<PAGE>
As filed with the Securities and Exchange Commission on March 24, 2000
Registration Statement No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
____________________
BOE FINANCIAL SERVICES OF VIRGINIA, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Virginia 6711 Pending
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
____________________
323 Prince Street
Tappahannock, VA 22560
(804) 443-4343
(Address, including zip code, and telephone number, including
area code of registrant's principal executive office)
____________________
Bruce E. Thomas
BOE Financial Services of Virginia, Inc.
323 Prince Street
Tappahannock, VA 22560
(804) 443-4343
(Name, address, including zip code, and telephone number,
including area code of agent for service)
____________________
Copy to:
Joseph C. Carter, III, Esq.
McGuire, Woods, Battle & Boothe LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219
_____________________
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [X]
____________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Title of each class of Proposed maximum Proposed maximum
securities to be Amount to be offering price aggregate offering Amount of
registered registered per share/(1)/ price/(1)/ registration fee
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$5.00 par value 1,167,790 $12.50 $14,597,375 $3,853.71
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee and
calculated in accordance with Rule 457(f)(1) on the basis of $12.50 per
share, the average of the bid and asked prices of Bank of Essex's common
stock as of March 17, 2000, as reported on The Nasdaq SmallCap Market.
Bank of Essex's common stock will be exchanged for the Registrant's common
stock in the transaction.
================================================================================
<PAGE>
BOE FINANCIAL SERVICES OF VIRGINIA, INC.
CROSS-REFERENCE SHEET
Pursuant to Rule 404(a) of the Securities Act and Item 501 of Regulation S-B,
Showing the Location or Heading in the Prospectus and Proxy Statement
of the Information Required by Part I of Form S-4
Form S-4
Item Number and Caption
<TABLE>
<S> <C>
A. 1. Forepart of Registration Statement and Outside
Cover Page of Prospectus.......................................... Cover Page
2. Inside Front and Outside Back Cover Pages of Cover Page, Available
Prospectus........................................................ Information
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................................. Summary
4. Terms of the Transaction.......................................... Summary; The Holding
Company; The Proposed
Reorganization
5. Pro Forma Financial Information................................... Not Applicable
6. Material Contracts with the Holding Company Being Summary; The Proposed
Acquired.......................................................... Reorganization
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters..................... Not Applicable
8. Interests of Named Experts and Counsel............................ Not Applicable
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................................... The Holding Company
B. Information about the Registrant
10. Information with Respect to S-3 Registrants....................... Not Applicable
11. Incorporation of Certain Information by Reference................. Not Applicable
12. Information with Respect to S-2 or S-3 Registrants................ Not Applicable
13. Incorporation of Certain Information by Reference................. Not Applicable
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants............................................ Significant Effects of
the Reorganization
C. Information About the Holding Company Being Acquired
15. Information with Respect to S-3 Companies......................... Not Applicable
16. Information with Respect to S-2 or S-3 Companies.................. Not Applicable
17. Information with Respect to Companies Other Than
S-3 or S-2 Companies.............................................. Summary; Selected
Financial Information
D. Voting and Management Information
18. Information if Proxies, Consents or Authorizations
are to be Solicited............................................... Summary; General
Information
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer................... Not Applicable
</TABLE>
<PAGE>
BANK OF ESSEX
323 Prince Street
Tappahannock, Virginia 22560
April 14, 2000
Dear Fellow Stockholders:
You are cordially invited to attend the annual meeting of stockholders of
Bank of Essex on May 12, 2000, at 10:00 a.m., at the Tappahannock Essex
Volunteer Fire Department. The accompanying Notice and Proxy Statement describe
the matters to be presented at the meeting. Please give them your prompt and
careful attention.
At the annual meeting, you will be asked to approve a proposal to adopt a
bank holding company form of organization for the bank. Under the proposal, the
bank will conduct its banking operations as a wholly-owned subsidiary of BOE
Financial Services of Virginia, Inc., a Virginia corporation that has recently
been formed to serve as the holding company for the bank. Each share of your
stock in the bank will be converted, in a tax-free transaction, into one share
of common stock of BOE Financial Services of Virginia, Inc. Your percentage
equity ownership in BOE Financial Services of Virginia, Inc. will be exactly the
same as your present ownership in the bank, and the bank will continue to
operate in substantially the same manner and from the same offices as the bank
did before the reorganization.
The financial services industry continues to be one of the most rapidly
changing segments of Virginia's and the nation's economy. Historical
distinctions between various types of financial institutions are eroding rapidly
and banks are subject to new and more aggressive competition from every side.
Your Board of Directors believes that the greater flexibility and investment
opportunities provided by the establishment of a holding company will facilitate
the fulfillment of our customers' needs in this rapidly changing environment.
The Board encourages you to read carefully the enclosed proxy statement and to
vote For the reorganization of the bank.
At the annual meeting, you will also vote on the election of ten directors
of the bank for a one year term and the ratification of the Board's selection of
Yount, Hyde & Barbour, P.C. as auditors for the Bank for the year 2000. Your
Board unanimously supports these individuals as directors and Yount, Hyde &
Barbour, P.C. as auditors and recommends that you vote For them as directors and
auditors.
We hope you can attend the annual meeting. Whether or not you plan to
attend, please complete, sign and date the enclosed proxy and return it promptly
in the enclosed envelope. Your vote is important regardless of the number of
shares you own. If you have any questions or comments, please contact me or any
of the directors.
We appreciate your continuing loyalty and support.
Sincerely,
/s/ George M. Longest, Jr.
George M. Longest, Jr.
President and Chief Executive Officer
<PAGE>
BANK OF ESSEX
323 Prince Street
Tappahannock, Virginia 22560
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held May 12, 2000
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Bank of
Essex (the "Bank") will be held at the Tappahannock Essex Volunteer Fire
Department on Friday, May 12, 2000, at 10:00 a.m. for the following purposes:
1. To approve an Agreement and Plan of Reorganization dated as of March
20, 2000, a copy of which, with appendices, is attached to the
accompanying proxy statement as Exhibit A, providing for the
reorganization of the Bank into a holding company structure;
2. To elect ten directors to serve on the Bank's Board of Directors for a
one year term;
3. To ratify the selection of Yount, Hyde & Barbour, P.C., Certified
Public Accountants, as the independent auditors of the Bank for 2000;
and
4. To transact such other business as may properly be brought before the
meeting or any adjournment or postponement thereof.
The stockholders of record of the Bank's common stock at the close of
business on April 3, 2000 are entitled to notice of and to vote at the Annual
Meeting or any adjournment or postponement thereof.
The Bank's Board of Directors believes that the above proposals are in the
best interests of the Bank and its stockholders and therefore recommends that
you vote "FOR" each proposal.
You are cordially invited to attend a luncheon hosted by the Bank at
Lowery's Restaurant immediately following the adjournment of the Annual Meeting
of Stockholders at approximately 12:00 p.m. Luncheon tickets should be picked
up at the business session of the Annual Meeting.
It is important that your shares be represented and voted. Please mark,
date and sign the enclosed proxy and return it promptly in the enclosed
envelope, regardless of whether you expect to attend the meeting. If for any
reason you desire to revoke your proxy, you may do so at any time before it is
voted. You are cordially invited to attend this meeting.
By Order of the Board of Directors,
/s/ Bruce E. Thomas
Bruce E. Thomas
Secretary
April 14, 2000
<PAGE>
BANK OF ESSEX
323 Prince Street
Tappahannock, Virginia 22560
____________________
PROXY STATEMENT
____________________
INTRODUCTION
This Proxy Statement is furnished to stockholders of Bank of Essex (the
"Bank") in connection with the solicitation of proxies by the Board of Directors
of the Bank for use at the Annual Meeting of Stockholders to be held on May 12,
2000, at the time and place set forth in the accompanying Notice of the Annual
Meeting of Stockholders and at any adjournment thereof (the "Annual Meeting").
This Proxy Statement and the enclosed form of proxy are being mailed to the
stockholders of the Bank on or about April 14, 2000. More than two-thirds of
the outstanding shares of common stock of the Bank are required to be present in
person or by proxy to constitute a quorum.
At the Annual Meeting, stockholders will be asked to approve the
reorganization of the Bank into a holding company structure (the
"Reorganization") in accordance with the terms and conditions set forth in the
Agreement and Plan of Reorganization, dated as of March 20, 2000 (the
"Agreement"), whereby the Bank will become a wholly-owned subsidiary of BOE
Financial Services of Virginia, Inc., a Virginia corporation recently organized
to serve as the holding company for the Bank (the "Holding Company"). The
Reorganization will be accomplished through a statutory share exchange. A copy
of the Agreement, with appendices, is attached as Exhibit A to this Proxy
Statement. At the effective date of the Reorganization, each outstanding share
of common stock of the Bank will be converted, in a tax-free transaction, into
one share of common stock of the Holding Company. After consummation of the
Reorganization, the Bank will conduct its business as a wholly-owned subsidiary
of the Holding Company in substantially the same manner and from the same
offices as the Bank did before the Reorganization. See "The Proposed
Reorganization."
At the Annual Meeting, you also will be asked to vote on the election of
ten directors for the Bank to serve for a one year term, and the ratification of
Yount, Hyde & Barbour, P.C. as independent certified public accountants for the
Bank for the year ending December 31, 2000.
This Proxy Statement also constitutes a prospectus of the Holding Company
covering the shares of common stock of the Holding Company to be issued to
stockholders of the Bank in connection with the Reorganization. The Holding
Company has filed a Registration Statement under the Securities Act of 1933 with
the Securities and Exchange Commission with respect to the shares of Holding
Company common stock to be issued in connection with the Reorganization.
The principal offices of the Bank and the Holding Company are at 323 Prince
Street, Tappahannock, Virginia 22560 (Telephone: (804) 443-4343).
Neither the Securities and Exchange Commission nor any state securities
commission has approved these securities or determined that this Proxy
Statement/Prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
The date of this Proxy Statement is April 14, 2000.
1
<PAGE>
AVAILABLE INFORMATION
Bank of Essex is subject to the informational requirements of the rules and
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve"), as promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Federal Reserve. Such reports, proxy
statements and other information can be inspected and copied at the offices of
the Federal Reserve, Division of Banking Supervision and Regulation, Board of
Governors of the Federal Reserve System, 20th Street and Constitution Avenue,
N.W., Washington, D.C. 20551, and copies of such records may be requested by
calling the Federal Reserve public reference facilities at (202) 452-3244.
Pursuant to the Reorganization, the Holding Company will assume reporting
responsibilities under the Exchange Act, similar to the responsibilities
previously performed by the Bank under rules and regulations of the Federal
Reserve. Following the Reorganization, the Holding Company must comply with the
reporting requirements of the Securities and Exchange Commission (the
"Commission"), and will file its reports and proxy statements with the
Commission, rather than the Federal Reserve.
The Bank's Annual Report to Stockholders for the year ended December 31,
1999, which Report includes audited financial statements of the Bank,
accompanies this Proxy Statement. The Bank's Annual Report on Form 10-K for the
year ended December 31, 1999, and quarterly reports on Form 10-Q, as filed with
the Federal Reserve, are available free of charge to stockholders who request a
copy. All requests for copies of information should be directed to Bruce E.
Thomas, Secretary, at the Bank's Main Office at the address set forth on the
first page of this Proxy Statement or at the following telephone number: (804)
443-4343.
The Holding Company has filed with the Commission a Registration Statement
(the "Registration Statement") on Form S-4 under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the shares of Holding Company common
stock to be issued in connection with the Reorganization. As permitted by the
rules and regulations of the Commission, certain information included in the
Registration Statement is omitted from this Proxy Statement. For further
information and reference, the Registration Statement, including the exhibits
and schedules filed as a part thereof, can be inspected and copied at the public
reference room of the Commission, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The Commission maintains an Internet web site
that contains reports, proxy and information statements and other information
regarding issuers who file electronically with the Commission. The address of
that site is http://www.sec.gov. In addition, copies of such materials are
available for inspection and reproduction at the public reference facilities of
the Commission at its New York Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048; and at its Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
____________________________________
No person has been authorized to give any information or to make any
representations not contained herein and, if given or made, such information or
representations must not be relied upon as having been authorized. This Proxy
Statement does not constitute an offer to sell any securities other than the
securities to which it relates or an offer to sell any securities covered by
this Proxy Statement in any jurisdiction where, or to any person to whom, it is
unlawful to make such an offer. Neither the delivery hereof nor any distribution
of securities of the Holding Company made hereunder shall, under any
circumstances, create an implication that there has been no change in the facts
herein set forth since the date hereof.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SUMMARY
Annual Meeting.......................................................... 4
The Reorganization .................................................... 4
Reasons for the Reorganization.......................................... 4
Federal Income Tax Consequences......................................... 4
Comparison in the Rights of Stockholders................................ 4
Anti-takeover Effect of the Reorganization.............................. 5
Conditions for Consummation; Anticipated Effective Date;
Termination........................................................... 5
Government Regulation and Supervision.................................. 5
Election of Directors................................................... 5
Rights of Dissenting Stockholders....................................... 6
Ratification of Selection of Auditors................................... 6
Other Matters........................................................... 6
SELECTED FINANCIAL INFORMATION............................................ 7
GENERAL INFORMATION
Use and Revocation of Proxies........................................... 8
Stockholders Entitled to Vote and Vote Required......................... 8
Solicitation of Proxies................................................. 8
Financial Statements.................................................... 8
THE PROPOSED REORGANIZATION
Description of the Reorganization....................................... 8
Reasons for the Reorganization.......................................... 9
Anticipated Effective Date of the Reorganization........................ 9
Conversion and Exchange of Stock........................................ 9
Federal Income Tax Consequences......................................... 9
Required Regulatory Approvals and Listing of Stock...................... 10
Possible Abandonment of the Reorganization.............................. 10
Holding Company Stock Options and Dividend Reinvestment Plan............ 10
Rights of Dissenting Stockholders....................................... 11
SIGNIFICANT EFFECTS OF THE REORGANIZATION
Anti-takeover Effects of the Reorganization............................. 12
Virginia Stock Corporation Act; Anti-takeover Provisions................ 12
Comparison of the Rights of Stockholders................................ 13
Historical and Pro Forma Capitalization................................. 15
Regulation and Supervision.............................................. 16
THE HOLDING COMPANY
General................................................................. 16
Management and Operations After the Reorganization...................... 17
Indemnification of Directors and Officers............................... 18
Market for Holding Company Common Stock................................. 18
Description of Capital Stock............................................ 19
BANK OF ESSEX
Business................................................................ 19
Credit Policies......................................................... 20
Market Area............................................................. 20
Competition............................................................. 21
Properties.............................................................. 21
Employees............................................................... 21
Legal Proceedings....................................................... 21
Principal Officers...................................................... 21
Description of Capital Stock............................................ 22
ELECTION OF DIRECTORS
Nominees for Election at the 2000 Annual Meeting........................ 23
Board Committees and Attendance......................................... 23
Compensation of the Board............................................... 24
Nomination of Directors................................................. 24
Section 16(a) Beneficial Ownership Reporting Compliance................. 24
Indebtedness and Other Transactions..................................... 25
OWNERSHIP OF BANK COMMON STOCK............................................ 25
EXECUTIVE COMPENSATION
Compensation of Executive Directors..................................... 26
Employee Benefit Plans.................................................. 26
STOCK INCENTIVE PLAN..................................................... 28
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS................................... 28
EMPLOYMENT CONTINUITY AGREEMENTS.......................................... 28
REGULATION AND SUPERVISION................................................ 29
Bank Holding Companies.................................................. 30
The Gramm-Leach-Bliley Act of 1999...................................... 30
Capital Requirements.................................................... 31
Limits on Dividends and Other Payments.................................. 31
Deposit Insurance....................................................... 32
Other Safety and Soundness Regulations.................................. 32
APPOINTMENT OF AUDITORS................................................... 33
OTHER MATTERS............................................................. 33
LEGAL MATTERS............................................................. 33
EXPERTS................................................................... 33
STOCKHOLDER PROPOSALS..................................................... 33
</TABLE>
3
<PAGE>
SUMMARY
The following material is qualified in its entirety by the information
appearing elsewhere in this Proxy Statement and the Exhibits hereto.
Annual Meeting
Date, Time and Place. May 12, 2000 at 10:00 a.m. at Tappahannock Essex
Volunteer Fire Department, Tappahannock, Virginia.
Purpose. To adopt the Agreement providing for the establishment of a
holding company structure for the Bank, to elect ten directors of the Bank to
serve for a one year term, to ratify the selection of external auditors for the
Bank, and to vote on any other matters which may properly come before the Annual
Meeting or any adjournment or postponement thereof. The affirmative vote of more
than two-thirds of the outstanding shares of Bank common stock will be required
to approve the Agreement.
The Reorganization
At the direction of the Bank, the Holding Company was incorporated on March
20, 2000 under the laws of Virginia to serve as the holding company for the
Bank. At the effective date of the Reorganization, stockholders of the Bank
will automatically become stockholders of the Holding Company; accordingly, at
this time, stockholders will not be requested to surrender their Bank stock
certificates for new certificates of the Holding Company. The Bank will conduct
its business in substantially the same manner and from the same offices as the
Bank did prior to the Reorganization. See "The Proposed Reorganization --
Description of the Reorganization."
Reasons for the Reorganization
The Board of Directors believes that the establishment of a holding company
structure for the Bank will provide greater flexibility in responding to the
expanding financial needs of the Bank's customers and in meeting increasing and
ever-changing forms of competition for the furnishing of financial services.
The holding company structure will also afford certain investment opportunities,
including the ability to repurchase its own shares, that are otherwise not
available currently to the Bank. The Board also believes that the adoption of a
Holding Company structure will enable it more easily to implement stock based
incentive plans. In this regard, the Holding Company has adopted a stock
incentive plan for employees and a stock option plan for outside directors. See
"The Proposed Reorganization -- Reasons for the Reorganization."
Federal Income Tax Consequences
The Reorganization is intended to qualify for federal income tax purposes
as a tax-free transaction under the Internal Revenue Code in which no gain or
loss will be recognized by a Bank stockholder upon the receipt of Holding
Company common stock in exchange for Bank common stock. See "The Proposed
Reorganization -- Federal Income Tax Consequences."
Comparison in the Rights of Stockholders
Except as set forth below, there are no material differences between the
rights of a Bank stockholder and the rights of a Holding Company stockholder.
The differences are described in detail under "Significant Effects of the
Reorganization -- Comparison of the Rights of Stockholders." Certain rights of
stockholders will not change at all as a result of the Reorganization. However,
in order to enhance its flexibility in raising additional capital and in
negotiating for the acquisition of other businesses, the Articles of
Incorporation and Bylaws of the Holding Company contain provisions that vary in
several respects from the current Articles of Incorporation and Bylaws of the
Bank. The reasons for these differences are addressed specifically in this
Proxy Statement. Listed below are the major differences.
First, the Holding Company will have a Board of Directors with staggered
terms. Second, the Holding Company will be authorized to issue 10,000,000
shares of common stock and 1,000,000 shares of preferred stock,
4
<PAGE>
compared to 4,000,000 shares of common stock and 100,000 shares of preferred
stock for the Bank. Third, the Holding Company's Articles of Incorporation
provide that except for a limited number of significant matters, the Holding
Company's Articles of Incorporation may be amended by the affirmative vote of a
majority of all votes entitled to be cast, and a majority of the votes of each
separate voting group entitled to vote, at a stockholders meeting. This compares
to the current requirement that more than two-thirds of the outstanding shares
of Bank common stock approve any amendment to the Bank's Articles of
Incorporation. Fourth, the Bylaws of the Holding Company specify procedures that
must be followed by stockholders desiring to present matters for a vote at a
stockholders meeting, and set forth limits on who may call meetings of
stockholders and provide that the Chairman of the Board of Directors may
establish policies and procedures for the conduct of stockholders meetings.
Fifth, the Bylaws of the Holding Company provide that directors may be removed
by stockholders only for cause. Sixth, the Holding Company's Articles of
Incorporation limit or eliminate liabilities of directors and officers to the
corporation and its stockholders, to the maximum extent permitted by law. See
"Significant Effects of the Reorganization -- Comparison of the Rights of
Stockholders."
Anti-takeover Effect of the Reorganization
The Holding Company's Articles of Incorporation and the Virginia Stock
Corporation Act (the "Virginia SCA") contain certain provisions designed to
enhance the ability of the Board of Directors to deal with attempts to acquire
control of the Holding Company. These provisions, and the ability of the Board
of Directors to issue shares of preferred stock without stockholder approval and
to set the voting rights, preferences and other terms thereof, may be deemed to
have an anti-takeover effect and may discourage takeover attempts which have not
been approved by the Board of Directors. The protective provisions contained in
the Holding Company's Articles and provided by the Virginia SCA are discussed in
further detail under "Significant Effects of the Reorganization," -- "Anti-
takeover Effects of the Reorganization" and -- "Comparison of the Rights of
Stockholders" below.
Conditions for Consummation; Anticipated Effective Date; Termination
The consummation of the Reorganization is subject to, among other things,
(i) the affirmative vote of more than two-thirds of the outstanding shares of
Bank common stock, (ii) the approval of the Virginia State Corporation
Commission (the "SCC"), (iii) no objection to the Reorganization being raised by
the Federal Reserve and (iv) the common stock of the Holding Company being
listed on The Nasdaq SmallCap Market. An application for approval of the
Reorganization was filed with the SCC and a notice of the proposed
Reorganization was submitted to the Federal Reserve in March, 2000. The
Reorganization is expected to be consummated on or about June 30, 2000 (the
"Effective Date"). The Reorganization may be terminated by either the Holding
Company or the Bank prior to the approval of the Agreement by the stockholders
or by the mutual consent of the Boards of Directors of the Holding Company and
the Bank after any stockholder group has taken the requisite affirmative action.
See "The Proposed Reorganization -- Possible Abandonment of the Reorganization."
Government Regulation and Supervision
After the Effective Date, the Holding Company will be subject to the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and will be subject to
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve") with respect to its operations as a bank holding company. The Bank
will continue to be subject to regulation by the same governmental agencies that
currently regulate the Bank. See "Regulation and Supervision."
Election of Directors
The Proxy Statement lists the ten current directors of the Bank. All of the
directors' terms expire at the Annual Meeting and they have been nominated for
election to serve as directors of the Bank for a further one year term. If the
proposed Reorganization is approved, stockholders of the Bank will automatically
become stockholders of the Holding Company upon consummation of the
Reorganization. As Holding Company stockholders, they will be entitled to vote
for the election of directors of the Holding Company, and the Board of Directors
of the Holding Company will, in turn, elect the directors of the Bank. The
first annual meeting of stockholders of the Holding Company is scheduled to be
held on or about May 11, 2001. Under the terms of the Agreement, on the
Effective Date, the directors of the Holding Company will be comprised of the
same persons who the serve as directors of the
5
<PAGE>
Bank. The Holding Company directors, however, will serve staggered year terms as
described under "The Holding Company -- Management and Operations After the
Reorganization."
Rights of Dissenting Stockholders
Those stockholders of the Bank who object to the Reorganization will be
entitled to dissent from the Reorganization and receive payment of the fair
value of their shares upon compliance with Article 15 of the Virginia Stock
Corporation Act, the full text of which is included as Exhibit B to this Proxy
Statement.
Ratification of Selection of Auditors
Yount, Hyde & Barbour, P.C. has been selected as independent certified
public accountants for the Bank for the year ending December 31, 2000, subject
to the ratification by the Bank's stockholders.
Other Matters
Management currently knows of no other business to be brought before the
Annual Meeting. Should any other business properly be presented for action at
the meeting, the shares represented by the enclosed proxy will be voted by the
persons named therein in accordance with their best judgment and in the best
interests of the Bank.
6
<PAGE>
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
INFORMATION:
Interest income................ $ 11,559 $ 10,459 $ 9,130 $ 8,344 $ 7,033
Interest expense............... 5,333 4,909 4,347 4,122 3,317
Net interest income............ 6,226 5,550 4,783 4,222 3,715
Provision for loan losses...... 345 380 250 169 153
Noninterest income............. 783 646 569 554 446
Noninterest expense............ 4,843 4,002 3,478 3,361 2,722
Income taxes................... 417 453 422 300 349
Net income..................... 1,404 1,361 1,203 947 937
PER SHARE DATA:
Net income, basic and
diluted...................... $ 1.20 $ 1.17 $ 1.27 $ 1.01 $ 1.00
Cash dividends................. 0.45 0.44 0.42 0.32 0.29
Book value at period end....... 13.17 12.85 12.08 9.85 9.47
Tangible book value at
period end................... 11.97 11.54 10.67 8.01 9.47
BALANCE SHEET DATA:
Total assets................... $167,296 $145,908 $128,848 $115,484 $93,955
Loans, net..................... 124,464 105,260 87,658 78,199 62,315
Securities..................... 25,220 25,778 27,744 25,695 24,738
Deposits....................... 142,891 129,825 113,597 105,024 83,242
Stockholders' equity........... 15,383 15,005 14,112 9,234 8,881
PERFORMANCE RATIOS:
Return on average assets....... 0.90% 1.00% 1.01% 0.85% 1.05%
Return on average equity....... 9.12% 9.29% 12.09% 10.57% 11.12%
Net interest margin............ 4.63% 4.59% 4.59% 4.44% 4.71%
Dividend payout .............. 37.44% 37.75% 32.75% 31.68% 29.02%
ASSET QUALITY RATIOS:
Allowance for loan
losses to period end
loans........................ 1.27% 1.26% 1.33% 1.28% 1.44%
Allowance for loan
losses to nonperforming
assets....................... 115.10% 277.11% 262.17% 133.51% 857.55%
Nonperforming assets to
total assets................. 0.83% 0.33% 0.35% 0.65% 0.11%
Net chargeoffs to average
loans........................ 0.11% 0.22% 0.08% 0.11% 0.10%
CAPITAL LIQUIDITY
AND RATIOS:
Leverage....................... 8.76% 9.29% 9.88% 6.75% 9.33%
Risk based capital
ratios:
Tier 1 capital............... 11.03% 12.27% 11.04% 9.53% 12.59%
Total capital................ 12.26% 13.51% 12.06% 11.56% 12.87%
</TABLE>
7
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GENERAL INFORMATION
Use and Revocation of Proxies
If the enclosed proxy is properly executed and returned in time for
voting at the Annual Meeting, the shares represented thereby will be voted in
accordance with such instructions. If no instructions are given, the proxy will
be voted in favor of the Reorganization, and in the discretion of the proxy
holders as to any other matters which may properly come before the meeting.
Proxies will extend to, and will be voted at, any adjourned session of the
Annual Meeting.
Execution of a proxy will not affect a stockholder's right to attend the
Annual Meeting and to vote in person. Any stockholder who has executed and
returned a proxy and for any reason desires to revoke it may do so at any time
before the proxy is exercised by filing with the Secretary of the Bank an
instrument revoking it or a duly exercised proxy bearing a later date, or by
attending the Annual Meeting and voting in person after having withdrawn your
proxy.
Stockholders Entitled to Vote and Vote Required
Only holders of record of Bank common stock at the close of business on
April 3, 2000 are entitled to vote at the Annual Meeting. On the record date
there were 1,167,790 shares of Bank common stock, par value $5.00 per share,
outstanding and entitled to vote. Each share of outstanding Bank common stock
is entitled to one vote on all matters presented at the Annual Meeting. In
order for the Reorganization to become effective, more than two-thirds of the
outstanding shares of Bank common stock must be voted in favor of the
Reorganization. Directors will be elected, and auditors ratified, by a majority
vote of those present or by proxy.
Directors and executive officers of the Bank and their affiliates
beneficially owned as of the record date 70,752 of the outstanding shares of the
Bank's stock entitled to vote on the Reorganization, which shares represent 6.1%
of the outstanding shares.
Solicitation of Proxies
The Bank will bear its own expenses incident to soliciting proxies.
Directors, officers, employees and agents of the Bank acting without special
compensation may solicit proxies in person, by telephone or by mail.
Financial Statements
The Bank's Annual Report to Stockholders for the year ended December 31,
1999 accompanies this Proxy Statement to inform stockholders of the Bank's
recent financial performance. Additional copies of the report will be furnished
without charge to stockholders upon written request directed to Bruce E. Thomas,
Secretary, at the address of the Bank's principal offices.
THE PROPOSED REORGANIZATION
Description of the Reorganization
The Board of Directors of the Bank has unanimously approved the proposed
Reorganization whereby the business of the Bank will be conducted under a
holding company structure. The Holding Company was organized in March of this
year under the laws of Virginia at the direction of the Board of Directors of
the Bank to serve as the holding company for the Bank.
The Bank and the Holding Company have entered into the Agreement under
the terms of which the Bank will become a wholly-owned subsidiary of the Holding
Company through a statutory share exchange. Upon consummation of the
Reorganization, stockholders of the Bank will automatically become stockholders
of the Holding Company.
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The Bank will continue to conduct its business in substantially the same
manner as before the Reorganization. The directors, officers and employees of
the Bank will not change as a result of the Reorganization.
The Bank will pay all expenses incurred in connection with the
Reorganization, including the costs of organizing the Holding Company.
Reasons for Reorganization
The financial services industry is one of the most rapidly changing
segments of the American economy. Historical distinctions between various types
of financial institutions are eroding rapidly as a result of legislative changes
and changing regulatory philosophies. In addition, traditional restrictions on
branch banking have given way to multi-state banking and multi-bank holding
companies. Accordingly, banks are subject to aggressive competition from a wide
variety of institutions offering an expansive array of financial products and
services. Current laws and regulations applicable to banks such as the Bank
limit their ability in many circumstances to supplement traditional financial
services and products and to diversify into other banking-related ventures in
response to increasing competition and changing customer needs.
The laws and regulations applicable to bank holding companies, however,
allow holding companies greater flexibility in expanding their markets and in
increasing the variety of services they and their subsidiaries provide their
customers. Thus, management and the Board of Directors of the Bank believe that
the new corporate structure will enhance the Bank's ability to compete under
existing laws and regulations and to respond effectively to changing market
conditions.
One of the primary benefits of a bank holding company structure is the
expanded investment opportunities available, including investing in its own
stock. Currently, neither the Bank nor the Holding Company has made any
commitment to expand significantly its market through the acquisition of
existing banks or to engage in activities other than those currently conducted
by the Bank. If the Reorganization is approved, the Holding Company structure
will provide a vehicle to facilitate future combinations with other financial
institutions should suitable opportunities arise for acquisition, expansion or
affiliation. In addition, the Holding Company structure may provide
opportunities to engage in a wider range of activities. Finally, the new
structure will enable the organization to more easily implement stock based
incentive and similar arrangements. See "-- Holding Company Stock Options and
Dividend Reinvestment Plan."
Anticipated Effective Date of the Reorganization
If the holders of more than two-thirds of the outstanding shares of Bank
common stock approve the Agreement, the Reorganization will become effective
upon satisfaction of certain conditions and the receipt of required regulatory
approvals, including approval by the SCC and no objection being raised by the
Federal Reserve. An application for approval of the Reorganization has been
filed with the SCC and a notice of the proposed Reorganization has been
submitted to the Federal Reserve. Subject to receipt of all requisite
regulatory approvals and the satisfaction of all other conditions to the
Reorganization, it is anticipated that the Reorganization will become effective
on or about June 30, 2000 (the "Effective Date").
Conversion and Exchange of Stock
On the Effective Date, stockholders of the Bank will become stockholders
of the Holding Company. Each share of Bank common stock, par value $5.00 per
share, will be converted into one share of Holding Company common stock, par
value of $5.00 per share (the "Exchange Ratio"). Outstanding certificates
representing shares of Bank common stock will thereafter represent one share of
Holding Company common stock. Accordingly, stockholders will not be required to
exchange their stock certificates for Holding Company stock certificates after
consummation of the Reorganization until advised to do so by the Holding
Company.
Federal Income Tax Consequences
The Reorganization is intended to be a tax-free transaction under the
Internal Revenue Code, and the federal income tax consequences summarized below
are based on the assumption that this transaction will qualify as
9
<PAGE>
such a transaction. One condition to consummation of the Reorganization is the
Bank's receipt of an opinion of McGuire, Woods, Battle & Boothe LLP, special
counsel to the Bank, to the effect that the Reorganization will qualify as a
tax-free transaction under the Internal Revenue Code and that the exchange will
result in the non-recognition of gain or loss.
The Bank's stockholders, except dissenting stockholders, will not
recognize any gain or loss as a result of the proposed Reorganization. A
stockholder's tax basis in the shares of Holding Company common stock will equal
his tax basis in the shares of Bank common stock. The holding period for those
shares of Holding Company common stock, will include the stockholder's holding
period for the shares of Bank common stock, if they are held as a capital asset
at the time of the Reorganization.
Upon consummation of the Reorganization, no gain or loss will be
recognized by the Holding Company or the Bank.
The receipt of cash by a dissenting stockholder will be a taxable
transaction to the dissenting stockholder for federal income tax purposes. The
amount of any gain or loss and its character as ordinary or capital gain or loss
will be determined in accordance with the applicable provisions of the Internal
Revenue Code. In general, if the shares of the Bank's common stock are held by
a stockholder as a capital asset at the Effective Date and that stockholder
holds, actually or constructively, no other shares which will be converted into
the Holding Company's common stock, that stockholder will recognize capital gain
or loss measured by the difference between the amount of cash received by the
stockholder and the basis of his or her shares.
This discussion of federal income tax consequences is a summary of
general information. The Bank's stockholders are urged to consult their own tax
advisors with regard to federal, state and local tax consequences.
Required Regulatory Approvals and Listing of Stock
The Reorganization must be approved by the SCC and the Federal Reserve
must not object to it. An application was filed with the SCC and a notice was
sent to the Federal Reserve in March 2000. Subject to the approval of the SCC
and the Federal Reserve raising no objection to the Reorganization and the
satisfaction of all other conditions to the Reorganization, including the
listing of the Holding Company's common stock on The Nasdaq SmallCap Market,
management believes that the Reorganization will be become effective on or about
June 30, 2000.
Possible Abandonment of the Reorganization
Consummation of the Reorganization is subject to obtaining the required
stockholder approval and various regulatory approvals and other conditions. The
Agreement may be terminated by the unilateral action of the Boards of Directors
of the Bank or the Holding Company prior to the approval of the Agreement by the
stockholders or by the mutual consent of the respective Boards of Directors of
the Bank and the Holding Company after any stockholder group has taken the
requisite affirmative action.
Holding Company Stock Options and Dividend Reinvestment Plan
The Holding Company has adopted stock option plans as described under the
headings "Stock Incentive Plan" and "Stock Option Plan for Outside Directors."
The Holding Company plans to implement a Dividend Reinvestment Plan (the
"Dividend Reinvestment Plan") at an appropriate time after completion of the
Reorganization. The Dividend Reinvestment Plan will provide each registered
holder of the Holding Company's common stock with the option to elect to
reinvest dividends in additional shares of the Holding Company without fees of
any kind. Shares for the Dividend Reinvestment Plan will be either authorized
but unissued shares of the Holding Company or will be purchased on the open
market. All stockholders of the Holding Company will be eligible to participate
in the Dividend Reinvestment Plan.
10
<PAGE>
Rights of Dissenting Stockholders
A stockholder of Bank common stock who objects to the Reorganization (a
"Dissenting Stockholder") and who complies with the provisions of Article 15 of
Title 13.1 of the Virginia SCA ("Article 15") may demand the right to receive a
cash payment, if the Reorganization is consummated, for the fair value of his or
her stock immediately before the Effective Date, exclusive of any appreciation
or depreciation in anticipation of the Reorganization unless such exclusion
would be inequitable. In order to receive payment, a Dissenting Stockholder
must deliver to the Bank before the vote is taken at the Annual Meeting a
written notice of intent to demand payment for his or her shares if the
Reorganization is effectuated (an "Intent to Demand Payment") and must not vote
his or her shares in favor of the Reorganization. The Intent to Demand Payment
should be addressed to Bruce E. Thomas, Vice President and Cashier, Bank of
Essex, 323 Prince Street, P. O. Box 965, Tappahannock, Virginia 22560. A VOTE
AGAINST THE REORGANIZATION WILL NOT ITSELF CONSTITUTE THE REQUIRED WRITTEN
NOTICE AND A FAILURE TO VOTE WILL NOT CONSTITUTE A TIMELY WRITTEN NOTICE OF
INTENT TO DEMAND PAYMENT.
A stockholder of record of Bank common stock may assert dissenters'
rights as to fewer than all the shares registered in his or her name only if the
stockholder dissents with respect to all shares beneficially owned by any one
person and notifies the Bank in writing of the name and address of each person
on whose behalf he or she asserts dissenters' rights. The rights of a partial
dissenter are determined as if the shares as to which he or she dissents and his
or her other shares were registered in the names of different stockholders. A
beneficial holder of Bank common stock may assert dissenters' rights as to
shares held on his or her behalf by a stockholder of record only if (i) he or
she submits to the Bank the record stockholder's written consent to the dissent
not later than the time when the beneficial stockholder asserts dissenters'
rights and (ii) he or she dissents with respect to all shares of which he or she
is the beneficial stockholder or over which he or she has power to direct the
vote.
Within 10 days after the Effective Date, the Bank is required to deliver
a notice in writing (a "Dissenter's Notice") to each Dissenting Stockholder who
has filed an Intent to Demand Payment and who has not voted such shares in favor
or the Reorganization. The Dissenter's Notice shall (i) state where the demand
for payment (the "Payment Demand") shall be sent and where and when stock
certificates shall be deposited; (ii) supply a form for demanding payment; (iii)
set a date by which the Bank must receive the Payment Demand; and (iv) be
accompanied by a copy of Article 15. A Dissenting Stockholder who is sent a
Dissenter's Notice must submit the Payment Demand and deposit his or her stock
certificates in accordance with the terms of, and within the time frames set
forth in, the Dissenter's Notice. As a part of the Payment Demand, the
Dissenting Stockholder must certify whether he or she acquired beneficial
ownership of the shares before or after the date of the first public
announcement of the terms of the proposed Reorganization (the "Announcement
Date"), which was March 30, 2000. The Bank will specify the Announcement Date
in the Dissenter's Notice.
Except with respect to shares acquired after the Announcement Date, the
Bank shall pay a Dissenting Stockholder the amount the Bank estimates to be the
fair value of his or her shares, plus accrued interest. This payment will be
made within 30 days of receipt of the Dissenting Stockholder's Payment Demand.
As to shares acquired after the Announcement Date, the Bank is only obligated to
estimate the fair value of the shares, plus accrued interest, and to offer to
pay this amount to the Dissenting Stockholder conditioned upon the Dissenting
Stockholder's agreement to accept it in full satisfaction of his or her claim.
If a Dissenting Stockholder believes that the amount paid or offered by
the Bank is less than the fair value of his or her shares, or that the interest
due is incorrectly calculated, the Dissenting Stockholder may notify the Bank of
his or her own estimate of the fair value of his shares and amount of interest
due and demand payment of such estimate (less any amount already received by the
Dissenting Stockholder) (the "Estimate and Demand"). The Dissenting Stockholder
must notify the Bank of the Estimate and Demand within 30 days after the date
the Bank makes or offers to make payment to the Dissenting Stockholder.
Within 60 days after receiving the Estimate and Demand, the Bank must
either commence a proceeding in the appropriate circuit court to determine the
fair value of the Dissenting Stockholder's shares and accrued interest, or the
Bank must pay each Dissenting Stockholder whose demand remains unsettled the
amount demanded. If a proceeding is commenced, the court must determine all
costs of the proceeding and must assess those costs against the Bank, except
that the court may assess costs against all or some of the Dissenting
Stockholders to the extent the
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<PAGE>
court finds that the Dissenting Stockholders did not act in good faith in
demanding payment of the Estimate and Demand.
The foregoing discussion is a summary of the material provisions of
Article 15. Stockholders are strongly encouraged to review carefully the full
text of Article 15, which is included as Exhibit B to this Proxy Statement. The
provisions of Article 15 are technical and complex, and a stockholder failing to
comply strictly with them may forfeit his or her Dissenting Stockholder's
rights. Any stockholder who intends to dissent from the Reorganization should
review the full text of those provisions carefully and also should consult with
his or her attorney. No further notice of the events giving rise to dissenters'
rights or any steps associated therewith will be furnished to the Bank's
stockholders, except as indicated above or otherwise required by law.
Any Dissenting Stockholder who perfects his or her right to be paid the
fair value of his or her shares will recognize gain or loss, if any, for federal
income tax purposes upon the receipt of cash for his or her shares. The amount
of gain or loss and its character as ordinary or capital gain or loss will be
determined in accordance with applicable provisions of the Internal Revenue
Code. See "The Proposed Reorganization -- Certain Federal Income Tax
Consequences."
SIGNIFICANT EFFECTS OF THE REORGANIZATION
Anti-takeover Effects of the Reorganization
The Holding Company's Articles of Incorporation and Bylaws and the
Virginia SCA contain provisions designed to enhance the ability of the Board of
Directors to deal with attempts to acquire control of the Holding Company.
These provisions, which are discussed in greater detail below, including the
ability of the Board of Directors to issue shares of preferred stock and to set
the voting rights, preferences and other terms, the election of the Board of
Directors to staggered terms and the removal of directors by stockholders only
for cause, may be deemed to have an anti-takeover effect and may discourage
takeover attempts which have not been approved by the Board of Directors
(including takeovers which certain stockholders may deem to be in their best
interest). To the extent that takeover attempts are discouraged, temporary
fluctuations in the market price of Holding Company common stock resulting from
actual or rumored takeover attempts may be inhibited. These provisions also
could discourage or make more difficult a reorganization, tender offer or proxy
contest, even though such a transaction may be favorable to the interests of
stockholders, and could potentially adversely affect the market price of Holding
Company common stock.
The provisions included in the Holding Company's Articles of
Incorporation and Bylaws are not adopted in response to or with knowledge of any
takeover attempts or "unfriendly" efforts to gain control of the Bank. The
Boards of the Bank and Holding Company propose these provisions in order to
provide standard corporate protections common among bank holding companies and
in the best interests of current Bank stockholders who will become stockholders
of the Holding Company upon consummation of the Reorganization. Provisions
providing for staggered Board terms and removal of directors only for cause
serve to stabilize the composition of the Board.
The protective provisions contained in the Holding Company's Articles and
Bylaws and provided by the Virginia SCA are summarized in further detail in the
sections immediately below. This summary is necessarily general and is not
intended to be a complete description of all the features and consequences of
those provisions, and is qualified in its entirety by reference to the Holding
Company's Articles and Bylaws and the statutory provisions contained in the
Virginia SCA.
Virginia Stock Corporation Act; Anti-takeover Provisions
The Virginia SCA contains provisions governing "Affiliated Transactions."
These provisions, with several exceptions discussed below, generally require
approval of certain material transactions between a Virginia corporation and any
beneficial holder of more than 10% of any class of its outstanding voting shares
(an "Interested Stockholder") by a majority of disinterested directors and by
the holders of at least two-thirds of the remaining voting shares. Affiliated
Transactions subject to this approval requirement include mergers, share
exchanges,
12
<PAGE>
material dispositions of corporate assets not in the ordinary course of
business, any dissolution of the corporation proposed by or on behalf of an
Interested Stockholder, or any reclassification, including reverse stock splits,
recapitalization or merger of the corporation with its subsidiaries, which
increases the percentage of voting shares owned beneficially by an Interested
Stockholder by more than 5%.
For three years following the time that an Interested Stockholder becomes
an owner of 10% of the outstanding voting shares, a Virginia corporation cannot
engage in an Affiliated Transaction with such Interested Stockholder without the
approval of two-thirds of the voting shares other than those beneficially owned
by the Interested Stockholder, and the approval of a majority of the
Disinterested Directors. "Disinterested Director" means, with respect to a
particular Interested Stockholder, a member of the Holding Company's Board of
Directors who was
. a member on the date on which an Interested Stockholder became an
Interested Stockholder or
. recommended for election by, or was elected to fill a vacancy and
received the affirmative vote of, a majority of the Disinterested
Directors then on the Board.
After the expiration of the three-year period, the statute requires approval of
Affiliated Transactions by two-thirds of the voting shares other than those
beneficially owned by the Interested Stockholder.
The principal exceptions to the special voting requirements apply to
transactions proposed after the three-year period has expired and require either
that the transaction be approved by a majority of the Holding Company's
Disinterested Directors or that the transaction satisfy the fair-price
requirements of the statute. In general, the fair-price requirement provides
that in a two-step acquisition transaction, the Interested Stockholder must pay
the stockholders in the second step either the same amount of cash or the same
amount and type of consideration paid to acquire the Holding Company's shares in
the first step.
None of the foregoing limitations and special voting requirements applies
to an Interested Stockholder whose acquisition of shares making such person an
Interested Stockholder was approved by a majority of the Holding Company's
Disinterested Directors.
These provisions are designed to deter certain types of takeovers of
Virginia corporations. The statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Stockholder, a corporation can adopt an amendment to its articles of
incorporation or bylaws providing that the Affiliated Transactions provisions
shall not apply to the corporation. The Holding Company has not "opted out" of
the Affiliated Transactions provisions.
Virginia law also generally provides that shares of a Virginia
corporation acquired in a transaction that would cause the acquiring person's
voting strength to meet or exceed any of three thresholds (20%, 33-1/3% or 50%)
have no voting rights with respect to such shares unless granted by a majority
vote of shares not owned by the acquiring person or any officer or employee-
director of the corporation. This provision empowers an acquiring person to
require the Virginia corporation to hold a special meeting of stockholders to
consider the matter within 50 days of its request. The Board of Directors of a
Virginia corporation can opt out of this provision at any time before four days
after receipt of a control share acquisition notice.
Comparison of the Rights of Stockholders
If the proposed Reorganization is consummated, the stockholders of the
Bank will become stockholders of the Holding Company. A stockholder's equity
interest in the Holding Company will be same as the stockholder's equity
interest in the Bank. Following the Reorganization, the rights of the Holding
Company's stockholders will be governed by the Virginia SCA and the Holding
Company's Articles of Incorporation and Bylaws. A copy of the Articles of
Incorporation of the Holding Company is attached as Appendix 1 to Exhibit A to
this proxy statement. A copy of the Bylaws of the Holding Company is attached
as Appendix 2 to Exhibit A to this proxy statement. The provisions of the
Bank's Articles of Incorporation and Bylaws will not apply to the Holding
Company's stockholders after the Reorganization.
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Except as described below, stockholders of the Holding Company will have
rights and privileges similar to those of stockholders of the Bank. This
summary is qualified in its entirety by reference to the Articles of
Incorporation and Bylaws of the Bank and the Holding Company and to the Virginia
SCA.
Increase in Authorized Shares of Serial Preferred Stock. The Articles of
Incorporation for the Holding Company authorize the issuance of 1,000,000 shares
of preferred stock par value $5.00 per share, compared to only 100,000 shares of
preferred stock authorized by the Bank's Articles of Incorporation. The Board of
Directors of the Holding Company is authorized by the Articles, without
stockholder approval, to issue shares of preferred stock in series and to assign
preferences, rights and limitations to the shares of preferred stock when they
are issued. This authority gives the Board of Directors of the Holding Company
flexibility in the structuring and financing of acquisitions and other financial
activities. The Holding Company may use the preferred stock to help deter
hostile takeover attempts by assigning certain rights and preferences to the
preferred stock which could adversely affect the voting power of the holders of
Holding Company common stock, thus making it more difficult for a third party to
gain control of the Holding Company. No shares of preferred stock will be
issued pursuant to the Reorganization and the Boards of Directors of the Holding
Company and the Bank do not anticipate that, as of the date hereof, any shares
will be issued in the foreseeable future.
Increase in Authorized Shares of Common Stock. The Articles of
Incorporation for the Holding Company authorize the issuance of 10,000,000
shares of common stock, par value $5.00 per share, compared to only 4,000,000
shares authorized by the Bank's Articles of Incorporation. The increased number
of shares of common stock for the Holding Company will give the Holding Company
greater flexibility to make acquisitions, complete financings, compensate
employees and take other corporate actions.
Staggered Board. The Articles of Incorporation and Bylaws for the
Holding Company provide that Directors will serve staggered terms rather than
the one year term provided by the Bank's Bylaws. The effect of the staggered
terms is described under "-- Anti-takeover Effects of the Reorganization" above.
Vote for Election of Directors. The Bylaws of the Holding Company
provide that those persons properly nominated for election as directors shall be
elected by the greatest number of votes cast at the meeting even though they do
not receive a majority of the votes cast. The Bank's Bylaws provide that
directors may be elected if the votes cast in favor of the nominees exceed the
votes cast against the nominees, assuming a quorum is present.
Removal of Directors. The Bylaws for the Holding Company provide that
directors of the Holding Company may be removed only for cause, compared to the
Bank's Bylaws which provide that stockholders may remove directors with or
without cause. This provision in the Holding Company's Bylaws could deter
someone interested in acquiring the Holding Company from removing directors and
replacing them with new directors and make it more difficult for stockholders to
remove directors they disagree with.
Committees of the Board. The Bank's Bylaws do not contain specific
provisions establishing standing committees of the Board of Directors, but the
Bank's Board in practice has established the following standing committees:
Executive Committee, Employment Committee, Expansion Committee, Asset/Liability
Committee and Audit/Compliance/Examination Committee. See "Election of
Directors -- Board Committees and Attendance." The Holding Company's Bylaws
specifically establish these standing committees for the Holding Company Board.
Business at Meetings. The Holding Company's Bylaws provide that the
Chairman has the authority to establish appropriate procedures for conducting
stockholders' meetings, including making agendas and setting procedures
dismissing business not properly presented, maintaining order, placing limits on
the time allotted to questions, placing restrictions on attendance by persons
who are not stockholders, restricting entry to meetings, and commencing,
conducting and closing voting on any matter. The Bank's Bylaws do not contain
similar provisions.
Stockholder Proposals. The Holding Company's Bylaws provide that
stockholders must submit proposals for consideration at meetings in accordance
with specified procedures. In order to bring before an annual stockholders
meeting of the Holding Company any business which may properly be considered at
the meeting and which a stockholder has not sought to have included in the
Holding Company's proxy statement, a stockholder must be a stockholder of record
both at the time of giving his or her notice of the business to be proposed and
at the time of the record date for the meeting. The stockholder must give
timely notice which must be received during the
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<PAGE>
month of February of the year in which the meeting is held or not less than 60
days before the date of the meeting if the date of the meeting has been changed
by more than 30 days. Each notice must set forth as to each matter: (i) the name
and address of the stockholder, as they appear on the Holding Company's stock
transfer records, (ii) the class and number of shares of stock beneficially
owned by the stockholder, (iii) a representation that the stockholder is a
stockholder of record at the time of giving of notice and intends to appear in
person or by proxy at the meeting to present the business specified in the
notice, (iv) a brief description of the business desired to be brought before
the meeting, including the complete text of any resolutions to be presented and
the reasons for wanting to conduct the business and (v) any interest the
stockholder may have in the business to be presented. Any stockholder seeking to
have a proposal included in the Holding Company's proxy statement for an annual
meeting of stockholders must comply with the requirements of the Securities
Exchange Act of 1934. The Bank's Bylaws do not contain similar provisions.
The procedures regarding stockholder proposals will provide the Holding
Company's Board of Directors with the information necessary to evaluate a
stockholders proposal, as well as the time necessary to consider and evaluate
the information in advance of the meeting. The proposal procedures, however,
will give the incumbent directors advance notice of a business proposal and make
it easier for them to defeat a stockholder proposal, even when the proposing
stockholder believes that the proposal is in the best interests of the Holding
Company.
Stockholder Nominations of Directors. The Bylaws of both the Holding
Company and the Bank contain provisions governing the submission by stockholders
of nominations of persons for election as directors. The provisions are
substantially similar except that a stockholder of the Holding Company desiring
to submit a nomination must be a stockholder both at the time of the giving of
the required stockholder's notice and at the record date for the meeting and the
notice must be received during the month of February of the year in which the
meeting is held. See "Election of Directors -- Nomination of Directors" for a
description of the nomination process contained in the Bank's Bylaws.
Amendment of Articles of Incorporation. The Holding Company's Articles
of Incorporation provide that, except for amendments to Article IV
(authorization of the Board of Directors to issue preferred stock in series),
Article VI (staggered terms for the Board) and Section 3.3 (providing for an
affirmative vote of more than two-thirds of the votes entitled to be cast at a
meeting of stockholders, and more than two-thirds of the votes entitled to be
cast by each voting group voting as a separate group, as to any amendment
permitting cumulative voting or any amendment designed to reduce the vote
required to approve an amendment that would reduce the vote required to approve
a merger, statutory share exchange, sale of all or substantially all of the
assets of the Holding Company or the dissolution of the Holding Company),
amendments to the Holding Company's Articles of Incorporation may be made with
the approval of a majority of the votes entitled to be cast at the meeting and
by a majority of the votes entitled to be cast by each voting group voting
separately. The Bank's Articles of Incorporation do not contain similar
provisions and therefore the Virginia SCA requirement that more than two-thirds
of the votes entitled to be cast at the meeting and by more than two-thirds of
the votes entitled to be cast by each voting group voting separately as to
certain significant matters applies. The provision of the Holding Company's
Articles of Incorporation permitting a majority vote to amend the Articles of
Incorporation are designed to make it easier to obtain stockholder approval for
amendments that do not, directly or indirectly, involve a hostile takeover of
the Holding Company or similar transaction.
Indemnification; Limitation of Liability. The Articles of Incorporation
of the Holding Company and the Bank contain substantially similar provisions
dealing with indemnification of directors. The Holding Company's Articles of
Incorporation, however, limit or eliminate liabilities of directors and officers
to the corporation or its stockholders, to the maximum extent permitted by law.
The Holding Company's Articles of Incorporation and Bylaws are otherwise
generally similar to those of the Bank except for changes to conform to the
matters discussed above and the elimination of specific Bank officers (e.g.,
cashier) not needed at the Holding Company level.
Historical and Pro Forma Capitalization
The table below sets forth the capitalization of the Bank as of December
31, 1999 and the pro forma capitalization of the Bank and the Holding Company as
adjusted to reflect the consummation of the Reorganization.
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<TABLE>
<CAPTION>
BOE Financial Services
Bank of Essex Corporation and Subsidiary
---------------------------- ------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Stockholders' equity at December 31, 1999:
Preferred stock, $5 par value - Bank of Essex
Authorized 100,000 $ --
Issued and Outstanding --
Preferred stock, $5 par value - Holding Company
Authorized 1,000,000 $ --
Issued and Outstanding
Common stock, $5 par value - Bank of Essex
Authorized 4,000,000
Issued and Outstanding 1,167,790 $ 5,838,950
Common stock, $5 par value -Holding Company
Authorized 10,000,000
Issued and outstanding 1,167,790 5,838,950
Additional paid-in capital 4,819,994 9,892,894
Retained earnings 5,072,900 --
Accumulated other comprehensive income (348,734) (348,734)
----------- -----------
Total stockholders' equity $15,383,110 $15,383,110
=========== ===========
</TABLE>
Regulation and Supervision
The Bank currently is subject to regulation and examination by the SCC
and the Federal Reserve, and it will continue to be subject to such regulation
and examination after the Reorganization. In addition, the Holding Company will
be subject to regulation by the Federal Reserve under the BHCA of 1956. The
Holding Company also will be under the jurisdiction of the Securities and
Exchange Commission and various state securities commissions with respect to
matters relating to the offer and sale of its securities. See "Regulation and
Supervision" for additional information.
THE HOLDING COMPANY
General
The Holding Company was incorporated under the laws of Virginia on March
20, 2000 at the direction of the Board of Directors of the Bank for the purpose
of acquiring all of the outstanding shares of the Bank's common stock.
The Holding Company is required to submit a notice to the Federal Reserve
to become a bank holding company, and an application with the SCC for approval
of the proposed Reorganization. The Holding Company has not yet engaged in
business activity, and there are no current plans to engage in any activities
other than acting as a holding company for the common stock of the Bank.
The Holding Company owns no properties and therefore, as necessary, will
use the Bank's existing premises, facilities and personnel. The Holding
Company's needs in this regard are expected to be minimal, and the Holding
Company will reimburse the Bank for expenses relating to this use. The Holding
Company's offices will be located in the Bank's offices at 323 Prince Street,
Tappahannock, Virginia. The Holding Company does not,
16
<PAGE>
therefore, contemplate any substantial expenditures for equipment, office space,
or additional personnel prior to consummation of the Reorganization or for the
foreseeable future.
After consummation of the Reorganization, the Holding Company will
continue to follow the Bank's present policy of paying dividends as and when
determined by the Board of Directors after consideration of the earnings,
general economic conditions, the financial condition of the business, and other
factors as might be appropriate in determining dividend policy. The Holding
Company's payment of dividends will be entirely dependent upon the Bank's
performance and dividend policy. Also, the Bank is subject to certain
limitations under state and federal banking laws with respect to payment of
dividends which may adversely affect payment of dividends. However, management
does not anticipate that the Reorganization will affect current levels of
dividend payments.
The Holding Company is not a party to any pending legal proceedings
before any court, administrative agency or other tribunal. Further, the Holding
Company is not aware of any material litigation which is threatened against it
or the Bank in any court, administrative agency or other tribunal.
Management and Operations After the Reorganization
On the effective date of the Reorganization, the Holding Company will
become the parent holding company for the Bank.
The Board of Directors of the Holding Company, after the Reorganization,
initially will be comprised of ten members. At the direction of the Board of
Directors of the Bank, the incorporator of the Holding Company designated the
following persons to serve as the initial directors of the Holding Company up to
and following consummation of the Reorganization: Messrs. R. Harding Ball, R.
Tyler Bland, III, L. McCauley Chenault, Alexander F. Dillard, Jr., George B.
Elliott, Robert F. Hutchinson, George M. Longest, Jr., Philip T. Minor and
William Guy Townsend and Mrs. Frances H. Ellis.
The Board of Directors of the Bank in authorizing the formation of the
Holding Company was not aware of any family relationship between any director or
person nominated to become a director of the Holding Company; nor was the Board
of Directors of the Bank aware of any involvement in legal proceedings which are
material in any impairment of the ability or integrity of any director or person
nominated to become such director.
Approval of the Reorganization by the stockholders of the Bank at the
Annual Meeting will be deemed to constitute the election of the ten designees as
directors of the Holding Company at the Effective Date. The Holding Company
Board is divided into three classes and directors are elected to serve staggered
three year terms. The classes into which the directors will be divided are as
follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
Class I Class II Class III
------- -------- ---------
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
George M. Longest, Jr. Robert F. Hutchinson Philip T. Minor
- - --------------------------------------------------------------------------------------------------------------------
R. Harding Ball L. McCauley Chenault Alexander F. Dillard, Jr.
- - --------------------------------------------------------------------------------------------------------------------
George B. Elliott R. Tyler Bland, III Frances H. Ellis
- - --------------------------------------------------------------------------------------------------------------------
William Guy Townsend
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
The directors in Class I will serve until the 2001 Annual Meeting of
Stockholders of the Holding Company, and the Class II directors and Class III
directors will serve until the 2002 and 2003 Annual Meetings, respectively.
The Board of Directors, officers and employees of the Bank will not
change as a result of the Reorganization.
Following the Reorganization, the Bank will keep its existing name and
office locations and will continue to carry on its banking businesses in the
same manner as before the Reorganization.
The ten members of the proposed Holding Company Board currently serve as
members of the Board of Directors of the Bank. See "Management of the Bank --
Directors" for a description of the initial directors' principal
17
<PAGE>
occupations for the past five years, their ages, the years in which they were
first elected to the Board of Directors of the Bank and the number of shares of
Bank common stock beneficially held by each of them.
George M. Longest, Jr. will serve as President and Chief Executive
Officer, and Bruce E. Thomas will serve as Secretary and Treasurer of the
Holding Company. See "Management of the Bank" for further information about
these individuals and other officers of the Bank.
Indemnification of Directors and Officers
Similar to the Bank's current Articles of Incorporation, the Holding
Company's Articles of Incorporation require indemnification of the directors and
officers of the Holding Company to the full extent permitted by the Virginia
Stock Corporation Act (the "Virginia Act") as in effect from time to time. The
Virginia Act permits a corporation to provide in its articles of incorporation
or a stockholder-approved bylaw for the mandatory indemnification of its
directors and officers against liability incurred in all proceedings, including
derivative proceedings, arising out of their service to the corporation or at
the direction of the corporation, to another entity, so long as they have not
engaged in willful misconduct or a knowing violation of the criminal law.
Accordingly, the Holding Company is required to indemnify its directors and
officers and those of the Bank in all such proceedings if they have not violated
this standard.
In addition to the Bank's Articles of Incorporation, the Holding
Company's Articles of Incorporation limit or eliminate the liability of the
directors and officers of the Holding Company in connection with a derivative or
stockholder proceeding. The limitation of liability in the Holding Company's
Articles does not apply in the event the director or officer has engaged in
willful misconduct or a knowing violation of the criminal law or a federal or
state securities law. See "Significant Effects of the Reorganization --
Comparison of the Rights of Stockholders."
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Holding Company pursuant to the foregoing provisions, the Holding Company has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Market for Holding Company Common Stock
The Bank's Common Stock is listed and traded on The Nasdaq SmallCap
Market under the symbol "BSXT." The Holding Company is applying for listing of
its common stock on The Nasdaq SmallCap Market, and listing of the Holding
Company's common stock is a condition to the completion of the Reorganization.
The following table sets forth the high, low and closing sales prices of
the Bank's common stock as shown on The Nasdaq SmallCap Market for the periods
indicated.
<TABLE>
2000 High Low Closing
---- ---- --- ------
<S> <C> <C> <C>
First Quarter (through
April __, 2000) $____ $____ $____
</TABLE>
<TABLE>
<CAPTION>
1999 High Low Closing
---- ---- --- -------
<S> <C> <C> <C>
Fourth Quarter $15.00 $13.00 $14.00
Third Quarter 16.50 14.00 15.00
Second Quarter 18.50 14.75 15.75
First Quarter 18.50 15.63 15.81
</TABLE>
<TABLE>
<CAPTION>
1998 High Low Closing
---- ---- --- ------
<S> <C> <C> <C>
Fourth Quarter $20.00 $15.75 $18.50
Third Quarter 23.00 17.50 18.25
Second Quarter 24.00 22.00 22.25
First Quarter 22.00 18.50 22.00
</TABLE>
18
<PAGE>
The closing price of the Bank's common stock on The Nasdaq SmallCap
Market on April __, 2000 the last full trading day before the public
announcement of the proposed transaction, was $____ per share.
Description of Capital Stock
Stockholders of Holding Company common stock will be entitled to one vote
per share on all matters submitted to stockholders. Stockholders will not
possess cumulative voting rights or preemptive rights for the purchase of
additional shares. Holding Company stockholders will be entitled to receive
dividends as may be declared by the Board of Directors and, in the event of
liquidation or dissolution, to receive the net assets of the Holding Company in
proportion to their respective holdings.
The Holding Company will be authorized to issue 10,000,000 shares of
common stock, par value $5.00 per share. The shares of Holding Company common
stock issued upon the consummation of the Reorganization will be fully paid and
nonassessable when issued.
Additionally, the Holding Company will be authorized to issue 1,000,000
shares of preferred stock, par value $5.00 per share in series. The Board of
Directors is authorized pursuant to the Articles of Incorporation of the Holding
Company (see Appendix I to Exhibit A attached hereto) to assign preferences,
rights and limitations to the shares of preferred stock when they are issued.
This authority gives the Board of Directors of the Holding Company flexibility
in the structuring and financing of acquisitions and other financial activities.
The Holding Company will also be able to use the preferred stock to help deter
hostile takeover attempts by assigning certain rights and preferences to the
preferred stock that will make it more difficult for a third party to gain
control of the Holding Company.
There are currently no plans nor do the Boards of Directors of the
Holding Company or Bank anticipate any need to issue shares of preferred stock
of the Holding Company in the foreseeable future following the Reorganization.
See "Significant Effects of the Reorganization -- Comparison of the
Rights of Stockholders" for a discussion of the similarities and differences
between the rights and privileges of the stockholders of the Holding Company and
the Bank.
BANK OF ESSEX
Business
The Bank of Essex is a Virginia banking corporation established in 1926
and headquartered in Tappahannock, Virginia. The Bank operates six full-service
offices in Virginia, engages in a general commercial banking business and
provides a wide range of financial services primarily to individuals and small
businesses, including individual and commercial demand and time deposit
accounts, commercial and consumer loans, travelers checks, safe deposit box
facilities, investment services and fixed rate residential mortgages.
The Bank's strategic plan is directed toward the enhancement of its
franchise value and operating profitability by increasing its asset size and
expanding its customer base. Accordingly, the Bank expanded into rapidly
growing Hanover County, in 1992, purchased the Bank's fifth branch office in
West Point, Virginia from a regional bank in February 1996 and in June 1999
opened its sixth office in Henrico County near Virginia Center Commons. The
Hanover County branch has experienced the strongest growth of the Bank's
branches. Hanover County's population has grown rapidly, approximately 29%
since 1990, versus a growth rate of approximately 9.7% for the Commonwealth of
Virginia over the same period. Additionally, strong population growth is
projected to continue in Hanover and Henrico counties.
Management believes that its most important profitable growth
opportunities will continue to be in the greater Richmond metropolitan area.
Furthermore, management believes that the trend toward consolidation of the
19
<PAGE>
banking industry and the closings and acquisitions of financial institutions in
the Bank's service area, and in particular the Richmond metropolitan area, have
created and will continue to create opportunities for the Bank to grow its
branching network and customer base in these markets.
In furtherance of its expansion strategy, the Bank recently opened its
newest office near Virginia Center Commons on Route 1 in Henrico County.
Virginia Center Commons is one of the largest shopping malls in the Richmond
metropolitan area with five anchor stores. The Virginia Center Commons area is
a rapidly growing commercial and residential market. This expansion is expected
to continue.
The Bank's expansion efforts have contributed to its growth and improved
profitability. Total assets have increased from $70.6 million at the end of
1992 to $167.3 million at December 31, 1999, representing a compound growth rate
of 13.3%. Net income has grown at a compound growth rate of 14.9% since 1992.
Net income for 1999 was $1,404,000, up 3.2% compared to $1,361,000 for the same
period in 1998. Earnings per share for 1999 was $1.20, up from $1.17 for 1998.
The Bank's return on assets declined from 1.00% to .90% and return on equity
declined from 9.29% to 9.14% during 1999. Earnings were affected by a 14.7%
growth in assets and offset by start up expense of several new lines of business
and the cost associated with opening a new office at mid year.
The Bank has experienced strong loan growth during the last five years.
Loan growth has come principally from floating rate commercial loans and
mortgage loans, which has served to mitigate the Bank's interest rate risk.
Despite the strong growth in the Bank's loan portfolio, the level of non-
performing assets has remained low.
Credit Policies
The Bank follows written policies and procedures to enhance management of
credit risk. The loan portfolio is managed under a specifically defined credit
process. This process includes formulation of portfolio management strategy,
guidelines for underwriting standards and risk assessment, procedures for
ongoing identification and management of credit deterioration, and regular
portfolio reviews to estimate loss exposure and ascertain compliance with the
Bank's policies. Lending authority is granted to individual lending officers
with the current highest limit being $250,000 for either secured or unsecured
loans. An Officer's Loan Committee of the Bank compromised of five loan
officers can approve credits of up to $500,000. Approval of such credits
requires a majority vote of the Loan Committee. The Executive Committee of the
Board of Directors of the Bank, meeting monthly, can approve loans up to
$750,000. All other loans must be approved by the Board of Directors.
The Bank's management generally requires that secured loans have a loan-
to-value ratio of 85% or less. Management believes that when a borrower has
significant equity in the assets securing the loan, the borrower is less likely
to default on the outstanding loan balance.
A major element of credit risk management is diversification. The Bank's
objective is to maintain a diverse loan portfolio to minimize the impact of any
single event or set of circumstances. Concentration parameters are based on
factors of individual risk, policy constraints, economic conditions, collateral
and product type.
Lending activities include a variety of consumer, real estate and
commercial loans with a strong emphasis on serving the needs of customers within
the Bank's market territory. Consumer loans are made primarily on a secured
basis in the form of installment obligations or personal lines of credit. The
focus of real estate lending is single family residential mortgages, but also
includes home improvement loans, construction lending and home equity lines of
credit. Commercial lending is provided to businesses seeking credit for working
capital, the purchase of equipment and facilities and commercial development.
Market Area
The Bank's six offices serve a diverse market from the edge of the City
of Richmond in Hanover and Henrico Counties to Tappahannock, Virginia on the
Rapphannock River in Essex County. From suburban Hanover and Henrico Counties,
the market area is primarily rural along Route 360 through King William and King
and Queen counties into Essex County. The Bank's management believes Route 360
is a developing growth corridor from Richmond to the east. Tappahannock is
approximately 40 miles from downtown Richmond and about one hour from
Fredericksburg. Through its Tappahannock branches, the Bank also serves the
central portion of the
20
<PAGE>
Northern Neck of Virginia. Through its West Point office, the Bank serves
portions of the Middle Peninsula of Virginia.
Because the Bank's market area has historically been rural, many business
activities are related to the agricultural and forest products industries.
However, the Bank's expansion strategy has been directed at higher growth
markets with concentrations of retail commerce and light industry, which has
created a more balanced market.
Competition
Within the Richmond and Northern Neck areas, the Bank operates in a
highly competitive environment, competing for deposits and loans with commercial
banks, savings and loans and other financial institutions, including non-bank
competitors, many of which possess substantially greater financial resources
than those available to the Bank. Certain of these institutions have
significantly higher lending limits than the Bank. In addition, there can be no
assurance that other financial institutions, with substantially greater
resources than the Bank, will not establish operations in the Bank's service
area.
In Essex County, the Bank commands 38.7% of the market, according to the
most recently available survey of deposits by the FDIC (June 30, 1999) and is
the second largest bank headquartered in Essex County. Serving the middle
portion of King William County, the branches at Central Garage and West Point
have experienced steady growth, reaching 20.7% of the King William County market
while competing with previously established branches. The Bank's office located
on Route 360 in eastern Hanover County, east of Mechanicsville, has experienced
strong growth while competing against other community banks and established
offices of statewide banks in the vicinity.
Properties
The principal office of the Bank is located at 323 Prince Street,
Tappahannock, Virginia 22560. The Bank has operated a branch in the
Tappahannock Towne Center in Tappahannock since 1981. In November 1988, the
Bank opened its King William Office at Central Garage near Manquin in King
William County. The fourth facility, the East Hanover Office, opened in August
1992, on Route 360 east of Mechanicsville in Hanover County. In February 1996,
the Bank opened its fifth office in West Point, Virginia in King William County.
In June 1999, the Bank opened its sixth office in Henrico County near Virginia
Center Commons. This office houses other lines of business such as the
commercial department, fixed rate mortgages and investment services. In June
1990, the Bank purchased several acres of land in Tappahannock, Virginia, which
may be the future site of the executive offices of the Bank and the Holding
Company. The Bank owns all of its properties.
Employees
At December 31, 1999, the Bank had 69 full-time equivalent employees.
None of its employees is represented by any collective bargaining unit. The
Bank considers relations with its employees to be good.
Legal Proceedings
In the course of its operations, the Bank is a party to various legal
proceedings. Based upon information currently available, and after consultation
with its general counsel, management believes that such legal proceedings, in
the aggregate, will not have a material adverse effect on the Bank's business,
financial position or results of operation.
Principal Officers
Set forth below is certain information with respect to the Bank's
principal executive officers:
Robert E. Davis, 62, has been a Senior Vice President of the Bank since
1992, and a Vice President of the Bank since 1990.
21
<PAGE>
Bonnie S. Courtney, 46, is Vice President of Operations. Mrs. Courtney
has held various positions with the Bank since 1981.
Suzanne S. Rennolds, 50, is Vice President, Human Resources, Branch
Administration and has been employed by the Bank since December 1980.
Jack M. Robeson, 51, is Vice President, Commercial Lending and has been
employed by the Bank since January 1996. From 1973 to 1995, Mr. Robeson was a
commercial lender at NationsBank.
Bruce E. Thomas, 36, is Vice President, Cashier and Corporate Secretary
and has been employed by the Bank since October 1990.
Terrell D. Vaughan, 53, is Vice President of the Bank and has been
employed by the Bank since April 1, 1998. Prior to that time, Mr. Vaughan had
been a commercial lender and business development officer at Hanover Bank for at
least five years.
Information on George M. Longest, Jr., the President and Chief Executive
Officer of the Bank, is set forth below under "Election of Directors -- Nominees
for Election at the 2000 Annual Meeting."
Description of Capital Stock
The capital stock of the Bank consists of its common stock, par value
$5.00 per share, of which 4,000,000 shares are authorized and 1,167,790 shares
were issued and outstanding as of December 31, 1999, and its preferred stock,
par value $5.00 per share, of which 100,000 shares are authorized and no shares
are issued and outstanding.
The holders of Bank common stock are entitled to dividends, out of funds
legally available therefore, when and as declared by the Board of Directors.
Holders of Bank common stock are entitled to one vote for each share held.
Holders do not possess cumulative voting rights in the election of directors.
The outstanding shares of the Bank's common stock are fully paid and
nonassessable.
The Bank acts as its own transfer agent for its common stock and plans to
act as transfer agent for the Holding Company's common stock.
The Bank furnishes its stockholders with annual reports which contain
audited consolidated financial statements for the Bank and summary financial
information for the required periods.
See "Significant Effects of the Reorganization -- Comparison of the
Rights of Stockholders" for a discussion of the similarities and differences
between the rights and privileges of the stockholders of the Holding Company and
stockholders of the Bank.
ELECTION OF DIRECTORS
The following persons are nominated to serve as directors of the Bank
until the next annual meeting of stockholders and until their successors have
been duly elected. Each nominee has agreed to serve if elected. The shares
represented by proxies will be voted as specified by the stockholder. If the
stockholder does not specify his or her choice, the shares will be voted in
favor of the election of the nominees listed on the proxy card, except that in
the event any nominee should not continue to be available for election, such
proxies will be voted for the election of such other persons as the Board of
Directors may recommend. As of the date of this Proxy Statement, the Board of
Directors has no reason to believe that any of the nominees named below will be
unable or unwilling to serve.
22
<PAGE>
Nominees for Election at the 2000 Annual Meeting
R. Harding Ball Frances H. Ellis
R. Tyler Bland, II I Robert F. Hutchinson
L. McCauley Chenault George M. Longest, Jr.
Alexander F. Dillard, Jr. Philip T. Minor
George B. Elliott William Guy Townsend
George M. Longest, Jr., 39, became President and Chief Executive Officer
of the Bank on January 1, 1999, when Earl R. Johnston retired from these
positions with the Bank. Prior to assuming his present position, Mr. Longest
had been Senior Vice President and Senior Loan Officer since February 1989. Mr.
Longest has served as a director of the Bank since 1999.
R. Harding Ball, 55, has been President of Ball Lumber Co., Inc. for more
than five years. Mr. Ball has served as a director of the Bank since 1999.
R. Tyler Bland, III, 56, has been President and agent for Tidewater
Realty since 1996. From 1984 to 1996, Mr. Bland was the owner of Tidewater
Insurors. Mr. Bland has served as a director of the Bank since 1996.
L. McCauley Chenault, 48, has been an attorney with Chenault Law Offices
for more than five years. Mr. Chenault has served as a director of the Bank
since 1987.
Alexander F. Dillard, Jr., 61, has been a partner in the law firm of
Dillard & Katona for more than five years. Mr. Dillard has served as a director
of the Bank since 1982.
George B. Elliott, 65, is a real estate developer and consultant and was
President of Brooks & Elliott, Inc., a building contractor, until his retirement
on December 31, 1999. He had been President of that company for more than five
years. Mr. Elliott has served as a director of the Bank since 1982.
Frances H. Ellis, 55, has operated a landscaping business and a catering
business since her retirement as Treasurer of the County of Essex. She served
as Treasurer of the County from 1998 until 1999. Mrs. Ellis has served as a
director of the Bank since 1995.
Robert F. Hutchinson, 67, is serving as Acting Chairman of the Board of
the Bank. He has been a farmer and President of Hutchinson & Hutchinson, Inc.
for more than five years. Mr. Hutchinson has serviced as a director of the Bank
since 1980.
Philip T. Minor, 65, has been a partner in Philip Minor Farms for more
than five years. Mr. Minor has served as a director of the Bank since 1974.
William Guy Townsend, 64, has been the owner of Prestley Farm Nursery,
Manquin, Virginia, for more than five years. Mr. Townsend has served as a
director of the Bank since 1987.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" EACH OF THE NOMINEES FOR ELECTION AS DIRECTORS.
Board Committees and Attendance
The Board of Directors of the Bank has five standing committees: the
Executive Committee, the Employment Committee, the Expansion Committee, the
Asset/Liability Committee and the Audit/Compliance/Examination Committee.
Executive Committee. The Executive Committee is composed of Messrs.
Longest and Hutchinson, as permanent members, and two other members of the Board
who rotate quarterly. The rotating members were Messrs. Bland and Dillard for
the first quarter of 1999, Messrs. Ball and Chenault for the second quarter of
1999, Messrs. Elliott and Minor for the third quarter of 1999 and Mr. Townsend
and Mrs. Ellis for the fourth quarter of 1999. The
23
<PAGE>
Executive Committee is charged with counseling management on current practices,
approving loans not in excess of $750,000, either secured or unsecured, and
reviewing all loans made and accounts opened. The Executive Committee met 11
times in 1999.
Employment Committee. The Employment Committee is composed of Messrs.
Hutchinson, Bland, Chenault, Dillard, Longest and Mrs. Ellis. The Employment
Committee makes recommendations concerning salaries, benefits and incentive
compensation for officers and employees of the Bank. The Employment Committee
met two times in 1999.
Expansion Committee. The Expansion Committee is composed of Messrs.
Chenault, Dillard, Elliott, Longest and Minor and is charged with reviewing
plans for growth, monitoring the marketplace for developing areas for future
branch sites and tracking any ongoing construction. The Expansion Committee met
once in 1999.
Asset/Liability Committee. The Asset/Liability Committee is composed of
Messrs. Minor, Ball, Elliott, Longest and Townsend. The Asset/Liability
Committee reviews the Bank's current financial position, monitors interest rate
trends and risks and oversees management of the securities portfolio and funds
management practices. The Asset/Liability Committee met four times in 1999.
Audit/Compliance/Examination Committee. The Audit/Compliance/Examination
Committee is composed of Mrs. Ellis and Messrs. Ball, Longest, Townsend and
Bland and is charged with evaluating the accounting and control procedures and
practices of the Bank. The Audit/Compliance/Examination Committee also serves
as a direct liaison with the Company's independent public accountants and
recommends the selection or discharge of such accountants. The
Audit/Compliance/Examination Committee met three times in 1999.
The Board meets at least once per month. There were 13 regularly
scheduled meetings during 1999. All directors attended 75% or more of the
aggregate of the total number of meetings held by the Board and all committees
of the Board on which they served.
Compensation of the Board
Directors of the Bank are paid an annual retainer of $2,400, plus $200
for attendance at each meeting of the Board and $100 for attendance at each
committee meeting. Directors are also reimbursed for reasonable expenses
incurred to attend Board and committee meetings. Employees of the Bank serving
as directors or committee members doe not receive any separate compensation for
committee meetings attended.
Nomination of Directors
In accordance with the Bank's Bylaws, a stockholder who is interested in
nominating a person to the Board should submit to the President of the Bank
written notice of his or her intent to make such a nomination. To be timely, a
stockholder's notice must be given, on or before January 15th of the year in
which the annual meeting is held. The contents of the notice must contain (i)
the name and address of the stockholder intending to make the nomination; (ii)
the name, address and principal occupation of the proposed nominee; (iii) a
representation that the stockholder is entitled to vote on the election of
directors and intends to appear in person at the meeting to nominate the person
or persons specified in the notice; and (iv) the written consent of each
proposed nominee to serve as a director if elected. At the Annual Meeting, the
Chairman may refuse to acknowledge the nomination of any person not made in
accordance with these procedures.
Section 16(a) Beneficial Ownership Reporting Compliance
The Securities Exchange Act of 1934, as amended, requires the Bank's
directors, officers and any persons owning more than 10% of the common stock to
file certain reports of ownership and changes in ownership with the Securities
and Exchange Commission. Based solely upon its review of the copies of the
Forms 3, 4 and 5 received by it, and written representations from certain
persons that no Forms 5 were required to be filed by those persons, the Bank
believes that all directors and officers complied with these filing
requirements.
24
<PAGE>
Indebtedness and Other Transactions
Certain directors and executive officers of the Bank, members of their
immediate families and corporations, partnerships and other entities with which
such persons are associated are customers of the Bank. As such, they had
transactions in the ordinary course of business with the Bank during 1999 and
will have additional transactions with the Bank in the future. All loans and
commitments to lend included in such transactions were made in the ordinary
course of business and upon substantially the same terms, including interest
rates, collateral and repayment terms, as those prevailing at the time for
comparable transactions with the general public. In the opinion of management,
none of the transactions involved more than the normal risk of collectibility or
presented other unfavorable features. At December 31, 1999 and December 31,
1998, loans from the Bank to all executive officers and directors, their
immediate families and/or affiliated companies in which they are principals
amounted to approximately $2,832,103 and $2,561,244, respectively. These
amounts represented approximately 18.4% and 17.1% of the total equity capital of
the Bank as of December 31, 1999 and December 31, 1998, respectively. During
1999 and 1998, no lending relationship between the Bank and any one of its
executive officers or directors, their immediate families and/or corporations or
other entities in which they are principal stockholders, exceeded 15% of the
Bank's total equity capital.
Regulation O promulgated by the Federal Reserve Board and the provisions
of the Federal Deposit Insurance Corporation Act of 1991 impose limitations on
the amount of credit that may be extended by a state bank, such as the Bank, to
its directors, executive officers and related persons. Management believes it
is in compliance with these limitations.
Chenault Law Offices serves as counsel to the Bank. L. McCauley
Chenault, a principal of Chenault Law Offices, is a director of the Bank.
The law firm of Dillard & Katona also serves as counsel to the Bank.
Alexander F. Dillard, Jr., a partner in the firm, is a director of the Bank.
OWNERSHIP OF BANK COMMON STOCK
The following table sets forth, as of March 10, 2000, certain information
with respect to the beneficial ownership of Bank common stock held by each
director and nominee and each executive officer named in the Summary
Compensation Table below, and by the directors and all executive officers of the
Bank as a group.
As of March 10, 2000, no stockholder of the Bank beneficially owned 5% or
more of Bank common stock.
<TABLE>
<CAPTION>
Name/(1)/ Amount and Nature of Beneficial Ownership/(2)/ Percent of Class
- - -------- ---------------------------------------------- ----------------
<S> <C> <C>
Named Executive Officers:
George M. Longest, Jr./(3)/ 3,400 *
Directors:
Alexander F. Dillard, Jr./(4)/ 18,056 *
Philip T. Minor/(5)/ 11,700 *
R. Tyler Bland, III/(6)/ 9,450 *
Robert F. Hutchinson/(7)/ 9,154 *
Frances H. Ellis/(8)/ 4,514 *
George B. Elliott/(9)/ 3,096 *
William Guy Townsend/(10)/ 2,734 *
L. McCauley Chenault 2,500 *
R. Harding Ball 2,000 *
All Directors and Executive
Officers as a group (16 persons) 70,752 6.1%
</TABLE>
______________________________
25
<PAGE>
* Percentage of ownership is less than 1% of the outstanding shares of common
stock of the Bank.
** Mr. Longest is also a nominee for director of the Bank. He was appointed
director in February, 1999 to fill the vacancy resulting from Mr.
Johnston's retirement.
(1) The address of each stockholder is c/o Bank of Essex, 323 Prince Street,
Tappahannock, Virginia 22560.
(2) For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 under the Securities Exchange
Act of 1934, as amended, as adopted by the Federal Reserve Board, under
which, in general, a person is deemed to be the beneficial owner of a
security if he or she has or shares the power to vote or to direct the
voting of the security or the power to dispose or to direct the disposition
of the security, or if he or she has the right to acquire beneficial
ownership of the security within 60 days. Under those rules, more than one
person may be deemed to be a beneficial owner of the same securities, and a
person may be deemed to be a beneficial owner of securities as to which he
or she disclaims any beneficial interest.
(3) Includes 400 shares held for Mr. Longest's children and 2,100 shares held
jointly with his spouse.
(4) Includes 11,606 shares owned by Dillard Associates, P.C. Pension Trust, of
which Mr. Dillard is the sole beneficiary, and 200 shares held by Mr.
Dillard's spouse.
(5) Includes 500 shares held by Mr. Minor's spouse.
(6) Includes 1,100 shares held by Mr. Bland's spouse and 3,400 shares held in a
family trust.
(7) Includes 185 shares held by Mr. Hutchinson's spouse.
(8) Includes 132 shares held by Mrs. Ellis' spouse.
(9) Includes 800 shares held by Mr. Elliott's spouse.
(10) Includes 300 shares held by Mr. Townsend's spouse.
EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following table presents an overview of executive compensation
awarded, earned or paid during 1999, 1998 and 1997 to George M. Longest, Jr.,
the Bank's President and Chief Executive Officer in 1999. No executive officer
of the Bank had compensation for 1999 in excess of $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-------------------
All Other
Name and Principal Position Year Salary Bonus Compensation/(2)/
- - --------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
George M. Longest, Jr./(1)/ 1999 $75,000 $165 $4,866
President and Chief Executive 1998 $58,300 $165 $4,341.80
Officer 1997 $45,000 $165 $3,873.96
</TABLE>
__________________________________________________
/(1)/ Mr. Longest became President and Chief Executive Officer of the Bank
effective January 1, 1999. Earl R. Johnston retired as President and
Chief Executive Officer of the Bank on December 31, 1998.
/(2)/ Of this amount, $1,500, $1,166.40 and $900 represents the Bank's
contribution to Mr. Longest's account under the Bank's 401(k) plan
for 1999, 1998 and 1997, respectively, and $3,366, $3,175.80 and
$2,973.96 represents contributions by the Bank to a flexible dollars
program to be used to purchase basic health care and life insurance
for 1999, 1998 and 1997, respectively.
Employee Benefit Plans
Retirement Plan
The Bank participates in the Virginia Bankers Association Master Defined
Benefit Pension Plan (the "Retirement Plan"), a defined benefit pension plan
qualified under the Internal Revenue Code of 1986, as amended (the "Code"). The
annual retirement benefit is the sum of (1) 1.60% of "Average Annual
Compensation" (highest five consecutive calendar years' W-2 compensation)
multiplied by years of service up to a maximum of 20 years, (2) 0.75% of Average
Annual Compensation multiplied by years of service in excess of 20 years up to a
maximum of 35 years, and (3) 0.75% (reduced to 0.70% or 0.65%, depending upon
the participant's Social Security retirement
26
<PAGE>
age) of Average Annual Compensation in excess of Covered Compensation multiplied
by years of service up to a maximum of 35 years. "Covered Compensation" is the
average of the Social Security taxable wage bases for the calendar year period
ending with the last day of the calendar year preceding the calendar year in
which the participant attains his or her Social Security retirement age.
The following table shows the estimated annual pension benefit payable
to a covered participant at normal retirement age under the Retirement Plan for
employees of the Bank.
Pension Plan Table
<TABLE>
<CAPTION>
Years of Service
----------------------------------------------------------------------------------------------
Average
Compensation 15 20 25 30 35
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$25,000 $ 6,045 $ 8,060 $ 9,013 $ 9,965 $10,918
50,000 14,858 19,810 22,638 25,465 28,293
75,000 23,670 31,560 36,263 40,965 45,668
100,000 32,483 43,310 49,888 56,465 63,043
125,000 41,295 55,060 63,513 71,965 80,418
150,000 50,108 66,810 77,138 87,465 97,793
</TABLE>
As of December 31, 1999, Mr. Longest's average annual compensation for
purposes of the pension plan was $50,940 and he had been credited with 11 years
of service.
Supplemental Income Plan
The Bank has a Supplemental Income Plan (the "Supplemental Plan") under
which some executive officers of the Bank, but not Mr. Longest, are entitled to
receive certain death and retirement benefits if they remain employed by the
Bank until such death or retirement. All benefits under the Supplemental Plan
are paid over a 15-year period following death or retirement. The lives of the
executive officers covered by the Supplemental Plan have been insured for
amounts sufficient to discharge the obligations thereunder.
Director Deferred Compensation Plan
The Bank has a Director Deferred Compensation Plan (the "Deferred
Compensation Plan") pursuant to which certain directors agreed to defer receipt
of Board of Directors fees earned during a 10-year deferral period beginning in
1993. The deferred fees are payable monthly under the Deferred Compensation
Plan at the later of the end of the 10-year deferral period or the director
attaining the age of 65. Payments are made over a 10-year period to the
director or his or her designated beneficiary, and in the event of death prior
to any payments being made, there is a provision for a pre-payout death benefit
to the designated beneficiary. In 1996, the Bank added a defined contribution
plan to the Deferred Compensation Plan. At December 31, 1999, Mr. Longest's
deferred Board of Director's fees under the Deferred Compensation Plan totaled
$2,400.
401(k) Plan
The Bank has a thrift savings plan qualified under Section 401(k) of the
Code (the "401(k) Plan"). Employees over the age of 21 are eligible to begin
participation in the 401(k) Plan the January 1 or July 1 following completion of
six months of employment. Employees may contribute up to 15% of their base
compensation before tax. Each year a decision is made about the level and
amount of the Bank's matching contribution based on the Bank's profits.
Currently, when an eligible employee contributes up to 4% of his or her base
compensation before tax, the Bank contributes a 2% match. Employees may
contribute an additional 11%, up to a maximum of $9,500 for 1999, of his or her
base compensation before tax. In 1999, the Bank contributed $1,500 in matching
funds to Mr. Longest's account and $28,384 in the aggregate to the accounts of
all 401(k) Plan participants.
27
<PAGE>
STOCK INCENTIVE PLAN
The BOE Financial Services of Virginia, Inc. Stock Incentive Plan (the
"Stock Incentive Plan") which has been established by the Holding Company, will
be administered by the Employment or Compensation Committee of the Board of
Directors of the Holding Company. A copy of the Stock Incentive Plan is
attached as Appendix 3 to Exhibit A to this Proxy Statement. Stock options (both
incentive stock options and nonstatutory stock options) and restricted stock may
be granted under the Stock Incentive Plan. All employees and future employees of
the Holding Company, the Bank and any other subsidiaries will be eligible to
receive awards under the Stock Incentive Plan if the Employment or Compensation
Committee determines that they have contributed or can be expected to contribute
to the success of the organization. 100,000 authorized but unissued shares of
common stock of the Holding Company have been reserved for issuance under the
Stock Incentive Plan. The Employment or Compensation Committee may provide that
upon a change of control, the options will become fully exercisable or that the
restrictions on restricted stock will lapse. If not sooner terminated by the
Board of Directors, the Stock Incentive Plan will terminate on January 1, 2010.
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
The Holding Company has adopted a stock option plan for outside directors
(the "Directors Plan"). A copy of the Directors Plan is attached hereto as
Appendix 4 to Exhibit A to this Proxy Statement. Options granted under the
Directors Plan will be nonstatutory stock options. All directors who are not
full-time employees of the Holding Company or a subsidiary will automatically
receive options under the Directors Plan as determined by the Board immediately
before the Reorganization is consummated.
Stock options issued under the Directors Plan will be exercisable for ten
years after the date of grant, with certain exceptions. If the option holder
ceases to be a member of the Board because of death or disability, the options
will be exercisable until the earlier of two years after the date the option
holder ceases to be a member of the Board or ten years after the date of grant.
If the option holder ceases to be a member of the Board for any other reason,
the options will be exercisable until the earlier of three months after the
option holder ceases to be a member of the Board or ten years after the date of
the grant. If the option holder dies after he or she ceases to be a member of
the Board but within the period during which his options are still exercisable,
the options may be exercised by his or her legatees, distributees or the
personal representative of his or her estate until the earlier of two years
after the option holder ceases to be a member of the Board or ten years after
the date of grant.
Options generally will not be transferable and will be exercisable during
the lifetime of the option holder only by the option holder or the option
holder's legal representative. However, the option holder may transfer, for no
consideration, options to a member of his or her immediate family, to a trust or
trusts for the benefit of a member of his or her immediate family, to a
partnership, limited liability company or other entity where the only interest
holders are members of the options holder's immediate family.
The purchase price of each share of common stock covered by an option will
be equal to its fair market value on the date the option is granted. 10,000
shares of common stock of the Holding Company will be reserved for issuance
under the Directors Plan. If not sooner terminated by the Board of Directors,
the Directors Plan will terminate on January 1, 2010.
EMPLOYMENT CONTINUITY AGREEMENTS
The Holding Company plans to, directly or through the Bank, enter into
employment continuity agreements (the "Continuity Agreements") with each of
George M. Longest, Jr., Bruce E. Thomas, Robert E. Davis, Jack M. Robeson,
Terrell D. Vaughan, Suzanne S. Rennolds and Bonnie S. Courtney (the "Executives"
or an "Executive") in order to secure their continued services and enable them
to devote their full efforts to the Holding Company and the Bank in the event of
a change of control of the Holding Company. A copy of the form of the
Continuity Agreement is attached as Appendix 5 to Exhibit A to this Proxy
Statement. Under the Continuity Agreements, each Executive will be entitled to
a certain salary continuance benefits, welfare continuance benefits and
outplacement services if
28
<PAGE>
the Holding Company terminates his or her employment for any reason other than
cause, or if the Executive terminates for certain specific reasons, set forth
below, within two years following a change of control.
The salary continuance benefit is an amount equal to two times, in the
case of Messrs. Longest and Thomas, and one time, in the case of the other
Executives, the sum of the Executive's base salary in effect as of the change of
control plus the maximum cash bonus payable to him or her. If the Executive
applies for or accepts employment with the Holding Company within five years of
his termination of employment, the Executive is required to repay to the Holding
Company the entire amount of the salary continuance benefit.
Under the welfare continuance benefit, the Executive and his dependents
will continue be covered, for a one year period following the Executive's
termination of employment, under all welfare plans in which the Executive and
his dependents were participating prior to the date of termination. Welfare
plans include any health or dental plans, disability plans, survivor income
plans or life insurance plans maintained by the Holding Company. The Holding
Company will pay all or a portion of the costs of the benefit on the same basis
as is applicable to active employees. The welfare continuance benefit will
cease if the Executive obtains coverage under one or more welfare plans of a
subsequent employer and that provide equal or greater benefits to the Executive
and his dependents.
The outplacement services provided for under the Continuity Agreements
include job search and interview skill services. The services will be provided
by a regionally recognized outplacement organization selected by the Executive
with approval of the Holding Company. The services are available for up to one
year after the Executive's termination of employment.
In order for the Executive to be entitled to receive benefits in the case
of a voluntary termination of employment, he or she must voluntarily terminate
employment within two years following a change of control of the Holding Company
for one of the following reasons: (a) a decrease in his or her aggregate base
salary and incentive bonus opportunity or a significant reduction in the amount
of additional benefits or perquisites provided to him or her as of the date of
the change of control, (b) a decrease in his or her authority, duties or
responsibilities as determined as of the date of the change of control, or (c)
the assignment of duties to him or her that are inconsistent with his or her
duties and responsibilities as of the change of control. The Executive must
initiate the termination and must terminate employment within 90 days of one of
these events in order to be entitled to benefits. Benefits will not be payable
if the action is isolated, insubstantial or inadvertent and not taken in bad
faith, and remedied by the Holding Company within 15 days after receipt of
notice thereof given by the Executive.
A change of control of the Holding Company will be deemed to occur if any
person or group becomes a beneficial owner of 20% or more of the combined voting
power of the Holding Company's outstanding securities that may be cast for
election of directors, other than as a result of an issuance of securities
initiated by the Holding Company or open market purchases approved by the Board,
so long as the majority of the Board approving the purchases is also the
majority at the time the purchases are made, or, if as a direct or indirect
result of, or in connection with, a cash tender or exchange offer, merger or
other business combination, sale of assets, or contested election, the directors
constituting the Board before any such transactions cease to constitute a
majority of the Board or its successor's board within two years of the last of
such transactions.
In return for payment of benefits under the Continuity Agreements, each
Executive agrees to execute a written release, in such form as provided by the
Holding Company, of any and all claims the Executive may have against the
Holding Company.
REGULATION AND SUPERVISION
Bank holding companies and banks operate in a highly regulated environment
and are regularly examined by federal and state regulators. The following
description briefly discusses certain provisions of federal and state laws and
certain regulations and the potential impact of such provisions on the Holding
Company and the Bank. These federal and state laws and regulations have been
enacted for the protection of depositors in national and state banks and not for
the protection of stockholders of bank holding companies or banks.
29
<PAGE>
Bank Holding Companies
As a result of the Reorganization, the Bank will become a subsidiary of the
Holding Company, and the Holding Company must register as a bank company Holding
Company under the Bank Holding Company Act of 1956, as amended (the "BHCA"), and
become subject to regulation by the Federal Reserve. The Federal Reserve has
jurisdiction under the BHCA to approve any bank or nonbank acquisition, merger
or consolidation proposed by a bank holding company. The BHCA generally limits
the activities of a bank holding company and its subsidiaries to that of
banking, managing or controlling banks, or any other activity which is so
closely related to banking or to managing or controlling banks as to be a proper
incident thereto.
Federal law permits bank holding companies from any state to acquire banks
and bank holding companies located in any other state. The law allows
interstate bank mergers, subject to "opt-in or "opt-out" action by individual
states. Virginia adopted early "opt-in" legislation that allows interstate bank
mergers. These laws also permit interstate branch acquisitions and de novo
branching in Virginia by out-of-state banks if reciprocal treatment is accorded
Virginia banks in the state of the acquirer.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by federal law and
regulatory policy that are designed to reduce potential loss exposure to the
depositor of such depository institutions and to the FDIC insurance fund in the
event the depository institution becomes in danger of default or in default.
For example, under a policy of the Federal Reserve with respect to bank holding
company operations, a bank holding company is required to serve as a source of
financial strength to its subsidiary depository institutions and to commit
resources to support such institutions in circumstances where it might not do so
otherwise. In addition, the "cross-guarantee" provisions of federal law require
insured depository institutions under common control to reimburse the FDIC for
any loss suffered or reasonably anticipated by either the Savings Association
Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF") as a result of the
default of a commonly controlled insured depository institution in danger of
default. The FDIC may decline to enforce the cross-guarantee provisions if it
determines that a waiver is in the best interest of the SAIF or the BIF or both.
The FDIC's claim for reimbursement is superior to claims of stockholders of the
insured depository institution or its holding company but is subordinate to
claims of depositors, secured creditors and holders of subordinated debt (other
than affiliates) of the commonly controlled insured depository institution.
The Federal Deposit Insurance Act ("FDIA") also provides that amounts
received from the liquidation or other resolution of any insured depository
institution by any receiver must be distributed (after payment of secured
claims) to pay the deposit liabilities of the institution prior to payment of
any other general or unsecured senior liability, subordinated liability, general
creditor or stockholder. This provision would give depositors a preference over
general and subordinated creditors and stockholders in the event a receiver is
appointed to distribute the assets of any of the Banks.
The Holding Company also will be required to register in Virginia with the
SCC under the financial institution holding company laws of Virginia.
Accordingly, the Holding Company will be subject to regulation and supervision
by the SCC.
Finally, the Holding Company will be subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended, including but
not limited to, filing annual, quarterly and other current reports with the
Securities and Exchange Commission.
The Gramm-Leach-Bliley Act of 1999
The Gramm-Leach-Bliley Act of 1999 (the "Act") was enacted on November 12,
1999. The Act draws new lines between the types of activities that are
permitted for banking organizations as financial in nature and those that are
not permitted because they are commercial in nature. The Act imposes Community
Reinvestment Act requirements on financial service organizations that seek to
qualify for the expanded powers to engage in broader financial activities and
affiliations with financial companies that the Act permits.
The Act creates a new form of financial organization called a financial
holding company that may own and control banks, insurance companies and
securities firms. A financial holding company is authorized to engage in
30
<PAGE>
any activity that is financial in nature or incidental to an activity that is
financial in nature or is a complementary activity. These activities include
insurance, securities transactions and traditional banking related activities.
The Act establishes a consultative and cooperative procedure between the Federal
Reserve and the Secretary of the Treasury for the designation of new activities
that are financial in nature within the scope of the activities permitted by the
Act for a financial holding company. A financial holding company must satisfy
special criteria to qualify for the expanded financial powers authorized by the
Act. Among those criteria are requirements that all of the depository
institutions owned by the financial holding company be rated as well-capitalized
and well-managed and that all of its insured depository institutions have
received a satisfactory rating for Community Reinvestment Act compliance during
their last examination. A bank holding company that does not qualify as a
financial holding company under the Act is generally limited in the types of
activities in which it may engage to those that the Federal Reserve has
recognized as permissible for bank holding companies prior to the date of
enactment of the Act. The Act also authorizes a state bank to have a financial
subsidiary that engages as a principal in the same activities that are permitted
for a financial subsidiary of a national bank if the state bank meets
eligibility criteria and special conditions for maintaining the financial
subsidiary.
The Act repeals the prohibition in the Glass-Steagall Act on bank
affiliations with companies that are engaged primarily in securities
underwriting activities. The Act authorizes a financial holding company to
engage in a wide range of securities activities, including underwriting,
broker/dealer activities and investment company and investment advisory
activities.
The various provisions of the Act become effective at different times in
the future. Implementing regulations have not yet been adopted by the
respective federal regulatory agencies. For example, the provisions
facilitating affiliation among banks, securities firms and insurance companies
did not become effective until March 11, 2000. When the provisions of the Act
become fully effective, the Act may provide additional opportunities for the
Holding Company to engage in activities that are financial in nature or
incidental to an activity that is financial in nature or complementary thereto
provided that the Holding Company is willing to comply with the conditions,
restrictions and limitations placed on financial holding companies contained in
the Act and the regulations to be adopted under the Act.
Capital Requirements
The Federal Reserve, the Comptroller of the Currency, and the FDIC have
issued substantially similar risk-based and leverage capital guidelines
applicable to United States banking organizations. In addition, those
regulatory agencies may from time to time require that a banking organization
maintain capital above the minimum levels because of its financial condition or
actual or anticipated growth. Under the risk-based capital requirement of these
federal bank regulatory agencies, the Bank is required to maintain a minimum
ratio of total capital to risk-weighted assets of at least 8%. At least half of
the total capital is required to be "Tier 1 capital," which consists principally
of common and certain qualifying preferred stockholders' equity, less certain
intangibles and other adjustments. The remainder of "Tier 2 capital" consists
of a limited amount of subordinated and other qualifying debt (including certain
hybrid capital instruments) and a limited amount of the general loan loss
allowance. The Tier 1 and total capital to risk-weighted asset ratios of the
Bank as of December 31, 1999, were 11.03% and 12.26% respectively, exceeding the
minimums required.
In addition, each of the federal regulatory agencies has established a
minimum leverage capital ratio (Tier 1 capital to average tangible assets).
These guidelines provide for a minimum ratio of 3% for banks and bank holding
companies that meet certain specified criteria, including that they have the
highest regulatory examination rating and are not contemplating significant
growth or expansion. All other institutions are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the minimum. The Tier 1 capital
leverage ratio of the Bank as of December 31, 1999, was 8.76%. The guidelines
also provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets.
Limits on Dividends and Other Payments
The Holding Company is a legal entity separate and distinct from the Bank.
The Bank is a state member bank of the Federal Reserve System. As a result, the
Bank is regulated by the Federal Reserve and the SCC. There
31
<PAGE>
are various regulatory limitations applicable to the payment of dividends by the
Bank as well as the payment of dividends by the Holding Company to its
stockholders. Under laws of Virginia applicable to the Bank, prior approval from
the bank regulatory agencies is required if cash dividends declared in any given
year exceed net income for that year plus net income for the prior two years
less all dividends paid during the current year and two prior years. Under
existing supervisory practices, at December 31, 1999, the Bank could have paid
additional dividends of $2,534,575, without obtaining prior regulatory approval.
The payment of dividends by the Bank or the Holding Company may also be limited
by other factors, such as requirements to maintain capital above regulatory
guidelines. Bank regulatory agencies have authority to prohibit the Bank or the
Holding Company from engaging in an unsafe or unsound practice in conducting
their business. The payment of dividends, depending upon the financial condition
of the Bank or the Holding Company, could be deemed to constitute such an unsafe
or unsound practice. The Federal Reserve has stated that, as a matter of prudent
banking, a bank or bank holding company should not maintain its existing rate of
cash dividends on common stock unless (1) the organization's net income
available to common stockholders over the past year has been sufficient to fund
fully the dividends and (2) the prospective rate of earnings retention appears
consistent with the organization's capital needs, asset quality, and overall
financial condition.
Under the FDIA, insured depository institutions such as the Bank are
prohibited from making capital distributions, including the payment of
dividends, if, after making such distribution, the institution would become
"undercapitalized" (as such term is used in the statute). Based on the Bank's
current financial condition, it is not anticipated that this provision will have
any impact on its ability to obtain dividends from the Bank.
The BHCA generally permits a bank holding company to acquire or redeem its
capital stock, without prior Federal Reserve approval, in amounts up to 10% of
its consolidated net worth within a twelve month period.
The Bank is supervised and regularly examined by the Federal Reserve and
the SCC. The Bank is also subject to various requirements and restrictions
under federal and state law such as limitations on the types of services that
they may offer, the nature of investments that they make, and the amounts of
loans that may be granted. Various consumer and compliance laws and regulations
also affect the operation of the Bank. In addition to the impact of regulation,
the Bank is affected significantly by actions of the Federal Reserve in
attempting to control the money supply and the availability of credit.
The Bank also is subject to the requirements of the Community Reinvestment
Act (the "CRA"). The CRA imposes on financial institutions an affirmative and
ongoing obligation to meet the credit needs of their local communities,
including low- and moderate-income neighborhoods, consistent with the safe and
sound operation of those institutions. Each financial institution's efforts in
meeting community credit needs currently are evaluated as part of the
examination process pursuant to a number of assessment factors. These factors
also are considered in evaluating mergers, acquisitions and applications to open
branches. The Bank has attained an "Outstanding" rating on its most recent CRA
performance evaluation. CRA ratings are a matter of public record.
Deposit Insurance
As institutions with deposits insured by BIF, the Bank also is subject to
insurance assessments imposed by the FDIC. Currently, a risk-based assessment
schedule imposes assessments on BIF deposits, ranging from no minimum payment
for well-capitalized institutions to 27 basis points of deposits for under-
capitalized institutions. The Bank currently is assessed as well-capitalized. In
addition, the Bank pays 1.08 basis points for FICO bonds.
Other Safety and Soundness Regulations
The federal banking agencies have broad powers under federal law to take
prompt corrective action to resolve problems of insured depository institutions.
The extent of these powers depends upon whether the institutions in question are
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized," as such terms are defined
under uniform regulations defining such capital levels issued by each of the
federal banking agencies.
32
<PAGE>
APPOINTMENT OF AUDITORS
On the recommendation of the Audit Committee, the Board of Directors has
appointed Yount, Hyde & Barbour, P.C., Certified Public Accountants, as the
Bank's independent auditors for 2000, subject to ratification of the
stockholders. Yount, Hyde & Barbour, P.C. rendered audit services to the Bank
during 1999. These services consisted primarily of the examination and audit of
the Bank's financial statements, tax reporting assistance, and other audit and
accounting matters. Stockholders are requested to ratify the selection of
Yount, Hyde & Barbour, P.C. at the Annual Meeting.
Representatives of Yount, Hyde & Barbour, P.C. are expected to be present
at the Annual Meeting and are expected to be available to respond to questions
during and after the meeting.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Annual Meeting other than those matters described above. However, if any other
matters should properly come before the Annual Meeting, it is intended that
proxies in the accompanying form will be voted in respect thereof in accordance
with the judgment of the person or persons voting the proxies.
LEGAL MATTERS
The legality of Holding Company common stock to be issued pursuant to the
Reorganization will be passed upon for the Holding Company by the law firm of
McGuire, Woods, Battle & Boothe LLP, Richmond, Virginia, which has acted as
special counsel to the Bank and the Holding Company in connection with the
Reorganization.
EXPERTS
The financial statements of the Bank of Essex for the period ended December
31, 1999 and 1998, included in the accompanying Annual Report to Stockholders,
are furnished in reliance upon the report of Yount, Hyde & Barbour, P.C.,
Certified Public Accountants, and upon the authority of that firm as experts in
accounting and auditing.
STOCKHOLDER PROPOSALS
In the event the Reorganization is consummated before the scheduled 2001
Annual Meeting of Stockholders of the Bank, the Holding Company will be
conducting the Annual Meeting of Stockholders. Stockholder proposals intended
to be presented at the Bank's 2001 Annual Meeting, or, in lieu thereof, the
Holding Company's 2001 Annual Meeting, must be submitted to the Bank or the
Holding Company, as the case may be, by January 10, 2001, in order to be
considered for inclusion in the proxy materials for that meeting.
33
<PAGE>
Exhibit A
Agreement and Plan of Reorganization
THIS AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
March 20, 2000, by and between BOE FINANCIAL SERVICES OF VIRGINIA, INC., a
proposed bank holding company organized under the laws of Virginia, with its
principal office in Tappahannock, Virginia (the "Holding Company"), and BANK OF
ESSEX, a banking corporation organized under the laws of the Commonwealth of
Virginia, with its Main Office in Tappahannock, Virginia (the "Bank"). The
Holding Company and the Bank are collectively referred to herein as the
"Constituent Corporations."
WITNESSETH:
WHEREAS, the respective boards of directors of the Constituent Corporations
consider the consolidation of the Bank and the Holding Company by way of a
statutory share exchange (the "Share Exchange") pursuant to the Virginia Stock
Corporation Act (the "Act"), so that the Bank will become and be a wholly-owned
subsidiary of the Holding Company, to be in the respective best interests of the
Constituent Corporations and their shareholders. To that end, each such board
has approved this Agreement and Plan of Reorganization.
NOW, THEREFORE, in consideration of the mutual agreements set forth herein,
the Constituent Corporations agree as follows:
1. The Share Exchange. At the Effective Date of the Share Exchange (as
hereinafter defined), the Bank shall be consolidated with the Holding Company,
which shall, after the Share Exchange, own 100% of the issued and outstanding
shares of the Bank. The Share Exchange shall be pursuant to the provisions of
and with the effect provided in Sections 6.1-43 and 6.1-44 of the Virginia
Banking Act and Section 13.1-721 of the Act.
2. Name; Articles of Incorporation; Bylaws; Offices. The name, Articles
of Incorporation and Bylaws of the Bank shall remain unchanged after the
Effective Date. The Main Office and branches of the Bank immediately prior to
the Share Exchange shall remain as such after the Effective Date. The Articles
of Incorporation and Bylaws of the Holding Company shall remain unchanged after
the Effective Date. The Articles of Incorporation of the Holding Company are in
the form attached as Appendix 1. The Bylaws of the Holding Company are in the
form attached as Appendix 2.
3. Conversion of Shares. Upon, and by reason of, the Share Exchange
becoming effective pursuant to the issuance of a Certificate of Share Exchange
by the Virginia State Corporation Commission, no cash shall be allocated to the
shareholders of the Bank, and each of the issued and outstanding shares of
common stock of the Bank ("Bank Common Stock") shall be automatically exchanged
for one share of common stock of the Holding Company ("Holding
<PAGE>
Company Common Stock"). Outstanding certificates representing shares of Bank
Common Stock will thereafter represent an equal number of shares of Holding
Company Common Stock; accordingly, stockholders will not be required to
surrender their Bank stock certificates for new certificates upon consummation
of the Share Exchange. The Holding Company may, however, on a date subsequent to
the Effective Date require that all certificates of Bank Common Stock be
surrendered and exchanged for certificates of Holding Company Common Stock.
4. Capital of the Bank. The capital, surplus and undivided profits of the
Bank at the Effective Date will be equal to the capital structure of the Bank at
December 31, 1999 adjusted, however, for capital contributions, normal earnings
and expenses, and other capital changes between December 31, 1999 and the
Effective Date.
5. Board of Directors; Officers. (a) At the Effective Date, the boards
of directors of the Bank and the Holding Company shall continue to serve as such
until their respective terms expire or until such time as their successors have
been elected and qualified.
(b) At the Effective Date, the respective officers of the Bank and
the Holding Company shall continue to serve as such until such time as their
successors have been elected or appointed.
6. Rights of Dissenting Shareholders. Stockholders of the Bank who
dissent from the Share Exchange will be entitled to the dissenters' rights and
remedies set forth in Sections 13.1-729 through 13.1-741 of the Act.
7. Stock Option Plans; Employment Continuity Agreements. (a) The board
of directors of the Holding Company has approved the Stock Incentive Plan and
the Stock Option Plan for Outside Directors, substantially in the forms attached
as Appendix 3 and Appendix 4, respectively. Such plans shall be implemented as
of the Effective Date.
(b) The board of directors of the Holding Company has approved the
execution by the Holding Company of Employment Continuity Agreements with George
M. Longest, Jr., Bruce E. Thomas, Robert E. Davis, Jack M. Robeson, Terrell D.
Vaughan, Suzanne S. Rennolds and Bonnie S. Courtney, substantially in the form
attached as Appendix 5. Such agreements shall be executed and take effect as of
the Effective Date.
8. Conditions of the Share Exchange. Consummation of the Share Exchange
is conditioned upon (i) the approval of this Agreement by the stockholders of
the Bank and the Holding Company, respectively, at meetings to be held on the
call of their respective boards of directors, (ii) the receipt of the required
regulatory approvals, (iii) the receipt of an opinion of counsel as to the tax-
free nature of the transaction and (iv) listing of the Holding Company Common
Stock on The Nasdaq SmallCap Market. Upon the satisfaction of the foregoing
conditions, the Share Exchange shall become effective at the time specified in a
Certificate of Share Exchange to be issued by the Virginia State Corporation
Commission approving the Share Exchange (the "Effective Date").
2
<PAGE>
9. Termination. This Agreement may be terminated by the unilateral action
of either of the boards of directors of the Holding Company or the Bank prior to
the approval of the Agreement by the stockholders of such party or by the mutual
consent of the respective boards of directors of the Holding Company and the
Bank after any stockholder group has taken the requisite affirmative action.
Upon termination for any reason, this Agreement shall be void and of no further
effect, and there shall be no liability by reason of this Agreement or the
termination thereof on the part of the Bank or the Holding Company or any of
their directors, officers, employees, agents or stockholders.
WITNESS, the following signatures for the parties, each hereunto set by
their officers pursuant to duly authorized resolutions of their respective
boards of directors.
BOE FINANCIAL SERVICES OF VIRGINIA, INC.,
a Virginia corporation
By: /s/ George M. Longest, Jr.
-----------------------------
Name: George M. Longest, Jr.
Title: President and Chief Executive Officer
BANK OF ESSEX, a Virginia banking
corporation
By: /s/ Robert F. Hutchinson
---------------------------
Name: Robert F. Hutchinson
Title:
3
<PAGE>
APPENDIX 1
BOE FINANCIAL SERVICES OF VIRGINIA, INC.
ARTICLES OF INCORPORATION
ARTICLE I
NAME
The name of the Corporation is BOE Financial Services of Virginia, Inc.
ARTICLE II
PURPOSE
The purpose of the Corporation is to (i) act as a holding company for
subsidiaries doing business as financial institutions and providing other
services related to the banking business and (ii) conduct such other lawful
business not required by the Virginia Stock Corporation Act or other law to be
stated in the Articles of Incorporation.
ARTICLE III
AUTHORIZED SHARES
3.1 Number and Designation. The number and designation of shares that the
Corporation shall have authority to issue and the par value per share are as
follows:
<TABLE>
<CAPTION>
Class Number of Shares Par Value
----- ---------------- ---------
<S> <C> <C>
Common Shares 10,000,000 $5.00
Preferred Shares 1,000,000 $5.00
</TABLE>
3.2 Preemptive Rights. No holder of outstanding shares shall have any
preemptive right with respect to (i) any shares of any class of the Corporation,
whether now or hereafter authorized, including without limitation shares issued
for cash, property or services or as a dividend or otherwise, (ii) any warrants,
rights or options to purchase any such shares, or (iii) any obligations
convertible into or exchangeable for any such shares or into warrants, rights or
options to purchase any such shares.
3.3 Shareholder Approval.
(a) The following actions shall require approval by the affirmative
vote of more than two-thirds of all the votes entitled to be cast at a meeting
of shareholders of the
<PAGE>
Corporation, and shall require the approval by the affirmative vote of more than
two-thirds of the votes entitled to be cast by each voting group entitled to
vote thereon as a separate voting group:
(i) any amendment to Articles IV or VI herein or this Section
3.3; or any amendment to the Articles of Incorporation of the
Corporation permitting cumulative voting by the shareholders of the
Corporation.
(b) Amendments to the Articles of Incorporation of the Corporation
shall require approval by the affirmative vote of a majority of all the votes
entitled to be cast at a meeting of shareholders of the Corporation, and shall
require approval by the affirmative vote of a majority of the votes entitled to
be cast by each voting group entitled to vote thereon as a separate voting
group, except (i) as otherwise provided in Section 3.3(a) and (ii) that the
affirmative vote of more than two-thirds of all the votes entitled to be cast at
a meeting of shareholders of the Corporation, and the affirmative vote of more
than two-thirds of all votes entitled to be cast by each voting group entitled
to vote thereon as a separate voting group, shall be required for approval of
any amendment if the effect of such amendment is (A) to reduce the shareholder
vote required to approve a merger, statutory share exchange, a sale of all or
substantially all the assets of the Corporation or the dissolution of the
Corporation or (B) to delete all or any part of clause (ii) of this sentence.
ARTICLE IV
PREFERRED SHARES
4.1 Issuance in Series. The Board of Directors is authorized to issue
Preferred Shares from time to time in one or more series and to provide for the
designation, preferences, limitations and relative rights of the shares of each
series by the adoption of Articles of Amendment to the Articles of Incorporation
of the Corporation setting forth:
(a) The maximum number of shares in the series and the designation of
the series, which designation shall distinguish the shares thereof from the
shares of any other series or class;
(b) Whether shares of the series shall have special, conditional or
limited voting rights, or no right to vote except to the extent required by law;
(c) Whether shares of the series are redeemable or convertible (x) at
the option of the Corporation, a shareholder or another person or upon the
occurrence of a designated event, (y) for cash, indebtedness, securities or
other property, and (z) in a designated amount or in an amount determined in
accordance with a designated formula or by reference to extrinsic data or
events;
(d) Any right of holders of shares of the series to distributions,
calculated in any manner, including the rate or rates of dividends, and whether
dividends shall be cumulative, noncumulative or partially cumulative;
(e) The amount payable upon the shares of the series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation;
2
<PAGE>
(f) Any preference of the shares of the series over the shares of any
other series or class with respect to distributions, including dividends, and
with respect to distributions upon the liquidation, dissolution or winding up of
the affairs of the Corporation; and
(g) Any other preferences, limitations or specified rights (including
a right that no transaction of a specified nature shall be consummated while any
shares of such series remain outstanding except upon the assent of all or a
specified portion of such shares) now or hereafter permitted by the laws of the
Commonwealth of Virginia and not inconsistent with the provisions of this
Section 4.1.
4.2 Articles of Amendment For Issuance. Before the issuance of any shares
of a series, Articles of Amendment establishing such series shall be filed with
and made effective by the State Corporation Commission of Virginia, as required
by law.
ARTICLE V
COMMON SHARES
5.1 Respective Rights and Privileges. Except as otherwise provided herein
or as otherwise required by applicable law, all shares of Common Stock will be
identical and will entitle the holders thereof to the same rights and privileges
and shall rank equally, share ratably, and be identical in all respects as to
all matters. The holders of Common Stock shall have the respective rights and
preferences set forth in this Article V.
5.2 Voting Rights. Except as otherwise required by law, the holders of
Common Stock will be entitled to one vote per share on all matters to be voted
on by the Corporation's shareholders.
5.3 Dividends. When and as dividends are declared thereon, whether payable
in cash, property or securities of the Corporation, the holders of Common Stock
will be entitled to share equally, share for share, in such dividends; provided
that if dividends are declared which are payable in shares of Common Stock,
dividends will be declared which are payable at the same rate per share on each
such class of shares and the dividends payable in shares of Common Stock will be
payable to holders of Common Stock.
5.4 Liquidation. Subject to the provisions of the Preferred Shares, the
holders of the Common Stock shall be entitled to participate ratably on a per
share basis in all distributions to the holders of the Common Stock in any
liquidation, dissolution or winding up of the Corporation.
ARTICLE VI
DIRECTORS
The number of directors of the Corporation shall be fixed in the bylaws.
The number of directors shall be divided into three groups with each group
containing one third of the total, as nearly equal in number as possible. The
terms of the directors in the first group shall expire at the first annual
meeting of shareholders. The terms of the directors in the second group shall
3
<PAGE>
expire at the second annual meeting of shareholders and the terms of directors
in the third group shall expire at the third annual meeting of shareholders. At
each annual meeting of shareholders, one group of directors shall be elected for
a term of three years to succeed those whose terms expire. A director may be
removed from office as a director by the shareholders of the Corporation only
with cause.
ARTICLE VII
LIMIT ON LIABILITY AND INDEMNIFICATION
7.1 Definitions. For purposes of this Article only the following
definitions shall apply:
(a) "Corporation" means this Corporation only and no predecessor
entity or other legal entity;
(b) "expenses" include counsel fees, expert witness fees, and costs
of investigation, litigation and appeal, as well as any amounts expended in
asserting a claim for indemnification;
(c) "liability" means the obligation to pay a judgment, settlement,
penalty, fine, or other such obligation, including, without limitation, any
excise tax assessed with respect to an employee benefit plan;
(d) "legal entity" means a corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise;
(e) "predecessor entity" means a legal entity the existence of which
ceased upon its acquisition by the Corporation in a merger or otherwise; and
(f) "proceeding" means any threatened, pending, or completed action,
suit, proceeding or appeal whether civil, criminal, administrative or
investigative and whether formal or informal.
7.2 Limit on Liability. In every instance in which the Virginia Stock
Corporation Act, as it exists on the date hereof or may hereafter be amended,
permits the limitation or elimination of liability of directors or officers of a
corporation to the corporation or its shareholders, the directors and officers
of this Corporation shall not be liable to the Corporation or its shareholders.
7.3 Indemnification of Directors and Officers. The Corporation shall
indemnify any individual who is, was or is threatened to be made a party to a
proceeding (including a proceeding by or in the right of the Corporation)
because such individual is or was a director or officer of the Corporation or
because such individual is or was serving the Corporation, or any other legal
entity in any capacity at the request of the Corporation while a director or
officer of the Corporation, against all liabilities and reasonable expenses
incurred in the proceeding except such liabilities and expenses as are incurred
because of such individual's willful misconduct or knowing violation of the
criminal law. Service as a director or officer of a legal entity controlled
4
<PAGE>
by the Corporation shall be deemed service at the request of the Corporation.
The determination that indemnification under this Section 7.3 is permissible and
the evaluation as to the reasonableness of expenses in a specific case shall be
made, in the case of a director, as provided by law, and in the case of an
officer, as provided in Section 7.4 of this Article; provided, however, that if
a majority of the directors of the Corporation has changed after the date of the
alleged conduct giving rise to a claim for indemnification, such determination
and evaluation shall, at the option of the Person claiming indemnification, be
made by special legal counsel agreed upon by the Board of Directors and such
Person. Unless a determination has been made that indemnification is not
permissible, the Corporation shall make advances and reimbursements for expenses
incurred by a director or officer in a proceeding upon receipt of an undertaking
from such director or officer to repay the same if it is ultimately determined
that such director or officer is not entitled to indemnification. Such
undertaking shall be an unlimited, unsecured general obligation of the director
or officer and shall be accepted without reference to such director's or
officer's ability to make repayment. The termination of a proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent shall not of itself create a presumption that a director or
officer acted in such a manner as to make such director or officer ineligible
for indemnification. The Corporation is authorized to contract in advance to
indemnify and make advances and reimbursements for expenses to any of its
directors or officers to the same extent provided in this Section 7.3.
7.4 Indemnification of Others. The Corporation may, to a lesser extent or
to the same extent that it is required to provide indemnification and make
advances and reimbursements for expenses to its directors and officers pursuant
to Section 7.3, provide indemnification and make advances and reimbursements for
expenses to its employees and agents, the directors, officers, employees and
agents of its subsidiaries and predecessor entities, and any Person serving any
other legal entity in any capacity at the request of the Corporation, and may
contract in advance to do so. The determination that indemnification under this
Section 7.4 is permissible, the authorization of such indemnification and the
evaluation as to the reasonableness of expenses in a specific case shall be made
as authorized from time to time by general or specific action of the Board of
Directors, which action may be taken before or after a claim for indemnification
is made, or as otherwise provided by law. No Person's rights under Section 7.3
of this Article shall be limited by the provisions of this Section 7.4.
7.5 Miscellaneous. The rights of each Person entitled to indemnification
under this Article shall inure to the benefit of such Person's heirs, executors
and administrators. Special legal counsel selected to make determinations under
this Article may be counsel for the Corporation. Indemnification pursuant to
this Article shall not be exclusive of any other right of indemnification to
which any Person may be entitled, including indemnification pursuant to a valid
contract, indemnification by legal entities other than the Corporation and
indemnification under policies of insurance purchased and maintained by the
Corporation or others. However, no Person shall be entitled to indemnification
by the Corporation to the extent such Person is indemnified by another,
including an insurer. The Corporation is authorized to purchase and maintain
insurance against any liability it may have under this Article or to protect any
of the Persons named above against any liability arising from their service to
the Corporation or any other legal entity at the request of the Corporation
regardless of the Corporation's power to indemnify against such liability. The
provisions of this Article shall not be deemed to preclude the Corporation from
entering into contracts otherwise permitted by law with any individuals or
5
<PAGE>
legal entities, including those named above. If any provision of this Article or
its application to any Person or circumstance is held invalid by a court of
competent jurisdiction, the invalidity shall not affect other provisions or
applications of this Article, and to this end, the provisions of this Article
are severable.
7.6 Application; Amendments. The provisions of this Article shall be
applicable from and after its adoption even though some or all of the underlying
conduct or events relating to a proceeding may have occurred before its
adoption. No amendment, modification or repeal of this Article shall diminish
the rights provided hereunder to any Person arising from conduct or events
occurring before the adoption of such amendment, modification or repeal.
ARTICLE VIII
REGISTERED OFFICE AND REGISTERED AGENT
The address of the initial registered office of the Corporation is BOE
Financial Services of Virginia, Inc., Essex County, 229 Prince Street,
Tappahannock, Virginia 22560. The initial registered agent of the Corporation
is Alexander F. Dillard, Jr., whose business office is Dillard & Katona, 229
Prince Street, Tappahannock, Virginia 22560 and who is a resident of Virginia
and a member of the Virginia State Bar.
6
<PAGE>
APPENDIX 2
BOE FINANCIAL SERVICES OF VIRGINIA, INC.
BYLAWS
March 20, 2000
<PAGE>
TABLE OF CONTENTS
ARTICLE I
MEETINGS OF STOCKHOLDERS
<TABLE>
<S> <C>
1.1 Place and Time of Meetings............................................ 1
1.2 Organization and Order of Business.................................... 1
1.3 Annual Meeting........................................................ 1
1.4 Special Meetings...................................................... 2
1.5 Record Dates.......................................................... 2
1.6 Notice of Meetings.................................................... 3
1.7 Waiver of Notice; Attendance at Meeting............................... 4
1.8 Quorum and Voting Requirements........................................ 4
1.9 Proxies............................................................... 4
1.10 Voting List........................................................... 5
1.11 Action Without Meeting................................................ 5
ARTICLE II
DIRECTORS
2.1 General Powers........................................................ 6
2.2 Number and Term....................................................... 6
2.3 Nomination of Directors............................................... 6
2.4 Election.............................................................. 7
2.5 Removal; Vacancies.................................................... 7
2.6 Annual and Regular Meetings........................................... 8
2.7 Special Meetings...................................................... 8
2.8 Notice of Meetings.................................................... 8
2.9 Waiver of Notice; Attendance at Meeting............................... 8
2.10 Quorum; Voting........................................................ 9
2.11 Telephonic Meetings................................................... 9
2.12 Action Without Meeting................................................ 9
2.13 Compensation.......................................................... 9
ARTICLE III
COMMITTEES OF DIRECTORS
3.1 Committees........................................................... 10
3.2 Limitation on Authority of Committees................................ 10
3.3 Committee Meetings; Miscellaneous.................................... 10
3.4 Executive Committee.................................................. 10
3.5 Authority of Executive Committee..................................... 10
3.6 Standing Committees.................................................. 11
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.7 Audit/Compliance/Examination Committee................................ 11
3.8 Asset/Liability Committee............................................. 11
3.9 Compensation Committee................................................ 11
3.10 Expansion Committee................................................... 11
3.11 Other Committees...................................................... 12
ARTICLE IV
OFFICERS
4.1 Officers.............................................................. 12
4.2 Election; Term........................................................ 12
4.3 Removal of Officers................................................... 12
4.4 Duties of the Chairman................................................ 13
4.5 Duties of the President............................................... 13
4.6 Duties of the Secretary............................................... 13
4.7 Duties of Chief Financial Officer..................................... 13
4.8 Duties of the Treasurer............................................... 13
4.9 Duties of Other Officers.............................................. 13
4.10 Voting Securities of Other Corporations............................... 14
ARTICLE V
SHARE CERTIFICATES
5.1 Form.................................................................. 14
5.2 Transfer.............................................................. 14
5.3 Restrictions on Transfer.............................................. 14
5.4 Lost or Destroyed Share Certificates.................................. 14
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 Corporate Seal........................................................ 15
6.2 Fiscal Year........................................................... 15
6.3 Amendments............................................................ 15
</TABLE>
ii
<PAGE>
BOE FINANCIAL SERVICES OF VIRGINIA, INC.
BYLAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
1.1 Place and Time of Meetings. Meetings of stockholders shall be held at
such place, either within or without the Commonwealth of Virginia, and at such
time, as may be provided in the notice of the meeting and approved by the
Chairman of the Board of Directors (the "Chairman"), the President or the Board
of Directors.
1.2 Organization and Order of Business. The Chairman or, in his or her
absence, the President shall serve as chairman at all meetings of the
stockholders. In the absence of both of the foregoing officers or if both of
them decline to serve, a majority of the shares entitled to vote at a meeting,
may appoint any person entitled to vote at the meeting to act as chairman. The
Secretary of the Corporation or, in his or her absence, an Assistant Secretary,
shall act as secretary at all meetings of the stockholders. In the event that
neither the Secretary nor any Assistant Secretary is present, the chairman of
the meeting may appoint any person to act as secretary of the meeting.
The Chairman shall have the authority to make such rules and
regulations, to establish such procedures and to take such steps as he or she
may deem necessary or desirable for the proper conduct of each meeting of the
stockholders, including, without limitation, the authority to make the agenda
and to establish procedures for (i) dismissing business not properly presented,
(ii) maintaining order and safety, (iii) placing limitations on the time
allotted to questions or comments on the affairs of the Corporation, (iv)
placing restrictions on attendance at a meeting by persons or classes of persons
who are not stockholders or their proxies, (v) restricting entry to a meeting
after the time prescribed for the commencement thereof and (vi) commencing,
conducting and closing voting on any matter.
1.3 Annual Meeting. The annual meeting of stockholders shall be held on
such date and at such place and time as may be provided in the notice of the
meeting and approved by the Chairman, the President or the Board of Directors.
At each annual meeting of stockholders, only such business shall be
conducted as is proper to consider and has been properly brought before the
meeting (i) pursuant to the Corporation's notice of the meeting, (ii) by or at
the direction of the Board of Directors or (iii) by a stockholder who is a
stockholder of record of a class of shares entitled to vote on the business such
stockholder is proposing, both at the time of the giving of the stockholder's
notice hereinafter described in this Section 1.3 and on the record date for such
annual meeting, and who complies with the notice procedures set forth in this
Section 1.3.
In order to bring before an annual meeting of stockholders any
business which may properly be considered and which a stockholder has not sought
to have included in the Corporation's proxy statement for the meeting, a
stockholder who meets the requirements set forth in the preceding paragraph must
give the Corporation timely written notice. To be timely, a
<PAGE>
stockholder's notice must be given, either by personal delivery to the Secretary
or an Assistant Secretary of the Corporation at the principal office of the
Corporation, or by first class United States mail, with postage thereon prepaid,
addressed to the Secretary of the Corporation at the principal office of the
Corporation. Any such notice must be received (i) on or after the first day of
February and before first day of March of the year in which the meeting will be
held, if clause (ii) is not applicable, or (ii) not less than 60 days before the
date of the meeting if the date of such meeting, as prescribed in these Bylaws,
has been changed by more than 30 days.
Each such stockholder's notice shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) the name and
address, as they appear on the Corporation's stock transfer books, of the
stockholder proposing business, (ii) the class and number of shares of stock of
the Corporation beneficially owned by such stockholder, (iii) a representation
that such stockholder is a stockholder of record at the time of the giving of
the notice and intends to appear in person or by proxy at the meeting to present
the business specified in the notice, (iv) a brief description of the business
desired to be brought before the meeting, including the complete text of any
resolutions to be presented and the reasons for wanting to conduct such
business, and (v) any interest which the stockholder may have in such business.
The Secretary or Assistant Secretary of the Corporation shall deliver
each stockholder's notice that has been timely received to the Chairman for
review.
Notwithstanding the foregoing provisions of this Section 1.3, a
stockholder seeking to have a proposal included in the Corporation's proxy
statement for an annual meeting of stockholders shall comply with the
requirements of Regulation 14A under the Securities Exchange Act of 1934, as
amended from time to time, or with any successor regulation.
1.4 Special Meetings. Special meetings of the stockholders may be called
only by the Chairman, the President, or the Board of Directors. Only business
within the purpose or purposes described in the notice for a special meeting of
stockholders may be conducted at the meeting.
1.5 Record Dates. The Board of Directors shall fix, in advance, a record
date to make a determination of stockholders entitled to notice of, or to vote
at, any meeting of stockholders, to receive any dividend or for any purpose,
such date to be not more than 70 days before the meeting or action requiring a
determination of stockholders.
When a determination of stockholders entitled to notice of or to vote
at any meeting of stockholders has been made, such determination shall be
effective for any adjournment of the meeting unless the Board of Directors fixes
a new record date, which it shall do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.
2
<PAGE>
1.6 Notice of Meetings. Written notice stating the place, day and hour of
each meeting of stockholders and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, shall be given not less than ten
nor more than 60 days before the date of the meeting (except when a different
time is required in these Bylaws or by law) either personally or by mail,
telephone, telegraph, teletype, telecopy or other form of wire or wireless
communication, or by private courier, to each stockholder of record entitled to
vote at such meeting and to such nonvoting stockholders as may be required by
law. If mailed, such notice shall be deemed to be effective when deposited in
first class United States mail with postage thereon prepaid, addressed to the
stockholder at his or her address as it appears on the share transfer books of
the Corporation. If given in any other manner, such notice shall be deemed
effective when (i) given personally or by telephone, (ii) sent by telegraph,
teletype, telecopy or other form of wire or wireless communication or (iii)
given to a private courier to be delivered.
Notice of a stockholder's meeting to act on (i) an amendment of the
Articles of Incorporation; (ii) a plan of merger or share exchange; (iii) the
sale, lease, exchange or other disposition of all or substantially all the
property of the Corporation otherwise than in the usual and regular course of
business, or (iv) the dissolution of the Corporation, shall be given, in the
manner provided above, not less than 25 nor more than 60 days before the date of
the meeting. Any notice given pursuant to this section shall state that the
purpose, or one of the purposes, of the meeting is to consider such action and
shall be accompanied by (x) a copy of the proposed amendment, (y) a copy of the
proposed plan of merger or share exchange, or (z) a summary of the agreement
pursuant to which the proposed transaction will be effected. If only a summary
of the agreement is sent to the stockholders, the Corporation shall also send a
copy of the agreement to any stockholder who requests it.
If a meeting is adjourned to a different date, time or place, notice
need not be given if the new date, time or place is announced at the meeting
before adjournment. However, if a new record date for an adjourned meeting is
fixed, notice of the adjourned meeting shall be given to stockholders as of the
new record date, unless a court provides otherwise.
Notwithstanding the foregoing, no notice of a meeting of stockholders
need be given to a stockholder if (i) annual reports and proxy statements for
two consecutive annual meetings of stockholders or (ii) all, and at least two,
checks in payment of dividends or interest on securities during a 12-month
period, have been sent by first-class United States mail, with postage thereon
prepaid, addressed to the stockholder at his or her address as it appears on the
share transfer books of the Corporation, are returned undeliverable. The
obligation of the Corporation to give notice of meetings of stockholders to any
such stockholder shall be reinstated once the Corporation has received a new
address for such stockholder for entry on its share transfer books.
1.7 Waiver of Notice; Attendance at Meeting. A stockholder may waive any
notice required by law, the Articles of Incorporation or these Bylaws before or
after the date and time of the meeting that is the subject of such notice. The
waiver shall be in writing, signed by the
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stockholder entitled to the notice, and delivered to the Secretary of the
Corporation for inclusion in the minutes or filing with the corporate records.
A stockholder's attendance at a meeting (i) waives objection to lack
of notice or defective notice of the meeting, unless the stockholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting, and (ii) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the stockholder objects to considering the matter
when it is presented.
1.8 Quorum and Voting Requirements. Unless otherwise required by law, a
majority of the votes entitled to be cast on a matter constitutes a quorum for
action on that matter. Once a share is represented for any purpose at a
meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is or
shall be set for that adjourned meeting. If a quorum exists, action on a
matter, other than the election of directors, is approved if the votes cast
favoring the action exceed the votes cast opposing the action, unless a greater
number of affirmative votes is required by law. Directors shall be elected by a
plurality of the votes cast by the shares entitled to vote in the election at a
meeting at which a quorum is present. Less than a quorum may adjourn a meeting.
1.9 Proxies. A stockholder may vote his or her shares in person or by
proxy. A stockholder may appoint a proxy to vote or otherwise act for him or
her by signing an appointment form, either personally or by his or her attorney-
in-fact. An appointment of a proxy is effective when received by the Secretary
or other officer or agent authorized to tabulate votes and is valid for 11
months unless a longer period is expressly provided in the appointment form. An
appointment of a proxy is revocable by the stockholder unless the appointment
form conspicuously states that it is irrevocable and the appointment is coupled
with an interest.
The death or incapacity of the stockholder appointing a proxy does not
affect the right of the Corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the Secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his or her
authority under the appointment. An irrevocable appointment is revoked when the
interest with which it is coupled is extinguished. A transferee for value of
shares subject to an irrevocable appointment may revoke the appointment if he or
she did not know of its existence when he or she acquired the shares and the
existence of the irrevocable appointment was not noted conspicuously on the
certificate representing the shares. Subject to any legal limitations on the
right of the Corporation to accept the vote or other action of a proxy and to
any express limitation on the proxy's authority appearing on the face of the
appointment form, the Corporation is entitled to accept the proxy's vote or
other action as that of the stockholder making the appointment. Any fiduciary
who is entitled to vote any shares may vote such shares by proxy.
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1.10 Voting List. The officer or agent having charge of the share transfer
books of the Corporation shall make, at least ten days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at such
meeting or any adjournment thereof, with the address of and the number of shares
held by each. For a period of ten days prior to the meeting such list shall be
kept on file at the registered office of the Corporation or at its principal
office or at the office of its transfer agent or registrar and shall be subject
to inspection by any stockholder at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any stockholder during the whole time
of the meeting for the purpose thereof. The original share transfer books shall
be prima facia evidence as to who are the stockholders entitled to examine such
list or transfer books or to vote at any meeting of the stockholders. The right
of a stockholder to inspect such list prior to the meeting shall be subject to
the conditions and limitations set forth by law. If the requirements of this
section have not been substantially complied with, the meeting shall, on the
demand of any stockholder in person or by proxy, be adjourned until such
requirements are met. Refusal or failure to prepare or make available the
stockholders' list does not affect the validity of action taken at the meeting
prior to the making of any such demand, but any action taken by the stockholders
after the making of any such demand shall be invalid and of no effect.
1.11 Action Without Meeting. Action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting and without action by the
Board of Directors if the action is taken by all the stockholders entitled to
vote on the action. The action shall be evidenced by one or more written
consents describing the action taken, signed by all the stockholders entitled to
vote on the action, and delivered to the Secretary of the Corporation for
inclusion in the minutes or filing with the corporate records. Action taken by
unanimous written consent shall be effective according to its terms when all
consents are in the possession of the Corporation, unless the consent specifies
a different effective date, in which event the action taken under this section
shall be effective as of the date specified therein, provided the consent states
the date of execution by each stockholder. A stockholder may withdraw a consent
only by delivering a written notice of withdrawal to the Corporation prior to
the time that all consents are in the possession of the Corporation.
If not otherwise fixed pursuant to the provisions of Section 1.5 the
record date for determining stockholders entitled to take action without a
meeting is the date the first stockholder signs the consent described in the
preceding paragraph.
ARTICLE II
DIRECTORS
2.1 General Powers. The Corporation shall have a Board of Directors. All
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation managed under the direction of, its
Board of Directors, subject to any limitation set forth in the Articles of
Incorporation.
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2.2 Number and Term. The number of directors of the Corporation shall be
fixed by the board of directors, but shall not be less than five nor more than
15. Only the stockholders may increase or decrease such minimum or maximum
number of directors. No decrease in number shall have the effect of shortening
the term of any incumbent director.
The number of directors shall be divided into three groups with each
group containing one third of the total, as nearly equal in number as possible.
The terms of the directors in the first group shall expire at the first annual
meeting of shareholders. The terms of the directors in the second group shall
expire at the second annual meeting of shareholders and the terms of directors
in the third group shall expire at the third annual meeting of shareholders. At
each annual meeting of shareholders, one group of directors shall be elected for
a term of three years to succeed those whose terms expire.
A director may be removed from office as a director by the
shareholders of the Corporation only with cause. Each director shall hold
office until his or her death, resignation or removal for cause or until his or
her successor is elected.
2.3 Nomination of Directors. No person shall be eligible for election as
a director at a meeting of stockholders unless nominated (i) by the Board of
Directors or (ii) by a stockholder who is a stockholder of record of a class of
shares entitled to vote for the election of directors, both at the time of the
giving of the stockholder's notice hereinafter described in this Section 2.3 and
on the record date for the meeting at which directors will be elected, and who
complies with the notice procedures set forth in this Section 2.3.
In order to nominate for election as directors at a meeting of
stockholders any persons who are not listed as nominees in the Corporation's
proxy statement for the meeting, a stockholder who meets the requirements set
forth in the preceding paragraph must give the Corporation timely written
notice. To be timely, a stockholder's notice must be given, either by personal
delivery to the Secretary or an Assistant Secretary of the Corporation at the
principal office of the Corporation, or by first class United States mail, with
postage thereon prepaid, addressed to the Secretary of the Corporation at the
principal office of the Corporation. Any such notice must be received (i) on or
after the first day of February and before the first day of March of the year in
which the meeting will be held if the meeting is to be an annual meeting and
clause (ii) is not applicable, or (ii) not less than 60 days before an annual
meeting, if the date of the applicable annual meeting, as prescribed in these
Bylaws, has been changed by more than 30 days, or (iii) not later than the close
of business on the tenth day following the day on which notice of a special
meeting of stockholders called for the purpose of electing directors is first
given to stockholders.
Each such stockholder's notice shall set forth the following: (i) as
to the stockholder giving the notice, (a) the name and address of such
stockholder as they appear on the Corporation's stock transfer books, (b) the
class and number of shares of the Corporation beneficially owned by such
stockholder, (c) a representation that such stockholder is a stockholder of
record at the time of giving the notice and intends to appear in person or by
proxy
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at the meeting to nominate the person or persons specified in the notice, and
(d) a description of all arrangements or understandings, if any, between such
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made; and
(ii) as to each person whom the stockholder wishes to nominate for election as a
director, (a) the name, age, business address and residence address of such
person, (b) the principal occupation or employment of such person, (c) the class
and number of shares of the Corporation which are beneficially owned by such
person, and (d) all other information that is required to be disclosed about
nominees for election as directors in solicitations of proxies for the election
of directors under the rules and regulations of the Securities and Exchange
Commission. In addition, each such notice shall be accompanied by the written
consent of each proposed nominee to serve as a director if elected and such
consent shall contain a statement from the proposed nominee to the effect that
the information about him or her contained in the notice is correct.
2.4 Election. Except as provided in Section 2.5 and in the Articles of
Incorporation, the directors shall be elected by the holders of the
Corporation's common shares at each annual meeting of stockholders and those
persons who receive the greatest number of votes shall be deemed elected even
though they do not receive a majority of the votes cast. No individual shall be
named or elected as a director without his or her prior consent.
2.5 Removal; Vacancies. The stockholders may remove one or more directors
only with cause. If a director is elected by a voting group, only the
stockholders of that voting group may elect to remove him or her. Unless the
Articles of Incorporation require a greater vote, a director may be removed if
the number of votes cast to remove him or her constitutes a majority of the
votes entitled to be cast at an election of directors of the voting group or
voting groups by which such director was elected. A director may be removed by
the stockholders only at a meeting called for the purpose of removing him or her
and the meeting notice must state that the purpose, or one of the purposes of
the meeting, is removal of the director.
A vacancy on the Board of Directors, including a vacancy resulting
from the removal of a director or an increase in the number of directors, may be
filled by (i) the stockholders, (ii) the Board of Directors or (iii) the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors, and may, in the case of a resignation that
will become effective at a specified later date, be filled before the vacancy
occurs but the new director may not take office until the vacancy occurs.
2.6 Annual and Regular Meetings. An annual meeting of the Board of
Directors, which shall be considered a regular meeting, shall be held
immediately following each annual meeting of stockholders, for the purpose of
electing officers and carrying on such other business as may properly come
before the meeting. The Board of Directors may also adopt a schedule of
additional meetings which shall be considered regular meetings. Regular
meetings shall be held at such times and at such places, within or without the
Commonwealth of Virginia, as the Chairman, the President or the Board of
Directors shall designate from time to time. If no place is designated, regular
meetings shall be held at the principal office of the Corporation.
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2.7 Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman, the President or a majority of the Directors of the
Corporation, and shall be held at such times and at such places, within or
without the Commonwealth of Virginia, as the person or persons calling the
meetings shall designate. If no such place is designated in the notice of a
meeting, it shall be held at the principal office of the Corporation.
2.8 Notice of Meetings. No notice need be given of regular meetings of
the Board of Directors.
Notices of special meetings of the Board of Directors shall be given
to each director in person or delivered to his or her residence or business
address (or such other place as he or she may have directed in writing) not less
than 24 hours before the meeting by mail, messenger, telecopy, telegraph, or
other means of written communication or by telephoning such notice to him or
her. Any such notice shall set forth the time and place of the meeting and
state the purpose for which it is called.
2.9 Waiver of Notice; Attendance at Meeting. A director may waive any
notice required by law, the Articles of Incorporation, or these Bylaws before or
after the date and time stated in the notice, and such waiver shall be
equivalent to the giving of such notice. Except as provided in the next
paragraph of this section, the waiver shall be in writing, signed by the
director entitled to the notice and filed with the minutes or corporate records.
A director's attendance at or participation in a meeting waives any
required notice to him or her of the meeting unless the director at the
beginning of the meeting or promptly upon his or her arrival objects to holding
the meeting or transacting business at the meeting and does not thereafter vote
for or assent to action taken at the meeting.
2.10 Quorum; Voting. A majority of the number of directors fixed in these
Bylaws shall constitute a quorum for the transaction of business at a meeting of
the Board of Directors. If a quorum is present when a vote is taken, the
affirmative vote of a majority of the directors present is the act of the Board
of Directors. A director who is present at a meeting of the Board of Directors
or a committee of the Board of Directors when corporate action is taken is
deemed to have assented to the action taken unless (i) he or she objects at the
beginning of the meeting, or promptly upon his or her arrival, to holding it or
transacting specified business at the meeting; or (ii) he or she votes against,
or abstains from, the action taken.
2.11 Telephonic Meetings. The Board of Directors may permit any or all
directors to participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
2.12 Action Without Meeting. Action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting if the action
is taken by all members of
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the Board. The action shall be evidenced by one or more written consents stating
the action taken, signed by each director either before or after the action
taken, and included in the minutes or filed with the corporate records
reflecting the action taken. Action taken under this section shall be effective
when the last director signs the consent unless the consent specifies a
different effective date in which event the action taken is effective as of the
date specified therein provided the consent states the date of execution by each
director.
2.13 Compensation. The Board of Directors may fix the compensation of
directors and may provide for the payment of all expenses incurred by them in
attending meetings of the Board of Directors.
ARTICLE III
COMMITTEES OF DIRECTORS
3.1 Committees. The Board of Directors may create one or more committees
and appoint members of the Board of Directors to serve on them. Unless otherwise
provided in these Bylaws, each committee shall have two or more members who
serve at the pleasure of the Board of Directors. The creation of a committee and
appointment of members to it shall be approved by a majority of all of the
directors in office when the action is taken.
3.2 Limitation on Authority of Committees. To the extent specified by the
Board of Directors, each committee may exercise the authority of the Board of
Directors, except that a committee may not (i) approve or recommend to
stockholders action that is required by law to be approved by stockholders; (ii)
fill vacancies on the Board of Directors or on any of its committees; (iii)
amend the Articles of Incorporation; (iv) adopt, amend, or repeal these Bylaws;
(v) approve a plan of merger not requiring stockholder approval; (vi) authorize
or approve a distribution, except according to a general formula or method
prescribed by the Board of Directors; or (vii) authorize or approve the issuance
or sale or contract for sale of shares, or determine the designation and
relative rights, preferences, and limitations of a class or series of shares,
except that the Board of Directors may authorize a committee, or a senior
executive officer of the Corporation, to do so within limits specifically
prescribed by the Board of Directors.
3.3 Committee Meetings; Miscellaneous. The provisions of these Bylaws
which govern meetings, action without meetings, notice and waiver of notice, and
quorum and voting requirements of the Board of Directors shall apply to
committees of directors and their members as well.
3.4 Executive Committee. The Board of Directors shall appoint an
Executive Committee having not less than three members to be annually elected by
the Board from its own membership. The Chairman of the Board of Directors shall
be among those elected. The Board shall designate the Chairman (or Co-Chairmen)
of the Executive Committee at the time the Executive Committee is elected. The
Chairman of the Executive Committee shall not be a
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salaried employee of the Corporation or any of its affiliates. Vacancies
occurring in the Executive Committee prior to any annual election may be filled
by the Board.
3.5 Authority of Executive Committee. Between meetings of the Board, the
Executive Committee shall have and exercise the authority of the Board, except
(i) to the extent such authority is limited by the provisions of Section 3.2,
(ii) to take action prohibited by Section 13.1-689 of the Code of Virginia, or
(iii) to employ or terminate the employment of the Corporation's chief executive
officer. One or more vacancies at any time existing in the Executive Committee
shall not affect its authority.
3.6 Standing Committees. The Board of Directors shall have the following
standing committees: Audit/Compliance/Examination; Executive; Compensation;
Asset/Liability; and Expansion. The Board of Directors may designate other
committees as standing committees from time to time by appropriate resolution.
3.7 Audit/Compliance/Examination Committee. The Board of Directors shall
appoint an Audit Committee consisting of not less than three directors, none of
whom shall be salaried officers or employees of the Corporation. The Chairman
of the Audit Committee will be elected by the members of the Audit Committee
from among its members. The Audit Committee shall at all times have authority
to investigate the financial reporting processes and internal controls of the
Corporation and to report thereon and make its recommendations to the Board of
Directors and to the Executive Committee, or to either of them. The Audit
Committee shall regularly review the adequacy of internal financial controls,
insure that sufficient and proper audits, both internal and external, are
conducted of the Corporation's financial affairs and control systems, review
with the Corporation's independent public accountants their reports, and
recommend the selection of the Corporation's independent public accountants.
3.8 Asset/Liability Committee. The Asset/Liability Committee shall
oversee the financial affairs and investments of the Corporation and its
affiliates and will periodically report to the Board of Directors on these
affairs and investments. The Asset/Liability Committee will have not less than
three members, all of whom shall be members of the Board of Directors. The
Chairman of the Committee will not be a salaried officer or employee of the
Corporation and will be elected by the Board of Directors from among the members
of the Committee.
3.9 Compensation Committee. The Compensation Committee shall consider
management proposals, make recommendations to the Board of Directors and, where
express authority is conferred, approve the compensation and benefits programs
for the officers and employees of the Corporation and its affiliates. The
Compensation Committee will have not less than three members, all of whom shall
be members of the Board of Directors. No salaried officer or employee will
serve as a member of the Committee. The Chairman of the Committee will be
elected by the Board of Directors from among the members of the Committee.
3.10 Expansion Committee. The Board of Directors shall appoint an
Expansion Committee consisting of not less than three directors, all of whom
shall be members of the Board
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of Directors. The Chairman of the Expansion Committee will be elected by the
Board of Directors from among the members of the Committee. The Expansion
Committee shall review plans for the Corporation's growth and monitor the market
for areas of potential new development.
3.11 Other Committees. The Board of Directors, by resolutions adopted by a
majority of directors in office, may designate and appoint one or more other
committees, each of which shall include two or more directors. Such committees
shall have authority to the extent provided for in the resolution of the Board
of Directors. The Chairman may also appoint special or ad hoc committees which
shall have such duties as may be specified in the Chairman's charge to the
committee.
ARTICLE IV
OFFICERS
4.1 Officers. The officers of the Corporation shall be a Chairman of the
Board of Directors, a President, a Secretary, a Chief Financial Officer,
Treasurer, and, in the discretion of the Board of Directors or the Chairman and
the President, one or more Vice Presidents and such other officers as may be
deemed necessary or advisable to carry on the business of the Corporation. Any
two or more offices may be held by the same person.
4.2 Election; Term. The Chairman, the President, the Vice Presidents, the
Secretary and the Treasurer shall be elected by the Board of Directors. The
Chairman may from time to time appoint other officers. Officers elected by the
Board of Directors shall hold office, unless sooner removed, until the next
annual meeting of the Board of Directors or until their successors are elected.
Officers appointed by the Chairman shall hold office, unless sooner removed,
until their successors are appointed. The action of the Chairman in appointing
officers shall be reported to the next regular meeting of the Board of Directors
after it is taken. Any officer may resign at any time upon written notice to
the Board of Directors or the officer or officers appointing him or her, and
such resignation shall be effective when notice is delivered unless the notice
specifies a later effective date.
4.3 Removal of Officers. The Board of Directors may remove any officer at
any time, with or without cause. The Chairman may remove any officer he
appoints at any time, with or without cause. Such action shall be reported to
the next regular meeting of the Board of Directors after it is taken.
4.4 Duties of the Chairman. The Chairman shall have general charge of,
and be charged with the duty of supervision of, the business of the Corporation
and shall perform such duties as may, from time to time, be assigned to him or
her by the Board of Directors.
4.5 Duties of the President. The President shall be the Chief Executive
Officer of the Corporation. He or she shall have such powers and perform such
duties as generally pertain
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to that position or as may from time to time be assigned to him or her by the
Chairman or Board of Directors.
4.6 Duties of the Secretary. The Secretary shall have the duty to see
that a record of the proceedings of each meeting of the stockholders and the
Board of Directors, and any committee of the Board of Directors, is properly
recorded and that notices of all such meetings are duly given in accordance with
the provisions of these Bylaws or as required by law; he or she may affix the
corporate seal to any document the execution of which is duly authorized, and
when so affixed may attest the same; and, in general, he or she shall perform
all duties incident to the office of secretary of a corporation, and such other
duties as, from time to time, may be assigned to him or her by the Chairman, the
President or the Board of Directors, or as may be required by law.
4.7 Duties of Chief Financial Officer. The Chief Financial Officer shall
have such powers and perform such duties as generally pertain to that position
or as may from time to time be assigned to him or her by the Board of Directors.
4.8 Duties of the Treasurer. The Treasurer shall have charge of and be
responsible for all securities, funds, receipts and disbursements of the
Corporation, and shall deposit or cause to be deposited, in the name of the
Corporation, all monies or valuable effects in such banks, trust companies or
other depositories as shall, from time to time, be selected by or under
authority granted by the Board of Directors; he or she shall be custodian of the
financial records of the Corporation; he or she shall keep or cause to be kept
full and accurate records of all receipts and disbursements of the Corporation
and shall render to the Chairman, the President or the Board of Directors,
whenever requested, an account of the financial condition of the Corporation.
In addition he or she shall perform such duties as may be assigned to him or her
by the Chairman, the President or the Board of Directors.
4.9 Duties of Other Officers. The other officers of the Corporation shall
have such authority and perform such duties as shall be prescribed by the Board
of Directors or by officers authorized by the Board of Directors to appoint them
to their respective offices. To the extent that such duties are not so stated,
such officers shall have such authority and perform the duties which generally
pertain to their respective offices, subject to the control of the Chairman, the
President or the Board of Directors.
4.10 Voting Securities of Other Corporations. Any one of the Chairman, the
President, the Chief Financial Officer or the Treasurer shall have the power to
act for and vote on behalf of the Corporation at all meetings of the
stockholders of any corporation in which this Corporation holds stock, or in
connection with any consent of stockholders in lieu of any such meeting.
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ARTICLE V
SHARE CERTIFICATES
5.1 Form. Shares of the Corporation shall, when fully paid, be either
uncertificated or evidenced by certificates containing such information as is
required by law and approved by the Board of Directors. Any certificates shall
be signed by the Chairman, the Secretary and/or such other officers of the
Corporation as may be specified from time to time in appropriate resolutions of
the Board of Directors and may (but need not) be sealed with the seal of the
Corporation. The seal of the Corporation and any or all of the signatures on a
share certificate may be a facsimile. If any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent or registrar on
the date of issue.
5.2 Transfer. The Board of Directors may make rules and regulations
concerning the issue, registration and transfer of certificates representing the
shares of the Corporation. Transfers of shares and of the certificates
representing such shares shall be made upon the books of the Corporation by
surrender of the certificates representing such shares accompanied by written
assignments given by the owners or their attorneys-in-fact.
5.3 Restrictions on Transfer. A lawful restriction on the transfer or
registration of transfer of shares is valid and enforceable against the holder
or a transferee of the holder if the restriction complies with the requirements
of law and its existence is noted conspicuously on the front or back of the
certificate representing the shares. Unless so noted a restriction is not
enforceable against a person without knowledge of the restriction.
5.4 Lost or Destroyed Share Certificates. The Corporation may issue a new
share certificate in the place of any certificate theretofore issued which is
alleged to have been lost or destroyed and may require the owner of such
certificate, or his or her legal representative, to give the Corporation a bond,
with or without surety, or such other agreement, undertaking or security as the
Board of Directors shall determine is appropriate, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss or
destruction or the issuance of any such new certificate.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 Corporate Seal. The corporate seal of the Corporation shall be
circular and shall have inscribed thereon, within and around the circumference
"BOE FINANCIAL SERVICES OF VIRGINIA, INC." In the center shall be the word
"Seal".
6.2 Fiscal Year. The fiscal year of the Corporation shall be determined
in the discretion of the Board of Directors, but in the absence of any such
determination it shall be the end of the calendar year.
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6.3 Amendments. These Bylaws may be amended or repealed, and new Bylaws
may be made, at any regular or special meeting of the Board of Directors.
Bylaws made by the Board of Directors may be repealed or changed and new Bylaws
may be made by the stockholders, and the stockholders may prescribe that any
Bylaw made by them shall not be altered, amended or repealed by the Board of
Directors.
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APPENDIX 3
BOE FINANCIAL SERVICES OF VIRGINIA, INC.
STOCK INCENTIVE PLAN
1. Purpose. The purpose of this BOE Financial Services of Virginia, Inc.
Stock Incentive Plan (the "Plan") is to further the long term stability and
financial success of BOE Financial Services of Virginia, Inc. (the "Company") by
attracting and retaining employees through the use of stock-based incentives.
It is believed that ownership of Company Stock will stimulate the efforts of
those employees upon whose judgment and interests the Company and its
Subsidiaries are and will be largely dependent for the successful conduct of
their business. It is also believed that Incentive Awards granted to employees
under this Plan will strengthen their desire to remain employed with the Company
and its Subsidiaries and will further the identification of employees' interests
with those of the Company and its Subsidiaries. The Plan is intended to operate
in compliance with the provisions of Securities and Exchange Commission Rule
16b-3.
2. Definitions. As used in the Plan, the following terms have the meanings
indicated:
(a) "Act" means the Securities Exchange Act of 1934, as amended.
(b) "Applicable Withholding Taxes" means the aggregate amount of federal,
state and local income and payroll taxes that the Company or appropriate
Subsidiary is required by law to withhold in connection with any lapse of
restrictions on Restricted Stock or any exercise of a Nonstatutory Stock Option.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means the occurrence of any of the following events:
(i) any person, including a "group" as defined in Section 13(d)(3) of
the Act becomes the owner or beneficial owner of Company securities having 20%
or more of the combined voting power of the then outstanding Company securities
that may be cast for the election of the Company's directors (other than as a
result of an issuance of securities initiated by the Company, or open market
purchases approved by the Board, as long as the majority of the Board approving
the purchases is also the majority at the time the purchases are made); or
(ii) as the direct or indirect result of, or in connection with, a cash
tender or exchange offer, a merger or other business combination, a sale of
assets, a contested election, or any combination of these transactions, the
persons who were directors of the Company before such transactions cease to
constitute a majority of the Board, or any successor's board, within two years
of the last of such transactions.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means the Compensation Committee of the Board, provided that,
if any member of the Compensation Committee does not or would not qualify as
both an outside director for purposes of Code section 162(m) and a non-employee
director for purposes of Rule 16b-3, the Board shall designate the remaining
members of the Compensation Committee (but not less than two members) as a
subcommittee of the Compensation Committee to act as the Committee for purposes
of the Plan.
(g) "Company" means BOE Financial Services of Virginia, Inc.
(h) "Company Stock" means common stock of the Company. In the event of a
change in the capital structure of the Company (as provided in Section 12), the
shares resulting from such a change shall be deemed to be Company Stock within
the meaning of the Plan.
<PAGE>
(i) "Date of Grant" means the date on which the Committee grants an
Incentive Award.
(j) "Disability" or "Disabled" means, as to an Incentive Stock Option, a
disability within the meaning of Code section 22(e)(3). As to all other
Incentive Awards, the Committee shall determine whether a Disability exists and
such determination shall be conclusive.
(k) "Fair Market Value" means, as of any date, the value of a share of
Company Stock, determined as follows:
(i) if such Company Stock is then quoted on the Nasdaq National Market,
its closing price on the Nasdaq National Market on the date of determination, as
reported in The Wall Street Journal;
-----------------------
(ii) if such Company Stock is then listed on a national securities
exchange, its closing price on the date of determination on the principal
national securities exchange on which the Company Stock is listed or admitted to
trading, as reported in The Wall Street Journal;
-----------------------
(iii) if such Company Stock is not quoted on the Nasdaq National Market
nor listed or admitted to trading on a national securities exchange, the average
of the closing bid and asked prices on the date of determination, as reported in
The Wall Street Journal or such other source as the Committee may in good faith
- - -----------------------
rely upon;
(iv) if none of the foregoing is applicable, by the Committee in good
faith.
(l) "Incentive Award" means, collectively, an award of Restricted Stock or
an Option under the Plan.
(m) "Incentive Stock Option" means an Option intended to meet the
requirements of, and qualify for favorable federal income tax treatment under,
Code section 422.
(n) "Mature Shares" means shares of Company Stock for which the holder
thereof has good title, free and clear of all liens and encumbrances and which
such holder either (i) has held for at least six months, or (ii) has purchased
on the open market.
(o) "Nonstatutory Stock Option" means an Option that does not meet the
requirements of Code section 422, or, even if meeting the requirements of Code
section 422, is not intended to be an Incentive Stock Option and is so
designated.
(p) "Option" means a right to purchase Company Stock granted under the Plan,
at a price determined in accordance with the Plan.
(q) "Participant" means any employee of the Company or a Subsidiary who
receives an Incentive Award under the Plan.
(r) "Restricted Stock" means Company Stock awarded upon the terms and
subject to the restrictions set forth in Section 9.
(s) "Rule 16b-3" means Rule 16b-3 of the Securities and Exchange Commission
promulgated under the Act. A reference in the Plan to Rule 16b-3 shall include
a reference to any corresponding rule (or number redesignation) of any
amendments to Rule 16b-3 enacted after the effective date of the Plan's
adoption.
(t) "Subsidiary" means any corporation of which the Company owns at least 50
percent of the combined voting power of all classes of stock or which is in a
chain of corporations with the Company in which stock possessing at least 50% of
the combined voting power of all classes of stock is owned by one or more
corporations in the chain.
2
<PAGE>
(u) "Taxable Year" means the fiscal period used by the Company for reporting
taxes on income under the Code.
3. General. The types of Incentive Awards that may be granted under the Plan
are Options and Restricted Stock. Options granted to Participants may be
Incentive Stock Options or Nonstatutory Stock Options.
4. Stock. Subject to Section 12 of the Plan, there shall be reserved for
issuance under the Plan an aggregate of one hundred thousand (100,000) shares of
Company Stock, which shall be authorized, but unissued shares. Shares allocable
to Incentive Awards or portions thereof granted under the Plan that expire, are
forfeited, or otherwise terminate unexercised may again be subjected to an
Incentive Award under the Plan. The Committee is expressly authorized to grant
an Incentive Award to a Participant conditioned upon the surrender for
cancellation of Incentive Awards previously granted to such Participant.
However, without prior shareholder approval, the Committee is expressly
prohibited from granting a new Incentive Award in the form of an Option if the
exercise price of the new Option is less than the exercise price of the Option
under the existing Incentive Award being surrendered for cancellation.
5. Eligibility.
(a) All present and future employees of the Company or a Subsidiary (whether
now existing or hereafter created or acquired) whom the Committee determines to
have contributed or who can be expected to contribute to the Company or a
Subsidiary shall be eligible to receive Incentive Awards under the Plan. The
Committee shall have the power and complete discretion, as provided in Section
13, to select eligible employees to receive Options and to determine for each
employee and the terms and conditions of each Option.
(b) The grant of an Incentive Award shall not obligate the Company or any
Subsidiary to pay an employee any particular amount of remuneration, to continue
the employment of the employee after the grant or to make further grants to the
employee at any time thereafter.
6. Stock Options.
(a) The Committee may make grants of Options to eligible employees. Whenever
the Committee deems it appropriate to grant Options, notice shall be given to
the Participant stating the number of shares for which Options are granted, the
Option price per share, whether the Options are Incentive Stock Options or
Nonstatutory Stock Options, and the conditions to which the grant and exercise
of the Options are subject. This notice, when duly accepted in writing by the
Participant, shall become a stock option agreement. The Committee may delegate
to the Chief Executive Officer of the Company the authority to select eligible
employees to receive Options, to determine the time or times at which Options
will be awarded to eligible employees and to determine the terms and conditions
of such Options, except to the extent that such a delegation would prevent
compliance with Rule 16b-3, Code section 162(m) or any other section of the
Code, or other applicable law or regulation. Actions taken by the Chief
Executive Officer pursuant to such a delegation of authority shall be subject to
ratification by the Committee.
(b) The exercise price of shares of Company Stock covered by an Option shall
be not less than 100% of the Fair Market Value of such shares on the Date of
Grant unless otherwise provided by the Board, provided, however, that the
exercise price of any Incentive Stock Option granted under the Plan shall not be
less than 100% of the Fair Market Value of such Company Stock on the Date of
Grant (or 110% of Fair Market Value in the case of a grant to a 10% shareholder
(as defined in Code section 422)).
(c) Options may be exercised in whole or in part at such times as may be
specified by the Committee in the Participant's stock option agreement; provided
that, the exercise provisions for Incentive Stock Options shall in all events
not be more liberal than the following provisions:
3
<PAGE>
(i) No Incentive Stock Option may be exercised after the first to occur of
(x) ten years from the Date of Grant, (y) three months following the date of the
Participant's retirement or termination of employment with the Company or a
Subsidiary for reasons other than Disability or death, or (z) one year following
the date of the Participant's termination of employment on account of Disability
or death.
(ii) An Incentive Stock Option by its terms, shall be exercisable in any
calendar year only to the extent that the aggregate Fair Market Value
(determined at the Date of Grant) of the Company Stock with respect to which
Incentive Stock Options are exercisable for the first time during the calendar
year does not exceed $100,000 (the "Limitation Amount"). Incentive Stock
Options granted under the Plan and all other plans of the Company or any
Subsidiary that provide for the grant of incentive stock options shall be
aggregated for purposes of determining whether the Limitation Amount has been
exceeded. The Committee granting the Option may impose such conditions as it
deems appropriate on an Incentive Stock Option to ensure that the foregoing
requirement is met. If Incentive Stock Options that first become exercisable in
a calendar year exceed the Limitation Amount, the excess Options will be treated
as Nonstatutory Stock Options to the extent permitted by law.
7. Method of Exercise of Options.
(a) Options may be exercised by the Participant giving written notice of the
exercise to the Company, stating the number of shares the Participant has
elected to purchase under the Option. In the case of the purchase of shares
under an Option, such notice shall be effective only if accompanied by the
exercise price in full in cash; provided, however, that if the terms of an
Option so permit, the Participant may (i) deliver Mature Shares (valued at their
Fair Market Value) in satisfaction of all or any part of the exercise price,
(ii) cause to be withheld from the Option shares, shares of Company Stock
(valued at their Fair Market Value) in satisfaction of all or any part of the
exercise price, or (iii) deliver a properly executed exercise notice together
with irrevocable instructions to a broker to deliver promptly to the Company,
from the sale or loan proceeds with respect to the sale of Company Stock or a
loan secured by Company Stock, the amount necessary to pay the exercise price
and, if required by the terms of the Option, Applicable Withholding Taxes.
(b) The Company may place on any certificate representing Company Stock issued
upon the exercise of an Option any legend deemed desirable by the Company's
counsel to comply with federal or state securities laws, and the Company may
require a customary written indication of the Participant's investment intent.
Until the Participant has made any required payment, including any Applicable
Withholding Taxes, and has had issued a certificate for the shares of Company
Stock acquired, he or she shall possess no shareholder rights with respect to
the shares.
(c) Each Participant shall agree as a condition of the exercise of an Option
to pay to the Company or appropriate Subsidiary, or make arrangements
satisfactory to the Company or appropriate Subsidiary regarding the payment to
the Company or appropriate Subsidiary of, Applicable Withholding Taxes. Until
such amount has been paid or arrangements satisfactory to the Company or
appropriate Subsidiary have been made, no stock certificate shall be issued upon
the exercise of an Option.
(d) As an alternative to making a cash payment to the Company or appropriate
Subsidiary to satisfy Applicable Withholding Taxes, if the Participant's option
agreement so provides, the Participant may elect to (i) deliver Mature Shares
(valued at their Fair Market Value) or (ii) to have the Company or appropriate
Subsidiary retain that number of shares of Company Stock (valued at their Fair
Market Value) that would satisfy all or a specified portion of the Applicable
Withholding Taxes.
8. Transferability of Options. Nonstatutory Stock Options may be
transferable by a Participant and exercisable by a person other than the
Participant, but only to the extent specifically provided in the option
agreement. Incentive Stock Options by their terms shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable, during the Participant's lifetime, only by the Participant.
4
<PAGE>
9. Restricted Stock Awards.
(a) The Committee may make grants of Restricted Stock to eligible employees.
Whenever the Committee deems it appropriate to grant Restricted Stock, notice
shall be given to the Participant stating the number of shares of Restricted
Stock granted and the terms and conditions to which the Restricted Stock is
subject. This notice, when accepted in writing by the Participant shall become
an grant agreement between the Company and the Participant. Restricted Stock
may be awarded by the Committee in its discretion without cash consideration.
(b) No shares of Restricted Stock may be sold, assigned, transferred, pledged,
hypothecated, or otherwise encumbered or disposed of until the restrictions on
such shares as set forth in the Participant's grant agreement have lapsed or
been removed pursuant to paragraph (d) or (e) below.
(c) Upon the acceptance by a Participant of an award of Restricted Stock, such
Participant shall, subject to the restrictions set forth in paragraph (b) above,
have all the rights of a shareholder with respect to such shares of Restricted
Stock, including, but not limited to, the right to vote such shares of
Restricted Stock and the right to receive all dividends and other distributions
paid thereon. Certificates representing Restricted Stock shall be held by the
Company until the restrictions lapse and the Participant shall provide the
Company with appropriate stock powers endorsed in blank.
(d) The Committee shall establish as to each award of Restricted Stock the
terms and conditions upon which the restrictions set forth in paragraph (b)
above shall lapse. The terms and conditions may include, without limitation,
the lapsing of such restrictions as a result of the Disability, death or
retirement of the Participant or the occurrence of a Change of Control.
(e) Notwithstanding the provisions of paragraph (b) above, the Committee may
at any time, in its sole discretion, accelerate the time at which any or all
restrictions will lapse or remove any and all such restrictions.
(f) Each Participant shall agree at the time his or her Restricted Stock is
granted, and as a condition thereof, to pay to the Company or appropriate
Subsidiary, or make arrangements satisfactory to the Company or appropriate
Subsidiary regarding the payment to the Company or appropriate Subsidiary of,
Applicable Withholding Taxes. Until such amount has been paid or arrangements
satisfactory to the Employer have been made, no stock certificate free of a
legend reflecting the restrictions set forth in paragraph (b) above shall be
issued to such Participant. As an alternative to making a cash payment to the
Company or appropriate Subsidiary to satisfy Applicable Withholding Taxes, if
the grant so provides, the Participant may elect to (i) to deliver Mature Shares
(valued at their Fair Market Value) or (ii) to have the Company or appropriate
Subsidiary retain that number of shares of Company Stock (valued at their Fair
Market Value) that would satisfy all or a specified portion of the Applicable
Withholding Taxes.
10. Effective Date of the Plan. The effective date of the Plan will be the
date on which the statutory share exchange between Bank of Essex and the Company
is consummated. The sole shareholder of the Company has approved the Plan.
Until the requirements of any applicable Federal or State securities laws have
been met, no Option granted under the Plan shall be exercisable.
5
<PAGE>
11. Termination, Modification, Change.
(a) If not sooner terminated by the Board, this Plan shall terminate at the
close of business on the tenth anniversary of the effective date. No Options
shall be granted under the Plan after its termination. The Board may amend or
terminate the Plan in such respects as it shall deem advisable; provided that,
if and to the extent required by the Code, no change shall be made that
increases the total number of shares of Company Stock reserved for issuance
pursuant to Incentive Awards granted under the Plan (except pursuant to Section
12), materially modifies the requirements as to eligibility for participation in
the Plan, or materially increases the benefits accruing to Participants under
the Plan, unless such change is authorized by the shareholders of the Company.
Notwithstanding the foregoing, the Board may unilaterally amend the Plan and
Incentive Awards with respect to Participants as it deems appropriate to ensure
compliance with Rule 16b-3 and to cause Incentive Stock Options to meet the
requirements of the Code and regulations thereunder. Except as provided in the
preceding sentence, a termination or amendment of the Plan shall not, without
the consent of the Participant, adversely affect a Participant's rights under an
Incentive Award previously granted to him or her.
(b) Notwithstanding the provisions of subsection (a) above, this subsection
(b) will apply if the Company is involved in any merger or similar transaction
that the Company intends to treat as a "pooling of interest" for financial
reporting purposes. In such a case, the Committee may amend the terms of any
Incentive Award or of the Plan to the extent that the Company's independent
accountants determine that such terms would preclude the use of "pooling of
interest" accounting. The authority of the Committee to amend the terms of any
Incentive Award or of the Plan includes, without limitation, the right (i) to
rescind or suspend any terms that are contingent on a Change in Control, such as
the acceleration of vesting or provisions for special payments to an optionee or
participant; (ii) to modify Incentive Awards to comply with prior practices of
the Company as to terms of Incentive Awards; (iii) to provide for payment to the
Participant of Common Stock or stock of the other party to the transaction equal
to the fair value of the Incentive Award; and (iv) to suspend any provisions for
payment of an Incentive Award in cash. The authority of the Committee under
this section may be exercised in the Committee's sole and complete discretion.
12. Change in Capital Structure.
(a) In the event of a stock dividend, stock split or combination of shares,
recapitalization or merger in which the Company is the surviving corporation or
other change in the Company's capital stock (including, but not limited to, the
creation or issuance to shareholders generally of rights, options or warrants
for the purchase of common stock or preferred stock of the Company), the number
and kind of shares of stock or securities of the Company to be subject to the
Plan and to Incentive Awards then outstanding or to be granted thereunder, the
maximum number of shares or securities which may be delivered under the Plan,
the maximum number of shares or securities that can be granted to an individual
Participant under Section 4, the exercise price, the terms of Incentive Awards
and other relevant provisions shall be appropriately adjusted by the Committee,
whose determination shall be binding on all persons. If the adjustment would
produce fractional shares with respect to any unexercised Option, the Committee
may adjust appropriately the number of shares covered by the Option so as to
eliminate the fractional shares.
(b) If the Company is a party to a consolidation or a merger in which the
Company is not the surviving corporation, a transaction that results in the
acquisition of substantially all of the Company's outstanding stock by a single
person or entity, or a sale or transfer of substantially all of the Company's
assets, the Committee may take such actions with respect to outstanding
Incentive Awards as the Committee deems appropriate.
(c) Notwithstanding anything in the Plan to the contrary, the Committee may
take the foregoing actions without the consent of any Participant, and the
Committee's determination shall be conclusive and binding on all persons for all
purposes.
6
<PAGE>
13. Administration of the Plan.
(a) Subject to the provisions of Section 16(b) of the Act and Rule 16b-3, the
Plan shall be administered by the Committee. The Committee shall have general
authority to impose any limitation or condition upon an Incentive Award that the
Committee deems appropriate to achieve the objectives of the Incentive Award and
the Plan and, without limitation and in addition to powers set forth elsewhere
in the Plan, shall have the power and complete discretion to determine: (i)
which eligible employees shall receive Incentive Awards and the nature of each
Incentive Award, (ii) whether all or any part of an Incentive Award shall be
accelerated upon a Change of Control, (iii) the number of shares of Company
Stock to be covered by each Incentive Award, (iv) whether Options shall be
Incentive Stock Options or Nonstatutory Stock Options, (v) the time or times
when an Incentive Award shall be granted, (vi) whether an Incentive Award shall
become vested over a period of time and when it shall be fully vested, (vii)
when Options may be exercised, (viii) whether a Disability exists, (ix) the
manner in which payment will be made upon the exercise of Options, (x)
conditions relating to the length of time before disposition of Company Stock
received upon the exercise of Options is permitted, (xi) whether to authorize a
Participant (A) to deliver Mature Shares to satisfy Applicable Withholding Taxes
or (B) to have the Company withhold from the shares to be issued upon the
exercise of a Nonstatutory Stock Option the number of shares necessary to
satisfy Applicable Withholding Taxes, (xii) the terms and conditions applicable
to Restricted Stock awards, (xiii) the terms and conditions on which
restrictions upon Restricted Stock shall lapse, (xiv) whether to accelerate the
time at which any or all restrictions with respect to Restricted Stock will
lapse or be removed, (xv) notice provisions relating to the sale of Company
Stock acquired under the Plan, (xvi) the extent to which information shall be
provided to Participants about available tax elections, (xvii) whether and the
extent to which a Nonstatutory Stock Option may be transferable by a
Participant, and (xviii) any additional requirements relating to Incentive
Awards that the Committee deems appropriate. Notwithstanding the foregoing, no
"tandem stock options" (where two stock options are issued together and the
exercise of one option affects the right to exercise the other option) may be
issued in connection with Incentive Stock Options. The Committee shall have the
power to amend the terms of previously granted Incentive Awards that were
granted by that Committee so long as the terms as amended are consistent with
the terms of the Plan and provided that the consent of the Participant is
obtained with respect to any amendment that would be detrimental to him or her,
except that such consent will not be required if such amendment is for the
purpose of complying with Rule 16b-3 or any requirement of the Code applicable
to the Incentive Award.
(b) The Committee may adopt rules and regulations for carrying out the Plan
with respect to Participants. The interpretation and construction of any
provision of the Plan by the Committee shall be final and conclusive as to any
Participant. The Committee may consult with counsel, who may be counsel to the
Company, and shall not incur any liability for any action taken in good faith in
reliance upon the advice of counsel.
(c) A majority of the members of the Committee shall constitute a quorum, and
all actions of the Committee shall be taken by a majority of the members
present. Any action may be taken by a written instrument signed by all of the
members, and any action so taken shall be fully effective as if it had been
taken at a meeting.
14. Notice. All notices and other communications required or permitted to
be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows (a) if to the Company - at the principal business address of the Company
to the attention of the Corporate Secretary of the Company; and (b) if to any
Participant - at the last address of the Participant known to the sender at the
time the notice or other communication is sent.
15. Interpretation. The terms of this Plan shall be governed by the laws of
the Commonwealth of Virginia.
7
<PAGE>
APPENDIX 4
BOE FINANCIAL SERVICES OF VIRGINIA, INC.
STOCK OPTION PLAN
FOR OUTSIDE DIRECTORS
1. Purpose. The BOE Financial Services of Virginia, Inc. Stock Option
-------
Plan for Outside Directors (the "Plan") is intended to advance the interests of
BOE Financial Services of Virginia, Inc. (the "Company") by providing directors
of the Company who are not full-time employees of the Company or a subsidiary
("Directors") with an opportunity to acquire a proprietary interest in the
Company and an additional incentive to promote the Company's success. Stock
options ("Options") granted under the Plan are non-statutory options (i.e.,
options not intended to meet the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended). The Plan conforms to the provisions of Rule
16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934 (the "34 Act"), as
presently in effect. The sole shareholder of the Company has approved the Plan.
2. Eligibility and Grant of Options.
--------------------------------
(a) Each person who first becomes a member of the Company's Board of
Directors (the "Board of Directors") as a Director after _______, 2000
shall receive an Option to purchase [________] shares of Common Stock of
the Company ("Common Stock") as of the date on which he or she first
becomes a Director.
(b) As of each [insert date], beginning [insert date], 2000, each
Director who has been a Director for at least _______ months shall receive
an Option to purchase _______ shares of Common Stock.
The option price for each Option shall be determined as of the date of grant,
pursuant to Section 4 below. The Company shall effect the grant of Options
under the Plan by the execution and delivery of written option agreements
between the Company and the Directors receiving the Options ("Optionees").
3. Stock. The Company has reserved an aggregate of 10,000 shares of
-----
Common Stock for issuance pursuant to the exercise of Options granted under the
Plan. The aggregate number is subject to future adjustments as hereinafter
provided in Section 7. The aggregate
<PAGE>
number of shares of Common Stock reserved shall be reduced by the issuance of
shares upon the exercise of Options, but it shall not be reduced if Options, for
any reason, expire or terminate unexercised. The Company shall not be required
to issue or deliver any certificate for shares of its Common Stock purchased
upon the exercise of any part of an Option before (i) the admission of such
shares to listing on any stock exchange or other market on which the Common
Stock may then be listed, (ii) receipt of any required registration or other
qualification of such shares under any state or federal law or regulation that
the Company's counsel shall determine is necessary or advisable, and (iii) the
Company shall have been advised by counsel that all applicable legal
requirements have been complied with.
4. Price. The purchase price of each share of Common Stock covered by an
-----
Option (the "Option Price") shall be equal to the fair market value of one share
of Common Stock on the date the Option is granted. Fair market value shall be
determined as follows:
(a) If the Common Stock is then quoted on the Nasdaq National Market,
its closing price on the Nasdaq National Market on the date of
determination, as reported in The Wall Street Journal;
-----------------------
(b) If the Common Stock is then listed on a national securities
exchange, its closing price on the date of determination on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading, as reported in The Wall Street Journal;
-----------------------
(c) If the Common Stock is not quoted on the Nasdaq National Market
nor listed or admitted to trading on a national securities exchange, the
average of the closing bid and asked prices on the date of determination,
as reported in The Wall Street Journal or such other source as the
-----------------------
Committee may in good faith rely upon;
(d) If none of the following are applicable, by the Board of Directors
in good faith.
Payment of the Option Price may be made in cash, in shares of Common Stock, or
in any combination thereof. Shares of Common Stock used to make any such
payment shall be valued
2
<PAGE>
at the fair market value thereof on the date of exercise, and must be "mature
shares." Mature shares are shares of Common Stock for which the holder thereof
has good title, free and clear of all liens and encumbrances and which such
holder either (i) has held for at least six months, or (ii) has purchased on the
open market.
5. Terms and Limitations on Exercise. Options may be exercised, in whole
---------------------------------
or in part, but only with respect to whole shares of Common Stock, as outlined
below, by giving timely written notice to the Company.
(a) The term of any Option shall be ten years from the date it is
granted. No Option may be exercised after the expiration of its term or
after the date set forth in subsection (b), (c) or (d) below, if earlier.
(b) If an Optionee ceases to be a member of the Board of Directors on
account of his death or disability (as determined under the Federal Social
Security Act), the Optionee (or his legatees or distributees or the
personal representatives of his estate, in the event of his death) may
exercise his outstanding options at any time until the first to occur of
(x) the date that is two years after the Optionee ceases to be a member of
the Board of Directors or (y) the date on which the Options expire
according to their terms.
(c) If an Optionee ceases to be a member of the Board of Directors for
any reason other than described in subsection (b) above, the Optionee may
exercise his outstanding Options at any time until the first to occur of
(x) the date that is three months after the Optionee ceases to be a member
of the Board of Directors or (y) the date on which the Options expire
according to their terms.
(d) If an Optionee dies after he ceases to be a member of the Board of
Directors, but within the time period during which his outstanding Options
are still exercisable, the Optionee's outstanding Options may be exercised
by his legatees or distributees or the personal representative of his
estate. These Options may be exercised at any time until the first to
occur of (x) the date that is two years after the Optionee ceases to be a
member of the Board of Directors or (y) the date on which the Options
expire according to their terms.
3
<PAGE>
(e) Notwithstanding anything herein to the contrary, Options shall
always be granted and exercised in such a manner as to conform to the
provisions of Rule 16b-3, or any replacement rule adopted pursuant to the
provisions of the 34 Act, as the same now exists or may, from time to time,
be amended.
(f) The exercise of any Option and delivery of the optioned shares
shall be contingent upon the receipt by the Company of the full purchase
price in cash or shares of Common Stock as provided in Section 4.
6. Transferability of Options.
--------------------------
(a) In general, Options, by their terms, shall not be transferable
other than by will or the laws of descent and distribution, or as described
below. Options shall be exercisable, during the lifetime of the Optionee,
only by the Optionee or the Optionee's guardian or legal representative.
(b) Notwithstanding the provisions of subsection (a) and subject to
applicable securities laws, an Optionee may transfer any Options that have
been or will be granted to the Optionee under this Plan to one or more of
the Optionee's immediate family members, to a trust or trusts for the
benefit of any one or more of the Optionee's immediate family members, or
to a partnership, limited liability company or other entity the only
partners, members or interest holders of which are among the Optionee's
immediate family members. No consideration may be paid for the transfer of
any Option. The transferor shall be subject to all conditions applicable
to the Option prior to its transfer. Notwithstanding the provisions of
Section 8, the Board of Directors may impose on any Option, and on Common
Stock issued upon exercise of an Option, such limitations and conditions as
the Board of Directors deems appropriate, and may amend the agreement
granting the Option to set forth such limitations and conditions.
7. Change in Capital Structure.
---------------------------
(a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or merger in which the Company is the surviving
corporation or other change in the Company's capital stock (including, but
not limited to, the creation or
4
<PAGE>
issuance to shareholders generally of rights, options or warrants for the
purchase of common stock or preferred stock of the Company), the number and
kind of shares of stock or securities of the Company to be subject to the
Plan and to Options then outstanding or to be granted thereunder, the
maximum number of shares or securities which may be delivered under the
Plan, the exercise price, the terms of Options and other relevant
provisions shall be appropriately adjusted by the Board of Directors, whose
determination shall be binding on all persons. If the adjustment would
produce fractional shares with respect to any unexercised Option, the Board
of Directors may adjust appropriately the number of shares covered by the
Option so as to eliminate the fractional shares.
(b) If the Company is a party to a consolidation or a merger in which
the Company is not the surviving corporation, a transaction that results in
the acquisition of substantially all of the Company's outstanding stock by
a single person or entity, or a sale or transfer of substantially all of
the Company's assets, the Board of Directors may take such actions with
respect to outstanding Options as the Board of Directors deems appropriate.
(c) Notwithstanding anything in the Plan to the contrary, the Board of
Directors may take the foregoing actions without the consent of any
Director, and the Board of Director's determination shall be conclusive and
binding on all persons for all purposes.
8. Administration of the Plan. The Board of Directors shall be
--------------------------
responsible for the implementation and administration of the Plan.
9. Expiration and Termination of the Plan. Options may be granted under
--------------------------------------
the Plan at any time until the Plan is terminated by the Board of Directors or
until such earlier date when termination of the Plan shall be required by law.
If not sooner terminated, the Plan shall terminate automatically on January 1,
2010.
10. Amendments. The Board of Directors may from time to time make such
----------
changes in and additions to the Plan as it may deem proper. The termination of
the Plan or any change or
5
<PAGE>
addition to the Plan shall not, without consent of any Optionee who is adversely
affected thereby, alter any options previously granted to the Optionee pursuant
to the Plan.
11. Effective Date. The Plan shall be effective as of the date on which
--------------
the statutory share exchange between Bank of Essex and the Company is
consummated.
12. Notice. All notices and other communications required or permitted
------
to be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows (a) if to the Company - at the principal business address of the Company
to the attention of the Corporate Secretary of the Company; and (b) if to any
Director- at the last address of the Director known to the sender at the time
the notice or other communication is sent.
13. Interpretation. The terms of this Plan shall be governed by the laws
--------------
of the Commonwealth of Virginia.
6
<PAGE>
APPENDIX 5
FORM OF
EMPLOYMENT CONTINUITY AGREEMENT
This Employment Continuity Agreement (the "Agreement") is made as of
______________, 2000, between BOE Financial Services of Virginia, Inc. ("BOE
Financial") and _________________ (the "Executive"). The purpose of the
Agreement is to encourage the Executive to continue in employment with the
Company following a Change of Control by providing reasonable employment
security to the Executive, and to recognize the prior service of the Executive
in the event that the Executive's employment with the Company terminates under
defined circumstances following a Change of Control.
Section 1. Definitions. For purposes of this Agreement:
-----------
(a) "Affiliated Company" means any corporation which is a member of a
controlled group of corporations that includes BOE Financial, as determined
pursuant to Section 1563(a) of the Internal Revenue Code of 1986, without
regard to Sections 1563(a)(4) or 1563(e)(3)(c).
(b) "Base Salary" shall mean the Executive's annual base salary in
effect as of the Effective Date.
(c) "Beneficiary" shall mean the person or entity designated by the
Executive, by written instrument delivered to the Company, to receive any
benefits payable under this Agreement in the event of the Executive's
death. If the Executive fails to designate a Beneficiary, or if no
Beneficiary survives the Executive, such death benefits shall be paid to
the Executive's estate.
(d) "Board" shall mean the Board of Directors of BOE Financial.
(e) "Change of Control" shall mean the occurrence of any of the
following events:
(i) any person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934 becomes the owner or
beneficial owner of BOE Financial securities having 20% or more of the
combined voting power of the then outstanding BOE Financial securities
that may be cast for the election of BOE Financial's directors (other
than as a result of an issuance of securities initiated by BOE
Financial, or open market purchases approved by the Board, as long as
the majority of the Board approving the purchases is also the majority
at the time the purchases are made); or
(ii) as the direct or indirect result of, or in connection with,
a cash tender or exchange offer, a merger or other business
combination, a sale of assets,
<PAGE>
a contested election, or any combination of these transactions, the
persons who were directors of BOE Financial before such transactions
cease to constitute a majority of the Board, or any successor's board,
within two years of the last of such transactions.
(f) "Company" means BOE Financial and each Affiliated Company.
(g) "Effective Date" shall mean the date on which a Change of Control
occurs.
(h) "Good Cause" shall mean the Executive's (i) material
misappropriation with respect to the business assets of the Company, (ii)
persistent refusal or willful failure materially to perform his duties and
responsibilities to the Company, which continues after the Executive
receives notice of such refusal or failure, (iii) conviction of a felony,
or (iv) use of drugs or alcohol that interferes materially with the
Executive's performance of his duties.
(i) "Maximum Bonus Opportunity" shall mean the maximum cash bonus
payable to the Executive by the Company.
(j) "Salary Continuance Benefit" shall mean the benefit described in
Section 2(b), (c) and (d) of this Agreement.
(k) "Severance Benefit" shall mean the Salary Continuance Benefit and
the Welfare Continuance Benefit described in Section 2 of this Agreement.
(l) "Severance Period" shall mean the period beginning on the date
the Executive's employment with the Company terminates and ending on the
date that is one (1) year thereafter.
(m) "Termination with Good Reason" means, unless and to the extent
otherwise waived in writing by the Executive, the termination of the
Executive's employment with the Company which is initiated by the Executive
and that occurs within 90 days of any of the following events (excluding
for this purpose, isolated, insubstantial and inadvertent actions not taken
in bad faith and which are remedied by the Company within 15 days after
receipt of notice thereof given by the Executive):
(i) a decrease in the Executive's aggregate Base Salary and
incentive bonus opportunity or a significant reduction in the amount
of additional benefits or perquisites provided to the Executive as of
the Effective Date;
(ii) any action by the Company which decreases the Executive's
authority, duties or responsibilities, as determined as of the
Effective Date; or
2
<PAGE>
(iii) the assignment of duties to the Executive that are
inconsistent with the duties and responsibilities of the Executive as
of the Effective Date.
(n) "Welfare Continuance Benefit" shall mean the benefit described in
Section 2(e).
(o) "Welfare Plan" shall mean any health and dental plan, disability
plan, survivor income plan, life insurance plan or any other welfare
benefit plan, as defined in Section 3(1) of ERISA, currently or hereafter
made available by the Company in which the Executive is eligible to
participate.
Section 2. Benefits Upon Termination of Employment.
----------------------------------------
(a) Subject to the provisions of Section 6, the Executive shall be
entitled to a Salary Continuance Benefit and a Welfare Continuance Benefit
if (i) the employment of the Executive with the Company is terminated by
the Company for any reason other than Good Cause within two (2) years
following the Effective Date, or (ii) the Executive has a Termination for
Good Reason within two (2) years following the Effective Date.
(b) The Salary Continuance Benefit shall be an amount equal to
* (__) times the sum of (i) the Executive's Base Salary, and (ii) the
-------
Executive's Maximum Bonus Opportunity.
(c) The Salary Continuance Benefit shall be paid, at the election of
the Executive, in one of the following two methods:
(i) equal monthly payments during the one-year period following
the date of the Executive's termination of employment, or
(ii) a single lump sum payment within 30 days of the date of the
Executive's termination of employment.
The election must be made by the Executive on a form provided by the
Company and may not be subsequently changed, except as provided in Section
4 below.
(d) Payment of the Salary Continuance Benefit shall be subject to the
following terms and conditions:
(i) Salary Continuance Benefits shall be made net of all
required federal and state payroll taxes and similar required
withholdings.
(ii) Payment of the Salary Continuance Benefit shall not affect
the entitlement of the Executive or the Executive's Beneficiary, or
any other person entitled to receive benefits with respect to the
Executive under any retirement
______________________
* In the case of George M. Longest, Jr. and Bruce E. Thomas, two (2) times. In
the case of Robert E. Davis, Jack M. Robeson, Terrell D. Vaughan, Suzanne S.
Rennolds and Bonnie S. Courtney, one (1) time.
3
<PAGE>
plan, Welfare Plan, or other plan or program maintained by the Company
in which the Executive participates at the date of termination of
employment.
(iii) Except as specifically provided in subsection (f) below,
the Salary Continuance Benefit shall not be affected by any employment
which the Executive may obtain after termination with the Company nor
otherwise shall be subject to mitigation in any respect.
(e) During the Severance Period, the Executive and the Executive's
dependents will continue to be covered by all Welfare Plans in which the
Executive and the Executive's dependents were participating immediately
prior to the date of termination of the Executive's employment (the
"Welfare Continuance Benefit"). Any changes to any Welfare Plan during the
Severance Period shall be applicable to the Executive and the Executive's
dependents as if the Executive continued to be an employee of the Company.
The Company will pay all or a portion of the costs of the Welfare
Continuance Benefit for the Executive and the Executive's dependents under
the Welfare Plans on the same basis as applicable, from time to time, to
active employees covered under the Welfare Plans. If such participation in
any one or more of the Welfare Plans included in the Welfare Continuance
Benefit is not possible under the terms of the Welfare Plan or any
provision of law would create an adverse tax effect for the Executive or
the Company due to such participation, the Company will provide
substantially identical benefits directly or through another insurance
arrangement. The Welfare Continuance Benefits as to any Welfare Plan will
cease if and when the Executive has obtained coverage under one or more
welfare benefit plans of a subsequent employer that provide for equal or
greater benefits to the Executive and the Executive's dependents with
respect to the specific type of benefit.
(f) If the Executive applies for and/or accepts employment with the
Company within five years of the Executive's termination of employment with
the Company, the Executive shall repay to the Company the entire amount of
the Salary Continuance Benefit (less applicable payroll taxes and other
amounts that were withheld). The Company may offer to establish a
reasonable repayment schedule which will take into consideration the amount
of repayment required. If the Executive is receiving the Salary Continuance
Benefit in monthly payments and applies for and/or accepts the employment
described above, the balance of the monthly payments otherwise owing will
not be paid or be payable to the Executive, and the Executive will be
obligated to repay only those monthly payments that have already been paid
to the Executive.
Section 3. Outplacement Services.
---------------------
If (a) the employment of the Executive with the Company is terminated by
the Company for any reason other than Good Cause within two (2) years following
the Effective Date, or (b) the Executive has a Termination for Good Reason
within two (2) years following the Effective Date, the Executive shall be
entitled to receive complete outplacement services, including job search and
interview skill services. The services shall be provided by a regionally
recognized outplacement organization selected by the Executive with the approval
of the Company (which
4
<PAGE>
approval shall not be unreasonably withheld). The services shall be provided for
up to one (1) year after the Executive's termination of employment.
Section 4. Death.
------
(a) If the Executive dies before receiving the entire amount of the
Salary Continuance Benefit payable under this Agreement, the entire amount
of the Salary Continuance Benefit shall be paid to the Executive's
Beneficiary in a single lump sum payment as soon as practicable following
the Executive's death.
(b) If the Executive dies while receiving a Welfare Continuation
Benefit, the Executive's spouse and other dependents shall continue to be
covered under all applicable Welfare Plans during the remainder of the
Severance Period.
Section 5. Claims Procedure; Indemnification.
----------------------------------
(a) If for any reason a payment or benefit due under this Plan is not
paid or provided when due, the Executive or the Executive's Beneficiary may
file a written claim with the Board. If the claim is denied or no response
is received within forty-five (45) days after the date on which the claim
was filed with the Board (in which case the claim will be deemed to have
been denied), the Executive or the Executive's Beneficiary may appeal the
denial to the Board within sixty (60) days of receipt of written
notification of the denial or the end of the forty-five day period,
whichever occurs first. In pursuing an appeal, the Executive or the
Executive's Beneficiary may request that the Board review the denial, may
review pertinent documents, and may submit issues and documents in writing
to the Board. A decision on appeal will be made within sixty (60) days
after the appeal is made.
(b) The Company shall indemnify the Executive against any and all
expenses (including attorney's fees) which are incurred by the Executive in
connection with any claim made for a payment or benefit due under this
Agreement that is denied by the Board on appeal, and that is ultimately
paid by the Company.
Section 6. Release of Claims.
------------------
In consideration for and as a condition to receiving any payments or
benefits under this Agreement, the Executive must execute a written release in a
form provided by the Company. In addition to any other provisions determined by
the Company, the release may provide that the Executive agrees, for the
Executive and the Executive's heirs, representatives, successors and assigns,
that the Executive has finally and permanently separated from employment with
the Company, and that the Executive waives, releases and forever discharges the
Company from any and all claims, known or unknown, that the Executive has or may
have, including but not limited to those relating to or arising out of the
Executive's employment with the Company and the termination thereof, including
but not limited to any claims of wrongful discharge, breach of express or
implied contract, fraud, misrepresentation, defamation, liability in tort, any
claims under Title VII of the Civil Rights Act of 1964, as amended, the Age
Discrimination in
5
<PAGE>
Employment Act, the Employee Retirement Income Security Act, the Fair Labor
Standards Act, or any other federal, state or local law relating to employment,
employee benefits or the termination of employment, excepting only any claims to
vested retirement benefits.
Section 7. No Setoff.
----------
Payment of a Severance Benefit shall be in addition to any other amounts
otherwise payable to the Executive, including any accrued but unpaid vacation
pay. Except as otherwise specifically provided in Sections 2(e) and (f) of this
Agreement, no payments or benefits payable to or with respect to the Executive
pursuant to this Agreement shall be reduced by any amount the Executive may owe
to the Company (except for amounts owed to the Company on account of loans,
travel or standing advances, personal charges on Company credit cards or
accounts, or the value of Company property not returned to the Company), or by
any amount the Executive may earn or receive from employment with another
employer or from any other source.
Section 8. No Assignment of Benefit.
-------------------------
No interest of the Executive or any Beneficiary under this Agreement, or
any right to receive any payment or distribution hereunder, shall be subject in
any manner to sale, transfer, assignment, pledge, attachment, garnishment, or
other alienation or encumbrance of any kind, nor may such interest or right to
receive a payment or distribution be taken, voluntarily or involuntarily, for
the satisfaction of the obligations or debts of, or other claims against, the
Executive or Beneficiary, including claims for alimony, support, separate
maintenance, and claims in bankruptcy proceedings.
Section 9. Benefits Unfunded.
------------------
All rights under this Agreement of the Executive and Beneficiaries, shall
at all times be entirely unfunded, and no provision shall at any time be made
with respect to segregating any assets of the Company for payment of any amounts
due hereunder. The Executive and Beneficiaries shall have only the rights of
general unsecured creditors of the Company.
Section 10. Applicable Law.
---------------
This Agreement shall be construed and interpreted pursuant to the laws of
the Commonwealth of Virginia, without reference to its conflict of laws rules.
Section 11. No Employment Contract.
-----------------------
Nothing contained in this Agreement shall be construed to be an employment
contract between the Executive and the Company.
6
<PAGE>
Section 12. Severability.
-------------
In the event any provision of this Agreement is held illegal or invalid,
the remaining provisions of this Agreement shall not be affected thereby.
Section 13. Successors.
-----------
The Agreement shall be binding upon and inure to the benefit of the
Company, the Executive and their respective heirs, representatives and
successors. The Company, its successors and assigns shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
and any other purchaser or transferee of any assets of the Company expressly to
assume this Agreement if such purchaser employs the Executive in connection with
such purchase.
Section 14. Litigation Expenses.
--------------------
The Company shall pay the litigation expenses, including reasonable
attorneys' fees, incurred by the Executive or Beneficiary in a suit against the
Company in which the Executive or Beneficiary successfully sues to enforce the
Executive's rights under the Agreement.
Section 15. Notices.
--------
All notices and other communications required or permitted under this
Agreement shall be in writing, unless otherwise provided in this Agreement, and
shall be deemed effective and given upon actual delivery if presented
personally, one business day after the date sent if sent by prepaid telegram,
overnight courier service, telex, or by facsimile transmission or five business
days after the date sent if sent by certified or registered mail, postage
prepaid, return receipt requested, which shall be addressed:
(a) In the case of the Company to:
____________________________
____________________________
____________________________
Attention: ________________
Fax Number: ________________
(b) In the case of Executive to:
____________________________
____________________________
____________________________
Attention: ________________
Fax Number: ________________
or, in each case, to such other address as may be designated in writing by any
such party.
7
<PAGE>
Section 16. Amendment and Termination.
--------------------------
Prior to the Effective Date, the Company may amend, modify or terminate
this Agreement for any reason or no reason. On and after the Effective Date,
the Agreement may not be amended, modified, or terminated in any way that
adversely affects the Executive's right to a benefit under the Agreement or the
circumstances of eligibility therefore without the written consent of the
Executive.
Section 17. Captions and Section Headings.
--------------------------------
Captions and section headings herein are for convenience only, are not a
part hereof and shall not be used in construing this Agreement.
Section 18. Entire Agreement.
-----------------
This Agreement constitutes the entire understanding and agreement of the
parties hereto regarding the subject matter hereof.
Section 19. Counterparts.
-------------
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument.
BOE FINANCIAL SERVICES OF
VIRGINIA, INC.
By:____________________________________
Title:_________________________________
Date:__________________________________
EXECUTIVE
_______________________________________
Date:__________________________________
8
<PAGE>
EXHIBIT B
ARTICLE 15 OF THE VIRGINIA STOCK CORPORATION ACT
(S)(S) 13.1-729 - 740
Dissenters' Rights
(S) 13.1-729. Definitions.
In this article:
"Corporation" means the issuer of the shares held by a dissenter before the
corporate action, except that (i) with respect to a merger, "corporation" means
the surviving domestic or foreign corporation or limited liability company by
merger of that issuer, and (ii) with respect to a share exchange, "corporation"
means the acquiring corporation by share exchange, rather than the issuer, if
the plan of share exchange places the responsibility for dissenters' rights on
the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent from corporate action
under (S) 13.1-730 and who exercises that right when and in the manner required
by (S)(S) 13.1-732 through 13.1-739.
"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action unless exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate action until
the date of payment, at the average rate currently paid by the corporation on
its principal bank loans or, if none, at a rate that is fair and equitable under
all the circumstances.
"Record shareholder" means the person in whose name shares are registered in the
records of a corporation or the beneficial owner of shares to the extent of the
rights granted by a nominee certificate on file with a corporation.
"Beneficial shareholder" means the person who is a beneficial owner of shares
held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial shareholder.
(S) 13.1-730. Right to dissent.
A. A shareholder is entitled to dissent from, and obtain payment of the fair
value of his shares in the event of, any of the following corporate actions:
1. Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by (S) 13.1-718 or
the articles of incorporation and the shareholder is entitled to vote on
the merger or (ii) if the corporation is a subsidiary that is merged with
its parent under (S) 13.1-719;
B-1
<PAGE>
2. Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation if the shareholder was entitled to vote on the
sale or exchange or if the sale or exchange was in furtherance of a
dissolution on which the shareholder was entitled to vote, provided that
such dissenter's rights shall not apply in the case of (i) a sale or
exchange pursuant to court order, or (ii) a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the sale will
be distributed to the shareholders within one year after the date of sale;
4. Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares under
this article may not challenge the corporate action creating his entitlement
unless the action is unlawful or fraudulent with respect to the shareholder or
the corporation.
C. Notwithstanding any other provision of this article, with respect to a plan
of merger or share exchange or a sale or exchange of property there shall be no
right of dissent in favor of holders of shares of any class or series which, at
the record date fixed to determine the shareholders entitled to receive notice
of and to vote at the meeting at which the plan of merger or share exchange or
the sale or exchange of property is to be acted on, were (i) listed on a
national securities exchange or on the National Association of Securities
Dealers Automated Quotation System (NASDAQ) or (ii) held by at least 2,000
record shareholders, unless in either case:
1. The articles of incorporation of the corporation issuing such shares
provide otherwise;
2. In the case of a plan of merger or share exchange, the holders of the
class or series are required under the plan of merger or share exchange to
accept for such shares anything except:
a. Cash;
b. Shares or membership interests, or shares or membership interests
and cash in lieu of fractional shares (i) of the surviving or
acquiring corporation or limited liability company or (ii) of any
other corporation or limited liability company which, at the record
date fixed to determine the shareholders entitled to receive notice of
and to vote at the meeting at which the plan of merger or share
exchange is to be acted on, were either listed subject to notice of
issuance on a national securities exchange or held of record by at
least 2,000 record shareholders or members; or
B-2
<PAGE>
c. A combination of cash and shares or membership interests as set
forth in subdivisions 2 a and 2 b of this subsection; or
3. The transaction to be voted on is an "affiliated transaction" and is not
approved by a majority of "disinterested directors" as such terms are
defined in (S) 13.1-725.
D. The right of a dissenting shareholder to obtain payment of the fair value of
his shares shall terminate upon the occurrence of any one of the following
events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
3. His demand for payment is withdrawn with the written consent of the
corporation.
E. Notwithstanding any other provision of this article, no shareholder of a
corporation located in a county having a county manager form of government and
which is exempt from income taxation under (S) 501 (c) or (S) 528 of the
Internal Revenue Code and no part of whose income inures or may inure to the
benefit of any private shareholder or individual shall be entitled to dissent
and obtain payment for his shares under this article.
(S) 13.1-731. Dissent by nominees and beneficial owners.
A. A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares held on
his behalf only if:
1. He submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
2. He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
(S) 13.1-732. Notice of dissenters' rights.
A. If proposed corporate action creating dissenters' rights under (S) 13.1-730
is submitted to a vote at a shareholders' meeting, the meeting notice shall
state that shareholders are or may be entitled to assert dissenters' rights
under this article and be accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under (S) 13.1-730 is taken
without a vote of shareholders, the corporation, during the ten-day period after
the effectuation of such corporate
B-3
<PAGE>
action, shall notify in writing all record shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in (S) 13.1-734.
(S) 13.1-733. Notice of intent to demand payment.
A. If proposed corporate action creating dissenters' rights under (S) 13.1-730
is submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights (i) shall deliver to the corporation before the vote
is taken written notice of his intent to demand payment for his shares if the
proposed action is effectuated and (ii) shall not vote such shares in favor of
the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A of this
section is not entitled to payment for his shares under this article.
(S) 13.1-734. Dissenters' notice.
A. If proposed corporate action creating dissenters' rights under (S) 13.1-730
is authorized at a shareholders' meeting, the corporation, during the ten-day
period after the effectuation of such corporate action, shall deliver a
dissenters' notice in writing to all shareholders who satisfied the requirements
of (S) 13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
3. Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares
before or after that date;
4. Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the
date of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article.
(S) 13.1-735. Duty to demand payment.
A. A shareholder sent a dissenters' notice described in (S) 13.1-734 shall
demand payment, certify that he acquired beneficial ownership of the shares
before or after the date required to be set forth in the dissenters' notice
pursuant to subdivision 3 of subsection B of (S) 13.1-734, and, in the case of
certificated shares, deposit his certificates in accordance with the terms of
the notice.
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<PAGE>
B. The shareholder who deposits his shares pursuant to subsection A of this
section retains all other rights of a shareholder except to the extent that
these rights are canceled or modified by the taking of the proposed corporate
action.
C. A shareholder who does not demand payment and deposits his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
(S) 13.1-736. Share restrictions.
A. The corporation may restrict the transfer of uncertificated shares from the
date the demand for their payment is received.
B. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder except to the extent that these
rights are canceled or modified by the taking of the proposed corporate action.
(S) 13.1-737. Payment.
A. Except as provided in (S) 13.1-738, within thirty days after receipt of a
payment demand made pursuant to (S) 13.1-735, the corporation shall pay the
dissenter the amount the corporation estimates to be the fair value of his
shares, plus accrued interest. The obligation of the corporation under this
paragraph may be enforced (i) by the circuit court in the city or county where
the corporation's principal office is located, or, if none in this Commonwealth,
where its registered office is located or (ii) at the election of any dissenter
residing or having its principal office in the Commonwealth, by the circuit
court in the city or county where the dissenter resides or has its principal
office. The court shall dispose of the complaint on an expedited basis.
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the effective date of the corporate
action creating dissenters' rights, an income statement for that year, a
statement of changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
2. An explanation of how the corporation estimated the fair value of the
shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand payment under (S) 13.1-
739; and
4. A copy of this article.
(S) 13.1-738. After-acquired shares.
A. A corporation may elect to withhold payment required by (S) 13.1-737 from a
dissenter unless he was the beneficial owner of the shares on the date of the
first publication by news media or the
B-5
<PAGE>
first announcement to shareholders generally, whichever is earlier, of the terms
of the proposed corporate action, as set forth in the dissenters' notice.
B. To the extent the corporation elects to withhold payment under subsection A
of this section, after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall offer to pay this
amount to each dissenter who agrees to accept it in full satisfaction of his
demand. The corporation shall send with its offer an explanation of how it
estimated the fair value of the shares and of how the interest was calculated,
and a statement of the dissenter's right to demand payment under (S) 13.1-739.
(S) 13.1-739. Procedure if shareholder dissatisfied with payment or offer.
A. A dissenter may notify the corporation in writing of his own estimate of the
fair value of his shares and amount of interest due, and demand payment of his
estimate (less any payment under (S) 13.1-737), or reject the corporation's
offer under (S) 13.1-738 and demand payment of the fair value of his shares and
interest due, if the dissenter believes that the amount paid under (S) 13.1-737
or offered under (S) 13.1-738 is less than the fair value of his shares or that
the interest due is incorrectly calculated.
B. A dissenter waives his right to demand payment under this section unless he
notifies the corporation of his demand in writing under subsection A of this
section within thirty days after the corporation made or offered payment for his
shares.
(S) 13.1-740. Court action.
A. If a demand for payment under (S) 13.1-739 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the circuit court in the city or county described in
subsection B of this section to determine the fair value of the shares and
accrued interest. If the corporation does not commence the proceeding within the
sixty-day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
B. The corporation shall commence the proceeding in the city or county where
its principal office is located, or, if none in this Commonwealth, where its
registered office is located. If the corporation is a foreign corporation
without a registered office in this Commonwealth, it shall commence the
proceeding in the city or county in this Commonwealth where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
C. The corporation shall make all dissenters, whether or not residents of this
Commonwealth, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
D. The corporation may join as a party to the proceeding any shareholder who
claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this
B-6
<PAGE>
article. If the court determines that such shareholder has not complied with the
provisions of this article, he shall be dismissed as a party.
E. The jurisdiction of the court in which the proceeding is commenced under
subsection B of this section is plenary and exclusive. The court may appoint one
or more persons as appraisers to receive evidence and recommend a decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
F. Each dissenter made a party to the proceeding is entitled to judgment (i)
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation or (ii) for the fair
value, plus accrued interest, of his after-acquired shares for which the
corporation elected to withhold payment under (S) 13.1-738.
(S) 13.1-741. Court costs and counsel fees.
A. The court in an appraisal proceeding commenced under (S) 13.1-740 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters did not act in good faith in demanding payment under
(S) 13.1-739.
B. The court may also assess the reasonable fees and expenses of experts,
excluding those of counsel, for the respective parties, in amounts the court
finds equitable:
1. Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of (S)(S) 13.1-732 through 13.1-739; or
2. Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed did not act in good faith with respect to the rights provided
by this article.
C. If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, the court may award
to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
D. In a proceeding commenced under subsection A of (S) 13.1-737 the court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters who are parties to the proceeding, in
amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
B-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Article 10 of the Virginia Stock Corporation Act allows, in general,
for indemnification, in certain circumstances, by a corporation of any
person threatened with or made a party to any action, suit or
proceeding by reason of the fact that he or she is, or was, a
director, officer, employee or agent of such corporation.
Indemnification is also authorized with respect to a criminal action
or proceeding where the person had no reasonable cause to believe that
his or her conduct was unlawful. Article 9 of the Virginia Stock
Corporation Act provides limitations on damages payable by officers
and directors, except in cases of willful misconduct or knowing
violation of the criminal law.
The Registrant's Articles of Incorporation provide for mandatory
indemnification of any director or officer of the Registrant who is or
was a party to any proceeding by reason of the fact that he or she is
or was a director or officer of the Registrant or is or was serving
the Registrant or any other legal entity in any capacity at the
request of the Registrant while a director or officer of the
Registrant against all liabilities and expenses incurred in the
proceeding, except such liabilities and expenses as are incurred
because of such director's or officer's willful misconduct or knowing
violation of the criminal law.
The Registrant's Articles of Incorporation also provide that in every
instance permitted under Virginia corporate law in effect from time to
time, the liability of a director or officer of the Registrant to the
Registrant or its stockholders is limited or eliminated.
The Registrant maintains a standard policy of officers' and directors'
liability insurance.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibit 2. Agreement and Plan of Reorganization (the
"Reorganization Agreement") dated as of March 20, 2000
between the Registrant and Bank of Essex (attached as
Exhibit A to the Proxy Statement/Prospectus forming a
part of this Registration Statement).
Exhibit 3(a) Articles of Incorporation of the Registrant (included
as Appendix 1 to the Reorganization Agreement).
Exhibit 3(b) Bylaws of the Registrant (included as Appendix 2 to
the Reorganization Agreement).
Exhibit 5 Opinion of McGuire, Woods, Battle & Boothe LLP as to
legality of shares of the Registrant and consent.*
Exhibit 8 Opinion of McGuire, Woods, Battle & Boothe LLP as to
tax matters and consent.*
Exhibit 10(a) The Registrant's Stock Incentive Plan (included as
Appendix 3 to the Reorganization Agreement).
Exhibit 10(b) Stock Option Plan for Outside Directors (included as
Appendix 4 to the Reorganization Agreement).
Exhibit 23(a) Consent of McGuire, Woods, Battle & Boothe LLP
(included in Exhibits 5 and 8).
Exhibit 23(b) Consent of Yount, Hyde & Barbour, P.C.*
Exhibit 27 Financial Data Schedule*
Exhibit 99 Form of Executive Salary Continuation Agreement for
George M. Longest, Jr., Bruce E. Thomas, Robert E.
Davis, Jack M. Robeson, Terrell D. Vaughan, Suzanne S.
Rennolds and Bonnie S. Courtney (included as Appendix 5
to the Reorganization Agreement).
________________________
*Filed herewith
II-1
<PAGE>
(b) Not applicable.
(c) Not applicable
Item 22. Undertakings.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, offices 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 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 small business issuer 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.
(b) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became
effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in, Tappahannock, Virginia
as of March 24, 2000.
BOE FINANCIAL SERVICES OF VIRGINIA, INC.
By: /s/ George M. Longest, Jr.
-------------------------------------
George M. Longest Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ George M. Longest, Jr. President, Chief Executive Officer March 24, 2000
- - ------------------------------------ and Director (Principal Executive
George M. Longest, Jr. Officer)
/s/ Bruce E. Thomas Vice President, Treasurer and Secretary March 24, 2000
- - ------------------------------------ (Principal Financial Officer and
Bruce E. Thomas Accounting Officer)
/s/ R. Harding Ball Director March 24, 2000
- - ------------------------------------
R. Harding Ball
/s/ R. Tyler Bland, III Director March 24, 2000
- - ------------------------------------
R. Tyler Bland, III
/s/ L. McCauley Chenault Director March 24, 2000
- - ------------------------------------
L. McCauley Chenault
/s/ Alexander F. Dillard, Jr. Director March 24, 2000
- - ------------------------------------
Alexander F. Dillard, Jr.
/s/ George B. Elliott Director March 24, 2000
- - ------------------------------------
George B. Elliott
/s/ Frances H. Ellis Director March 24, 2000
- - ------------------------------------
Frances H. Ellis
Director March 24, 2000
/s/ Robert F. Hutchinson
- - ------------------------------------
/s/ Philip T. Minor Director March 24, 2000
- - ------------------------------------
Philip T. Minor
/s/ William Guy Townsend Director March 24, 2000
- - ------------------------------------
William Guy Townsend
</TABLE>
II-3
<PAGE>
Exhibit 5
McGuire, Woods, Battle & Boothe LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219
March 24, 2000
Board of Directors
BOE Financial Services of Virginia, Inc.
323 Prince Street
Tappahannock, Virginia 22560
Ladies and Gentlemen:
We are acting as your counsel in connection with the Registration Statement
on Form S-4 (the "Registration Statement") filed today by BOE Financial Services
of Virginia, Inc. ("the Company") with the Securities and Exchange Commission
with respect to 1,167,790 shares (the "Shares") of Common Stock, $5 par value,
of the Company. You have requested our opinion concerning certain corporate
matters.
We are of the opinion that:
1. The Company is a corporation duly organized and validly existing under
the laws of Virginia.
2. The Shares have been duly authorized and, when issued in the statutory
exchange of Bank of Essex shares in accordance with the Proxy
Statement/Prospectus which is a part of the Registration Statement, will be
fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
statement made in reference to our firm under the heading "Legal Matters" in the
Proxy Statement/Prospectus. We do not admit by giving this consent that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, and the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ McGuire, Woods, Battle & Boothe LLP
<PAGE>
Exhibit 8
McGuire, Woods, Battle & Boothe LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219
March 24, 2000
Board of Directors
BOE Financial Services of Virginia, Inc.
323 Prince Street
Tappahannock, Virginia 22560
Ladies and Gentlemen:
You have requested our opinions with respect to certain federal income tax
matters concerning the Agreement and Plan of Reorganization dated as of March
20, 2000 (the "Agreement") and the related share exchange (the "Share Exchange")
in contemplation of which BOE Financial Services of Virginia, Inc. (the "Holding
Company") has been formed and pursuant to which the outstanding shares of Bank
of Essex (the "Bank") Common Stock will be exchanged for shares of the Holding
Company Common Stock. As a result, the shareholders of the Bank will become
shareholders of the Holding Company, and the Bank will continue to conduct its
business operations as wholly owned subsidiary of the Holding Company.
We have reviewed the section titled "The Proposed Reorganization -- Federal
Income Tax Consequences" contained in the Proxy Statement/Prospectus (the "Proxy
Statement"), in connection with the Agreement, as part of the filing by the
Holding Company of a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"). The
defined terms used herein shall be the same as those in the Proxy Statement.
References to the "IRC" are to the Internal Revenue Code of 1986, as amended.
We have reviewed the Agreement and such other documents as we consider relevant
for purposes of our opinion herein.
The following federal tax opinion relates to the subject matters as
described in the Proxy Statement.
Our opinion is based on the assumptions that (i) the transactions
contemplated under the Agreement constitute all of the material transactions
relating to the shares of the Holding Company Common Stock to be issued in the
exchange, and (ii) there are no agreements, arrangements or understandings of
the Bank's shareholders regarding disposition of the Holding Company Common
Stock not reflected in the Agreement. We have relied on your representations
that the information presented to us in the Agreement and the Proxy Statement or
<PAGE>
Board of Directors
BOE Financial Services of Virginia, Inc.
Page 2
otherwise furnished to us accurately and completely describes all material facts
relevant to our opinion. The opinion set forth below is based on, among other
things, the initial and continuing accuracy of the information, statements and
representations set forth in the documents referred to above.
This opinion is based upon existing provisions of the IRC, legislative
history with respect thereto, rules and regulations thereunder, published
rulings and court decisions, and upon facts set forth herein and information and
representations furnished by the Holding Company and the Bank. No assurance can
be given that future legislative or administrative changes or court decisions
will not significantly modify the statements, opinions or analyses expressed
herein. Any such changes may or may not be retroactive with respect to
transactions completed prior to the date such changes are announced.
The tax consequences to any particular shareholder may be affected by
matters not discussed below. Certain types of shareholders may be subject to
special rules that are not addressed in this summary. Each shareholder should
be strongly urged to consult his own tax advisor concerning the effects of
federal income tax law and regulations, and interpretations thereof, on his own
tax situation.
Based solely on the foregoing, it is our opinion that:
1. The Share Exchange will qualify as a tax free reorganization within the
meaning of either IRC Section 351(a) or IRC Section 368(a)(1)(B).
2. No gain or loss will be recognized by the Holding Company as a result
of the Share Exchange.
3. No gain or loss will be recognized by holders of the Bank's Common
Stock upon the exchange of their shares for whole shares of the Holding
Company's Common Stock.
4. The basis of the Holding Company's Common Stock to be received by the
Bank's shareholders pursuant to the Share Exchange will be the same as the basis
of the Bank's Common Stock surrendered and exchanged therefor.
5. The holding period of the Holding Company's Common Stock to be received
by the Bank's shareholders pursuant to the Share Exchange will include the
holding period of the Bank's Common Stock surrendered and exchanged therefor,
provided that the Bank's Common Stock is held as a capital asset by the Bank's
shareholders on the Effective Date.
6. The receipt of cash by a dissenting shareholder will be a taxable
transaction to the dissenting shareholder for federal income tax purposes. The
amount of any gain or loss and its character as ordinary or capital gain or loss
will be determined in accordance with the applicable provisions of the IRC. In
general, if the shares of Bank's Common Stock are held by a shareholder as a
capital asset at the Effective Date and such shareholder holds, actually or
constructively, no other shares which will be converted into the Holding
Company's Common
<PAGE>
Board of Directors
BOE Financial Services of Virginia, Inc.
Page 3
Stock, such shareholder will recognize capital gain or loss measured by the
difference between the amount of cash received by such shareholder and the basis
of his or her shares.
We consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement and to the statement made
in reference to our firm under the heading "The Proposed Reorganization --
Federal Income Tax Consequences" in the Proxy Statement but do not admit by
giving this consent that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ McGuire, Woods, Battle & Boothe LLP
<PAGE>
Exhibit 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
of our report, dated January 19, 2000, on the financial statements of Bank of
Essex as of December 31, 1999 and 1998, and for each of the three years in the
period ended December 31, 1999. We also consent to the reference made to us
under the caption "Experts" in the Proxy Statement/Prospectus constituting a
part of this Registration Statement.
/s/ Yount, Hyde & Barbour, P.C.
---------------------------
Winchester, Virginia
March 24, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,133,059
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,588,374
<INVESTMENTS-CARRYING> 4,632,108
<INVESTMENTS-MARKET> 4,589,784
<LOANS> 125,815,169
<ALLOWANCE> 1,600,717
<TOTAL-ASSETS> 167,296,006
<DEPOSITS> 142,890,934
<SHORT-TERM> 7,901,000
<LIABILITIES-OTHER> 1,120,967
<LONG-TERM> 0
0
0
<COMMON> 5,838,950
<OTHER-SE> 9,544,160
<TOTAL-LIABILITIES-AND-EQUITY> 167,296,006
<INTEREST-LOAN> 10,172,309
<INTEREST-INVEST> 1,386,312
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11,588,621
<INTEREST-DEPOSIT> 5,164,543
<INTEREST-EXPENSE> 168,187
<INTEREST-INCOME-NET> 6,225,891
<LOAN-LOSSES> 345,000
<SECURITIES-GAINS> 4,422
<EXPENSE-OTHER> 4,843,268
<INCOME-PRETAX> 1,820,658
<INCOME-PRE-EXTRAORDINARY> 1,820,658
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,403,733
<EPS-BASIC> 1.20
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
