a member of Villa Heights Baptist Church where he served as Chairman
of Building and Steering Committee, Finance Committee, Deacon Chairman, and
Director of Sunday School. He also recently served a four-year term on the
Virginia Baptist General Board in Richmond, Virginia serving on its Business
Committee. Mr. Weaver, for many years, was a member of the Lions Club. For this
past year (1998), the Martinsville- Henry County Chamber of Commerce chose Mr.
Weaver as the Outstanding Small Business Man of the Year.
Executive Officers Who are Not Directors
Brenda Smith began work as the Senior Vice President and Chief
Financial Officer of Smith River Bankshares and Smith River Bank on August 30,
1999. From 1995 to 1999 Ms. Smith was Vice President, Corporate Controller and
Assistant Secretary of MainStreet Financial Corporation, a $2 billion multi-bank
holding company headquartered in Martinsville, Virginia. From 1988 to 1995, she
was an
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accounting officer for Piedmont Trust Bank, a subsidiary bank of MainStreet
Financial Corporation. Between 1981 and 1988, Ms. Smith was Controller and
Assistant Secretary of Savers Life Insurance Company in Winston-Salem, North
Carolina. Ms. Smith, as Corporate Controller for MainStreet, was responsible for
all financial reporting to management, external auditors, bank regulators, the
Securities and Exchange Commission and the Internal Revenue Service. She was
also directly responsible for daily accounting activities, bank operations,
accounts payable, fixed assets and other financial activities.
REMUNERATION OF DIRECTORS AND OFFICERS
Our directors, other than Andy McCullar, have not received and will not
receive fees or other compensation in connection with the organization of Smith
River Bankshares. They will not be paid fees for their service on or at meetings
of the Board of Directors or committees during the initial years of operation.
However, Andy McCullar and Smith River Bankshares have entered into an
employment agreement dated June 1, 1999.
BASIC TERMS
The agreement sets forth the terms for Mr. McCullar to be employed as
president and chief executive officer of Smith River Bankshares and, when it is
organized, Smith River Bank.
o The agreement will have a rolling three year term (that is, unless
terminated at least 90 days prior to each anniversary date, the
contract term will be extended automatically for an additional year so
that it will have a three year remaining term as of the anniversary
date). Smith River Bankshares may terminate the agreement without
further liability if we don't raise the minimum capital.
o After that, if Mr. McCullar's employment is terminated by Smith River
Bankshares/Smith River Bank without cause or by Mr. McCullar for good
reason, the company will pay a lump sum equal to the total base salary
through the remainder of the three year term. Otherwise, Mr. McCullar
would be paid only through the date of termination.
o If Mr. McCullar's employment is terminated by Smith River
Bankshares/Smith River Bank without cause or by Mr. McCullar without
good reason, Mr. McCullar may not engage in the banking business within
a 100 mile radius of the City of Martinsville, Virginia for a period of
three years.
o Mr. McCullar will be paid a $90,000 base annual salary and, on the date
Smith River Bank opens for business, will be granted options to
purchase 30,000 shares of Smith River Bankshares' stock, 10,000 of
which will be exercisable at the end of each of the first three years
thereafter at the fair market value of the stock at the time of the
grant.
The employment agreement also enables Mr. McCullar to become a consultant to
Smith River Bankshares and Smith River Bank after retirement until he reaches
the age of 70. Mr. McCullar would continue to receive a mutually agreed
compensation as consultant. During the period of his employment and consultancy,
he would also receive company paid health insurance. The employment and
consultancy arrangements would terminate upon Mr. McCullar's death or
disability.
OPTIONS
The following table indicates the options to be granted to Mr.
McCullar. Mr. McCullar will be granted on the date Smith River Bank opens for
business the option to purchase 30,000 shares in total, 10,000 shares of common
stock for each of the first three years of Smith River Bank's operations. Each
of the options will have a ten-year term from the date they become exercisable
and will expire 30 days after employment is terminated under certain
circumstances . The options will be exercisable by Mr. McCullar if he is
employed as President and Chief Executive Officer of Smith River Bankshares and
the bank on the first anniversary of the day the bank opens for business (the
first 10,000 options) and on each of the next two anniversaries (for each of the
next two 10,000 option grants). We are not obligated to or intend to register
for resale the shares underlying these options.
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Shares Exercise
Underlying the Options Price Per Share Date of Exercise
---------------------- --------------- ----------------
30,000 Fair Market Value N/A
on Date of Grant
LIMITATION ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Smith River Bankshares' Articles of Incorporation contain a provision
which, in accordance with Virginia law, eliminates the personal liability of
directors or officers to Smith River Bankshares and its shareholders for
monetary damages for any breach of their duty as directors. This provision
provides that a director will not be personally liable for monetary damages for
a breach of his or her duty as a director, except for liabilities for
o willful misconduct
o knowing violation of criminal law
o knowing violation of federal or state securities law
Liability for monetary damages remains unaffected by that provision if
liability is based on any of these grounds. The provision does not eliminate a
director's fiduciary duty, nor does it preclude a shareholder from pursuing
injunctive or other equitable remedies. The provision was prompted in part by
adverse changes in the cost and availability of director and officer liability
insurance and by a concern over difficulties in attracting and retaining
qualified directors. We believe this provision is essential to maintain and
improve our ability to attract and retain competent directors.
We are advised that indemnification of directors, officers and
controlling persons for liabilities arising under the Securities Act of 1933 is
against public policy and is, therefore, unenforceable.
Our Articles of Incorporation also provide for indemnification of
directors and officers as permitted by Virginia law. If a director or officer is
sued, even by Smith River Bankshares, as a director or officer of the company
(or is sued because he or she was serving as a director, officer or employee of
another entity, such as Smith River Bank at the request of the company), Smith
River Bankshares must indemnify him or her for liabilities and expenses except
for cases involving:
o willful misconduct
o knowing violation of criminal law.
Generally, we must also cover expenses prior to a final decision if the director
or officer agrees to pay the amount back if it is ultimately decided he or she
wasn't entitled to the advance.
CERTAIN TRANSACTIONS
ORGANIZERS/DIRECTORS' SHARES
Consistent with the certain Organizer's Contribution Agreement dated
December 8, 1998, the organizers/directors intend to subscribe for 87,500 units,
each including one share and one warrant. The organizers/directors may, but are
not obligated to, purchase additional shares if it is necessary to complete the
minimum offering. Shares purchased in this offering by organizers/directors are
being purchased for investment purposes and not for resale.
WARRANTS
In recognition of the risk of loss to the organizers/directors of their
equity investment, for the purpose of paying for certain organizational and
other preopening expenses before proceeds are released from escrow if the
offering is not successful, as well as an incentive for them to serve as
directors, each organizer/director will receive a warrant. The warrant will be
added to each share purchased by each organizer/director to create the unit.
Each warrant will entitle the organizer/director to
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purchase, at any time within ten years from the date Smith River Bank opens for
business, an additional share at $10.00 per share.
The warrants are not immediately exercisable. The right to exercise the
warrants will vest for one-third (1/3) of the shares covered by the warrants on
each of the first three anniversaries of the date Smith River Bank opens for
business, so long as the organizer/director has served continuously as a
director of Smith River Bankshares and Smith River Bank from its opening until
the particular anniversary and has attended a minimum of 75% of the Board of
Directors meetings during the period. However, all the warrants will become
vested upon the change in control of Smith River Bankshares, or a sale by the
company of all or substantially all its assets. The warrants are detachable and
the shares with which they were originally issued as a unit may be separately
transferred. The warrants are generally not transferable except by operation of
law. Bankshares has the right, upon notice from any regulatory authority, to
require immediate exercise or forfeiture of the warrants if the exercise is
reasonably necessary in order to inject additional capital into Smith River
Bank.
The organizers/directors will have received the warrants as
consideration for taking financial risks and for serving as directors without
compensation until Smith River Bank is profitable. The number of warrants due to
each organizer/director will not be based on the number of shares sold by the
organizer/director in the offering, but on the number of shares purchased by the
organizer/director in the offering. Accordingly, the warrants should not be
construed as compensation to the organizers/directors for purposes of Rule 3a4-1
under the Securities Exchange Act.
These warrants and stock options could have a dilutive effect on the
value of your stock. The warrants issued are at $10.00 per share and the options
promised to Mr. McCullar are at fair market value on the date of grant (the date
Smith River Bank opens). In other words, someone holding these warrants or
options can trade the warrants for the same number of shares of common stock at
a price per share of $10.00 or, in the case of Mr. McCullar's options, at their
fair market value when Smith River Bank opens. If the fair market value of our
stock does not exceed these values when the warrants or options are exercisable,
it is unlikely warrants or options will be exercised. However, if our stock
market value exceeds these values when the warrants or options are exercisable
at some point in the future, these holders of warrants and options can obtain
additional shares (equal to the warrants or options held) for less than the fair
market value at that time. Depending on the number exercised, this could
influence the market to reduce the trading price of our stock, and it could have
a material effect on the market capitalization of our stock per share at that
time. In addition, increasing the shares outstanding could, at least
temporarily, drag down important ratios like earnings per share and return on
investment per share.
STOCK OPTIONS
Bankshares will grant to Mr. McCullar on the day Smith River Bank opens
for business an option to purchase, at their fair market value on the date of
the grant, 10,000 shares of common stock for each of the Bank's first three
years of operation. The options will be exercisable only if Mr. McCullar is
employed as President and Chief Executive Officer of Bankshares and Smith River
Bank at the conclusion of the respective year of Smith River Bank operations
when such options first become exercisable. These options must be exercised
within ten years from the date they become exercisable and will expire 30 days
after employment is terminated under certain circumstances.
In addition, Smith River Bankshares is considering adopting a stock
option plan under which stock options may be issued by the Board of Directors to
certain key employees of the company and Smith River Bank. The total number of
shares to be issued under this plan will in no event exceed 10% of the total
number of shares outstanding immediately after the offering. The options would
enable the recipient to purchase stock at a price equal to the greater of the
fair market value or 100% of the book value per share at the time the option is
granted. The Board of Directors or a committee would administer the stock option
plan and fix the terms of each option.
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ORGANIZATIONAL SUBSCRIPTIONS
To complete the organization of Smith River Bankshares, the
organizers/directors have subscribed for 12 shares at a price of $1.00 per
share. Upon release of the offering proceeds from escrow, we intend to
repurchase all of these organizational shares at their original purchase price.
ADVANCES FROM THE ORGANIZERS/DIRECTORS
To date, all costs associated with forming Smith River Bankshares and
Smith River Bank have been funded by advances from FCNB, LLC, the limited
liability company set up for this purpose and funded by the
organizers/directors. These include attorneys' fees, consulting fees,
feasibility studies, market analysis, rent, salary and other costs. The source
of all of these advances has been funds invested by the organizers/directors.
Amounts advanced through October 13, 1999 totaled approximately $355,000. It is
the intent of the organizers/directors that all remaining costs incurred prior
to the successful completion of Smith River Bankshares' proposed sale of the
stock will continue to be funded by advances from the organizers/directors.
After the sale of the stock, all funds advanced by the organizers/directors are
to be reimbursed by Smith River Bankshares without interest. If the offering of
stock is not successful in raising the minimum capitalization required, or if
required regulatory approvals are not obtained, Smith River Bankshares will be
unable to reimburse the organizers/directors for most of the expenses.
LENDING AND OTHER MATTERS
It is anticipated that our directors and officers, and the associated
businesses and other organizations will have banking transactions in the
ordinary course of business with Smith River Bank. It will be the policy of
Smith River Bank that any loans or other commitments to those persons or
entities will be made in accordance with applicable law and on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons or entities of similar
standing. Directors with a personal interest in any loan will be excluded from
the approval decision. All future transactions with affiliates will be on terms
no less favorable than could be obtained from an unaffiliated third party and
will be approved by a majority of directors including a majority of
disinterested directors, when the law requires.
In addition, each loan by Smith River Bank to any officer, director or
controlling person of Smith River Bank or any of its affiliates may be made only
in compliance with the following conditions: The loan
o will be evidenced by a promissory note naming Smith River Bank as payee and
will contain an annual percentage rate which is reasonably comparable to
that normally charged to non-affiliates by other commercial lenders for
similar loans made in Smith River Bank's locale;
o will be repaid according to appropriate amortization schedules and contain
default provisions comparable to those normally used by other commercial
lenders for similar loans made to non-affiliates in Smith River Bank's
locale;
o will be made only if credit reports and financial statements, or other
reasonable investigation appropriate in light of the nature and terms of
the loan and which meet the loan policies normally used by other commercial
lenders for similar loans made to non-affiliates in Smith River Bank's
locale, show the loan to be collectible and the borrower a satisfactory
credit risk; and
o the purpose of the loan and the disbursement of proceeds are reviewed and
monitored in a manner comparable to that normally used by other commercial
lenders for similar loans made in Smith River Bank's locale.
CONSULTING AGREEMENT
On December 8, 1998, we entered into a consulting agreement with Bank
Resources, Inc. Under the consulting agreement, Bank Resources has assisted in
the preparation of the charter application and the application for FDIC deposit
insurance for Smith River Bank. It has also prepared the business plan
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and policies and procedures manual for Smith River Bank. Bank Resources will
also assist in the preparation of Smith River Bankshares' and Smith River Bank's
applications to the Federal Reserve.
Under the consulting agreement, we will have paid Bank Resources the
aggregate of approximately $54,000 when Smith River Bank's charter is approved.
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DESCRIPTION OF SECURITIES
COMMON STOCK
Smith River Bankshares is authorized by our Articles of Incorporation
to issue 10,000,000 shares of common stock, no par value.
If you subscribe, you will be entitled to one vote per share on all
matters to be voted on by shareholders. You will not be entitled to cumulate
your votes in the election of directors, which means that the holders of a
majority of the shares voting for the election of directors can elect all of the
directors then standing for election should they choose to do so. Shareholders
are entitled to receive dividends, if any, declared from time to time by the
Board of Directors from funds legally available. Shareholders are entitled to
share pro rata in any distribution to the holders of common stock in the event
of any liquidation, dissolution or winding-up of Smith River Bankshares.
Shareholders have no preemptive or other subscription or conversion
rights. The shares have no redemption or sinking fund provisions. Upon payment
therefor, the shares will be fully paid and non assessable.
PREFERRED STOCK
Smith River Bankshares is authorized by its Articles of Incorporation
to issue up to 10,000,000 shares of preferred stock, no par value. No shares of
preferred stock have been issued. The Board of Directors may, in its sole
discretion and without further action by the shareholders, from time to time,
direct the issuance of preferred stock, in one or more series, for any proper
corporate purpose with those preferences, voting powers, conversion rights,
qualifications, special or relative rights and privileges as the Board of
Directors may determine. These terms of the preferred stock could adversely
affect the voting power or other rights of holders of the shares. Satisfaction
of any dividend preferences on outstanding preferred stock would reduce the
amount of funds available for the payment of dividends on the shares. In
addition, the holders of preferred stock would normally be entitled to receive a
preference payment in the event of any liquidation, dissolution or winding-up of
Smith River Bankshares before any payment is made to the holders of the shares.
The Board of Directors has no present plans or understandings for the issuance
of any preferred stock and does not intend to issue any preferred stock at this
time.
WARRANTS
The warrants to be issued as part of the units are detachable ten-year
rights to purchase one share at $10.00 per share. The warrants will be issued
pursuant to the Warrant Plan adopted by the Board of Directors of Smith River
Bankshares on July 27, 1999, and amended on August 26, 1999. The warrants, when
issued, will be represented by separate warrant agreements.
TRANSFER AGENT AND REGISTRAR
Unless we are required by law or administrative action to appoint an
independent transfer agent and registrar, Smith River Bank will act as transfer
agent and registrar for the shares.
REPORTS TO SHAREHOLDERS
We intend to furnish the shareholders with annual reports containing
audited financial statements and quarterly reports containing unaudited
financial information.
SECURITIES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Smith River Bankshares will have
87,500 warrants and a minimum of 625,000 shares and a maximum of 1,000,000
shares outstanding. The warrants are generally not transferable except by
operation of law. However, the warrants may be detached from the
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shares to which they are joined as part of these units. All of these shares
(including shares detached from warrants) will be freely tradable without
restriction or registration under the Securities Act of 1933, except for shares
of persons who, because they are directors, officers or 10% or more
shareholders, are "affiliates" of Smith River Bankshares, as that term is
defined under Rule 144. The shares owned by these "affiliates" will carry with
them restrictions on resale under the Securities Act as so-called "controlled
securities". Note that the shares issuable upon the exercise of stock options or
warrants will be "restricted securities". Both "controlled securities" and
"restricted securities" are eligible for sale in the open market only under Rule
144.
In general, under Rule 144, a person who has beneficially owned
restricted securities for at least one year would be entitled to sell, within
any three month period, in transactions executed by a broker or dealer on an
exchange or in the over-the-counter market, the number of securities that does
not exceed the greater of 1% of the securities then outstanding or the average
weekly trading volume of the securities in the market during the four calendar
weeks preceding the sale. Non-affiliates who have held their restricted
securities for at least two years would be entitled to sell those securities
under Rule 144 without regard to the volume limitation.
DEFENSIVE ANTI-TAKEOVER PROVISIONS
GENERAL
The provisions of Smith River Bankshares' Articles of Incorporation and
Bylaws described below will have an "anti-takeover" effect. We believe that the
provisions described below are prudent and will reduce our vulnerability to
takeover attempts and certain other transactions that may not be negotiated with
and approved by the Board of Directors. We believe that it is in the best
interest of Smith River Bankshares and our shareholders to encourage potential
acquirers to negotiate directly with the Board and that these provisions will
encourage negotiations and discourage hostile takeover attempts. It is also our
view that these "anti-takeover" provisions should not discourage persons from
proposing an acquisition or other transaction at prices reflective of the true
value of Smith River Bankshares that is in the best interest of all
shareholders. To be sure, the Board of Directors has a fiduciary obligation to
act in the best interest of the corporation in determining corporate action
without regard to these provisions.
DIRECTORSHIPS
Our Board of Directors is divided into three classes that must be as
close to equal in size as possible. The members of each class serve three-year
terms with each class being elected in successive years. Our Bylaws provide that
the size of the Board, within the five to twenty-five member range specified in
the Articles of Incorporation, is 12. This number may be changed only by
amending the Bylaw which the directors are permitted to do by a majority of a
quorum but which the shareholders may only do by at least an 80% vote of each
class of voting stock. The Articles of Incorporation also provide that any
vacancies on the Board of Directors, including a vacancy created by increasing
the number of directors, shall be filled by majority vote of directors in
office. It would require at least an 80% vote of each class of voting stock to
change this provision.
REMOVAL OF DIRECTORS
Smith River Bankshares' Articles of Incorporation provide that no
director may be removed except for cause and then only by the vote of holders of
at least two-thirds of the outstanding voting stock entitled to vote.
SPECIAL MEETINGS OF SHAREHOLDERS
Smith River Bankshares' Bylaws provide that a special meeting of
shareholders may be called by the Chairman of the Board, the President or by a
majority vote of the directors. It would require the vote of at least 80% of
each class of voting stock to change this Bylaw.
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APPROVAL OF CERTAIN BUSINESS TRANSACTIONS
Smith River Bankshares' Articles of Incorporation provide that the vote
of holders of at least 80% of each class of the outstanding voting stock is
required to approve certain mergers and other business combinations involving
Smith River Bankshares and an entity owning 5% or more of the company's voting
stock. However, if the proposed transaction is approved by the vote of at least
two-thirds of the directors then in office and the vote of a majority of the
members of the Board who are not affiliated with the large shareholder and who
were directors before the large shareholder acquired his or her 5% interest, it
will require only the minimum affirmative vote of shareholders required by law.
The same is true if certain conditions regarding what Smith River Bankshares'
shareholders will receive in the transaction are satisfied, even if the majority
of Board members fail to approve it.
AMENDMENT OF THE ARTICLES OF INCORPORATION
Smith River Bankshares' Articles of Incorporation authorize the
alteration, amendment or repeal of certain Articles by the affirmative vote of
holders of at least 80% of the outstanding voting stock. The alteration,
amendment or repeal of other Articles requires approval by the holders of only a
majority of a quorum of each group entitled to vote on the amendment.
AMENDMENT OF THE BYLAWS
Smith River Bankshares' Articles of Incorporation provide that the
Bylaws may be altered, amended or repealed, or new Bylaws adopted, by the Board
of Directors or the shareholders at a duly constituted meeting. This action by
the Board of Directors requires the vote of a majority of a quorum. This action
by the shareholders requires the affirmative vote of holders of at least 80% of
each class of the outstanding voting stock.
PREFERRED STOCK
The preferred stock, which could be issued in one or more series and
with appropriate voting, conversion or other rights, could discourage possible
acquirers of Smith River Bankshares from making a tender offer or other attempt
to gain control of the company.
LEGAL MATTERS
The legality of the shares and units is being passed upon for Smith
River Bankshares by Flippin, Densmore, Morse, Rutherford & Jessee, a
Professional Corporation, 1800 First Union Tower, Drawer 1200, Roanoke, Virginia
24011.
EXPERTS
The financial statements of Smith River Bankshares as of June 30, 1999,
and from the date of inception, December 15, 1998 through June 30, 1999, have
been included in this prospectus in reliance upon the report of McLeod &
Company, independent certified public accountants, which has been given upon the
authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
Smith River Bankshares has filed with the SEC a Registration Statement
under the Securities Act covering the securities offered in this offering. As
permitted by the rules and regulations of the SEC, this prospectus does not
contain all of the information contained in the Registration Statement and its
exhibits and reference is made to the Registration Statement and the exhibits
for further information concerning Smith River Bankshares and the securities.
Each statement contained in this prospectus as to the contents of a document
filed as an exhibit to the Registration Statement is qualified by reference to
the exhibit for a complete statement of its terms and conditions. Copies of this
material, as well as periodic
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reports and information filed by Smith River Bankshares, can be obtained upon
payment of the fees prescribed by the SEC, or may be examined at the offices of
the SEC without charge, at
o the public reference facilities in Washington, D.C. at Judiciary Plaza,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549;
o the Northeast Regional Office in New York at 7 World Trade Center, Suite
1300, New York, New York 10048; and
o the Midwest Regional Office in Chicago, Illinois at 500 West Madison
Street, Suite 1400, Chicago, Illinois 66661-2511.
The SEC maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants like us that
file electronically with the SEC. The address of SEC's site is
http://www.sec.gov.
Upon request, we will provide without charge to each person to whom a
copy of this prospectus is delivered, a copy of any or all of the documents
which are incorporated here by reference, other than exhibits to the documents
themselves, unless those exhibits are specifically incorporated by reference
into the documents. Requests should be directed to Cecil R. McCullar, President,
at our principal executive offices.
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SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Index to Financial Statements
Independent Auditors' Report F-2
Financial Statements:
Balance Sheet as of June 30, 1999 F-3
Statement of Loss for the Period December 15, 1998
(date of inception) through June 30, 1999 F-4
Statement of Shareholders' Deficit for the Period December 15, 1998
(date of inception) through June 30, 1999 F-5
Statement of Cash Flows for the Period December 15, 1998
(date of inception) through June 30, 1999 F-6
Notes to Financial Statements F-7
All schedules have been omitted because they are inapplicable or the required
information is provided in the financial statements, including the notes
thereto.
F-1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
Smith River Bankshares, Inc.
We have audited the accompanying balance sheet of Smith River Bankshares, Inc.,
a development stage enterprise, as of June 30, 1999, and the related statements
of loss, shareholders' deficit and cash flows for the period December 15, 1998
(date of inception) through June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Smith River Bankshares, Inc. as
of June 30, 1999, and the results of its operations and its cash flows for the
period December 15, 1998 (date of inception) through June 30, 1999, in
conformity with generally accepted accounting principles.
McLeod & Company
Roanoke, Virginia
July 26, 1999
F-2
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SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Balance Sheet
June 30, 1999
ASSETS
Cash $ 30,843
Deferred stock issuance costs 11,200
Deposits and prepaid expenses 602
---------
Total current assets 42,645
Furniture and fixtures 1,907
---------
Total Assets $ 44,552
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable and accrued expenses $ 34,357
Advances from related parties 150,000
---------
Total Liabilities 184,357
Shareholders' equity:
Preferred stock, no par value. Authorized
10,000,000 shares; none issued -
Common stock, no par value. Authorized
10,000,000 shares; issued and outstanding
12 shares 12
Deficit accumulated during the development
stage (139,817)
---------
Total shareholders' deficit (139,805)
---------
Total Liabilities and Shareholders' Deficit $ 44,552
==========
See accompanying notes to financial statements.
F-3
Page 36
<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
REVENUES
Interest income $ 1,626
-----------
EXPENSES
Salaries and employee benefits 53,206
Occupancy expense, supplies and other 8,592
Professional fees 62,120
Regulatory application fees 17,525
----------
Total expenses 141,443
---------
Net Loss $(139,817)
=========
Net Loss Per Share $ (11,651)
=============
See accompanying notes to financial statements.
F-4
Page 37
<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
Deficit
Number Accumulated
of During the Total
Common Common Development Shareholders'
Shares Stock Stage Deficit
Issuance of common stock 12 $ 12 - 12
Net loss since inception - - (139,817) (139,817)
------- -------- ------- -------
Balances at
June 30, 1999 12 $ 12 (139,817) (139,805)
====== ======= ======= =======
See accompanying notes to financial statements.
F-5
Page 38
<PAGE>
SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Statement of Cash Flows
For the Period December 15, 1998
(Date of Inception)
Through June 30, 1999
Cash Flows From Operating Activities
Net loss $(139,817)
Increase in deposits and prepaid expenses (602)
Increase in accounts payable and accrued expenses 34,357
---------
Net cash used by operating activities (106,062)
---------
Cash Flows From Investing Activities
Purchase of fixed assets (1,907)
---------
Net cash used by investing activities (1,907)
---------
Cash Flows From Financing Activities
Proceeds from advances from related parties 150,000
Proceeds from issuance of common stock 12
Costs of stock issuance (11,200)
----------
Net cash provided by financing activities 138,812
---------
Net increase in cash 30,843
Cash at inception -
---------
Cash at end of period $ 30,843
========
See accompanying notes to financial statements.
F-6
Page 39
<PAGE>
SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
June 30, 1999
1. SUMMARY OF ACCOUNTING POLICIES
(a) General
Smith River Bankshares, Inc. (the "Company"), a development stage
enterprise, was incorporated as a Virginia corporation effective
January 14, 1999, primarily to serve as a holding company for
Smith River Community Bank, N.A. (the "Bank"), upon formation of
the Bank. Prior to the formation of the Company, the Company's
shareholders (the "Organizers") formed FCNB LLC (the "LLC"), a
limited liability company, to organize the Company and the Bank
and provide for financing of organizational and other costs. The
financial statements reflect the operations of the Company and the
LLC since the date of formation, December 15, 1998. The Company is
in the process of completing the filing applications necessary to
form the Bank with the applicable regulatory authorities. The
Company anticipates raising between $6,250,000 and $10,000,000
through a public sale of its common stock. Subject to the
regulatory approval of the Bank's formation, the Company plans to
acquire all of the common stock of the Bank with the proceeds from
the sale of its common stock. Following the acquisition, the
business of the Company will be conducted through the Bank, which
will be its wholly-owned subsidiary. The Company's year end is
December 31. The Bank's market area will be south central
Virginia.
The offering also contemplates that the shares purchased by the
Organizers (maximum of 87,500 shares) would each have one common
stock warrant attached. The warrants will vest over a three year
period. Each warrant would entitle the holder to purchase one
share of common stock for $10.
The Company is totally dependent upon the successful completion of
the proposed offering as well as securing all required regulatory
approvals for its ability to commence its intended banking
operations. Based on current facts and circumstances, the
Organizers believe that the $6,250,000 minimum amount of capital
to be raised from the proposed sale of its common stock will be
sufficient to permit the Company to conduct its initial operations
as currently planned. To the extent the total capital raised in
this offering exceeds the $6,250,000 minimum, additional funds
will be available to invest in loans, securities and other earning
assets, subject to the limitations of the board's investment and
lending policies. Such additional capital could also provide
additional funds to enable the Bank to open additional branches.
Preliminary approval from the Office of the Comptroller of the
Currency ("OCC") has been obtained, but banking operations may not
begin until final OCC approval has been secured. Other regulatory
approvals, including the Federal Reserve and the Federal Deposit
Insurance Corporation ("FDIC"), are also required.
(b) Organizational Costs
The American Institute of CPA's has issued Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities." In general,
the SOP requires that organizational and similar start-up costs be
expensed. Examples of such costs that have been incurred by the
Company are legal fees, consulting fees, and application fees paid
to regulatory agencies. Prior to the effective date of the SOP,
generally accepted accounting principles permitted such costs to
be capitalized and amortized to expense. The Company adopted the
requirements of the SOP from its inception and has expensed
organizational costs.
F-7
Page 40
<PAGE>
SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(c) Deferred Stock Issuance Costs
The costs incurred through June 30, 1999 related to registering
and issuing the securities being offered are included in the
balance sheet under "deferred stock issuance costs." Such costs
are comprised primarily of professional fees and will be charged
against paid-in-capital upon the successful completion of the
stock offering. Approximately $52,000 of additional stock issuance
costs were incurred after June 30, 1999 through September 30,
1999, which was comprised primarily of professional fees and
securities registration fees.
(d) Income Taxes
The Company is subject to federal income taxes. No taxes have been
accrued or paid because of operating losses incurred during the
development stage, and the Company has not completed an operating
period requiring the filing of a tax return. No deferred tax
assets have been recorded to recognize potential future tax
benefits of (1) losses to date, and (2) future deductions for tax
purposes of organizational costs, because any deferred tax asset
would be fully offset by a valuation allowance under Statement of
Financial Accounting Standards No. 109. Such a valuation allowance
would be required in order to reflect the high degree of
uncertainty regarding the ultimate realization of the related tax
benefits.
(e) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. ADVANCES FROM RELATED PARTIES
Through June 30, 1999, all costs and disbursements associated with
forming the Company and the Bank, including attorneys' fees, consulting
fees, feasibility studies, market analysis, rent, salary and other
costs, have been funded by advances from the LLC. Amounts advanced by
the LLC through June 30, 1999 totaled $150,000. Upon successful
completion of the Company's proposed sale of common stock, these and
future funds advanced by the LLC are to be reimbursed by the Company,
without interest. If the offering of stock is not successful in raising
the minimum capitalization required, or if required regulatory
approvals are not obtained, the Company will be unable to reimburse the
LLC for most of the expenses, and the Organizers (who are members of
the LLC) will bear those costs.
3. LINE OF CREDIT
As of June 30, 1999 the Company had a commitment for a line of credit
from another bank providing for a maximum borrowing of $250,000. The
line was unsecured and guaranteed by the Organizers. The purpose of the
line was to provide start-up working capital pending the successful
sale of the Company's common stock. The commitment had an expiration
date of June 30, 2000. However, through June 30, 1999 the Company had
not borrowed any funds under the line, and the Organizers have since
decided to cancel it based on the expectation that any additional
capital needs during the period prior to the sale of stock will be
funded from additional investments by the Organizers.
F-8
Page 41
<PAGE>
SMITH RIVER BANKSHARES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
4. LEASES AND COMMITMENTS
The Company has entered into a lease for administrative office space
with a term beginning May 1, 1999 and expiring in 39 months. Rent for
the first three months is $750 per month, and thereafter increasing to
$1,000 per month. The Company may cancel the lease with 90 days'
notice.
The Company has also entered into separate leases for property to be
used as bank branches. One lease has a term of 36 months commencing
August 1, 1999, and requires a monthly rental of $2,500. The other
lease has a term of 36 months beginning when the branch begins
operations. At that point, the monthly rental will be $2,500. Prior to
that date, interim monthly rent of $500 is payable beginning June 1999.
Both leases are cancelable by the Company if it is unable to organize
and commence operations as planned. Total rent expense for all leases
totaled $2,000 for the period from inception to June 30, 1999.
The Company has entered into an employment agreement with its President
and Chief Executive Officer. The agreement has a three year term and is
automatically extended by one year if not terminated at least 90 days
prior to each anniversary date. It provides for a base annual salary of
$90,000. Additionally, after operations begin, 30,000 stock options
will be granted to the officer. One-third of the options will become
exercisable in each of the three years following the inception of
operations. The exercise price for all such options will be the fair
market value of the stock on the date of grant. Under the terms of the
agreement, the individual will continue in a consulting capacity after
the end of the period of employment.
F-9
Page 42
<PAGE>
Table of Contents
Prospectus Summary.....................................................2
Highlights of Offering.................................................3
Risk Factors...........................................................4
The Offering...........................................................8
Dilution..............................................................10
Use of Proceeds.......................................................10
Dividend Policy.......................................................12
Business..............................................................12
Market for Common Stock...............................................12
Management's Plan of Operation........................................18
Supervision and Regulation............................................19
Management............................................................21
Certain Transactions..................................................26
Description of Securities.............................................29
Legal Matters.........................................................31
Experts...............................................................31
Additional Information................................................31
Index to Financial Statements........................................F-1
----------
Until June 30, 2000, all dealers that buy, sell or trade these
securities, whether or not participating in this distribution, may be required
to deliver a prospectus.
(END OF BACK COVER)
Page 43
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 1...INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 13.1-692.1 of the Code of Virginia, 1950, as amended, places a
limitation on the liability of officers and directors of a corporation in any
proceeding brought by or in the right of the corporation or brought by or on
behalf of shareholders of the corporation. The damages asserted against an
officer or director arising out of a single transaction, occurrence, or course
of conduct shall not exceed the greater of $100,000 or the amount of cash
compensation received by the officer or director from the corporation during the
12 months immediately preceding the act or omission for which liability was
imposed. The statute also authorizes the corporation, in its articles of
incorporation or, if approved by the shareholders, in its bylaws, to provide for
a different specific monetary limit on, or to eliminate entirely, liability. The
liability of an officer or director shall not be limited or eliminated if the
officer or director engaged in willful misconduct or a knowing violation of the
criminal law or any federal or state securities law. The Company's Articles of
Incorporation contain a provision which eliminates, to the full extent that the
laws of the Commonwealth of Virginia permit, the liability of an officer or
director to the Company or its shareholders for monetary damages for any breach
of duty as a director or officer.
The Company's Articles of Incorporation also require the Company to
indemnify any director or officer who is or was a party to a proceeding,
including a proceeding by or in the right of the corporation, by reason of the
fact that he is or was such a director or officer or is or was serving at the
request of the Company as a director, officer, employee or agent of another
entity. Directors and officers of the Company are entitled to be indemnified
against all liabilities and expenses incurred by the director or officer in the
proceeding, except such liabilities and expenses as are incurred because of his
or her willful misconduct or knowing violation of the criminal law. Unless a
determination has been made that indemnification is not permissible, a director
or officer also is entitled to have the Company make advances and reimbursement
for expenses prior to final disposition of the proceeding upon receipt of a
written undertaking from the director or officer to repay the amounts advanced
or reimbursed if it is ultimately determined that he or she is not entitled to
indemnification. The Board of Directors of the Company also has the authority to
extend to employees, agents, and other persons serving at the request of the
Company the same indemnification rights held by directors and officers, subject
to all of the accompanying conditions and obligations.
Virginia Code ss. 13.1-700.1 permits a court, upon application of a
director or officer, to review the Company's determination as to a director's or
officer's request for advances, reimbursement or indemnification. If it
determines that the director or officer is entitled to such advances,
reimbursement or indemnification, the court may order the Company to make
advances and/or reimbursement for expenses or to provide indemnification, in
which case the court shall also order the Company to pay the officer's or
director's reasonable expenses incurred to obtain the order. With respect to a
proceeding by or in the right of the corporation, the court may order
indemnification to the extent of the officer's or director's reasonable expenses
if it determines that, considering all the relevant circumstances, the officer
or director is entitled to indemnification even though he or she was adjudged
liable, and may also order the Company to pay the officer's and director's
reasonable expenses incurred to obtain the order.
The Company has the power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another entity, against any liability asserted
against or incurred by such person, in any such capacity or arising from his or
her status as such, whether or not the Company would have the power to indemnify
such person against such liability under the Articles of Incorporation.
Page 44
<PAGE>
ITEM 2 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration fees $ 3,023.20
Blue sky fees and expenses (estimated) 5,000.00
Escrow Agent Fee (estimated) 7,500.00
Printing Expenses (estimated) 5,000.00
Legal Fees and Expenses (estimated) 40,000.00
Accounting Fees (estimated) 25,000.00
Miscellaneous Expenses (estimated) 14,476.80
-------------
TOTAL $100,000.00
*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, Smith River Bankshares issued an aggregate of 15
shares of common stock to the organizers. (This was done solely to facilitate
the organization.) Three directors resigned for personal reasons (health and
travel restrictions) early in the process, and their shares were canceled,
leaving 12 shares outstanding. In each case the subscriber was a resident of the
Commonwealth of Virginia and paid $1 per share. There were no underwriting fees,
discounts or commissions paid with
Page 45
<PAGE>
respect to these transactions. Smith River Bankshares intends to repurchase
these shares at the original purchase price upon the successful completion of
the offering.
The sales were made to persons who had access to the kind of
information which registration would disclose and who did not purchase the
shares for resale to the public. Also, these sales were made solely for the
purposes of completing the initial organization of Smith River Bankshares.
Accordingly, these sales constituted transactions by the company not involving a
public offering, separate and apart from this offering, which were exempt from
registration under Section 4(2) of the Securities Act of 1933. These securities
were also exempt from registration as part of an interstate issue under Section
3(a)(11) of the Securities Act of 1933.
ITEM 5. INDEX TO EXHIBITS
The following exhibits are filed as part of this Registration
Statement:
Number Description of Exhibit
- ------ ---------------------
3.1* Restated Articles of Incorporation of the Registrant, dated
July 8, 1999.
3.2* By-Laws of the Registrant, dated August 5, 1999.
4.1* Warrant Plan and Certificate as adopted July 27, 1999 and
amended August 26, 1999.
4.2 Provisions in Registrant's Articles of Incorporation and
Bylaws defining the rights of Holders of the Registrant's
common stock (included in Exhibits 3.1 and 3.2, respectively).
4.3 Form of Shares Subscription Agreement (included as Appendix A
to the Prospectus)
4.4 Form of Units Subscription Agreement (included as Appendix B
to the Prospectus)
5 Opinion of Flippin, Densmore, Morse, Rutherford & Jessee
regarding the legality of the securities to be offered.
10.1 Contribution Agreement among the Organizers, dated as of
December 8, 1998.
10.2* Lease dated April 6, 1999, with respect to the proposed
executive office of the Registrant.
10.3* Lease dated April 6, 1999, with respect to the proposed main
banking office of Smith River Community Bank, N.A.
10.4* Lease dated May 6, 1999, with respect to the possible branch
office of Smith River Community Bank, N.A.
10.5* Employment Agreement between the Registrant and Cecil R.
McCullar, dated as of June 1, 1999.
10.6* Consulting Agreement between the Registrant and Bank
Resources, Inc., dated December 8, 1998.
10.7* Escrow Agreement between First Citizens Bank & Trust Company
and the Registrant, dated September 8, 1999.
10.8 Software license and service agreement between FISERV
Solutions, Inc. and the Registrant dated September 1999.
10.9 Software license and maintenance agreement between Concentrex,
Inc./CFI Pro Services, Inc. and the Registrant, dated
September 27, 1999.
Page 46
<PAGE>
23.1 Consent of McLeod & Company.
23.2 Consent of Flippin, Densmore, Morse, Rutherford & Jessee,
(included in Exhibit 5).
27 Financial Data Disclosure Schedule
- ----------------
* (Incorporated by reference to Registration Statement # 333-86993 on Form SB-2
filed September 13, 1999.)
Page 47
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing a Form SB-2/A and has authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Martinsville, Commonwealth of Virginia, on October 21, 1999.
SMITH RIVER BANKSHARES, INC.
By: Cecil R. McCullar
----------------------------------------------------------------------
Cecil R. (Andy) McCullar, President and Chief Executive Officer
Under the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ------ ----
<S> <C> <C> <C>
Cecil R. McCullar 10/20/99
- -------------------------------------- President and Chief -----------
Cecil R. (Andy) McCullar Executive Officer, Director
Brenda H. Smith 10/20/99
- -------------------------------------- Senior Vice President/ ------------
Brenda H. Smith Chief Financial Office
- -------------------------------------- Director, Chairman of ------------
Mervyn R. King the Board of Directors
J. E. Bassett, Jr. Director 10/19/99
- -------------------------------------- ------------
J. E. Bassett, Jr.
- -------------------------------------- Director -----------
Patricia H. Brammer
Jesse D. Cahill, Sr. Director 10/20/99
- -------------------------------------- -----------
Jesse D. Cahill, Sr.
Morton W. Lester Director 10/20/99
- -------------------------------------- -----------
Morton W. Lester
Roxann B. Miller Director 10/20/99
- -------------------------------------- -----------
Roxann B. Miller
Jimmie R. Mills Director 10/19/99
- -------------------------------------- -----------
Jimmie R. Mills
- -------------------------------------- Director ------------
George R. Nelson, Jr.
Joe C. Philpott Director 10/19/99
- -------------------------------------- -----------
Joe C. Philpott
- -------------------------------------- Director -----------
Doug Riddle
Milford A. Weaver 10/21/99
- -------------------------------------- Director -----------
Milford A. Weaver
</TABLE>
Page 48
Exhibit 4.3
SMITH RIVER BANKSHARES, INC.
SHARES SUBSCRIPTION AGREEMENT
To: Smith River Bankshares, Inc.
Suite 12
730 East Church Street
Martinsville, Virginia 24114
Attn: Andy McCullar, President
Gentlemen:
You have informed me that Smith River Bankshares, Inc., a Virginia
corporation (the "Company"), is offering 912,500 shares of the Company's Common
Stock ("Shares") to the public at a price of $10.00 per Share payable as
provided herein and as described in and offered pursuant to the Prospectus
furnished to the undersigned herewith (the "Prospectus").
1. Subscription. Subject to the terms and conditions hereof, the
undersigned hereby tenders this subscription, together with payment indicated
below in United States currency by check, bank draft or money order payable to
"Smith River Bankshares, Inc. - Escrow Account", representing the payment of
$10.00 per Share for the number of Shares indicated below. The total
subscription price must be paid at the time the Subscription Agreement is
executed.
2. Acceptance of Subscription. It is understood and agreed that the
Company shall have the right to accept or reject this subscription in whole or
in part, for any reason whatsoever. The Company may reduce the number of Shares
for which the undersigned has subscribed, indicating acceptance of less than all
of the Shares subscribed on its written form of acceptance.
3. Acknowledgments. The undersigned hereby acknowledges receipt of a
copy of the Prospectus, 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.
4. Revocation. The undersigned agrees that once this Subscription
Agreement is tendered to the Company it may not be withdrawn by the undersigned
and that this Agreement shall survive the death or disability of the
undersigned.
<PAGE>
5. Governing Law. This Agreement is governed by Virginia law (other
than its principles of conflict of laws).
By executing this Agreement, the subscriber is not waiving any rights
he or she may have under federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934.
Please indicate in the space provided below ("Registration
Instructions") the exact name or names and address in which the stock
certificate representing Shares subscribed for hereunder should be registered.
- --------------------------------------------
No. of Shares Subscribed at $10.00 per Share
- --------------------------------------------
Total (Funds Tendered)
- --------------------------------------------
(Signature of Subscriber)
- --------------------------------------------
Name (Please Print)
- --------------------------------------------
(Signature of Subscriber)
- --------------------------------------------
Name (Please Print)
Date:
Residence Address:
- --------------------------------------------
- --------------------------------------------
City, State and Zip Code
- --------------------------------------------
Social Security Number or other
Taxpayer Identification Number
<PAGE>
REGISTRATION INSTRUCTIONS
Name:___________________________________
Mailing Address:___________________________________________________
___________________________________________________
Social Security Number of Taxpayer Identification Number:__________________
If certificates will be registered in more than one name, please print the full
name of each person or entity and indicate the type of legal ownership by using
the following abbreviations. If you fail to identify the type of legal
ownership, certificates for subscriptions made in the name of two or more
persons will be issued in the names of such persons as joint tenants with right
of survivorship, and not as tenants in common.
TEN COM - As Tenants in Common TEN ENT - As Tenants by the Entireties
JT TEN - As Joint Tenants with Right of Survivorship and not as Tenants in
Common UNIF GIFT MIN ACT - Under Uniform Gifts to Minor Act,
Custodian: __________________________________
Minor:______________________________________
INFORMATION: BANKING INTERESTS FOR SMITH RIVER BANK, N.A.
(IN ORGANIZATION)
(Note: The following information would be helpful in our organizational efforts,
and, if submitted, will be treated confidentially.)
Would you and/or your business be interested in becoming a depositor in Smith
River Bank?
Personal Account Yes [ ] No [ ]
Business Account Yes [ ] No [ ]
I will be interested in the following service(s) to be offered by the Bank:
[ ] Checking Account [ ] Certificate of Deposit
[ ] Business [ ] Commercial Loan
[ ] Personal [ ] Personal Loan
[ ] Savings Account [ ] Safe Deposit Box
[ ] Money Market Accounts [ ] Other:
Exhibit 4.4
SMITH RIVER BANKSHARES, INC.
UNITS SUBSCRIPTION AGREEMENT
To: Smith River Bankshares, Inc.
Suite 12
730 East Church Street
Martinsville, Virginia 24114
Attn: Andy McCullar, President
Gentlemen:
You have informed me that Smith River Bankshares, Inc., a Virginia
corporation (the "Company"), is offering 87,500 units, each consisting of one
share of the Company's Common Stock and a warrant to purchase one share of the
Company's Common Stock at a price of $10.00 per unit payable as provided herein
and as described in and offered pursuant to the Prospectus furnished to the
undersigned herewith (the "Prospectus").
1. Subscription. Subject to the terms and conditions hereof, the
undersigned hereby tenders this subscription, together with payment indicated
below in United States currency by check, bank draft or money order payable to
"Smith River Bankshares, Inc. - Escrow Account", representing the payment of
$10.00 per unit for the number of units indicated below. The total subscription
price must be paid at the time the Subscription Agreement is executed.
2. Acceptance of Subscription. It is understood and agreed that the
Company shall have the right to accept or reject this subscription in whole or
in part, for any reason whatsoever. The Company may reduce the number of Shares
for which the undersigned has subscribed, indicating acceptance of less than all
of the Shares subscribed on its written form of acceptance.
3. Acknowledgments. The undersigned hereby acknowledges receipt of a
copy of the Prospectus, 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
<PAGE>
and sale of Shares to the undersigned. This Subscription Agreement creates a
legally binding obligation, and the undersigned agrees to be bound by the terms
of this Agreement.
4. Revocation. The undersigned agrees that once this Subscription
Agreement is tendered to the Company it may not be withdrawn by the undersigned
and that this Agreement shall survive the death or disability of the
undersigned.
5. Governing Law. This Agreement is governed by Virginia law (other
than its principles of conflict of laws).
By executing this Agreement, the subscriber is not waiving any rights
he or she may have under federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934.
Please indicate in the space provided below ("Registration
Instructions") the exact name or names and address in which the stock
certificate representing Shares subscribed for hereunder should be registered.
- --------------------------------------------
No. of units Subscribed at $10.00 per unit
- --------------------------------------------
Total (Funds Tendered)
- --------------------------------------------
(Signature of Subscriber)
- --------------------------------------------
Name (Please Print)
- --------------------------------------------
(Signature of Subscriber)
- --------------------------------------------
Name (Please Print)
Date:
<PAGE>
Residence Address:
- --------------------------------------------
- --------------------------------------------
City, State and Zip Code
- --------------------------------------------
Social Security Number or other
Taxpayer Identification Number
REGISTRATION INSTRUCTIONS
Name:___________________________________
Mailing Address:___________________________________________________
___________________________________________________
Social Security Number of Taxpayer Identification Number:__________________
If certificates will be registered in more than one name, please print the full
name of each person or entity and indicate the type of legal ownership by using
the following abbreviations. If you fail to identify the type of legal
ownership, certificates for subscriptions made in the name of two or more
persons will be issued in the names of such persons as joint tenants with right
of survivorship, and not as tenants in common.
TEN COM - As Tenants in Common TEN ENT - As Tenants by the Entireties
JT TEN - As Joint Tenants with Right of Survivorship and not as Tenants in
Common UNIF GIFT MIN ACT - Under Uniform Gifts to Minor Act,
Custodian: __________________________________
Minor:______________________________________
Exhibit 5
---------
HUGH B. WELLONS
(540) 510-3057
[email protected]
October 21, 1999
Board of Directors
Smith River Bankshares, Inc.
Suite 12
Patrick Henry Mall
730 East Church Street
Martinsville, Virginia 24112
Re: Registration Statement on Form SB-2 with respect to a maximum
of 912,500 shares of common stock of Smith River Bankshares,
Inc. (the "Company") and 87,500 units, each unit consisting of
one share of common stock and one warrant to acquire one share
of common stock of the Company
Gentlemen:
We have acted as counsel for you in connection with preparation of the
registration statement on Form SB-2 and any amendments thereto (the
"Registration Statement"), pursuant to the provisions of the Securities Act of
1933, as amended, being filed with the Securities and Exchange Commission on
September 13, 1999, in respect of a maximum of 912,500 shares of Company common
stock and 87,500 units, each unit consisting of one share of common stock and
one warrant to acquire one share of common stock of the Company and, as such,
have examined the same and the exhibits being filed therewith.
We are generally familiar with your corporate affairs, including your
organization and the conduct of the corporate proceedings relating thereto. We
also have examined such of your corporate records as we have deemed necessary as
the basis for this opinion. Based upon the foregoing, it is our opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the Commonwealth of Virginia.
<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,
EXHIBIT 10.1
OPERATING AGREEMENT
OF FCNB, L.L.C.
This Agreement is entered into as of December 15, 1998, among the
Organizers (as defined below) of a proposed new bank to be located in the
Martinsville area of Virginia (the "Bank").
RECITALS
1. The undersigned organizers of the Bank, and those who may hereafter
join in the execution of this agreement as additional organizers of the Bank at
the invitation of the original organizers (collectively, the "Organizers"), all
acting as members of FCNB, L.L.C. (the "venture"), having agreed to join
together for the purpose of preparing and filing an application with the
Virginia Bureau of Financial Institutions (the "Bureau") or with the U.S.
Comptroller of the Currency (the "OCC") to organize the Bank and, if deemed
desirable, with the Board of Governors of the Federal Reserve System to qualify
a holding company for the Bank.
2. The Organizers have agreed, acting as members of the venture, to
underwrite the organizational and pre-opening expenses of the Bank and holding
company, if deemed desirable, which are to be reimbursed out of the proceeds of
the initial capitalization of the Bank or holding company, as the case may be.
3. The Organizers desire to divide among themselves responsibility for
payment of such expenses in the event the proposed organization of the Bank is
unsuccessful.
STATEMENT OF AGREEMENT
In consideration of the premises, the Organizers hereby agree as
follows:
1. Each of the Organizers shall contribute $10,000 to an organizational
expense fund to be maintained by a treasurer elected by the Organizers. The
treasurer shall be elected by a majority of the votes cast by the Organizers,
with each Organizer casting one vote for each dollar that he has contributed to
the venture, except that no Organizer shall receive a vote for any dollar
contributed in excess of the contribution requested of such Organizer by the
venture. From time to time upon receiving at least three business days
notification from the treasurer, each of the Organizers will promptly contribute
additional funds to the venture for the purpose of paying organizational
expenses up to an aggregate amount so contributed not to exceed the dollar
amount set out beside his name below. In addition, each of the Organizers shall
execute a line of credit to be established by the venture, with each Organizer
assuming a pro rata portion of the liability under the line of credit based on
such Organizer's share of the total commitments of all the Organizers to
purchase stock as indicated below. The total liability of all Organizers
<PAGE>
pursuant to the line of credit and the cash contributions together shall not
exceed $600,000, unless the Organizers by unanimous vote elect to raise the
ceiling. Organizational expenses shall not be incurred or committed if the total
amount at any time so incurred or committed together with those previously paid
shall exceed the ceiling established pursuant hereto.
2. The treasurer shall keep accurate books of account of his
collections and expenditures, and shall expend organizational funds only for
filing fees, legal and other professional and consulting fees, option or earnest
money on property selected for the Bank's premises, and other expenses
incidental to the organization and planning of the Bank and the holding company,
if one is organized to acquire and own the capital stock of the Bank. The books
of account maintained by the treasurer shall be open to inspection by any
Organizer at any reasonable time, and the treasurer shall furnish monthly
reports of his collections and expenditures to the Organizers.
3. It is contemplated that upon preliminary approval by the Bureau or
the OCC of the application to organize the Bank or sooner as may be required by
law or appropriate regulatory authorities, the initial capitalization will be
accomplished through a public offering of common stock of the Bank or the
holding company. Upon completion of the offering, it is contemplated that the
holding company or Bank will promptly reimburse the venture for the
organizational expenses advanced by it, and the venture shall then promptly make
pro rata distribution to the Organizers.
4. The venture shall be managed by the Organizers as a group, with all
business decisions (except as provided in paragraph 1 with respect to raising
the ceiling on the total liability of Organizers) to be made by majority vote of
the Organizers on the basis described in paragraph 1; provided that the
Organizers may delegate, by majority vote, any such decision(s) specifically or
generally to any person or persons as they may so choose and such decision(s)
when so delegated and made shall be fully binding on the Organizers.
5. Each of the Organizers contemplates that he will purchase a dollar
amount of stock as is set out beside his name below. This is a non-binding
statement of intent, and the stock of the Bank or holding company will be sold
only pursuant to a prospectus to be published after the Bank has received
preliminary approval to organize. If the application to organize does not
receive regulatory approval, or if the offering of stock is not successful in
raising the minimum capitalization required to open the Bank, or if the
Organizers by majority vote (on the basis described in paragraph 1) elect to
abandon the project, then the organizational expenses will be borne by the
Organizers. In the event the project is unsuccessful or abandoned, the
notwithstanding the provisions of paragraph 1, each Organizer will be
responsible for his pro rata portion of all organizational expenses paid, plus
those for which the Organizers have become liable, in the proportion that the
commitment of each Organizer bears to the total commitments of all of the
Organizers to purchase stock as indicated below. The amount of any deficit due
the organizational expense fund or any surplus from the expense fund which may
2
<PAGE>
be reimbursed to the Organizers shall be computed by the treasurer and shall be
promptly paid after rejection of the application or abandonment of the project.
6. If any Organizer shall at any time determine to abandon the project,
upon written notice to the treasurer of his decision he shall be entitled to a
refund of any contribution made to the venture, provided that such refund shall
be made at the same time that the other Organizers are reimbursed for their
contributions. Such an abandoning Organizer shall remain liable for his pro rata
portion of any loans (whether or not made prior to the notice of abandonment)
made under a line of credit established prior to the treasurer's receipt of the
notice of abandonment described above, except to the extent that the institution
issuing the line of credit and the remaining Organizers agree to release such
Organizer from liability for loans made after receipt of such notice. In
addition, if the Organizers are not fully reimbursed for their contributions, an
abandoning Organizer shall be entitled to a refund of a pro rata portion of his
contributions based on such Organizer's share of the total commitments of all
the Organizers to purchase stock as indicated below. If the Organizers are
required to contribute additional funds to satisfy the line of credit, any
abandoning Organizer shall be required to contribute additional funds to satisfy
such Organizer's liability under the line of credit to the extent the abandoning
Organizer remains liable as described above.
7. This Agreement may be executed by the Organizers in two or more
counterparts, each of which shall be an original but all of which shall
constitute one and the same instrument.
8. This Agreement will remain open for execution by additional
Organizers who are invited to join the venture by the unanimous consent of the
existing Organizers.
9. This Agreement shall be governed by Virginia law (excluding only
Virginia conflict of law principles) and each party hereto waives any objection
to personal jurisdiction or venue with respect to any action or suit which may
be brought based in whole or part on this Agreement in any state or federal
court located in Virginia.
10. Except as provided in this Agreement, no Organizer shall be
required under any circumstances to contribute or lend any money to the venture.
IN WITNESS WHEREOF, the Organizers have executed this Agreement as of
the date first written above.
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Name and Address Date Anticipated Stock Purchase
(Telephone Number)
Morton W. Lester 12-22-98 $100,000
P. O. Box 3747
Martinsville, VA 24115 ---------------------------
(540) 638-8783 (Signature)
J. E. Bassett, Jr. 12/15/98 $100,000
Box 550
Bassett, VA 24055 ---------------------------
(540) 629-2677 (Signature)
G. R. Nelson, Jr. 1/14/99 $100,000
P. O. Box 587
Bassett, VA 24055 ---------------------------
(540) 629-2521 (Signature)
Milford A. Weaver 1/14/99 $40,000
Box 215
Collinsville, VA 24078 ---------------------------
(540) 647-3804 (Signature)
Jimmie R. Mills 1/14/99 $50,000
7416 Va. Ave.
Bassett, VA 24055 ---------------------------
(540) 629-3366 (Signature)
Patricia E. Bassett Resigned $100,000
P. O. Box 110
Galax, VA 24333 ---------------------------
(540) 236-2382 (Signature)
Roxanne B. Miller 1/14/99 $60,000
P. O. Box 549
Bassett, VA 24055 ---------------------------
(540) 629-5200 (Signature)
Elbert H. Wampler Resigned $100,000
P. O. Box 189
Bassett, VA 24055 ---------------------------
(Signature)
4
<PAGE>
Spencer W. Morten, Jr. Resigned $100,000
P. O. Box 2052
Hobe Sound, FL 33475
_________________ ---------------------------
(Signature)
Mervyn R. King 12/18/98 $100,000
P. O. Box 126
Fieldale, VA 24089 ---------------------------
(540) 673-3925 (Signature)
C. R. McCullar 12/18/98 $100,000
5401 Flintlock Lane SW
Roanoke, VA 24014 ---------------------------
(Signature)
Jesse D. Cahill Sr. 1/14/99 $100,000
440 Murphy Rd
Collinsville, VA 24078 ---------------------------
(Signature)
Joe C. Philpott 1/14/99 $25,000
1041 Philpott Drive
Bassett, VA 24055 ---------------------------
(Signature)
Patricia Brammer ___________ $50,000
Cambridge Rd.
Bassett, VA 24055 ---------------------------
(Portland) (503)-263-2468 (Signature)
Douglas Riddle ___________ $50,000
910 Mulberry Rd
Martinsville, VA 24112 ---------------------------
(Signature)
</TABLE>
5
EXHIBIT 10.8
Agreement Number:
AGREEMENT
between
FISERV SOLUTIONS, INC.
255 Fiserv Drive
Brookfield, WI 53045-5815
and
SMITH RIVER COMMUNITY BANK, N.A.
Martinsville, Virginia
Date: September, 1999
FISERV(R)
1
<PAGE>
AGREEMENT dated as of __________ ("Agreement') between FISERV SOLUTIONS, INC., a
Wisconsin corporation ("Fiserv"), and Smith River Community Bank, a Virginia
Financial Institution ("Client").
Fiserv and Client hereby agree as follows:
1. Term. The initial term of this Agreement shall be 62 months and,
unless written notice of non-renewal is provided by either party at least 180
days prior to expiration of the initial term or any renewal term, this Agreement
shall automatically renew for a renewal term of 5 years. This Agreement shall
commence on the earliest of the day Fiserv Services (as defined below) are first
used by Client or April 1, 2000.
2. Services. (a) Services Generally. Fiserv, itself and through its
affiliates, agrees to provide Client, and Client agrees to obtain from Fiserv
services ("Services") and products ("Products") (collectively, "Fiserv
Services") described in the attached Exhibits:
Exhibit A - Account Processing Services
Exhibit H - Additional Services (Disaster Recovery)
The Exhibits set forth specific terms and conditions applicable to the
Services and/or Products, and, where applicable, the Fiserv affiliate so
performing. Client may select additional services and products from time to time
by incorporating an appropriate Exhibit to this Agreement.
(b) Conversion Services. Fiserv will convert Client's existing
applicable data and/or information to the Fiserv Services. Those activities
designed to transfer the processing from Clients present servicer to the Fiserv
Services are referred to as "Conversion Services". Client agrees to REASONABLY
cooperate with Fiserv in connection with Fiserv's provision of Conversion
Services and to provide all REASONABLY necessary information and assistance to
facilitate the conversion. Client is responsible for all out-of-pocket expenses
associated with the Conversion Services. TOTAL OUT-OF-POCKET EXPENSES SHALL NOT
EXCEED $12,000.00. Fiserv will provide Conversion Services as required in
connection with Fiserv Services.
(c) Training Services. Fiserv shall provide training, training aids,
user manuals, and other documentation for Client's use as Fiserv finds necessary
to enable Client personnel to become familiar with Fiserv Services. If requested
by Client, classroom training in the use and operation of Fiserv Services will
be provided at a training facility designated by Fiserv. All such training aids
and manuals remain Fiserv's property.
3. Fees for Fiserv Services. (a) General. Client agrees to pay Fiserv:
(i) estimated fees for Fiserv Services for the following month as
specified in the Exhibits;
(ii) estimated out-of-pocket charges for the following month payable
by Fiserv for the account of Client; and
(iii) estimated Taxes (as defined below) thereon (collectively,
"Estimated Fees").
Fiserv shall MONTHLY reconcile Estimated Fees paid by Client for the Fiserv
Services for the month and the fees and charges actually due Fiserv based on
Clients actual use of Fiserv Services for such month. Fiserv shall MONTHLY
either issue a credit to Client or provide Client with an invoice for any
additional fees or other charges owed. Fiserv may change the amount of Estimated
2
<PAGE>
Fees billed to reflect appropriate changes in actual use of Fiserv Services.
Estimated Fees may be increased from time to time as set forth in the Exhibits.
Upon notification to and acceptance by Client, Fiserv may increase its fees in
excess of amounts listed in the Exhibits in the event that Fiserv implements
major system enhancements to comply with changes in law, government regulation,
or industry practices.
(b) Additional Charges. Fees for out-of-pocket expenses, such as
telephone, microfiche, courier, and other charges incurred by Fiserv for goods
or services obtained by Fiserv on Client's behalf shall be billed to Client at
cost plus the applicable Fiserv administrative fee, NOT TO EXCEED 15%. Such
out-of-pocket expenses may be changed from time to time upon notification of a
fee change from a vendor/provider.
(c) Taxes. Fiserv shall add to each invoice any sales, use, excise,
value added, and other taxes and duties however designated that are levied by
any taxing authority relating to the Fiserv Services ("Taxes"). In no event
shall 'Taxes" include taxes based upon the net income OR PAYROLL of Fiserv.
(d) Exclusions. The Estimated Fees do not include, and Client shall be
responsible for, furnishing transportation or transmission of information
between Fiserv's service center(s), Client's site(s), and any applicable
clearing house, regulatory agency, or Federal Reserve Bank.
(e) Payment Terms. Estimated Fees are due and payable monthly upon
receipt of invoice. Client shall pay Fiserv through the Automated Clearing
House. In the event any amounts due remain unpaid beyond the 30th day after
payment is due, Client shall pay a late charge of 1.5% per month. Client agrees
that it shall neither make nor assert any right of deduction or set-off from
Estimated Fees on invoices submitted by Fiserv for Fiserv Services.
4. Access to Fiserv Services. (a) Procedures. Client agrees to comply
with applicable regulatory requirements and procedures for use of Services
established by Fiserv.
(b) Changes. Fiserv continually reviews and modifies Fiserv systems
used in the delivery of Services (the "Fiserv System") to improve service and
comply with government regulations, if any, applicable to the data and
information utilized in providing Services. Fiserv reserves the right to make
changes in Services, including but not limited to operating procedures, type of
equipment or software resident at, and the location of Fiserv's service
center(s). Fiserv will notify Client of any material change that affects Clients
normal operating procedures, reporting, or service costs prior to implementation
of such change.
(c) Communications Lines. Fiserv shall order the installation of
appropriate communication lines and equipment to facilitate Clients access to
Services. Client understands and agrees to pay charges relating to the
installation and use of such lines and equipment as set forth in the Exhibits.
3
<PAGE>
(d) Terminals and Related Equipment. Client shall obtain necessary and
sufficient terminals and other equipment, approved by Fiserv and compatible with
the Fiserv System, to transmit and receive data and information between Clients
location(s), Fiserv's service center(s), and/or other necessary location(s).
Fiserv and Client may mutually agree to change the type(s) of terminal and
equipment used by Client.
5. Client Obligations. (a) Input. Client shall be solely responsible
for the input, transmission, or delivery to and from Fiserv of all information
and data required by Fiserv to perform Services unless Client has retained
Fiserv to handle such responsibilities, as specifically set forth in the
Exhibits. The information and data shall be provided in a format and manner
approved by Fiserv. Client will provide at its own expense or procure from
Fiserv all equipment, computer software, communication lines, and interface
devices required to access the Fiserv System. If Client has elected to provide
such items itself, Fiserv shall provide Client with a list of compatible
equipment and software.
(b) Client Personnel. Client shall designate appropriate Client
personnel for training in the use of the Fiserv System, shall supply Fiserv with
reasonable access to Client's site during normal business hours for Conversion
Services and shall REASONABLY cooperate with Fiserv personnel in their
performance of Services, including Conversion Services.
(c) Use of Fiserv System. Client shall (i) comply with any operating
instructions on the use of the Fiserv System provided by Fiserv; (ii) review all
reports furnished by Fiserv for accuracy; and (iii) work with Fiserv to
reconcile any out of balance conditions. Client shall determine and be
responsible for the authenticity and accuracy of all information and data
submitted to Fiserv.
(d) Client's Systems. Client shall be responsible for ensuring that its
systems are Year 2000 compliant and capable of passing and/or accepting date
formats from and/or to the Fiserv System.
4
<PAGE>
6. Ownership and Confidentiality. (a) Definition.
(i) Client Information, "Client Information" means: (A) confidential
plans, customer lists, information (including financial information),
and other proprietary material of Client that is marked with a
restrictive legend, or if not so marked with such legend or is
disclosed orally, is identified as confidential at the time of
disclosure (and written confirmation thereof is promptly provided to
Fiserv); and (B) any information and data concerning the business and
financial records of Client's customers prepared by or for Fiserv, or
used in any way by Fiserv in connection with the provision of Fiserv
Services (whether or not any such information is marked with a
restrictive legend).
(ii) Fiserv Information. 'Fiserv Information" means: (A) confidential
plans, information, research, development, trade secrets, business
affairs (including that of any Fiserv client, supplier, or affiliate),
and other proprietary material of Fiserv that is marked with a
restrictive legend, or if not so marked with such legend or is
disclosed orally, is identified as confidential at the time of
disclosure (and written confirmation thereof is promptly provided to
Client); and (8) Fiserv's proprietary computer programs, including
custom software modifications, software documentation and training
aids, and all data, code, techniques, algorithms, methods, logic,
architecture, and designs embodied or incorporated therein (whether or
not any such information is marked with a restrictive legend).
(iii) Information. "Information" means Client Information and Fiserv
Information. No obligation of confidentiality applies to any
Information that the receiving party ('Recipient') (A) already
possesses without obligation of confidentiality; (B) develops
independently; or (C) rightfully receives without obligation of
confidentiality from a third party. No obligation of confidentiality
applies to any Information that is, or becomes, publicly available
without breach of this Agreement.
(b) Obligations. Recipient agrees to hold as confidential all
Information it receives from the disclosing party ("Disclosee'). All Information
shall remain the property of Discloser or its suppliers and licensors.
Information will be returned to Discloser at the termination or expiration of
this Agreement. Recipient will use the same care and discretion to avoid
disclosure of Information as it uses with its own similar information that it
does not wish disclosed, but in no event less than a reasonable standard of
5
<PAGE>
care. Recipient may use Information for any purpose that does not violate such
obligation of confidentiality. Recipient may disclose Information to
(i) employees and employees of affiliates who have a need to know; and
(ii) any other party with Discloser's written consent. Before
disclosure to any of the above parties, Recipient will have a written
agreement with such party sufficient to require that party to treat
Information in accordance with this Agreement. Recipient may disclose
Information to the extent required by law. However, Recipient agrees to
give Discloser prompt notice so that it may seek a protective order.
The provisions of this sub-section survive any termination or
expiration of this Agreement.
(c) Residuals. Nothing contained in this Agreement shall restrict
Recipient from the use of any ideas, concepts, know-how, or techniques contained
in Information that are related to Recipients business activities ("Residuals'),
provided that in so doing, Recipient does not breach its obligations under this
Section. However, this does not give Recipient the night to disclose the
Residuals except as set forth elsewhere in this Agreement.
(d) Fiserv System. The Fiserv System contains information and computer
software that are proprietary and confidential information of Fiserv, its
suppliers, and licensors. Client agrees not to attempt to circumvent the devices
employed by Fiserv to prevent unauthorized access to the Fiserv System,
including, but not limited to, alterations, decompiling, disassembling,
modifications, and reverse engineering thereof.
(e) Confidentiality of this Agreement. Fiserv and Client agree to keep
confidential the prices, terms and conditions of this Agreement, without
disclosure to third parties.
7. Regulatory Agencies, Regulations and Legal Requirements. (a) Client
Files. Records maintained and produced for Client ('Client Files') may be
subject to examination by such Federal, State, or other governmental regulatory
agencies as may have jurisdiction over Client's business to the same extent as
such records would be subject if maintained by Client on its own premises.
Client agrees that Fiserv is authorized to give all reports,
6
<PAGE>
summaries, or information contained in or derived from the data or information
in Fiserv's possession relating to Client when formally requested to do so by an
authorized regulatory or government agency. FISERV WILL PROVIDE CLIENT WRITTEN
NOTIFICATION OF SUCH REQUEST.
(b) Compliance with Regulatory Requirements. Client agrees to comply
with applicable regulatory and legal requirements, including without limitation:
(i) submitting a copy of this Agreement to the appropriate regulatory
agencies prior to the date Services commence;
(ii) providing adequate notice to the appropriate regulatory agencies
of the termination of this Agreement or any material changes in
Services;
(iii) retaining records of its accounts as required by regulatory
authorities;
(iv) obtaining and maintaining, at its own expense, any Fidelity Bond
required by any regulatory or governmental agency; and
(v) maintaining, at its own expense, such casualty and business
interruption insurance coverage for loss of records from fire,
disaster, or other causes, and taking such precautions regarding the
same, as may be required by regulatory authorities.
8. Warranties. (a) Fiserv Warranties. Fiserv represents and warrants
that:
(i)(A) Services will conform to the specifications set forth in the
Exhibits; (B) Fiserv will perform Client's work accurately provided
that Client supplies accurate data and information, and materially
follows the procedures described in all Fiserv documentation, notices,
and advices; (C) Fiserv personnel will exercise due care in provision
of Services; (D) the Fiserv System will comply in all material respects
with all applicable Federal and State regulations governing Services;
and (E) the Fiserv System is Year 2000 compliant. In the event of an
error or other default caused by Fiserv personnel, systems, or
equipment, Fiserv shall correct the data or information and/or
reprocess the affected item or report at no additional cost to Client.
Client agrees to supply Fiserv with a written request for correction of
the error within 7 days after Client's receipt of the work containing
the error. Work reprocessed due to errors in data supplied by Client,
on Client's behalf by a third party, or by Client's failure to
MATERIALLY follow procedures set forth by Fiserv shall be billed to
Client at Fiserv's then current time and material rates; and (ii) it
owns or has a license to furnish all equipment or software comprising
the Fiserv System. Fiserv shall indemnify Client and hold it harmless
against any claim or action that alleges that the Fiserv System use
infringes a United States patent, copyright, or other proprietary right
of a third party. Client agrees to notify Fiserv promptly of any such
claim and grants Fiserv the sole right to control the defense and
disposition of all such claims. Client shall provide Fiserv with
reasonable cooperation and assistance in the defense of any such claim.
7
<PAGE>
THE WARRANTIES STATED ABOVE ARE LIMITED WARRANTIES AND ARE THE ONLY WARRANTIES
MADE BY FISERV. FISERV DOES NOT MAKE, AND CLIENT HEREBY EXPRESSLY WAIVES, ALL
OTHER WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. THE STATED EXPRESS WARRANTIES ARE IN LIEU OF ALL LIABILITIES
OR OBLIGATIONS OF FISERV FOR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE
DELIVERY, USE, OR PERFORMANCE OF FISERV SERVICES.
(b) Client Warranties. Client represents and warrants that: (A) no
contractual obligations exist that would prevent Client from entering into this
Agreement; (B) it has complied with all applicable regulatory requirements; and
(C) Client has requisite authority to execute, deliver, and perform this
Agreement. Client shall indemnify and hold harmless Fiserv, its officers,
directors, employees, and affiliates against any claims or actions arising out
of (X) the use by Client of the Fiserv System in a manner other than that
provided in this Agreement; and (Y) any and all claims by third parties through
Client arising out of the performance and non-performance of Fiserv Services by
Fiserv, provided that the indemnity listed in clause (Y) hereof shall not
preclude Clients recovery of direct damages pursuant to the terms and subject to
the limitations of this Agreement.
9. Limitation of Liability. (a) General. IN NO EVENT SHALL FISERV BE
LIABLE FOR LOSS OF GOODWILL, OR FOR SPECIAL, INDIRECT, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES ARISING FROM CLIENT'S USE OF FISERV SERVICES, OR FISERVS
SUPPLY OF EQUIPMENT OR SOFTWARE, REGARDLESS OF WHETHER SUCH CLAIM ARISES IN TORT
OR IN CONTRACT. CLIENT MAY NOT ASSERT ANY CLAIM AGAINST FISERV MORE THAN 2 YEARS
AFTER SUCH CLAIM ACCRUED. FISERVS AGGREGATE LIABILITY FOR ANY AND ALL CAUSES OF
ACTION RELATING TO SERVICES SHALL BE LIMITED TO THE TOTAL FEES PAID BY CLIENT TO
FISERV FOR SERVICES RESULTING IN SUCH LIABILITY IN THE 2 MONTH PERIOD PRECEDING
THE DATE THE CLAIM ACCRUED. FISERVS AGGREGATE LIABILITY FOR A DEFAULT RELATING
TO EQUIPMENT OR SOFTWARE SHALL BE LIMITED TO THE AMOUNT PAID BY CLIENT FOR THE
EQUIPMENT OR SOFTWARE.
(b) Lost Records. If Clients records or other data submitted for
processing are lost or damaged as a result of any failure by Fiserv, its
employees, or agents to exercise reasonable care to prevent such loss or damage,
Fiserv's liability on account of such loss or damages shall not exceed the
reasonable cost of reproducing such records or data from exact duplicates
thereof in Clients possession.
8
<PAGE>
10. Disaster Recovery. (a) General. Fiserv maintains a disaster
recovery plan ("Disaster Recovery Plan") for each Service. A 'Disaster' shall
mean any unplanned interruption of the operations of or inaccessibility to
Fiserv's service center in which Fiserv, using reasonable judgment, requires
relocation of processing to a recovery location. Fiserv shall notify Client as
soon as possible after Fiserv deems a service outage to be a Disaster. Fiserv
shall move the processing of Client's standard services to a recovery location
as expeditiously as possible and shall coordinate the cut-over to back-up
telecommunication facilities with the appropriate carriers. Client shall
maintain adequate records of all transactions during the period of service
interruption and shall have personnel available to assist Fiserv in implementing
the switchover to the recovery location. During a Disaster, optional or
on-request services shall be provided by Fiserv only to the extent adequate
capacity exists at the recovery location and only after stabilizing the
provision of base services.
(b) Communications. Fiserv shall work with Client to establish a plan
for alternative communications in the event of a Disaster.
(c) Disaster Recovery Test. Fiserv shall test the Disaster Recovery
Plan periodically. Client agrees to participate in and REASONABLY assist Fiserv
with such test, if requested by Fiserv. Upon Client request, test results will
be made available to Clients management, regulators, auditors, and insurance
underwriters.
(d) Client Plans. Fiserv agrees to release information necessary to
allow Client's development of a disaster recovery plan that operates in concert
with the Disaster Recovery Plan.
(e) No Warranty. Client understands and agrees that the Disaster
Recovery Plan is designed to minimize, but not eliminate, risks associated with
a Disaster affecting Fiserv's service center(s). Fiserv does not warrant that
Fiserv Services will be uninterrupted or error free in the event of a Disaster;
no performance standards shall be applicable for the duration of a Disaster.
Client maintains responsibility for adopting a disaster recovery plan relating
to disasters affecting Client's facilities and for securing business
interruption insurance or other insurance necessary for Client's protection.
11. Termination. (a) Material Breach. Except as provided elsewhere in
this Section 11, either party may terminate this Agreement in the event of a
material breach by the other party not cured within 90 days following written
notice staffing, with particularity and in reasonable detail, the nature of the
claimed breach.
(b) Failure to Pay. In the event any invoice remains unpaid by Client
30 days after due, or Client deconverts any data or information from the Fiserv
System without prior written consent of Fiserv, Fiserv, at its sole option, may
terminate this Agreement and/or Clients access to and use of Fiserv Services.
Any invoice submitted by Fiserv shall be deemed correct unless Client provides
written notice to Fiserv within 30 days of the invoice date specifying the
nature of the disagreement.
(c) Remedies. Remedies contained in this Section 11 are cumulative and
are in addition to the other rights and remedies available to Fiserv under this
Agreement, by law or otherwise.
9
<PAGE>
(d) Defaults. If Client:
(i) defaults in the payment of any sum of money due;
(ii) breaches this Agreement in any material respect or otherwise
defaults in any material respect in the performance of any of its
obligations; or
(iii) commits an act of bankruptcy or becomes the subject of any
proceeding under the Bankruptcy Code or becomes insolvent or if any
substantial part of Client's property becomes subject to any levy,
seizure, assignment, application, or sale for or by any creditor or
governmental agency;
then, in any such event, Fiserv may, upon written notice, terminate this
Agreement and be entitled to recover from Client as liquidated damages an amount
equal to the present value of all payments remaining to be made hereunder for
the remainder of the initial term or any renewal term of this Agreement. For
purposes of the preceding sentence, present value shall be computed using the
'prime" rate (as published in THE WALL STREET JOURNAL in effect at the date of
termination and 'all payments remaining to be made' shall be calculated based on
the average bills for the 3 months immediately preceding the date of
termination. Client agrees to reimburse Fiserv for any expenses Fiserv may
incur, including reasonable attorneys' 'fees, in taking any of the foregoing
actions.
IF FISERV:
(i) BREACHES THIS AGREEMENT IN ANY MATERIAL RESPECT OR OTHERWISE
DEFAULTS in ANY MATERIAL RESPECT, in THE PERFORMANCE OF ANY OF ITS
OBLIGATIONS; OR
(ii) COMMITS AN ACT OF BANKRUPTCY OR BECOMES THE SUBJECT OF ANY
PROCEEDING UNDER THE BANKRUPTCY CODE OR BECOMES INSOLVENT OR IF ANY
SUBSTANTIAL PART OF FISERV'S PROPERTY BECOMES SUBJECT TO ANY LEVY,
SEIZURE, ASSIGNMENT, APPLICATION, OR SALE FOR OR BY ANY CREDITOR OR
GOVERNMENTAL AGENCY;
THEN, IN ANY SUCH EVENT, CLIENT MAY, UPON WRITTEN NOTICE, TERMINATE THIS
AGREEMENT, WITHOUT PENALTY OR DECONVERSION FEES.
(e) Convenience. Client may terminate this Agreement during any term by
paying a termination fee based on the remaining unused term of this Agreement,
the amount to be determined by multiplying Clients AVERAGE monthly invoice for
each Fiserv Service received by Client during the term (or if no monthly invoice
has been received, the sum of the estimated monthly billing for each Fiserv
Service to be received hereunder) by 80% times the remaining months of the term,
plus any unamortized conversion fees or third party costs existing on Fiserv's
books on the date of termination. Client understands and agrees that Fiserv
losses incurred as a result of early termination of the Agreement would be
difficult or impossible to calculate as of the effective date of termination
since they will vary based on, among other things, the number of clients using
the Fiserv System on the date the Agreement terminates. Accordingly, the amount
set forth in the first sentence of this subsection represents Client's agreement
to pay and Fiserv's agreement to accept as liquidated damages (and not as a
penalty) such amount for any such Client termination.
(f) Merger. In the event of a merger between Client and another
organization in which Client is not the surviving organization and where the
other organization was not previously a user of Fiserv services similar to the
Services, Fiserv will allow an early termination of this Agreement upon the
following terms and conditions:
(i) written notice must be given 3 months in advance, specifying the
termination date;
(ii) Fiserv may specify a deconversion date based on its previous
commitments and work loads; and
(iii) Fiserv may charge a termination fee in accordance with subsection
(e) above.
10
<PAGE>
(g) Return of Data Files. Upon expiration or termination of this
Agreement, Fiserv shall furnish to Client such copies of Client Files as Client
may request in Fiserv's standard machine readable format along with such
information and assistance as is reasonable and customary to enable Client to
deconvert from the Fiserv System, provided, however, that Client consents and
agrees and authorizes Fiserv to retain Client Files until (i) Fiserv is paid in
full for (A) all Services provided through the date such Client Files are
returned to Client; and (B) any and all other amounts that are due or will
become due under this Agreement; (ii) Fiserv is paid its then standard rates for
the services necessary to return such Client Files; (iii) if this Agreement is
being terminated, Fiserv is paid any applicable termination fee pursuant to
subsection (d),(e), or (f) above; and (iv) Client has returned to Fiserv all
Fiserv Information. Unless directed by Client in writing to the contrary, Fiserv
shall be permitted to destroy Client Files any time after 30 days from the final
use of Client Files for processing.
(h) Miscellaneous, Client understands and agrees that Client is
responsible for the deinstallation and return shipping of any Fiserv-owned
equipment located on Client's premises.
12. Arbitration. (a) General Except with respect to disputes arising
from a misappropriation or misuse of either party's proprietary rights, any
dispute or controversy arising out of this Agreement, or its interpretation,
shall be submitted to and resolved exclusively by arbitration under the rules
then prevailing of the American Arbitration Association, upon written notice of
demand for arbitration by the party seeking arbitration, setting forth the
specifics of the matter in controversy or the claim being made. The arbitration
shall be heard before an arbitrator mutually agreeable to the parties; provided,
that if the parties cannot agree on the choice of arbitrator within 1 0 days
after the first party seeking arbitration has given written notice, then the
arbitration shall be heard by three arbitrators, one chosen by each party, and
the third chosen by those two arbitrators. The arbitrators will be selected from
a panel of persons having experience with and knowledge of information
technology and at least one of the arbitrators selected will be an attorney. A
hearing on the merits of all claims for which arbitration is sought by either
party shall be commenced not later than 90 days from the date demand for
arbitration is made by the first party seeking arbitration. The arbitrator(s)
must render a decision within 10 days after the conclusion of such heading. Any
award in such arbitration shall be final and binding upon the parties and the
judgment thereon may be entered in any court of competent jurisdiction.
(b) Applicable Law. The arbitration shall be governed by the United
States Arbitration Act, 9 U.S.C. 1-16. The arbitrators shall apply the
substantive law of the State of Wisconsin, without reference to provisions
relating to conflict of laws. The arbitrators shall not have the power to alter,
modify, amend, add to, or subtract from any term or provision of this Agreement,
nor to rule upon or grant any extension, renewal, or continuance of this
Agreement. The arbitrators shall have the authority to grant any legal remedy
available had the parties submitted the dispute to a judicial proceeding.
(c) Situs. If arbitration is required to resolve any disputes between
the parties, the proceedings to resolve the first such dispute shall be held in
Martinsville, Virginia, the proceedings to resolve the second such dispute shall
be held in Atlanta, Georgia, and the proceedings to resolve any subsequent
disputes shall alternate between Atlanta, Georgia and Martinsville, Virginia.
11
<PAGE>
13. Insurance. Fiserv carries the following types of insurance
policies:
(i) Comprehensive General Liability in an amount not less than $1
million per occurrence for claims arising out of bodily injury and
property damage;
(ii) Commercial Crime covering employee dishonesty in an amount not
less than $5 million;
(iii) All-risk property coverage including Extra Expense and Business
Income coverage; and
(iv) Workers Compensation as mandated or allowed by the laws of the
state in which Services are being performed, including $500,000
coverage for Employer's Liability.
14. Audit. Fiserv employs an internal auditor responsible for ensuring
the integrity of its processing environments and internal controls. In addition,
Fiserv provides for periodic independent audits of its operations. Fiserv shall
provide Client with a copy of the audit of the Fiserv service center providing
Services within a reasonable time after its completion and shall charge each
client a fee based on the pro rata cost of such audit. Fiserv shall also provide
a copy of such audit to the appropriate regulatory agencies, if any, having
jurisdiction over Fiserv's provision of Services.
15. General. (a) Binding Agreement. This Agreement is binding upon the
parties and their respective successors and permitted assigns. Neither this
Agreement nor any interest may be sold, assigned, transferred, pledged, or
otherwise disposed of by Client, whether pursuant to change of control or
otherwise, without Fiserv's prior written consent. Client agrees that Fiserv may
subcontract any Services to be performed hereunder. Any such subcontractors
shall be required to comply with all applicable terms and conditions.
12
<PAGE>
(b) Entire Agreement. This Agreement, including its Exhibits, which are
expressly incorporated herein by reference, constitutes the complete and
exclusive statement of the agreement between the parties as to the subject
matter hereof and supersedes all previous agreements with respect thereto.
Modifications of this Agreement must be in writing and signed by duly authorized
representatives of the parties. Each party hereby acknowledges that it has not
entered into this Agreement in reliance upon any representation made by the
other party not embodied herein. In the event any of the provisions of any
Exhibit are in conflict with any of the provisions of this Agreement, the terms
and provisions of this Agreement shall control unless the Exhibit in question
expressly provides that its terms and provisions shall control.
(c) Severability. If any provision of this Agreement is held to be
unenforceable or invalid, the other provisions shall continue in full force and
effect.
(d) Governing Law. This Agreement will be governed by the substantive
laws of the State of Wisconsin, without reference to provisions relating to
conflict of laws. The United Nations Convention of Contracts for the
International Sale of Goods shall not apply to this Agreement.
(e) Force Majeure. Neither party shall be responsible for delays or
failures in performance resulting from acts reasonably beyond the control of
that party.
(f) Notices. Any written notice required or permitted to be given
hereunder shall be given by: (i) Registered or Certified Mail, Return Receipt
Requested, postage prepaid; (ii) confirmed facsimile; or (iii) nationally
recognized courier service to the other party at the addresses listed on the
cover page or to such other address or person as a party may designate in
writing. All such notices shall be effective upon receipt.
(g) No Waiver. The failure of either party to insist on strict
performance of any of the provisions hereunder shall not be construed as the
waiver of any subsequent default of a similar nature.
(h) Financial Statements. Fiserv shall provide Client and the
appropriate regulatory agencies so requiring a copy of Fiserv, Inc.'s audited
consolidated financial statements.
(i) Prevailing Party. The prevailing party in any arbitration, suit, or
action brought against the other party to enforce the terms of this Agreement or
any rights or obligations hereunder, shall be entitled to receive its reasonable
costs, expenses, and attorneys" fees of bringing such arbitration, suit, or
action.
(j) Survival. All rights and obligations of the parties under this
Agreement that, by their nature, do not terminate with the expiration or
termination of this Agreement shall survive the expiration or termination of
this Agreement.
(k) Exclusivity. Client agrees that Fiserv shall be the sole and
exclusive provider of the services that are the subject matter of this
Agreement. For purposes of the foregoing, the term "Client" shall include Client
affiliates. During the term of this Agreement, Client agrees not to enter into
an agreement with any other entity to provide these services (or similar
services) without Fiserv's prior written consent. If Client acquires another
entity, the exclusivity provided to Fiserv hereunder shall take effect with
respect to such acquired entity as soon as practicable after termination of such
acquired entity's previously existing arrangement for these services. If Client
is acquired by another entity, the exclusivity provided to Fiserv hereunder
shall apply with respect to the level or volume of these services provided
immediately prior to the signing of the definitive acquisition agreement
relating to such acquisition and shall continue with respect to the level or
volume of these services until any termination or expiration of this Agreement.
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<PAGE>
(1) Recruitment of Employees. Client agrees not to hire Fiserv's
employees during the term of this Agreement and for a period of 6 months after
any termination or expiration thereof, except with Fiserv's prior written
consent. FISERV AGREES NOT TO HIRE CLIENT'S EMPLOYEES DURING THE TERM OF THIS
AGREEMENT AND FOR A PERIOD OF SIX (6) MONTHS AFTER ANY TERMINATION THEREOF,
EXCEPT WITH CLIENT'S PRIOR WRITTEN CONSENT.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the date indicated below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
For Client: For Fiserv:
SMITH RIVER COMMUNITY BANK FISERV SOLUTIONS, INC.
By: ______________________________ By: ____________________________
Name: _______________________________ Name: __________________________
Title: ______________________________ Title: ___________________________
Date: ________________________________ Date: ___________________________
</TABLE>
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<PAGE>
AGREEMENT ADDENDUM
1. Fiserv Agreement is executed based upon pending Regulatory approval of Smith
River Community Bank.
2. Fiserv Agreement is executed pending capital funding of Smith River Community
Bank.
ACCEPTED BY:
SMITH RIVER COMMUNITY BANK FISERV SOLUTIONS, INC.
- -------------------------------- --------------------------
Authorized Signature Authorized Signature
Printed Name: Printed Name:
Title: Title:
- -------------------------------- --------------------------
Date Date
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<PAGE>
Exhibit A
Account Processing Services
---------------------------
Client agrees with Fiserv as follows:
1 . Services. Fiserv will provide Client the Account Processing
Services ("Account Processing Services") specified in Exhibit A-1.
2. Fees. Client shall pay Fiserv fees and other charges for Account
Processing Services specified in Exhibit A-2.
3. Responsibility for Accounts. Client shall be responsible for
balancing its accounts each business day and notifying Fiserv immediately of any
errors or discrepancies. Provided that Client immediately notifies Fiserv of any
discrepancy in Clients accounts, Fiserv shall, at its expense, promptly
recompute accounts affected by discrepancies solely caused by the Fiserv Systems
or provide for another mutually agreeable resolution. Fiserv will use its
commercially reasonable efforts to correct errors attributable to Client or
Client's other third party servicers. Reconstruction of error conditions
attributable to Client or to third parties acting on Client's behalf will be
done at prevailing rates as set forth in Exhibit A-2.
4. Annual Histories. Fiserv currently maintains annual histories, where
applicable, for its clients. These histories can be used to reconstruct Client
Files in an emergency. However, in order to permit prompt and accurate
reconstruction of accounts, Client agrees to retain at all times and make
available to Fiserv upon request the most recent data printout(s) received from
Fiserv, together with copies or other accurate and retrievable records of all
transactions to be reflected on the next consecutive printout(s).
5. Hours of Operation. Account Processing Services will be available
for use by Client during standard Fiserv business hours, excluding holidays, as
specified in Exhibit A-3. Account Processing Services may be available during
additional hours, during which time Client may use Services at its option and
subject to additional charges.
6. Protection of Data. (a) For the purpose of compliance with
applicable government regulations, Fiserv has an operations backup center, for
which Client agrees to pay the charges indicated in Exhibit A-2. Copies of
transaction files are maintained by Fiserv off premises in secured vaults.
(b) Fiserv provides "on-line" security via utilization of leased lines
with poll/select protocol.
(c) Upon Client providing access to Client Files through Client's
customers' personal computers or voice response system, Client agrees to
indemnify and hold harmless Fiserv, its officers, directors, employees, and
affiliates against any claims or actions arising out of such access to Client
Files or any Fiserv files (including the files of other Fiserv clients) or the
Fiserv System or other Fiserv systems.
7. Processing Priority. Fiserv does not subscribe to any processing
priority; all -users receive equal processing consideration.
8. Forms and Supplies. Client assumes and will pay the charges for all
customized forms, supplies, and delivery charges. Custom forms ordered through
Fiserv will be subject to a 15%
16
<PAGE>
administrative fee for warehousing and inventory control. Forms ordered by
Client and warehoused at Fiserv will be subject to the administrative fee set
forth in Exhibit A-2.
9. Regulatory Supervision. By entering into this Agreement, Fiserv
agrees that the Office of Thrift Supervision, FDIC, or other regulatory agencies
having authority over Client's operations shall have the authority and
responsibility provided to the regulatory agencies pursuant to the Bank Service
Corporation Act, 12 U.S.C. 1867(C) relating to services performed by contract or
otherwise.
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit A to the
Agreement to be executed by their duly authorized representatives as of the date
indicated below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SMITH RIVER COMMUNITY BANK FISERV SOLUTIONS, INC.
By: _________________________________ By: _____________________________
Name: _______________________________ Name: __________________________
Title: ________________________________ Title: __________________________
Date: _______________________________ Date: __________________________
</TABLE>
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<PAGE>
Exhibit A-1
Account Processing Services
---------------------------
Fiserv will provide Client with the following Account Processing Services:
1. Services and/or functions to be performed by Fiserv:
A. Maintain the necessary computer equipment in order to provide
Client with complete electronic bookkeeping service for
Deposit Accounts, Certificate Accounts, Loan Accounts, Central
Information System, Account Analysis, ACH (Receiving), General
Ledger, and On-Line Documentation five (5) days per week. The
Information Technology, Inc. (ITI) Premier 11 Banking System
will be used for Client's application processing.
B. Provide necessary assistance to Client for the initial set-up
to convert to the Fiserv system. Customer Service is provided
by toll-free telephone as follows:
(1) Full Customer Service specialists for all applications, Monday
through Friday - 8:00 a.m. to 5:00 p.m. (EST)
(2) Limited telephone coverage, Monday through Friday - 5:00 p.m.
to 7:00 p.m. (EST)
(3) Emergency after hours Customer Service, via Beeper - 24
hours/day, 7 day/week
C. Receive transmitted transaction data from Client at Fiserv by
7:00 p.m. (EST) daily or receive transaction input at a Fiserv
center at mutually agreed time. If transaction data is not
received by this appropriate time, assurance cannot be made
for meeting the Client's scheduled needs the following day.
D. Reconcile Client's balancing totals.
E. Exercise reasonable care in handling data submitted to Fiserv
and hold all information received by Fiserv in strictest
confidence.
F. Calculate and provide figures for the daily accrual of
interest earned, late charges due, and service charges.
G. Transmit selected reports to Client's remote print facility or
Fiserv facility for printing.
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<PAGE>
II. Services, functions and requirements to be performed by Client for
participation in this agreement:
A. Purchase/lease all equipment required in the bank to utilize
the services provided by Fiserv.
B. Provide transmitted data to Fiserv's Computer Center daily by
7:00 p.m. EST, or provide input data to a Fiserv center by
mutually agreed times, records containing the necessary
information to process the applications.
C. Provide information on new accounts, change of address,
changes of title and status change through the online data
entry system.
D. Repair and re-enter for reprocessing all rejected items,
handle return items and reconcile controls.
E. Verify signatures and stop payments, cancel and file checks,
microfilm, assemble and mail statements, handle return items
and reconcile controls.
F. Balance work daily to General Ledger Controls, verify new and
re-issued coupon books, and mail notices.
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<PAGE>
Exhibit A-2
Account Processing Services
---------------------------
Fiserv will provide Client with the following Account Processing Services at the
fees and prices indicated:
1. Fees to be paid monthly by Client to Fiserv for performance of the services
---------------------------------------------------------------------------
outlined in Section 1:
- ----------------------
A. Monthly Processing Fees The Client will be charged a monthly
fee of $ 0.70 per account on file (Deposit, Loan). The Client
will be charged a monthly fee of $ 0.15 per account on file
(General Ledger).
Monthly Core Processing Minimums:
Year 1 $2,500.00
Year 2 $2,500.00
Year 3 $2,800.00
Year 4 $2,800.00
Year 5 $3,000.00
The initial two (2) months core account processing will be provided at
no charge,
B. Loan Coupon Books* $ 2.05 Each (Postage Additional)
-----------------
C. Furnished by Client*
-------------------
Postage/Courier Fees
Telephone Lines
Modems and Annual Modem Maintenance In-Bank Terminal Equipment/Software
In-Bank Equipment/Software Maintenance
D. Conversion/Installation Fees $ 5,000.00
----------------------------
A flat fee of $ 5,000.00 will be charged to convert to Premier 11 plus
travel and related expenses, TRAVEL AND RELATED EXPENSES SHALL NOT
EXCEED $12,000.00.
E. Supplies
--------
All forms necessary to the daily operations of Fiserv's System can be
purchased through Fiserv at prices quoted at the time of purchase.
F. Miscellaneous Services
----------------------
30 Smart Reports will be provided and included in Base Monthly
Processing Fee. Additional services provided per Exhibit A-4.
G. Platform/Teller Interfaces $250.00 Each Per Function (i.e
Deposit/Loan/Teller)
--------------------------
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<PAGE>
<TABLE>
<CAPTION>
Exhibit A-2
H. ATM/EFT Service
---------------
Installation Fees:
<S> <C>
One-Time Charge $ 5,000.00
Per ATM Connect Fee 1st ATM Included, Additional $500.00
Per Network 1st Network Included, Additional $500.00
Surcharge Set-Up Included included
Surcharge Set-Up Per ATM 1st ATM Included, Additional $150.00
Communication Install Fee Pass Through
Monthly Charges
Fiserv Support $ 400.00
Network Support per Network $ 100.00
Card Base Record $ 0.06 Per Card
$ 100.00 Minimum
Per ATM Connect Fee $ 150.00 Per Device
Per ATM 7 X 24 Monitoring Fee $ 15.00 Per Device
Communication Line Cost Pass Through
Per Transaction Fees
ON/US Transaction Fees $ 0.10
Foreign Transaction Fees $ 0.10
Surcharge Transaction Fees $ 0.15 In Addition to Above
Transaction Fees
ATM Cards
Plastic Stock Pass Through
New Card Order $ 1.75 Per Card
PIN Mailer $ 0.35 Per Mailer
Postage Pass Through
Non-Atlanta Host Authorization
One-Time Set-Up $ 1,500.00
Monthly Charge $ 500.00 Base Plus $.06 Per Card
Record On File
Positive Balance File (PBF)
One-Time Set-Up $ 1,500.00
Monthly Charge $ 600.00
Communications Charges Pass Through
Visa Debit Processing Per Separate Quote
</TABLE>
I. End of Year Processing
----------------------
Per fee schedule published annually.
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<PAGE>
J. On-Line Terminal Support
------------------------
Exhibit A-3
Hours of Operation
------------------
The Fiserv Account Processing Center will be in operation for On-Line Accounting
Processing Services in accordance with the following:
Monday 8:00 A.M. - 7:00 P.M.
Tuesday 8:00 A.M. - 7:00 P.M.
Wednesday 8:00 A.M. - 7:00 P.M.
Thursday 8:00 A.M. - 7:00 P.M.
Friday 8:00 A.M. - 7:00 P.M.
Saturday 8:00 A.M. - 4:00 P.M.
All times stated are in accordance with prevailing local times for the Fiserv
Account Processing Center. The Fiserv Account Processing Center will observe
national holidays, and will be closed for on-line operations.
22
<PAGE>
<TABLE>
<CAPTION>
Exhibit A-4
MISCELLANEOUS SERVICES
REQUEST FEE
------- ---
<S> <C> <C>
BDS050-SMART Reports & Pull Files $50 Per Report/File
BDS061/BDS062 $50 Per Month
Safe Deposit Box Billing
Safe Deposit Box Trial and Past Due Reports
BDS071 $50 Per Request
Debit Card Reference Journal
BDS072 $50 Per Request
Debit Card Billing
BDS200 $85 Per Request
"On-Demand' Statement Cycles
BDS221 $340 Per Request*
DDA Month End Account Profitability Analysis *One execution of this program is included
with month end processing. Charge would
only apply to requests other than month
end.
BDS 252 $170 Per Request*
DDA Balance Range Report *One execution of this program is included
with month end processing. Charge would
only apply to requests other than month
end.
BDS253 $100 Plus $.35 per Confirmation
Audit Confirmations - DDA
BDS255 $85 Per Request
Account Code/Cycle Distribution Report
BDS258 Standard at month end only. Other
DDA Holds Report requests $85.00
BDS262 $85 Per Request
Report Errors Concerning DDA Stmts.
BDS352 $170 Per Request*
SAV Balance Range Report *One execution of this program is included
with month end processing. Charge would
only apply to requests other than month
end.
BDS353 $100 Plus $.35 per Confirmation
Audit Confirmations - SAV
23
<PAGE>
Exhibit A-4
BDS365 $85 Per Request
Account Code/Cycle Distribution Report
BDS358 Standard at month end only. Other
Report of SAV Holds requests $85.
BDS360 Standard at month end only. Other
Automatic Transfers to DDA Report requests $85.
BDS361 Standard at month end only. Other
Savings Balances Subject to Rate Change requests $85.
BDS452 $170 Per Request*
CD Analysis Reports *One execution of this program is
included with month end processing.
Charge would only apply to requests
other than month end.
BDS453 $100 Plus $.35 per Confirmation.
Audit Confirmations - CD
BDS455 $85 Per Request
Account Code/Cycle Distribution Report
BDS458 $85 Per Request
Report of CD Holds
BDS531 Standard at month end only. Other
Loan Status Report - Reports by Product requests $85.
BDS534 Standard at month end only. Other
FHA Title I Home Improvement Loan Reporting requests $85.
BDS544 Standard at month end only. Other
Escrow Addenda Reference Journal requests $85.
BDS545 Standard at month end only. Other
Escrow Review Conversion requests $85.
BDS552 $170 Per Request*
Loan Analysis Report *One execution of this program is
included with month end processing.
Charge would only apply to requests
other than month end.
BDS553 $100 Plus $.35 per Confirmation
Audit Confirmations - Loans
BDS554 Standard at month end only. Other
Dealer, Source or Participated Report requests $85.
24
<PAGE>
Exhibit A-4
BDS555 $85 Per Request
Line Transcript Statement Report
BDS556 $85 Per Request
Note Transcript Statement Report
BDS557 $85 Per Request
Note Statement
BDS560 $170 Per Request*
Direct/Indirect Liability Reporting *One execution of this program is
included with month end
processing. Charge would only
apply to requests other than month
end.
BDS564 $85 Per Request
Extracts Source ID Numbers
Updates Market Prices
BDS566 $85 Per Request*
HMDA Reporting Code Analysis Reports *One execution of this program is
included with month-end processing.
BDS652 $25 Per application plus $.15 per
Cross Application Processing SMART account. Weekend processing only.
BDS952 $50 Per Request
Specifications Reports
FMS642 $50 Per Request
Move Projected Budget to Current Budget
ADS003 $100 Per Applications $.0l Per Account on
Mass Maintenance File.
Specification Changes $25 Per Quarter Hour.
Special Programming or Consulting $85 Per Hour.
Computer Time for Special Client Request $85 Per Quarter Hour.
Reshipping of Print Files $20 Per File
$100 Minimum
$500 Maximum per Processing Day
</TABLE>
25
<PAGE>
Exhibit A-4
PAPERLESS ITEM MODULE (PIM) SERVICES
- ------------------------------------
Fiserv will provide PIM Services per the fees outlined below:
o ACH Formatted File Input Service
Implementation Fee $85.00 Per Hour
$225.00 Minimum
Per Input Formatted File $.01 Per Transaction
$30.00 Minimum Per File
o ACH Origination Service
Implementation Fee $150.00
Per Monthly Fee $50.00 Plus $.0l Per Transaction
$100.00 Monthly Minimum
Miscellaneous Service Fees subject to change.
26
<PAGE>
Exhibit A-5
EF7 100/EF7900/PWTeller $2,500 $250
PLUS $2,500 $250
Sharp 6500 $2,500 $250
Platform Transfer CFI Loan/CFI Deposit/Bankers N/A Included
System Deposit/Bankers System Loan/Formation Technologies Loan
Ancillary Module One-Time Fees and Monthly Fees subject to change.
Implementation travel and related expenses additional.
27
<PAGE>
Exhibit A-7-1
VISA Debit Processing Fee Schedule
----------------------------------
BELOW 1,000 CARDS
<TABLE>
<CAPTION>
<S> <C>
I. SYSTEM INSTALLATION
Setup Fee $ 5,000.00 Per BIN
II. MONTHLY PROCESSOR FEES
Monthly Base Fee $ 300.00 per BIN/per Month
Authorization Support $ 0.10 per transaction
(each authorized transaction)
Settlement Support
(each settlement transaction) $ 0.10 per transaction
File Residency Support
(each card on file) $ 0.12 per card/per month
Computer/Fiche Reports $ 2.00 per page
----------------------
$ 50.00 per month minimum
File Transmissions $ 400.00 per month
(CMF/OPC/ACH) Support
Lost/Stolen Card Reporting $ 10.00 each
(after hours)
CWB/Negative File Updates $ 1.00 each
-------------------------
Ill. BACK OFFICE SERVICES (WITHOUT NEURAL
ANALYSIS [OPTIONAL] $ 0.25 per card/per month
(Performed by HONOR) $ 200.00 monthly/minimum
IV. CARD PRODUCTION $ 1.75 per card and PIN
(Includes embossing/encoding, card carrier, envelopes,
and PIN reminder/not including postage)
V. PREPARATION OF VISA QUARTERLY $ 150.00 per quarter
REPORTING
(Visa Associate Members Only)
VI. VISA FEES AND OTHER SERVICES
Customer will be responsible for all VISA fees, communication-related
expenses and all other items not specifically identified in this
exhibit. Visa V.I.P. Variable Access Fee will be charged to customer
based on volume processed through the VisaNet Access Point (VAP).
VII. This fee schedule pertains to new programs of less than 1,000 cards.
Once card base exceeds 1,000, the standard fee schedule is applicable
Exhibit A-7
</TABLE>
ACCEPTED BY:
Smith River Community Bank Fiserv Solutions, Inc.
- ------------------------ -----------------------
Authorized Signature Authorized Signature
Printed Name: Printed Name:
Title: Title:
- ------------------------ ------------------------
Date Date
28
<PAGE>
Exhibit H
FISERV ATLANTA DISASTER RECOVERY AGREEMENT
ON-LINE SERVICES
I. A Disaster shall mean any unplanned interruption of the operations of or
inaccessibility to Fiserv's data center which appears in Fiserv's reasonable
judgment to require relocation of processing to a primary recovery location.
Fiserv shall notify Client as soon as possible after it deems a service outage
to be a Disaster. Fiserv shall move the processing of Clients standard on-line
services to a primary recovery location as expeditiously as possible and shall
coordinate the cut-over to back-up data lines with the appropriate carriers.
Client shall maintain adequate records of all transactions during the period of
service interruption and shall have personnel available to assist Fiserv in
implementing the switchover to the primary recovery location. During a Disaster,
optional or on-request services shall be provided by Fiserv only to the extent
that there is adequate capacity at the primary recovery location and only after
stabilizing the provision of base on-line services.
II. Fiserv shall work with Client to establish a plan for alternative data
communications in the event of a Disaster.
III. Fiserv shall test its Disaster Recovery Services Plan BY conducting an
annual test. Client agrees to participate in and assist Fiserv with such
testing. Test results will be made available to Client's management, regulators,
internal and external auditors, and (upon request) to Client's insurance
underwriters.
IV. Client understands and agrees that the Fiserv Disaster Recovery Plan is
designed to minimize but not eliminate risks associated with a Disaster
affecting Fiserv's data center. Fiserv does not warrant that service will be
uninterrupted or error free in the event of a Disaster. Client maintains
responsibility for adopting a disaster recovery plan relating to disasters
affecting Client's facilities and for securing business interruption insurance
or other insurance as necessary to properly protect Client's revenues in the
event of a disaster.
V. Monthly subscription fee $l00.00, plus $.0l per account on file.
ACCEPTED BY:
SMITH RIVER COMMUNITY BANK FISERV SOLUTIONS, INC.
- -------------------------------- -------------------------------
Authorized Signature Authorized Signature
Printed Name: Printed Name: William L. Kenney
Title: Title:President Fiserv Atlanta
- ------------------------------- --------------------------------
Date Date
29
EXHIBIT 10.9
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CONCENTREX ORDER REQUEST - 9/27199 - PAGE 1 of 2
CONCENTREX, INC ORDER REQUEST
400 S. W. Sixth Avenue Date: 9/27/99 Institution: Smith River Community Bank (I/O)
Portland, OR 97204 Asset Size: I/O Sales Rep: Steve Ness
800-274-7280 (National) Order #: SSR: Les Hartsfield
503-274-7280 (Oregon) CFI Cuust.#: Cust. PO #:
800-274-7270 (FAX) Exch: Third Party Referrer:
SOLD TO: SHIP TO:
Smith River Community Bankshares, Inc. Smith River Community Bankshares, Inc.
730 East Church Street - Suite 12 730 East Church Street - Suite 12
Martinsville, VA 24112 Martinsville, VA 24112
ATTN: C.R. (Andy) McCullar ATTN: C.R. (Andy) McCullar
PHONE: (540) 632-8092 PHONE: (540) 632-8092
FAX: (540) 632-8043 FAX: (540) 632-8043
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
Unit Extended
Qty Item # Description List Price List Price
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
1 Enterprise License Base Fee - LESS THAN $100 MILLION ASSETS 10,000.00 10,000.00
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
1 ENTERPRISE Software License @ $500./Million in Bank Assets
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
Based on a $50 Million asset Level.
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
Licensed Products Included:
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
2205 LP Lending Closing CCRE Primary Unit Network @$225./Million 11,250.00
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
2102 LP Lending CREDITLINE (Consumer) Primary Unit @$15./Million 750.00
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
2317 LP Lending CREDIT LINE (Commercial) Primary Unit @$15./Million 750.00
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
2266 LP Lending Applicaton CCRE Primary Unit - Network @$75/M 3,750.00
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
2114 SBA Lending Module - Network @$20/Million 1,000.00
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
168 Deposit Pro - Operations (E! Desktop, ProForms & Deposit Pro)
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
Primary Unit - Network @ $150/M 7,500.00
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
1 Bank Logo - Laser Pro APPLICATION & LENDING DOCUMENTS 1,000.00
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
& Deposit Pro Operations
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
2 xx Estimated Printer Font Elements: Bank will notify what to ship 250.00 500.00
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
3 2228 LP Lending (Close& App'l) On-Site training w/ASA (Total:3Days) 1,250.00 3,750.00
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
2 148 Deposit Pro Operations On-Site Training (Total:2Days) 1,250.00 2,500.00
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
1 1478 LP Lending to FISERV-Atl(ITI) Implementation Fee 4,500.00 4,500.00
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
1 1457 Deposit Pro to FISERV-Atl(ITI) Implementation Fee 4,500.00 4,500.00
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
- ----------- -------------- ------------------------------------------------------------------- ----------------- -------------------
Sub-Total 51,750.00
-------------------
If Signed by September 30, 1999-100% Discount of Enterprise License Base Fee Less Discount of: 10,000.00
- ---------------------------------------------------------------------------------------------- -------------------
IF Signed by October 31, 1999- 50% Discount of Enterprise License Base Fee **TOTAL 41,750.00
- ---------------------------------------------------------------------------------------------- -------------------
**Total does not include miscellaneous charges, freight and sales tax. Balance due immediately upon receipt of invoice.
SHIPPING INSTRUCTIONS: 2-DAY UPS
--------------------------------------------------------------------------------------------------------------
QUOTE EXPIRATION PRODUCT WARRANTY HOST
DATE: 9/30/99 PERIOD: 30-DAYS PROCESSOR: FISERV - ATL(ITI)
------- ------- -----------------
AGREEMENT: LICENSE GRANT: SELECT ON.
[ ] UNIT LICENSE
SOFTWARE LICENSE [ ] ATTACHED [ ] LOCATION LICENSE
AGREEMENT: [x] SHRINK-WRAP LIC. INCORPORATED BY REFERENCE. [x] ENTERPRISE LICENSE
OR [ ] *
MASTER AGREEMENT [ ] ATTACHED ------------------
[ ] EXISTING-AGMT. DATE OR #:
</TABLE>
1
<PAGE>
CONCENTREX ORDER REQUEST - 9/27199 - PAGE
<TABLE>
<CAPTION>
COMPLIANCE WARRANTY: CHECK ALL THAT APPLY.
<S> <C> <C> <C> <C> <C> <C>
[X] LP Closing,Application, CreditLine, SBA [X] Deposit Pro, Pro Forms Completion, TIS
[ ] LP Mortgage [ ] Encore! Deposit Pro Forms
[ ] None
OTHER ATTACHMENTS OR REFERENCE DOCUMENTS: CHECK ALL THAT APPLY.
[X] LP Lending Product Exhibit Referenced [ ] Encore! Platform/Call Center Product Exhibit
[ ] App. Manager Product Exhibit [ ] Personal Branch Product Exhibit
[ ] Laser Pro Mortgage Product Exhibit [ ] Exhibits to Master Agreement: (A-E)
[X] Deposit Pro Product Exhibit Referenced [ ] Addendum(s) to Master Agreement:
[ ] Encore! Teller Product Exhibit [X] Other: Other: Year 2000 Compliance
Warranties: Creditlne,LPL,DP
MAINTENANCE FEE TERMS:
1. SOFTWARE MAINTENANCE FEES ARE BILLED ANNUALLY AND ARE 20% OF THE AGGREGATE LIST SOFTWARE LICENSE FEE BILLED
TO DATE.
2. EXTENDED USAGE FEE FOR DEPOSIT PRO OPERATIONS - WIN INTERFACE TO FISERV - ATL (ITI) IS $2,500, BILLED
ANNUALLY IN ADVANCE.
3. EXTENDED USAGE FEE FOR LASER PRO LENDING - WIN INTERFACE TO FISERV - ATL (ITI) IS $2,500, BILLED ANNUALLY IN
ADVANCE.
SPECIAL INSTRUCTIONS:
1. ON SITE TRAINING AND INTERFACE IMPLEMENTATION IS PLUS REASONABLE AND ACTUAL TRAVEL AND LIVING EXPENSES.
2. BANK AGREES TO PAY AN ADDITIONAL LICENSE FEE OF $500 PER MILLION OF EACH MILLION DOLLAR'S (OVER 50 MILLION
DOLLARS) THE BANK'S ASSETS GROW. THIS IS REVIEWED ANNUALLY AND IS BILLED AND DUE ON RECEIPT. THIS IS BASED
ON SUBTRACTING THE PAST ASSET LEVEL FROM- THE NEW AND THE FEE IS PAID ON THE DIFFERENCE.
3. ENTERPRISE LICENSE IS FOR THE CHOICE OF LAW IN THE STATE OF VIRGINIA ONLY. ADDITIONAL LICENSING IS REQUIRED
FOR CHOICE OF LAW IN OTHER STATES.
4. SEND TWO SETS OF SOFTWARE AND MANUALS TO CUSTOMER-AT-SHIPPING ADDRESS.
5. BANK TO RECEIVE PRODUCTS AND SERVICES IMMEDIATELY AND WILL BE BILLED PER THIS ORDER REQUEST, IN THE MONTH
THE BANK OPENS. BANK'S TARGET -OPEN DATE IS JANUARY 17, 2000.
6. CONCENTREX CONNECTIVITY & INTERFACE GROUP WILL CONTACT THE BANK 4-6 WEEKS AFTER THE BANK OPENS TO (1)
REQUEST A WORKSHEET BE COMPLETED, (2) SCHEDULE A DATE FOR INSTALLATION, (3) REQUEST PAYMENT FOR INTERFACE
SERVICES. (NOTE THE INTERFACE IMPLEMENTATION FEES IN THIS REQUEST ARE NOT BILLED AT THE TIME THE BANK
OPENS.)
7. THE BANK UNDERSTANDS THE TRAINING IN THIS ORDER WILL NOT BE BILLED UNTIL IT IS SCHEDULED AND DELIVERED TO
THE BANK.
AUTHORIZED SIGNATURE:
SMITH RIVER COMMUNITY BANKSHARES, INC. CONCENTREX AUTHORIZED SIGNATURE:
- --------------------------------------
By:___________________________________ By:____________________________________
Signature Signature
______________________________________ _______________________________________
Printed Name Date Printed Name Date
______________________________________ _______________________________________
Title Title
</TABLE>
orblk1.6xls
2
<PAGE>
CFI LASER PRO(R)
COMPLIANCE WARRANTY
This is an important document. Keep it in a safe place.
This Warranty is in effect January 1, 1999 and continues through
December 31, 1999.
It's Simple. CFI warrants that all CFI documents produced by the LASER PRO
APPLICATION and CLOSING Programs, and the CREDIT LINE and SBA Modules
(collectively LASER PRO) comply with all federal and state laws and regulations
in effect when the document is produced.
WHAT WE PAY
We will pay each bank, federal savings bank or savings and loan association
LASER PRO licensee ("you") up to ONE MILLION DOLLARS ($1,000,000) per year for
the cost to you of any actual loss you sustain as a result of the failure of any
document created by LASER PRO to comply with federal and state laws and
regulations in effect when the document is produced (a "compliance failure").
This is the amount we will cover of what you pay to ail your customers, or as
penalties to governmental entities, including your costs (and court costs and
reasonable attorney fees) to defend a compliance failure in a LASER PRO
document. The ONE MILLION DOLLARS ($1,000,000) per year is for all notices of
compliance failure you give us within the year, regardless of when payment of
any claim is actually made. There is an aggregate cap for our entire customer
base of two and one half million dollars ($2,500,000) per occurrence of a common
compliance failure of a LASER PRO document. This aggregate cap will apply no
matter how many years are required to resolve the claim.
WHAT WE DO NOT PAY
We will not pay if you do not notify us in time, if you do not use LASER PRO as
directed, or for documents or issues not produced by LASER PRO. In more detail
this means that this CFI Compliance Warranty does not extend to the following:
a) Any compliance failure claim of which CFI is not properly notified, as
described in the "How to Collect" section below, during the term of
this Compliance Warranty;
b) Any criminal or fraudulent act or award of punitive damages;
c) Any credit decision by you, or the non-creditworthiness of any person
or entity to whom you have extended credit or made a loan;
d) Any compliance failure claim made if the extension of credit or loan
was, at the time, in excess of your legal lending limit or beyond your
authority;
e) Any compliance failure claim made by any entity not a party to your
LASER PRO license agreement or by any governmental entity (including
but not limited to the Federal Deposit Insurance Corporation or the
Office of Thrift Supervision) in its own name or in your name or on
your behalf, or by any receiver or liquidator, when such entity has
closed, placed into receivership, assisted or arranged a merger of, or
otherwise taken control of, you;
f) Any compliance failure claim that arises from or is related to any of
the following:
1) Any additional provision or other language added to a document
produced by LASER PRO, or any customized language or
programming prepared by CFI, by Licensee or by any third
party, including any interface programming, screen
programming, source code modification, data entry or the like
that impacts the operation of the program or the language of
the documents from that of the standard LASER PRO program or
documents;
2) Any documentation, form, or agreement not produced by LASER
PRO;
3) Any use of LASER PRO in combination with products, goods,
services or other items furnished by anyone other than CFI;
4) Any entry omission or irregular item listed on any checklist
report produced for each application and loan by LASER PRO;
5) Any matter subject to a warning included with the screens or
any checklist report produced by LASER PRO, unless the warning
contains instructions for removing or solving the issue and
those instructions have been complied with fully;
6) Any failure to follow the 'Help' prompts, the Manual, any
Release Notes, or other documentation supplied by CFI for
LASER PRO,
3
<PAGE>
7) Any violation of federal or state usury laws or state credit
insurance laws or regulations:
g) Any loss you sustain as a result of your alleged promise,
representation, statement or similar conduct made to your customer that
contradicts the language or calculations of a document produced by
LASER PRO, or any additional documents you used in connection with a
transaction that were not produced by LASER PRO, or any loss resulting
from you or a customer providing or entering any information that is
incomplete, inappropriate or inaccurate, or failing to provide or to
enter necessary information, or any selection, election, choice or
policy decision you make with respect to interstate banking in LASER
PRO including, but not limited to, interstate branching, interstate
lending, export or import of interest rate packages from one
jurisdiction to another, or choice of applicable law from one
jurisdiction to another, You agree that the matters referred to in this
exclusion are beyond the control of CFI;
h) Any claim you make based upon a compliance failure of a LASER PRO
document of which you were already aware when you documented the loan.
Upon receipt by you of an updated version of LASER PRO, you agree that
you are aware of any compliance failure in previous versions of LASER
PRO that were corrected by the updated version:
i) Any compliance failure claim you make during a period in which you are
more than 180 days in arrears on any of your obligations to CFI or
based upon a document produced during a period in which you are more
than 180 days in arrears with any of your obligations to CFI;
j) Any compliance failure claim you make if the system has been operated
by you with more users than you are licensed for or beyond the scope of
your license agreement, or if you have violated any copyright held by
CFI, or if you have violated any confidentiality or secrecy agreement
between you and CFI.
HOW TO COLLECT
You must send us a registered or certified letter notifying us of your
compliance failure claim and telling us what you believe is wrong. Send it to
CFI Pro Services, Inc., attention 'General Counsel.' We must receive the notice
while this warranty is in effect, before you agree to pay any money, and before
the earlier of (a) 30 days from when you first learn of a compliance failure or
(b) at least 10 days before you are required to respond to any court or
administrative agency. Please let us know orally as soon as possible so we can
start to fix the problem, but remember that written notice is required. You
agree to cooperate with CFI in our investigation and resolution of any
compliance failure claim. IF a problem is one which can be solved or damages
reduced by sending a cure notice under applicable law, you agree to cooperate
with CFI in sending the notices at our expense.
4
<PAGE>
CFI LASER PRO(R) COMPLIANCE WARRANTY
Page 1 of 2
CHOOSING LAWYERS
If you use a lawyer to defend a compliance failure of a document produced by
Laser Pro, we reserve the right to approve that lawyer, but we will not be
unreasonable,
A FEW WORDS FROM OUR LAWYERS
This warranty and remedy, plus the limited software warranty and maintenance
warranty that come with LASER PRO and the remedies provided there, are your
exclusive remedies for any defect in LASER PRO. THESE WARRANTIES AND REMEDIES
ARE EXCLUSIVE AND ARE IN SUBSTITUTION FOR ALL OTHER WARRANTIES, OBLIGATIONS AND
LIABILITIES OF CFI, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
LIMITATION OF LIABILITY
THE LIMITATION OF LIABILITY CONTAINED IN THE LICENSE FOR LASER PRO APPLIES TO
THIS COMPLIANCE WARRANTY AND STATES, IN PART, THAT CFI IS NOT LIABLE FOR ANY
INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES.
This warranty is governed by the laws of Oregon.
We are proud you have chosen LASER PRO and we look forward to continuing to
serve you.
CFI ProServices, Inc.
Matt Chapman, Chairman & CEO
5
<PAGE>
CFI LASER PRO(R) COMPLIANCE WARRANty
Page 2 of 2
YEAR 2000 COMPLIANCE WARRANTY
-----------------------------
LASER PRO CLOSING:
Noting the exceptions and clarifications stated below, CFI warrants that the
Software, closed off from all other system resources (except for the specified
operating system), is century compliant for the year 2000 (i.e., the Software is
capable within itself of accounting for all calculations using a century\date
sensitive algorithm for the 20th and 21st centuries, including the rollover to
the year 2000 and the fact that such year is a leap year). In the event that the
Software is not century compliant, CFI's obligations and Customer's remedies
shall be those stated in SECTION 7.A OF THE SOFTWARE LICENSE AGREEMENT OR THE
MASTER AGREEMENT (OR OTHER PROPER REFERENCE TO CFI'S WARRANTY REMEDIES). This
warranty does not extend to customizations of the Software in instances in which
the customization specifications do not require that the customized Software be
century compliant for the year 2000. This warranty does not extend to interface
programs.
CFI does not warrant that the Software, while operating in conjunction with
other system resources (except for the specified operating system), is century
compliant for the year 2000. This is because the Software's ability to produce
expected dates can be adversely affected by things over which CFI has neither
responsibility nor control, such as date data received from other system
resources and intermediate operations performed on date data by other system
resources. Consequently, the warranty does not extend to any failure of the
Software caused by any data provided or operated upon by a non-CFI system
resource which is (a) not formatted consistent with the formatting requirements
of the Software; (b) not correct and complete in the context of the Software; or
(c) altered by a non-CFI system resource once initially provided to the
Software.
Exceptions and Clarifications
THE FOLLOWING ARE THE EXCEPTIONS AND CLARIFICATIONS PERTAINING TO LASER PRO
LENDING: ACCEPTS TWO-DIGIT YEAR ENTRY AND WILL ADD A CENTURY BASED ON WHETHER
THE DATA MUST BE IN THE PAST OR IN THE FUTURE OR IF NEITHER THE CURRENT CENTURY.
THE USER MAY ENTER A FOUR-DIGIT YEAR SUPPRESSING THE NEED FOR THE CENTURY TO BE
DERIVED OR MAY OVERRIDE THE DERIVED CENTURY.
6
<PAGE>
YEAR 2000 COMPLIANCE WARRANTY - LASER PRO LENDING
Page 1 of 1
YEAR 2000 COMPLIANCE WARRANTY
-----------------------------
LASER PRO CREDITLINE (FORMERLY KNOWN AS CORELINE):
Noting the exceptions and clarifications stated below, CFI warrants that the
Software, closed off from all other system resources (except for the specified
operating system), is century compliant for the year 2000 (i.e., the Software is
capable within itself of accounting for all calculations using a century\date
sensitive algorithm for the 20th and 21st centuries, including the rollover to
the year 2000 and the fact that such year is a leap year). In the event that the
Software is not century compliant, CFI's obligations and Customer's remedies
shall be those stated in SECTION 7.A OF THE SOFTWARE LICENSE AGREEMENT OR THE
MASTER AGREEMENT (OR OTHER PROPER REFERENCE TO CFI'S WARRANTY REMEDIES). This
warranty does not extend to customizations of the Software in instances in which
the customization specifications do not require that the customized Software be
century compliant for the year 2000. This warranty does not extend to interface
programs.
CFI does not warrant that the Software, while operating in conjunction with
other system resources (except for the specified operating system), is century
compliant for the year 2000. This is because the Software's ability to produce
expected dates can be adversely affected by things over which CFI has neither
responsibility nor control, such as date data received from other system
resources and intermediate operations performed on date data by other system
resources. Consequently, the warranty does not extend to any failure of the
Software caused by any data provided or operated upon by a non-CFI system
resource which is (a) not formatted consistent with the formatting requirements
of the Software; (b) not correct and complete in the context of the Software; or
(c) altered by a non-CFI system resource once initially provided to the
Software.
Exceptions and Clarifications
THE FOLLOWING ARE THE EXCEPTIONS AND CLARIFICATIONS PERTAINING TO LASER PRO
CREDITLINE: SOME FIELDS DO NOT ALLOW ENTRY OF THE CENTURY DATE FIELDS. FOR THOSE
THAT DO NOT THE CENTURY IS DERIVED AS FOLLOWS: FOR BIRTH DATES THE CENTURY WILL
BE SET TO 1800 OR 1900 WHICHEVER ASSURES THAT IT IS IN THE PAST; FOR OTHER DATES
IF THE YEAR <83 THEN 2000 IS ASSUMED ELSE 1900 IS ASSUMED. IN ALL CASES THE
DATE IS SAVED FORMATTED AS MM-DD-YYYY.
YEAR 2000 COMPLIANCE WARRANTY - LASER PRO CREDITLINE
Page 1 of 1
7
<PAGE>
LASER PRO LENDING VERSION 5.XX PRODUCTS LICENSE EXHIBIT
-------------------------------------------------------
SPECIFICATION OF THE LASER PRO LENDING VERSION 5.XX STANDARD PRODUCTS
---------------------------------------------------------------------
LASER PRO LENDING SUITE VERSION 5.XX PRODUCTS
- ---------------------------------------------
Software Specification
- ----------------------
The standard product, the Laser Pro Lending Suite version 5.xx Software (the
"Software"), is a group of software products made up of modules and optional
components. Customer's Order Request (s) identify the Software modules and
components Customer has licensed. The features and functions are as follows:
Produces dynamic, flexible, laser-printed documents for consumer, home equity,
commercial, real estate, construction and agricultural lending, including all
the required legal terminology and calculations, through nine integrated modules
and components: Laser Pro Application - Consumer, Laser Pro Application -
Commercial, Laser Pro Application - Residential Real Estate, Laser Pro Closing -
Consumer, Laser Pro Closing - Commercial, Laser Pro Closing - Residential Real
Estate, Credit Line Consumer, Credit Line Commercial and SBA. Each Software
product provides:
<TABLE>
<CAPTION>
<S> <C>
o o 50-state compliance for collateral security documents
o o Multiple state general law capability may be optionally licensed
o o Accommodates interstate lending and branching
o o Accommodations for multiple signers, special terms and lengthy descriptions
o o Documentation for complex collateral such as cross-pledged collateral, ships, aircraft and multiple collateral types in one
transaction
o o Comprehensive borrower types
o o Payment types: Installment, Balloon, Draw down line of credit, Principal + Interest, Construction Permanent,
Single Pay, Generic Non-Disclosable, Irregular payment calculations
o o Supports sale of insurance products with calculations - insurance forms may be added through customization
o o Performs interactive "What if' calculations
o o Tracks and follows-up on processing functions
o o Creates a variety of management and processing reports
o o Provides user security access
o o Documents may be customized
Customizations to the Software requested by Customer will be defined in a separate Order Request.
Laser Pro Lending Suite version 5.xx Software will operate with the hardware and software defined in the Laser Pro
Lending Suite version 5.xx Schedule for Customer Requirements section of this Exhibit.
Laser Pro Application - Consumer Module
- ---------------------------------------
Consumer loan application processing, documentation and regulatory compliance.
o o Individual and Trust borrower types
o o Gathers data for consumer loan applications
o o Produces disclosures and verifications at time of application, including real estate disclosures
o o Collateral Types: Titled, Possessory, UCC, and Real Estate
o o Captures and validates HMDA data and generates printed and electronic LAR report
Laser Pro Application - Commercial Module
- -----------------------------------------
Commercial loan application processing and documentation.
o o Individual, Corporate, Partnerships, Trusts, Limited Liability Companies, Associations, and
Government borrower types
o o Gathers data on commercial applicants
o o Produces loan summaries, corporate resolutions and partnership agreements, and credit memos
o o Integrates with Laser Pro fiscal Online
o o Collateral Types: Titled, Possessory, UCC, Real Estate and other
8
<PAGE>
Laser Pro Application - Residential Real Estate Module
- ------------------------------------------------------
Residential Real Estate loan application processing, documentation and
regulatory compliance.
o o Individual and Trust borrower types
o o Gathers data for residential real estate loan applications
o Produces real estate disclosures and verifications at time of application
o o Produces the FNMA 1003 application form and 1008 transmittal summary form
o o Captures and validates HMDA data and generates printed and electronic LAR report
o o Real Estate Collateral
Laser Pro Closing - Consumer Module
- -----------------------------------
Consumer loan closing processing and documentation and regulatory compliance.
o o Individual and Trust borrower types
o o Gathers data for and produces consumer loan closing documentation and regulatory compliance
o o Collateral Types: Titled, Possessory, UCC and Real Estate
o o UCC-1 financing statements for all 50 states
o o Real estate security documents and disclosures for all 50 states
LASER PRO LENDING VERSION 5.XX PRODUCTS LICENSE EXHIBIT
Page 1 of 5
LPLX1198.doc 11/2/1998
CFI ProServices, INC.
9
<PAGE>
LASER PRO LENDING VERSION 5.XX PRODUCTS LICENSE EXHIBIT
-------------------------------------------------------
SPECIFICATION OF THE LASER PRO LENDING VERSION 5.XX STANDARD PRODUCTS (CONTINUED)
---------------------------------------------------------------------------------
Laser Pro Closing - Commercial Module
- -------------------------------------
Commercial loan closing processing and documentation.
o o Individual, Corporate, Partnerships, Trusts, Limited Liability Companies, Associations, and
Government borrower types
o o Gathers data for and produces commercial loan closing documentation
o o Collateral Types: Titled, Possessory, UCC, Real Estate, and Other
o o Business and agricultural loan agreements (asset based loan agreement planned for a future
release of the Software)
o o Corporate and LLC resolutions, partnership agreements, authorizations
o o UCC-1 financing statements for all 50 states
o o Real estate security documents and disclosures for all 50 states
Laser Pro Closing - Residential Real Estate Module
- --------------------------------------------------
Residential real estate loan closing processing, documentation and regulatory
compliance.
o Individual Trust borrower types
o Gathers data for residential real estate loan closing documentation Produces real estate disclosures
o Produces the FNMA loan closing and documentation
o Real Estate Collateral
Credit Line - Consumer Component
- --------------------------------
Consumer open-end loan processing, documentation and regulatory compliance.
o Individual and Trust borrower types
o Gathers data for consumer open-end loan application, processing and loan closing credit agreement
documentation Produces early Home Equity disclosures
o Produces disclosures and loan closing credit agreement documentation
o Program types: Interest Only, Percentage of Balance, Amortized Balance and Generic Non-home Equity
Multiple payment streams
o Collateral Types: Titled, Possessory, UCC and Real Estate
o Requires Laser Pro Closing Consumer Module
Commercial Credit Line Component
- --------------------------------
Commercial open-end line of credit processing and documentation
o o Individual, Corporate, Partnership, Trust, Limited Liability Company, Association and Government borrower types
o o Gathers data for and produces commercial revolving line of credit documentation
o o Produces loan closing credit agreement documentation
o o Program types: Interest Only, Percentage of Balance, Amortized Balance and Generic Multiple Payment Streams
o o Collateral Types: Titled, Possessory, UCC, Real Estate and other
o o Requires Laser Pro Closing Commercial Module
SBA Component
- -------------
Small Business Administration application packaging and closing document
generation.
o o Produces most documents necessary for SBA 7a, Low Doc, 504, and PLP programs
o o Input screens follow the SBA form and process flows
o o Forms may be selected as individually needed or through Standard Loan
templates specifying form sets
o o Laser printed or print blank forms available
o o Requires Laser Pro Application Commercial Module for access to application documents and Laser Pro
Closing Commercial Module for access to closing documents
10
<PAGE>
Laser Pro Lending Suite Version 5.xx Compliance Warranty
- --------------------------------------------------------
With respect to the Laser Pro Lending Suite version 5.xx Software licensed to Customer hereunder, CFI is providing a
separate warranty that such Software is in compliance with banking laws and regulations in effect when the Laser Pro
Lending Suite version 5.xx Software is provided to Customer. THE FOREGOING IS NOT A WARRANTY; CUSTOMER MUST RELY SOLELY
ON THE TERMS AND CONDITIONS OF THE SEPARATE COMPLIANCE WARRANTY PROVIDED WITH THE SOFTWARE, IF APPLICABLE.
Laser Pro Lending Suite Version 5.03 Or Greater Year 2000 Compliance Warranty:
- ------------------------------------------------------------------------------
Noting the exceptions and clarifications stated below, CFI warrants that the Software, closed off from all other system
resources (except for the specified operating system), is century compliant for the year 2000 (i.e., the Software is
capable within itself of accounting for all calculations using a century\date sensitive algorithm for the 20th and 21 st
centuries, including the rollover to the year 2000 and the fact that such year is a leap year). In the event that the
Software is not century compliant, CFI's obligations and Customer's remedies shall be those stated in SECTION 7.A OF THE
SOFTWARE LICENSE AGREEMENT OR THE MASTER AGREEMENT (OR OTHER PROPER REFERENCE TO CFI'S WARRANTY REMEDIES). This warranty
does not extend to customizations
</TABLE>
LASER PRO LENDING VERSION 5.XX PRODUCTS LICENSE EXHIBIT
Page 2 of 5
LPLX1198.doc 11/2/1998
CFI ProServices, INC.
11
<PAGE>
LASER PRO LENDING VERSION 5.XX PRODUCTS LICENSE EXHIBIT
-------------------------------------------------------
SPECIFICATION OF THE LASER PRO LENDING VERSION 5.XX STANDARD PRODUCTS (CONTINUED
- --------------------------------------------------------------------------------
of the Software in instances in which the customization specifications do not
require that the customized Software be century compliant for the year 2000.
This warranty does not extend to interface programs.
CFI does not warrant that the Software, while operating in conjunction with
other system resources (except for the specified operating system), is century
compliant for the year 2000, This is because the Software's ability to produce
expected dates can be adversely affected by things over which CFI has neither
responsibility nor control, such as date data received from other system
resources and intermediate operations performed on date data by other system
resources. Consequently, the warranty does not extend to any failure of the
Software caused by any data provided or operated upon by a non-CFI system
resource which is (a) not formatted consistent with the formatting requirements
of the Software; (b) not correct and complete in the context of the Software; or
(c) altered by a non-CFI system resource once initially provided to the
Software.
Exceptions and Clarifications
The following are the exceptions and clarifications pertaining to LASER PRO
LENDING (VERSIONS 5.03 AND GREATER): The user may enter a six-digit date as
MM-DD-YY or an eight-digit date as MM-DD-YYYY. If a six-digit date is entered,
the program will automatically form an eight-digit date.
Remote Print Authority
- ----------------------
The license granted to Customer authorizes Customer to install and operate the
Laser Pro Consumer and Commercial Closing Software (including document
preparation and printing) only on the number of workstations specified in
Customers Order Request. A workstation means a monitor and keyboard capable of
accessing the Software without regard to where the Software resides. For
example, a laptop on which the Software is loaded, a PC connected by LAN in
which the Software resides, and a workstation which accesses a server to use the
Software are each a workstation. A printer (including a facsimile machine or any
other device capable of allowing viewing or creating hard copies of a document
produced by the Software) is considered a separate workstation when the printer
resides in a building other than a building in which at least one other
workstation resides. Customer must have a license for each workstation that is
capable of operating the Software. The Software may not be used to prepare loan
documentation on any printer fitting the definition of a separate workstation
unless a remote print license is obtained.
Installation
- ------------
Laser Pro Lending Suite version 5.xx Software is shipped with instructions for
installation. Customer is responsible for reading the instructions and
installing the Software before product training classes are attended. CFI's
Technical Support staff is available to assist Customer with Software
installation via toll free phone calls. It is Customer's responsibility to
assign the installation task to a person with appropriate technical knowledge,
and to complete installation.
For network installations, CFI recommends that Customer employ an experienced
network consultant. Though standard Software updates are designed to be as
simple as possible, CFI recommends that a person with reasonable technical
aptitude be assigned this ongoing responsibility. PC and network administration
are entirely Customer's responsibility.
12
<PAGE>
Training
- --------
Laser Pro Lending Suite version 5.xx Software training includes administrative
instruction as well as techniques for daily use. If Customer opts for training
on the Software, applicable fees are specified in Customer's Order Request.
CFI offers three forms of training for customers:
o Onsite Training. Onsite training is conducted at one of Customer's sites and
is designed to accommodate two to eight people. Special requests for larger
groups can be made by calling CFI's Training Department. Two Training
manuals will be included with an onsite training session regardless of the
number of attendees. Customer is responsible for meeting room accommodations
and PCs for the training class.
o Regional Training. Regional Training consists of 3 day training class held
at one of CFI's regional training centers. CFI's regional training centers
are located in Atlanta, GA and Portland, OR. One Training manual will be
provided per attendee. Travel expenses are Customer's responsibility.
o Computer Based Training. Consists of a self paced end user tutorial on CD
ROM media.
Customer may purchase additional training manuals.
LASER PRO LENDING SUITE VERSION 5.XX SOFTWARE MAINTENANCE AND SUPPORT SERVICES
- ------------------------------------------------------------------------------
1. MAINTENANCE AND SUPPORT REQUIRED. Customer's license to continued use of the
Laser Pro Lending Suite version 5.xx Software requires that Customer remain
current with respect to Maintenance and Support for the Laser Pro Lending Suite
version 5.xx Software (including, without limitation, Maintenance and Support
fees).
2. LIST OF LASER PRO LENDING SUITE VERSION 5.XX SOFTWARE MAINTENANCE AND
SUPPORT. CFI provides the following Maintenance and Support with respect to the
Laser Pro Lending Suite version 5.xx Software during any period in which
Customer is current with respect to Maintenance and Support:
TOLL-FREE HOTLINE SUPPORT
Toll-free telephone support shall be available every Monday through
Friday from 9:00 a.m. to 9:00 p.m., Eastern Standard Time, except
holidays.
ERROR CORRECTIONS
In accordance with the Laser Pro Lending Suite version 5.xx Software
Maintenance and Support policies described below, CFI will use
reasonable efforts at its office to correct any errors in the Laser Pro
Lending Suite version 5.xx Software in the form as delivered by CFI
(e.g., which does not contain modifications made by Customer), that
cause the Software to materially fail to conform to the specifications
for such Software accurately stated in the applicable Documentation.
LASER PRO LENDING VERSION 5.XX PRODUCTS LICENSE EXHIBIT
Page 3 of 5
LPLX1198.doc 11/2/1998
CFI ProServices, INC.
13
<PAGE>
LASER PRO LENDING VERSION 5.XX PRODUCTS LICENSE EXHIBIT
-------------------------------------------------------
SPECIFICATION OF THE LASER PRO LENDING VERSION 5.XX STANDARD PRODUCTS
----------------------------------------------------------------------
(CONTINUED)
-----------
VERSION UPDATES
If CFI releases an update to the presently existing functionality of
the Laser Pro Lending Suite version 5.xx Software (an "Update"),
Customer will automatically receive a copy of each Update, plus related
documentation, for each Laser Pro Lending Suite version 5.xx Software
Product licensed hereunder. This policy' applies to all Updates that
are not separately priced or marketed as a new release. Customer is
responsible for installing Software Updates, upgrades and the like.
Telephone support assistance for such installation is available during
normal telephone support hours at no additional charge. Any Software
installation requiring CFI involvement other than telephone support,
such as dial in/modem assistance, on-site assistance, or where Customer
requests CFI to install the Software for them, will be provided at
CFI's then current rates plus reasonable expenses.
INTERFACE/FILE IMPORT AND EXPORT IMPLEMENTATION AND SERVICE
If Customer is licensing Interface or File Import/Export Software
Products, CF] will provide the services described on a separate CFI
Interface Service Schedule, subject to the Customer requirements and
other limitations set forth therein.
NEWSLETTER AND OTHER CORRESPONDENCE
CFI will provide to Customer, without charge, one copy of the CFI
newsletter as it is published, and any Software-related correspondence
or materials that it generally releases to customers of Laser Pro
Lending Suite version 5.xx Software products.
3. PURCHASING LASER PRO LENDING SUITE VERSION 5.XX SOFTWARE MAINTENANCE AND
SUPPORT. Laser Pro Lending Suite version 5.xx Software Maintenance and Support
is purchased on an annual basis. All Laser Pro Lending Suite version 5.xx
Software Maintenance and Support is subject to the terms and conditions set
forth in the Master Agreement, or other applicable agreement governing
Customer's license of the Software. Laser Pro Lending Suite version 5.xx
Software Maintenance and Support fees are payable in advance, with payment due
thirty (30) days after receipt of invoice.
Customer shall run and promptly submit the activity and transaction data reports
produced by the Laser Pro Lending Suite version 5.xx Software. If Customer's
Maintenance and Support fees are based upon the number of loans produced by the
Laser Pro Lending Suite version 5.xx Software, then, for purposes of calculating
such Maintenance and Support fees, a "loan produced by the Laser Pro Lending
Suite version 5.>D( Software" means any lending transaction in which some or all
of the lending documents are generated by use of the Laser Pro Lending Suite
version 5.xx Software, and the transaction is consummated and boarded on
Customer's books of account . This includes all new loans, and all renewals,
extensions, and substitutions of older loans whether or not those predecessor
loan documents were created on the Laser Pro Lending Suite version 5.xx
Software. CFI shall have the right to audit Customer's books solely for the
purpose of determining that appropriate information is being provided to CFI so
that it may generate Maintenance and Support billings.
4. LASER PRO LENDING SUITE VERSION 5.XX SOFTWARE MAINTENANCE AND SUPPORT
POLICIES. In order to receive Maintenance and Support on a Laser Pro Lending
Suite version 5.xx Software product, Customer, in addition to the payment of all
applicable fees, must promptly install and use all Laser Pro Lending Suite
version 5.xx Software updates or corrections that CFI provides. CFI will not be
responsible for Maintenance and Support on a Laser Pro Lending Suite version
5.xx Software product if the Software is modified without CFI's approval, if the
Software or hardware is misused, or if the defect is caused by personnel or
products not provided by CFI.
If Customer discovers an error in the Laser Pro Lending Suite version 5.xx
Software, Customer shall notify CFI immediately and shall give CFI all necessary
assistance (including access to the Laser Pro Lending Suite version 5.xx
Software and documentation of the error or defect) to diagnose and repair the
problem. Although CFl does not generally perform Maintenance and Support at the
installation site, on-site services may be obtained at a per them rate, plus
reasonable expenses.
14
<PAGE>
To facilitate communication between Customer and CFI, Customer shall appoint a
"System Administrator" for the Laser Pro Lending Software, to act as Customer's
central point of contact for the receipt of Maintenance and Support services.
All Customer requests for Maintenance and Support should be received from
Customer's System Administrator. Customer shall provide CFI with written
notification of the name address and telephone number of its System
Administrator. Customer shall promptly notify CFI in writing of any change in
its System Administrator's information.
5. CHANGES IN LASER PRO LENDING SUITE VERSION 5.XX SOFTWARE MAINTENANCE AND
SUPPORT, CFI may occasionally revise the Laser Pro Lending Suite version 5.xx
Software Maintenance and Support it provides. If CFI makes a change in the Laser
Pro Lending Suite version 5.xx Software Maintenance and Support, CFI will
provide notification of the change at least 30 days prior to the effective date
of the change.
Laser Pro Lending Suite Version 5.xx Modules Payment Schedule:
- --------------------------------------------------------------
Laser Pro Lending Suite version 5.xx Module License Fees as specified
in the applicable Order Request shall be invoiced upon delivery with
payment due within 30 days of Invoice. Laser Pro Lending Suite version
5.xx Module Maintenance and Support Fees as specified in the applicable
Order Request shall be billed in advance with payment due within 30
days of Invoice.
LASER PRO LENDING VERSION 5.XX PRODUCTS LICENSE EXHIBIT
Page 4 of 5
LPLX1198.doc 11/2/1998
CFI ProServices, INC.
15
<PAGE>
LASER PRO LENDING VERSION 5.XX PRODUCTS LICENSE EXHIBIT
-------------------------------------------------------
LASER PRO LENDING SUITE VERSION 5.XX STANDARD PRODUCTS SCHEDULE FOR CUSTOMER
- ----------------------------------------------------------------------------
REQUIREMENTS
------------
LIMITATIONS OF USE
- ------------------
Customer has the right to use the Software only for the number of users
licensed, as stated in the applicable Order Request(s).
THIRD PARTY PROBLEM DETERMINATION
- ---------------------------------
It is Customer's responsibility to resolve any problems with the operation
of third party hardware or software. Customer may elect to provide this
service or contract with a Third Party. UNDER NO CIRCUMSTANCES WILL CFI BE
RESPONSIBLE FOR DETERMINING OR RESOLVING PROBLEMS WITH ANY THIRD PARTY
HARDWARE OR SOFTWARE UNLESS SPECIFICALLY CONTRACTED TO DO SO. Customer
will provide CFI with a single point of contact with Customer for any
third party problem issues. In the event that CF] assists with third party
problem determination or resolution, and the problem exists in other than
CFI's Software, Customer will pay CFI for these services at CFI's then
current services rates. Delivery Schedules may also be delayed as a
result.
THIRD PARTY HARDWARE AND SOFTWARE REQUIREMENTS
CFI shall not be responsible for, nor shall the obligations of Customer
upon this Agreement be affected by, the failure of any third party
hardware or software to perform according to the specifications or
representations of their supplier. Customer is responsible for acquiring
and integrating all third party hardware and software and associated
installation and support services. It is Customer's responsibility to
assure that the third party hardware and software meet the following
minimum configuration requirements:
COMPUTER:
o IBM compatible Pentium(R)Processor or subsequent model is recommended
(minimum requirement: IBM compatible 486 or subsequent model)
o 32 MB RAM memory
o Color VGA monitor
o 30 MB hard disk space for basic program, plus 10KB per transaction
o 3.5" high density floppy drive o CD ROM drive (if Geo Coding)
o For application modules, CCITT v,32 compatible modem attached to
workstation for credit bureau communication
OPERATING SYSTEM:
o DOS 6.x or subsequent
o Windows 3.x
o Windows 95
o Windows NT
o Artisoft LANtastic
NETWORK OPERATING SYSTEM:
o Novell NetWare v2.15 or greater
o IBM LAN Server
o Windows NT Server
PERIPHERALS:
o Hewlett-Packard Laser Jet or 100% compatible printer.
o Hewlett-Packard Laser Jet series 11, 111, 4 and 5
o Lexmark 4039
o Lexmark Optra
16
<PAGE>
PRINT FONTS:
o CFI Font Cartridge
o CFI Font SIMM
o CFI Softfonts (suitable for locally attached printers that do not
support a cartridge or SIMM)
NOTES:
These requirements are not to be construed as purchasing guidelines. Please
consult your hardware vendor for your overall business needs. Please contact CFI
for available related host interface product information.
LASER PRO LENDING VERSION 5.XX PRODUCTS LICENSE EXHIBIT
Page 5 of 5
LPLX1198.doc 11/2/1998
CFI ProServices, INC.
CFI DEPOSIT PRO(R) (WINDOWS VERSION)
COMPLIANCE WARRANTY
This is an important document. Keep it in a safe place.
This Warranty is in effect January 1, 1999 and continues through
December 31, 1999.
It's Simple. CFI warrants that all CFI documents produced by the Windows
version of the DEPOSIT PRO and TRUTH IN SAVINGS programs _________________
DEPOSIT PRO comply with all federal and state laws and regulations in effect
when the document is produced.
17
<PAGE>
WHAT WE PAY
We will pay each bank, federal savings bank, or savings and loan association
DEPOSIT PRO licensee ("you") up to ONE MILLION DOLLARS ($1,000,000) per year for
the cost to you of any actual loss you sustain as a result of the failure of any
document created by DEPOSIT PRO to comply with federal and state laws and
regulations in effect when the document is produced (a "compliance failure").
This is the amount we will cover of what you pay to all your customers, or as
penalties to governmental entities, including your costs (and court costs and
reasonable attorney fees) to defend a compliance failure in a DEPOSIT PRO
document. The ONE MILLION DOLLARS ($1,000,000) per year is for all notices of
compliance failure you give us within the year, regardless of when payment of
any claim is actually made. There is an aggregate cap for our entire customer
base of two and one half million dollars ($2,500,000) per occurrence of a common
compliance failure of a DEPOSIT PRO document. This aggregate cap will apply no
matter how many years are required to resolve the claim.
WHAT WE DO NOT PAY
We will not pay if you do not notify us in time, if you do not use DEPOSIT PRO
as directed, or for documents or issues not produced by DEPOSIT PRO, In more
detail this means that this CFI Compliance Warranty does not extend to the
following:
a) Any compliance failure claim of which CFI is not properly notified, as
described in the "How to Collect" section below, during the term of
this Compliance Warranty;
b) Any criminal or fraudulent act or award of punitive damages;
c) Any credit decision by you, or the non-creditworthiness of any person
or entity with whom you have a banking relationship:
d) Any compliance failure claim made if the banking relationship was, at
the time, beyond your authority;
e) Any compliance failure claim made by any entity not a party to your
DEPOSIT PRO license agreement or by any governmental entity (including
but not limited to the Federal Deposit Insurance Corporation or the
Office of Thrift Supervision) in its own name or in your name or on
your behalf, or by any receiver or liquidator, when such entity has
closed, placed into receivership, assisted or arranged a merger of, or
otherwise taken control of, you;
f) Any compliance failure claim that arises from or is related to any of
the followings
1) Any additional provision or other language added to a document
produced by DEPOSIT PRO, or any customized language or
programming prepared by CFI, by Licensee or by any third
party, including any interface programming, screen
programming, source code modification, data entry or the like
that impacts the operation of the program or the language of
the documents from that of the standard DEPOSIT PRO program or
documents ;
2) Any documentation, form, or agreement not produced by DEPOSIT
PRO;
3) Any use of DEPOSIT PRO in combination with products, goods,
services or other items furnished by anyone other than CFI;
4) Any matter subject to a warning included with the screens or
any checklist report produced by DEPOSIT PRO, unless the
warning contains instructions for removing or solving the
issue and those instructions have been complied with fully;
5) Any failure to follow the 'Help' prompts, the Manual, any
Release Notes, or other documentation supplied by CFI for
DEPOSIT PRO;
6) Any violation of federal or state deposit insurance laws or
regulations;
18
<PAGE>
g) Any loss you sustain as a result of your alleged promise,
representation, statement or similar conduct made to your customer that
contradicts the language or calculations of a document produced by
DEPOSIT PRO, or any additional documents you used in connection with a
transaction that were not produced by DEPOSIT PRO, or any loss
resulting from you or a customer providing or entering any information
that is incomplete, inappropriate or inaccurate, or failing to provide
or to enter necessary information, or any selection, election, choice
or policy decision you make with respect to choice of applicable law
from one jurisdiction to another. You agree that the matters referred
to in this exclusion are beyond the control of CF];
h) Any claim you make based upon a compliance failure of a DEPOSIT PRO
document of which you were already aware when you documented the
transaction. Upon receipt by you of an updated version of DEPOSIT PRO,
you agree that you are aware of any compliance failure in previous
versions of DEPOSIT PRO that were corrected by the updated version;
i) Any compliance failure claim you make during a period in which you are
more than 180 days in arrears on any of your obligations to CFI or
based upon a document produced during a period in which you are more
than 180 days in arrears with any of your obligations to CFI Any
compliance failure claim you make if the system has been operated by
you with more users than you are licensed for or beyond the scope of
your license agreement, or if you have violated any copyright held by
CFI, or if you have violated any confidentiality or secrecy agreement
between you and CFI.
HOW TO COLLECT
You must send us a registered or certified letter notifying us of your
compliance failure claim and telling us what you believe is wrong. Send it to
CFI ProServices, Inc., attention 'General Counsel.' We must receive the notice
while this warranty is in effect, before you agree to pay any money, and before
the earlier of (a) 30 days from when you first learn of a compliance failure or
(b) at least 10 days before you are required to respond to any court or
administrative agency. Please let us know orally as soon as possible so we can
start to fix the problem, but remember that written notice is required.
19
<PAGE>
CFI DEPOSIT PRO(R) (WINDOWS VERSION) COMPLIANCE WARRANTY
Page 1 of 2
You agree to cooperate with CFI in our investigation and resolution of any
compliance failure claim. If a problem is one which can be solved or damages
reduced by sending a cure notice under applicable law, you agree to cooperate
with CFI in sending the notices at our expense.
CHOOSING LAWYERS
If you use a lawyer to defend a compliance failure of a document produced by
DEPOSIT PRO, we reserve the right to approve that lawyer, but we will not be
unreasonable.
A FEW WORDS FROM OUR LAWYERS
This warranty and remedy, plus the limited software warranty and maintenance
warranty that come with DEPOSIT PRO and the remedies provided there, are your
exclusive remedies for any defect in DEPOSIT PRO. THESE WARRANTIES AND REMEDIES
ARE EXCLUSIVE AND ARE IN SUBSTITUTION FOR ALL OTHER WARRANTIES, OBLIGATIONS AND
LIABILITIES OF CFI, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
LIMITATION OF LIABILITY
THE LIMITATION OF LIABILITY CONTAINED IN THE LICENSE FOR DEPOSIT PRO APPLIES TO
THIS COMPLIANCE WARRANTY AND STATES, IN PART, THAT CFI IS NOT LIABLE FOR ANY
INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES.
This warranty is governed by the laws of Oregon.
We are proud you have chosen DEPOSIT PRO and we look forward to continuing to
serve you.
CFI ProServices, Inc.
Matt Chapman, Chairman & CEO
20
<PAGE>
CFI DEPOSIT PRO(R) (WINDOWS VERSION) COMPLIANCE WARRANTY
Page 2 of 2
YEAR 2000 COMPLIANCE WARRANTY
-----------------------------
DEPOSIT PRO (Version 8.0x-8.04b)
Noting the exceptions and clarifications stated below, CFI warrants that the
Software, closed off from all other system resources (except for the specified
operating system), is century compliant for the year 2000 (i.e., the Software is
capable within itself of accounting for all calculations using a century\date
sensitive algorithm for the 20th and 21st centuries, including the rollover to
the year 2000 and the fact that such year is a leap year). In the event that the
Software is not century compliant, CFI's obligations and Customer's remedies
shall be those stated in SECTION 7.A OF THE SOFTWARE LICENSE AGREEMENT OR THE
MASTER AGREEMENT (OR OTHER PROPER REFERENCE TO CFI'S WARRANTY REMEDIES). This
warranty does not extend to customizations of the Software in instances in which
the customization specifications do not require that the customized Software be
century compliant for the year 2000. This warranty does not extend to interface
programs.
CFI does not warrant that the Software, while operating in conjunction with
other system resources (except for the specified operating system), is century
compliant for the year 2000. This is because the Software's ability to produce
expected dates can be adversely affected by things over which CFI has neither
responsibility nor control, such as date data received from other system
resources and intermediate operations performed on date data by other system
resources. Consequently, the warranty does not extend to any failure of the
Software caused by any data provided or operated upon by a non-CFI system
resource which is (a) not formatted consistent with the formatting requirements
of the Software; (b) not correct and complete in the context of the Software; or
(c) altered by a non-CFI system resource once initially provided to the
Software.
Exceptions and Clarifications
The following are the exceptions and clarifications pertaining to DEPOSIT PRO
(VERSION 8.0X-8.04B): accepts two-digit year entry and will add a century based
on whether the data must be in the past or in the future or if neither the
current century. The user may enter four-digit year suppressing the need for the
century to be derived or may override the derived century. Versions 8.00 through
8.04b of Deposit Pro for Windows will not be Year 2000 compliant when getting
"today's date". Version 8.05 for Windows will be compliant and is targeted for
delivery by the end of Ql 1998.
Year 2000 Compliance Warranty - Deposit Pro (Version 8.0x-8.04b)
Page 1 of 1 (Updated March 1998)
21
<PAGE>
CFI PROSERVICES, INC.
SOFTWARE LICENSE AGREEMENT
1. GOVERNING AGREEMENT. In the absence of an existing comprehensive
written agreement signed by both parties covering this transaction,
this Agreement is the governing agreement for the accompanying
Software. If the accompanying Software is an update or an additional
module to Software previously provided by CFI which is not subject to
an existing comprehensive written agreement signed by both parties,
this Agreement is the governing agreement for the previously provided
Software as well. This is a legal agreement between the entity which
ordered the accompanying Software (our "Customer"), and CFI
ProServices, Inc. Except where there 'S an existing comprehensive
written agreement covering this transaction, by opening the sealed
software packages and/or by using the Software, Customer and the
individual doing so acknowledge that (a) Customer was the ordering
entity; (b) the individual opening the software packages and/or using
the Software has authority to bind Customer to these terms;
(c) Customer agrees to be bound by the terms of this Agreement; and
(d) Customer agrees that the terms of this Agreement apply to any
previously provided Software to which the accompanying Software is an
update or an additional module. IF YOU DO NOT AGREE TO THE TERMS OF
THIS AGREEMENT, PROMPTLY RETURN THE UNOPENED DISK PACKAGE AND
ACCOMPANYING ITEMS (INCLUDING PRINTED MATERIALS) FOR A REFUND OF THE
APPLICABLE LICENSE FEE OR APPROPRIATE PORTION THEREOF.
2. LICENSE
-------
A. GRANT: Unless otherwise stated in the Order Request which
initiated the transaction, CFI grants a non-exclusive,
non-transferable, terminable license for the software products
identified in the Order Request (the "Software") for use on the number
of workstations specified in the Order Request (the "License Grant").
If the number of workstations is not specified on the Order Request,
this grant extends to just a single workstation. A workstation means a
monitor and keyboard capable of accessing the Software without regard
to where the Software resides. For example, a laptop on which the
Software is loaded, a PC connected by LAN in which the Software
resides, and a workstation which accesses a server to use the Software
are each a workstation. A printer (including a facsimile machine or
any other device capable of allowing viewing or creating hard copies
of a document produced by the Software) is considered a separate
workstation when the printer resides in a building other than a
building in which at least one other workstation resides. Customer
must have a license for each workstation that is capable of operating
the Software, and Customer must have a device in place that will
ensure the only workstations that may access the Software are licensed
to use the Software under the License Grant. The License Grant is only
for the United States and Canada and provides the Customer with the
right to use the Software for its internal purposes and to perform
financial services for the Customer's retail accounts in the normal
course of the Customer's business. A License Grant remains in effect
so long as the Customer uses the Software consistent with the Order
Request and this Agreement. Software includes Documentation.
Customer may move the Software from residing in one device to another
as long as Customer does not move the Software in an effort to avoid
acquiring additional Software licenses and the total number of
workstations using the Software at any given time do not exceed the
number of workstations licensed under the Order Request.
B. ACCEPTANCE: Customer will be deemed to have accepted the Software upon
the earliest of: (a) any productive or commercial use of the Software
by or on behalf of the Customer; (b) delivery of written notice to CF]
of Customer's acceptance of the Software; or (c) expiration of the
Warranty Period (as defined below) absent a claim being made as
provided in Section 7A.
22
<PAGE>
3. MAINTENANCE.
------------
A. MAINTENANCE: CFI will provide the maintenance and support
("Maintenance") specified in the applicable Order Request. Unless
otherwise specified in the Order Request, Maintenance will consist of
the following:
1 CFI will use reasonable efforts at its office to correct any
Software in the form as delivered by CFI (e.g., which does not
contain modifications made by Customer) that materially fails to
conform to the specifications for such Software accurately stated
in the applicable Documentation, provided that Customer gives CFI
prompt written notice of such failure and CFI is able to
reproduce the noncompliance in the operating environment for
which the Software is designed. Customer will supply CFI with all
reasonably requested information to assist CFI in reproducing the
failure.
2) CFI will deliver to Customer any error corrections it makes (in
physical media and/or electronic form) consisting of work around
instructions, revisions or patches to the Software and/or
revisions or supplements to the Documentation (collectively,
"Error Corrections"). CFI will furnish Maintenance only for the
current release and the immediately prior release of the
Software.
3) CFI will provide Customer reasonable telephone and email
assistance consistent with Maintenance during CFI's published
support hours.
B. MAINTENANCE PREREQUISITE: Each License Grant is conditioned upon
Maintenance being provided and CFI being compensated unless CFI has
generally discontinued providing Maintenance for such Software.
Should CFI decide to discontinue Maintenance, the Customer will
receive at least six (6) months advance written notice. After
Maintenance is discontinued, CFI may no longer support the Software
and may dispose of the Software and Documentation including source
code and other information.
4. COMPENSATION
------------
A. FEES: Customer will pay to CFI (i) License fees, (ii) Maintenance
fees, (iii) labor and materials used by CFI for improper
Maintenance requests and (iv) out of pocket costs related to all
the foregoing including reasonable travel and living expenses.
Payment will be in accordance with the payment schedules stated in
the applicable Order Request. Improper Maintenance requests are
those where the problem is determined to be other than a failure of
the Software in unmodified form to materially comply with its
specifications,
B. INVOICES:: CFI will prepare and submit to Customer written invoices
for amounts payable under this Agreement consistent with the
applicable Order Request. Customer will pay each invoice within
thirty (30) days after receipt. In addition to CFI's other
remedies, CFI may suspend any License Grant under this Agreement
and Maintenance until payments are brought current.
C. TAXES: The compensation provided for in this Agreement does not
include any duties, taxes (other than taxes on CFI's income levied
by any of the United States or the U.S. government), fees or other
similar amounts assessed or imposed by governmental authorities.
Customer will pay or reimburse CFI for all such amounts.
23
<PAGE>
D. INTEREST: Amounts not paid when due are subject to finance charges
of 1.5% per month or the highest rate permitted by law, whichever
is less, compounded daily from due until paid. Undisputed invoices
not paid when due are assessed a late payment fee of 15% of the
unpaid balance. Payment of late fees and finance charges does not
excuse or cure late payment. Payments received are first applied to
late fees and finance charges.
E. PRICE CHANGES: CFI may change Maintenance fees from time to time,
effective on the upcoming anniversary of the commencement of the
applicable Maintenance year, by giving Customer notice of the
change at least thirty (30) days prior to such anniversary.
5. TERM; TERMINATION
-----------------
A. TERM: This Agreement commences upon its execution and continues
until terminated under Section 5B. Further, the terms and
conditions of this Agreement remain in effect until all license
grants extended under the Order Request terminate, are canceled or
expire. See Section 10D regarding survival of terms.
B. TERMINATION OF THE AGREEMENT: This Agreement may be
immediately terminated by the non-defaulting party following
written notice to the defaulting party of the default, including
identification of the intended cure, and the defaulting party
failing to cure within 30 days following receipt of the notice. CFI
may terminate this Agreement immediately by giving Customer written
notice of termination if Customer becomes insolvent, a receiver or
conservator is appointed for any part of Customer's assets, or a
bankruptcy proceeding is commenced by or against Customer. Customer
may terminate the Agreement by providing CFI with ninety (90) days
prior written notice thereof. Termination by Customer shall not
relieve Customer of any payment obligations which arise prior to
such termination, including Maintenance fees after the commencement
of the applicable Maintenance term.
C. EFFECT OF TERMINATION OF THE AGREEMENT: Termination terminates
further performance under the Order Request and terminates any
License Grant provided and Customer will: (a) immediately stop
using all Software and promptly remove it from any hardware on
which the Software is installed and (b) at CFI's direction, return
to CFI or destroy all copies of any Software and Documentation in
Customer's possession or control and, if applicable, certify the
destruction of all Software and Documentation within twenty (20)
days of termination.
6. PROPRIETARY RIGHTS
------------------
A. LIMITATIONS ON USE: Customer will not, directly or through others:
(a) market, license, distribute, transfer, sublicense or otherwise
commercially exploit the Software or Documentation; (b) permit the use
of the Software or Documentation by others or otherwise operate the
Software for third parties (e.g., as a service bureau or data
processing service); (c) modify the Software or translate or port the
Software or Documentation into any other computer or human language
without the prior written consent of CFI, (d) disassemble, reverse
engineer or decompile the Software or otherwise attempt to discover
any portion of the object or source code or trade secrets related to
the Software: (e) reproduce the Software or Documentation without
CFI's copyright notice; or (f) sell, lend, rent, give, assign or
otherwise transfer or dispose of the Software or the Documentation.
B. CONFIDENTIALITY: Both parties may acquire certain information that is
confidential, proprietary or trade secret information of the other
party or a Requests. CFI acknowledges that Customers Confidential
Information third party ("Confidential Information") in the
performance of Order includes Customer's customer information and any
host interface specifications that are proprietary to Customer,
24
<PAGE>
Customer acknowledges that CFI's Confidential Information includes all
source code, Software and Documentation and any related system design,
data base design, algorithms, trade secrets and technology. Other
Confidential Information of either party shall be clearly identified
in writing as Confidential at the time of disclosure or promptly
thereafter, The party receiving Confidential information will: use
such information solely for performance under this Agreement; not
disclose such information to any third party (excluding agents which
are not potential competitors of the disclosing party); and otherwise
protect such information from any unauthorized use or disclosure, The
receiving party shall see that its employees and agents having access
to Confidential Information are bound by confidentiality obligations
consistent with this provision.
7. WARRANTY
--------
A. SOFTWARE WARRANTY: CFI warrants that, at the time of delivery, the
Software will function in all material respects consistent with
accurately stated specifications appearing in the applicable
Documentation published by CFI for the Software.
CFI does not warrant that the Software is free from all bugs, errors
or omissions. The warranty does not extend to any failure of the
Software caused by: (a) any modification or change not made by CFI;
(b) any noncompliance caused by use of the Software in combination
with products, goods, services or other items furnished by anyone
other than CFI; (c) use of the Software with any predecessor or
successor version of the Software; (d) use of the Software in an
operating environment other than as specified in the Order Request,
and (e) errors in the applicable Documentation.
As CFI's sole and exclusive obligation and Customer's sole and
exclusive remedy, CFI will use reasonable efforts at its facility to
correct any Software or Documentation that fails to comply with the
foregoing warranty by delivering one or more Error Corrections,
provided that Customer gives CFI prompt written notice of such failure
before the expiration of thirty (30) days following receipt of the
Software (the "Warranty Period'), or such other Warranty Period as may
be set forth in the Order Request, and CFI is able to reproduce the
noncompliance in the operating environment for which the Software is
designed. If after the expenditure of such reasonable efforts CFI is
unable to correct the Software such that it complies with the
foregoing warranty, CFI may, at its option, refund all or (if
Customer's license to use such Software continues) a reasonable
portion of the license fees Customer has paid with respect to such
Software in full satisfaction of all Customers claims relating o such
noncompliance. Customer will supply CFI with all reasonably requested
information to assist CFI in reproducing the failure.
B. EXCLUSIVE WARRANTIES AND REMEDIES: THE WARRANTY AND REMEDIES SET
FORTH IN SECTION 7A, ARE EXCLUSIVE AND ARE IN SUBSTITUTION FOR ALL
OTHER WARRANTIES, OBLIGATIONS AND LIABILITIES OF CFI. CUSTOMER HEREBY
WAIVES, RELEASES AND DISCLAIMS ALL OTHER RIGHTS AND REMEDIES AND ANY
CLAIMS, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT
TO ANY DEFECT, DEFICIENCY OR NONCONFORMITY IN ANY SOFTWARE, SERVICE,
MAINTENANCE OR OTHER ITEM FURNISHED BY OR ON BEHALF OF CFI UNDER THIS
AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE; IMPLIED WARRANTY
ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF
TRADE; ANY OBLIGATION, LIABILITY, RIGHT, REMEDY OR CLAIM IN TORT
(INCLUDING NEGLIGENCE, WHETHER ACTIVE, PASSIVE OR IMPUTED), PRODUCT
LIABILITY, STRICT LIABILITY OR OTHER THEORY.
C. THIRD PARTY PRODUCTS: Some Software products may include computer
programs or data supplied by a third party. All such computer programs
and data are supplied "AS IS" by CFI.
25
<PAGE>
8. LIMITATIONS OF LIABILITY
------------------------
A. CFI'S ENTIRE LIABILITY, WHETHER IN CONTRACT, TORT (INCLUDING
NEGLIGENCE), PRODUCT LIABILITY, STRICT LIABILITY, OR OTHER LEGAL OR
EQUITABLE THEORY, FOR ANY CLAIM ARISING FROM OR RELATED TO THIS
AGREEMENT OR ANY SOFTWARE, DOCUMENTATION, MAINTENANCE, OR OTHER ITEMS
FURNISHED OR TO BE FURNISHED UNDER THIS AGREEMENT, BY ORDER REQUEST OR
OTHERWISE, WILL IN NO EVENT EXCEED THE LICENSE FEES PAID TO CFI BY THE
CUSTOMER FOR THE APPLICABLE ITEM WHICH IS THE BASIS FOR THE CLAIM.
B. IN NO EVENT WILL CFI BE LIABLE TO CUSTOMER OR TO ANY OF CUSTOMER'S
CUSTOMERS OR ANY OTHER PERSON OR ENTITY FOR LOST DATA, LOST PROFITS,
INTEREST, OR COST OF MONEY; OR FOR COVER; OR FOR ANY INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF CFI'S
PERFORMANCE OR NONPERFORMANCE OR THE USE OF, INABILITY TO USE OR
RESULTS OF USE OF ANY ITEM OF MAINTENANCE, DOCUMENTATION OR SOFTWARE.
9. INTELLECTUAL PROPERTY
---------------------
A. CFI represents that to the best of its knowledge, the Software does
not infringe any U.S. Copyright of any third party. CFI will defend
Customer against any judicial proceeding based upon infringement of
any U.S. copyright by the Software, provided that Customer notify CFI
of such proceeding promptly after Customer receives notice thereof,
CFI has exclusive control over the defense and settlement of the
proceeding, Customer provides such assistance in the defense and
settlement of the proceeding as CFI may reasonably request, and
Customer complies with any settlement or court order made in
connection with such proceeding (e.g., as to the future use of any
infringing Software).
B. CFI will: (i) indemnify Customer against any and all damages, costs
and attorneys' fees finally awarded against Customer in any such
proceeding, (ii) reimburse the expenses Customer reasonably incurs in
providing the assistance requested by CFI above, (iii) if the action
is settled, pay any amounts agreed by CFI in settlement of any claims
of infringement.
C. CFI's obligations under this Section 9 will not apply to any
infringement to the extent arising out of (a) any use or combination
of the Software with any other products, goods, services or other
items furnished by anyone other than CFI, (b) any modification or
change not made by CFI, (c) the use of an infringing version of the
Software when a comparable non-infringing version has been made
available to Customer, or (d) any Software developed to specifications
which Customer has supplied or required of CFI.
D. In the event that CFI is or reasonably believes it will be required to
discontinue use of the Software, CFI will do one of the following,
selected by CFI at its option: (a) CFI will obtain for Customer the
right to continue use of the Software; (b) CFI will modify the
Software to make it non-infringing; or (c) if CFI is not reasonably
able to accomplish the foregoing, CFI may terminate the license of the
infringing Software and refund Customer a pro-rata portion of the
license fee Customer paid for such Software, amortized on a three-year
straight line basis from the date of installation of the Software.
E. THE FOREGOING STATES THE ENTIRE LIABILITY OF CFI WITH RESPECT TO
INFRINGEMENT OF ANY COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHT BY
ANY DELIVERABLE OF CFI OR RESULTING FROM THE PERFORMANCE OF SERVICES
BY CFI.
26
<PAGE>
10. MISCELLANEOUS
-------------
A. NO WAIVER: The failure of either party to insist upon or enforce
strict performance of any of the provisions of this Agreement or to
exercise any rights or remedies under this Agreement will not be
construed as a waiver or relinquishment to any extent of such party's
right to assert or rely upon any such provisions, rights or remedies
in that or any other instance; rather, the same will be and will
remain in full force and effect.
B. ASSIGNMENT: Neither this Agreement nor its related Order Request shall
be assigned or transferred in any way by Customer, voluntarily or
involuntarily, by operation of law or otherwise, without the prior
written consent of CFI.
C. ATTORNEYS' FEES: In the event of any action to enforce this Agreement
or on account of any breach or default under this Agreement, the
prevailing party in such action will be entitled to recover, in
addition to any other relief to which it may be entitled, from the
other party all reasonable attorneys' fees incurred by the prevailing
party in connection with such action (including, but not limited to,
any appeal thereof).
D. SURVIVAL: All provisions of this Agreement which may reasonably be
interpreted or construed as surviving the termination or expiration of
this Agreement will survive. In addition, any of Customers payment
obligations which arise prior to such termination or expiration will
survive.
E. APPLICABLE LAW: This Agreement will be interpreted, construed and
enforced in all respects in accordance with the local laws of the
State of Oregon, USA, without reference to its choice of laws
principles. The parties waive application of the 1980 UN Convention on
Contracts for the International Sale of Goods to this Agreement and
the transactions contemplated by this Agreement.
F. ENTIRE AGREEMENT: This Agreement in conjunction with an applicable
order request and its attachments and references form the complete
agreement between CFI and the Customer for the order and supersedes
any and all prior agreements among the parties related to the
Software, the Services and any other items provided under that order
request. No modification of any of the provisions of this Agreement
will be valid unless set forth in a written instrument signed by both
parties. Any remedy of CFI set forth in this Agreement is in addition
to any other remedy afforded to CFI under any other contract, by law,
or otherwise.
27
<PAGE>
LICENSE GRANT
ENTERPRISE LICENSE:
Customer may install the Software on an unlimited number of CPUs within the
Enterprise's territory designated in the Order Request or its attachments.
(Where the use of a product is limited to elected states, that is the
Enterprise's territory.) An Enterprise means the Customer's offices and
facilities and those of its subsidiaries each of which are identified on the
Order Request to the extent that each of them operates within the territory. If
the Enterprise designated in the Order Request is merged with another entity,
Customer may continue to use the Software within the Enterprise at the offices
and facilities at which the Software was allowed to be used pursuant to the
License Grant immediately prior to the date the Enterprise agreed to merge with
the other entity.
28
<PAGE>
DEPOSIT PRO(R) PRODUCT LICENSE EXHIBiT
--------------------------------------
SPECIFICATION OF THE DEPOSIT PRO(R) STANDARD PRODUct
----------------------------------------------------
DEPOSIT PRO(R) PRODUCT
- ----------------------
Software Specifications
- -----------------------
The standard product is the Deposit Pro Software (variously referred to herein
as the "Software" and "Deposit Pro"). The features and functions are as follows:
Deposit Pro is a deposit account opening documentation software package.
Documents are printed using laser printers. Documents are mainly for new deposit
accounts, with some miscellaneous maintenance forms also available, Documents
are compliant with state and federal government regulations.
Features:
o Deposit account opening processing & documentation for Savings, Money
Market, Checking, Certificate of Deposit, IRA accounts
o Customer lookup via optional interface to host processor
o Truth in Savings Inquiry disclosures
o Account opening disclosures compliant with state and federal government
regulations
o APY calculator
o New Account Analysis, Deposit Dollar Summary and Closed Account reports
Online window and field "Help" text is included within the Software in place of
a paper based user manual. The help text is available to remind a trained user
about specifics and procedures for the current window or field.
INCLUDED SUPPLIES:
- ------------------
o Set of General System Setup disks plus one Administrative Manual per
Financial Institution.
o Set of Deposit Pro disks plus one Administrative Manual per Financial
Institution.
o Deposit Pro "Quick Start" card for each licensed copy of the software
OPTIONAL MODULES:
o Online Check Ordering connectivity to DELUXE CORPORATION'S "ELECTRONIC
CHECK CATALOG" software, This module allows the user to order new checks
from within the new account transaction. The Deposit Pro module is a DLL
that call's Deluxe's Electronic Check Catalog and fills Deluxe's software
with existing data about the customer or checking account if the data
already exists in the CFI database. Actual placement of the new check
orders is conducted through Deluxe's Electronic Catalog,
o Host Connectivity varies from host processor to host processor. Generally,
customer information is downloaded from the host processor into the Deposit
Pro customer window. Standard downloaded data for up to six entities
includes: customer name (personal or business), SSN/TIN, street address,
city, state, zip, primary phone, secondary phone, date of birth, CIF short
name, customer number.
Uploaded transactions will take place from Deposit Pro to the host
processor, Uploaded information is unique from host processor to host
processor but generally includes customer name and address information,
account type, account number, account opening date and deposit amount.
To achieve host connectivity, Customer must meet CFI's current requirements
for available memory, emulation software, and any other host specific
requirements, CFI and host processor requirements will vary from host to
host and will change frequently.
Deposit Pro Software will operate with the hardware and software defined in the
Deposit Pro Schedule for Customer Requirements section of this Exhibit.
29
<PAGE>
DEPOSIT PRO VERSION 8.XX COMPLIANCE WARRANTY
- --------------------------------------------
With respect to the Deposit Pro Software licensed to Customer hereunder, CFI is
providing a separate warranty that such Software is in compliance with banking
laws and regulations in effect when the Deposit Pro Software is provided to
Customer. THE FOREGOING IS NOT A WARRANTY; CUSTOMER MUST RELY SOLELY ON THE
TERMS AND CONDITIONS OF THE SEPARATE COMPLIANCE WARRANTY PROVIDED WITH THE
SOFTWARE, IF APPLICABLE.
DEPOSIT PRO YEAR 2000 COMPLIANCE WARRANTY:
- ------------------------------------------
DEPOSIT PRO FOR WINDOWS VERSION 8.05 OR GREATER AND DEPOSIT PRO FOR DOS VERSION
8.10 OR GREATER YEAR 2000 COMPLIANCE WARRANTY: Noting the exceptions and
clarifications stated below, CFI warrants that the Software, closed off from all
other system resources (except for the specified operating system), is century
compliant for the year 2000 (i.e., the Software is capable within itself of
accounting for all calculations using a century\date sensitive algorithm for the
20th and 21st centuries, including the rollover to the year 2000 and the fact
that such year is a leap year). In the event that the Software is not century
compliant. CFI's obligations and Customer's remedies shall be those stated in
SECTION 7.A OF THE SOFTWARE LICENSE AGREEMENT OR THE MASTER AGREEMENT (OR OTHER
PROPER REFERENCE TO CFI'S WARRANTY REMEDIES). This warranty does not extend to
customizations of the Software in instances in which the customization
specifications do not require that the customized Software be century compliant
for the year 2000. This warranty does not extend to interface programs.
CFI does not warrant that the Software, while operating in conjunction with
other system resources (except for the specified operating system), is century
compliant for the year 2000. This is because the Software's ability to produce
expected dates ran be adversely affected by things over which CFI has neither
responsibility nor control, such as date data received from other system
resources and intermediate operations performed on date data by other system
resources, Consequently, the warranty does not extend to any failure of the
Software caused by any data provided or operated upon by a non-CFI system
resource which is (a) not formatted consistent with the formatting requirements
of the Software, (b) not correct and complete in the context of the Software; or
(c) altered by a non-CFI system resource once initially provided to the
Software.
EXCEPTIONS AND CLARIFICATIONS
- -----------------------------
The following are the exceptions and clarifications pertaining to DEPOSIT PRO
FOR WINDOWS VERSION 8.06 OR GREATER AND DEPOSIT PRO FOR DOS VERSION 8.10 or
GREATER: The user may enter either a 6-digit date as MMDDYY or an 8-digit date
as MMDDYYYY. If a six-digit date is entered the program will automatically add
the current century to form an 8-digit date
INSTALLATION
- ------------
Deposit Pro Software is shipped with instructions for installation. Customer is
responsible for reading the instructions and installing the Software before
product training classes are attended. CFI's Technical Support staff is
available to assist Customer with Software installation via toll free phone
calls. It is Customer's responsibility to assign the installation task to a
person with appropriate technical knowledge, and to complete installation.
For network installations, CFI recommends that Customer employ an experienced
network consultant. Though standard Software updates are designed to be as
simple as possible, CFI recommends that a person with reasonable technical
aptitude be assigned this ongoing responsibility. PC and network administration
are entirely Customer's responsibility.
DEPOSIT PRO(R) PRODUCT LICENSE EXHIBIT
Page 1 of 3
1DPX-598 5/522/1998
CFI ProServices, Inc.
30
<PAGE>
DEPOSIT PRO(R) PRODUCT LICENSE EXHIBIT
--------------------------------------
SPECIFICATION OF THE DEPOSIT PRO(R) STANDARD PRODUCT (CONTINUED)
----------------------------------------------------------------
TRAINING
- --------
Deposit Pro training is usually combined with Encore!(R) Desktop training in a
three day class, The Deposit Pro portion is approximately two days. Deposit Pro
Software training includes administrative instruction as well as techniques for
daily use. IF Customer opts for training on the Software, applicable training
fees are specified in Customer's Order Request.
CFI offers two forms of training for customers:
o Onsite Training. Onsite training is conducted at one of Customer's sites
and is designed to accommodate two to eight people. Special requests for
larger groups can be made by calling CFI's Training Department, Two
Training manuals will be included with an onsite training session
regardless of the number of attendees. Customer is responsible for meeting
room accommodations and PCs for the training class
o Regional Training.. Regional Training consists of 3 day training class held
at one of CFI's regional training centers. CFI's regional training centers
are located in Atlanta, GA and Portland, OR. One Training manual will be
provided per attendee. Travel expenses are Customer's responsibility.
o Customer may purchase additional training manuals.
DEPOSIT PRO SOFTWARE MAINTENANCE AND SUPPORT SERVICES
- -----------------------------------------------------
1. MAINTENANCE AND SUPPORT REQUIRED. Customer's license to continued use of
the Deposit Pro Software requires that Customer remain current with
respect to Maintenance and Support for the Deposit Pro Software
(including, without limitation, payment of Maintenance and Support fees).
2. LIST OF DEPOSIT PRO SOFTWARE MAINTENANCE AND SUPPORT. CFI provides the
following Maintenance and Support with respect to the Deposit Pro Software
during any period in which Customer is current with respect to Maintenance
and Support:
TOLL-FREE HOTLINE SUPPORT
Toll-free telephone support shall be available every Monday through
Friday from 9:00 a.m. to 9:00 p.m., Eastern Standard Time, except
holidays
ERROR CORRECTIONS
In accordance with the Deposit Pro Software Maintenance and Support
policies described below, CFI will use reasonable efforts at its office
to correct any errors in the Deposit Pro Software in the form as
delivered by CFI (e.g., which does not contain modifications made by
Customer), that cause the Software to materially fail to conform to the
specifications for such Software accurately stated in the applicable
Documentation.
VERSION UPDATES
If CFI releases an update to the presently existing functionality of
the Deposit Pro Software (an "Update"), Customer will automatically
receive a copy of each Update, plus related documentation, for each
Deposit Pro Software Product licensed hereunder. This policy applies to
all Updates that are not separately priced or marketed as a new
release, Customer is responsible for installing Software Updates,
upgrades and the like. Telephone support assistance for such
installation is available during normal telephone support hours at no
additional charge. Any Software installation requiring CFI involvement
other than telephone support, such as dial in/modem assistance, on-site
assistance, or where Customer requests CFI to install the Software for
them, will be provided at CFI's then current rates plus reasonable
expenses.
NEWSLETTER AND OTHER CORRESPONDENCE
CFI will provide to Customer, without charge, one copy of the CF]
newsletter as it is published, and any Software-related correspondence
31
<PAGE>
or materials that it generally releases to customers of Deposit Pro
Software products.
3. PURCHASING DEPOSIT PRO SOFTWARE MAINTENANCE AND SUPPORT. Deposit Pro
Software Maintenance and Support is purchased on an annual basis. All
Deposit Pro Software Maintenance and Support is subject to the terms and
conditions set forth in the Master Agreement, or other applicable
agreement governing Customer's license of the Software. Deposit Pro
Software Maintenance and Support fees are payable in advance, with
payment due thirty (30) days after receipt of invoice.
4. DEPOSIT PRO SOFTWARE MAINTENANCE AND SUPPORT POLICIES. In order to
receive Maintenance and Support on a Deposit Pro Software product,
Customer, in addition to the payment of all applicable fees, must
promptly install and use all Deposit Pro Software updates or corrections
that CFI provides. CFI will not be responsible for Maintenance and
Support on a Deposit Pro Software product if the Software is modified
without CFI's approval, if the Software or hardware is misused, or if
the defect is caused by personnel or products not provided by CFI.
If Customer discovers an error in the Deposit Pro Software, Customer
shall notify CF] immediately and shall give CFI all necessary assistance
(including access to the Deposit Pro Software and documentation of the
error or defect) to diagnose and repair the problem. Although CFI does
not generally perform Maintenance and Support at the installation site,
on-site services may be obtained at a per them rate, plus reasonable
expenses,
To facilitate communication between Customer and CFI, Customer shall
appoint a "System Administrator's or the Deposit Pro Software, to act as
Customer's central point of contact for the receipt of Maintenance and
Support services. All Customer requests for Maintenance and Support
should be received from Customer's System Administrator. Customer shall
provide CFI with written notification of the name address and telephone
number of its System Administrator. Customer shall promptly notify CFI
in writing of any change in its System Administrator's information.
5. CHANGES IN DEPOSIT PRO SOFTWARE MAINTENANCE AND SUPPORT. CFI may
occasionally revise the Deposit Pro Software Maintenance and Support it
provides. If CF] makes a change in the Deposit Pro Software Maintenance
and Support, CFI will provide notification of the change at least 30
days prior to the effective date of the change.
DEPOSIT PRO PAYMENT SCHEDULE
- ----------------------------
Deposit Pro License Fees as specified in the applicable Order Request
shall be invoiced upon delivery with payment due within 30 days of
Invoice.
Deposit Pro Maintenance and Support Fees are 20% of the January list
price each year, prorated as applicable the first year. Maintenance and
Support Fees shall be invoiced upon delivery with payment due within 30
days of Invoice.
DEPOSIT PRO(R) PRODUCT LICENSE EXHIBIT
Page 2 of 3
1DPX-598 5/22/1998
CFI ProServices, Inc.
32
<PAGE>
DEPOSIT PRO(R) STANDARD PRODUcT
-------------------------------
SCHEDULE FOR CUSTOMER REQUIREMENTS
----------------------------------
LIMITATIONS OF USE
- ------------------
Customer has the right to use the Software only for the number of users
licensed, as stated in the applicable Order Request(s).
THIRD PARTY PROBLEM DETERMINATION
- ---------------------------------
It is Customer's responsibility to resolve any problems with the operation
of third party hardware or software. Customer may elect to provide this
service or contract with a Third Party, UNDER NO CIRCUMSTANCES WILL CFI BE
RESPONSIBLE FOR DETERMINING OR RESOLVING PROBLEMS WITH ANY THIRD PARTY
HARDWARE OR SOFTWARE UNLESS SPECIFICALLY CONTRACTED TO DO SO. Customer
will provide CFI with a single point of contact with Customer for any
third party problem issues. In the event that CFI assists with third party
problem determination or resolution, and the problem exists in other than
CFI's Software, Customer will pay CFI for these services at CFI's then
current services rates. Delivery Schedules may also be delayed as a result
THIRD PARTY HARDWARE AND SOFTWARE REQUIREMENTS
- ----------------------------------------------
CFI shall not be responsible for, nor shall Customer's obligations
hereunder be affected BY, the failure of any third party hardware or
software to perform according to the specifications or representations OF
their supplier. Customer is responsible for acquiring and integrating all
third party hardware and software and associated installation and support
services. In addition to the Hardware and Software Requirements applicable
to the associated CFI software application in which Customer's Deposit Pro
component is embedded, it is Customer's responsibility to assure that the
third party hardware and software meet the following minimum configuration
requirements
COMPUTER:
o Workstation: 486/66Mhz or greater, keyboard and optional mouse
o Memory: 16MB RAM, 50OKB free conventional memory
o Hard Disk: 1 OMB minimum, 1/2 MB for each graphic slide
o Display: Color SVGA
o Others: Video driver to display audio-visual images
o System Printer: Windows compatible
OPERATING SYSTEM:
o Windows 3.1, Windows 95, or Windows for Workgroups 3.11
o Client Operating System: Windows 3.1, Windows 95 or Windows for Workgroups
3 11
o Network: Net BIOS compatible or IPX LAN
o Server Management Novell NetWare v2.15 or greater, Artisoft LANtastic
NOTES:
These requirements are not to be construed as purchasing guidelines. Please
consult your hardware vendor for your overall business needs.
DEPOSIT PRO(R) PRODUCT LICENSE EXHIBIT
Page 3 of 3
1DPX-598 5/22/1998
CFI ProServices, Inc.
33
Exhibit No. 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on
Form SB-2/A of our report dated July 26, 1999 on our audit of
the financial statements of Smith River Bankshares, Inc., a
development stage enterprise, as of June 30, 1999 and for the
period December 15, 1998 (date of inception) through June 30,
1999. We also consent to the reference to our firm under the
caption "Experts".
MCLEOD & COMPANY
Roanoke, Virginia
October 21, 1999
