<PAGE>
As filed with the Securities and Exchange Commission on May 9, 2000
Registration No. 333-35608
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
Post Effective Amendment No. 1 to
Form S-4 (EF)
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------------------
SALEM COMMUNITY BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 6711 54-1054018
-------- ---- ----------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
220 East Main Street
Salem, Virginia 24153
(540) 387-0223
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Clark Owen, Jr.
President and Chief Executive Officer
220 East Main Street
Salem, Virginia 24153
(540) 387-0223
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------------------
Copies to:
Hugh B. Wellons
Flippin, Densmore, Morse, & Jessee
300 First Campbell Square
Roanoke, Virginia 24011
(540) 510-3000
Approximate date of commencement of proposed sale to the public:
As soon as possible.
If the securities being registered on this form
are being offered in connection with the formation of a
holding company and there is compliance with
General Instruction G, check the following box. [ X]
<PAGE>
Cross Reference Sheet Pursuant to Item 501 of Regulation S-K
<TABLE>
<CAPTION>
A. Information About the Transaction
<S> <C>
1. Forepart of Registration Front Cover Page of Registration Statement;
Statement and Outside Front Cross Reference Sheet; Outside Front Cover
Cover Page of Prospectus Page of Prospectus
2. Inside Front and Outside Back Where You Can Find More Information;
Cover Pages of Prospectus Information Incorporated by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings Risk Factors; Selected Consolidated
to Fixed Charges and Other Financial and Other Information;
Information Consolidated Financial Statements; Proposed Reorganization into a
Bank Holding Company; Additional Information
About Salem Bank & Trust
4. Terms of the Transaction Summary - Questions and Answers About
the Holding Company Formation; Proposed
Reorganization into a Bank Holding Company;
Additional Information About
Salem Community Bankshares
5. Pro Forma Financial Information Not Applicable.
6. Material Contracts With the Summary - Questions and Answers About
Company Being Acquired the Holding Company Formation; Proposed
Reorganization into A Bank Holding Company
7. Additional Information Required Not Applicable
for Reoffering by Persons and
Parties Deemed to be
Underwriters
8. Interests of Named Experts and Legal Matters
Counsel
9. Disclosure of Commission's Not Applicable
Position on Indemnification for
Securities Act Liabilities
B. Information About the Registrant
10. Information with Respect to S-3 Not Applicable
Registrants
11. Incorporation of Certain Not Applicable
Information by Reference
12. Information with Respect to S-2 Not Applicable
or S-3 Registrants
</TABLE>
<PAGE>
<TABLE>
<S> <C>
13. Incorporation of Certain Where You Can Find More Information
Information by Reference
14. Information with Respect to Where You Can Find More Information;
Registrants Other than S-2 or Additional Information About Salem Bank
S-3 Registrants & Trust; Additional Information About
Salem Community Bankshares
C. Information About the Companies
Being Acquired
15. Information with Respect to S-3 Not Applicable
Companies
16. Information with Respect to S-2 Not Applicable
and S-3 Companies
17. Information with Respect to Not Applicable
Companies Other than S-2 or S-3
Companies
D. Voting and Management Information
18. Information if Proxies, Consents Proposed Reorganization into a Bank
or Authorizations Are to Be Holding Company; Additional Information
Solicited About Salem Bank & Trust
19. Information if Proxies, Consents Not Applicable
or Authorizations Are Not to Be
Solicited or in an Exchange Offer
</TABLE>
<PAGE>
Salem Bank & Trust, N.A.
Dear Shareholders:
You are cordially invited to attend the annual meeting of shareholders of
Salem Bank & Trust, N.A. to be held at 10:00 a.m. on May 31, 2000, at Salem
Civic Center, located at 1001 Roanoke Boulevard, Salem, Virginia.
At this meeting, you will be asked to vote on a bank holding company
formation for Salem Bank & Trust. If you approve this proposal at the meeting,
Salem Community Bankshares, Inc. will become the holding company for our bank.
Each existing share of the bank's common stock will be converted into an equal
interest in the new holding company in a reorganization transaction. The bank
holding company formation will not change your equity or voting interest in our
operations relative to other stockholders. In addition, you will be asked to
vote on a proposal to postpone the meeting, if we believe that is necessary to
obtain approval of enough shares to complete the reorganization. Finally, you
will be asked to elect 9 directors of the bank.
The establishment of the bank holding company is also subject to approval
by governmental regulatory authorities. If approved, the holding company will
not affect the daily operations of Salem Bank & Trust, and we will continue to
provide your bank services in the same offices and with the same directors,
officers and employees.
The financial services industry is changing rapidly in Virginia and
throughout our nation. Historical distinctions between different types of
financial institutions and other financial service providers are eroding
rapidly, and banks like ours are subject to more aggressive competition. We
believe that the greater flexibility and investment opportunities provided by a
holding company will help us to continue to fulfill our customer's needs in this
rapidly changing environment.
The board of directors has considered and unanimously approved the
formation of Salem Community Bankshares as a holding company for Salem Bank &
Trust as being in the best interest of the bank and its shareholders. The bank's
board of directors recommends that shareholders vote FOR the plan, approving the
---
establishment of the holding company.
The accompanying proxy statement and related proxy materials provide
detailed information concerning the proposed transaction to establish a holding
company. We encourage you to review these materials, and especially the "Risk
Factors" section beginning on page 8, before completing the enclosed proxy card.
Salem Community Bankshare's stock has not been approved or disapproved by
the Securities and Exchange Commission, any State Securities Commission, the
Federal Deposit Insurance Corporation, the Comptroller of the Currency, the
Federal Reserve Board or any State Banking Commission, nor has any of these
institutions passed upon the accuracy or adequacy of this proxy
statement/prospectus. Any representation to the contrary is a criminal offense.
The new holding company's securities are not savings accounts or deposits
and are neither insured nor guaranteed by Salem Bank & Trust, the U.S.
Government, the Federal Deposit Insurance Corporation or any other governmental
agency. The securities are subject to investment risk and may lose value.
The separate votes of more than two-thirds of the bank's outstanding common
stock is required to approve the reorganization. Not returning a proxy card, not
voting in person at the annual meeting or abstaining from voting will have the
same effect as voting against the reorganization.
We believe it is important that your shares be represented at the annual
meeting regardless of the number you own. Even if you plan to be present at the
annual meeting, we urge you to complete, sign, date and return your proxy card
promptly in the envelope provided.
Very truly yours,
Clark Owen, Jr.
President and CEO
This proxy statement/prospectus is being mailed to stockholders on or about
May 4, 2000. The date of this proxy statement/prospectus is May 4, 2000.
<PAGE>
SALEM BANK & TRUST, N.A.
220 E. Main Street
Salem, Virginia 24153
(540) 387-0223 (Telephone)
NOTICE OF ANNUAL MEETING
TO BE HELD ON MAY 31, 2000
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Salem
Bank & Trust, N.A. will be held at Salem Civic Center, located at 1001 Roanoke
Boulevard, Salem, Virginia, on May 31, 2000 at 10:00 a.m., for the following
purposes:
(1) To consider a proposal to approve the reorganization of Salem Bank &
Trust into a bank holding company form of ownership by approving a
plan and agreement of share exchange, through which
- The bank will become a subsidiary of a newly formed bank holding
company called Salem Community Bankshares, Inc.; and
- Each outstanding share of Salem Bank & Trust common stock will be
converted into one share of common stock of the holding company;
and
(2) To consider a proposal to allow the Chairman of the meeting to adjourn
the meeting to a later date and resolicit shareholders if he believes
that there are insufficient votes to approve the reorganization.
(3) To elect nine (9) directors for the ensuing year or until their
replacements are qualified and approved.
(4) To transact any other business that properly comes before the annual
meeting or any adjournment of the meeting.
If you held shares of the bank's common stock at the close of business on
May 1, 2000, you are entitled to notice of the annual meeting and to vote on
all matters that properly come before the meeting, including the
reorganization.
A stockholder may exercise statutory dissenter's rights. If you desire to
do this by attempting to seek the payment of "fair value" for your shares, you
must follow strictly the procedures outlined in Chapter 9, Article 15 of the
Virginia Stock Corporation Act. A copy of these statutory provisions is attached
as Appendix C to this proxy statement. If you wish to object and do not follow
the statutory procedures carefully, your right to seek the payment of "fair
value" for your shares may be invalidated.
The separate votes of more than two-thirds of Salem Bank & Trust's issued
and outstanding common stock, is required to approve the reorganization.
Consequently, the required vote of Salem Bank & Trust's common stockholders is
based on the total number of shares of Salem Bank & Trust's common stock issued
and outstanding, and not on the number of shares which are actually voted. Not
returning a proxy card, not voting in person at the annual meeting or abstaining
from voting will have the same effect as voting against the reorganization.
Therefore, it is important that your shares be represented at the annual
meeting regardless of the number you own. Even if you plan to be present at the
annual meeting, we urge you to complete, sign, date and return your proxy card
promptly in the envelope provided. If you attend this meeting you may vote in
person or by your proxy. Any proxy given may be revoked by you in writing or in
person at any time prior to the time it is exercised as described in the
accompanying proxy statement/prospectus.
By Order of the Board of Directors
_________________
Corinna Witt
Administrative Assistant
Salem, Virginia
May 4, 2000
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY - QUESTIONS AND ANSWERS ABOUT THE HOLDING COMPANY FORMATION.................... 4
RISK FACTORS........................................................................... 8
FORWARD LOOKING STATEMENTS............................................................. 9
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION.................................. 9
THE ANNUAL MEETING..................................................................... 10
PROPOSED REORGANIZATION INTO A BANK HOLDING COMPANY.................................... 12
ADDITIONAL INFORMATION ABOUT SALEM BANK & TRUST........................................ 21
ADDITIONAL INFORMATION ABOUT SALEM COMMUNITY BANKSHARES................................ 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................ 27
STATISTICAL FINANCIAL DATA .......................................................... 33
SUPERVISION AND REGULATION............................................................. 45
FEDERAL HOME LOAN BANK SYSTEM.......................................................... 48
WHERE YOU CAN FIND MORE INFORMATION.................................................... 49
INFORMATION INCORPORATED BY REFERENCE.................................................. 49
CONSOLIDATED FINANCIAL STATEMENTS...................................................... 50
POSTPONEMENT AND ADJOURNMENT OF STOCKHOLDER MEETING.................................... 50
ELECTION OF DIRECTORS.................................................................. 50
NOMINEES FOR ELECTION.................................................................. 50
BENEFICIAL OWNERSHIP OF COMMON STOCK................................................... 51
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES...................................... 51
NOMINATION OTHER THAN BY OR ON BEHALF OF DIRECTORS..................................... 52
SUMMARY COMPENSATION TABLE............................................................. 53
STOCK OPTION GRANTS.................................................................... 53
STOCK OPTIONS EXERCISED AND YEAR-END OPTION VALUES..................................... 53
AGGREGATED OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES......................... 53
EMPLOYMENT AGREEMENTS.................................................................. 53
RETIREMENT PLANS....................................................................... 54
EMPLOYEE STOCK OPTION PLAN............................................................. 54
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS......................................... 54
INDEPENDENT PUBLIC ACCOUNTANTS......................................................... 54
ANNUAL REPORTS......................................................................... 54
OTHER MATTERS.......................................................................... 55
LEGAL MATTERS.......................................................................... 55
SHAREHOLDER PROPOSALS.................................................................. 55
Appendix A -- Plan and Agreement of Share Exchange.....................................
Appendix B - Salem Community Bankshare's Articles of Incorporation and By-laws
and Salem Bank & Trust's Articles of Incorporation and By-laws........................
Appendix C - Dissenters' Rights: Chapter 9, Article 15 of the Virginia Stock
Corporation Act.......................................................................
</TABLE>
3
<PAGE>
SUMMARY
QUESTIONS AND ANSWERS ABOUT THE HOLDING COMPANY FORMATION
The following questions and answers were written to help you understand the
reorganization proposal. The remainder of the proxy statement and attached
exhibits contain more detailed information. Before you vote, you should give
careful consideration to all of the information contained in or incorporated by
reference into this document.
The Annual Meeting
When and where is the Annual Meeting?
An annual meeting of stockholders will be held at Salem Civic Center,
located at 1001 Roanoke Boulevard, Salem, Virginia on May 31, 2000 at 10:00 a.m.
What will we vote on at the Annual Meeting?
You will be asked to vote on the proposed reorganization by which Salem
Community Bankshares, Inc. will become the holding company for Salem Bank &
Trust. In addition, you will be asked to vote on a proposal that allows the
Meeting chairman to postpone the meeting if he believes we do not have enough
votes to approve the reorganization. You also will vote on the election of
directors, as we do every annual meeting. Finally, you will vote on any other
business as may properly come before the meeting or any adjournment of the
meeting.
Who is Eligible to Vote?
If you held Salem Bank & Trust common stock at the close of business on
May 1, 2000 you are entitled to vote at the Meeting. You may cast one vote
for each share of common stock you held then on each matter properly presented
at the Meeting, except you may cumulate your shares for one or more candidates
in voting on directors.
How do I vote?
Please read the entire proxy statement and consider the matters carefully. Then
fill out the enclosed proxy form and mail it to the bank in the enclosed return
envelope. That proxy will instruct the persons named on the form how to vote
your shares at the meeting. You also may attend the meeting in person and vote.
If you wish to change your vote, you may do so by attending the meeting and
notifying the registrar before the meeting begins, or submitting a proxy bearing
a later date. The board of directors recommends that you vote FOR the directors
nominated, the reorganization, and the proposal to allow postponement of the
meeting.
What vote is required on each matter considered?
Under the bank's articles of association and bylaws, any shareholder
approval must involve at least a quorum of all shares held, which is a majority
of shares outstanding. If we have a quorum:
. Two-thirds of the outstanding shares of our common stock must approve the
reorganization;
. A majority of the votes cast, must approve the proposal that would allow
postponement of the Meeting; and
. The board sets the numbers of directors, and that number of nominees
receiving the most votes are elected.
What percentage of outstanding shares are controlled by management?
On May 1, 2000, the bank's directors and executive officers, and their
affiliates, held 13.19% of the bank's outstanding common stock. This represented
19.78% of the affirmative votes needed to approve the reorganization. We expect
that all of these shares will be voted in favor of all the proposals submitted
to shareholders.
THE REORGANIZATION
What is being proposed?
We are proposing that the bank be reorganized into a holding company structure,
with each shareholder of the bank receiving the same interest in the holding
company that he or she now has in the bank, and the bank becoming a wholly-owned
subsidiary of the holding company.
Where will the new company be located?
The holding company will be located at the same location that the bank now is
located, 220 East Main Street, Salem, Virginia 24153. The telephone number of
the holding company and the bank will be (540) 387-0223, and our website will be
at www.salembank.com.
-----------------
Who are the parties to the reorganization, and what is the structure?
Two parties will engage in the reorganization:
4
<PAGE>
Salem Bank & Trust; and Salem Community Bankshares, Inc., a wholly owned
subsidiary of Salem Bank & Trust formed to serve as the bank holding company
after the reorganization.
In the reorganization, the bank will become the wholly owned subsidiary of
the holding company through a share exchange in which all of the capital stock
of the bank, namely your shares of bank common stock, will be acquired by the
holding company in exchange for an equal number of shares of holding company
common stock. For more information, please see the section of this proxy
statement/prospectus captioned "Proposed Reorganization into a Bank Holding
Company -- Description of the Proposed Reorganization" on page 12.
Will the reorganization change my ownership interest?
Immediately after the reorganization takes place, and assuming there are no
dissenters: (1) the holding company will have outstanding the same number of
shares of common stock that the bank had issued and outstanding immediately
prior to the reorganization; and (2) you will hold the same number of shares of
holding company common stock that you held in the bank immediately prior to the
reorganization.
Will the reorganization change my rights as a shareholder?
Your rights as a shareholder of the bank are governed generally by the
National Bank Act, a federal statute, and the Articles of Association and Bylaws
of the bank. Following the reorganization, your rights as a shareholder of the
holding company will be governed by Virginia corporate law and the articles of
incorporation and bylaws of the holding company. This change in applicable law,
articles of incorporation and bylaws, will cause some changes in your
stockholder rights. The following list highlights principal changes in your
rights as a result of the reorganization:
. The holding company is authorized to issue up to 10,000,000 shares of
common stock, while the bank is currently authorized to issue only
2,000,000 shares of common stock.
. The holding company is authorized to issue up to 10,000,000 shares of
preferred stock, and the board of directors may set the terms of any
preferred sock issued by the holding company, including using it to prevent
a takeover that the board does not favor. The bank may not issue preferred
stock.
. Holding company directors will serve staggered three year terms instead of
the one year terms currently served by the directors of the bank. Holding
company directors can only be removed by the shareholders for cause before
their term expires. Bank directors may be removed by shareholders
regardless of cause.
. Holding company Articles of Incorporation increase the number of shares
that must be voted to approve the removal of directors, approve certain
fundamental corporate transactions, adopt corporate bylaws different from
those approved by the Board or change certain provisions of the Articles of
Incorporation, unless the Board first approves those actions.
. Holding Company directors and officers will be entitled to greater
indemnification and protected from liability in shareholder and derivative
actions to a greater extent than the bank's directors.
. Holding Company shareholders will not have the authority to call special
shareholders meetings. Bank shareholders owning at least 10% of its stock
may call a special meeting.
. Holding Company shareholders will not have cumulative voting rights in
electing directors. Bank shareholders have such rights.
. If a merger or other extraordinary corporate transaction is not approved by
a majority of the board, it will require approval of holders of 80% of the
outstanding holding company common stock, but if it is approved by the
board, it will require only a majority vote. A similar transaction now
requires the approval of holders of two-thirds of outstanding bank common
stock.
. Two Virginia statutes - the Affiliated Transactions Statute and the Control
Share Acquisitions Statute will make it very difficult for someone to
acquire effective control of the holding company without first obtaining
board, and possibly shareholder, approval. It is not clear whether these
statutes presently apply to the bank.
For more information, please see "Proposed Reorganization into a Bank
Holding Company -- Differences in Stockholder Rights as a Result of the
Reorganization" on page 14.
We intend to list the holding company's stock on the NASDAQ Over the
Counter Bulletin
5
<PAGE>
Board under the same trading symbol now used for the bank, "SBVA."
Will the reorganization affect my federal income taxes?
You should not incur U.S. Federal income taxes as a result of exchanging
your bank stock for holding company stock. Cash you receive instead of
fractional shares or in connection with the exercise of dissenter's rights may
be taxable. For more information about the tax consequences of the
reorganization, please see the section of this proxy statement/prospectus
captioned "Proposed Reorganization into a Bank Holding Company -- Tax
Consequences of the Reorganization" on page 17.
Will the reorganization have anti-takeover effects?
Holding company Articles of Incorporation and the Virginia Stock
Corporation Act contain provisions that enhance the ability of the holding
company to deal with attempts to acquire control of the company. They may also
facilitate the company's efforts to acquire additional financial institutions.
While management has no plans at present to engage in any acquisition or
affiliation, it is open to opportunities that may develop. These provisions,
together with the ability of the holding company Board to issue preferred stock
and determine its preferences and other terms, also may have an anti-takeover
effect and discourage takeover efforts which have not been approved by the Board
of Directors. These provisions are discussed on the previous page under "Will
the reorganization change my rights as a shareholder?" and in more detail under
"Certain Effects of the Reorganization - Comparison of the Rights of
Shareholders".
Why are you forming a bank holding company?
The holding company structure will increase our opportunities to diversify
our products and services and meet future opportunities to engage in the
following, if we choose to do so:
. Allowing us to provide certain services outside the bank, which is
restricted from offering certain products;
. Engaging in insurance sales and securities activities to a greater degree,
especially if we decide to take advantage of recent federal legislation
that eliminates many restrictions in these areas;
. Provides greater flexibility in acquiring other institutions and allowing
them to retain their own identity;
. Provides greater flexibility in defending against an unfriendly takeover
attempt;
. Provides greater freedom in repurchasing our own stock; and
. May reduce our state tax liability.
We have no specific plans to buy another institution or increase our securities
activity, but we do intend to increase our insurance activities. The flexibility
of a holding company will allow us to react more quickly to market forces. State
tax savings will depend on our ability to move capital into the holding company,
which, at the state level, is taxed on income, while the bank is taxed on
capital.
How will our government supervision and regulation change?
After the reorganization, (1) the Federal Bank Holding Company Act of 1956,
as amended, will apply to the holding company, and the Board of Governors of the
Federal Reserve System will regulate its operations as a bank holding company,
(2) the bank will continue to be regulated by the Office of the Comptroller of
the Currency; and (3) the deposits of the bank will continue to be insured by
the FDIC to the full extent provided by law. For more information, please see
the section of this proxy statement/prospectus captioned "Supervision and
Regulation" on page 45.
Will the management of the holding company be the same as the bank's?
The holding company's board of directors consists of the same persons who
are presently the directors of the bank, with the addition of Carl E. Tarpley,
Jr., Executive Vice President of the bank and the holding company, to the
holding company board. Your approval of the reorganization will confirm those
persons as the directors of the holding company without further action to serve
for the terms described.
Does the bank's board of directors recommend the reorganization?
After careful consideration, the bank directors have determined that the
reorganization is advisable and in the best interests of the bank and its
stockholders. Accordingly, the board unanimously
6
<PAGE>
approved the reorganization. The bank board of directors recommends that you
vote FOR approval of the reorganization.
What rights will I have if I do not vote for the reorganization?
If you do not vote in favor of the reorganization, and it is approved,
and you do nothing else, your bank stock will automatically be converted into
holding company common stock. However, if you do not vote in favor of the
reorganization, you may have dissenters' rights. Chapter 9, Article 15 of the
Virginia Stock Corporation Act will govern the rights of dissenters. Although
Salem Bank & Trust is a national bank, in order for the share exchange
reorganization to be approved by the OCC, it was necessary for the bylaws of the
Bank to be amended to provide for Virginia law to apply in certain respects. The
Board of Directors did this on June 17, 1999. If the reorganization takes place,
you will be entitled to receive payment of the value of your shares from the
bank if you (1) do not vote in favor of the reorganization, and (2) deliver in
writing to Salem Bank & Trust prior to the vote on the reorganization notice of
your intent to demand payment for your shares. For more information, including a
description of other steps necessary to perfect dissenter's rights, please see
the section of this proxy statement/prospectus captioned "Proposed
Reorganization into a Bank Holding Company -- Rights of Dissenting Stockholders"
on page 18.
What other conditions must be satisfied before the reorganization can occur?
The bank will not be permitted to complete the reorganization until it
satisfies the following conditions:
. stockholder approval by at least two-thirds of all outstanding shares;
. regulatory approvals, which have been applied for;
. rulings or opinions concerning the tax consequences of the reorganization;
and
. compliance with certain state securities laws.
For more information, please see the section of this proxy
statement/prospectus captioned "Proposed Reorganization into a Bank Holding
Company - Conditions That Must be Satisfied Before the Reorganization Can Occur"
on page 14.
7
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RISK FACTORS
Salem Bank & Trust stockholders should consider, among other matters, the
following factors in voting for the reorganization. If completed, the
reorganization will result in holders of bank common stock receiving
corresponding shares of holding company common stock.
Applicable laws and Federal banking law restricts the bank's ability to
regulations restrict pay dividends on its capital stock. The bank may not
both the ability of pay dividends if upon payment it would become
Salem Bank & Trust to undercapitalized under the laws and regulations
pay dividends to the enforced by the OCC. The bank also may be prevented
Holding Company, and from paying dividends if the OCC determines that the
the ability of the bank is operating in an unsafe or unsound condition
Holding Company to pay or engaging in an unsafe or unsound practice.
dividends to you.
Even if stockholders approve the proposed
reorganization into a bank holding company structure,
these restrictions on the bank's ability to pay
dividends will continue. Consequently, because the
holding company's principal source of income will
consist initially of dividends, if any, from the
bank, the restrictions on the bank's ability to pay
dividends could restrict the holding company's
ability to pay dividends. Moreover, the holding
company will be restricted in its ability to pay
dividends by constraints generally imposed on
Virginia corporations, and may be further restricted
by minimum capital requirements imposed by the Board
of Governors of the Federal Reserve System. See
"Regulatory Matters -- Holding Company Regulation."
The Federal Reserve Board has issued a policy
statement that provides that insured banks and bank
holding companies should generally pay dividends only
out of current operating earnings.
The bank's directors and As of the May 1, 2000 record date, the directors
executive officers own and executive officers of Salem Bank & Trust
a large amount of its beneficially own approximately 13.19% of our
stock and have outstanding common stock. As a result of this
significant control of percentage ownership, our directors and executive
its management and officers as a group can exercise significant control
affairs, which they over our management and affairs, including the
could exercise in a way election of directors and the determination of all
you believe is not in other matters requiring stockholder approval. This
your best interest. control is enhanced by the reorganization. Acting as
a group, they will retain the power to block business
combinations in accordance with the charter documents
of both the bank and the holding company.
Accordingly, this concentration of ownership may have
the effect of delaying or preventing a change of
control of our company that you may favor.
Provisions of the In addition, provisions of the charter documents of
Holding Company's the holding company, as well as Virginia corporate
charter and applicable law, could make it more difficult for a third party
law may prevent a to acquire us after the reorganization, even if doing
change in control. so would provide our stockholders with a "premium" to
prevailing market prices or otherwise be beneficial
to our stockholders. These provisions in the charter
documents include:
. a staggered board of directors;
. the power of the board to fix the terms of
preferred stock which the holding company
board can issue without stockholder approval;
. the limited ability to remove directors prior
to the end of their term except for cause and
then only if at least two-thirds of each
class of voting stock approves;
. a provision which prohibits stockholders from
calling special meetings of the holding
company's stockholders;
. advance notice procedures for stockholder
proposals;
8
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. super-majority (80%) shareholder approval
required for change of control transactions
involving a person who owns 5% or more of
holding company common stock unless the
transaction is approved by a majority of
certain unaffiliated directors or unless
certain conditions regarding the
consideration being offered to holding
company shareholders in the transaction are
met;
. the power of the directors, even if less than
a quorum, to fill vacancies on the board;
. the requirement for a super-majority (80%) of
shareholders to approve a change to certain
provisions of the holding company's Articles
of Incorporation or adopt different Bylaws
from those approved by the board of
directors;
. the power of a quorum of the board to change
the Bylaws; and
. the prior approval of the Federal Reserve
Board and the Virginia Bureau of Financial
Institutions must be obtained prior to the
occurrence of a change in control.
Our small market area Our primary market area is Salem, Roanoke City, and
places us at greater Roanoke County, Virginia. This part of the Roanoke
risk of a regional Valley market consists of approximately 60 square
economic problem, such miles and 200,000 people. Practically, our six
as a flood or the branches serve only a portion of this market.
closing of a large Accordingly, a regional disaster, like a flood or a
local employer, having tornado, or a regional economic problem like the
a large effect on our closure of a large local employer could hurt our
performance. performance. Roanoke has a diverse economic base, but
some large employers in our area, such as Roanoke
College or the Norfolk-Southern Corporation, have a
large number of employees and impact many local
businesses. The bank does not lend to any of the
largest companies in this region, but closure of one
of these large employers would hurt many local
businesses and could result in less business, more
defaults, and tougher competition for financial
services. This could make us less profitable or even
result in net losses.
FORWARD LOOKING STATEMENTS
No person is authorized to give any information or to make any
representation not contained or incorporated by reference in this proxy
statement/prospectus in connection with our solicitation of proxies or the
offering of the holding company common stock being made. You should not rely on
any other information or representation as having been authorized by Salem Bank
& Trust or Salem Community Bankshares. This proxy statement/prospectus does not
constitute (1) an offer to sell, or a solicitation of an offer to purchase, any
of holding company common stock offered by this proxy statement/prospectus, or
(2) the solicitation of a proxy, in any jurisdiction in which it is unlawful to
make that kind of an offer or solicitation. Neither the delivery of this proxy
statement/prospectus nor any distribution of holding company common stock
offered by this proxy statement/prospectus will, under any circumstances, create
an implication that there has been no change in the affairs of the bank or the
holding company or the information in this document or the documents or reports
incorporated by reference into this document since the date of this proxy
statement/prospectus.
. Some of the statements contained in this prospectus discuss future
expectations or state other "forward-looking" information. Those statements
could be affected by known and unknown risks, uncertainties and other
factors that could cause the actual results to differ materially from those
contemplated by the statements. The forward-looking information is based on
various factors and was derived using numerous assumptions. We are
obligated under federal and state securities laws to update forward-looking
information in future filings only to ensure that they are not misleading
regarding any material changes in our situation.
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SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
The following table shows selected consolidated financial data for each of
the years in the five-year period ended December 31, 1999. This consolidated
financial data is derived from, should be read together with, and is qualified
by reference to, the more detailed information contained in Salem Bank & Trust's
Annual Reports on Form 10-KSB for each of the years in the five-year period
ended December 31, 1999, as each may be amended, incorporated by reference into
this proxy statement/prospectus.
Selected Historical Financial Information
of Salem Bank & Trust N. A.
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except ratios, share and per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Total interest income.......................... $ 13,505 $ 11,894 $ 10,699 $ 9,850 $ 9,335
Total interest expense......................... 6,504 5,689 5,032 4,746 4,552
Net interest income............................ 7,001 6,205 5,667 5,104 4,783
Provision for loan losses...................... 315 358 391 193 119
Total noninterest income....................... 1,137 1,125 1,013 877 752
Total noninterest expense...................... 4,584 4,404 4,364 3,963 3,962
Income tax expense............................. 1,020 777 539 498 366
Net income..................................... 2,219 1,791 1,386 1,327 1,088
Per Share Data (1):
Net income..................................... $ 1.46 $ 1.19 $ .92 $ .89 $ .76
Net income-assuming dilution................... 1.44 1.16 .90 .87 .74
Cash dividends................................. .40 .35 .30 .26 .22
Stock dividends................................ 4.0% 4.0% 4.0% 3.0% 5.0%
Book value..................................... $ 11.69 $ 11.17 $ 10.70 $ 10.35 $ 9.85
Weighted average shares outstanding............ 1,520,290 1,510,463 1,500,783 1,491,246 1,429,736
Weighted average shares outstanding -
assuming dilution............................ 1,541,896 1,545,705 1,538,885 1,532,434 1,462,261
Balance Sheet Data:
Federal funds sold and securities purchased
under resale agreements...................... $ -- $ 10,180 $ 6,445 $ 975 $ 3,460
Securities available-for-sale.................. 9,376 2,920 5,903 9,909 10,243
Securities held-to-maturity.................... 41,456 38,777 16,242 14,995 16,774
Loans, net..................................... 115,593 98,404 97,320 86,405 73,577
Total assets................................... 180,276 162,583 136,373 123,513 120,248
Total deposits................................. 156,864 145,359 120,433 109,127 105,919
Total stockholders' equity..................... 17,837 16,292 14,905 13,771 12,640
Selected Ratios:
Return on average assets....................... 1.28 1.22 1.06 1.08 .93
Return on average equity....................... 12.77 11.32 9.51 9.93 9.23
Dividend payout ratio.......................... 28.03 29.26 32.25 29.62 30.61
Average equity to average assets............... 10.01 10.74 11.20 10.88 10.05
Allowance for loan losses to loans,
net of unearned income....................... 1.20 1.29 1.22 1.33 1.55
</TABLE>
____________________
(1) All prior-period weighted average shares outstanding, net income per share
and cash dividends per share data has been restated to reflect the Bank's
stock dividends. In addition, all prior-period net income per share and
weighted average shares outstanding data has been restated to conform with
the provisions of Statement of Financial Accounting Standards No. 128,
Earnings per Share.
10
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THE ANNUAL MEETING
Matters To Be Voted on at The Annual Meeting
At the Annual Meeting, you will be asked to vote on
. The reorganization of the bank into a holding company structure,
including adoption of the Plan and Agreement of Share Exchange, dated
as of June 17, 1999, among the bank and the holding company. We
organized the Salem Community Bankshares, Inc. as a new Virginia
corporation to become the holding company for the bank. Through the
share exchange between the bank and the holding company, each
outstanding share of common stock of the bank will be converted into
an equivalent share of common stock of holding company.
. A proposal to allow the Chairman of the Annual Meeting to postpone the
meeting if necessary to allow for more time to solicit additional
shares in favor of the reorganization.
. The election of nine (9) directors to the board of directors of the
bank.
. Any other business as may properly come before the annual meeting or
any adjournment of the annual meeting. Except for procedural matters
related to the conduct of the annual meeting, management is not aware
of any other matters which could come before the annual meeting.
Who is Eligible To Vote
If you held bank common stock at the close of business on May 1, 2000
you are entitled to vote at the annual meeting. On May 1, 2000, there were
1,526,067 shares of bank common stock outstanding. On that day, there were 644
holders of record of common stock. Each share of common stock is entitled to
one vote on each matter properly presented at the annual meeting.
Quorum, Required Vote
At least a majority of the total number of shares of common stock entitled
to vote must attend the annual meeting, in person or by proxy, to constitute a
quorum for matters to be voted upon by the common stockholders. We will count
shares that abstain and broker non-votes as present for purposes of determining
the presence of a quorum. If we have not obtained sufficient votes for a
quorum, the annual meeting may be adjourned or postponed to permit us to further
solicit proxies.
We will count abstentions in tabulations of the votes cast to determine
whether a proposal has been approved. Broker non-votes will not be counted to
determine the number of votes cast for any proposal. You may vote FOR the
reorganization, AGAINST the reorganization, or ABSTAIN by checking the
appropriate box.
More than two-thirds of the bank's outstanding common stock must approve
the reorganization for it to be passed. Consequently, the required vote of the
bank's common stockholders is based on the total number of shares of the bank's
common stock and not on the number of shares which are actually voted. Not
returning a proxy card, not voting in person at the annual meeting or abstaining
from voting will have the same effect as voting against the plan and agreement
of share exchange.
Revocability of Proxies
The proxies solicited pursuant to this proxy statement/prospectus, if
properly signed and returned to the bank, will be voted in accordance with the
instructions contained in the proxies, unless revoked prior to their use.
Executed proxies with no instructions indicated on the proxy card will be voted
for the reorganization. If you properly
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<PAGE>
submit a proxy card, you may revoke it at any time before it is exercised by (1)
filing a written notice of revocation with Gill Roseberry, Senior Vice President
and Cashier, Salem Bank & Trust, 220 E. Main Street, Salem, Virginia 24153, (2)
submitting a duly executed proxy card bearing a later date or (3) appearing at
the annual meeting and giving the Administrative Assistant notice of your
intention to vote in person.
Proxies solicited pursuant to this proxy statement will be returned to the
proxy solicitors and will be tabulated by inspectors of election designated by
the board of directors of the bank who are employees of the bank. If any proxies
or the tabulation is questioned, three judges, who are not executive officers or
directors, will review the matter and make a final determination. After the
final adjournment of the annual meeting, the proxies will be returned to the
board of directors of the bank for safekeeping. Proxies solicited pursuant to
this proxy statement may be used only at the annual meeting and any adjournment
of the meeting and will not be used for any other meetings.
Solicitation of Proxies
In addition to solicitation by mail, directors, officers and employees of
the bank may solicit proxies for the annual meeting from stockholders personally
or by telephone or telegram without receiving additional compensation for these
activities. The bank will bear the cost of soliciting proxies. The bank also
will make arrangements with brokerage firms and other custodians, nominees and
fiduciaries to send proxy materials to their principals and will reimburse those
parties for their expenses in doing so.
PROPOSED REORGANIZATION
INTO A BANK HOLDING COMPANY
The reorganization will be accomplished pursuant to the Plan and Agreement
of Share Exchange dated as of June 17, 1999. We have attached a copy of the Plan
and Agreement to this proxy statement as Appendix A and incorporate the plan by
reference into this proxy statement/prospectus. We urge you to read the entire
Plan and Agreement.
Parties to the Reorganization
. Salem Bank & Trust, N.A. - - Salem Bank & Trust, N.A. a publicly owned
full service commercial bank governed by the National Bank Act,
provides a wide range of financial services for retail and commercial
customers. Its principal executive offices are located at 220 E. Main
Street, Salem, Virginia 24153, and its telephone number is (540) 387-
0223. The bank operates under the regulations of the OCC and the
bank's deposits are insured by the FDIC to the full extent provided by
law.
. Salem Community Bankshares, Inc. -- Salem Community Bankshares, Inc.
is a corporation formed under the laws of the Commonwealth of Virginia
on May 28, 1999, to serve as a bank holding company after the
reorganization. The holding company has no prior operating history.
Its principal executive offices are located at the bank's address, and
it has the same telephone number as the bank.
Description of Proposed Reorganization
If our stockholders approve the reorganization and all of the other
conditions set forth in the Plan and Agreement of Share Exchange - primarily
regulatory approvals - are satisfied, on the effective date of the
reorganization, other than dissenting shares, each share of the bank's common
stock that is outstanding immediately prior to the reorganization will
automatically by operation of law become one share of holding company common
stock.
After the reorganization, the former holders of the bank's outstanding
common stock who do not exercise dissenters' rights will hold all of the
outstanding shares of holding company common stock, and the holding company will
own all of the bank's outstanding capital stock.
After the reorganization, the bank will continue its existing business and
operations as a wholly owned subsidiary of the holding company and the
consolidated (1) capitalization, (2) assets, (3) liabilities, (4) income and (5)
financial statements of the holding company immediately following the
reorganization will be substantially the same as
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<PAGE>
those of the bank immediately prior to the reorganization. The articles of
incorporation and the bylaws of the bank will continue in effect, and will not
be affected in any material manner by the reorganization. The bank will continue
to use the name "Salem Bank & Trust, N.A."
The boards of directors of the bank and holding company believe that the
reorganization is in the best interests of the bank's stockholders for the
reasons described below in the subsection captioned "Reasons for the
Reorganization." The boards of directors of the bank and holding company have
approved the Plan and Agreement of Share Exchange. If the bank's stockholders
approve the Plan and Agreement of Share Exchange and the other conditions
described below are satisfied, the reorganization will become effective at the
time specified in a Certificate of Share Exchange to be issued by the Virginia
State Corporation Commission.
Reasons for the Reorganization
. The banking industry and the broader financial services industry are
experiencing change at a rapid pace. Historical distinctions between
various types of financial institutions are eroding rapidly, and banks
are competing for business with companies that do not offer
traditional banking services.
. Traditional restrictions on branch banking have given way to multi-
state banking. Thus, banks are subject to aggressive competition from
other financial institutions, local, regional and national, as well as
non-financial institutions offering an array of financial products and
services.
. Current laws limit banks' ability to supplement traditional financial
services and products and to diversify into other related ventures in
order to respond to these competitive demands. The laws and
regulations applicable to bank holding companies, however, allow
holding companies somewhat greater flexibility in expanding their
markets and in increasing the variety of services they and their
subsidiaries provide their customers. Under the federal Bank Holding
Company Act, in addition to banks, the holding company may own
companies whose activities are closely related to banking. The
proposed new corporate structure will enhance the Bank's ability to
compete under the laws and conditions prevailing today and to respond
effectively in the future to changing market conditions, while
permitting the continuation of those services presently provided by
the Bank to its customers.
. The new holding company structure also may be used to affiliate with
other banks and with companies already established in financially
oriented activities. While the corporation contemplates no specific
acquisitions at this time, the holding company structure increases the
attractiveness of these affiliations by enabling other entities under
the appropriate circumstances to affiliate with the bank and to
maintain their own identities.
. A bank holding company may repurchase its own stock, without the
approval of any regulatory agency, within certain limitations, as long
as the company remains a "well-capitalized institution," as defined by
regulation, after the repurchase. The bank may repurchase its stock
only after approval by the OCC. By having the power to repurchase
stock, a bank holding company can be an additional source of liquidity
for a shareholder who may desire to sell his shares.
. The holding company also may provide more defenses against an unwanted
attempt by another party to acquire or gain control of the bank. We
are not aware of anyone who currently plans to acquire the bank. See
"Regulation and Supervision."
. The holding company may provide additional funding sources for the
bank, as well as better access to diverse money and capital markets.
For instance, the holding company, unlike the bank, will be permitted
to raise capital by issuing "capital securities." Any capital raised
by the holding company could then be invested as capital in the bank.
In general, we believe that operating as a bank holding company will
serve the interests of the banking public and the stockholders of the
bank by improving the capability and scope for service in a highly
competitive environment.
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<PAGE>
. Salem Bank & Trust pays a state franchise tax based on its capital.
The holding company will pay income tax but not a capital-based
franchise tax. The restructuring will reduce the bank's capital for
purposes of the franchise tax and we believe that the reduction in
franchise taxes that the bank pays will exceed the income taxes paid
by the holding company.
Recommendation of Salem Bank & Trusts Board of Directors
After careful consideration, the bank's board of directors has determined
that the reorganization is advisable and in the best interests of the bank and
its stockholders and has approved the Plan and Agreement of Share Exchange and
the transactions contemplated by the Plan and Agreement of Share Exchange. We
recommend that you vote FOR approval of the Plan and Agreement of Share
Exchange.
Treatment of Stock Certificates
After the reorganization, the former bank's shareholders who do not
exercise dissenters' rights will be entitled to exchange their bank stock
certificates for new certificates representing the same number of shares of
holding company common stock. Until so exchanged, bank stock certificates will,
for all purposes, represent the same number of holding company shares and the
holders of bank certificates who do not exercise dissenters' rights will have
all of the rights of holding company shareholders.
After the reorganization takes place, instructions concerning the exchange
of stock certificates will be sent to all holders of record as of the effective
date of the reorganization. The holding company intends to act as its own stock
transfer agent.
Conditions That Must Be Satisfied Before The Reorganization Can Occur
The following conditions must be satisfied before the reorganization can
occur:
. an effective registration statement under the Securities Act of 1933
for holding company common stock;
. compliance with all applicable state securities laws relating to the
issuance of holding company common stock;
. approval of at least two-thirds of the issued and outstanding shares
of the bank's outstanding common stock;
. approval of the Board of Governors of the Federal Reserve System for
Salem Community Bankshares to become a bank holding company;
. approval of the OCC for Bankshares to acquire control of Salem Bank &
Trust;
. all other required regulatory approvals, or waiver or exemption and
satisfaction of all other legal requirements necessary to complete the
reorganization and compliance with all statutory waiting periods;
. no imposition of any condition or requirement by any regulatory
authority that would materially and adversely affect the operations or
business prospects of the holding company or the bank following the
effective date which would make the completion of the reorganization
inadvisable;
. an opinion of counsel to the bank regarding the U.S. income tax
consequences of the reorganization;
. approval of holding company common stock for quotation on the Bulletin
Board of the National Association of Securities Dealers Automated
Quotation System.
Differences in Stockholder Rights as a Result of the Reorganization
If the reorganization takes place, the bank's stockholders will become
stockholders of Salem Community Bankshares, a Virginia corporation. Accordingly,
their rights will be governed by the Virginia Stock Corporation Act and the
articles of incorporation and bylaws of the holding company. The rights of
holders of holding company stock will no longer be governed by the National Bank
Act. This change of governing law, as well as from distinctions between the
articles of incorporation and bylaws of the bank and the holding company, will
produce some differences in your stockholder rights. The following discussion
summarizes the material differences in stockholder rights that will
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<PAGE>
arise as a result of the reorganization. The articles of incorporation and
bylaws of the holding company and of the bank are attached to this proxy
statement/prospectus at Appendix B. We urge all stockholders to read these
documents.
Payment of Dividends. The bank's ability to pay dividends on its common
stock is restricted by applicable banking laws. The holding company will not be
restricted on its ability to pay dividends by those same laws, but restrictions
generally imposed on Virginia corporations will be imposed on the holding
company. Under Virginia corporate law, dividends may be paid out only if after
making the distribution the corporation can pay its debts and its assets exceed
its liabilities. The holding company's ability to pay dividends also may be
restricted by minimum capital requirements imposed by the Board of Governors of
the Federal Reserve System. Furthermore, the Board of Governors has issued a
policy statement that provides that insured banks and bank holding companies
should generally pay dividends only out of current operating earnings. You
should note, though, that after the reorganization, the holding company's
principal source of income initially will consist of dividends, if any, from
Salem Bank & Trust, and the existing restrictions on the bank's ability to pay
dividends will continue in effect.
Authorized Capital. Salem Bank & Trust's Articles of Incorporation
authorize the issuance of up to 2,000,000 shares of common stock, par value
$5.00 per share, of which 1,526,067 shares were issued and outstanding as of
December 31, 1999. The bank is not authorized to issue shares of preferred
stock. The holding company's Articles will authorize the issuance of up to
10,000,000 shares of common stock, of which no shares were issued and
outstanding as of the date of these proxy materials. The holding company also
will be authorized to issue up to 10,000,000 shares of preferred stock on terms
set by the company's board, which could favor holders of preferred stock over
holders of common stock in the payment of dividend, and could also be used to
prevent a takeover attempt.
Shareholder Vote Required for Certain Actions. Salem Bank & Trust's
Articles of Incorporation provide that an amendment of its Articles may be
approved by shareholders owning a majority of the stock in the Bank, consistent
with applicable laws. In addition, the board of directors or shareholders owning
at least 10% of the bank's common stock may call a meeting of the bank's
shareholders. Other fundamental matters, such as mergers, dissolution, sale of
substantially all the assets, etc. must be approved by two-thirds of the shares
outstanding. The bank's Bylaws may be amended at any regular meeting of the
board of directors by a majority vote of the directors in office.
The holding company's Articles decrease the shareholder vote required to
approve mergers, business combinations and certain other fundamental
transactions to a majority of the shares entitled to vote at a meeting under two
circumstances:
. for mergers and other similar transactions not involving a person who
owns 5% or more of holding company shares, if the majority of holding
company directors approve the transaction;
. for mergers and certain other transactions involving a person who owns
5% or more of holding company shares, if the majority of the directors
and a majority of directors who were in office before the large
shareholder obtained the 5% interest and who are not affiliated with
the large shareholder approve the transaction and certain other
conditions relating to the consideration which holding company
shareholders are to receive in the transaction are met.
In these cases, if the conditions are not met to reduce the required
shareholder vote, the holding company's Articles increase the required
shareholder vote to 80% of each class of voting stock outstanding.
The effect of these provisions is to make shareholder approval of certain
transactions less difficult to obtain if favored by the board of directors. A
lower required shareholder vote will benefit the holding company by reducing the
cost of soliciting the shareholder vote. If, however, the Board does not approve
a merger or similar transaction, these provisions will make approval of the
transaction subject to the 80% affirmative shareholder vote, which may be more
difficult to obtain.
The holding company's Articles provide that an amendment of the Articles
may be approved by a majority of votes cast by each voting group entitled to
vote at a meeting, unless the Board of Directors require a greater vote.
However, an amendment to Article 3 of the holding company's Articles of
Incorporation must be approved by the vote
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of 80% or more of each class of voting stock. Article 3 sets the minimum and
maximum size of the Board and divides the Board of Directors into three classes;
permits directors to be removed only for cause and on the vote of at least two-
thirds of holding company shareholders entitled to vote; and permits the
shareholders to change the Bylaws upon an 80% vote of all holding company
shareholders entitled to vote.
Size and Classification of Board of Directors. The bank's Articles provide
for a board of directors consisting of not less than 5 nor more than 25
individuals, with the exact number to be fixed by a majority of the full Bank
Board. The Bank Board, however, may not increase the number of directors by more
than two (if there are 15 or fewer directors last elected by shareholders) or by
more than 4 (if there are more than 16 directors last elected by shareholders)
between shareholders' meetings. The bank board of directors set the number at
nine (9) directors more than ten (10) years ago and has held to that number ever
since. The National Bank Act requires that each director own Bank common stock
having a par value of not less than $1,000, or stock in like amount of the
bank's holding company. Directors are elected at each annual meeting of
shareholders.
The holding company's Articles similarly provide for a board of directors
of between 5 and 25 individuals. The holding company's Bylaws presently do not
provide otherwise. The holding company Articles provide that directors are
divided into three classes as nearly equal as possible, to be elected to
consecutive three-year terms, with the first class' term expiring in 2000.
Directors of a class whose term expires, or their replacements, will be elected
at the next annual meeting of shareholders.
Vacancies and Removal of Directors. The bank's Bylaws provide that
vacancies on the Board of Directors may be filled by a majority vote of the
remaining directors. The National Bank Act provides that any director appointed
following a vacancy shall hold office until the next election of directors.
Neither the National Bank Act nor the Bank Articles or Bylaws provide for the
removal of directors.
The holding company's Articles provide that the directors then in office,
whether or not a quorum, may fill a vacancy by majority vote. Holding company
directors may be removed only for cause and with the affirmative vote of at
least two-thirds of the outstanding shares entitled to vote.
Director Liability and Indemnification. The bank's Articles provide that
the bank may indemnify a director, officer or employee made a party to a
proceeding because of being a director, officer or employee of the bank for
reasonable expenses, unless the director or officer was grossly negligent, or
engaged in willful misconduct or criminal acts.
The holding company's Articles provide that each director and officer shall
be indemnified against liabilities, penalties and claims because of serving as a
holding company director or officer, serving as an officer, director, employee,
agent of another entity at holding company request, except as to matters for
which he is finally adjudged liable due to willful misconduct or knowing
violation of criminal law. The holding company's Articles also eliminate
liability to the holding company and its shareholders of each director and
officer for monetary damages to the full extent permitted by Virginia law,
except for liability for willful misconduct or a knowing violation of criminal
or securities laws.
Special Meetings of Shareholders. The bank's Bylaws provide that special
meetings of the shareholders may be called by the board of directors or by three
or more shareholders owning, in the aggregate, at least 10% of the outstanding
stock of the bank. Holding company Bylaws provide that special meetings of the
shareholders may be called by the board of directors, the Chairman of the Board
or the President.
Director Nomination and Shareholder Proposals. It is the practice of the
bank for the board to consider candidates for board election. The entire board
then determines which candidates should be recommended to the shareholders for
approval at the annual meeting. Replacement directors are appointed by the board
until the annual meeting. The bank's Articles require that any director
nomination, other than those made on behalf of existing management, must be
stated in writing and filed with the President of the bank and with the OCC not
less than 14 days nor more than 50 days prior to the date of the shareholder
meeting. The notice must contain certain information relating to the shareholder
nominee for director. Nominations not made in accordance with the requirements
are not considered.
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Holding company Bylaws provide that no person (other than initial
directors) who will be age 75 or older on the date set for election shall be
eligible to be a director. To place a matter before a shareholders meeting,
shareholders must give written notice to the President not less than 60 or more
than 90 days before the meeting unless less than 70 days notice or public
disclosure of the meeting is given, in which case the shareholder must notify
the President by the tenth day following the date of the meeting notice or
disclosure. The shareholder's notice to the President must contain certain
specified information about the shareholder's proposal.
Rule 14a-8 of the regulations promulgated by the SEC under the Exchange
Act, however, provides that shareholders who own at least 1% or $1,000 of market
value of voting securities of a registrant, which will include the holding
company, may make a proposal for a vote at a shareholders' meeting if the
proposal is received on a timely basis and may not otherwise be omitted by the
registrant, all as described in more detail in that rule.
Shareholder Voting Rights in General. You do not have preemptive rights as
a Salem Bank & Trust shareholder but you do have cumulative voting rights in the
election of directors. As a holding company shareholder, you will have neither
preemptive rights or cumulative voting rights. See "Description of Holding
Company Capital Stock".
State Anti-takeover Statutes. The National Bank Act does not provide any
specific anti-takeover statutes to the national banking associations, like Salem
Bank & Trust. Virginia corporate law restricts transactions between a
corporation and its affiliates and potential acquirers. Virginia corporate law
applies to the holding company. The summary below is necessarily general and is
not intended to be a complete description of all the features and consequences
of those provisions.
Affiliated Transactions. Virginia corporate law treats "Affiliated
Transactions" differently from other similar transactions. Affiliated
Transactions include certain mergers, share exchanges, material dispositions of
corporate assets not in the ordinary course of business, and similar
transactions which have the effect of increasing by more than 5% the voting
strength of a shareholder who already owns at least 10% of voting stock.
The provisions governing Affiliated Transactions generally require that,
for three years following the date upon which any shareholder acquires at least
a 10% voting interest, any Affiliated Transaction must be approved by the
affirmative vote of two-thirds of the outstanding voting shares, other than the
shares of the large shareholder, and by a majority (but not less than two) of
the corporation's board of directors who (i) were members before the date on
which the shareholder acquired his 10% interest or (ii) were recommended for
election by a majority of such directors. These are called disinterested
directors. After the three year period, these provisions require approval of
the Affiliated Transaction by the affirmative vote of the holders of two-thirds
of the outstanding shares of the corporation, other than those of the large
shareholder, but not by the disinterested directors.
The principal exceptions to these special shareholder voting requirements
for Affiliated Transactions occurring after the three year period has expired
and require either that the transaction be approved by a majority of the
corporation's disinterested directors or that the transaction satisfy certain
fair price requirements of the statute. In general, the fair price requirements
provide that shareholders must receive the higher of the highest per share price
for their shares as was paid by the large shareholder attempting to engage in an
Affiliated Transaction for his or its shares, or the fair market value of the
shares.
These provisions were designed to deter certain takeovers of Virginia
corporations. There are no Salem Bank & Trust shareholders who would be
restricted by the Affiliated Transactions laws as holding company shareholders.
. Control Share Acquisitions. The Virginia Control Share Acquisitions
statute also is designed to afford shareholders of a Virginia public
company protection against certain types of non-negotiated
acquisitions in which a party seeks to gain voting control. The
statute generally applies to acquisitions of shares of a corporation
which would result in ownership of at least 20% of the corporation's
voting shares. These "control shares" will not be entitled to voting
rights unless the holders of a majority of the other shares vote to
accord the "Control Shares" with voting rights. Under certain
circumstances, the statute grants dissenters' rights to shareholders
who vote against granting voting rights to the "Control Shares". A
corporation may also provide for redemption of control shares with no
voting rights. Among the
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<PAGE>
acquisitions specifically excluded from the statute are acquisitions
which are a part of certain negotiated transactions to which the
corporation is a party.
. Dissenters' Rights. For a description of the respective rights for
dissenting shareholders of the bank, see The Reorganization -
Appraisal Rights for Dissenting Shareholders."
Tax Consequences of the Reorganization
Before the reorganization may take place Salem Bank & Trust must receive an
opinion of counsel that the reorganization will qualify as a tax-free exchange
within the meaning of Section 351 of the Internal Revenue Code of 1986, as
amended. As a tax-free exchange, the reorganization will have the following
federal income tax consequences:
(1) No gain, loss or income will be recognized by the holding company upon
the receipt of bank common stock solely in exchange for holding company common
stock;
(2) No gain or loss will be recognized by the shareholders of bank common
stock upon the transfer of their common stock to the holding company solely in
exchange for holding company common stock;
(3) The aggregate basis of holding company common stock received by Salem
Bank & Trust shareholders in the share exchange will be the same as the
aggregate basis of bank common stock exchanged for it;
(4) The holding period of holding company common stock to be received by
bank shareholders will include the period during which bank common stock
surrendered in exchange for it was held, provided bank common stock was held as
a capital asset on the date of the exchange; and
(5) Bank shareholders who exercise their dissenter's rights generally will
recognize gain or loss equal to the difference between the amount of money
received and their adjusted basis in their bank common stock held.
Each Salem Bank & Trust stockholder should consult its tax counsel as to
the specific federal and state tax consequences of the reorganization, if any,
to that stockholder. Gain or loss for United States income tax purposes may be
recognized in the case of any Salem Bank & Trust stockholder who receives
payment in cash for the value of shares as a result of the exercise of rights as
a dissenting stockholder.
Regulatory Approvals
For the reorganization to occur, the holding company and the bank must
receive approvals from the OCC, Federal Reserve and Virginia State Corporation
Commission, Bureau of Financial Institutions. In this section, we refer to
these approvals as the required regulatory approvals. The holding company has
applied to the OCC to acquire the shares of Salem Bank & Trust in the
reorganization. In reviewing these applications, the OCC will consider, among
other things, the financial and managerial resources of the bank, the effect of
the reorganization on depositors, creditors and stockholders of the bank, and
the public interest.
The holding company also filed a notice with the Federal Reserve to become
a bank holding company under the Bank Holding Company Act of 1956 and an
application with the Bureau of Financial Institutions of the Virginia State
Corporation Commission to become a financial institution holding company under
Virginia law.
Neither the holding company nor Salem Bank & Trust is aware of any other
governmental approvals or actions that are required for the reorganization to
take place that are not described above. If any other approval or action is
required, Salem Bank & Trust and the holding company presently contemplate that
they would seek the approval or take the required action.
18
<PAGE>
Rights of Dissenting Stockholders
The following summarizes the Virginia law of dissenter's rights. Chapter
9, Article 15 of the Virginia Stock Corporation Act governs dissenter's rights
and is reproduced in Exhibit B. It applies to the share exchange because the
Bylaws of Salem Bank & Trust were amended to apply the law of Virginia corporate
governance to the Bank as a condition to obtaining OCC approval for the Bank to
engage in a share exchange transaction in order to adopt a holding company
structure. You should read Appendix B thoroughly.
A Salem Bank & Trust shareholder will have the right to receive in cash the
fair value of his or her Salem Bank & Trust shares immediately prior to the
completion of the share exchange if the shareholder properly exercises
dissenter's rights. A shareholder who desires to exercise dissenter's rights
must satisfy all of the following conditions.
(1) Deliver a written notice of intent to demand payment for the
shareholder's Salem Bank & Trust shares to the bank before the vote on
the share exchange. Merely voting against, abstaining or failing to
vote on the share exchange will not relieve you of giving this notice.
(2) Do not vote for approval of the share exchange. Voting for approval
or delivering a proxy for the shareholders' meeting (unless the proxy
specifies a vote against or abstaining from voting on approval of the
share exchange) will nullify a notice of intent to demand cash
payment. If a shareholder has shares registered in his or her name,
some of which are beneficially owned by another person, the
shareholder may assert dissenter's rights as to less than all of the
shares registered in his or her name, only if the shareholder (i)
dissents with respect to all shares registered in the shareholder's
name which are beneficially owned by any one person; and (ii) notifies
the Bank in writing of the name and address of each person. The
rights of a partial dissenter are determined as if the shares as to
which the shareholder dissents and the shareholder's other shares are
registered in the names of different people. The beneficial owner of
shares registered in another name may assert dissenter's rights if:
(i) the beneficial owner gives the written consent of the shareholder
of record to Salem Bank & Trust to the dissent not later than the time
the beneficial asserts dissenter's rights; and (ii) the beneficial
owner dissents with respect to all shares beneficially owned or over
which he or she has the power to vote.
(3) If the share exchange is completed, Salem Bank & Trust would be
required, within 10 days after completion, to deliver a notice to all
shareholders who properly exercised dissenter's rights. This notice
will give specified information to the shareholder in order to
complete the process of demanding cash payment for his or her shares.
A shareholder who is sent a dissenter's notice must send a payment
demand to the Bank and take certain other actions within the time
period provided in the notice. Failure to do so on time will cause
loss of dissenter's rights.
Generally, within 30 days after receipt of a payment demand from a
dissenting shareholder, the bank is required to pay the dissenting shareholder
the amount the Bank estimates to be the fair value of the dissenter's shares,
plus accrued interest. The bank may choose to withhold payment, however, to
dissenters who were not the beneficial owners of the dissenting shares at the
earlier of the first publication by the news media or the first announcement to
shareholders generally of the share exchange terms. In this case, the bank will
estimate the fair value of the after acquired shares based on then current
market trades, plus accrued interest; and will offer to pay that amount to each
dissenter who agrees to accept it in full satisfaction of the demand. The bank
will explain to the dissenter how it computed the fair value of the after
acquired shares and how it calculated interest.
Within 30 days after the bank makes the payment to dissenters or offers
payment for after acquired shares, a dissenter may notify the Bank in writing of
the dissenter's own estimate of the fair value of his or her shares and the
amount of interest due and demand payment of that amount (less what the Bank has
already paid) or reject the Bank's offer to pay and demand payment of the
estimate. If any demand remains unsettled, within 60 days after receiving
payment demand from the dissenter, the bank will either ask the court to
determine the fair value of the dissenting shares and the interest owed and make
all dissenters whose demands remain unsettled parties to the lawsuit or pay the
amount demanded.
19
<PAGE>
Termination of the Plan and Agreement of Share Exchange
Termination. The Plan and Agreement of Share Exchange may be terminated by
the unilateral action of either of the board of directors of the bank or holding
company prior to the approval by the shareholders of the bank, or by the mutual
consent of both boards of directors of the bank and the holding company after
stockholder approval. The following are some of the reasons why either or both
parties might terminate the Share Exchange:
. The number of shares of Salem Bank & Trust common that voted against
approval of the reorganization or that have sought dissenter's rights
is great enough that completion of the reorganization is unlikely or
inadvisable;
. Any action, suit, proceeding, or claim is commenced or threatened or
any claim is made that could make completion of the reorganization
inadvisable;
. It is likely that a regulatory approval will not be obtained, or if
obtained, has or will contain or impose a condition or requirement
that would materially and adversely affect the operations or business
prospects of the holding company or Salem Bank & Trust following the
effective date so as to render inadvisable the completion of the
reorganization; or
. Any other reason exists that makes completion of the share exchange
inadvisable in the sole and exclusive judgment of the respective board
of directors.
Each party's decision to terminate the Plan and Agreement of Share Exchange will
be made in the sole discretion of its own board of directors and for any or no
reason as the board may determine. Upon termination, the Plan and Agreement of
Share Exchange will be deemed void and of no further effect. There will be no
liability under or on account of the termination on the part of the parties, or
the directors, officers, employees, agents or stockholders of any of them,
except that the bank will pay the fees and expenses incurred by the parties in
connection with the transactions contemplated in the reorganization.
Market Price of Salem Bank & Trust's Common Stock and Dividends
Salem Bank and Trust, National Association has only one class of common
stock at a par value of $5 per share. On May 12, 1994, the Bank's common stock
was approved for listing on the OTC Bulletin Board and began trading on the
Bulletin Board under the symbol "SMVA" on June 30, 1994. During 1996, the
Bulletin Board symbol was changed to "SBVA" under which the Bank's common stock
is currently trading. McKinnon & Company, Inc., Monroe Securities, Inc., Scott &
Stringfellow, Davenport and Co., LLC, Hill, Thompson, Magid & Co., Ryan Beck &
Co. and Baird, Patrick & Co., Inc. were the principal market makers in the
Bank's common stock at December 31, 1999.
As of December 31, 1999, there were 639 stockholders of record holding
1,526,067 shares of the authorized 2,000,000 shares. On May 1, 2000 (the most
recent practicable date prior to printing proxy statement/prospectus), there
were 644 holders of record of bank's common stock. The most recent prior date
that the bank's common stock on that date traded at a high price of $13.25 per
share. On April 27, 1999 (the date prior to the announcement of the proposed
reorganization), the high and low sales prices per share of Salem Bank & Trust's
common stock were $16 1/2 and $16 1/8. The high and low bid prices of the Bank's
common stock during 1999, 1998, and 1997 were as follows:
<TABLE>
<CAPTION>
Quarter Ended High and Low Sales Prices Cash Dividends Paid
High Low
<S> <C> <C> <C>
1997
March 31 $16.00 $14.00 --
June 30 16.00 14.75 --
September 30 19.38 15.00 --
December 31 19.38 14.75 $0.33
1998
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C> <C>
March 31 $20.25 $19.50 --
June 30 20.75 19.50 --
September 30 19.75 14.50 --
December 30 19.00 16.00 $0.35
1999
March 31 $18.00 $16.00 --
June 30 17.00 15.82 --
September 30 17.75 16.25 --
December 31 18.75 14.00 $0.40
2000
March 31 $15.00 $12.13 --
through May 1 $13.75 $13.13
</TABLE>
No attempt has been made by the Bank to verify the accuracy of the above
common stock market prices. The Bank expects to continue to pay dividends in
the future based on its income.
The holding company intends to follow the bank's policy of declaring and
paying a cash dividend annually. The declaration and payment of future dividends
by the holding company on its common stock will depend upon its earnings and
financial condition and upon other factors that are not presently determinable.
After the reorganization takes place, the holding company initially will obtain
the funds needed for payment of its dividends and expenses from the bank,
chiefly in the form of dividends. Salem Bank & Trust's ability to pay dividends
may be restricted by federal banking law and the regulations of the OCC. For
more information, please see the section of this proxy statement/prospectus
captioned "Proposed Reorganization into a Bank Holding Company -- Differences in
Stockholder Rights -- Payment of Dividends."
Management
The initial directors of the holding company are the current directors of
Salem Bank & Trust, except for Carl E. Tarpley, Jr., who is a director of the
holding company but not of Salem Bank & Trust. Holding company directors have
been divided into three classes as follows:
. Class A: Gladys O'Brien, Truman Dorton, Carlos Hart
. Class B: Morris Elam, H. Morgan Griffith, Dr. Walter Hunt
. Class C: Clark Owen, Jr., Carl E. Tarpley, Jr., Dr. Eugene Bane, and
Rose Hagen.
The Class A directors have an initial one year term and, if renominated,
will be subject to shareholder reelection at the 2001 holding company annual
shareholder meeting. Similarly, the Class B directors, if renominated, will be
subject to shareholder reelection at the 2002 holding company annual shareholder
meeting. The Class C directors, if renominated, will be subject to shareholder
reelection at the 2003 holding company annual shareholder meeting.
Approval of the reorganization by the bank's shareholders will be deemed to be a
confirmation by holding company stockholders of those persons as holding company
directors without further action and without changes in classes or terms.
Several officers of Salem Bank & Trust will hold similar positions with the
holding company. The names of these officers and their titles are shown below.
After the reorganization takes place, these officers will continue to be
officers of the holding company.
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
Clark Owen, Jr. President and Chief Executive Officer
Carl E. Tarpley, Jr. Executive Vice President and Treasurer
Gill R. Roseberry Secretary
</TABLE>
21
<PAGE>
ADDITIONAL INFORMATION ABOUT SALEM BANK & TRUST
Salem Bank & Trust is a nationally chartered commercial bank, headquartered
in Salem, Virginia. Its deposits are insured by the FDIC. The bank has
operated as a full service commercial bank since 1978, offering a broad range of
banking products.
Historically, Salem Bank & Trust's banking operations have focused on the
City of Salem, Roanoke City, and Roanoke County, Virginia. The bank has
experienced growth, with total assets increasing from $104 million at December
31, 1993 to $180.3 million at December 31, 1999, and total deposits increasing
from $93.4 million at December 31, 1993 to $156.9 million at December 31, 1999.
The bank's net income during that period increased from $1.0 million for the
year ended December 31, 1993 to $2.2 million for the year ended December 31,
1999. Since the beginning of 1993 through the date of this proxy
statement/prospectus, the bank has declared $2.8 million of cash dividends to
stockholders, and total stockholders' equity has increased from $9 million at
December 31, 1993 to $17.8 million at December 31, 1999.
The bank's interest earning assets are comprised primarily of loans and
investment and mortgage-related securities. At December 31, 1999, loans, net,
were $115.6 million and investment securities held to maturity were $41.5
million. This compares to net loans of $98.4 million and investment securities
held to maturity of $38.8 million at December 31, 1998. The bank's loan
portfolio consists primarily of consumer, small business, and real estate,
including the following types of loans as of the dates indicated:
<TABLE>
<CAPTION>
Summary of Loans by Category ($ 000's)
------------------------------------------------
1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Commercial $ 9,058 $ 12,301 $ 7,489
Consumer (principally installment) 22,183 19,236 20,412
Real estate - mortgage 71,914 55,372 58,368
Real estate - construction 14,881 13,727 13,325
-------- -------- -------
Total Loans 118,036 100,636 99,594
Less unearned income (1,039) (948) (1,074)
-------- -------- -------
Total loans, less unearned income $116,997 $ 99,688 $98,520
======== ======== =======
</TABLE>
At December 31, 1999, nonaccrual loans totaled $810, and the bank's total
allowance for loan losses was $1,404 or 1.20% of loans net of unearned income
and 173.3% of nonaccrual assets at that date.
Deposits in Salem Bank & Trust are insured to the maximum extent provided
by law by the FDIC, and the bank is a member of the Federal Home Loan Bank
System. The FDIC and OCC examine and regulate the bank's operations. As a
member of the Federal Reserve System, the bank also is subject to regulations of
the Federal Reserve Board that are applicable to member banks. If the
reorganization is approved and completed, the holding company will be regulated
by the Federal Reserve Board.
Salem Bank & Trust's executive offices are located at 220 East Main Street,
Salem, Virginia 24153; its telephone number is (540) 387-0223; and its home page
on the Internet World Wide Web is at: www.salembank.com.
-----------------
Market Area and Competition
Salem Bank & Trust's primary service area is the City of Salem, Roanoke
City, and Roanoke County, Virginia. Located in the Valley of Virginia in
western Virginia, this market is diversified but has not grown in recent years
as fast as the northern and eastern portions of the state. Salem Bank & Trust
competes mainly with other commercial banks and thrifts in attracting and
retaining savings deposits and in making consumer, real estate and commercial
loans.
22
<PAGE>
There are 13 other banks operating in the Roanoke Valley. Salem Bank &
Trust competes for loans with other banks, most of which are larger and have
available resources greater than those of Salem Bank & Trust. In addition,
Salem Bank & Trust competes with (1) credit unions, (2) small loan companies,
and (3) savings institutions. Recently, three banks opened branch offices in
Salem Bank & Trust's primary market area, further intensifying competition.
Salem Bank & Trust may not be able to continue to increase its deposit base or
originate loans in the manner or on the terms on which it has done so in the
past.
Management believes that Salem Bank & Trust has been able to compete
effectively for deposits and loans by:
. its knowledge of its primary service area
. emphasizing its local ownership and personal connections with
businesses and consumers in its primary service area,
. offering a variety of transaction account products and loans with
competitive features,
. pricing its products at competitive interest rates,
. offering convenient branch locations, and
. emphasizing the quality and personal nature of its service.
Salem Bank & Trust's ability to originate loans depends primarily on the
rates and fees charged and the service it provides to its borrowers in making
prompt determinations as to whether it will fund particular loan requests.
Branches and Offices
As of May 1, 2000, Salem Bank & Trust owned 1 branch and 1 other
location for its operations center, and leased 5 locations for its main office
and branches. The bank recently opened a branch at 3804 Brandon Road, in
Roanoke City, primarily serving the residents at Brandon Oaks.
Salem Bank & Trust's properties are well maintained and are suitable for
the bank's business as presently conducted. All of the bank's properties are
listed below.
Properties Owned:
Operations Center 110 E. Main Street, Salem, VA 24153
West Main Office 1251 W. Main Street, Salem, VA 24153
Properties Leased:
Main Office 220 E. Main Street, Salem, VA 24153
South Salem Office 1406 Colorado Street, Salem, VA 24153
Oak Grove Office 2103 Electric Road, Roanoke, VA 24018
Hollins Office 7337 Williamson Road, Roanoke, VA 24019
Brandon Oaks Office 3804 Brandon Avenue, Roanoke, VA 24018
Principal Shareholders of Salem Bank & Trust
For information in connection with the beneficial ownership of the capital
stock of Salem Bank & Trust please refer to the "Beneficial Ownership of
Securities" section of this proxy statement/prospectus.
ADDITIONAL INFORMATION ABOUT SALEM COMMUNITY BANKSHARES
23
<PAGE>
Salem Community Bankshares was incorporated on May 24, 1999 in Virginia to
serve as a bank holding company in the reorganization. The holding company has
no prior operating history. Its principal office is located at 220 East Main
Street, Salem, Virginia 24153, and its telephone number is (540) 387-0223.
The holding company is authorized to issue 10,000,000 shares of common
stock, no par value, and 10,000,000 shares of preferred stock. The bank
currently owns 10 shares of holding company common stock, which will constitute
all of the issued and outstanding capital stock of the holding company
immediately prior to the reorganization. On the effective date of the
reorganization, all of the holding company stock held by the bank will be
canceled.
On the effective date of the reorganization, the outstanding shares of the
bank common stock will be acquired from bank stockholders through a statutory
share exchange. The bank shares will be converted into the equivalent number of
shares of holding company common stock, and the holding company will own all of
the outstanding capital stock of the bank.
Description of Holding Company Capital Stock
The following summary of the terms of holding company capital stock is not
complete and is subject to the applicable provisions of Virginia law and holding
company articles of incorporation and bylaws which are attached to this proxy
statement/prospectus at Appendix B.
Salem Community Bankshares Common Stock. The holders of holding company
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of stockholders. Each share of holding company
common stock has the same relative rights as, and is identical in all respects
to, each other share of holding company common stock. Holding company board of
directors can issue preferred stock with voting, conversion and other rights
which could adversely affect the voting power, without stockholder approval, of
the common stockholders. See "Holding Company Preferred Stock" below.
If the holding company is liquidated or dissolved or distributes all of its
assets, after the preferential rights of holding company preferred stock, if
any, are satisfied, holding company common stock holders will share ratably in
the assets of the holding company legally available for distribution.
Holding company common stock:
. is not redeemable;
. is not convertible for other shares of holding company capital stock;
. is not subject to a sinking fund;
. does not have any preemptive rights to subscribe for other shares
issued by the holding company; and
. does not have cumulative voting rights for election of directors.
Holding company common stock holders are entitled to receive dividends on
an equal per share basis when, as, and if declared by the board of directors out
of funds legally available. Holding company common stock shares to be issued as
part of the reorganization when issued will be duly authorized, validly issued,
fully paid and nonassessable. Holding company intends to act as its own transfer
agent, registrar and dividend disbursement agent for its common stock.
Holding Company Preferred Stock. The holding company articles of
incorporation authorize its board of directors to provide, when it deems
necessary, for the issuance of preferred stock in one or more series. The
holding company board of directors may establish by resolution the terms of any
newly created series of preferred stock. Terms that may be established include:
(1) the designation of the series;
(2) the dividend rate of the series, including
24
<PAGE>
. the conditions and dates on which the dividends will be payable,
. the preference or relation which the dividends will bear to the
dividends payable on any other class or classes of capital stock
of the holding company; and
. whether the dividends will be cumulative or non-cumulative;
(3) whether the shares of the series will be redeemable by the holding
company, and if so, on what terms and conditions;
(4) the terms and amount of any sinking fund provided for the purchase or
redemption of the shares of the series;
(5) whether the shares of the series will be convertible and if so, the
terms of conversion;
(6) the extent, if any, to which the holders of the shares will be
entitled to vote;
(7) the restrictions and conditions, if any, upon the issue or re-issue of
any additional preferred stock ranking evenly with or senior to the
shares as to dividends or upon dissolution; and
(8) the rights of the holders of shares upon dissolution, or distribution
of the assets of the holding company, which may be different in the
case of a voluntary dissolution.
Holding company common stock holders may be adversely affected by future
issuances of holding company preferred stock, since preferred stock issued in
the future may be designated with special rights or preferences superior to
those of holding company common stock as to dividends, liquidation rights and
voting rights. For example, the holding company board of directors could
designate a new class of preferred stock with a separate class right to approve
a merger or sale of substantially all the assets of the holding company or other
matters. Consequently, the issuance of preferred stock may have the effect of
delaying or preventing a change in control of the holding company. See "Risk
Factors -- Provisions of the holding company charter and applicable law may
prevent a change in control."
Restrictions on Acquisition of the Holding Company
Several provisions of holding company articles of incorporation and bylaws
may discourage unilateral tender offers or other attempts to take over and
acquire the business of the company. The following summarizes those provisions
of holding company articles of incorporation and bylaws which might have a
potential "anti-takeover" effect. You should refer in each case to the holding
company articles of incorporation and bylaws which are attached to this proxy
statement/prospectus at Appendix B.
. Classified Board of Directors. The holding company board of directors
is divided into three classes of approximately equal numbers of
directors, with the term of office of one class expiring each year.
This provides a greater likelihood of continuity, knowledge and
experience on the holding company board of directors because at any
one time, one third of the board of directors would be in its second
year of service and one third of the board of directors would be in
its third year of service. In addition, any person who may attempt to
take over the holding company would have to deal with the current
board of directors because even if that person acquires a majority of
the outstanding voting shares of the holding company, that person
would be unable to change the majority of the board of directors at
any one special meeting.
. Removal of Directors. Directors may be involuntarily removed from
office before their term expires only for cause and only if at least
two-thirds of each class of holding company voting stock vote in favor
of removal at a meeting of shareholders. This provision may make it
difficult for any person who may attempt to take over the holding
company to remove elected directors before the end of their term.
. Vacancies on the Board of Directors. Any vacancy occurring in the
board of directors, including an increase in the number of authorized
directors, may be filled only by the affirmative vote of a majority of
25
<PAGE>
the directors then in office, though less than a quorum of the board
of directors. A director elected to fill a vacancy will serve until
the next shareholders' meeting at which directors are elected. This
provision may make it difficult for any person who may attempt to take
over the holding company to elect new directors even if that person
successfully removes existing directors.
. Size of the Board. The number of holding company directors cannot
exceed 25, unless the Bylaws provide otherwise. Any person who may
attempt to take over the holding company will not be able to increase
the size of the Board in order to elect that person's nominees
without a change in the holding company's Articles of Incorporation.
. Power of the Board to Issue Preferred Stock. The Board of Directors
may authorize the holding company to issue preferred stock in one or
more series. The Board may also establish the terms of any series of
preferred stock holding company issues. By issuing one or more series
of preferred stock with certain special rights or preferences - for
example, the right to approve a merger or sale of all or substantially
all of the assets of the holding company - it would be more difficult
for a potential acquirer to obtain necessary shareholder approval to
acquire the holding company.
. Special Shareholders Meetings. A special holding company shareholders
meeting may only be called by the Chairman of the Board of Directors,
the President of the holding company or by the Board of Directors.
Because certain actions may only be taken at a special shareholders
meeting (for example, removal of a director) and because regular
shareholders meetings occur generally annually, it would be more
difficult for a potential acquirer to obtain shareholder approval of
changes necessary to facilitate an acquisition.
. Restrictions on Business at Shareholder Meetings. Generally, business
at the holding company shareholders meetings is restricted to the
purpose of the meeting described in the notice (if it is a special
shareholders' meeting), business that the Board of Directors wishes to
be taken up at the meeting (regardless of whether it is a special or
regular meeting) or which is brought before the meeting pursuant to a
timely written notice to the President by one or more shareholders. A
notice is timely if it is received at the holding company executive
offices between 60 and 90 days prior to the meeting, unless less than
70 days notice or public disclosure of the meeting is given, in which
case the written notice by the shareholder(s) desiring to make a
proposal must be received within 10 days after the meeting notice or
disclosure. The required contents of the notice by the shareholder(s)
are contained in the holding company bylaws and must be strictly
complied with in order for a shareholder proposal or nomination to be
considered. These restrictions, while helpful in assuring orderly and
informed shareholders meetings, have the effect of making it more
difficult for someone attempting to acquire control of the holding
company to bring matters before any shareholders meeting, including
amendments to the holding company articles of incorporation.
. Amendment of Articles and Bylaws. Generally, Virginia corporation law
requires amendments to corporate articles of incorporation to be
approved by more than two-thirds of all votes entitled to be voted by
each shareholder voting group. Virginia law permits a corporation's
articles of incorporation to increase or, within limits, to decrease,
these shareholder voting requirements. The holding company articles of
incorporation increase the percentage to at least 80% of each class of
voting stock outstanding required to change the following provisions
of holding company articles:
(1) change the minimum and maximum number of directors
(2) change the staggered terms of the board
(3) change the requirement that the interim board vacancies be filled
by the directors
(4) change the requirements for removal of a director before the end
of his or her term
(5) change the requirements for amending holding company bylaws
26
<PAGE>
(6) change provisions of holding company articles which determine the
required shareholder vote on business combinations such as
mergers and the sale of all or substantially all of holding
company assets.
The holding company articles of incorporation also provide that the
company's bylaws may be amended by the vote of a majority of a quorum of
directors. If there is a shareholder who controls at least 5% of holding company
voting stock, the director majority must include a majority of directors not
affiliated with that shareholder and who were members of the board before the
shareholder reached the 5% level. The shareholders may change the bylaws only if
at least 80% of each class of voting shares approve.
These provisions have the effect of making it difficult to change the
holding company articles and bylaws without the approval of the board of
directors, particularly provisions of the holding company articles of
incorporation which relate to board composition and increased shareholder
approval requirements for mergers and similar transactions not approved by the
board. The effect of these provisions may be to make it more difficult for a
person who desires to acquire control of the holding company to do so without
the cooperation of the incumbent board.
For restrictions on acquisitions of the holding company imposed by law or
regulation, please see the section of this proxy statement/prospectus captioned
"Supervision and Regulation -- Acquisition of the Holding Company," below.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Years Ended December 31, 1999, 1998 and 1997
(In Thousands, Except Shares and Per Share Data and Ratios)
The following is a discussion of the factors which significantly affected
the financial condition and results of operations of Salem Bank and Trust,
National Association and subsidiary (the Bank) at December 31, 1999 and 1998 and
for the years ended December 31, 1999, 1998 and 1997. This discussion should be
read in conjunction with the consolidated financial statements, statistical
disclosures and other financial information presented herein.
1999 COMPARED TO 1998
Balance Sheet
Total assets of the Bank at December 31, 1999 exceeded total assets at
December 31, 1998 by $17,693 or 10.9 percent. The majority of this increase was
the result of growth in net loans. Net loans outstanding at December 31, 1999
compared to December 31, 1998 showed an increase of $17,189, or 17.5 percent, an
increase which was a result of overall increased loan demand in the Bank's
lending territory.
Total securities at December 31, 1999 increased by $9,135, or 21.9 percent
compared to December 31, 1998. This increase was due primarily to purchases of
both available-for-sale and held-to-maturity securities totaling $14,106 offset
by maturities, calls and paydowns of $4,742. Securities growth was funded in the
current year, despite significant loan growth, from a liquidation of the Bank's
federal funds sold position and steady deposit growth. Included in available-
for-sale securities at December 31, 1999 are floating rate and step-up rate U.S.
Government agency securities with amortized costs of $1,761 and fair values of
$1,740. Included in held-to-maturity securities at December 31, 1999 is a
floating rate U.S. Government agency security with an amortized cost of $250 and
a fair value of $251. Refer to note 3 of the notes to consolidated financial
statements for additional information concerning the Bank's investment
securities.
Total deposits increased by $11,505, or 7.9 percent, due mostly to
increases in total time deposits. Total time deposits were up from $84,549 to
$93,922, an 11.1 percent increase. Deposit balances increased due to more
attractive depository rates being made available to customers in 1999 than in
1998.
The Bank received an advance from the Federal Home Loan Bank of Atlanta
during the year which totaled $4,100 at December 31, 1999. This advance was
necessary due to Year 2000 cash vault requirements and strong fourth quarter
loan growth.
Allowance for Loan Losses
At December 31, 1999, the recorded investment in loans which have been
identified as impaired loans, in accordance with Statement 114, totaled $1,032
compared to $1,070 at December 31, 1998. Of these amounts, $711 at December 31,
1999 related to loans with no valuation allowance compared to $660 at December
31, 1998, and $321 and $410 at December 31, 1999 and 1998, respectively, related
to loans with a corresponding valuation allowance of $67 and $77, respectively.
For the year ended December 31, 1999, the average recorded investment in
impaired loans was approximately $1,092 compared to $998 for the year ended
December 31, 1998, and the total interest income recognized on impaired loans
was $85 in 1999 versus $96 in 1998, of which $65 and $76 was recognized on a
cash basis in 1999 and 1998, respectively.
The provision for loan losses was $315 for the year ended December 31, 1999
compared to $358 for the year ended December 31, 1998, a decrease of $43. This
decrease resulted from improved loan portfolio quality as reflected by decreased
charge-off activity in the current year. Actual net charge-offs were $195 for
the year ended December 31, 1999 versus $274 in net charge-offs for the year
ended December 31, 1998. Management understands that its efforts to
28
<PAGE>
improve earnings through increased loan volume requires an adequate allowance
for loan losses. Therefore, an ongoing evaluation of the allowance for loan
losses, as it relates to the growth and quality of the portfolio, is being made
to ensure that the allowance for loan losses is at a sufficient level to absorb
estimated losses in the Bank's portfolio. As of December 31, 1999 and 1998, the
ratio of the allowance for loan losses to loans, net of unearned income, was
1.20 percent and 1.29 percent, respectively. Management believes the allowance
for loan losses of $1,404 at December 31, 1999 is adequate. While management
uses available information to recognize loan losses, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. The agencies may
require the Bank to recognize additions to the allowance based on their
judgments about information available at the time of their examination.
Foreclosed properties decreased to $216 at December 31, 1999 from $559 at
December 31, 1998. This decrease resulted from a lesser volume of properties
being brought to foreclosure in the current year. Foreclosed properties consist
primarily of single-family property, some of which were under contract to be
sold as of December 31, 1999.
See note 5 to the Bank's consolidated financial statements for summaries of
the changes in the Bank's allowance for loan losses, nonperforming assets and
impaired loans. Also, see comments in note 14 to the Bank's consolidated
financial statements.
Capital Resources
Stockholders' equity increased by $1,545, or 9.5 percent, to $17,837 as of
December 31, 1999 compared to stockholders' equity of $16,292 at December 31,
1998. The increase was primarily due to improved earnings, the majority of which
were retained. Stockholders' equity at December 31, 1999 has been reduced by
$210, compared to $46 at December 31, 1998, representing the net unrealized
losses on available-for-sale securities, net of income taxes, at year end. The
net unrealized losses on available-for-sale securities, net of income taxes,
which is recorded as accumulated other comprehensive income as a separate
component of stockholders' equity, will continue to be subject to change in
future periods due to fluctuations in market value, sales, purchases, maturities
and calls of securities classified as available-for-sale.
The Bank was in compliance with minimum Tier 1 and total capital ratios of
4 percent and 8 percent, respectively, at December 31, 1999. Also, the Bank's
leverage ratio at December 31, 1999 was in excess of the 4 percent minimum
requirement. See note 11 of the notes to the consolidated financial statements
for additional information concerning the Bank's capital requirements.
There are no material commitments for capital expenditures as of December
31, 1999. In addition, there are no expected material changes in the mix or
relative cost of capital resources.
Net Interest Income
The principal source of earnings for the Bank is net interest income. Net
interest income is the net amount of interest earned on the Bank's interest-
bearing assets less the amount of interest paid on the Bank's deposits and other
interest-bearing liabilities. Net interest income before the provision for loan
losses was $7,001 for the year ended December 31, 1999 compared with $6,205 for
the year ended December 31, 1998, an increase of $796 or 12.8 percent. Most of
this increase was due to increased securities and loan portfolios which grew
more rapidly during the period than interest-bearing deposits. Total interest
income increased from $11,894 in 1998 to $13,505 in 1999, an increase of $1,611
or 13.5 percent due primarily to the aforementioned larger securities and loan
portfolios. Interest expense increased from $5,689 in 1998 to $6,504 in 1999, an
increase of $815 or 14.3 percent, due to steady growth in deposits.
Noninterest Income
Noninterest income consists of earnings generated primarily from service
charges on deposit accounts and other service charges, commissions and fees. The
Bank's total noninterest income increased from $1,125 in 1998 to $1,137 in 1999,
an increase of 1.1 percent, due primarily to increases in service charges on
deposit accounts and offset by
29
<PAGE>
decreases in other service charges, commissions and fees. Service charges on
deposit accounts increased 19.3 percent over 1998 due to increases in returned
check, stop payment and overdraft charges which resulted from an overall
increase in the volume of deposit accounts. Other service charges, commissions
and fees decreased 12.6 percent compared to the year ended December 31, 1998 due
primarily to decreases in commissions on mortgage loans sold to outside
investors. The current year volume of mortgage loans sold was considerably less
than in the prior year.
Noninterest Expense
The Bank's total noninterest expense for the year ended December 31, 1999
increased $180, or 4.1 percent, compared to the year ended December 31, 1998,
due primarily to increases in salaries and employee benefits and other expenses.
The 4.0 percent increase in salary and employee benefits expense in 1999 was due
primarily to routine merit adjustments, promotions and other normal compensation
related items. Furniture, fixtures and equipment expense increased 5.2 percent
due primarily to an increase in repairs and maintenance expenses, offset by a
decrease in depreciation expense. Write-downs and losses, net, on foreclosed
properties decreased to $24 in 1999 from $47 in 1998. Other expenses in 1999
increased 12.0 percent over 1998 due to increases in telephone expense, charge-
offs of overdrafts and cash items, and other miscellaneous items.
Income Taxes
Reported income tax expense increased $243 to $1,020 for the year ended
December 31, 1999 compared to the year ended December 31, 1998. The Bank's
effective tax rate was 31.5 percent in 1999 compared to 30.3 percent in 1998.
The increase in the effective tax rate resulted from a lower level of tax-exempt
securities being held in the current year relative to the prior year. See note 9
of the notes to consolidated financial statements for additional information
concerning the Bank's income taxes.
Net Income
Net income for the year ended December 31, 1999 was $2,219 compared to
$1,791 for the year ended December 31, 1998. This was an increase of $428, or
23.9 percent, due primarily to the increase in net interest income and offset by
increases in total noninterest expense and income tax expense. The Bank achieved
a 1.28 percent return on average assets during 1999, compared to a 1.22 percent
return for 1998. This increase resulted from net income growth outpacing average
asset growth. In addition, the Bank achieved a return on average equity of 12.77
percent in 1999 versus 11.32 percent in 1998. This increase resulted from higher
levels of net income and was only partially offset by an increased dividend
payment in the current year.
Liquidity
Liquidity is the ability to generate adequate cash flow to meet financial
commitments and to fund customers' demands for funds, either in terms of loan
requests or deposit withdrawals. Liquidity may be provided by both assets and
liabilities. Asset liquidity is derived from sources such as sales, calls and
maturities of securities, principal and interest payments on loans, and cash and
due from banks. Liability liquidity is provided by the core deposit growth from
the Bank's stable customer base. Liquidity may also be provided by the issuance
of the Bank's common stock. Management believes the liquidity of the Bank
remains adequate, as sufficient assets are maintained on a short-term basis to
meet the liquidity demands anticipated. Secondary sources of funds are also
available should the need arise. Management is not aware of any trends,
commitments or events that will result in or that are reasonably likely to
result in a material increase or decrease in liquidity.
Net cash provided by operating activities of $4,569 in 1999 increased
$3,073 from 1998 and was primarily attributable to the increase in net income
and the change in the mortgage loans held for sale category which fluctuates
based upon loan demand and the timing of loan sales in the secondary market. Net
cash flows from financing activities in 1999 decreased $9,281 from 1998 due
primarily to significant decreases in cash flows from demand and savings
deposits. Cash flows from operating and financing activities were used primarily
to fund the net increase in loans of $17,189 and the net increase in securities
of $9,135 in 1999.
Year 2000
30
<PAGE>
The Bank was cognizant of the risks posed by the Year 2000 issue.
Subsequent to December 31, 1999, the Bank is not aware of any information that
indicates a significant vendor or service provider may be unable to sell goods
or provide services to the Bank because of Year 2000 issues. Further, the Bank
has not received any notifications from borrowers or regulatory agencies to
which it is subject, nor is the Bank aware of any information which indicates
that (1) a borrower has experienced significant issues which may impact their
ability to service their loan or which may impact their borrowing agreement
terms or covenants or (2) significant regulatory action is being or may be taken
against the Bank, as a result of Year 2000 issues.
The Bank has not experienced any significant disruptions to financial or
operating activities caused by failure to computerized systems resulting from
Year 2000 issues. Management does not expect Year 2000 issues to have a material
adverse effect on the Bank's operations or financial results in 2000. To date,
the Bank has expensed approximately $25,000 on the Year 2000 issue. Future
expenses related to the Year 2000 issue are not expected to be significant.
1998 COMPARED TO 1997
Balance Sheet
Total assets of the Bank at December 31, 1998 exceeded total assets at
December 31, 1997 by $26,210 or 19.2 percent. Net loans outstanding at December
31, 1998 compared to December 31, 1997 showed an increase of $1,084 or 1.1
percent. The increase was a result of improved commercial loan demand. Federal
funds sold and securities purchased under resale agreements at December 31, 1998
increased by $3,735 or 58.0 percent compared to December 31, 1997, due primarily
to increases in total deposits which were only partially utilized to fund
increases in net loans and securities.
Total securities at December 31, 1998 increased by $19,552 or 88.3 percent
compared to December 31, 1997, due primarily to purchases of securities of
$36,564, offset by maturities and calls of securities of $17,028. Included in
available-for-sale securities at December 31, 1998 are floating rate and step-up
rate securities with coupon rates of 5 percent or below with amortized cost of
$1,503 and fair value of $1,434. No floating rate or step-up rate securities
with coupon rates of 5 percent or below are included in held-to-maturity
securities at December 31, 1998. Refer to note 3 of the notes to consolidated
financial statements for additional information concerning the Bank's investment
securities.
Total deposits increased by $24,926 or 20.7 percent, due mostly to
increases in interest-bearing demand deposits and total time deposits. Total
interest-bearing demand deposits were up from $23,474 to $33,915, a 44.5 percent
increase and total time deposits were up from $74,912 to $84,549, a 12.9 percent
increase.
Allowance for Loan Losses
At December 31, 1998, the recorded investment in loans which have been
identified as impaired loans, in accordance with Statement 114, totaled $1,070
compared to $861 at December 31, 1997. Of these amounts, $660 at December 31,
1998 related to loans with no valuation allowance compared to $735 at December
31, 1997, and $410 and $126 at December 31, 1998 and 1997, respectively, related
to loans with a corresponding valuation allowance of $77 and $40, respectively.
For the year ended December 31, 1998, the average recorded investment in
impaired loans was approximately $998 compared to $923 for the year ended
December 31, 1997, and the total interest income recognized on impaired loans
was $96 in 1998 versus $78 in 1997, of which $76 and $39 was recognized on a
cash basis in 1998 and 1997, respectively.
The provision for loan losses was $358 for the year ended December 31, 1998
compared to $391 for the year ended December 31, 1997, a decrease of $33. This
decrease resulted from improved loan portfolio quality in the current year.
Actual net charge-offs were $274 for the year ended December 31, 1998 versus
$356 in net charge-offs for the year ended December 31, 1997. An ongoing
evaluation of the allowance for loan losses, as it relates to the growth and
31
<PAGE>
quality of the portfolio, is being made to ensure that the allowance for loan
losses is at a sufficient level to absorb estimated losses in the Bank's
portfolio. As of December 31, 1998 and 1997, the ratio of the allowance for
loan losses to loans, net of unearned income, was 1.29 percent and 1.22 percent,
respectively. While management uses available information to recognize loan
losses, future additions to the allowance may be necessary based on changes in
economic conditions. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. The agencies may require the Bank to recognize additions to the
allowance based on their judgments about information available at the time of
their examination.
Foreclosed properties increased to $559 at December 31, 1998 from $306 at
December 31, 1997. These properties consist primarily of single-family
property, some of which were under contract to be sold as of December 31, 1998.
See note 5 to the Bank's consolidated financial statements for summaries of
the changes in the Bank's allowance for loan losses, nonperforming assets and
impaired loans. Also, see comments in note 14 to the Bank's consolidated
financial statements.
Capital Resources
Stockholders' equity increased by $1,387 or 9.3 percent to $16,292 as of
December 31, 1998 compared to stockholders' equity of $14,905 at December 31,
1997. The increase was primarily due to improved earnings, the majority of
which were retained. Stockholders' equity at December 31, 1998 has been reduced
by $46 compared to $54 at December 31, 1997 representing the net unrealized
losses on available-for-sale securities, net of income taxes, at year end. The
net unrealized losses on available-for-sale securities, net of income taxes,
which is recorded as accumulated other comprehensive income as a separate
component of stockholders' equity, will continue to be subject to change in
future periods due to fluctuations in market value, sales, purchases, maturities
and calls of securities classified as available-for-sale.
The Bank was in compliance with minimum Tier 1 and total capital ratios of
4 percent and 8 percent, respectively, at December 31, 1998. Also, the Bank's
leverage ratio at December 31, 1998 was in excess of the 4 percent minimum
requirement. See note 11 of the notes to the consolidated financial statements
for additional information concerning the Bank's capital requirements.
There are no material commitments for capital expenditures as of December
31, 1998. In addition, there are no expected material changes in the mix or
relative cost of capital resources.
Net Interest Income
The principal source of earnings for the Bank is net interest income. Net
interest income is the net amount of interest earned on the Bank's interest-
bearing assets, less the amount of interest paid on the Bank's deposits and
other interest-bearing liabilities. Net interest income before the provision
for loan losses was $6,205 for the year ended December 31, 1998, compared with
$5,667 for the year ended December 31, 1997, an increase of $538 or 9.5 percent.
Most of this increase was due primarily to federal funds sold and held-to-
maturity securities volume increasing more rapidly during the period than the
volume of interest-bearing deposits. Total interest income increased from
$10,699 in 1997 to $11,894 in 1998, an increase of $1,195 or 11.2 percent due
primarily to higher federal funds sold and securities volume. Interest expense
increased from $5,032 in 1997 to $5,689 in 1998, an increase of $657 or 13.1
percent, due to the increased volume in interest-bearing demand and time
deposits.
Noninterest Income
Noninterest income consists of earnings generated primarily from service
charges on deposit accounts and other service charges, commissions and fees.
The Bank's total noninterest income increased from $1,013 in 1997 to $1,125 in
1998, an increase of 11.1 percent due primarily to increases in other service
charges, commissions and fees offset by a decrease in service charges on deposit
accounts. Service charges on deposit accounts decreased 18.0 percent over 1997
due to decreases in charges earned on commercial deposit accounts. Other service
charges, commissions and fees
32
<PAGE>
increased 34.7 percent compared to the year ended December 31, 1997 due
primarily to increases in commissions on mortgage loans sold.
Noninterest Expense
The Bank's total noninterest expense for the year ended December 31, 1998
increased $40, or .9 percent compared to the year ended December 31, 1997. The
10.2 percent increase in salary and employee benefits expense in 1998 was due
primarily to additions to the Bank's staff, routine merit adjustments,
promotions and other normal compensation related items. Furniture, fixtures and
equipment expense decreased 8.4 percent due primarily to the Bank's installation
of a new computer system in 1997 which increased prior year costs under
maintenance contracts. Computer services decreased $174 or 91.1 percent in 1998
due to the Bank's installation of a new computer system in the prior year, which
eliminated the costs associated with outsourcing the data processing function.
Write-downs and losses, net, on foreclosed properties increased to $47 in 1998
from $7 in 1997. Other expenses in 1998 decreased 4.7 percent over 1997 due to a
decrease in armored car service which was partially offset by increases in
telephone expense, advertising expense and capital stock taxes.
Income Taxes
Reported income tax expense increased $238 to $777 for the year ended
December 31, 1998 compared to the year ended December 31, 1997. The Bank's
effective tax rate was 30.3 percent in 1998 compared to 28.0 percent in 1997.
The increase in the effective tax rate was due primarily to a decrease in the
level of tax-exempt interest income. See note 9 of the notes to consolidated
financial statements for additional information concerning the Bank's income
taxes.
Net Income
Net income for the year ended December 31, 1998 was $1,791 compared to
$1,386 for the year ended December 31, 1997. This was an increase of $405 or
29.2 percent, due primarily to increases in net interest income and total
noninterest income and a decrease in the provision for loan losses, offset by
increases in total noninterest expense and income tax expense. The Bank
achieved a 1.22 percent return on average assets during 1998, compared to a 1.06
percent return for the same period in 1997.
Liquidity
Net cash provided by operating activities of $1,496 in 1998 decreased
$1,282 from 1997 and was primarily attributable to the increase in the mortgage
loans held for sale category which fluctuates based upon loan demand and the
timing of loan sales in the secondary market. Net cash flows from financing
activities in 1998 increased $13,532 from 1997 due primarily to increases in
demand and savings deposits. Cash flows from financing activities were used
primarily to fund the net increase in securities of $19,552, the net increase in
loans of $2,369 and the net increase in federal funds sold of $3,735 in 1998.
General
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes presented herein
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation.
Unlike many industrial companies, substantially all of the assets and
virtually all of the liabilities of the Bank are monetary in nature. As a
result, interest rates have a more significant impact on the Bank's performance
than the general level of inflation. Over short periods of time, interest rates
may not necessarily move in the same direction or in the same magnitude as
inflation.
33
<PAGE>
Derivatives
The Bank does not use derivatives or other off-balance sheet transactions
such as futures contracts, forward obligations, interest rate swaps, or options:
Future Accounting Considerations
Statement 133
- -------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. Statement 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative. Statement 133 was issued to
address concerns over the lack of uniformity in accounting and reporting for
derivative instruments and hedging activities.
Statement 133, as amended by Statement 137, Deferral of the Effective Date
of FASB Statement No. 133, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000, although earlier application is permitted.
Retroactive application of Statement 133 to financial statements of prior
periods is not permitted.
Future adoption of Statement 133 is not expected to have any effect on the
consolidated financial position, results of operations or liquidity of the Bank.
The Bank currently does not hold derivative instruments as defined by Statement
133.
STATISTICAL FINANCIAL DATA
--------------------------
The following information presents statistical information describing
portions of the bank's business. The numbers in the tables below are in
thousands, except ratios, share and per share information.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST
-------------------------------------------------------------- ---------
RATES AND INTEREST DIFFERENTIAL
- -------------------------------
The table on the following page illustrates balances of total interest-
earning assets and total interest- bearing liabilities for the periods
indicated, showing the average distribution of assets, liabilities,
stockholders' equity and the related income, expense and corresponding average
yields earned and rates incurred. The average balances used in this table and
other statistical data were calculated using daily average balances.
It should be noted that income and yields are not reported on a tax-
equivalent basis. Nonaccrual loans are included in average balances for yield
computations. The interest rate spread is the average yield earned on interest-
earning assets less the average rate incurred on interest-bearing
liabilities. Net interest margin is net interest income expressed as a
percentage of average interest-earning assets.
34
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and
Interest Differential
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------------------------------------------------
Average Average
Interest Rate Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average
Balance Expense Paid Balance Expense Paid Balance
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash and due from banks $ 5,387 $ - - $ 4,722 $ - - $ 4,775
Interest-bearing deposits with banks 58 3 5.17% 40 2 5.00% 38
Taxable securities 42,612 2,859 6.71% 20,775 1,337 6.44% 14,877
Non-taxable securities 4,864 266 5.47% 6,039 345 5.71% 6,832
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 47,476 3,125 6.58% 26,814 1,682 6.27% 21,709
Federal funds sold and securities
purchased under resale agreements 11,073 538 4.86% 13,558 722 5.33% 6,986
Total loans (net of unearned) 106,431 9,839 9.24% 99,281 9,488 9.56% 93,943
Allowance for loan losses (1,337) - - (1,242) - - (1,192)
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, net 105,094 - - 98,039 - - 92,751
Bank premises and equipment 2,069 - - 2,178 - - 1,999
Accrued interest receivable 1,264 - - 943 - - 850
Foreclosed properties 248 - - 338 - - 299
Other assets 830 - - 620 - - 763
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $173,499 $147,252 $130,170
-------- -------- --------
Total Interest-earning Assets $165,038 $ 13,505 8.18% $139,693 $ 11,894 8.51% $122,676
------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits 19,772 - - 17,736 - - 16,565
- ----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing demand deposits 35,545 1,190 3.35% 29,526 995 3.37% 23,231
Savings deposits 5,944 145 2.44% 5,524 134 2.43% 5,083
Certificates of deposit $100,000 &
over 15,205 885 5.82% 11,807 719 6.09% 9,785
Other time deposits 78,263 4,276 5.46% 65,695 3,841 5.85% 59,937
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 134,957 6,496 4.81% 112,552 5,689 5.05% 98,036
Federal funds purchased and
securities
sold under repurchase agreements 178 8 4.49% - - - 73
Accrued interest payable 993 - - 839 - - 727
Other liabilities 228 - - 305 - - 188
Total liabilities $156,128 $131,432 $115,589
Stockholders' equity 17,371 15,820 14,581
Total Liabilities/Stockholders'
Equity $173,499 $147,252 $130,170
-------- -------- --------
Total Interest-bearing Liabilities $135,135 $ 6,504 4.81% $112,552 $ 5,689 5.05% $ 98,109
------------------------------------------------------------------------------------------
Interest rate spread 3.37% 3.46%
-------- --------
Interest Income/Interest-earning
Assets 8.18% 8.51%
Interest-Expense/Interest-earning
Assets 3.94% 4.07%
-------- --------
Net Interest Income/Net Yield on
Interest-earning Assets $ 7,001 4.24% $ 6,205 4.44%
----------------------- --------------------
<CAPTION>
1997
------------------
Average
Interest Rates
Income/ Earned/
Expense Paid
<S> <C> <C>
Assets
Cash and due from banks $ - -
Interest-bearing deposits with banks 4 10.53%
Taxable securities 880 5.92%
Non-taxable securities 401 5.87%
- -----------------------------------------------------------------
Total investment securities 1,281 5.90%
Federal funds sold and securities
purchased under resale agreements 387 5.54%
Total loans (net of unearned) 9,027 9.61%
Allowance for loan losses - -
- -----------------------------------------------------------------
Loans, net - -
Bank premises and equipment - -
Accrued interest receivable - -
Foreclosed properties - -
Other assets - -
- -----------------------------------------------------------------
Total assets
Total Interest-earning Assets $ 10,699 8.72%
- -----------------------------------------------------------------
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits - -
- -----------------------------------------------------------------
Interest-bearing demand deposits 745 3.21%
Savings deposits 124 2.44%
Certificates of deposit $100,000 &
over 603 6.16%
Other time deposits 3,556 5.93%
- -----------------------------------------------------------------
Total interest-bearing deposits 5,028 5.13%
Federal funds purchased and
securities
sold under repurchase agreements 4 5.48%
Accrued interest payable - -
Other liabilities - -
Total liabilities
Stockholders' equity
Total Liabilities/Stockholders'
Equity
Total Interest-bearing Liabilities $ 5,032 5.13%
--------------------------
Interest rate spread 3.59%
-----
Interest Income/Interest-earning
Assets 8.72%
Interest-Expense/Interest-earning
Assets 4.10%
--------
Net Interest Income/Net Yield on
Interest-earning Assets
</TABLE>
35
<PAGE>
NET INTEREST INCOME AND RATE/VOLUME ANALYSIS
The following table describes the impact on the Bank's interest income and
interest expense resulting from changes in average balances and average rates
for the periods indicated. The changes in interest due to both volume and rate
have been allocated to volume and rate changes equally.
<TABLE>
<CAPTION>
Years Ended December 31,
1999/1998 1998/1997
---------------------------------- ---------------------------------------
Increase (decrease) Total Increase (decrease) Total
due to change in: or net due to change in: or net
--------------------- -------------------------
Average Average increase Average Average increase
balance rate (decrease) balance rate (decrease)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits with banks $ 1 - 1 $ - (2) (2)
Taxable securities 1,435 87 1,522 364 93 457
Non-taxable securities (66) (13) (79) (46) (10) (56)
Federal funds sold and securities purchased
under resale agreements (127) (57) (184) 357 (22) 335
Total loans (net of unearned) 672 (321) 351 510 (49) 461
- -----------------------------------------------------------------------------------------------------------------------------
Income on interest-earning assets 1,915 (304) 1,611 1,185 10 1,195
- -----------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest-bearing demand deposits 202 (7) 195 208 42 250
Savings deposits 10 1 11 11 (1) 10
Certificates of deposit of $100,000 & over 202 (36) 166 124 (8) 116
Other time deposits 711 (276) 435 336 (51) 285
Federal funds purchased and securities
sold under repurchase agreements 8 - 8 (2) (2) (4)
--------------------------------------------------------------------------------
Expense of interest-bearing liabilities 1,133 (318) 815 677 (20) 657
- -----------------------------------------------------------------------------------------------------------------------------
Net change in net interest income 782 14 796 508 30 538
--------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
II. INVESTMENT PORTFOLIO
--------------------
The amortized costs and fair values of available-for-sale securities as of
December 31, 1999 and 1998 were as follows:
December 31, 1999
-----------------------------
Amortized Fair
Costs Values
-----------------------------
U. S. Government agencies
and corporations (1) $ 8,752 8,434
Other securities 942 942
------- ------
Totals $ 9,694 9,376
======= ======
December 31, 1998
-----------------------------
Amortized Fair
Costs Values
-----------------------------
U. S. Government agencies
and corporation (1) $ 2,163 2,093
Other securities 827 827
------- ------
Totals $ 2,990 2,920
======= ======
The amortized costs of held-to-maturity securities as of December 31, 1999
and 1998 were as follows:
December 31,
-----------------------------
1999 1998
-----------------------------
U. S. Government agencies
and corporations (1) $37,249 33,014
State and political subdivisions 4,207 5,763
------- ------
Totals $41,456 38,777
======= ======
(1) Mortgage-backed securities are included in the totals for U.S.
Government agencies and corporations.
Other than U.S. Government securities, the Bank has no securities with any
issuer that exceeds 10% of its stockholders' equity.
The following tables set forth the maturity distribution and weighted
average yields of the investment portfolio at December 31, 1999. The weighted
average yields are calculated on the basis of amortized costs of the investment
portfolio and on the interest income of investments adjusted for amortization of
premium and accretion of discount. Yields on tax-exempt investments have been
computed on a tax equivalent basis assuming a federal tax rate of 34 percent.
37
<PAGE>
AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
December 31, 1999
----------------------------
Weighted
Amortized Fair Average
Costs Values Yields
--------- ------ --------
<S> <C> <C> <C>
U.S. Government agencies
and corporations (1):
One year or less $ 614 613 5.11%
After five to ten years 1,003 985 5.58%
After ten years 7,135 6,836 7.40%
------ ----- ----
8,752 8,434 7.03%
Other securities:
No maturity 942 942 6.78%
------ ----- ----
Total available-for-sale securities $9,694 9,376 7.01%
====== ===== ====
</TABLE>
HELD-TO-MATURITY
<TABLE>
<CAPTION>
December 31, 1999
---------------------------
Weighted
Amortized Fair Average
Costs Values Yields
--------- ------ --------
<S> <C> <C> <C>
U.S. Government agencies and corporations (1):
One year or less $ 500 508 8.25%
After one to five years 2,472 2,428 6.38%
After five to ten years 9,997 9,329 6.55%
After ten years 24,280 22,014 6.83%
------- ------ ----
37,249 34,279 6.74%
State and political subdivisions:
One year or less 420 434 6.17%
After one to five years 2,408 2,414 4.83%
After five to ten years 1,379 1,428 6.03%
------- ------ ----
4,207 4,276 5.36%
Total held-to-maturity securities $41,456 38,555 6.60%
======= ====== ====
Total securities $51,150 47,931 6.68%
======= ====== ====
</TABLE>
(1) Mortgage-backed securities are included in the totals for U. S. Government
agencies and corporations.
38
<PAGE>
III. LOAN PORTFOLIO
--------------
A summary of loans outstanding is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
Commercial $ 9,058 12,301
Consumer, principally installment 22,183 19,236
Real estate - mortgage 71,914 55,372
Real estate - construction 14,881 13,727
-------- --------
Total loans 118,036 100,636
Less unearned income (1,039) (948)
-------- --------
Total loans, less unearned income $116,997 99,688
======== ========
</TABLE>
The following table presents the maturities of loans for the Bank.
Maturities of loans are not readily available by loan category.
Aggregate maturities of loan balances which are due:
December 31, 1999
-----------------
Within one year $ 44,449
Over one year through five years 43,972
Over five years 29,615
--------
Total loans $118,036
========
Loans with aggregate maturities of more than one year with a predetermined
interest rate totaled $67,146, and an additional $6,441 were priced with
adjustable interest rates.
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business. These financial instruments include commitments
to extend credit and standby letters of credit. This information is incorporated
by reference in this report from note 13 of the attached 1999 Annual Report to
Stockholders at page F-21.
The Bank also has certain concentrations of credit risk. This information
is incorporated by reference in this report from note 14 of the attached 1999
Annual Report to Stockholders at page F-22.
39
<PAGE>
The following table presents information concerning nonperforming assets.
<TABLE>
<CAPTION>
December 31,
--------------
1999 1998
------ ------
<S> <C> <C>
Nonaccrual loans $ 810 859
Foreclosed properties 216 559
------ -----
Total nonperforming assets $1,026 1,418
====== =====
Accruing loans contractually past due
90 days or more $ 97 293
====== =====
</TABLE>
There were no committments to lend additional funds to customers whose
loans were classified as nonperforming at December 31, 1999.
The following table shows the proforma interest that would have been earned
on nonaccrual loans if they had been current in accordance with their original
terms and the recorded interest that was included in income on these loans:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Proforma interest-nonaccrual loans $ 80 74 60
===== ==== ====
Recorded interest-nonaccrual loans $ 65 76 46
===== ==== ====
</TABLE>
Loans are generally placed in nonaccrual status when the collection of
principal or interest is 90 days or more past due, unless the obligation is both
well secured and in the process of collection.
At December 31, 1999 and 1998, the recorded investment in loans which have
been identified as impaired loans totaled $1,032 and $1,070, respectively. Of
these amounts, $711 and $660 related to loans with no valuation allowance, and
$321 and $410 related to loans with a corresponding valuation allowance of $67
and $77, respectively.
For the years ended December 31, 1999, 1998 and 1997, the average recorded
investment in impaired loans was approximately $1,092, $998 and $923 and the
total interest income recognized on impaired loans was $85, $96 and $78 of which
$65, $76 and $46, respectively, was recognized on a cash basis.
40
<PAGE>
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The following is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Average loans outstanding $106,431 99,281 93,943
-------- ------ ------
Balance at beginning of year 1,284 1,200 1,165
Additions charged to operations 315 358 391
Charge-offs:
Commercial loans (25) (177) (277)
Consumer loans, principally
installment (234) (191) (159)
Real estate loans (17) (22) (39)
Recoveries:
Commercial loans 41 60 15
Consumer loans, principally
installment 38 56 104
Real estate loans 2 - -
-------- ------ ------
Net charge-offs (195) (274) (356)
-------- ------ ------
Balance at year end $ 1,404 1,284 1,200
-------- ------ ------
Ratio of net charge-offs
during the year to average loans
outstanding during the year 0.18% 0.28% 0.38%
-------- ------ ------
</TABLE>
41
<PAGE>
A breakdown of the allowance for loan losses in dollars and loans in each
category to total loans in percentages is provided in the following table.
However, the Bank's management does not believe that the allowance for loan
losses can be fragmented by category with a degree of precision. Because all of
these factors are subject to change, the breakdown is not necessarily indicative
of future loan losses in the indicated categories.
The following is an allocation of the allowance for loan losses:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- ------------------------------- ------------------------------
Percent of Percent of Percent of
loans in loans in loans in
each category each category each category
Allowance to total Allowance to total Allowance to total
Amount Loans Amount Loans Amount Loans
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 69 7.67% 92 12.22% 46 7.52%
Consumer Loans 170 18.79% 145 19.11% 125 20.50%
Real Estate 666 73.54% 520 68.67% 438 71.98%
Unallocated 499 - 527 - 591 -
------ ------ ----- ------ ----- --------
$1,404 100.00% 1,284 100.00% 1,200 100.00%
====== ====== ===== ====== ===== ========
</TABLE>
42
<PAGE>
V. DEPOSITS
--------
The following table details the average amount of, and the average rate
paid on, the primary deposit categories for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1999 1998
-----------------------------------------------------
Average Average Average Average
Balance Rate Balance Rate
-----------------------------------------------------
<S> <C> <C> <C> <C>
Interest-bearing deposits:
Interest-bearing demand
deposits $ 35,545 3.35% 29,526 3.37%
Savings deposits 5,944 2.44% 5,524 2.43%
Time deposits:
Certificates of deposit
$100,000 and over 15,205 5.82% 11,807 6.09%
Other time deposits 78,263 5.46% 65,695 5.85%
-------- ---- ------- ----
Total interest-bearing deposits 134,957 4.81% 112,552 5.05%
Noninterest bearing deposits 19,772 17,736
-------- -------
Total deposits $154,729 130,288
======== =======
</TABLE>
The following is a summary of the maturity distribution of certificates of
deposit and other time deposits of $100,000 or more as of December 31, 1999:
<TABLE>
<CAPTION>
Maturity
- ------------------
<S> <C>
3 months $ 2,479
3 months to 6 months 2,384
6 months to 12 months 4,175
Over 12 months 8,835
--------
Total $ 17,873
========
</TABLE>
43
<PAGE>
ANALYSIS OF INTEREST RATE SENSITIVITY
The table below sets forth, as of December 31, 1999, the distribution of
repricing opportunities of the Bank's interest-earning assets and interest-
bearing liabilities, the interest rate sensitivity gap (i.e., interest rate
sensitive assets less interest rate sensitive liabilities), and the cumulative
interest rate sensitivity gap ratio (i.e., interest rate sensitivity gap divided
by total interest-earning assets). The table sets forth the time periods during
which interest-earning assets and interest-bearing liabilities will mature or
may reprice in accordance with their contracted terms.
Certain shortcomings are inherent in the method of analysis presented in
the following table. For example, although certain assets and liabilities may
have similar maturities or periods of repricing, they may react in different
degrees and at different times to changes in market interest rates. Also, loan
prepayments and early withdrawals of certificates of deposit could cause the
interest sensitivities to vary from those which appear on the table.
The Bank has a formal asset/liability management program provided through a
correspondent bank relationship. The primary goal of the program is to provide
management with information related to the rate sensitivity of certain assets
and liabilities and the effect of changing rates on profitability and capital
accounts. While this planning process is designed to protect the Bank over the
long-term, it does not provide near-term protection from "interest rate shocks,"
as interest rate sensitive assets and liabilities, by their nature, move up or
down in tandem in response to changes in the overall rate environment.
Therefore, the Bank's profitability in the near-term may temporarily be
affected, either positively by a falling interest rate scenario, or negatively
by a period of rising rates.
An interest rate sensitivity gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would generally tend to
affect adversely net interest income while a positive gap would generally tend
to result in an increase in net interest income. During a period of declining
interest rates, a negative gap would generally tend to result in increased net
interest income, while a positive gap would generally tend to affect adversely
net interest income. The Bank's future earnings may be adversely affected by a
sharp upturn in interest rates as the Bank is liability sensitive for the next
year. In a falling rate environment earnings would benefit to a certain degree
from this position, because assets at higher rate levels would reprice downward
at a slower rate than interest sensitive liabilities. After the ten year period
the Bank's cumulative interest-sensitivity position reflects an asset sensitive
position.
44
<PAGE>
INTEREST RATE SENSITIVITY
The following table illustrates the interest rate sensitivity position of
the Bank as of December 31, 1999 (focusing only on repricing schedule and not
fixed versus variable rates). This table presents a position that existed at
one particular day, changes continually, and is not necessarily indicative of
the Bank's position at any other time.
<TABLE>
<CAPTION>
Maturing/Repricing In .
----------------------------------------------------
Under 3 4 to 12 1 to 5 6 to 10 Over 10
Months Months Years Years Years Total
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-sensitive Assets:
- --------------------------
Securities (1) 499 1,034 5,136 12,124 31,415 50,208
Loans (2) 6,447 8,900 45,565 29,886 26,428 117,226
--------- ------- ------- ------- ------- -------
Total Interest-sensitive assets $ 6,946 9,934 50,701 42,010 57,843 167,434
--------- ------- ------- ------- ------- -------
Cumulative Interest-sensitive assets $ 6,946 16,880 67,581 109,591 167,434 167,434
--------- ------- ------- ------- ------- -------
Interest-sensitive Liabilities:
- -------------------------------
NOW, money market & savings $ 42,814 - - - - 42,814
Time deposits $100,000 & Over 2,478 11,273 4,122 - - 17,873
Other time deposits 15,987 23,799 35,948 315 - 76,049
Federal Funds purchased and securities
sold under repurchase agreements 145 - - - - 145
Federal Home Loan Bank advance 4,100 - - - - 4,100
--------- ------- ------- ------- ------- -------
Total Interest-sensitive liabilities $ 65,524 35,072 40,070 315 - 140,981
--------- ------- ------- ------- ------- -------
Cumulative interest-sensitive liabilities $ 65,524 100,596 140,666 140,981 140,981 140,981
--------- ------- ------- ------- ------- -------
Period gap ($58,578) (25,138) 10,631 41,695 57,843 26,453
--------- ------- ------- ------- ------- -------
Cumulative gap ($58,578) (83,716) (73,085) (31,390) 26,453 26,453
--------- ------- ------- ------- ------- -------
Cumulative ratio of interest-sensitive assets
to interest-sensitive liabilities 10.60% 16.78% 48.04% 77.73% 118.76% 118.76%
--------- ------- ------- ------- ------- -------
</TABLE>
(1) Excluding Federal Reserve Bank and Federal Home Loan Bank stock.
(2) Excluding nonaccrual loans.
45
<PAGE>
SUPERVISION AND REGULATION
General
Salem Bank & Trust is a national bank, and its deposit accounts are insured
up to applicable limits by the FDIC. The bank is subject to extensive
regulation by the OCC as its chartering agency. The reorganization will not
change this. The discussion that follows of the regulations that currently apply
to the bank will apply to the same extent to the bank after the reorganization.
The bank must file reports with the OCC concerning its activities and
financial condition, and it must obtain regulatory approval prior to entering
into certain transactions, such as mergers with, or acquisitions of, other
depository institutions and opening or acquiring branch offices. The OCC
conducts periodic examinations to assess the bank's compliance with regulatory
requirements as well as its safety and soundness as a financial institution. As
insurer, the FDIC may also conduct examinations of and require reporting by the
bank. This regulation and supervision is intended primarily for the protection
of the deposit insurance funds and depositors, not shareholders. The regulatory
authorities have extensive discretion in the exercise of their supervisory and
enforcement activities, including the setting of policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. The FDIC is authorized to prohibit Salem Bank & Trust
from engaging in any activity that the FDIC determines will pose a threat to the
insurance fund. The FDIC also may initiate enforcement actions.
Salem Community Bankshares, as a bank holding company, also will be
required to file reports with, and otherwise comply with, the rules and
regulations of the Federal Reserve and Virginia Bureau of Financial Institutions
and with the rules and regulations of the Securities and Exchange Commission
under the federal securities laws. Compliance with these additional regulations
will impose additional costs on the holding company not currently borne by Salem
Bank & Trust.
Any change in the laws governing the bank or the holding company, whether
by a bank regulatory agency or through legislation, could have a material
adverse impact on Salem Bank & Trust and Salem Community Bankshares and their
operations and stockholders.
The following is a summary of the laws and regulations that apply to the
bank and the holding company. This summary is not complete. The operations of
the bank and holding company may be affected by legislative and regulatory
changes as well as by changes in the policies of various regulatory authorities.
Salem Community Bankshares
Following the completion of the reorganization, holding company will be
subject to examination, regulation and periodic reporting under the Bank Holding
Company Act of 1956, as amended, as administered by the Board of Governors of
the Federal Reserve System.
As a bank holding company, Salem Community Bankshares will be required to
file with the Federal Reserve annual and semi-annual reports and information
regarding its business operations and those of the bank. The holding company
also must provide the Virginia Financial Institutions with information regarding
itself and the bank. The holding company (as a bank holding company) and Salem
Bank & Trust (as a member of the Federal Reserve System) will be examined by the
Federal Reserve, and the holding company will be examined by the Virginia Bureau
of Financial Institutions.
A bank holding company is required by the Federal Bank Holding Company Act
to obtain approval from the Federal Reserve prior to acquiring control of any
bank that it does not already own or engaging in any business
46
<PAGE>
other than banking or managing, controlling or furnishing services to banks and
other subsidiaries authorized by the statute. Similarly, approval of the
Virginia Bureau of Financial Institutions Bureau is required for certain
acquisitions of other banks and bank holding companies. The Federal Reserve
would approve a bank holding company owning shares in a company involved in
activities the Federal Reserve has determined to be closely related to banking
or to managing or controlling banks.
Some of the principal activities that the Federal Reserve Board has already
determined to be closely related to banking are:
. making or servicing loans;
. performing certain data processing services;
. providing discount and full service brokerage services;
. acting as fiduciary, investment or financial advisor;
. leasing personal or real property;
. making investments in corporations or projects designed primarily to
promote community welfare; and
. acquiring a savings and loan association.
The holding company would be compelled by the Federal Reserve to invest
additional capital in the event the bank experiences either significant loan
losses or rapid growth of loans or deposits. The Federal Reserve requires a
bank holding company to act as a source of financial strength and to take
measures to preserve and protect its bank subsidiaries.
As a bank holding company, the holding company will operate under the
capital adequacy guidelines established by the Federal Reserve. Under the
Federal Reserve's current risk-based capital guidelines for bank holding
companies, the minimum required ratio for total capital to risk weighted assets
the holding company will be required to maintain is 8%, with at least 4%
consisting of Tier 1 capital. Tier 1 capital consists of common and qualifying
preferred stock and minority interests in equity accounts of consolidated
subsidiaries, less goodwill and other intangible assets. These risk-based
capital guidelines establish minimum standards and bank holding companies
generally are expected to operate well above the minimum standards. The amount
of capital a bank holding company is required to hold can adversely affect its
profitability and its ability to expand.
The holding company will be required to give the Federal Reserve Board
prior written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, will be equal to 10% or more of the holding
company's consolidated net worth. The Federal Reserve Board may disapprove any
purchase or redemption under certain circumstances. Such notice and approval is
not required for a bank holding company that, as we believe the holding company
will be, would be treated as "well capitalized" under applicable regulations of
the Federal Reserve Board, that has received a composite "1" or "2" rating at
its most recent bank holding company inspection by the Federal Reserve Board,
and that is not the subject of any unresolved supervisory issues.
Notwithstanding the foregoing, any redemption of holding company preferred stock
will require the prior approval of the Federal Reserve Board.
The Federal Reserve Board is empowered to initiate cease and desist
proceedings and other supervisory actions for violations of the Bank Holding
Company Act, or the regulations, orders, conditions or agreements of or with the
Federal Reserve Board.
The status of the holding company as a registered bank holding company
under the Bank Holding Company Act does not exempt it from certain federal and
state laws and regulations applicable to corporations generally, including
certain provisions of the federal securities laws.
47
<PAGE>
Salem Bank & Trust
Salem Bank & Trust is examined and regulated by the OCC and is a member of
the Federal Reserve System. The OCC regulates and monitors all significant
aspects of the Bank's operations. The OCC, as the primary regulator, has
enforcement authority over the bank. The OCC requires quarterly reports on the
bank's financial condition and conducts periodic examinations of the bank. The
cost of complying with these regulations and reporting requirements can be
significant. In addition, some of these regulations impact shareholders
directly. For example, Salem Bank & Trust may pay dividends only out of its
undivided profits after deducting expense, including losses and bad debts. In
addition, the bank may not pay dividends at all until its surplus equals its
stated capital. The only exception is if the bank has transferred to surplus no
less than 10% of its net profits for the preceding two consecutive half year
periods (for annual dividends) or of the preceding half year period (for
quarterly or half year dividends).
The bank's loan operations, particularly for consumer and residential real
estate loans, are also subject to numerous legal requirements as are its deposit
activities. In addition to regulatory compliance costs, these laws may create
the risk of liability to the bank for noncompliance.
Salem Bank & Trust's deposits will be insured by the FDIC for a maximum of
$100,000 per depositor. For this protection, the bank will pay a semi-annual
statutory assessment and will have to comply with the rules and regulations of
the FDIC. These assessments can go up or down, affecting the bank's costs,
depending on the solvency of the banking industry as a whole. In addition, the
FDIC has authority to initiate enforcement actions against banks, like Salem
Bank & Trust, whose deposits are insured. The FDIC may also terminate or
suspend a bank's deposit insurance if the institution is or is thought to be
engaging in unsafe or unsound practices and under other circumstances.
In case of member banks like Salem Bank & Trust, the Federal Reserve has
the authority to prevent the continuance or development of unsound and unsafe
banking practices and to approve conversions, mergers and consolidations.
Under the Federal Reserve's current risk-based capital guidelines for
member banks, Salem Bank & Trust is required to maintain a minimum ratio of
total capital to risk weighted assets of 8%, with at least 4% consisting of Tier
1 capital. In addition, the Federal Reserve requires its member banks to
maintain a minimum ratio of Tier 1 capital to total assets. This capital
measure is generally referred to as the leverage capital ratio. The minimum
required leverage capital ratio is 4% if the Federal Reserve determines that the
institution is not anticipating or experiencing significant growth and has well-
diversified risks, including no undue interest rate exposure, excellent asset
quality, high liquidity and good earnings and, in general, is considered a
strong banking organization and rated Composite 1 under the Uniform Financial
Institutions Rating Systems. Salem Bank & Trust currently satisfies these
criteria. If the bank does not satisfy any of these criteria in the future, it
may be required to maintain a ratio of total capital to risk-based assets of 10%
and a ratio of Tier 1 capital to risk-based assets of at least 6%. The bank
would then be required to maintain a 5% leverage capital ratio. This would mean
that the bank would have to hold more capital, and its ability to expand would
be impaired and its profitability diminished.
Banking profitability depends on interest rate differentials. The
difference between the interest rates paid by Salem Bank & Trust on its deposits
and other borrowings and the interest rate received on loans extended to its
customers and on securities held in its portfolio comprises the major portion of
the bank's earnings.
The earnings and growth of Salem Bank & Trust are affected not only by
general economic conditions, both domestic and foreign, but also by the monetary
and fiscal policies of the United States and its agencies, particularly the
Federal Reserve. The Federal Reserve implements national monetary policy by its
open market operations in United States government securities, adjustments in
the amount of reserves that banks and other financial institutions are required
to maintain and adjustments to the discount rates applicable to borrowings by
banks from the Federal Reserve The actions of the Federal Reserve in these
areas influence the growth of bank loans, investments and deposits and also
affect interest rates charged and paid on deposits.
48
<PAGE>
Salem Bank & Trust has restrictions on its investment and lending
authorities. Loans are subject to limitations on amount based upon the bank's
capital. Additional limitations are imposed on the aggregate amount of loans
that a national bank may make to any one borrower, including relating entities.
These restrictions can affect the ability of the bank to make larger loans.
The requirements of the Community Reinvestment Act affect Salem Bank &
Trust. The CRA imposes on financial institutions an affirmative obligation to
help 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 helping meet
community credit needs currently is evaluated as part of the examination process
pursuant to a new regulation recently adopted by the banking regulatory
agencies. Under the new regulation, a financial institution's efforts in helping
meet its community's credit needs are evaluated according to a three-pronged
test (lending, investment and service). The grade received by a bank is
considered in evaluating mergers, acquisitions and applications to open a branch
or facility. Salem Bank & Trust was last examined for CRA compliance on
February 6, 1997 and received a "satisfactory" rating. To the best knowledge of
the bank, it continues to meet its obligations under the CRA.
Acquisition of the Holding Company
Federal Restrictions. Under the federal Change in Bank Control Act, a
notice must be submitted to the Federal Reserve Board if any person or entity,
or group acting in concert, seeks to acquire 10% or more of holding company
common stock. The Federal Reserve Board takes into consideration certain
factors, including the financial and managerial resources of the acquirer, the
convenience and needs of the communities served by the holding company and Salem
Bank & Trust, and the competitive effects of the acquisition.
Under the Bank Holding Company Act, any company would be required to obtain
prior approval from the Federal Reserve Board before it could acquire "control"
of the holding company within the meaning of the Bank Holding Company Act.
Control generally is defined for these purposes to mean the ownership, control
or power to vote 25% or more of any class of voting securities of the holding
company, the ability to control in any manner the election of a majority of
holding company directors, or to otherwise have the power to exercise a
controlling influence over the management or policies of the holding company.
Virginia Restrictions. Virginia law prohibits any person or entity from
acquiring control (generally defined as at least 25% of the voting shares) of a
Virginia financial institution holding company without the approval of the
Virginia State Corporation Commission's Bureau of Financial Institutions. The
same restriction applies to an existing Virginia financial institution holding
company acquiring more than 5% of the voting shares of any other Virginia
financial institution holding company. In deciding whether to approve such
acquisitions the Bureau generally must consider whether the acquisition would be
detrimental to the safety and soundness of either party, the suitability of the
applicant and its officers and directors, the interests of depositors,
creditors, shareholders and others, and the general public interest. These
restrictions will apply to the holding company.
FEDERAL HOME LOAN BANK SYSTEM
Salem Bank & Trust is a member of the Federal Home Loan Bank System. The
Federal Home Loan Bank System provides a central credit facility available to
member institutions. The bank, as a member of the Federal Home Loan Bank of
Atlanta, is required to acquire and hold shares of capital stock in that Federal
Home Loan Bank in an amount equal to the greater of 1.0% of the aggregate
principal amount of its unpaid residential mortgage loans, home purchase
contracts and similar obligations at the beginning of each year, 5% of its
Federal Home Loan Bank advances outstanding, or one per cent of thirty per cent
of total assets. At December 31, 1999, the bank owned $487,000 of Federal Home
Loan Bank common stock.
Advances from and securities sold under agreements to repurchase with the
Federal Home Loan Bank of Atlanta are secured by a member's shares of stock in
the Federal Home Loan Bank of Atlanta, certain types of
49
<PAGE>
mortgages and other assets. Interest rates charged for advances vary depending
upon maturity and cost of funds to the Federal Home Loan Bank of Atlanta. As of
December 31, 1999, Salem Bank & Trust had $4.1 million in outstanding advances
from the Federal Home Loan Bank of Atlanta.
WHERE YOU CAN FIND MORE INFORMATION
Salem Bank & Trust is subject to the information reporting requirements of
the Securities Exchange Act of 1934, and in accordance with that law files
reports, proxy statements and other information with the OCC. Reports, proxy
statements and other information filed by the bank are available from the
Disclosure Officer, Communications Division, Office of the Comptroller of the
Currency, 250 E Street, SW, Washington, DC 20219.
The holding company will not be subject to the information requirements of
the Securities Exchange Act of 1934 until after the reorganization takes place.
After the reorganization takes place, holding company common stock will be
listed for trading on the NASD Over the Counter Bulletin Board. The holding
company will be subject to the information requirements of the Securities
Exchange Act of 1934, and the holding company will file reports, proxy
statements and other information with the Securities and Exchange Commission. At
that time, the common stock of the bank will be withdrawn from listing and
registration under the Securities Exchange Act of 1934.
Salem Community Bankshares has filed a registration statement on Form S-4
relating to the reorganization with the SEC. This proxy statement/prospectus
does not contain all of the information included in the registration statement.
We have omitted parts of the registration statement in accordance with the rules
and regulations of the SEC. For the further information, we refer you to the
registration statement on Form S-4, including its exhibits. Statements contained
in this proxy statement/prospectus about the provisions or contents of any
agreement or other document are not necessarily complete. If SEC rules and
regulations require that any agreement or document be filed as an exhibit to the
registration statement, please see the filed copy of the agreement or document
for a complete description of these matters. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of each document.
After the reorganization, the holding company will file annual, quarterly
and special reports, proxy statements and other information with the SEC. You
may read and copy materials filed with the SEC, including the registration
statement, at the following SEC public reference rooms:
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The holding company SEC filings will also be available to the
public on the SEC's Web Site at http:/www.sec.gov.
INFORMATION INCORPORATED BY REFERENCE
Any statement contained in a document incorporated by reference into this
proxy statement/prospectus will be deemed to be modified or superseded for all
purposes to the extent that a statement contained in this proxy
statement/prospectus or in any other subsequently filed document which is also
incorporated by reference modifies or replaces such statement. Any statement so
modified or superseded will not be deemed, except as so modified or superseded,
to constitute a part of this proxy statement/prospectus.
If you call or write to us, we will send to you without charge a copy of
any or all of the documents described above, other than exhibits to those
documents that are not incorporated by reference into such documents.
50
<PAGE>
To request documents, call or write to Gill Roseberry, Secretary, Salem
Community Bankshares, Inc., P.O. Box 979, Salem, Virginia 24153, telephone
number (540) 387-0223.
51
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
A copy of Salem Bank & Trust's Annual Report to Stockholders accompanies
this proxy statement/ prospectus. It contains consolidated financial statements
as of December 31, 1999 and 1998 for the years ended December 31, 1999, 1998 and
1997 prepared in accordance with generally accepted accounting principles.
POSTPONEMENT AND ADJOURNMENT OF STOCKHOLDER MEETING
You are asked to approve, if necessary, allowing the Chairman of the
meeting, who probably will be Dr. Walter Hunt, Chairman of the Board, to adjourn
the annual meeting and reschedule it for a later date. This would be done if
necessary to solicit further votes in favor of the reorganization and any other
matters to be voted upon at the meeting. If you do not vote in favor of this
proposal, your proxy may not be used by management to vote in favor of an
adjournment pursuant to its discretionary authority.
ELECTION OF DIRECTORS
The Articles of Association of the Bank provide that the number of
directors shall be not less than five (5) nor more than twenty-five (25). The
Board of Directors has set the present number of directors at nine (9).
The persons named below, all of whom are members of the present Board of
Directors, will be nominated for election to serve. No director or nominee is
related by blood, marriage, or adoption to any other director in any other
company with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
With respect to the election of directors, shareholders have cumulative
voting rights. Each shareholder has the right to vote the number of shares owned
by him for as many persons as there are directors to be elected or to cumulate
such shares for one candidate or distribute them among as many candidates as he
wishes. The Board of Directors solicits and the proxies may be instructed to use
discretionary authority to use cumulative voting in the voting of the proxies
should it be necessary to elect as many of the director nominees as possible.
It is the intention of the persons named in the proxy to vote for the
election of the following nominees unless the proxy directs otherwise. The
following, if elected, shall serve for one year and until their successors are
elected and have qualified.
NOMINEES FOR ELECTION
The Directors of the Bank serve one-year terms. The following table lists
the directors' names, ages, principal occupations and the number of shares of
common stock beneficially owned by them as of May 1, 2000.
<TABLE>
<CAPTION>
Shares
Principal Beneficially
Occupation Owned (1)
For Last Director of the --------------------
Name (Age) Five Years Bank Since Number Percent
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Eugene M. Bane, Jr. (60) Doctor of Optometry 1981 24,221 1.59
Truman R. Dorton (60) Dorton & Gooch, CPAs 1991 13,246 (2)
Morris A. Elam (75) Retired Owner 1983 18,529 1.21
Morris Elam Electric Co.
H. Morgan Griffith (42) Attorney-at-Law 1994 1,112 (2)
Representative to Virginia
</TABLE>
52
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
House of Delegates
Rose M. Hagen (41) CPA and Staff 1989 1,789 (2)
Financial Analyst
Allstate Insurance
Carlos B. Hart (72) President 1981 37,108 2.44
Hart Motor Co., Inc.
Walter A. Hunt (70) Retired Superintendent 1981 38,026 2.49
City of Salem Schools
Gladys C. O'Brien (63) Vice President 1983 33,828 2.22
O'Brien Meats
Clark Owen, Jr. (57) President and 1977 15,636 1.02(3)
Chief Executive Officer
Salem Bank & Trust, N.A.
</TABLE>
_________________
(1) Includes shares which may be deemed beneficially owned due to certain
family or business relationships. The listing of such shares is not to be
construed as an admission that a director is the "beneficial owner" of such
shares.
(2) Less than one percent.
(3) Included in the shares listed are shares held in a 401(k) pool with about
seven other employees. Mr. Owen's portion of this pool amounts to
approximately 4,400. Mr. Owen may direct the account to sell the shares,
but Mr. Owen has no say in how the shares are voted.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table indicates those persons owning five percent or more of the
Bank's outstanding shares, together with all shares owned by directors and
executive officers of the Bank as a group, as of May 1, 2000.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT BENEFICIALLY OWNED PERCENT OF CLASS (1)
- ---------------- ------------------------- --------------------
<S> <C> <C>
Warren L. Baker 81,109 5.31
Roanoke, Virginia
Sondra Hagen (2) 79,577 5.21
Salem, Virginia
CEDE and Company 610,635 40.01(3)
New York, New York
All directors and executive officers
as a group (19 persons) 201,326 13.19
</TABLE>
- --------------
(1) Includes shares which may be deemed beneficially owned due to family or
business relationships, joint ownership, voting power or investment power.
(2) Bank and holding company director Rose Hagen is the spouse of Ms. Sondra
Hagen's son.
(3) CEDE and Company shares are believed to be held for the benefit of several
shareholders.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of Salem Bank and Trust, National Association, meets
once monthly on the third Thursday unless that day happens to be a holiday in
which case the meeting is usually held on the previous Thursday. There were
twelve (12) regular meetings during the calendar year 1999. The average
attendance of the
53
<PAGE>
meetings was 90%. No Director attended less than 75% of the meetings, except Mr.
Elam, who attended 67% of the meetings.
Directors receive a monthly fee of $400 and the Chairman receives a monthly
fee of $525.
There are eight standing committees made up of various members of the Board
of Directors. They are as follows: Executive Committee; Compliance Committee;
Loan Committee; Audit Committee; Planning Committee; Investment Committee;
Marketing Committee; and Personnel and Benefits Committee.
The Audit Committee consisting of Chairman, Carlos B. Hart, and Truman R.
-------------------
Dorton met eight (8) times in 1999. The committee's primary responsibility is
to review the findings of the Bank's internal auditor, external auditor and
regulatory agency.
The Personnel and Benefits Committee, which reviews personnel and
------------------------------------
compensation matters, consisting of Chairwoman, Rose M. Hagen, H. Morgan
Griffith, Morris A. Elam, Dr. Walter A. Hunt and Clark Owen, Jr., did not meet
during 1999.
Staff members other than directors attend and participate in some of these
committee meetings.
NOMINATION OTHER THAN BY OR ON BEHALF OF DIRECTORS
The Bank does not have a nominating committee and other nominations may be
made as described below. The Bank's By-laws provide that nominations other than
by or on behalf of the existing management of the Bank shall be made in writing
and shall be delivered or mailed to the President of the Bank not less than 14
days or more than 50 days prior to the meeting, provided however, that if less
than 21 days notice of the meeting is given to shareholders, such proposal or
nomination shall be mailed or delivered to the President of the Bank not later
than the close of business on the seventh day following the day on which the
notice of the meeting was mailed. Proposals and nominations not made in
accordance herewith may in his discretion be disregarded by the Chairman of the
meeting, and upon his instructions, the vote tellers may disregard all votes
cast for each such proposal or nominee. The Board of Directors is not aware of
any other proposals or nominations.
A COPY OF THE BANK'S ANNUAL REPORT ON FORM 10-KSB, INCLUDING THE FINANCIAL
STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999, REQUIRED TO BE FILED
WITH THE OFFICE OF THE COMPTROLLER OF THE CURRENCY IN WASHINGTON, D.C. AND
RELATED SCHEDULES THERETO SHALL BE PROVIDED BY THE BANK WITHOUT CHARGE TO EACH
SHAREHOLDER UPON HIS WRITTEN REQUEST TO GILL R. ROSEBERRY, SENIOR VICE PRESIDENT
AND CASHIER, 110 EAST MAIN STREET, SALEM, VIRGINIA, 24153.
The Board of Directors does not know of any matters to be presented at the
Annual Meeting of Shareholders other than as set forth above. However, if any
other matters come before the meeting, proxies received pursuant to this
solicitation will be voted thereon in accordance with the recommendations of the
Board of Directors.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information concerning
compensation paid to the Bank's Chief Executive Officer during 1999. The Bank
had no other officer whose total annual salary and bonus exceeded $100,000 for
the year ended December 31, 1999.
54
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1)
- --------------------------- ---- --------- ------ ----------------
<S> <C> <C> <C> <C>
Clark Owen, Jr. President 1999 $103,369 $6,120 $5,378
and Chief Executive Officer 1998 99,350 5,961 5,338
1997 96,230 4,812 4,205
</TABLE>
(1) Annual contribution to 401(k) plan in 1999, 1998, and 1997 and premiums for
life insurance.
STOCK OPTION GRANTS
There were no stock options granted to Mr. Owen during the year ended
December 31, 1999.
STOCK OPTIONS EXERCISED AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning the shares
acquired on exercise of options for the Bank's common stock and the value
realized (based on the difference between the exercise price of the exercised
options and the closing bid price of the common stock on the exercise date,
which was $17.75 per share) during the year ended December 31, 1999, and the
number of shares underlying unexercised options and the value of such options
(based on the difference between the exercise price of the outstanding options
and the closing bid price of the common stock on December 31, 1999, which was
$16.00 per share) as of December 31, 1999 available to Mr. Owen. Stock option
data has been adjusted to reflect the effects of the Bank's stock dividends.
AGGREGATED OPTION EXERCISES IN 1999
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
December 31 - 1999(#) December 31 - 1999($)
-------------------------- ----------------------------
Shares Acquired Value
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Clark Owen, Jr. 394 $3,940 409 1,230 $3,272 $9,840
</TABLE>
EMPLOYMENT AGREEMENTS
The Bank's President and Executive Vice President have each entered into an
employment agreement with the Bank which provides that upon a change in control
of the Bank, the employment agreement shall automatically renew for a period of
three years. If within 36 months after a change in control, the Bank terminates
the executive's employment, the executive will (1) be entitled to receive for
the greater of the remainder of the term or 24 months all prerequisites provided
immediately prior to termination and payment of all insurance premiums necessary
to continue the executive's life, health and accident insurance; (2) be entitled
to receive for the greater of the remainder of the term, or 12 months, the
annual compensation to which the executive was entitled immediately prior to
termination; and (3) become vested in all employee benefit plans as of the date
when final compensation is paid to the executive. An agreement has also been put
in place for other members of management at the Bank which provides that upon a
change in control of the Bank, the severance agreement shall continue in effect
for a period of three years. Upon termination of the employee's employment
following a change in control for reasons other than
55
<PAGE>
death, retirement, disability, by the Bank for cause, or by the employee for
other than good reason, the employee shall receive certain severance pay and
medical benefits.
RETIREMENT PLANS
Effective January 1, 1996, the Bank adopted a 401(k) defined contribution
plan. To become eligible for the plan, an employee must complete six months of
service and be at least 20 1/2 years of age. The plan allows participants to
contribute through salary reduction up to 20 percent of their annual
compensation on a pretax basis. Contributions by the Bank are paid into a trust
semimonthly at the rate of 3 percent of eligible compensation. The Bank modified
this plan on July 1, 1997 to increase the Bank's contribution to a rate of 5
percent of eligible compensation. The annual expense under the plan was $104,118
for the year ended December 31, 1999 and $95,951 for the year ended December 31,
1998.
EMPLOYEE STOCK OPTION PLAN
In 1992, the Board of Directors and the stockholders approved an Employee
Stock Option Plan (the "Plan") to give directors, officers and employees
(collectively referred to as employees) an opportunity to acquire shares of the
common stock of the Bank to provide an incentive for employees to continue to
promote the best interest of the Bank and enhance its long-term performance, and
to provide an incentive for employees to join or remain with the Bank. Under the
Plan, options may be granted at not less than fair market value on the date of
grant. Stock options granted under the plan are exercisable in July of each year
in ratable installments over the option period, which expires in 2002. Any
options not exercised as permitted are forfeited. In the event of a change in
control, merger, consolidation, dissolution or liquidation of the Bank,
employees holding unexercised stock options will be given 30 days to exercise
any unexercised stock options, without regard to installment exercise
limitations.
At December 31, 1999, there were 64,790 additional shares available for grant
under the Plan.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Certain directors and officers of the Bank and their families or associates
were customers of and had transactions with the Bank during 1999, and expect to
continue to do so. All loans and commitments to loan by the Bank to directors
and officers and their immediate family members or associates have been and will
continue to be made in the ordinary course of business and on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and did not involve more
than the normal risk of collectibility or present other unfavorable features.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP, Certified Public Accountants, have performed the Bank's
independent audit for the past several years and did so in 1999. The Board of
Directors selects the audit firm to perform the independent audit, but the
selection has not yet been made for 2000. A representative of KPMG LLP will be
present at the Annual Meeting.
ANNUAL REPORT
A copy of Salem Bank & Trust's Annual Report to Stockholders for the year
ended December 31, 1999 accompanies this proxy statement/prospectus. The Annual
Report is not part of the proxy solicitation materials.
If we receive a written request, we will furnish to any stockholder,
without charge, a copy of Salem Bank & Trust's annual report on form 10-KSB for
the year ended December 31, 1999, and the list of exhibits to that report that
are required to be filed with the OCC under the Securities Exchange Act of 1934.
A written request should be sent to Gill R. Roseberry, Senior Vice President and
Cashier, Salem Bank & Trust, 220 E. Main
56
<PAGE>
Street, Salem, Virginia 24153, telephone number (540) 387-9301. The Form 10-KSB
is not part of the proxy solicitation materials.
OTHER MATTERS
As of the date of this proxy statement/prospectus, management is not aware
of any business to come before the annual meeting other than the matters that
are described in this proxy statement/prospectus. However, if any other matters
properly come before the annual meeting, we intend that the proxies solicited by
this proxy statement/prospectus will be voted on those other matters in
accordance with the judgment of the persons voting the proxies.
The annual meeting will be presided over by Dr. Walter A. Hunt, the
Chairman. He will conduct the proceedings in accordance with Salem Bank &
Trust's Bylaws and past practice.
LEGAL MATTERS
The validity of the holding company stock to be issued in the
reorganization of certain federal tax matters will be passed upon by Flippin,
Densmore, Morse & Jessee, a Professional Corporation, 1800 First Union Tower,
Drawer 1200, Roanoke, Virginia 24006.
SHAREHOLDER PROPOSALS
Shareholders are hereby notified that any proposals which they desire to
have printed in the Bank's 2000 Annual Proxy material must be submitted to the
Secretary of the Bank by certified mail, return receipt requested, no later than
December 1, 2000.
THE ACCOMPANYING PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND COST
OF SAME IS BORNE BY THE BANK. IT MAY BE REVOKED IN WRITING DIRECTED TO THE
SECRETARY OF THE BOARD AT ANY TIME PRIOR TO ITS EXERCISE.
By Order of the Board of Directors
Corinna Witt, Administrative Assistant
May 4, 2000
57
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Salem Bank and Trust, National Association:
We have audited the accompanying consolidated balance sheets of Salem Bank and
Trust, National Association and subsidiary as of December 31, 1999 and 1998, and
the related consolidated statements of income and comprehensive income, changes
in stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Salem Bank and
Trust, National Association and subsidiary as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999 in conformity with generally
accepted accounting principles.
KPMG LLP
Roanoke, Virginia
February 25, 2000
F-1
<PAGE>
[Page intentionally left blank]
F-2
<PAGE>
SALEM BANK AND TRUST, NATIONAL ASSOCIATION AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998
(In Thousands, Except Shares and Per Share Data)
<TABLE>
<CAPTION>
Assets 1999 1998
---- ----
<S> <C> <C>
Cash and due from banks (notes 2 and 16) $ 8,959 5,925
Federal funds sold and securities purchased under resale agreements (note 16) -- 10,180
Securities (notes 3 and 16):
Available-for-sale, at fair value 9,376 2,920
Held-to-maturity, at amortized cost (fair value $38,555 in 1999 and $38,938
in 1998) 41,456 38,777
Mortgage loans held for sale (notes 13, 14 and 16) 346 1,902
Loans, less unearned income (notes 4, 5 and 14) 116,997 99,688
Less allowance for loan losses (note 5)
(1,404) (1,284)
--------- ---------
Loans, net (note 16) 115,593 98,404
--------- ---------
Bank premises and equipment, net (note 6) 2,147 2,111
Accrued interest receivable 1,369 1,138
Foreclosed properties (note 5) 216 559
Other assets (note 9) 814 667
--------- ---------
Total assets $ 180,276 162,583
========= =========
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits 20,128 21,562
Interest-bearing demand deposits 36,735 33,915
Savings deposits 6,079 5,333
Time deposits (note 7) 93,922 84,549
--------- ---------
Total deposits (notes 7 and 16) 156,864 145,359
Federal funds purchased and securities sold under resale agreements (note 16) 145 --
Federal Home Loan Bank advance (notes 3 and 16) 4,100 --
Accrued interest payable 941 775
Other liabilities (note 15) 389 157
--------- ---------
Total liabilities 162,439 146,291
--------- ---------
Stockholders' equity (notes 10 and 11):
Common stock, par value $5.00 per share. Authorized 2,000,000 shares;
issued and outstanding 1,526,067 shares in 1999 and 1,458,204 shares in 1998 7,630 7,291
Surplus 8,447 7,769
Undivided profits 1,970 1,278
Accumulated other comprehensive loss (210) (46)
Total stockholders' equity 17,837 16,292
------- ------
Commitments and contingent liabilities (notes 8, 10, 13 and 15)
Total liabilities and stockholders' equity $ 180,276 162,583
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SALEM BANK AND TRUST, NATIONAL ASSOCIATION AND SUBSIDIARY
Consolidated Statements of Income and Comprehensive Income
Years Ended December 31, 1999, 1998 and 1997
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 9,839 9,488 9,027
Interest on federal funds sold and securities purchased under
Resale agreements 538 722 387
Interest on deposits with banks 3 2 4
Interest on securities - taxable 2,859 1,337 880
Interest on securities - nontaxable 266 345 401
------ ------ ------
Total interest income 13,505 11,894 10,699
------ ------ ------
Interest expense:
Interest on certificates of deposit of $100 or more 885 719 603
Interest on other deposits 5,611 4,970 4,425
Interest on federal funds purchased and securities sold under
Repurchase agreements 8 -- 4
------ ------ ------
Total interest expense 6,504 5,689 5,032
------ ------ ------
Net interest income 7,001 6,205 5,667
Provision for loan losses (note 5) 315 358 391
------ ------ ------
Net interest income after provision for loan
losses 6,686 5,847 5,276
Noninterest income:
Service charges on deposit accounts 483 405 494
Other service charges, commissions and fees 521 596 434
Other income 125 129 106
Realized securities gains (losses), net 8 (5) (21)
------ ------ ------
Total noninterest income 1,137 1,125 1,013
------ ------ ------
Noninterest expense:
Salaries and employee benefits (note 8) 2,611 2,510 2,277
Occupancy expense of bank premises 324 308 294
Furniture, fixtures and equipment 445 423 462
Computer services 5 17 191
Stationery, printing and supplies 117 111 131
FDIC assessment 17 15 13
Repossession and collection 16 58 29
Write-downs and losses, net, on foreclosed properties 24 47 7
Other expenses 1,025 915 960
------ ------ ------
Total noninterest expense 4,584 4,404 4,364
------ ------ ------
Income before income tax expense 3,239 2,568 1,925
Income tax expense (note 9) 1,020 777 539
------ ------ ------
Net income 2,219 1,791 1,386
Other comprehensive income (loss), net of income tax expense (benefit):
Net unrealized gains (losses) on available-for-sale securities
(notes 1, 3 and 17) (164) 8 65
------ ------ ------
Comprehensive income $ 2,055 1,799 1,451
====== ====== ======
Net income per share (note 1):
Net income per share $ 1.46 1.19 .92
====== ====== ======
Net income per share - assuming dilution $ 1.44 1.16 .90
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
s
SALEM BANK AND TRUST, NATIONAL ASSOCIATION AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
(In Thousands, Except Shares and Per Share Data)
<TABLE>
<CAPTION>
Accumulated
Other
Common Undivided Comprehensive
Stock Surplus Profits Income Total
--------- --------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $ 6,655 6,027 1,208 (119) 13,771
Net income -- -- 1,386 -- 1,386
Cash dividend at $.30 per share -- -- (442) -- (442)
4% stock dividend (53,264 shares) 266 626 (892) -- --
Stock dividend fractional shares payment -- -- (5) -- (5)
Stock options exercised (8,625 shares) 43 33 -- -- 76
Income tax benefit from stock options
exercised -- 54 -- -- 54
Transfer per regulatory requirement -- 139 (139) -- --
Change in net unrealized losses on
available-for-sale securities, net
of income tax expense of $33 -- -- -- 65 65
--------- --------- --------- ------------- ----------
Balances at December 31, 1997 6,964 6,879 1,116 (54) 14,905
Net income -- -- 1,791 -- 1,791
Cash dividend at $.35 per share -- -- (519) -- (519)
4% stock dividend (55,789 shares) 279 669 (948) -- --
Stock dividend fractional shares payment -- -- (5) -- (5)
Stock options exercised (9,573 shares) 48 39 -- -- 87
Income tax benefit from stock options
exercised -- 25 -- -- 25
Transfer per regulatory requirement -- 157 (157) -- --
Change in net unrealized losses on
available-for-sale securities, net
of income tax expense of $5 -- -- -- 8 8
--------- --------- --------- ------------- ----------
Balances at December 31, 1998 7,291 7,769 1,278 (46) 16,292
Net income -- -- 2,219 -- 2,219
Cash dividend at $.40 per share -- -- (617) -- (617)
4% stock dividend (58,386 shares) 292 613 (905) -- --
Stock dividend fractional shares payment -- -- (5) -- (5)
Stock options exercised (9,477 shares) 47 38 -- -- 85
Income tax benefit from stock options
exercised -- 27 -- -- 27
Change in net unrealized losses on
available-for-sale securities, net
of income tax benefit of $84 -- -- -- (164) (164)
--------- --------- --------- ------------- ----------
Balances at December 31, 1999 $ 7,630 8,447 1,970 (210) 17,837
========= ========= ========= ============= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SALEM BANK AND TRUST, NATIONAL ASSOCIATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities (note 12):
Net income $ 2,219 1,791 1,386
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 315 358 391
Deferred income taxes (47) (55) (35)
Depreciation and amortization of bank premises and equipment 269 314 311
(Gain) loss on disposal of equipment (1) -- 15
Amortization of premiums and accretion of discounts, net (11) (5) (3)
Write-downs and losses on foreclosed properties, net 24 47 7
Loss on calls of available-for-sale securities, net -- 5 --
(Gain) loss on calls of held-to-maturity securities, net (8) -- 18
Loss on sales of held-to-maturity securities -- -- 3
Income tax benefit from stock options exercised 27 25 54
(Increase) decrease in:
Mortgage loans held for sale 1,556 (580) 253
Accrued interest receivable (231) (237) 53
Other assets (16) (134) 166
Increase (decrease) in:
Accrued interest payable 166 71 131
Other liabilities 304 (104) 134
------- ------- -------
Net cash provided by operating activities 4,566 1,496 2,778
------- ------- -------
Cash flows from investing activities (note 12):
Net (increase) decrease in federal funds sold and securities purchased
under resale agreements 10,180 (3,735) (5,470)
Proceeds from maturities and calls of available-for-sale securities 402 3,065 4,136
Proceeds from maturities and calls of held-to-maturity securities 4,340 13,960 4,548
Proceeds from sales of held-to-maturity securities -- -- 794
Purchases of available-for-sale securities (7,106) (74) (32)
Purchases of held-to-maturity securities (7,000) (36,490) (6,607)
Purchases of loan participations (1,742) (152) (445)
Collections of loan participations 203 369 1,649
Net increase in loans made to customers (16,267) (2,369) (12,876)
Recoveries on loans previously charged off 81 116 119
Proceeds from sales of foreclosed properties 540 304 262
Capital expenditures on foreclosed properties -- (10) --
Purchases of bank premises and equipment (304) (144) (610)
------- ------- -------
Net cash used in investing activities (16,673) (25,160) (14,532)
------- ------- -------
Cash flows from financing activities (note 12):
Net increase in time deposits 9,373 9,637 9,003
Net increase in demand and savings deposits 2,132 15,289 2,303
Net increase in federal funds purchased and securities sold under
resale agreements 145 -- --
Net increase in Federal Home Loan Bank advances 4,100 -- --
Principal payments on capital lease obligations (72) (70) (48)
Proceeds from exercise of stock options 85 87 76
Cash dividends paid (622) (524) (447)
------- ------- -------
Net cash provided by financing activities 15,141 24,419 10,887
------- ------- -------
Net increase (decrease) in cash and due from banks 3,034 755 (867)
Cash and due from banks at beginning of year 5,925 5,170 6,037
------- ------- -------
Cash and due from banks at end of year $ 8,959 5,925 5,170
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Salem Bank and Trust, National
Association and its wholly-owned subsidiary, S.B.& T. Service Corp.,
conform to generally accepted accounting principles and general practices
within the banking industry.
The following is a summary of the more significant accounting policies:
(a) Consolidation
The consolidated financial statements include the accounts of Salem
Bank and Trust, National Association and its wholly-owned subsidiary
(the Bank). All significant intercompany balances and transactions
have been eliminated in consolidation.
(b) Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
include the amounts classified on the consolidated balance sheets as
cash and due from banks.
(c) Securities
Securities available for sale are reported at fair value, with
unrealized gains and losses excluded from net income and reported, net
of income taxes, in a separate component of stockholders' equity.
Securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts on a basis which
approximates the level yield method. The Bank does not engage in
securities trading. Gains and losses on securities are accounted for
on the completed transaction basis by the specific identification
method.
A decline in the fair value of any available-for-sale or held-to-
maturity security below cost that is deemed other than temporary is
charged to income resulting in the establishment of a new cost basis
for the security.
(d) Loans
Loans are stated at the amount of funds disbursed plus the applicable
amount, if any, of the unearned income and other charges less payments
received. Interest on installment loans, including impaired
installment loans that have not been placed in nonaccrual status, is
credited to income based upon the level yield method or the sum-of-the
-months'-digits method, which does not differ materially from the
level yield method. Interest on all other loans, including impaired
loans that have not been placed in nonaccrual status, is accrued based
on the balances outstanding times the applicable interest rates. Loans
are generally placed in nonaccrual status when the collection of
principal or interest is 90 days or more past due, unless the
obligation is both well-secured and in the process of collection. The
interest on nonaccrual loans is accounted for on the cash basis until
qualifying for return to accrual. Loans are returned to accrual status
when all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured.
Impaired loans are presented in the financial statements at the
present value of expected future cash flows or at the fair value of
the loan's collateral if the loan is deemed "collateral dependent." A
valuation allowance is required to the extent that the measure of the
impaired loans is less than the recorded investment. Large groups of
small-balance homogeneous loans
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
such as residential real estate mortgage, consumer installment, home equity
and bank card loans are collectively evaluated for impairment.
Loan origination and commitment fees and certain related costs are
deferred, and the net amount amortized as an adjustment of yield over the
contractual life of the related loan.
Mortgage loans held for sale are carried at the lower of cost or market
value determined on an aggregate basis.
(e) Allowance for Loan Losses
The allowance for loan losses is a valuation allowance consisting of
the cumulative effect of the provision for loan losses, plus any
amounts recovered on loans previously charged off, minus loans charged
off. The provision for loan losses charged to operating expenses is
the amount necessary in management's judgment to maintain the
allowance for loan losses at a level it believes sufficient to cover
losses in the collection of its loans.
(f) Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Equipment under capital leases is
stated at the present value of minimum lease payments at the inception
of the lease. Depreciation is computed by the straight-line method
based on estimated useful lives of eighteen to thirty-nine years for
buildings and five to seven years for furniture, fixtures and
equipment. Leasehold improvements are amortized on a straight-line
basis over the terms of the leases. Equipment held under capital
leases is amortized straight-line over the estimated useful lives of
the assets since the leases transfer ownership or contain a bargain
purchase option. Expenditures for maintenance and repairs are charged
to expense as incurred and improvements are capitalized.
(g) Foreclosed Properties
Foreclosed properties, acquired through foreclosure or deed in lieu of
foreclosure, are carried at the lower of the recorded investment in
the property or its fair value less estimated selling costs. When the
property is acquired, any excess of the loan balance over the fair
value less estimated selling costs of the property is charged to the
allowance for loan losses. Subsequent write-downs, if any, are charged
to expense. Gains and losses on the sale of foreclosed properties are
recorded in income in the year of the sale.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(i) Net Income Per Share
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net income per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Net income per share -
assuming dilution reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Bank.
The following is a reconciliation of the numerators and denominators
of the net income per share and net income per share- assuming
dilution computations for the periods indicated:
<TABLE>
<CAPTION>
Net Income Shares Per Share
Year Ended December 31, 1999 (Numerator) (Denominator) Amount
- ---------------------------- ------------- --------------- -----------------
<S> <C> <C> <C>
Net income per share 2,219 1,520,290 $ 1.46
=================
Effect of dilutive stock options -- 21,606
------------- --------------
Net income per share - assuming dilution $ 2,219 1,541,896 $ 1.44
============= ============== =================
Net Income Shares Per Share
Year Ended December 31, 1998 (Numerator) (Denominator) Amount
- ---------------------------- ------------- --------------- -----------------
Net income per share $ 1,791 1,510,463 $ 1.19
=================
Effect of dilutive stock options -- 35,242
------------ --------------
Net income per share - assuming dilution $ 1,791 1,545,705 $ 1.16
============ ============== ==================
Net Income Shares Per Share
Year Ended December 31, 1997 (Numerator) (Denominator) Amount
- ---------------------------- ------------- --------------- -----------------
Net income per share $ 1,386 1,500,783 $ .92
=================
Effect of dilutive stock options -- 38,102
------------ ---------------
Net income per share - assuming dilution $ 1,386 1,538,885 $ .90
============ =============== =================
</TABLE>
Stock options that could potentially dilute net income per share in
the future that were not included in the computation of net income per
share - assuming dilution because to do so would have been
antidilutive for the periods presented totaled 20,758, 8,505 and 5,538
in 1999, 1998 and 1997, respectively.
(j) Stock Dividends
All prior-period weighted average shares outstanding, net income per
share, cash dividends per share and stock option data has been
adjusted to reflect the effects of the Bank's stock dividends.
(k) Stock Option Plan
Prior to January 1, 1996, the Bank accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the
Bank adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, Statement 123
also allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants made in 1995
and future years as if the
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
fair-value-based method defined in Statement 123 had been applied. The
Bank has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of Statement
123.
(l) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Bank reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
(m) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments, requires the Bank to disclose
estimated fair values of its financial instruments. The following
methods and assumptions were used to estimate the fair value of each
class of financial instrument for which it is practicable to estimate
that value:
. Cash and Due from Banks, Federal Funds Sold and Securities
Purchased under Resale Agreements, Federal Funds Purchased and
Securities Sold Under Resale Agreements, Federal Home Loan Bank
Advances
The carrying amounts are a reasonable estimate of fair value
because of the short maturity of these instruments.
. Securities
The fair value of securities, except certain state and municipal
securities, is determined by quoted market price. The fair value of
certain state and municipal securities is not readily available
through market sources other than dealer quotations, so fair value
estimates are based on quoted market prices of similar instruments,
adjusted for differences between the quoted instruments and the
instruments being valued.
. Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as
mortgage loans held for sale, commercial, real estate -commercial,
real estate - construction, real estate -mortgage, credit card and
other consumer loans. Each loan category is further segmented into
fixed and adjustable rate interest terms.
The fair value of loans is estimated by discounting the future cash
flows using the current interest rates at which similar loans would
be made to borrowers for the same remaining maturities. Fair value
is further adjusted for credit risk based on estimates for cash
flows not expected to be collected. Assumptions regarding credit
risk are judgmentally determined using available external
appraisals and specific borrower information.
. Deposits
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of demand and savings deposits is the amount payable
on demand. The fair value of fixed maturity time deposits and
certificates of deposit is estimated using the rates currently
offered for deposits with similar remaining maturities.
. Commitments to Extend Credit and Standby Letters of Credit
The only amounts recorded for commitments to extend credit, standby
letters of credit and financial guarantees written are the deferred
fees arising from these unrecognized financial instruments. These
deferred fees are not deemed significant at December 31, 1999 and
1998, and as such, the related fair values have not been estimated.
(n) Comprehensive Income
On January 1, 1998, the Bank adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. Statement 130
establishes standards for reporting and presentation of comprehensive
income and its components in a full set of general purpose financial
statements. Statement 130 was issued to address concerns over the
practice of reporting elements of comprehensive income directly in
equity.
The Bank is required to classify items of "other comprehensive income"
(such as net unrealized gains (losses) on available-for-sale
securities) by their nature in a financial statement and present the
accumulated balance of other comprehensive income separately from
undivided profits and surplus in the equity section of the balance
sheet. Per share amounts of comprehensive income are not required to
be disclosed.
In accordance with the provisions of Statement 130, the Bank has
included Consolidated Statements of Income and Comprehensive Income in
the accompanying consolidated financial statements. Comprehensive
income consists of net income and net unrealized gains (losses) on
available-for-sale securities. Also, accumulated other comprehensive
income is included as a separate disclosure within the Consolidated
Statements of Changes in Stockholders' Equity in the accompanying
consolidated financial statements. Comprehensive income for the year
ended December 31, 1997 is presented for comparative purposes. The
adoption of Statement 130 did not have any effect on the Bank's
consolidated financial position, results of operations or liquidity.
(o) Use of Estimates
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities as of the dates of the consolidated balance
sheets and the reported amounts of revenues and expenses for the years
presented. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance
for loan losses and the valuation of foreclosed properties acquired in
connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowance for loan losses and
the valuation of foreclosed properties, management obtains independent
appraisals for significant properties.
Management believes the allowance for loan losses and the valuation of
foreclosed properties are adequate. While management uses available
information to recognize losses on loans and foreclosed properties,
future additions to the allowance for loan losses and write-downs to
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
foreclosed properties may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's
allowance for loan losses and its valuation of foreclosed properties.
Such agencies may require the Bank to recognize additions to the
allowance for loan losses and additional write-downs to foreclosed
properties based on their judgments about information available to
them at the time of their examinations.
(p) Reclassifications
Certain reclassifications have been made to prior years' consolidated
financial statements to place them on a basis comparable with the 1999
consolidated financial statements.
(2) Cash Restrictions
To comply with Federal Reserve regulations, the Bank is required to
maintain certain average reserve balances. The daily average reserve
requirements were $958 and $886 for the weeks including December 31, 1999
and 1998, respectively.
(3) Securities
The amortized costs, gross unrealized holding gains, gross unrealized
holding losses and fair values for available-for-sale and held-to-maturity
securities by major security type are as follows:
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Available-for-sale Costs Gains Losses Values
- ------------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. Government agencies and corporations $ 7,492 -- (299) 7,193
Mortgage-backed securities 1,260 -- (19) 1,241
Other securities 942 -- -- 942
------------- ------------- ------------ -----------
Totals $ 9,694 -- (318) 9,376
============= ============= ============ ===========
Hold-to-Maturity
- ----------------
U.S. Government agencies and corporations $ 36,962 8 (2,980) 33,990
Mortgage-backed securities 287 3 -- 290
Obligations of state and political subdivisions 4,207 74 (6) 4,275
------------- ------------- ------------- -------------
Totals $ 41,456 85 (2,986) 38,555
============= ============= ============= =============
<CAPTION>
December 31, 1998
-----------------------------------------------------------
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Available-for-sale Costs Gains Losses Values
- ------------------ ------------- ------------- ------------- -------------
<S> <C> <C> <S> <C>
U.S. Government agencies and corporations $ 500 -- (7) 493
Mortgage-backed securities 1,663 -- (63) 1,600
Other securities 827 -- -- 827
------------- ------------- ------------- -------------
Totals $ 2,990 -- (70) 2,920
============= ============= ============= =============
Held-to-maturity
- ----------------
U.S. Government agencies and corporations $ 31,992 54 (92) 31,954
Mortgage-backed securities 1,022 10 -- 1,032
Obligations of state and political subdivisions 5,763 190 (1) 5,952
------------- ------------- ------------- -------------
Totals $ 38,777 254 (93) 38,938
============= ============= ============= =============
</TABLE>
The amortized costs and fair values of securities at December 31, 1999, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------------------
Available-for-Sale Held-to-Maturity
----------------------------- -----------------------------
Amortized Fair Amortized Fair
Costs Values Costs Values
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Due in one year or less $ 614 613 920 942
Due after one year through five years -- -- 4,880 4,842
Due after five years through ten years 1,003 985 11,376 10,757
Due after ten years 7,135 6,836 24,280 22,014
No maturity 942 942 -- --
------------- ------------- ------------- --------------
Totals $ 9,694 9,376 41,456 38,555
============= ============= ============= ==============
</TABLE>
For the year ended December 31, 1997, the Bank sold held-to-maturity
securities with an aggregate amortized cost of $797 and realized an
aggregate loss of $3 on the sales. There were no sales of securities during
the years ended December 31, 1999 and 1998.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As members of the Federal Reserve and the Federal Home Loan Bank (FHLB) of
Atlanta, the Bank is required to maintain certain minimum investments in
the common stock of those entities. Required levels of investment are based
upon the Bank's capital and a percentage of qualifying assets. In addition,
the Bank is eligible to borrow from the FHLB with borrowings collateralized
by qualifying assets, primarily residential mortgage loans, and the Bank's
capital stock investment in the FHLB. At December 31, 1999, the Bank's
available borrowing limit was approximately $20,900. The Bank had $4,100 in
FHLB advances outstanding at December 31, 1999. The advances, due in full
in December 2000, bear interest at a variable rate of 4.55 percent at
December 31, 1999.
Securities with amortized costs of $24,214 and $15,507 at December 31, 1999
and 1998, respectively, were pledged to secure public deposits and for
other purposes required or permitted by law.
(4) Loans
A summary of loans outstanding is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Commercial $ 9,058 12,301
Consumer, principally installment 22,183 19,236
Real estate - mortgage 71,914 55,372
Real estate - construction 14,881 13,727
--------------- ------------
Total loans 118,036 100,636
Less unearned income (1,039) (948)
--------------- ------------
Total loans, less unearned income $ 116,997 99,688
=============== ============
</TABLE>
In the normal course of business, the Bank has made loans to directors and
officers. At December 31, 1999, direct loans to directors and officers
totaled $237 compared to $396 at December 31, 1998. In addition, indirect
loans (i.e., loans to companies in which directors and officers have an
interest, immediate family members, or any other associates of such
directors and officers) totaled $618 and $227 at December 31, 1999 and
1998, respectively.
A summary of the activity during the year ended December 31, 1999 relating
to direct and indirect loans to officers and directors is as follows:
<TABLE>
<S> <C>
Aggregate balance, beginning of year $ 623
Additions 554
Collections (322)
-------------
Aggregate balance, end of year $ 855
=============
</TABLE>
(5) Nonperforming Assets, Impaired Loans and Allowance for Loan Losses
Nonperforming assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Nonaccrual basis $ 810 859
Foreclosed properties 216 559
-------------- -------------
Total nonperforming assets $ 1,026 1,418
============== =============
</TABLE>
There were no commitments to lend additional funds to customers whose loans
were classified as nonperforming at December 31, 1999 and 1998.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the pro forma interest that would have been
earned on nonaccrual loans if they had been current in accordance with
their original terms and the recorded interest that was earned and included
in income on these loans:
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
Pro forma interest on nonaccrual loans $ 80 74 60
======== ======== ========
Recorded interest on nonaccrual loans $ 65 76 46
======== ======== ========
At December 31, 1999 and 1998, the recorded investment in loans which have
been identified as impaired loans totaled $1,032 and $1,070, respectively.
Of these amounts, $711 and $660 related to loans with no valuation
allowance, and $321 and $410 related to loans with a corresponding
valuation allowance of $67 and $77, respectively.
For the years ended December 31, 1999, 1998 and 1997, the average recorded
investment in impaired loans was approximately $1,092, $998 and $923, and
the total interest income recognized on impaired loans was $85, $96 and
$78, of which $65, $76 and $46, respectively, was recognized on a cash
basis.
A summary of the changes in the allowance for loan losses follows:
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
Balances, beginning of year $ 1,284 1,200 1,165
Provision for loan losses 315 358 391
Loans charged off (276) (390) (475)
Loan recoveries 81 116 119
-------- -------- --------
Balances, end of year $ 1,404 1,284 1,200
======== ======== ========
(6) Bank Premises and Equipment
A summary of bank premises and equipment stated at cost, less accumulated
depreciation and amortization, follows:
December 31,
------------------
1999 1998
-------- --------
Bank premises $ 1,657 1,643
Furniture, fixtures and equipment 2,572 2,323
Leasehold improvements 349 307
-------- --------
4,578 4,273
Less accumulated depreciation and amortization (2,431) (2,162)
-------- --------
Bank premises and equipment, net $ 2,147 2,111
======== ========
(7) Time and Other Deposits
Included in time deposits are certificates of deposit and other time
deposits of $100 or more in the aggregate amounts of $17,873 and $17,063 at
December 31, 1999 and 1998, respectively.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1999, the scheduled maturities of time deposits are as
follows:
Years Ending December 31,
2000 $ 53,539
2001 22,285
2002 11,531
2003 5,563
2004 538
Thereafter 466
--------
$ 93,922
========
Included in total deposits are funds deposited by local municipalities
totaling $15,992 and $13,751 at December 31, 1999 and 1998, respectively.
(8) Employee Retirement Plans
Effective January 1, 1996, the Bank adopted a 401(k) defined contribution
plan. To become eligible for the plan, an employee must complete six months
of service and be at least 21 years of age. The plan allows participants to
contribute through salary reduction up to 20 percent of their annual
compensation on a pretax basis. Contributions by the Bank are paid into a
trust semimonthly at the rate of 5 percent (3 percent prior to July 1997)
of eligible compensation. The annual expense under the plan was $104, $96
and $80 for the years ended December 31, 1999, 1998 and 1997, respectively.
(9) Income Taxes
Total income taxes were allocated as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income $ 1,020 777 539
Stockholders' equity for:
Net unrealized gains (losses) on available-for-sale
securities recognized for financial reporting purposes (84) 5 33
Compensation cost recognized for income
tax purposes related to stock options exercised (27) (25) (54)
-------- -------- --------
Total income taxes $ 909 757 518
======== ======== ========
</TABLE>
Income tax expense attributable to income before income tax expense is as
follows:
Years Ended December 31,
------------------------
1999 1998 1997
------ ------ ------
Current $1,067 832 574
Deferred (47) (55) (35)
------ ------ ------
Total income tax expense $1,020 777 539
====== ====== ======
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax expense differed from "expected" amounts, computed by applying
the U.S. Federal income tax rate of 34 percent to income before income tax
expense, as a result of the following:
Years Ended December 31,
-------------------------
1999 1998 1997
------ ------ ------
"Expected" income tax expense $1,101 873 655
Increase (reduction) in income tax expense
resulting from:
Tax-exempt interest income (89) (116) (136)
Nondeductible interest expense 13 16 18
Other, net (5) 4 2
------ ------ ------
Reported income tax expense $1,020 777 539
====== ====== ======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Loans, principally due to allowance for loan losses $ 409 355
Net unrealized losses on available-for-sale securities 108 24
Other 17 16
-------- --------
Total gross deferred tax assets 534 395
Less valuation allowance -- --
-------- --------
Net deferred tax assets 534 395
-------- --------
Deferred tax liabilities:
Bank premises and equipment, principally due to
differences in depreciation and amortization (45) (30)
Loans, due to net unearned fees (21) (11)
Securities, due to differences in discount accretion (8) (21)
Prepaid expenses, due to deduction for tax purposes (11) (15)
-------- --------
Total gross deferred tax liabilities (85) (77)
-------- --------
Net deferred tax asset, included in other assets $ 449 318
======== ========
</TABLE>
The Bank has determined that a valuation allowance for the gross deferred
tax assets is not necessary at December 31, 1999 and 1998, since
realization of the gross deferred tax assets can be supported by the
amounts of taxes paid during the carryback period available under current
tax laws.
(10) Employee Stock Option Plan
The Bank sponsors an Employee Stock Option Plan (the Plan) to give
directors, officers and employees (collectively referred to as employees)
an opportunity to acquire shares of the common stock of the Bank to provide
an incentive for employees to continue to promote the best interests of the
Bank and enhance its long-term performance, and to provide an incentive for
employees to join or remain with the Bank. Under the Plan, stock options
may be granted at not less than fair market value on the date of grant.
Stock options granted under the plan are exercisable in July of each year
in ratable installments over the option period which expires in 2002. Any
options not exercised as permitted are forfeited. A change of control,
merger, consolidation, dissolution or liquidation of the
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bank will result in employees holding stock options being given thirty days
to exercise their unexercised stock options without regard to installment
exercise limitations. Stock option data has been adjusted to reflect the
Bank's stock dividends. Proceeds from the exercise of stock options are
credited to common stock for the amount of par value and any excess is
credited to surplus.
At December 31, 1999, there were 64,790 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock
options granted during 1999, 1998 and 1997 was $3.35, $4.16 and $3.87,
respectively, on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: 1999 - expected cash
dividend yield 2.2 percent, risk-free interest rate of 6.0 percent,
expected volatility of 32 percent and an expected life in ratable
installments over the option period which expires in July 2002; 1998 -
expected cash dividend yield 2.2 percent, risk-free interest rate of 6.0
percent, expected volatility of 32 percent and an expected life in ratable
installments over the option period which expires in July 2002; 1997 -
expected cash dividend yield 2.2 percent, risk-free interest rate of 6.3,
expected volatility of 30 percent and an expected life in ratable
installments over the option period which expires in July 2002.
The Bank applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options
in the financial statements. Had compensation cost for the Bank's Plan been
determined consistent with Statement 123, the Bank's net income and net
income per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income:
As reported $ 2,219 1,791 1,386
========= ========= =========
Pro forma $ 2,177 1,763 1,365
========= ========= =========
Net income per share:
As reported $ 1.46 1.19 .92
========= ========= =========
Pro forma $ 1.43 1.17 .91
========= ========= =========
Net income per share - assuming dilution:
As reported $ 1.44 1.16 .90
========= ========= =========
Pro forma $ 1.41 1.14 .89
========= ========= =========
</TABLE>
Pro forma net income reflects only options granted since January 1, 1995.
Therefore, the full impact of calculating compensation cost for stock
options under Statement 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the
option period which expires in July 2002, and compensation cost for options
granted prior to January 1, 1995 is not considered.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
-------------- --------------
<S> <C> <C>
Balance at December 31, 1996 110,216 9.69
Granted 14,623 16.66
Exercised (9,702) 8.76
Forfeited (9,700) 11.92
Expired (8,946) 11.29
--------------
Balance at December 31, 1997 (number and weighted average
exercise price of options exercisable - 19,264 at $10.47) 96,491 10.47
Granted 15,142 18.95
Exercised (10,394) 9.02
Forfeited (14,477) 13.38
Expired (8,790) 13.52
--------------
Balance at December 31, 1998 (number and weighted average
exercise price of options exercisable - 19,450 at $11.46) 77,972 11.46
Granted 16,640 17.65
Exercised (9,856) 8.98
Forfeited (5,029) 15.27
Expired (10,162) 14.48
--------------
Balance at December 31, 1999 (number and weighted average
exercise price of options exercisable - 23,158 at $12.58) 69,565 12.57
==============
</TABLE>
At December 31, 1999, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $8.00 to $20.25 and
2.5 years, respectively.
(11) Dividend Restrictions and Capital Requirements
Under applicable federal laws, the Comptroller of the Currency restricts,
without prior approval, the total dividend payments of the Bank in any
calendar year to the net profits of that year, as defined, combined with
retained net profits for the two preceding years. At December 31, 1999, the
Bank had retained net profits of approximately $854 which were free of such
restrictions.
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Bank's consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of assets, liabilities and certain off-
balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
average assets (as defined). Management believes, as of December 31, 1999,
that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1999, the most recent notifications from the appropriate
regulatory authorities categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table below.
There are no conditions or events since those notifications that management
believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are also presented in the
following table:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ------------------------ ----------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital
(to Risk Weighted Assets) $ 19,451 16.53% 9,416 8% 11,770 10%
Tier 1 Capital
(to Risk Weighted Assets) 18,047 15.33% 4,708 4% 7,062 6%
Tier 1 Capital
(to Average Assets) 18,047 10.16% 7,105 4% 8,881 5%
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets) $ 17,622 16.69% 8,445 8% 10,557 10%
Tier 1 Capital
(to Risk Weighted Assets) 16,338 15.48% 4,223 4% 6,334 6%
Tier 1 Capital
(to Average Assets) 16,338 10.53% 6,204 4% 7,755 5%
</TABLE>
(12) Supplemental Cash Flow Information
The Bank paid $6,338, $5,618 and $4,901 for interest and $738, $895 and
$363 for income taxes, net of refunds received, for the years ended
December 31, 1999, 1998 and 1997, respectively. Noncash investing
activities included $221, $594 and $247 of loans transferred to
foreclosed properties and $276, $390 and $475 of loans charged against
the allowance for loan losses in 1999, 1998 and 1997, respectively.
Noncash investing activities also included $(248), $13 and $98 of changes
in net unrealized losses included in available-for-sale securities, $84,
$(5) and $(33) of changes in deferred tax assets included in other
assets, and $(164), $8 and $65 of changes in net unrealized losses on
available-for-sale securities, net of income taxes, included in
stockholders' equity in 1999, 1998 and 1997, respectively. In addition,
noncash investing and financing activities included $203 of capital lease
obligations incurred in 1997 when the Bank entered into leases for
certain computer hardware equipment.
(13) Financial Instruments with Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the consolidated balance sheets.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
The contract amounts of those instruments reflect the extent of involvement
the Bank has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
The Bank generally requires collateral or other security to support the
following financial instruments with credit risk:
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
----------------- -----------
Contract Amounts
------------------------------
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $ 16,048 10,449
============ ===========
Standby letters of credit $ 1,992 1,597
============ ===========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments to extend credit consist of construction loans ($8,376 at
December 31, 1999) which have a fixed rate but a duration of generally less
than one year. The remainder ($7,672 at December 31, 1999) represents
generally variable rate lines of credit that renew annually. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the customer.
Collateral held varies but may include marketable securities, accounts
receivable, inventory, property, plant and equipment, and income-producing
commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support private borrowing arrangements. The credit
risk involved in issuing standby letters of credit is generally less than
that involved in extending loans to customers because the Bank generally
holds deposits equal to the commitment.
The Bank originates mortgage loans for sale to secondary market investors
subject to contractually specified and limited recourse provisions. In
1999, the Bank originated $15,076 of mortgage loans and sold $16,632 to
investors, compared to $22,282 originated and $21,702 sold in 1998. Every
contract with each investor contains certain recourse language. In general,
the Bank may be required to repurchase a previously sold mortgage loan if
there is major noncompliance with defined loan origination or documentation
standards, including fraud, negligence or material misstatement in the loan
documents. Repurchase may also be required if necessary governmental loan
guarantees are cancelled or never issued, or if an investor is forced to
buy back a loan after it has been resold as a part of a loan pool. In
addition, the Bank may have an obligation to repurchase a loan if the
mortgagor has defaulted early in the loan term. This potential default
period is for a period of twelve months after sale of a loan to the
investor. Sold loans with potential recourse totaled approximately $16,632
at December 31, 1999 and $21,702 at December 31, 1998.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) Concentrations of Credit Risk
The Bank's primary business activity is centered primarily in the City of
Salem, but extends throughout the Roanoke Valley. Accordingly, operating
results are closely correlated with the economic trends within this service
area. The City of Salem has a diverse economy, including a variety of
manufacturing and service industries. The ultimate collectibility of the
loan portfolios and the recovery of the carrying amounts of foreclosed
properties are susceptible to changes in the market conditions of this
area.
The Bank has established operating policies relating to the credit process
and collateral in loan originations. Loans to purchase real and personal
property are generally collateralized by the related property with loan
amounts established based on certain percentage limitations of the
property's total stated or appraised value. Credit approval is primarily a
function of the evaluation of the creditworthiness of the individual
borrower or project based on available financial information and
collateral. The commercial loan portfolio is diversified with no
significant concentrations of credit. The consumer loan portfolio contains
loans to individuals for household, family and other personal expenditures.
At December 31, 1999 and 1998, the real estate loan portfolio contains
approximately $15,000 and $14,000, respectively, of loans for construction
and land development, approximately $37,000 and $30,000, respectively, of
loans collateralized by 1-4 family residential properties and approximately
$35,000 and $25,000, respectively, of loans collateralized by nonfarm,
nonresidential properties.
(15) Commitments
During 1997, the Bank, as lessee, entered into capital leases for certain
computer hardware equipment that expire in three years. At December 31,
1999, the gross amount of equipment and related accumulated amortization
recorded under capital leases were $203 and $101, respectively.
Amortization of assets held under capital leases is included with
depreciation expense. The Bank, as lessee, is also obligated under various
noncancellable operating leases for its premises. Future minimum lease
payments, by year and in the aggregate, under operating leases that have
initial or remaining lease terms in excess of one year and the present
value of future minimum capital lease payments as of December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Capital Operating
Years Ending December 31, Leases Leases
----------------- -----------------
<S> <C> <C>
2000 $ 14 168
2001 -- 137
2002 -- 124
2003 -- 101
2004 -- 95
Thereafter -- 261
------------ -----------
Total minimum lease payments 14 $ 886
===========
Less amounts representing interest (at rates ranging
from 5.42% to 5.99%) (1)
-----------
Present value of future minimum capital
lease payments, included in other liabilities $ 13
===========
</TABLE>
The operating leases generally provide for contingent rentals based on any
increase in real estate taxes or other governmental assessments. Rent
expense was approximately $152, $148 and $143 for the years ended December
31, 1999, 1998 and 1997, respectively.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank, as lessor, leases certain of its bank premises under various
noncancellable operating leases. The future minimum payments that will be
received by the Bank, by year and in the aggregate, under the
noncancellable terms of the leases are as follows:
Years Ending December 31,
2000 $ 25
2001 5
2002 5
2003 5
2004 5
Thereafter --
------
$ 45
======
The leases are all renewable for varying lengths of time and generally
provide for increases in lease payments based on the consumer price index.
Rental income was approximately $54, $52 and $54 for the years ended
December 31, 1999, 1998 and 1997, respectively.
(16) Fair Value of Financial Instruments
The estimated fair values of the Bank's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1999 1998
------------------------------- -------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 8,959 8,959 5,925 5,925
Federal funds sold and
securities purchased
under resale agreements -- -- 10,180 10,180
Securities 50,832 47,931 41,697 41,858
Mortgage loans held for sale 346 346 1,902 1,902
Loans, net 115,593 118,597 98,404 100,140
---------- --------- --------- ----------
Total financial assets $ 175,730 175,833 158,108 160,005
========== ========= ========= ==========
Financial
liabilities:
Deposits $ 156,864 156,614 145,359 146,667
Federal funds purchased and
securities sold under resale
agreements 145 145 -- --
Federal Home Loan Bank advances 4,100 4,100 -- --
---------- --------- --------- ----------
Total financial liabilities $ 161,109 160,859 145,359 146,667
========== ========= ========= ==========
</TABLE>
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result
from offering for sale at one time the Bank's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of the Bank's financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect these
estimates.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets that are not
considered financial assets include deferred tax assets and bank premises
and equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in the
estimates.
(17) Other Comprehensive Income
Other comprehensive income, net of income tax expense and reclassification
adjustments between net income and other comprehensive income relating to
available-for-sale securities, are reported in the consolidated statements
of income and comprehensive income. The information that follows discloses
the reclassification adjustments and the income tax expense related to
available-for-sale securities that are included in other comprehensive
income, net of income tax expense, for the years ended December 31, 1999
and 1998:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Net unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) during the year $ (240) 8
Plus reclassification adjustments for (gains) losses included
in net income (8) (5)
Income tax (expense) benefit 84 5
----------- ----------
Other comprehensive income (loss), net of
income tax expense (benefit) $ (164) 8
=========== ==========
</TABLE>
F-24
<PAGE>
APPENDIX A
PLAN AND AGREEMENT OF SHARE EXCHANGE
THIS PLAN AND AGREEMENT OF SHARE EXCHANGE is made and entered into as
of June 17, 1999, by and among Salem Community Bankshares, Inc., a proposed bank
holding company organized under the laws of Virginia, with its principal office
in Salem, Virginia (the "Holding Company"), and Salem Bank & Trust, N.A., a
banking corporation organized under the laws of the United States of America,
with its main office in Salem, Virginia (the "Bank").
WITNESSETH:
Whereas, Holding Company is a Virginia corporation formed for the
purpose of engaging in a share exchange transaction with Bank by which Holding
Company will, on the effective date of the share exchange, own 100% of the
outstanding shares of the common stock ($5.00 par value) of Bank ("Bank Common
Stock") by virtue of an exchange of shares of the common stock (no par value) of
Holding Company ("Holding Company Common Stock") for all of the issued and
outstanding shares of Bank Common Stock excluding only the "Excluded Shares" as
hereinafter defined.
Whereas, the respective Boards of Directors of Holding Company and
Bank consider the Share Exchange to be in the best interest of each corporation.
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, Holding Company and Bank agree as follows:
1. The Share Exchange. At the Effective Date (as hereinafter
defined), the Bank shall become a wholly owned subsidiary bank of Holding
Company by virtue of a share exchange in which all of the capital stock of Bank
as represented by all of the issued and outstanding shares of Bank Common Stock
(excluding only the Excluded Shares) shall be the only class or series of Bank
stock outstanding as of the Effective Date and shall be acquired from the
holders thereof through a statutory share exchange in which each outstanding
share of Bank Common Stock shall be converted into the right to receive the
consideration specified in Section 2 (the "Share Exchange").
2. Share Exchange Rights. 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 (the "Effective Date"):
(a) Each of the issued and outstanding share of Bank Common
Stock or fraction thereof (excluding shares held by Bank or Holding Company, in
each case other than in a fiduciary capacity or as a result of debts previously
contracted, and excluding shares held by stockholders who perfect their
dissenters rights, if any (the "Excluded Shares") shall be automatically
converted into the right to receive the equivalent number of shares of Holding
Company Common Stock. Outstanding certificates representing shares of Bank
Common Stock will thereafter represent the right to receive an equal number of
shares of Holding Company Common Stock (the "Exchange Rights"). As soon as
practicable thereafter, the Holding Company will issue new stock certificates
representing the shares of Holding Company Common Stock received in the Share
Exchange. Each holder of Bank Common Stock, upon the surrender of his stock
certificates for the Bank Common Stock to the Holding Company duly endorsed for
transfer, will be entitled to receive in exchange therefor a certificate or
certificates representing an equivalent number of shares of Holding Company
Common Stock.
(b) On the Effective Date, holders of Bank Common Stock shall
cease to be, and shall have no rights as, stockholders of the Bank other than
the Exchange Rights and there shall be no transfer on the stock transfer book of
Bank of the shares of Bank Common Stock which were outstanding immediately prior
to the Effective Date.
(c) Any holder of Bank Common Stock who perfects his dissenters'
rights of appraisal in accordance with and as contemplated by the applicable
provisions of Article 15 of the Virginia Stock Corporation Act (Va. Code (S)
13.1-729, et seq.) shall be entitled to receive the value of such shares in cash
as determined
<PAGE>
pursuant to such provision of law; provided, however, that no such payment shall
be made to any dissenting stockholder unless and until such dissenting
stockholder has complied with the applicable provisions of Article 15 of the
Virginia Stock Corporation Act (Va. Code (S) 13.1-729, et seq.) and duly
surrendered the certificate or certificates representing the shares for which
payment is being made. In the event that a dissenting shareholder of Bank having
dissenters' rights as a matter of law fails to perfect or effectively withdraws
or loses his right to appraisal and of payment or his share, after the Effective
Date, Holding Company will issue and deliver the consideration to which such
holder was entitled (without interest) on surrender by such holder of the
certificates) representing shares of Bank Common Stock held by him.
(d) As promptly as practicable after the Effective Date, Holding
Company shall send or cause to be sent to each former stockholder of Bank of
record immediately prior to the Effective Date transmittal materials for use in
exercising his Exchange Rights. Any dividends paid on any shares of Holding
Company Common Stock that such stockholder shall be entitled to receive prior to
the delivery to Holding Company of such stockholder's certificates representing
all of such stockholder's shares of Bank Common Stock will be delivered to such
stockholder only upon delivery to Holding Company of the certificates
representing all of such shares (or indemnity satisfactory to Holding Company in
its judgment, if any of such certificates are lost, stolen or destroyed). No
interest will be paid on any such dividends which the holder of such shares
shall be entitled to receive upon such delivery. After the Effective Date, to
the extent permitted by law, former stockholders of record of Bank Common Stock
shall be entitled to vote at any meeting of holders of Holding Company Common
Stock, the number of whole shares of Holding Company Common Stock to which they
have Exchange Rights, regardless of whether such holders have exchanged their
certificates representing Bank Common Stock for certificates representing
Holding Common Stock in accordance with the provisions of this Agreement.
(e) Each of the shares of Bank Common Stock held by Bank or by
Holding Company, in each case other than in a fiduciary capacity or as a result
of debts previously contracted, shall be cancelled and retired at the Effective
Date and no consideration shall be issued in exchange therefor.
3. 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 immediately prior to the Effective Date.
4. 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 the directors of the Bank and the Holding Company, respectively, except as
otherwise determined in the discretion of the Boards prior to the Effective
Date, until the expiration of their term 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 in their then current positions
until such time as their successors have been elected or appointed.
5. Conditions to the Merger. Consummation of the Share Exchange is
conditioned upon (i) the approval of this Agreement by the affirmative vote of
the shareholders owning more than two-thirds of the outstanding shares of the
common stock of the Bank at a meeting to be held on the call of the Bank's board
of directors, (ii) the receipt of the required regulatory approvals, (iii) the
effectiveness of the registration of the shares of Holding Company Common Stock
to be issued in the Share Exchange and compliance with all Blue Sky law
requirements so that such shares may be lawfully issued, and (iv) the receipt of
an opinion of counsel as to the tax-free nature of the transaction. 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.
6. Termination. This Agreement may be terminated by the unilateral
action of either of the boards of directors of the Bank or the Holding Company
prior to the approval of the Agreement by the shareholders of Bank or by the
mutual consent of the respective boards of directors of the Bank and the Holding
Company after any shareholder 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 shareholders.
<PAGE>
WITNESS, the following signatures and seals for the parties, each
hereunto set by its President and attested by its Cashier or Secretary, pursuant
to duly authorized resolutions of its Board of Directors.
Salem Community Bankshares, Inc.
By ________________________________
Salem Bank & Trust, N.A.
By ________________________________
<PAGE>
APPENDIX B
RESTATED
ARTICLES OF INCORPORATION
OF
Salem Community Bankshares, Inc.
1. The name of the Corporation is Salem Community Bankshares, Inc.
2. (a) The aggregate number of shares which the Corporation is authorized
to issue is as follows:
Class Number of Shares
----- ----------------
Common 10,000,000
Preferred 10,000,000
(b) The Board of Directors of the Corporation (the "Board of
Directors") may, by amending these Articles of Incorporation (the "Articles") by
filing Articles of Amendment with the Virginia State Corporation Commission, fix
in whole or in part the preferences, limitations and rights, within the limits
set by law, of (i) any class of shares, before the issuance of any shares of
that class, or (ii) one or more series within a class, before the issuance of
any shares within that series.
(c) The preferred stock (including any shares of preferred stock
restored to the status of authorized but unissued preferred stock undesignated
as to series pursuant to this Article 2(c)) may be divided into one or more
series and issued from time to time with such preferences, privileges,
limitations, and relative rights as shall be fixed and determined by the Board
of Directors. Without limiting the generality of the foregoing, the Board of
Directors is expressly authorized to the fullest extent permitted from time to
time by law to fix:
(i) the distinctive serial designations and the division of
shares of preferred stock into one or more series and the number of shares of a
particular series, which may be increased or decreased (but not below the number
of shares thereof then outstanding);
(ii) the rate or amount (or the method of determining the rate
or amount) and times at which, the form in which, and the preferences and
conditions under which, dividends shall be payable on shares of a particular
series, the status of such dividends as cumulative, partially cumulative, or
noncumulative, the date or dates from which dividends, if cumulative, shall
accumulate, and the status of such series as participating or nonparticipating
with shares of other classes or series;
<PAGE>
(iii) the price or prices at which, the consideration for which,
the period or periods within which and the terms and conditions, if any, upon
which the shares of a particular series may be redeemed, in whole or in part, at
the option of the Corporation or otherwise;
(iv) the amount or amounts and rights and preferences, if any,
to which the Holders (as defined in Article 3 below) of shares of a particular
series are entitled or shall have upon any involuntary or voluntary liquidation,
dissolution or winding up of the Corporation;
(v) the rights and preferences over or otherwise in relation
to any other class or series (including other series of preferred stock), as to
the right to receive dividends and/or the right to receive payments out of the
net assets of the Corporation upon any involuntary or voluntary liquidation,
dissolution or winding up of the Corporation;
(vi) the right, if any, of the Holders of a particular series,
the Corporation or another person to convert or cause conversion of shares of
such series into shares of other classes or series or into other securities,
cash, indebtedness or other property, or to exchange or cause exchange of such
shares for shares of other classes or series or other securities, cash,
indebtedness or other property, and the terms and conditions, if any, including
the price or prices or the rate or rates of conversion and exchange, and the
terms and conditions or adjustments, if any, at which such conversion or
exchange may be made or caused;
(vii) the obligation, if any, of the Corporation to redeem,
purchase or otherwise acquire, in whole or in part, shares of a particular
series for a sinking fund or otherwise, the terms and conditions thereof, if
any, including the price or prices and the nature of the consideration payable
for such shares so redeemed, purchased or otherwise acquired;
(viii) the voting rights, if any, including special, conditional
or limited voting rights, of the shares of a particular series in addition to
those required by law, including the number of votes per share and any
requirement for the approval by the Holders of shares of all series of preferred
stock, or of the shares of one or more series thereof, or of both, in an amount
greater than a majority, up to such amount as is in accordance with applicable
law or these Articles, as a condition to specified corporate action or
amendments to the Articles; and
(ix) any other preferences, limitations and relative rights
which may be so determined by resolution or resolutions of the Board of
Directors.
Shares of preferred stock shall rank prior or superior to the common
stock in respect of the right to receive dividends and/or the right to receive
payments out of the net assets of the Corporation upon any
<PAGE>
involuntary or voluntary liquidation, dissolution or winding up of the
Corporation. All shares of preferred stock redeemed, purchased or otherwise
acquired by the Corporation (including shares surrendered for conversion or
exchange) shall be cancelled and thereupon restored to the status of authorized
but unissued shares of preferred stock undesignated as to series.
(d) The Holders of common stock, to the exclusion of any other class
of stock of the Corporation, have sole and full power to vote for the election
of directors and for all other purposes without limitation except only (i) as
otherwise expressly provided in the serial designation of any series of
preferred stock, (ii) as otherwise expressly provided in these Articles and
(iii) as otherwise expressly provided by the then existing laws of the
Commonwealth of Virginia. The Holders of common stock will have one vote for
each share of common stock held by them. The outstanding shares of common stock,
upon dissolution, liquidation or winding up of the Corporation, entitle their
Holders to share, pro rata, based on the number of shares owned, in the
Corporation's assets remaining after payment or provisions for payment of all
debts and liabilities of the Corporation, and after provisions for the
outstanding shares of any class of stock or other security having senior
liquidation rights to the common stock.
(e) No Holder of shares of stock of any class of the Corporation will
have any preemptive or preferential right of subscription to any shares of any
class of stock of the Corporation, whether now or hereafter authorized, or to
any obligations of the Corporation convertible into stock of the Corporation,
issued or sold, nor any right of subscription to any thereof.
3. (a) Subject to the rights of Holders of any series of preferred stock
to elect directors under specified circumstances:
(i) The number of directors of the Corporation, not less than
five nor more than twenty-five, shall be set by the Bylaws; provided that, in
the absence of a provision in the Bylaws fixing the number of directors, the
number of directors shall be fifteen. The directors shall be divided into three
classes as nearly equal in number as possible, with the term of office of
directors of the first class to expire at the first annual meeting of the
shareholders after their election, that of the second class to expire at the
second annual meeting after their election, and that of the third class to
expire at the third annual meeting after their election. At each annual meeting
after such classification, the number of directors equal to the number of the
class whose term expires at the time of such meeting shall be elected to hold
office until the third succeeding annual meeting of shareholders and until their
<PAGE>
respective successors are elected and shall qualify. In the event of any
increase or decrease in the number of directors fixed by the Bylaws, all classes
of directors shall be increased or decreased as equally as may be possible.
(ii) Newly-created directorships resulting from an increase in
the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office, or other cause shall be filled by the affirmative vote of a majority of
the directors then in office, whether or not a quorum. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director. A director may be removed from office only for cause and
only by the affirmative vote of the Holders of not less than two-thirds of each
class of the voting stock of the Corporation then outstanding at a meeting
called for that purpose.
(b) The power to adopt, alter, amend or repeal Bylaws is vested in
the Board of Directors, which may take such action by the vote of a majority of
the directors present and voting at a meeting at which a quorum is present,
provided that if, as of the date such action shall occur, there is an Interested
Shareholder, such majority must include a majority of the Continuing Directors.
The Bylaws may contain any provision respecting the affairs, business,
governance or other matters relating to the Corporation not inconsistent with
the express provisions of these Articles. Shareholders, by the affirmative vote
of the Holders of not less than 80 percent of each class of the voting stock of
the Corporation then outstanding, may (i) adopt new Bylaws, or (ii) alter, amend
or repeal Bylaws adopted by either the shareholders or the Board, and (iii)
prescribe that any Bylaw made by them shall not be altered, amended or repealed
by the Board (provided that if the shareholders do not so prescribe, any Bylaw
made by them may be altered, amended or repealed by the Board).
(c) The affirmative vote of the Holders of not less than 80 percent
of each class of the voting stock of the Corporation then outstanding shall be
required to amend or repeal this Article 3 or adopt any provision of the
Articles or Bylaws inconsistent with this Article 3.
(d) For purposes of this Article 3:
(i) "Person" means any individual, firm, corporation or other
entity.
(ii) "Interested Shareholder" means (A) any Person (other than
the Corporation, a Subsidiary, or any profit-sharing, employee stock ownership
or employee benefit plan of the Corporation or a Subsidiary, or any trustee of
or fiduciary with respect to any such plan acting in such capacity) that is the
direct or indirect beneficial owner (as defined in Rules 13d-3 and 13d-5 under
the Securities Exchange Act of 1934 ("`34
<PAGE>
Act") the date these Articles first became effective) of five percent or more of
the outstanding capital stock of the Corporation entitled to vote for the
election of directors, and (B) any Affiliate or Associate of any such Person.
(iii) "Affiliate" and "Associate" shall have the respective
meanings given those terms in Rule 12b-2 of the General Rules and Regulations
under the `34 Act as in effect on the date these Articles first became
effective.
(iv) "Subsidiary" means any business entity, 50 percent or more
of which is directly or indirectly owned by the Corporation.
(v) "Continuing Director" means any member of the Board of
Directors who is neither an Interested Shareholder nor affiliated with an
Interested Shareholder and who was a member of the Board of Directors
immediately prior to the time that the Interested Shareholder became an
Interested Shareholder.
(vi) "Holders" means the holders of all classes and series of
the capital stock of the Corporation, except as otherwise specifically provided
herein.
4. To the full extent that the laws of the Commonwealth of Virginia, as
they now or may hereafter exist, permit the limitation or elimination of the
liability of directors or officers, no director or officer of the Corporation
shall be liable to the Corporation or its shareholders for any monetary damages.
5. (a) The Corporation shall indemnify a director or officer of the
Corporation who is or was a party to any proceeding, including a proceeding by
or in the right of the Corporation, by reason of the fact that he is or was such
a director or officer or is or was serving at the request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other profit or non-profit
enterprise against all liabilities and expenses incurred in the proceeding,
except such liabilities and expenses as are incurred because of his willful
misconduct or knowing violation of the criminal law. Unless a determination has
been made that indemnification is not permissible, the Corporation shall make
advances and reimbursement for expenses incurred by a director or officer in a
proceeding upon receipt of an undertaking from him to repay the same if it is
ultimately determined that he is not entitled to indemnification. Such
undertaking shall be an unlimited unsecured general obligation of the director
or officer and shall be accepted without reference to his ability to make
repayment. The Board of Directors is hereby empowered to contract in advance to
indemnify and advance the expenses of any director or officer. The termination
of any proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent shall not, by itself, create a presumption
- ---- ----------
that the director or officer did not meet the standard of conduct entitling him
to indemnity hereunder.
<PAGE>
(b) The Board of Directors is hereby empowered to cause the
Corporation to indemnify and make advances and reimbursement for expenses (or
contract in advance for the same) incurred by any person not specified in
paragraph (a) of this Article 5 who was or is a party to any proceeding, by
reason of the fact that he is or was an employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other profit or non-profit enterprise, to the same
extent as if such person were specified as one to whom indemnification is
granted in paragraph (a) of this Article.
(c) The Corporation may purchase and maintain insurance to indemnify
it against the whole or any portion of the liability assumed by it in accordance
with this Article and may also procure insurance, in such amounts as the Board
of Directors may determine, on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability asserted against or incurred by such person in
any such capacity or arising from his status as such, whether or not the
Corporation would have power to indemnify him against such liability under the
provisions of this Article.
(d) Except as hereinafter provided, all determinations as to the
permissibility of indemnification and advances and reimbursement for expenses
(including contracts with respect thereto) shall be made by a majority vote of a
quorum consisting of directors not at the time parties to the proceeding. In the
event such a quorum cannot be obtained to make any determination as to the
permissibility of indemnification and advances and reimbursement for expenses
with respect to any claim for indemnification (including contracts with respect
thereto), or in the event there has been a change in the composition of a
majority of the Board of Directors after the date of the alleged act with
respect to which indemnification is claimed, such determination shall be made by
special legal counsel agreed upon by the Board of Directors and the proposed
indemnitee. If the Board of Directors and the proposed indemnitee are unable to
agree upon such special legal counsel, the Board of Directors and the proposed
indemnitee each shall select a nominee, and the nominees shall select such
special legal counsel.
(e) The provisions of this Article shall be applicable to all
actions, claims, suits or proceedings commenced after the adoption hereof,
whether arising from any action taken or failure to act before or after such
adoption. No amendment, modification or repeal of this Article shall diminish
the rights provided hereby or diminish the right to indemnification with respect
to any claim, issue or matter in any then pending or subsequent
<PAGE>
proceeding that is based in any material respect on any alleged action or
failure to act prior to such amendment, modification or repeal.
(f) Except to the extent inconsistent with this Article, terms used
herein shall have the same meanings assigned them in the Indemnification Article
of the Virginia Stock Corporation Act, as now in effect or hereafter amended or
replaced. Without limitation, it is expressly understood that reference herein
to directors, officers, employees or agents shall include former directors,
officers, employees and agents and their respective heirs, executors and
administrators.
6. (a) Except for any Business Combination, any plan of merger, share
exchange, a transaction involving the sale of all or substantially all of the
assets of the Corporation other than in the regular course of business and the
adoption of any plan of dissolution or liquidation shall be approved by the
affirmative vote of a majority of the Holders of all the shares cast on such
transaction by each voting group entitled to vote on the transaction at a
meeting at which a quorum of the voting group is present provided that the
transaction has been approved and recommended by at least a majority of the
Board of Directors. If such a transaction (excluding a Business Combination) is
not so approved and recommended, then the transaction shall be approved by the
affirmative vote of the Holders of not less than 80% of each class of the voting
stock of the Corporation then outstanding.
(b) Any Business Combination shall require the affirmative vote of a
majority of the Holders of all the shares cast on such transaction by each
voting group entitled to vote on the transaction at a meeting at which a quorum
of the voting group is present if the conditions of either of paragraphs (i) or
(ii) are met:
(i) The Business Combination has been approved by a vote of a
majority of the Board of Directors, including a majority of all the Continuing
Directors; or
(ii) All of the following conditions have been satisfied:
(A) The Holders shall receive the aggregate amount of (x)
cash and (y) fair market value (as of the date of the consummation of the
Business Combination) of consideration other than cash, at least equal to the
highest per share price (including any brokerage commissions, transfer taxes and
soliciting dealers' assessing fees) paid by the Interested Shareholder for any
shares of such class or series of stock acquired by the Interested Shareholder.
However, if the highest preferential amount per share of a series of preferred
stock to which the Holders thereof would be entitled in the event of any
voluntary or-involuntary liquidation, dissolution or winding up of the affairs
of the Corporation (regardless of whether the Business Combination constitutes
such an event) is
<PAGE>
greater than such aggregate amount, Holders of such series of preferred stock
shall receive at least the highest preferential amount per share applicable to
such series of preferred stock; and
(B) The consideration to be received by Holders of any
class or series of outstanding common or preferred stock shall be in cash or in
the same form as the Interested Shareholder has previously paid for shares of
such class or series of stock. If the Interested Shareholder has paid for shares
of any class or series of stock with varying forms of consideration, the form of
consideration given for such class or series of stock in the Business
Combination shall be either cash or the form used to acquire the largest number
of shares of such class or series of stock previously acquired by the Interested
Shareholder; and
(C) A proxy statement satisfying the requirements of the
'34 Act and the rules and regulations thereunder (or any subsequent provisions
replacing the '34 Act and such rules and regulations) shall be mailed to the
shareholders of the Corporation at least 45 days prior to the holding of any
meeting of shareholders of the Corporation to vote upon the Business Combination
(whether or not such proxy or information statement is required pursuant to the
'34 Act or any subsequent provisions) and shall contain in the forepart thereof
in a prominent place any recommendations as to the advisability (or
inadvisability) of the Business Combination which the Continuing Directors may
choose to state and, if deemed advisable by a majority of the Continuing
Directors, an opinion of a reputable investment banking firm as to the fairness
(or lack of fairness) of the terms of such Business Combination from the point
of view of the Holders of any class or series of voting stock of the Corporation
other than the Interested Shareholder (such investment banking firm to be
selected by a majority of the Continuing Directors, to be furnished with all
information it reasonably requests and to be paid by the Corporation a
reasonable fee for its services upon receipt by the Corporation of such
opinion).
(b) If the provisions of paragraph (a) of this Article 6 have not
been satisfied, any Business Combination shall require the affirmative vote of
the Holders of at least 80 percent of each class of the voting stock of the
Corporation then outstanding. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that some lesser
percentage may be specified by law or in any agreement of the Corporation with
any national securities exchange or otherwise.
(c) For the purposes of this Article 6:
(i) "Business Combination" means any of the following:
(A) Any merger or consolidation of the Corporation or any
Subsidiary with or into (x) any Interested Shareholder, or (y) any other
Corporation which, after such merger or consolidation, would be an Interested
Shareholder; or
<PAGE>
(B) Any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related transactions) to or
with any Interested Shareholder of any assets of the Corporation or any
Subsidiary when such assets have an aggregate fair market value of $500,000 or
more; or
(C) The issuance or transfer to any Interested Shareholder by
the Corporation or any Subsidiary (in one transaction or a series of related
transactions) of any equity securities of the Corporation or any Subsidiary
where any such equity securities have an aggregate fair market value of $500,000
or more; or
(D) Any reclassification of securities (including any preferred
stock split) or recapitalization of the Corporation or any merger or
consolidation of the Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise involving an Interested
Shareholder) which has the effect of directly or indirectly increasing the
percentage of the outstanding shares of any class of equity or convertible
securities of the Corporation or any Subsidiary which is directly or indirectly
owned by any Interested Shareholder; or
(E) Any agreement, contract, or other arrangement providing for
any of the transactions described in this definition of a "Business
Combination;" or
(F) The Corporation or any of its Subsidiaries entering into a
partnership agreement with any Interested Shareholder.
(ii) The terms "Person," "Interested Shareholder," "Affiliate,"
"Associate," "Subsidiary," "Continuing Director" and "Holders," as used in this
Article 6, shall have the meanings and be as defined in Article 3 of these
Articles.
(d) A majority of the Continuing Directors shall have the power to
make all determinations with respect to this Article 6, including, without
limitation, determining which transactions are Business Combinations, the
Persons who are Interested Shareholders, the time at which an Interested
Shareholder became an Interested Shareholder, the fair market value of any
assets, securities or other property, and whether a Person is an Affiliate or
Associate of another, and any such determinations of such Continuing Directors
shall be conclusive and binding.
(e) Nothing contained in this Article 6 shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
<PAGE>
(f) Notwithstanding any other provisions of these Articles or of the
Bylaws of the Corporation (and in addition to any other vote that may be
required by law or the Bylaws of the Corporation), the affirmative vote of the
Holders of not less than 80 percent of each class of the voting stock of the
Corporation then outstanding shall be required in order to amend or repeal this
Article 6 or adopt any provision inconsistent herewith.
7. Unless a greater vote is required by law, by these Articles, or by
resolution of the Board as a condition to its submission of a proposed amendment
to these Articles for shareholder approval, any amendment to these Articles
which must be adopted by shareholders shall be so adopted upon being approved by
a majority of all the votes cast on the amendment by each voting group entitled
to vote on the transaction at a meeting at which a quorum of the voting group
exists.
8. The Corporation's initial registered office shall be located in the
City of Roanoke at 1800 First Union Tower, 10 South Jefferson Street, Roanoke,
Virginia 24011. The Corporation's initial registered agent shall be Douglas W.
Densmore, whose address is the same as the Corporation's registered office and
who is a resident of Virginia and a member of the Virginia State Bar.
BYLAWS
OF
Salem Community Bankshares, Inc.
SALEM, VIRGINIA
Adopted July 17, 1999
<PAGE>
ARTICLE I. SHAREHOLDERS
SECTION 1.1. Annual Meeting. The annual meeting of the shareholders to
--------------
elect directors and for the transaction of such other business as may properly
come before the meeting shall be held on the fourth Tuesday of April of each
year or, if such date falls on a legal holiday, the next business day.
SECTION 1.2. Special Meetings. Special meetings of shareholders may be
----------------
called by the Chairman of the Board of Directors, the President or by a majority
of the Board of Directors. Business transacted at all special meetings shall be
confined to the purpose(s) stated in the notice.
SECTION 1.3. Place of Meeting. The Board of Directors (the "Board") may
----------------
designate any place inside or outside Virginia for any annual or special meeting
of the shareholders. If no designation is made, the meeting will be at the
principal office of the Corporation.
SECTION 1.4. Notice of Meeting. Except as otherwise required by the
-----------------
Virginia Stock Corporation Act, as now in effect or hereafter from time to time
amended (the "Act"), written notice stating the time and location of the
meeting, and, in case of a special meeting, the purpose(s) of the meeting, shall
be delivered not less than ten nor more than sixty days before the meeting date,
either personally or by mail, to each shareholder of record entitled to vote at
such meeting. If mailed, the notice will be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
shareholder at his address as it appears on the stock transfer books of the
Corporation.
SECTION 1.5. Closing of Transfer Books or Fixing of Record Date. For the
--------------------------------------------------
purpose of determining shareholders entitled to notice of or vote at any
shareholders' meeting, or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to determine shareholders for any other
proper purpose, the Board may close the stock transfer books for a stated period
not to exceed seventy days. If the stock transfer books are closed to determine
shareholders entitled to notice of or vote at a shareholders' meeting, such
books shall be closed for at least ten days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board may fix in advance a date
as the record date for a determination of shareholders, such date to be not more
than seventy days, and in case of a shareholders' meeting, not less than ten
days, prior to the date on which the particular action requiring a determination
of shareholders is to be taken. If the stock transfer books are not closed and
no record date is fixed for the determination of shareholders entitled to notice
of or vote at a shareholders' meeting, or shareholders entitled to receive
payment of a dividend, the day before the notice of the meeting is mailed or the
date on which the resolution of the Board declaring such dividend is adopted, as
the case may be, shall be the record date for the determination of shareholders.
Any determination of shareholders entitled to vote at a shareholders' meeting
made as provided in this Section shall apply to any adjournment thereof, unless
the Board fixes a new record date, which it shall do if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting.
SECTION 1.6. Presiding Officer and the Secretary. The President, or, in
-----------------------------------
his absence, an officer designated by the Board, shall preside at all
shareholder meetings, and the Secretary shall serve as secretary. Otherwise, a
chairman or secretary shall be elected by a majority vote of the shareholders
present to act in the absence of those officers.
SECTION 1.7. Voting Lists. The Secretary or other person having charge of
------------
the stock transfer books of the Corporation shall make, at least ten days before
each shareholders' meeting, a complete list of the shareholders entitled to vote
at such meeting, or any adjournment thereof, with the address of and the number
of shares held by each, which list, for a period of ten days prior to such
meeting, shall be kept on file at the registered office of the Corporation and
shall be subject to inspection by any shareholder at any time during usual
business hours, subject to any limitations on such right provided by the Act or
other provisions of law. Such list shall also be produced and kept open at the
time and place of the meeting for inspection by any shareholder during the whole
time of the meeting for the purposes thereof. The original stock transfer book
is prima facie evidence as to the shareholders who are entitled to examine such
----- -----
list or transfer books or to vote at any shareholders' meeting.
SECTION 1.8. Quorum. Unless otherwise provided in the Corporation's
------
Articles of Incorporation (the "Articles"), a majority of the outstanding shares
of the Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a shareholders' meeting. If less than a quorum is present
at a meeting, a majority of the shares so represented may adjourn the meeting
from time to time without further notice. At such adjourned
<PAGE>
meeting at which a quorum is present or represented, any business may be
transacted which might have been transacted at the original meeting. If a quorum
exists, action on a matter by a voting group is approved if the votes cast
within the voting group favoring the action exceed the votes cast opposing the
action, unless the vote of a greater number is required by the Act or the
Articles, and except that in the election of directors those receiving the
greatest number of votes cast by the shares entitled to vote shall be deemed
elected, even though not receiving a majority.
SECTION 1.9. Proxies. At all meetings of shareholders, a shareholder may vote
-------
by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the Secretary before or at the
meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
SECTION 1.10 Action by Shareholders Without a Meeting. Any action required to
----------------------------------------
be taken at a meeting of the shareholders of the Corporation, or any action
which may be taken at a meeting of the shareholders, may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with respect to the subject
matter thereof.
SECTION 1.11 Shareholder Proposals. No business shall be transacted at any
---------------------
meeting of shareholders, except such business as shall be (a) specified in the
notice of meeting given as provided in Section 1.4 of this Article I; (b)
otherwise brought before the meeting by or at the direction of the Board; or (c)
otherwise brought before the meeting by a shareholder of record of the
Corporation entitled to vote at the meeting in compliance with the procedure set
forth in this Section 1.11. For business to be brought before a meeting by a
shareholder pursuant to (c) above, the shareholder must have given timely notice
in writing to the President of the Corporation. To be timely, a shareholder's
notice shall be delivered to, or mailed and received at, the principal executive
offices of the Corporation not less than sixty days nor more than ninety days
prior to the meeting; provided, however, in the event that less than seventy
days' notice or prior public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder to be timely must be so received
not later than the close of business on the tenth day following the day on which
such notice of the date of the meeting or such public disclosure was made.
Notice shall be deemed to have been given more than seventy days in advance of
an annual meeting of shareholders if the annual meeting is called on the date
indicated by Section 1.1 of this Article I without regard to when public
disclosure thereof is made. Notice of actions to be brought before a meeting
pursuant to (c) above shall set forth, as to each matter the shareholder
proposes to bring before the meeting: a brief description of the business
desired to be brought before the meeting and the reasons for bringing such
business before the meeting; and as to the shareholder giving the notice, (i)
the name and address, as they appear on the Corporation's books, of such
shareholder, (ii) the classes and number of shares of the Corporation which are
owned of record and beneficially by such shareholder, and (iii) any material
interest of such shareholder in such business other than his interest as a
shareholder of the Corporation. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted on a shareholder proposal or nomination
except in accordance with the provisions set forth in this Section 1.11. The
requirements of this Section are in addition to any other requirements
established by law and do not impair the effect of the requirements of Section
1.2 of these Bylaws relating to business permitted to be transacted at special
shareholders' meetings. The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that any business was not properly brought
before the meeting in accordance with the provisions prescribed by these Bylaws
and, if he should so determine, he shall so declare to the meeting and any such
business not so properly brought before the meeting shall not be transacted.
ARTICLE II. BOARD OF DIRECTORS
SECTION 2.1. General Powers. The business and affairs of the Corporation
--------------
shall be managed and administered by the Board of Directors. Except as limited
by the Act, all corporate powers shall be vested in and exercised by the Board.
SECTION 2.2. Number, Tenure and Qualifications. The number of directors of
---------------------------------
the Corporation shall be at least five and no more than twenty-five. The number
of directors may be increased or decreased from time to time by amendment of
these Bylaws within the variable range established by the Articles. At each
annual meeting of shareholders, the number of directors equal to the number of
the class whose term expires at the time of such meeting shall be elected to
hold office until the third succeeding annual meeting and until their successors
shall have been elected and qualify.
<PAGE>
SECTION 2.3. Regular Meetings. A meeting of the Board shall be held
----------------
immediately after each annual meeting of shareholders without notice other than
that given by these Bylaws, at which meeting there shall be elected at least a
Chairman of the Board, or a President, a Secretary and a Treasurer, who shall
hold such offices until the first meeting of the Board following the next annual
meeting of shareholders and until their successors shall be elected and qualify
or until their earlier resignation or removal. Regular meetings of the Board
shall be held as provided by resolution of the Board.
SECTION 2.4. Special Meetings. Special meetings of the Board may be called
----------------
by or at the request of the Chairman, the President or by a majority of the
Board. The person or persons calling a special meeting of the Board may fix any
place inside or outside Virginia as the place for holding that special meeting.
SECTION 2.5. Action by Directors Without a Meeting; Telephonic Attendance.
------------------------------------------------------------
Any action of the Board, or of any committee of the Board, may be taken without
a meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors, or by all of the members of the committee, as
the case may be. Directors may participate in meetings of the Board and
committees of the Board by, and such meetings may be conducted through, the use
of any means of communication by which all directors participating may
simultaneously hear each other during the meeting. Directors so participating
are deemed to be present in person at the meeting and will be counted in
determining whether a quorum is present.
SECTION 2.6. Notice. Notice of any special meeting (which notice need not
------
state the purpose of or business to be conducted at the meeting) shall be given
by written notice delivered personally or mailed to each director at his
business address, or by telephone, facsimile or telegram. If notice is by
personal delivery, facsimile or telephone, the delivery, facsimile transmission
or telephone call shall be at least two days prior to the special meeting. If
notice is given by mail or telegram, such notice shall be deposited in the
United States mail, postage prepaid, addressed to each director at his business
address or delivered to the telegraph company, as the case may be, at least five
days prior to the special meeting.
SECTION 2.7. Quorum. Except as may otherwise be provided in the Articles
------
or in these Bylaws, a majority of the full Board or of the full membership of
any committee thereof shall constitute a quorum for the transaction of business
at any meeting of the Board or such committee, as the case may be. If less than
such majority is present at a meeting, a majority of directors present may
adjourn the meeting from time to time without further notice.
SECTION 2.8. Committees. By resolution, the Board shall designate from
----------
among Board members an Executive Committee, which shall include the President
and the Chairman of the Board, which shall exercise all of the authority of the
Board except as limited by law, the Articles or the Board itself. The Board may
designate from among its members other committees for such purposes and with
such powers as the Board may determine. All committees shall keep regular
minutes of their meetings and shall report their actions to the Board at its
next regular meeting.
SECTION 2.9. Manner of Acting. The act of the majority of the directors
----------------
present at a meeting at which a quorum is present shall be the act of the Board
or any committee thereof, unless the Articles or these Bylaws require the vote
of a greater number of directors.
SECTION 2.10. Vacancies. Any vacancy occurring on the Board, including a
---------
vacancy resulting from an increase in the number of directors, may be filled by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board. If a vacancy is filled by the shareholders, a vacant
office held by a director elected by a voting group of shareholders shall be
filled by a vote of only the holders of that voting group.
SECTION 2.11. Compensation. Payment to the directors for the expense, if
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any, of attendance at meetings of the Board, and of a fixed sum for attendance
at meetings of the Board or a stated salary as director may be authorized by
Board resolution. Members of special or standing committees may be authorized by
Board resolution to receive like compensation for attending meetings.
SECTION 2.12. Retirement. Except for Members of the Board serving as such
----------
on July 17, 1999, no person shall stand for election or re-election to the Board
who has reached the age of 75 years prior to the date of the
<PAGE>
regular annual meeting of the shareholders at which an election of directors is
held, and no person who has reached the age of 75 years may be elected to fill a
vacancy on or as an addition to the Board.
SECTION 2.13. Honorary Directors. The Board shall not appoint any Honorary
------------------
Director, Honorary Chairman, Honorary President, or Honorary Officer.
ARTICLE III. OFFICERS
SECTION 3.1. Generally. The officers of the Corporation shall include a
---------
President, a Secretary and a Treasurer. Except as provided in these Bylaws, all
such officers shall be elected by the Board of Directors. Any one or more
offices may be held by the same person.
SECTION 3.2. President. The Board shall appoint a President of the
---------
Corporation to serve at the pleasure of the Board. The President shall supervise
the carrying out of the policies adopted or approved by the Board and shall be
the Chief Executive Officer of the Corporation. The President shall have general
executive powers, as well as the specific powers conferred by these Bylaws. The
President shall also have and may exercise such further powers and duties as
from time to time may be conferred upon or assigned to him by the Board.
SECTION 3.3. Secretary. The Board shall appoint a Secretary to serve at
---------
the pleasure of the Board. The Secretary shall: (a) keep the minutes of the
shareholders', Board and committee meetings in one or more books provided for
that purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws and as required by law; (c) be custodian of the
corporate records and the Corporation's seal and see that the Corporation's seal
is affixed to all documents for which it is required; (d) sign with the
President or other designated officer stock certificates of the Corporation
issued as authorized by resolution of the Board; (e) have general charge of the
stock transfer books and shareholder list of the Corporation; and (f) in general
perform all duties incident to the office of Secretary and such other duties as
may from time to time be assigned to him by the President or the Board.
SECTION 3.4. Treasurer. The Board shall appoint a Treasurer, and if
---------
required by the Board, the Treasurer shall give a bond for the faithful
discharge of his duties in such sum and with such surety or sureties as the
Board shall determine. He shall: (a) have charge and custody of and be
responsible for all funds and securities of the Corporation; (b) receive and
give receipts for monies due and payable to the Corporation from any source
whatsoever, and deposit all such monies in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected by the Board;
and (c) in general perform all of the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him by the
President or the Board.
SECTION 3.5. Other Officers. The Board may appoint one or more Vice
--------------
Presidents (including Senior Vice Presidents, Assistant Vice Presidents and the
like), one or more Assistant Secretaries, one or more Assistant Treasurers and
such other officers and assistant officers as it deems appropriate to
transacting the business of the Corporation. Such officers shall exercise such
powers and perform such duties as pertain to their offices or are assigned to
them by the President, any other superior officer or the Board. The Board may by
resolution authorize any duly appointed officer to appoint one or more officers
or assistant officers.
SECTION 3.6. Removal. Any officer or agent may be removed by the Board at
-------
any time, with or without cause, whenever the Board in its sole discretion shall
consider that the best interests of the Corporation will be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Any officer or agent appointed by another officer may be
removed at any time, with or without cause, by the Board or by such appointing
officer whenever the Board or such appointing officer, in its or his sole
discretion, shall consider that the best interests of the Corporation shall be
served thereby.
SECTION 3.7. Vacancies. The Board may fill any vacancy occurring in the
---------
offices of the Corporation at any regular meeting of the Board or at a special
meeting of the Board called for that purpose. An officer elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office.
SECTION 3.8. Salaries. The salaries of the officers shall be fixed from
--------
time to time by the Board. The President, or any other officer duly authorized
by the Board or the President, may fix the salaries of the employees who are not
officers, subject to the approval of the Board.
<PAGE>
ARTICLE IV. STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 4.1. Certificates for Shares. The Board will determine the form of
-----------------------
certificates representing shares of the Corporation. Such certificates shall
bear the signature (or a facsimile thereof if such certificates are
countersigned by an appropriate party in accordance with the Act) of the
President or a Vice President and the Secretary or an Assistant Secretary and
shall bear the corporate seal or a facsimile thereof. All stock certificates
shall be consecutively numbered or otherwise identified. The name and address of
the person to whom the shares represented thereby are issued, and the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer shall
be canceled, and no new certificates will be issued until the former certificate
for a like number of shares has been surrendered and canceled, except that a
replacement for a lost, destroyed or mutilated certificate may be issued upon
such terms and indemnity to the Corporation as the Board prescribes. No stock
certificate will be issued, and no dividend payment will be made, for fractional
shares of common stock.
SECTION 4.2. Transfer of Shares. Transfer of shares shall be made only on
------------------
the stock transfer books of the Corporation by the holder of record or by his
legal representative, who must furnish evidence of authority satisfactory to the
Corporation, and on surrender for cancellation of the certificate for such
shares. The Corporation may treat the holder of record of any share or shares of
stock as the holder in fact thereof and accordingly is not bound to recognize
any equitable or other claim to or interest in such shares on the part of any
other person, whether or not it shall have notice thereof, except as expressly
provided by the laws of the Commonwealth of Virginia.
ARTICLE V. CONTRACTS, LOANS,
CHECKS AND DEPOSITS
The President shall have by virtue of his office "full signing authority"
and shall have the power to sign, countersign, attest, affix the corporate seal,
to acknowledge, endorse, guarantee signatures upon and deliver checks, drafts,
agreements, contracts, indentures, mortgages, deeds, conveyances, transfers,
certificates, declarations, receipts, discharges, releases, satisfactions,
settlements, petitions, schedules, accounts, affidavits, bonds, undertakings,
proxies and other documents, securities, chases in action and instruments of
every kind and description on behalf of the Corporation in its corporate or any
fiduciary capacity. The President shall be authorized to grant in writing to
individual officers and employees signing authority on behalf of the Corporation
in its corporate or any fiduciary capacity, limited as he in his discretion
deems necessary.
ARTICLE VI. BOOKS AND RECORDS
The Board shall determine from time to time whether, and, if allowed, when
and under what conditions and regulations, the accounts and books of the
Corporation (except such as may by statute be specifically opened to
inspection), or any of them, shall be opened to the inspection of the
shareholders, and the shareholders' rights in this respect are and shall be
restricted and limited accordingly.
ARTICLE VII. SEAL
The Board may authorize the use of a corporate seal, but failure to use the
seal shall not affect the validity of any instrument. The use of a facsimile of
a seal, or the affixing of a scroll by way of a seal, or the execution of a
document containing words importing a sealed document shall be of the same force
as if actually sealed by physically affixing an impression of a seal.
ARTICLE VIII. WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or director of
the Corporation under the provisions of these Bylaws, the Articles or the Act, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance at or participation in any
shareholders' meeting by a shareholder, or at any Board or Board committee
meeting by a director, waives any required notice unless objection is timely
made as provided by the Act.
<PAGE>
(SEAL) __________________________________
Secretary
<PAGE>
APPENDIX C
VIRGINIA CODE
Section 13.1.
Corporations.
Chapter 9.
Virginia Stock Corporation Act.
Article 15.
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.
History
(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;
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;
<PAGE>
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
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 share holder 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.
<PAGE>
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 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.
<PAGE>
(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.
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 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
<PAGE>
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 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.
<PAGE>
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.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
The Registrant's Articles of Incorporation implement the provisions of the
Virginia Stock Corporation Act (the "Virginia SCA"), which provide for the
indemnification of Registrant's directors and officers in a variety of
circumstances that may include indemnification for liabilities under the
Securities Act of 1933. Under sections 13.1-697 and 13.1-702 of the Virginia
SCA, a Virginia corporation generally is authorized to indemnify its directors
and officers in civil or criminal actions if they acted in good faith and
believed their conduct to be in the best interests of the corporation and, in
the case of criminal actions, had no reasonable cause to believe that the
conduct was unlawful. The Registrant's Articles of Incorporation require
indemnification of directors and officers with respect to certain liabilities,
expenses and other amounts imposed upon them be reason of having been a director
or officer, except in the case of willful misconduct or a knowing violation of
criminal law. The Registrant also carries insurance on behalf of directors,
officers, employees or agents that may cover liabilities under the Securities
Act of 1933. In addition, the Virginia SCA and the Registrant's Articles of
Incorporation eliminate the liability of a director or officer of the Registrant
in a shareholder or derivative proceeding. This elimination of liability will
not apply in the event of willful misconduct or a knowing violation of the
criminal law or any federal or state securities law. Sections 13.1-692.1 and
13.1-696 to -704 of the Virginia SCA are hereby incorporated herein by
reference.
Item 21. Exhibits and Financial Statement Schedules
An index of exhibits appears at Page II-v hereof.
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes as follows:
1 That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the Registrant
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
2 That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements
of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of
an amendment to the registration statement and will not be used until
such amendment is effective, and that, for the purposes of determining
any liability under the Securities Act of 1933, each such post-
effective amendment will be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time will be deemed to be the initial bona fide
offering thereof.
3 Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
II-I
<PAGE>
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
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 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 the
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.
(d) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-II
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Salem,
Commonwealth of Virginia, on May 5, 2000.
SALEM COMMUNITY BANKSHARES, INC. (Registrant)
By: /s/ Clark Owen, Jr.
---------------------
Clark Owen, 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 indicated
on May 5, 2000.
Signature Title
/s/ Clark Owen, Jr. President, Chief Executive Officer, and Director
- -------------------------- (Principal Executive Officer)
Clark Owen, Jr.
/s/ Carl E. Tarpley, Jr. Executive Vice President, Treasurer, and Director
- -------------------------- (Principal Financial and Accounting Officer)
Carl E. Tarpley, Jr.
/s/ Eugene M. Bane, Jr. Director
- --------------------------
Eugene M. Bane, Jr.
/s/ Truman R. Dorton Director
- --------------------------
Truman R. Dorton
/s/ Morris A. Elam Director
- --------------------------
Morris A. Elam
/s/ H. Morgan Griffith Director
- --------------------------
H. Morgan Griffith
II-III
<PAGE>
/s/ Rose M. Hagen Director
- --------------------------
Rose M. Hagen
/s/ Carlos B. Hart Director
- --------------------------
Carlos B. Hart
/s/ Walter A. Hunt Chairman of the Board and Director
- --------------------------
Walter A. Hunt
/s/ Gladys C. O'Brien Director
- --------------------------
Gladys C. O'Brien
II-IV
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------ -------
10.1 Change of Control Agreement
10.2 Employment Agreement - Owen
10.3 Employment Agreement - Tarpley
10.4 Lease
10.5 Lease
10.6 Lease
10.7 Lease
10.8 Lease
10.9 Lease
10.10 Lease to third party
10.11 Lease to third party
23(a) Consent of KPMG, LLP
27 Financial Data Schedule
II-V
<PAGE>
Change of Control Agreement - EXHIBIT 10.1
Standard contract provided to senior management - approximately 20 employees
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT, made this ______ day Of __________, _____, (the "Effective
Date") between SALEM BANK & TRUST, N.A. (the "Employer") and
______________________________ (the "Employee"),
WITNESSETH:
WHEREAS, the Employee is currently employed by Employer as _____________
_________________________________________;
WHEREAS, the Employer desires to offer the Employee certain protections in
the event of a change in control of the Employer (as hereinafter defined);
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Employer and the Employee agree as follows:
1. Definitions. As used in this Agreement, the following terms have the
-----------
indicated meanings.
(a) "Cause" means (i) the willful and continued failure by the
Employee to substantially perform his duties with the Employer (unless resulting
from the Employee's incapacity due to physical or mental illness), or (ii) the
willful engaging by the Employee in illegal conduct which is demonstrably and
materially injurious to the Employer.
(b) "Change in Control" means a change in control of the Employer
which shall have occurred at such time as any of the following events or
transactions take place without the prior or subsequent approval of the
Incumbent Board (as hereinafter defined): (i) the Federal Reserve Board should
have approved a notice filed by any Person (as hereinafter defined) with respect
to Employer pursuant to either 12 C.F.R. (S)225.11 or 12 C.F.R. (S)225.41 (or
any successor regulation thereto), as either is in effect on the date hereof;
(ii) any Person becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934 or any successor regulation thereto),
directly or indirectly, of 25% or more of the combined voting power of
Employer's outstanding securities ordinarily having the right to vote at
elections of its directors; or (iii) individuals who constitute Employer's Board
of Directors on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof; provided that any person becoming a
director subsequent to the date hereof whose election, or nomination for
election by Employer's shareholders, was approved by a vote of at least three
quarters of the directors comprising the Incumbent Board shall be considered as
though such Person were a member of the Incumbent Board for purposes of this
Section 1.
<PAGE>
(c) "Good Reason" means (i) a material reduction in the Employee's
fringe benefits, not imposed on other employees of similar rank or (ii) a freeze
or reduction of the Employee's salary not applied to other employees of similar
rank.
(d) "Person" means any individual, corporation, partnership, group,
association or other "Person," as such term is used in Section 14(d) of the
Securities Exchange Act of 1934, other than Employer or any employee benefit
plan(s) sponsored by Employer.
(e) "Termination Date" means the date on which the Employee's
employment with the Employer terminates for any reason.
2. Employment. The Employer hereby agrees to employ the Employee and
----------
provide certain severance benefits, and the Employee hereby agrees to serve the
Employer, on the terms and conditions set forth herein.
3. Term of Agreement
-----------------
(a) This Agreement shall be effective for an initial term of two (2)
years commencing on the Effective Date, unless sooner terminated in accordance
with the terms and conditions hereinafter set forth. Upon each anniversary of
the Effective Date, the term of this Agreement shall be automatically extended
for an additional period of one (1) year, unless at least thirty (30) days'
prior written notice by either party is given to the other party of intent to
terminate this Agreement upon expiration of the then-current term.
(b) Notwithstanding anything in this Agreement to the contrary, this
Agreement shall continue in effect for a period three (3) years beyond the date
of a Change in Control, if one shall have occurred during the term of this
Agreement.
4. Position and Duties. The Employee shall serve in the position of
-------------------
____________________________________________ and have such responsibilities,
duties and authority as are described in the Job Description for such position
and as are set forth generally in Employer's Personnel Manual.
5. Compensation and Related Matters. During the period of the Employee's
--------------------------------
employment hereunder, the Employee will participate in the Employer's standard
compensation plan for officers and employees and any such bonus plans as the
Employer, in its sole discretion, desires to offer to the Employee from time to
time.
6. Termination Prior to a Change in Control. The Employee acknowledges
----------------------------------------
that, prior to any Change in Control, his employment is AT WILL, that he may be
terminated by the Employer for any reason or for no reason whatsoever and that
in the event of such termination, the Employee shall have no rights hereunder.
2
<PAGE>
7. Termination Following a Change in Control.
-----------------------------------------
(a) Upon termination of the Employee's employment following a Change
in Control and prior to the expiration of this Agreement specified in Section
3(b) above, unless such termination is because of the Employee's death,
retirement, or extended absence because of disability pursuant to Employer's
personnel policies, by the Employer for Cause, or by the Employee for other than
Good Reason, the Employer shall pay, or cause to be paid to the Employee the
following benefits:
(i) The Employer shall pay the Employee his full salary through
the Termination Date at the rate then in effect -and all other unpaid amounts,
if any, to which the Employee is then entitled under any employment benefit plan
or arrangement of the Employer;
(ii) As severance pay and in lieu of any further salary for
periods subsequent to the Termination Date, the Employer shall pay, or cause to
be paid, to the Employee an amount in cash equal to 2.99 times the Employee's
annualized includable compensation for the base period, within the meaning of
Section 280G(d)(1) of the Internal Revenue Code of 1986, as amended, or any
successor provision;
(iii) The Employer shall provide, for the continued benefit of
the Employee for a period terminating on the earliest of (A) three (3) years
after the Termination Date or (B) the commencement date of equivalent benefits
from a new employer, all medical benefits utilized by the Employee immediately
prior to the Termination Date. The Employee shall not be required to pay any
premiums or other charges in an amount greater than that which he would have
paid in order to be entitled to such benefits had his employment not been
terminated.
(b) Except as specifically provided by subparagraph 7(a)(iii) above,
the amount of any payment provided for in this Section 7 shall not be reduced,
offset or subject to recovery by the Employer by reason of any compensation
earned by the Employee as the result of employment by another employer after the
Termination Date, or otherwise.
8. Taxes. All payments to be made to the Employee under this Agreement
-----
will be subject to required withholding of federal, state and local employment
taxes.
9. Notices. For the purposes of this Agreement, notices and other
-------
communications provided for hereunder must be in writing and will be deemed
given when delivered or mailed by United States registered or certified mail,
return receipt requested, postage prepaid and addressed, in the case of the
Employer, to:
Mr. Clark Owen, Jr.
President
Salem Bank & Trust, N.A.
220 East Main Street
P.O. Box 979
Salem, Virginia 24153
3
<PAGE>
or, in the case of the Employee, to the address set forth below the Employee's
signature or to such other address as either party may have furnished to the
other in writing in accordance herewith, such notice of change of address to be
effective upon receipt.
10. Miscellaneous. This Agreement may not be waived, modified or
-------------
discharged except by a written instrument signed by both parties hereto. No
waiver by either party or any breach by or compliance with any provision of this
Agreement by the other party shall be deemed a waiver of a similar or dissimilar
provision or condition at the same or any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, have been
made by either party with respect to the subject matter hereof which are not
expressly set forth in this Agreement. The validity, construction,
interpretation and performance of this Agreement shall be governed by the laws
of the Commonwealth of Virginia.
11. Validity. The invalidity or unenforceability of any provision of this
--------
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
12. Employee's Commitment. The Employee agrees that subsequent to his
---------------------
employment with the Employer, he will not communicate or disclose to any
unauthorized person, without the Employer's prior written consent, any
proprietary or confidential information concerning the Employer or any affiliate
of the Employer, unless required by legal process or by law.
13. Other Agreements. To the extent that any other agreement between the
----------------
Employer and the Employee limits, qualifies or is inconsistent with this
Agreement, the terms of this Agreement shall prevail.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
ATTEST: SALEM BANK & TRUST, N.A.
_________________________ By:_____________________________________
President
EMPLOYEE
________________________________________
________________________________________
________________________________________
4
<PAGE>
ADDENDUM APPROVED 4-55-95
-------------------------
X. TAXES.
-----
10.1 AR payments to be made to Employee under this Agreement will be
subject to required withholding of federal, state and local income and
employment taxes.
10.2 Anything in this Agreement to the contrary notwithstanding, in the
event that mutually satisfactory independent auditors (the "Auditors") shall
determine that any payment or distribution by Employer to 'or for Employee's
benefit (whether paid or payable or distributed pursuant to the terms of this
Agreement or otherwise) (a 'Payment') would be a "parachute payment" as defined
in Section 280G of the Internal Revenue Code (the "Code"), then the aggregate
present value of amounts payable or distributable to or for Employee's benefit
pursuant to this Agreement (such payments or distributions pursuant to this
Agreement are hereinafter referred to as "Agreement Payments") shall be reduced
(but not below zero) to the Reduced Amount. For purposes of this subsection 10.2
of this Section Y, the "Reduced Amount' shall be an amount expressed in present
value which maximizes the aggregate present value of Agreement Payments such
that the aggregate present value of Payments equals the Reduced Amount.
10.3 If the Auditors determine that any Payment would be a "parachute
payment" as defined in Section 280G of the Code, Employer shall promptly give
Employee notice to that effect and a copy of the detailed calculation thereof
and of the Reduced Amount. Employee may then elect in his sole discretion, which
and what amount of Agreement Payments shall be eliminated or reduced (as long as
after such election the aggregate present value of the Agreement Payments equals
the Reduced Amount), and Employee shall advise Employer in writing of Employee's
election within 10 days of Employee's receipt of notice. If no such election is
made by Employee, Employer may elect which and how much of the Agreement
Payments shall be eliminated or reduced (as long as after such election the
<PAGE>
aggregate present value of the Agreement Payments equals the Reduced Amount) and
shall notify Employee promptly of such election. For purposes of this subsection
10.3 of this Section X present value shall be determined in accordance with
Section 280G(d)(4) of the Code. AU determinations made by the Auditors under
this paragraph shall be made within 60 days of the Notice of Termination. In
accordance with Section VU hereof and as promptly as practicable following such
determination and the elections hereunder, Employer shall pay to or distribute
to or for Employee's benefit such amounts as are the due to Employer under this
Agreement and shall promptly pay to or distribute for Employer's benefit in the
future such amounts as become due to Employee under this Agreement.
10.4 As a result of the uncertainty in this application of Section 280G of
the Code at the time of the initial determination by the Auditors hereunder, it
is possible that Agreement Payments will have been made by Employer which should
not have been made ("Overpayment") or that additional Agreement Payments will
not have been made by Employer which should have been made ("Underpayment"), in
each case consistent with the calculation of the Reduced Amount hereunder. In
the event that the Auditors, based upon the assertion of a deficiency by the
Internal Revenue Service against Employer or Employee which the Auditors believe
has a high probability of success, determine that an Overpayment has been made,
such Overpayment shall be treated for all purposes as a loan to Employee which
Employee shall repay to Employer together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code; provided, however,
that no amount shall be payable by Employee to Employer if and to the extent
such payment would not be considered for federal income tax purposes to reduce
the amount of Payments which are considered to be "parachute payments" within
the meaning of Section 280G of the Code. In the event that the Auditors, based
upon controlling precedent, determine that an Underpayment has occurred, any
such Underpayment shall be promptly paid by Employer to or for Employee's
benefit together with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code.
<PAGE>
10.5 If any of the Agreement Payments will be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code or any similar tax that may
hereafter be imposed (the "Excise Tax"), Employer shall pay to Employee at the
time specified below an additional amount (the "Gross-up Payment") such that the
net amount retained by Employee, after deduction of any Excise Tax on the
Agreement Payments and any federal state and local income tax and Excise Tax
upon the Gross-up Payment, but before deduction for any federal state or local
income on the Agreement Payments, shall be equal to the total amount of the
Agreement Payments.
10.6 For purposes of determining whether any of the Agreement Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (i) the total
Agreement Payments shall be treated as "parachute payments" within the meaning
of Section 280G(b)(2) of the Code, and all "excess parachute payments" within
------
the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel selected by the Auditors, such
other payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code in excess of the base amount within the meaning
of Section 28OG(b)(3) of the Code or are otherwise not subject to the Excise
Tax, (ii) the amount of the Agreement Payments which shall be treated as subject
to the Excise Tax shall be equal to the lesser of (A) the total amount of the
Agreement Payments or (B) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying clause (i) above), and
(iii) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Auditors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.
10.7 For purposes of determining the amount of the Gross-up Payment,
Employee shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation for the calendar year in which the Gross-up
Payment is to be made and the applicable state and local income taxes at the
highest marginal rate of taxation for the calendar year in which the Gross-up
<PAGE>
Payment is to be made, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes. In the
event that the Excise Tax is subsequently determined to be less than the amount
taken into account hereunder at the time the Gross-up Payment is made, Employee
shall repay to Employer at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-up Payment attributable to
such reduction (plus the portion of the Gross-up Payment attributable to the
Excise Tax and federal, state and local income tax imposed on the portion of the
Gross-up Payment being repaid by Employee if such repayment results in a
reduction in Excise Tax and/or a federal state and local income tax deduction),
plus interest on the amount of such repayment at the applicable federal rate. In
the event that the Excise Tax is determined to exceed the amount taken into
account hereunder at the time the Gross-up Payment is made (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Gross-up Payment), Employer shall make an additional Gross-up Payment in
respect of such excess (plus any interest payable' with respect to such excess)
at the time that the amount of such excess is finally determined.
10.8 The Gross-up Payment or portion thereof provided for above shall be
paid not later than the thirtieth (30th) day following payment of any amounts
under Section 7. provided, however, that if the amount of such Gross-up Payment
or portion thereof cannot be finally determined on or before such day, Employer
shall pay to Employee on such day an estimate, as determined in good faith by
Employer, of the minimum amount of such payments and shall pay the remainder of
-------
such payment (together with interest at the applicable federal rate) as soon as
the amount thereof can be determined, but in no event later than the forty-fifth
(45th) day after payment of any amounts under Section 7. In the event that the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by Employer to Employee,
payable on the fifth (5th) day after demand by Employer (together with interest
at the applicable federal rate).
<PAGE>
10.9 AR determinations made by the Auditors pursuant to this Section X
shall be binding upon Employer and Employee.
ATTEST: SALEM BANK & TRUST, N.A.
_________________________________ By:_____________________________________
President
EMPLOYEE: ______________________________
<PAGE>
Employment Agreement - EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT made this 11th day of October, 1994, by and between SALEM
BANK & TRUST, N.A., a national banking association with principal offices at 220
East Main Street, Box 979, Salem, Virginia 24153 (hereinafter referred to as
"Employer"), and CLARK OWEN, JR., residing at 6520 Corntassel Lane, Roanoke
County, Virginia 24018 (hereinafter referred to as, "Employee").
W-I-T-N-E-S-S-E-T-H:
WHEREAS, engaging Employee's services for and on behalf of Employer is of
material importance to the preservation and enhancement of the value of
Employer's business;
WHEREAS, Employer recognizes, as is the case with many publicly held
corporations, the possibility that a change in control may arise and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of Employer and the shareholders of Employer;
WHEREAS, the Board of Directors of Employer (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of Employer's management to their assigned
duties without distraction by the possibility of a change in control of
Employer; and
WHEREAS, the Board believes it important, should Employer or the
shareholders of Employer receive a proposal for transfer of control of Employer,
that Employee be able to assess such proposal and advise the appropriate Boar(Is
thereon, without being unduly influenced by the uncertainties of Employee's
personal situation;
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
Employer and Employee do hereby agree as follows:
<PAGE>
ACTIVE TERM.
1.1 Employer hereby employs Employee as its President and Chief Executive
Officer to perform executive services as hereinafter provided, and Employee
hereby accepts said employment and agrees to render such services to Employer on
the terms and conditions set forth in this Agreement for an initial term of
three (3) years commencing October 11, 1994, and terminating October 10, 1997,
unless sooner terminated in accordance with the terms and conditions hereinafter
set forth. On October 11 of each year following the date of execution of this
Agreement, this Agreement shall be considered renewed for an additional year to
bring this Agreement back to a three (3) year term, unless at least thirty (30)
days' prior written notice by either party is given to the other party of intent
to terminate this Agreement upon expiration of the then-current term.
Immediately upon a change in control, as defined in Section V of this Agreement,
this Agreement shall automatically renew for a period of thirty-six (36) months
following the date of such change in control.
1.2 During the term of this Agreement, Employee agrees to perform such
executive services for Employer as may from time to time be assigned to Employee
by Employer, its Board of Directors or the Executive Committee of the Board.
1.3 During the term of this Agreement, Employee shall devote his full time
and best efforts to the affairs and business of Employer.
1.4 Employee shall serve as a director of Employer and, with his consent,
as a director of any subsidiary or affiliate of Employer.
1.5 Employee's services shall be rendered principally in Salem, Virginia,
but Employee shall do such traveling on behalf of Employer as may reasonably be
required.
II. COMPETITIVE ACTIVITIES.
----------------------
2.1 Employee agrees that, during the term of his employment hereunder,
except with the express consent of Employer, Employee will not, directly or
indirectly, engage or participate in, become a director of, or render advisory
or other services for, or in
<PAGE>
connection with, or become interested in, or make any financial investment in,
any firm, corporation, business entity or business enterprise competing with any
business of Employer, whether presently in existence or hereafter acquired;
provided, however, that Employee shall not thereby be precluded or prohibited
from owning passive investment so long as such ownership does not enable
Employee to manage or control the business or activities in which Employee has
invested, and so long as (i) such investment represents not in excess of the
lesser of five percent (5%) of the equity in any such entity or an investment of
$50,000 in any such entity, and (ii) except for passive investment in securities
of publicly traded companies, such ownership and any changes therein are
promptly reported in writing by Employee to the Board. Notwithstanding anything
to the contrary contained in this Agreement, while Employee is employed by
Employer during the term of this Agreement, Employee shall have no employment
contract or other written or oral agreement concerning employment as an officer
of Employer with any entity or person other than Employer.
2.2 Employee agrees and acknowledges by virtue of his employment hereunder
that he will be privy to an intimate knowledge of the Activities and affairs of
Employer, including trade secrets and other confidential matters. Employee
therefore agrees that if, during the term of employment, Employee renders
services to a competitor of Employer or its subsidiaries, if any, other than as
expressly authorized by the Board, Employer shall be entitled to immediate
injunctive or other equitable relief to restrain Employee from rendering
Employee's services to others than Employer and its subsidiaries and affiliates,
if any, in addition to any other remedies to which Employer may be entitled
under law; provided, however, that the right to such injunctive or other
equitable relief shall not survive the termination by Employer or Employee of
Employee's employment. Except for the purpose of carrying out Employee's duties
hereunder, Employee will not remove or retain, or make copies or reproductions
of any inquiries, calculations, letters, papers, or information of any type or
description relating to the business of Employer, its
<PAGE>
subsidiaries or affiliates, if any, and Employee agrees that he will not divulge
to others any information or data acquired by him while in Employer's employ
relating to methods, processes, or other trade secrets or confidential
information. Employee further agrees that Employer is and shall be the sole and
exclusive owner of all improvements, ideas, and suggestions (whether or not
subject to patent or trademark protection), and all copyrightable materials
which are conceived by Employee during his employment, which relate to the
business of Employer or any of its subsidiaries or affiliates, which are
confidential, and which are not readily ascertainable from persons or other
sources outside Employer and its subsidiaries and affiliates.
111. COMPENSATION.
------------
3.1 Employer will compensate and pay Employee for his services as follows:
a. Employee will be paid a salary at the, annual rate of the greater
or (i) such salary as the Board of Directors may set from time to time or (ii)
$87,635.00, payable in equal installments on the regular paydays then
established for executive personnel of Employer;
b. Employee will be reimbursed in a manner consistent with policies
of Employer heretofore or hereafter established for executive personnel, for all
reasonable expenses directly incurred by Employee in the discharge of any duties
hereunder;
c. Employee will receive such perquisites as senior executive
employees have historically been granted by Employer and as were being provided
to Employee immediately prior to the execution of this Agreement; and
d. Employee will receive such fringe benefits as shall be made
generally and proportionally available to other employees of Employer including,
but not limited to, the benefits of any Plan (as hereinafter defined).
For purposes of this Agreement, "Plan" shall mean any compensation plan
such as an incentive, stock option or restricted stock plan or any employee
benefit plan such as a thrift, pension, profit sharing, long term performance
award, medical, disability, accident,
<PAGE>
life insurance plan or a relocation plan or policy or any other plan, program or
policy now or hereafter established by Employer and which is intended to benefit
employees.
All payments made or payable to Employee under this Agreement shall be
subject to withholding for applicable taxes, social security or other
governmental levies and to insurance, savings or any other deductions
authorized, or for Employee's benefit, under any program established for or made
available to employees of Employer generally.
3.2 Nothing in this Agreement shall prevent the Board of Directors of
Employer from at any time increasing the compensation and fringe benefits to be
paid to Employee in the event the Board of Directors in its sole discretion
shall deem it advisable to do so in order to compensate Employee for his
services.
IV. TERMINATION PRIOR TO CHANGE IN CONTROL
--------------------------------------
4.1 Employer shall have the right, at any time prior to a change it
control of Employer as defined in Section V of this Agreement, upon prior
written notice of not less than thirty (30) days, to terminate Employee's
employment hereunder, subject to the compensation provisions contained herein.
4.2 In the event that, prior to a change in control of Employer (as
defined in Section V hereof), Employee's employment is terminated pursuant to
subsection 4.1, for cause (as defined in the next paragraph), Employee shall
have no right to compensation or other benefits for any period after such
termination. If Employee is terminated pursuant to subsection 4.1 prior to a
change in control of Employer, other than for cause, Employee's right to
compensation and other benefits under this Agreement shall continue for the
remaining term of this Agreement (except that bonuses payable under an executive
incentive compensation plan will be paid to Employee only through the end of
Employer's fiscal year during which Employee's employment is terminated, in an
amount equal to the amount which would have been payable to Employee (at a
percentage participation no less than Employee received from the last
distribution under the Plan) had Employee
<PAGE>
continued in the employ of Employer for the entirety of such fiscal year
multiplied by a fraction consisting of a numerator equal to the number of days
between the beginning of such fiscal year and the date of the termination of
Employee's employment and a denominator of 365), and Employee shall have the
right after such termination to accept employment with a competing financial
institution or other enterprise notwithstanding the provisions of Section 11
hereof.
For the purposes of this subsection 4.2, the term "cause" shall mean
personal dishonesty, gross incompetence, willful misconduct, willful breach of
fiduciary duty, willful violation of any federal, state, or local law, rule or
regulation (other than traffic violations or similar offenses), willful
violation of a final cease and desist order, willful breach or neglect of
Employee's duties hereunder, gross negligence, or misconduct in the performance
of Employee's duties.
V. CHANGE IN CONTROL
-----------------
5.1 For purposes of this Agreement, a "change in control" of Employer
shall have occurred at such time as (a) the Federal Reserve Board should have
approved a notice filed by any Person (as hereinafter defined) with respect to
Employer pursuant to either 12 C.F.R. (S)225.11 or 12 C.F.R. (S)225.41 (or any
successor regulation thereto), as either is in effect on the date hereof; (b)
any Person becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934 or any successor regulation thereto), directly
or indirectly, of 25% or more of the combined voting power of Employer's
outstanding securities ordinarily having the right to vote at elections of its
directors; (c) individuals who constitute Employer's Board of Directors on the
date hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof; provided that any person becoming a director subsequent to
the date hereof whose election, or nomination for election by Employer's
shareholders, was approved by a vote of at least three quarters of the directors
comprising the Incumbent Board shall be considered as though such Person were a
member of the Incumbent Board for purposes of this Section V; (d) the merger or
consolidation of Employer with or into another
<PAGE>
corporation; or (e) the sale, conveyance or other transfer of substantially all
of the assets of Employer.
5.2 For the purpose of this Agreement, the term "Person" shall include any
individual, corporation, partnership, group, association or other "person," as
such term is used in Section 14(d) of the Exchange Act, other than Employer or
any employee benefit plan(s) sponsored by Employer.
VI. TERMINATION FOLLOWING CHANGE IN CONTROL
---------------------------------------
6.1 If any of the events described in Section V hereof constituting a
change in control of Employer shall have occurred, Employee shall be entitled to
compensation provided in subsection 7.2 of Section VII hereof upon Employee's
determination to terminate his employment with Employer or upon termination by
Employer of Employee's employment with Employer.
6.2 Any termination by either party hereto following a change in control
shall be communicated by written notice of termination ("Notice of Termination")
to the other party hereto. Such Notice of Termination shall specify the date as
of which employment shall terminate ("Date of Termination"), which said Date of
Termination shall not be more than sixty (60) days after the date of the Notice
of Termination.
VII. COMPENSATION UPON TERMINATION: OTHER AGREEMENTS.
-----------------------------------------------
7.1 During any period following a change in control that Employee fails to
perform his duties as a result of incapacity due to physical or mental illness,
Employee shall continue to receive his salary at the rate then in effect and any
benefits or awards under any Plans shall continue to accrue during such period,
to the extent not inconsistent with such Plans, until Employee's employment is
terminated pursuant to and in accordance with Section VI hereof. Thereafter,
Employee's compensation and other benefits shall be determined in accordance
with subsection 7.2 hereof and the Plans then in effect.
7.2 Subject to subsections 6.1 and 7.4 and Section X hereof, if within
thirty-six (36) months of the date on which a change in control shall have
occurred, as defined in
<PAGE>
Section V above, Employee's employment with Employer shall be terminated by
Employer, then Employee shall be entitled, without regard to any contrary
provisions of any Plan, to the following benefits:
(A) For the period which is the greater of (i) the remaining term of
employment provided for in this Agreement or (ii) twenty-four (24) months,
commencing on the Date of Termination, Employer shall continue to provide
Employee all perquisites which were being provided to Employee immediately prior
to the Date of Termination and shall make provisions and pay all insurance
premiums as they come due during such period so that Employee's medical
insurance benefits, life insurance and accident insurance plan coverage will
continue to be on terms and at levels substantially the same as those existing
on the day prior to the Date of Termination;
(B) For the period which is the greater of (i) the remaining term of
employment provided for in this Agreement or (ii) 12 months, commencing on the
Date of Termination, Employer shall continue to pay to Employee the Annual
Compensation theretofore received by Employee from Employer. For purposes of
this Agreement, "Annual Compensation" shall mean Employee's current annual base
salary immediately preceding the change in control or immediately preceding the
Date of Termination, whichever is the greater, in accordance with Section 3.1(a)
hereof. Should there be a distribution from any executive incentive
compensation plan at the close of the plan year during which termination occurs,
Employer shall in addition be paid the amount provided for in Section 4.2
hereof.
(C) Employee shall be or become vested under all Plans as of the date
when the last compensation under this Agreement is due to be paid to Employee.
7.3 The amount of any payment provided for in this Section VII shall not
be reduced, offset, or subject to recovery by Employer by reason of any
compensation earned by Employee as a result of subsequent employment by another
employer other than a competing banking institution located within fifty (50)
miles of 220 East Main Street, Salem, Virginia, after the Date of Termination,
or otherwise.
<PAGE>
7.4 Notwithstanding the other provisions of this Section VII, should
Employer terminate Employee for intentional misconduct tantamount to the
commission of a felony and relating to his employment, no further compensation
shall be paid to Employee after the Date of Termination. Otherwise, Employee
shall be entitled to the full compensation provided for herein after his
termination whether such termination is by Employee or Employer, subject,
however, to the provisions of subsection 6.1 of Section VI.
VIII. SUCCESSORS: BINDING AGREEMENT.
-----------------------------
8.1 This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of Employer which shall result from a change in
control as defined in Section V hereof. Employer shall require any such
successor, by an agreement in form and substance satisfactory to Employee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as Employer would be required to perform if no such
succession had taken place.
8.2 This Agreement shall inure to the benefit of and be enforceable by
Employee's personal or legal representative, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If Employee should die
while any amount would still be payable to Employee hereunder at the time of
death of Employee, such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to Employee's devisee, legatee,
beneficiary, or designee or, if there be no such designee, to Employee's estate.
IX. FEES AND EXPENSES.
-----------------
Employer shall provide in advance and pay all legal fees and related
expenses incurred by Employee as a result of Employee's seeking to obtain or
enforce any right or benefit provided by this Agreement.
X. TAXES.
----
10.1 All payments to be made to Employee under this Agreement will be
subject to required withholding of federal, state and local income and
employment taxes.
10.2 Anything in this Agreement to the contrary notwithstanding, in the
event that mutually satisfactory independent auditors (the "Auditors") shall
determine that any
<PAGE>
payment or distribution by Employer to or for Employee's benefit (whether paid
or payable or distributed pursuant to the terms of this Agreement or otherwise)
(a "Payment") would be a "parachute payment" as defined in Section 28OG of the
Internal Revenue Code (the "Code"), then the aggregate present value of amounts
payable or distributable to or for Employee's benefit pursuant to this Agreement
(such payments or distributions pursuant to this Agreement are hereinafter
referred to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. For purposes of this subsection 10.2 of this Section X, the
"Reduced Amount" shall be an amount expressed in present value which maximizes
the aggregate present value of Agreement Payments such that the aggregate
present value of Payments equals the Reduced Amount.
10.3 If the Auditors determine that any Payment would be a "parachute
payment" as defined in Section 28OG of the Code, Employer shall promptly give
Employee notice to that effect and a copy of the detailed calculation thereof
and of the Reduced Amount. Employee may then elect, in his sole discretion,
which and what amount of Agreement Payments shall be eliminated or reduced (as
long as after such election the aggregate present value of the Agreement
Payments equals the Reduced Amount), and Employee shall advise Employer in
writing of Employee's election within 10 days of Employee's receipt of notice.
If no such election is made by Employee, Employer may elect which and how much
of the Agreement Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Agreement Payments equals the
Reduced Amount) and shall notify Employee promptly of such election. For
purposes of this subsection 10.3 of this Section X, present value shall be
determined in accordance with Section 28OG(d)(4) of the Code. All
determinations made by the Auditors under this paragraph shall be made within 60
days of the Notice of Termination. In accordance with Section VII hereof and as
promptly as practicable following such determination and the elections
hereunder, Employer shall pay to or distribute to or for Employee's benefit such
amounts as are the due to Employer under this Agreement and shall promptly pay
to or distribute for Employer's benefit in the future such amounts as become due
to Employee under this Agreement.
<PAGE>
10.4 As a result of the uncertainty in this application of Section 28OG of
the Code at the time of the initial determination by the Auditors hereunder, it
is possible that Agreement Payments will have been made by Employer which should
not have been made ("Overpayment") or that additional Agreement Payments will
not have been made by Employer which should have been made ("Underpayment"), in
each case consistent with the calculation of the Reduced Amount hereunder. In
the event that the Auditors, based upon the assertion of a deficiency by the
Internal Revenue Service against Employer or Employee which the Auditors believe
has a high probability of success, determine that an Overpayment has been made,
such Overpayment shall be treated for all purposes as a loan to Employee which
Employee shall repay to Employer together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code; provided, however,
that no amount shall be payable by Employee to Employer if and to the extent
such payment would not be considered for federal income tax purposes to reduce
the amount of Payments which are considered to be "parachute payments" within
the meaning of Section 28OG of the Code. In the event that the Auditors, based
upon controlling precedent, determine that an Underpayment has occurred, any
such Underpayment shall be promptly paid by Employer to or for Employee's
benefit together with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code.
10.5 If any of the Agreement Payments will be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code or any similar tax that may
hereafter be imposed (the "Excise Tax"), Employer shall pay to Employee at the
time specified below an additional amount (the "Gross-up Payment") such that the
net amount retained by Employee, after deduction of any Excise Tax on the
Agreement Payments and any federal, state and local income tax and Excise Tax
upon the Gross-up Payment, but before deduction for any federal, state or local
income tax on the Agreement Payments, shall be equal to the total amount of the
Agreement Payments.
10.6 For purposes of determining whether any of the Agreement Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (i) the total
Agreement Payments shall be treated as "parachute payments" within the meaning
of Section 28OG(b)(2) of the Code, and all "excess parachute payments" within
the meaning of Section
<PAGE>
28OG(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in
the opinion of tax counsel selected by the Auditors, such other payments or
benefits (in whole or in part) do not constitute parachute payments, or such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
28OG(b)(4) of the Code in excess of the base amount within the meaning of
Section 28OG(b)(3) of the Code or are otherwise not subject to the Excise Tax,
(ii) the amount of the Agreement Payments which shall be treated as subject to
the Excise Tax shall be equal to the lesser of (A) the total amount of the
Agreement Payments or (B) the amount of excess parachute payments within the
meaning of Section 28OG(b)(1) of the Code (after applying clause (i) above), and
(iii) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Auditors in accordance with the principles of
Sections 28OG(d)(3) and (4) of the Code.
10.7 For purposes of determining the amount of the Gross-up Payment,
Employee shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation for the calendar year in which the Gross-up
Payment is to be made and the applicable state and local income taxes at the
highest marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes. In the
event that the Excise Tax is subsequently determined to be less than the amount
taken into account hereunder at the time the Gross-up Payment is made, Employee
shall repay to Employer at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-up Payment attributable to
such reduction (plus the portion of the Gross-up Payment attributable to the
Excise Tax and federal, state and local income tax imposed on the portion of the
Gross-up Payment being repaid by Employee if such repayment results in a
reduction in Excise Tax and/or a federal, state and local income tax deduction),
plus interest on the amount of such repayment at the applicable federal rate.
In the event that the Excise Tax is determined to
<PAGE>
exceed the amount taken into account hereunder at the time the Gross-up Payment
is made (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-up Payment), Employer shall make
an additional Gross-up Payment in respect of such excess (plus any interest
payable with respect to such excess at the time that the amount of such excess
is finally determined.
10.8 The Gross-up Payment or portion thereof provided for above shall be
paid not later than the thirtieth (30th) day following payment of any amounts
under Section 7, provided, however, that if the amount of such Gross-up Payment
or portion thereof cannot be finally determined, on or before such day, Employer
shall pay to Employee on such day an estimate, as determined in good faith by
Employer, of the minimum amount of such payments and shall pay the remainder of
such payment together with interest at the applicable federal rate) as soon as
the amount thereof can be determined, but in no event later than the forty-fifth
(45th) day after payment of any amounts under Section 7. In the event that the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by Employer to Employee,
payable on the fifth (5th) day after demand by Employer (together with interest
------
at the applicable federal rate).
10.9 All determinations made by the Auditors pursuant to this Section X
shall be binding upon Employer and Employee.
XI. SURVIVAL.
--------
The respective obligations of, and benefits afforded, Employer and
Employee as provided in Sections III, VII, VIII, IX,,, X, XI, XII, XIII, XIV and
XV of this Agreement shall survive termination of this Agreement.
XII. NOTICES.
-------
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified or
registered mail, return receipt requested, postage prepaid and addressed to the
addresses set forth on the first page of this Agreement, provided that all
notice to Employer shall be directed to the attention of
<PAGE>
the most senior officer of Employer other than Employee, or to such other
addresses as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be in effect
only upon receipt.
XIII. MISCELLANEOUS.
-------------
No provision of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is agreed to in writing signed by
Employee and the most senior officer of Employer other than Employee. No waiver
by either party hereto at any time of any breach by the other party hereto of,
or of compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a wavier of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Virginia.
XIV. VALIDITY.
--------
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
XV. RELATED AGREEMENTS.
------------------
To the extent that any provision of any other agreement between Employer
or any of its subsidiaries and Employee shall limit, qualify or be inconsistent
with any provision of this Agreement, then for purposes of this Agreement, while
the same shall remain in force, the provision of this Agreement shall control
and such provision of such other agreement shall be deemed to have been
superseded, and to be of no force and effect, as if such other agreement had
been formally amended to the extent necessary to accomplish such purpose.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
<PAGE>
EMPLOYEE: EMPLOYER:
SALEM BANK & TRUST, N.A.
_________________________ By: ________________________________
CLARK OWEN, JR. Chairman, Board of Directors
<PAGE>
Employment Agreement - EXHIBIT 10.3
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT made this 11th day of October, 1994, by and between SALEM
BANK & TRUST, N.A., a national banking association with principal offices at 220
East Main Street, Box 979, Salem, Virginia 24153 (hereinafter referred to as
"Employer"), and CARL E. TARPLEY, JR., residing at 3207 Links Manor Drive,
Salem, Virginia 24153 (hereinafter referred to as "Employee").
W-1-T-N-E-S-S-E-T-H:
WHEREAS, engaging Employee's services for and on behalf of Employer is of
material importance to the preservation and enhancement of the value of
Employer's business;
WHEREAS, Employer recognizes, as is the case with many publicly held
corporations, the possibility that a change in control may arise and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of Employer and the shareholders of Employer;
WHEREAS, the Board of Directors of Employer (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of Employer's management to their assigned
duties without distraction by the possibility of a change in control of
Employer; and
WHEREAS, the Board believes it important, should Employer or the
shareholders of Employer receive a proposal for transfer of control of Employer,
that Employee be able to assess such proposal and advise the appropriate Boards
thereon, without being unduly influenced by the uncertainties of Employee's
personal situation;
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
Employer and Employee do hereby agree as follows:
1. ACTIVE TERM.
-----------
1.1 Employer hereby employs Employee as its Executive Vice President to
perform executive services as hereinafter provided, and Employee hereby accepts
said employment and agrees to render such services to Employer on the terms and
conditions set forth in this Agreement for an initial term of three (3) years
commencing no later than October 11, 1994, and terminating October 10, 1997,
unless sooner terminated in accordance with the terms and conditions hereinafter
set forth. On October 11 of each year following the date of execution of this
Agreement, this Agreement shall be considered renewed for an additional year to
bring this Agreement back to a three (3) year term, unless at least thirty (30)
days' prior written notice by either party is given to the other party of intent
to terminate this Agreement upon expiration of the then-current term.
Immediately upon a change in control, as defined in Section V of this Agreement,
this Agreement shall automatically renew for a period of thirty-six (36) months
following the date of such change in control.
1.2 During the term of this Agreement, Employee agrees to perform such
executive services for Employer as may from time to time be assigned to Employee
by Employer, its Board of Directors or the Executive Committee of the Board.
1.3 During the term of this Agreement, Employee shall devote his full time
and best efforts to the affairs and business of Employer.
1.4 Employee shall serve as a director of Employer and, with his consent,
as a director of any subsidiary or affiliate of Employer.
1.5 Employee's services shall be rendered principally in Salem, Virginia,
-----------
but Employee shall do such traveling on behalf of Employer as may reasonably be
required.
II. COMPETITIVE ACTIVITIES.
----------------------
2
<PAGE>
2.1 Employee agrees that, during the term of his employment hereunder,
except with the express consent of Employer, Employee will not, directly or
indirectly, engage or participate in, become a director of, or render advisory
or other services for, or in connection with, or become interested in, or make
any financial investment in, any firm, corporation, business entity or business
enterprise competing with any business of Employer, whether presently in
existence or hereafter acquired; provided, however, that Employee shall not
thereby be precluded or prohibited from owning passive investment so long as
such ownership does not enable Employee to manage or control the business or
activities in which Employee has invested, and so long as (i) such investment
represents not in excess of the lesser of five percent (5%) of the equity in any
such entity or an investment of $50,000 in any such entity, and (ii) except for
passive investment in securities of publicly traded companies, such ownership
and any changes therein are promptly reported in writing by Employee to the
Board. Notwithstanding anything to the contrary contained in this Agreement,
while Employee is employed by Employer during the term of this Agreement.
Employee shall have no employment contract or other written or oral agreement
concerning employment as an officer of Employer with any entity or person other
than Employer.
2.2 Employee agrees and acknowledges by virtue of his employment hereunder
that he will be privy to an intimate knowledge of the activities and affairs of
Employer, including trade secrets and other confidential matters. Employee
therefore agrees that if, during the term of employment, Employee renders
services to a competitor of Employer or its subsidiaries, if any, other than as
expressly authorized by the Board, Employer shall be entitled to immediate
injunctive or other equitable relief to restrain Employee from rendering
Employee's services to others than Employer and its subsidiaries and affiliates,
if any, in addition to any other remedies to which Employer may be entitled
under law; provided, however, that the right to such injunctive or other
equitable relief shall not survive the termination by Employer or Employee of
Employee's employment. Except for the purpose of carrying out Employee's duties
hereunder, Employee will not remove or retain, or
3
<PAGE>
make copies or reproductions of any inquiries, calculations, letters, papers, or
information of any type or description relating to the business of Employer, its
subsidiaries or affiliates, if any, and Employee agrees that he will not divulge
to others any information or data acquired by him while in Employer's employ
relating to methods, processes, or other trade secrets or confidential
information. Employee further agrees that Employer is and shall be the sole and
exclusive owner of all improvements, ideas, and suggestions (whether or not
subject to patent or trademark protection), and all copyrightable materials
which are conceived by Employee during his employment, which relate to the
business of Employer or any of its subsidiaries or affiliates, which are
confidential, and which are not readily ascertainable from persons or other
sources outside Employer and its subsidiaries and affiliates.
III. COMPENSATION.
------------
3.1 Employer will compensate and pay Employee for his services as follows:
a. Employee will be paid a salary at the annual rate of the greater
of (i) such salary as the Board of Directors may set from time to time or (ii)
$63,922.00, payable in equal installments on the regular paydays then
established for executive personnel of Employer;
b. Employee will be reimbursed in a manner consistent with policies
of Employer heretofore or hereafter established for executive personnel, for all
reasonable expenses directly incurred by Employee in the discharge of any duties
hereunder;
c. Employee will receive such perquisites as senior executive
employees have historically been granted by Employer and as were being provided
to Employee immediately prior to the execution of this Agreement; and
d. Employee will receive such fringe benefits as shall be made
generally and proportionally available to other employees of Employer including,
but not limited to, the benefits of any Plan (as hereinafter defined).
4
<PAGE>
For purposes of this Agreement, "Plan" shall mean any compensation plan
such as an incentive, stock option or restricted stock plan or any employee
benefit plan such as a thrift, pension, profit sharing, long term performance
award, medical disability, accident, life insurance plan or a relocation plan or
policy or any other plan, program or policy now or hereafter established by
Employer and which is intended to benefit employees.
All payments made or payable to Employee under this Agreement shall be
subject to withholding for applicable taxes, social security or other
governmental levies and to insurance, savings or any other deductions
authorized, or for Employee's benefit, under any program established for or made
available to employees of Employer generally.
3.2 Nothing in this Agreement shall prevent the Board of Directors of
Employer from at any time increasing the compensation and fringe benefits to be
paid to Employee in the event the Board of Directors in its sole discretion
shall deem it advisable to do so in order to compensate Employee for his
services.
IV. TERMINATION PRIOR TO CHANGE IN CONTROL.
--------------------------------------
4.1 Employer shall have the right, at any time prior to a change in
control of Employer as defined in Section V of this Agreement, upon prior
written notice of not less than thirty (30) days, to terminate Employee's
employment hereunder, subject to the compensation provisions contained herein.
4.2 In the event that, prior to a change in control of Employer (as
defined in Section V hereof), Employee's employment is terminated pursuant to
subsection 4.1, for cause (as defined in the next paragraph), Employee shall
have no right to compensation or other benefits for any period after such
termination. If Employee is terminated pursuant to subsection 4.1 prior to a
change in control of Employer, other than for cause, Employee's right to
compensation and other benefits under this Agreement shall continue for the
remaining term of this Agreement (except that bonuses payable under any
executive incentive compensation plan will be paid to Employee only through the
end of Employer's fiscal year during which Employee's employment is terminated,
in an amount equal to the amount which would have been payable to
5
<PAGE>
Employee (at a percentage participation no less than Employee received from the
last distribution under the Plan) had Employee continued in the employ of
Employer for the entirety of such fiscal year multiplied by a fraction
consisting of a numerator equal to the number of days between the beginning of
such fiscal year and the date of the termination of Employee's employment and a
denominator of 365), and Employee shall have the right after such termination to
accept employment with a competing financial institution or other enterprise
notwithstanding the provisions of Section II hereof.
For the purposes of this subsection 4.2, the term "cause" shall mean
personal dishonesty, gross incompetence, willful misconduct, willful breach of
fiduciary duty, willful violation of any federal, state, or local law, rule or
regulation (other than traffic violations or similar offenses), willful
violation of a final cease and desist order, willful breach or neglect of
Employee's duties hereunder, gross negligence, or misconduct in the performance
of Employee's duties.
V. CHANGE IN CONTROL.
-----------------
5.1 For purposes of this Agreement, a "change in control" of Employer
shall have occurred at such time as (a) the Federal Reserve Board should have
approved a notice filed by any Person (as hereinafter defined) with respect to
Employer pursuant to either 12 C.F.R. (S)225.11 or 12 C.F.R. (S)225.41 (or any
successor regulation thereto), as either is in effect on the date hereof; (b)
any Person becomes the 'beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934 or any successor regulation thereto), directly
or indirectly, of 25% or more of the combined voting power of Employer's
outstanding securities ordinarily having the right to vote at elections of its
directors; (c) individuals who constitute Employer's Board of Directors on the
date hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof; provided that any person becoming a director subsequent to
the date hereof whose election, or nomination for election by Employer's
shareholders, was approved by a vote of at least three quarters of the directors
comprising the Incumbent Board shall be considered as though such Person were a
6
<PAGE>
member of the Incumbent Board for purposes of this Section V; (d) the merger, or
consolidation of Employer with or into another corporation; or (e) the sale,
conveyance or other transfer of substantially all of the assets of Employer.
5.2 For the purpose of this Agreement, the term "Person" shall include any
individual, corporation, partnership, group, association or other "person," as
such term is used in Section 14(d) of the Exchange Act, other than Employer or
any employee benefit plan(s) sponsored by Employer.
VI. TERMINATION FOLLOWING CHANGE IN CONTROL.
---------------------------------------
6.1 If any of the events described in Section V hereof constituting a
change in control of Employer shall have occurred, Employee shall be entitled to
compensation provided in subsection 7.2 of Section VII hereof upon Employee's
determination to terminate his employment with Employer or upon termination by
Employer of Employee's employment with Employer.
6.2 Any termination by either party hereto following a change in control
shall be communicated by written notice of termination ("Notice of Termination")
to the other party hereto. Such Notice of Termination shall specify the date as
of which employment shall terminate ("Date of Termination"), which said Date of
Termination shall not be more than sixty (60) days after the date of the Notice
of Termination.
VII. COMPENSATION UPON TERMINATION: OTHER AGREEMENTS.
-----------------------------------------------
7.1 During any period following a change in control that Employee fails to
perform his duties as a result of incapacity due to physical or mental illness,
Employee shall continue to receive his salary at the rate then in effect and any
benefits or awards under any Plans shall continue to accrue during such period,
to the extent not inconsistent with such Plans, until Employee's employment is
terminated pursuant to and in accordance with Section VI hereof. Thereafter,
Employee's compensation and other benefits shall be determined in accordance
with subsection 7.2 hereof and the Plans then in effect.
7
<PAGE>
7.2 Subject to subsections 6.1 and 7.4 and Section X hereof, if within
thirty-six (36) months of the date on which a change in control shall have
occurred, as defined in Section V above, Employee's employment with Employer
shall be terminated by Employer, then Employee shall be entitled, without regard
to any contrary provisions of any Plan, to the following benefits:
(A) For the period which is the greater of (i) the remaining term of
employment provided for in this Agreement or (ii) twenty-four (24) months,
commencing on the Date of Termination, Employer shall continue to provide
Employee all perquisites which were being provided to Employee immediately prior
to the Date of Termination and shall make provisions and pay all insurance
premiums as they come due during such period so that Employee's medical
insurance benefits, life insurance and accident insurance plan coverage will
continue to be on terms and at levels substantially the same as those existing
on the day prior to the Date of Termination;
(B) For the period which is the greater of (i) the remaining term of
employment provided for in this Agreement or (ii) 12 months, commencing on the
Date of Termination, Employer shall continue to pay to Employee the Annual
Compensation theretofore received by Employee from Employer. For purposes of
this Agreement, "Annual Compensation" shall mean Employee's current annual base
salary immediately preceding the change in control or immediately preceding the
Date of Termination, whichever is the greater, in accordance with Section 3.1(a)
hereof. Should there be a distribution from any executive incentive
compensation plan at the close of the plan year during which termination occurs,
Employer shall in addition be paid the amount provided for in Section 4.2
hereof.
(C) Employee shall be or become vested under all Plans as of the date
when the last compensation under this Agreement is due to be paid to Employee.
7.3 The amount of any payment provided for in this Section VII shall not
be reduced, offset, or subject to recovery by Employer by reason of any
compensation earned by Employee as a result of subsequent
8
<PAGE>
employment by another employer other than a competing banking institution
located within fifty (50) miles of 220 East Main Street, Salem, Virginia, after
the Date of Termination, or otherwise.
7.4 Notwithstanding the other provisions of this Section VII, should
Employer terminate Employee for intentional misconduct tantamount to the
commission of a felony and relating to his employment, no further compensation
shall be paid to Employee after the Date of Termination. Otherwise, Employee
shall be entitled to the full compensation provided for herein after his
termination whether such termination is by Employee or Employer, subject,
however, to the provisions of subsection 6.1 of Section VI.
VIII. SUCCESSORS: BINDING AGREEMENT.
-----------------------------
8.1 This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of Employer which shall result from a change in
control as defined in Section V hereof. Employer shall require any such
successor, by an agreement in form and substance satisfactory to Employee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as Employer would be required to perform if no such
succession had taken place.
8.2 This Agreement shall inure to the benefit of and be enforceable by
Employee's personal or legal representative, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If Employee should die
while any amount would still be payable to Employee hereunder at the time of
death of Employee, such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to Employee's devisee, legatee,
beneficiary, or designee or, if there be no such designee, to Employee's estate.
IX. FEES AND EXPENSES.
-----------------
Employer shall provide in advance and pay all legal fees and related
expenses incurred by Employee as a result of Employee's seeking to obtain or
enforce any right or benefit provided by this Agreement.
X. TAXES.
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9
<PAGE>
10.1 All payments to be made to Employee under this Agreement win be
subject to required withholding of federal, state and local income and
employment taxes.
10.2 Anything in this Agreement to the contrary notwithstanding, in the
event that mutually satisfactory independent auditors (the "Auditors") shall
determine that any payment or distribution by Employer to or for Employee's
benefit (whether paid or. payable or distributed pursuant to the terms of this
Agreement or otherwise) (a "Payment") would be a "parachute payment" as defined
in Section 28OG of the Internal Revenue Code (the "Code"), then the aggregate
present value of amounts payable or distributable to or for Employee's benefit
pursuant to this Agreement (such payments or distributions pursuant to this
Agreement are hereinafter referred to as "Agreement Payments") shall be reduced
(but not below zero) to the Reduced Amount. For purposes of this subsection 10.2
of this Section Y., the "Reduced Amount" shall be an amount expressed in present
value which maximizes the aggregate present value of Agreement Payments such
that the aggregate present value of Payments equals the Reduced Amount.
10.3 If the Auditors determine that any Payment would be a "parachute
payment" as defined in Section 28OG of the Code, Employer shall promptly give
Employee notice to that effect and a copy of the detailed calculation thereof
and of the Reduced Amount. Employee may then elect, in his sole discretion,
which and what amount of Agreement Payments shall be eliminated or reduced (as
long as after such election the aggregate present value of the Agreement
Payments equals the Reduced Amount), and Employee shall advise Employer in
writing of Employee's election within 10 days of Employee's receipt of notice.
If no such election is made by Employee, Employer may elect which and how much
of the Agreement Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Agreement Payments equals the
Reduced Amount) and shall notify Employee promptly of such election. For
purposes of this subsection 10.3 of this Section X, present value shall be
determined in accordance with Section 28OG(d)(4) of the Code. All determinations
made by the Auditors under this paragraph shall be made within 60 days of the
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<PAGE>
Notice of Termination. In accordance with Section VII hereof and as promptly as
practicable following such determination and the elections hereunder, Employer
shall pay to or distribute to or for Employee's benefit such amounts as are the
due to Employer under this Agreement and shall promptly pay to or distribute for
Employer's benefit in the future such amounts as become due to Employee under
this Agreement.
10.4 As a result of the uncertainty in this application of Section 28OG of
the Code at the time of the initial determination by the Auditors hereunder, it
is possible that Agreement Payments will have been made by Employer which should
not have been made ("Overpayment") or that additional Agreement Payments will
not have been made by Employer which should have been made ("Underpayment"), in
each case consistent with the calculation of the Reduced Amount hereunder. In
the event that the Auditors, based upon the assertion of a deficiency by the
Internal Revenue Service against Employer or Employee which the Auditors believe
has a high probability of success, determine that an Overpayment has been made,
such Overpayment shall be treated for all purposes as a loan to Employee which
Employee shall repay to Employer together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code; provided, however,
that no amount shall be payable by Employee to Employer if and to the extent
such payment would not be considered for federal income tax purposes to reduce
the amount of Payments which are considered to be "parachute payments" within
the meaning of Section 28OG of the Code. In the event that the Auditors, based
upon controlling precedent, determine that an Underpayment has occurred, any
such Underpayment shall be promptly paid by Employer to or for Employee's
benefit together with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code.
10.5 If any of the Agreement Payments will be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code or any similar tax that may
hereafter be imposed (the "Excise Tax"), Employer shall pay to Employee at the
time specified below an additional amount (the "Gross-up Payment") such that the
net amount retained by Employee, after deduction of any Excise Tax on the
Agreement Payments and any federal,
11
<PAGE>
state and local income tax and Excise Tax upon the Gross-up Payment, but before
deduction for any federal, state or local income tax on the Agreement Payments,
shall be equal to the total amount of the Agreement Payments.
10.6 For purposes of determining whether any of the Agreement Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (i) the total
Agreement Payments shall be treated as "parachute payments" within the meaning
of Section 28OG(b)(2) of the Code, and all "excess parachute payments" within
the meaning of Section 28OG(b)(1) of the Code shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel selected by the Auditors, such
other payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within the meaning of
Section 28OG(b)(4) of the Code in excess of the base amount within the meaning
of Section 28OG(b)(3) of the Code or are otherwise not subject to the Excise
Tax, (ii) the amount of the Agreement Payments which shall be treated as subject
to the Excise Tax shall be equal to the lesser of (A) the total amount of the
Agreement Payments or (B) the amount of excess parachute payments within the
meaning of Section 28OG(b)(1) of the Code (after applying clause (i) above), and
(iii) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Auditors in accordance with the principles of
Sections 28OG(d)(3) and (4) of the Code.
10.7 For purposes of determining the amount of the Gross-up Payment,
Employee shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation for the calendar year in which the Gross-up
Payment is to be made and the applicable state and local income taxes at the
highest marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes. In the
event that the Excise Tax is subsequently determined to be less than the amount
taken into account hereunder at the time the Gross-up Payment is made, Employee
shall repay to Employer at the time that the amount of such reduction in
12
<PAGE>
Excise Tax is finally determined the portion of the Gross-up Payment
attributable to such reduction (plus the portion of the Gross-up Payment
attributable to the Excise Tax and federal, state and local income tax imposed
on the portion of the Gross-up Payment being repaid by Employee if such
repayment results in a reduction in Excise Tax and/or a federal, state and
local income tax deduction), plus interest on the amount of such repayment at
the applicable federal rate. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time the Gross-up Payment
is made (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-up Payment), Employer shall make
an additional Gross-up Payment in respect of such excess (plus any interest
payable with respect to such excess) at the time that the amount of such excess
is finally determined.
10.8 The Gross-up Payment or portion thereof provided for above shall be
paid not later than the thirtieth (30th) day following payment of any amounts
under Section VII; provided, however, that if the amount of such Gross-up
Payment or portion thereof cannot be finally determined on or before such day,
Employer shall pay to Employee on such day an estimate, as determined in good
faith by Employer, of the minimum amount of such payments and shall pay the
remainder of such payment (together with interest at the applicable federal
rate) as soon as the amount thereof can be determined, but in no event later
than the forty-fifth (45th) day after payment of any amounts under Section VII.
In the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
Employer to Employee, payable on the fifth (5th) day after demand by Employer
(together with interest at the applicable federal rate).
10.9 All determinations made by the Auditors pursuant to this Section X
shall be binding upon Employer and Employee.
XI. SURVIVAL.
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13
<PAGE>
The respective obligations of, and benefits afforded, Employer and Employee
as provided in Sections III, VII, VIII, IX, X, XI, XII, XIII, XIV and XV of this
Agreement shall survive termination of this Agreement.
XII. NOTICES.
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For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified or
registered mail, return receipt requested, postage prepaid and addressed to the
addresses set forth on the first page of this Agreement, provided that all
notice to Employer shall be directed to the attention of the most senior officer
of Employer other than Employee, or to such other addresses as either party may
have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be in effect only upon receipt.
XII. MISCELLANEOUS.
-------------
No provision of this Agreement may be modified, waived or discharged unless
such modification, waiver or discharge is agreed to in a writing signed by
Employee and the most senior officer of Employer other than Employee. No waiver
by either party hereto at any time of any breach by the other party hereto of,
or of compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a wavier of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Virginia.
XIV. VALIDITY.
--------
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14
<PAGE>
XV. RELATED AGREEMENTS.
-------------------
To the extent that any provision of any other agreement between Employer or
any of its subsidiaries and Employee shall limit, qualify or be inconsistent
with any provision of this Agreement, then for purposes of this Agreement, while
the same shall remain in force, the provision of this Agreement shall control
and such provision of such other agreement shall be deemed to have been
superseded, and to be of no force and effect, as if such other agreement had
been formally amended to the extent necessary to accomplish such purpose.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
EMPLOYEE: EMPLOYER:
SALEM BANK & TRUST, N.A.
______________________________ By: _____________________________
CARL E. TARPLEY, JR. President
15
<PAGE>
Lease - EXHIBIT 10.4
COMMONWEALTH OF VIRGINIA
Alleghany Health District
Roanoke City Health District
Serving the People of:
Alleghany County
Botetourt County March 6, 2000 Reply to:
Craig County 515 Eighth Street, Sw
Roanoke County Roanoke, VA 24016
City of Clifton Forge Phone: (540) 857-7600 Ext. 274
City of Covington FAX: (540) 857-6987
City of Roanoke
City of Salem
Clark Owen, Jr., President
Salem Bank & Trust
220 E. Main Street
Salem, VA 24153
Dear Mr. Owen:
This is to confirm our telephone call of this date concerning the renewal of our
lease in the Olde Newberry Building.
Paragraph 10. of our lease provides that "... at the end of the initial term,
this lease shall automatically renew and continue in full force and effect from
year to year......".
It is our proposal and you agree that we allow this lease to continue for the
period July 1, 2000 to June 30, 2001 under the same terms and conditions.
Sincerely yours,
Milton Carter
Business Manager
<PAGE>
DEED OF LEASE
This DEED OF LEASE, is made this lst day of July 1995 by and between Salem
--- ---- -----
Bank and Trust (The "Lessor) and the COMMONWEALTH OF VIRGINIA, by the VIRGINIA
- --------------
DEPARTMENT OF HEALTH (the"Lessee") with approval of the Governor pursuant to
(S)2.1-504.2 of the Code of Virginia (1950), as amended.
WITNESSETH
For and in consideration of the terms, conditions, covenants, promises and
agreements herein made, Lessor hereby leases and demises unto Lessee the
following described real property (the "demised premises"): (Include parking
facilities and number of parking spaces, it any, and rentable square footage or,
acreage.)
7025 square feet of office and clinic space on the lower level of the Olde
Newberry Building located at 110 E. Main Street, Salem, Virginia and twenty (20)
parking spaces at the location. This lease is subject to a rental amount of
$37,806/annum for a period of five (5) years.
1. INITIAL TERM OF LEASE: The demised premises are leased to Lessee for a
period of Five (5) (years), beginning on the lst day of July, 1995 and
-------- --- ------ --
terminating on the 30 day of June, 2000(the 'initial term").
-- ----- ----
2. RENT: Lessee covenants to pay Lessor the sum of one hundred eighty nine
-----------------------
thousand and thirty Dollars ($189,030) as rent for the initial term which amount
- -------------------
shall be paid in installments of nine thousand four hundred fifty one and fifty
----------------------------------------------
cents dollars ($9,451.50) due and payable in arrears at the end of each quarter
- ----- ----------- -------
(month/quarter).
Rent shall be made payable to Salem Bank and Trust and mailed to Salem Bank and
--------------------- --------------
Trust at 220 E. Main Street, Salem 24153 or to such other party and such other
- ----- -------------------------------
place as Lessor may from time to time designate in writing as provided herein.
<PAGE>
3. PURPOSE AND USE OF DEMISED PREMISES:
The demised premises are leased to be used and occupied by the VIRGINIA
DEPARTMENT OF HEALTH, a department, agency or institution of the Commonwealth of
Virginia (the 'leasing agency"), and its agents and employees, for such purposes
and uses as it may now or hereafter be empowered by law to use same.
4. ACCESSIBILITY BY THE HANDICAPPED
(A) Prior to commencement of the initial term and delivery of possession,
------------
Lessor shall certify to Lessee in writing that the demised premises
complies. with minimum requirements of the Americans with Disabilities
Act of 1990 (the "ADA"). In the event the demised premises is not
required to comply with the ADA., Lessor shall certify to Lessee in
writing that the demised premises complies with minimum requirements
of the Virginia Uniform Statewide Building Code pertaining to access
by disabled persons. As hereinafter used, the term "the standards"
shall mean and incorporate those standards approved by the United
State Department of Justice for meeting the minimum requirements of
the Americans with Disabilities Act of 1990 or, if applicable, those
standards issued or promulgated by the American National Standards
Institute, entitled 'American National Standard Specifications for
Making Buildings and Facilities Accessible to and Usable by Physically
Handicapped People', ANSI-A117.1-1980, and the term 'accessible" shall
mean accessible to disabled individuals in accordance with the ADA.
The minimum Virginia Uniform Statewide Building Code requirements are:
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(1) If public or private parking is provided, at least one accessible
parking space shall be provided as close as possible to an accessible
route to the primary building entrance.
(2) Walks used as accessible routes to the building shall comply with the
standards.
(3) An accessible primary entrance to the building shall be at grade or
ramped to grade in accordance with the standards.
------
(4) An accessible entrance to the building shall comply with the
standards.
(5) At least one accessible route (corridors and doors) to the demised
premises shall comply with the standards.
(6) If support areas within the building (e.g., lunch rooms, cafeteria,
etc.) are used by Lessee, its employees or the public, such areas
shall be accessible.
<PAGE>
(7) If Lessee occupies floors others than the main floor of access to the
building, at least one accessible elevator shall be provided.
(8) Accessible public rest rooms for each sex shall be provided,
preferably on all floors. As a minimum, accessible rest rooms shall
be provided on the ground floor or the floor occupied by Lessee if the
building is four stories or less in height. If Lessee occupies an
area above the fourth floor, accessible public rest rooms for each sex
shall be provided on the floor occupied by Lessee. If Lessee occupies
more than one floor, at lease one accessible public rest room for each
sex shall be provided on at least every fourth floor occupied by
Lessee.
(9) All corridors, doors and spaces in or about the demised premises and
used by the public or employees of Lessee shall be accessible.
(10) Directional signs complying with the standards shall be provided
directing the public to the demised premises occupied by Lessee.
(11) Where the foregoing standards for accessibility by the disabled
conflict with or are superseded by state, federal or local laws,
ordinances, rules, or regulations setting forth standards for access
by the disabled, the more favorable standards for accessibility by the
disabled shall govern.
5. DELIVERY OF POSSESSION:
(A) Lessor covenants to deliver quiet possession of the demised premises
at the commencement of the initial term.
(B) Lessor covenants to deliver the demised premises to Lessee at the
commencement of the initial term in good repair and condition, suitable to the
purpose and use for which the demised premises are leased. Lessor warrants that
all plumbing, heating, air conditioning, electrical and mechanical devices and
appliances of every kind or nature located upon or serving the demised premises
shall be in good repair, condition and working order as of the commencement of
the initial term.
(C) Lessor covenants that the demised premises and the building of which
the demised premises forms a part have been inspected by an Asbestos Inspector
licensed by the Virginia Department of Professional and Occupational Regulations
and the building is free of friable asbestos that is not managed under a
management plan prepared by an Asbestos Management Planner licensed by the
Virginia Department of Professional and Occupational Regulation.
<PAGE>
(D) Prior to occupancy by Lessee, Lessor shall complete to the
satisfaction of Lessee the interior finish of the demised premises, including
installation of any equipment, Fixtures and furnishings, in compliance with the
Lessor's work letter attached hereto as Exhibit ________.
6. MAINTENANCE:
(A) Lessor covenants to keep, repair and Maintain, at Lessor's expense,
the demised premises and all plumbing, heating, air conditioning, electrical and
mechanical devices, appliances and equipment of every kind or nature affixed to
or serving the demised premises in good repair, condition and working order,.
suitable to the purpose and use for which Lessee has leased same, during the
initial term and any renewal terms and, if necessary, shall make such
alterations, additions and /or modifications of the demised premises and all
equipment, electrical and mechanical devices and appliances thereon or serving
same so as to comply -at all times with all applicable federal, State and local
laws, ordinances, rules and regulations pertaining to health, safety, fire and
public welfare. As used herein, the word 'repair" shall be deemed to include
replacement of broken or cracked glass.
(B) If Lessor fails to keep, repair and maintain the demised premises and
all plumbing, heating, air conditioning, electrical and mechanical devices,
appliances and equipment of every kind or nature affixed to or serving the
demised premises in good repair, condition and working order as provided in sub-
paragraph 6(A), then Lessee, at its option, may either (a) immediately terminate
this lease and all obligations hereunder, or (b) proceed to make, or cause to be
made, such upkeep, repair and/or maintenance, at Lessor's expense, so as to
render the demised premises suitable for the purpose and use for which same are
leased, in which event, Lessee may deduct the cost of same from future rent
installments as they become due and/or may collect such cost from Lessor in any
manner provided by law.
(C) Lessor covenants to keep and maintain the demised premises and the
building of which the demised premises forms a part free of friable asbestos and
any other adverse environmental condition which is deemed hazardous- to the
health or safety of persons entering the building. Lessor covenants to
indemnify, defend and hold the Lessee and the Commonwealth of Virginia harmless
from and against any claims of injury resulting from the presence of friable
asbestos or any other adverse environmental condition which is deemed hazardous
to the health or safety or persons entering the building.
7. UTILITIES:
Lessor shall provide, at Lessor's expense, all heating and air conditioning as
conditions require, electricity, water, sewage and trash disposal,
xxxxxxxxxxxxxxxx, to and for the demised premises during the initial term and
any renewal terms. In the event that any one or more such utilities are not
provided or are reduced, other than due to causes beyond the reasonable control
of Lessor, and the failure to provide or reduction of same renders the demised
premises unsuitable for the purpose and use for which the premises are leased,
then Lessee, in addition to
<PAGE>
any other remedy available at law or equity, shall be entitled to deduct from
the total rent, or any installment thereof, the per them rental for each day
that the demised premises are rendered unsuitable due to the failure to provide
or reduction of such utilities.
8. ALTERATIONS BY LESSEE:
Lessee may make such alterations, modifications, additions and/or improvements
upon or to the demised premises and may install or remove such fixtures and
partitions as Lessee may deem proper; provided, however, that any structural
alterations of the roof, foundation or exterior walls shall require the prior
written consent of Lessor. All materials used in such alterations,
modifications, additions or improvements, and all fixtures' and partitions made
and/or installed by Lessee shall remain the property of Lessee and, upon
termination of this lease, may, at Lessee's option, be removed.
9. DAMAGE OR DESTRUCTION OF DEMISED PREMISES:
(A) If the demised premises are damaged by fire or other casualty so as to
render same, in the opinion of Lessee, untenantable for the purpose or use for
which Lessee has leased same, this lease, and all obligations hereunder, shall
immediately terminate upon Lessee's giving notice of that fact to Lessor by
certified or registered mail, return receipt requested, as hereinafter provided.
(B) If the demised premises are damaged by fire or other casualty, but not
so as to render same untenantable, in the opinion of Lessee, for the purpose or
use for which Lessee has leased the demised premises, upon being so notified by
Lessee by certified or registered mail, return receipt requested, Lessor shall
repair and restore within a reasonable time, at Lessor's expense, the demised
premises to its former condition. La this event, the rent shall be adjusted on a
pro rata basis for the period of such repair and restoration for that portion of
the premises rendered untenantable for Lessee by the fire or other casualty. As
used herein, the words "repair' and "restore" shall be deemed to mean and
include replacement of broken, cracked or damaged glass or windows.
(C) If Lessor fails to make or fails to complete repair and restoration of
the demised premises within a reasonable time after Lessee provides notice
pursuant to sub-paragraph 9(B), then Lessee, at its option, may either (a)
immediately terminate this lease and all obligations hereunder, or (b) proceed
to make, or cause to be made, such repair and restoration, at Lessor's expense,
in which event, Lessee may deduct the cost of same from future rent installments
as they become due and/or may collect such cost from Lessor in any manner
provided by Law.
<PAGE>
10. RENEWAL OF LEASE:
Unless otherwise terminated as herein provided, at the end of the initial
term this lease shall automatically renew and continue in full force and effect
from year to year ("renewal term") at the same rental, adjusted pro rata on an
annual basis and due and payable in the same periodic installments as provided
in paragraph 2, and subject to all terms, conditions, covenants, promises and
agreements herein contained. Such year-to-year or renewal term shall continue
to renew automatically unless terminated by either party in such manner and at
such time as hereinafter provided for termination of the initial term.
11. TERMINATION:
(A) This lease and any renewal term of this lease may be terminated by
either party only upon written notice to the other party by certified or
registered mail, return receipt requested, at least three (3) months prior to
the expiration of the initial term or any renewal term; otherwise, this lease
shall renew and continue as provided in paragraph 10. In addition, during any
renewal term, Lessee, at its option, may terminate this lease at any time upon
at least three (3) months written notice to Lessor by certified or registered
mail, return receipt requested.
(B) Agencies of the Commonwealth of Virginia cannot expend funds unless
appropriated by the Virginia General Assembly and may not obligate a future
session of the Virginia General Assembly. Therefore, notwithstanding any
provision in this lease to the contrary, if any session of the Virginia General
Assembly fails to appropriate funds for the continuance of this lease or the
federal government fails to appropriate or allocate sufficient funds for the
purpose of continuation of this lease, the lease and all obligations hereunder
shall automatically terminate upon depletion of the then currently appropriated
or allocated funds.
(C) Notwithstanding any provision in this lease to the contrary, if, by
operation of law, the leasing agency designated in paragraph 3 shall cease to
exist or it powers and authority are limited so as not to permit the continued
use of the demised premises for the purpose and use for which same is leased,
then this lease and all obligations of Lessee hereunder shall terminate.
12. NOTICE:
(A) Any and all notices affecting this lease may be served by the parties
hereto, or by their duly authorized agents, as effectively as if same were
served by any officer authorized by law to serve such notices. The return of
such party, or its duly authorized agent, showing the time, place and manner of
service of such notice shall have the same force and effect in any legal
proceedings based thereon as a return of service by any officer authorized by
law to serve such notice.
(B) All notices required by law to be served upon and all notices
permitted by this lease to be mailed to a party to this lease shall be served
upon or mailed to, as the case may be,
<PAGE>
the following agents for each party who are hereby appointed and designated as
such for the purpose of receiving all such notices:
(1) Lessor's agent shall be Clark Owen, Jr., President, whose address is
--------------------------
220 E. Main Street, Salem, Virginia 24153.
------------------------------------------
(2) Lessee's agent shall be Molly L. Rutledge, M. D., District Director,
--------------------------------------------
whose address is Roanoke County Salem Health Department, 105 E. Calhoun
------------------------------------------------------
Street, Salem, Virginia 241.53.
-------------------------------
Each party shall immediately notify the other party, in writing, of any
change of agents, and no change of agents shall be effective until such notice
is given.
(C) Where under the terms of this lease a notice is required or permitted
to be mailed by certified or registered mail, return receipt requested, and such
notice is not mailed in such manner, the notice shall be effective if actually
waived by the party, or its appointed agent, to whom the notice is directed.
13. BINDING UPON SUCCESSORS:
(A) This lease shall be binding upon the parties hereto and their
successors in interests, including but not limited to heirs, assigns, purchasers
at lien, deeds of trust, or mortgage foreclosure.
(B) In the event of foreclosure of the Deed of Trust prior to the
expiration of this Lease according to its terms, including any extensions and
renewals thereof, Lender or any other successor in interest of the Landlord
shall take title to the demised premises subject to the terms, covenants,
agreements and conditions of this Lease, and Tenant's quiet and peaceful
possession and enjoyment of the demised premises shall not be disturbed.
14. ENTIRE AGREEMENT:
This written Deed of Lease constitutes the entire, full and complete
understanding and agreement of the parties, and all representations, conditions,
statements, warranties, covenants, promises or agreements previously made or
given by either party to the other are hereby expressly merged into this written
Deed of Lease and shall be null, void. and without legal effect.
15. MODIFICATION:
Ms Deed of Lease shall not be modified, altered or amended except by
written agreement executed by the parties hereto with the same formality as this
agreement.
<PAGE>
16. PARAGRAPH HEADINGS:
Headings to the paragraphs are mere catchwords and are illustrative only;
they do not form a part of this lease nor are they intended to be used in
construing same.
17. ADDITIONAL PROVISIONS:
This lease is subject to the terms, conditions, modifications, additions
and/or deletions provided in the following designated attachments which are
incorporated herein by reference: [Designate as "Attachment No. 1," etc. If
none, state "NONE."]
18. EXECUTION:
Ms Deed of Lease shall not be effective or binding unless and until signed
by both parties and, where required by law, approved by the Governor of Virginia
pursuant to (S)2.1-504.2 of the Code of Virginia (1950), as amended.
In WITNESS WHEREOF, the parties have affixed their signatures and seals.
LESSOR:_______________________________
(Type or print name)
By:___________________________________
(Signature) (Title)
LESSEE: COMMONWEALTH OF VIRGINIA
VIRGINIA DEPARTMENT OF HEALTH
By:___________________________________
(Signature)
______________________________________
(Title)
<PAGE>
COMMONWEALTH OF VIRGINIA
CITY / COUNTY OF Roanoke to-wit:
-------
The foregoing Deed of Lease was acknowledge before me
by Clarke Owen, Jr. on the 30th day of June, 1995 in the jurisdiction
---------------- ---- ---- --
aforesaid
My commission expires: January 31, 1996
----------------
___________________________________
Notary Public
COMMONWEALTH OF VIRGINIA
CITY / COUNTY Roanoke to-wit:
-------
The foregoing Deed of Lease was acknowledge before me
by Molly L. Rutledge on the 5/th/ day of July, 1995 in the jurisdiction
----------------- ----- ---- --
aforesaid.
My commission expires January 31, 1996
----------------
___________________________________
Notary Public
RECOMMEND APPROVAL: RECOMMEND APPROVAL:
DIVISION OF ENGINEERING AND DEPARTMENT OF GENERAL SERVICES
BUILDINGS
By:________________________ By:____________________________
Director Director
APPROVED BY THE GOVERNOR
Pursuant to (S) 2.1-504.2 of the Code of Virginia (1950), as amended, and
by the authority delegated to me under Executive Order _______________________,
dated ___________ 19____, I hereby approve the acquisition of the demised
premises pursuant to this Deed of Lease and the execution of this instrument for
and on behalf of the Governor of Virginia.
___________________________________
Secretary of Administration (Date)
<PAGE>
Lease - EXHIBIT 10.5
SALEM BANK AND TRUST, N.A.
- --------------------------------------------------------------------------------
TELEPHONE (540) 387-0223 P.O. Box 979 SALEM VIRGINIA 24153
December 29, 1997
Mr. William Bailey
7514 Deer Branch Drive, NW
Roanoke, VA 24019
Dear Bill:
Pursuant to the terms of the lease for the Hollins Office located at 7337
Williamson Road in Roanoke, please accept this letter as intent to renew the
lease for an additional 5 year period commencing April 1, 1998 through March 31,
2003.
We understand the renewal rent increase is in the amount of 15%. The current
rent is $2,500 and the new rent will be $2,875.
Please sign one (1) copy of this letter as an acknowledgement of our intent. If
you have any questions, please feel free to call me.
Sincerely,
Gill R. Roseberry
Senior Vice President & Cashier
GRR/Ibw
__________________________
SIGNATURE
__________________________
DATE
<PAGE>
LEASE MEMORANDUM
----------------
THIS MEMORANDUM of a certain lease dated June 9, 1993, between WILLIAM D.
BAILEY and ELIZABETH A. BAILEY, husband and wife, and D. MICHAEL BAILEY and
DENISE M. BAILEY, husband and wife, Grantor, herein referred to as "Lessor" and
SALEM BANK & TRUST, N.A., Grantee, herein referred to as "Lessee", concerning
the following described premises, situate in Roanoke County, Virginia, to-wit:
7337 Williamson Road, Roanoke, Virginia;
Lots 5 and 6 and the western 15 feet
of lot 7, Sec. 1, R.E. Boxley Estate Map.
FOR GOOD AND VALUABLE CONSIDERATION, Lessor leases the above described
leased premises, together with all rights, improvements, and appurtenances
thereto, to Lessee, and Lessee hires the same from Lessor for the term and under
the conditions contained in the unrecorded lease dated June 9, 1993, which
unrecorded lease is incorporated herein by reference.
The term of the lease is to commence an April 1, 1993 and will end on March
31, 1998, subject to Lessee's option to extend the term for two (2) additional
terms of five (5) years following the expiration of the original term. The
lease contains an option to purchase.
This memorandum is not a complete summary of the lease. Provisions in this
memorandum shall not be used in interpreting the lease provisions. In the event
of a conflict between this memorandum and the said unrecorded lease, the
unrecorded lease shall control.
WITNESS the following signatures and seals:
________________________________________
William D. Bailey
________________________________________
Elizabeth A. Bailey
________________________________________
D. Michael Bailey
________________________________________
Denise M. Bailey
SALEM BANK & TRUST, N.A.
________________________________________
Its Senior Vice President & Cashier
1
<PAGE>
STATE OF VIRGINIA
County OF Roanoke
- ------ -------
The foregoing instrument was acknowledged before me on July, 3, 1993, by
-------
William D. Bailey and Elizabeth A. Bailey, husband and wife.
My commission expires September 30, 1997
------------------
______________________________
Notary Public
STATE OF VIRGINIA
County OF Roanoke
- ------ -------
The foregoing instrument was acknowledged before me on July, 3, 1993,
-------
by D. Michael Bailey and Denise M. Bailey, husband and wife.
My commission expires September 30, 1997
------------------
______________________________
Notary Public
STATE OF VIRGINIA
City OF Salem
- ---- -----
The foregoing instrument was acknowledged before me on 7/14 1993, by Gill
---- ----
R. Roseberry, Senior Vice President & Cashier of Salem Bank & Trust, N.A.
- ------------ -------------------------------
My commission expires 7/31/94
-------
______________________________
Notary Public
2
<PAGE>
CONTRACT
Re: Lease-Purchase Agreement - 7337 Williamson Road, Roanoke County, Virginia
This contract is to set forth, in writing the primary terms for a proposed
lease-purchase agreement of 7337 Williamson Road, Roanoke County, Virginia, to
Salem Bank & Trust, N.A. (the "Bank"). As I believe you know, the Bank is
required to obtain approval from the Office of the Comptroller of the Currency
prior to opening and operating a branch of the Bank. It is our belief that the
Bank's application will be favorably reviewed. This contract is subject to OCC
approval within 120 days.
The following are specific terms upon which I would recommend approval of a
subsequent lease to the Bank's Board of Directors.
PREMISES
The building and land situate at 7337 Williamson Road, Roanoke, Virginia,
formerly owned by Crestar Bank, and described as Lots 5 and 6, and the western
15 feet of Lot 7, Section 1, R. F. Boxley Estate Map, with the right of ingress
and egress thereto.
Additionally, the Bank would have the right to install and maintain two or more
contiguous lanes at its drive-up window, the right to construct a canopy
conforming with the existing architecture over the second drive-up lane and the
right and authority to operate an automatic teller machine.
TERM
The term of the lease shall be for an initial period of five (5) years with the
option to the Bank to renew the lease for two (2) additional five year terms.
RENTAL
The rental to be paid by the bank during the initial five (5) year period shall
be $150,000.00 payable in equal monthly installments of $2,500.00 each due and
payable on the first day of each month during the lease term. Rent to start at
time bank takes possession of property.
The Bank agrees to pay landlord $1,250.00 per month beginning February 1, 1993
and continuing monthly until such time as the Bank receives approval from the
Office of the Comptroller of the Currency to open the branch. The Bank will
receive credit back on this rental towards future rents.
Should the bank exercise its option to renew for one (1) additional five (5)
year term, the total rent for the term shall increase 15%.
Should the bank exercise its option to renew for a second additional five (5)
year term, the total rent shall increase 15%.
PERSONAL PROPERTY
<PAGE>
Included in the lease is all bank items, including, but not limited to, the
vault door, front and back teller counter fixtures, drive-up window and deal
drawer, night deposit and chest.
MAINTENANCE
The Bank shall maintain in good working order the inner and outer shell of the
leased building, including roofing, brick, mortar, electrical systems, heating
systems, air conditioning and plumbing, windows, floors, inside walls, ceiling,
carpets and wall coverings. Owner/Lessor shall deliver the premises in good
working order at the inception of the lease.
TAXES AND UTILITIES
The Bank shall pay the real estate taxes and electricity, water and sewage that
is metered to the leased building.
INSURANCE
The Bank shall carry with an approved insurance carried licensed to operate in
this state public liability insurance in the sum not less than $1,000,000.00.
The Bank shall maintain hazard insurance on the premises in the amount of the
appraised value of the improvements as determined by the lessee's insurance
company.
IMPROVEMENTS
The Bank shall have the right to make improvements to the premises subject to
the approval of the landlord, which approval shall not be unreasonable withheld.
Additional capital improvements shall also become the Bank's responsibility to
maintain. These improvements will be considered as a credit toward the purchase
of the property should the Bank exercise its option to purchase.
OPTION TO PURCHASE
The Bank shall have an option to purchase which may be exercised at anytime
during the fifteenth year of the lease term for a purchase price to be
determined by the average of two appraisals. In no case, however, shall such
purchase price exceed $395,000.00 or be less than $295,000.00. The landlord
shall give, to the Bank, six months prior to the beginning of the fifteenth
year of the lease term, a written notice of its option rights hereunder.
<PAGE>
SIGNAGE
The Bank may install such signage as is allowed under the ordinances of Roanoke
County, of course, the forgoing merely sets forth the primary provisions of a
proposed lease and, the lease itself, would be significantly more detailed than
the foregoing.
If this contract adequately sets forth our discussions, I would ask that you
sign a copy and return to me on or before January 29, 1993. Upon receipt, I
will direct the Bank's attorney to prepare a draft lease agreement for your
review.
SALEM BANK & TRUST, N.A.
By______________________________
Clark Owen, Jr., President
Date: 1-22, 1993
---- --
ACCEPTED:
___________________________________
William D. Bailey
___________________________________
Elizabeth A. Bailey
___________________________________
D. Michael Bailey
___________________________________
Denise M. Bailey
Date: 1-23, 1993
---- --
<PAGE>
Lease - EXHIBIT 10.6
SALEM BANK AND TRUST, N.A.
- --------------------------------------------------------------------------------
TELEPHONE (540) 387-0223 P. O. BOX 979 SALEM, VIRGINIA 24153
March 4, 1996
Mr. Grant Clatterbuck
Westwind Properties
P. 0. Box 21069
Roanoke, VA 24018-0534
RE: Lease Renewal
2103 Electric Road
Roanoke, VA 24018
Dear Grant:
Pursuant to our telephone conversation this morning, I am pleased to inform you
that we are going to exercise our option to renew our lease on the above
captioned property for one (1) additional five (5) year term with the rent equal
to $3,750.00 per month as outlined in Section 3 (B) of the lease executed March
11, 1991.
The new lease will begin May 1, 1996 and will expire on April 30, 2001.
If you are in agreement and the terms and dates described above are correct,
please acknowledge and return one copy of this letter to me for our files.
Should you have any questions, please feel free to contact me.
Sincerely,
Gill R. Roseberry
Senior Vice President
Westwind Properties
By:_____________________________ Date:____________________
GRR/lbw
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT, executed this llth day of March, 1991, by and between
OAK GROVE INCOME ASSOCIATES, a Virginia limited partnership ("Landlord"), and
SALEM BANK & TRUST, N. A., a banking institution organized under the laws of the
United States ("Tenant").
WITNESSETH
----------
THAT FOR AND IN CONSIDERATION of the rentals and covenants hereinafter
recited, the Landlord agrees to lease unto the Tenant the following property,
upon the terms and conditions hereinafter set forth:
1. PREMISES: The approximately 1,862 sq. ft. building situate at 2103
Electric Road, Roanoke County, Virginia, with the right of ingress and egress
thereto, with additional property sufficient for the Tenant to install and
maintain two contiguous lanes at its drive-up window. The Tenant shall have the
right, subject to the ordinances of Roanoke County, to so install and maintain
two lanes at its drive-up window and shall further have the right to construct a
canopy over the second drive-up lane upon the approval by the Landlord of the
architectural plan, which approval will not be unreasonably withheld if
conforming with the existing architecture. The Tenant shall further have the
right to construct a canopy over the second drive-up lane upon the approval by
the Landlord of the architectural plan, which approval will not be unreasonably
withheld if conforming with the existing architecture. The Tenant shall further
have the right and authority to operate an automatic teller machine either flush
with the existing building or in either, or both, of the drive-up lanes.
The canopy or any other improvements to the first and second drive-up lane
shall become part of the Premises and shall not be removed by the Tenant at the
expiration of the lease term. The automatic teller machine may be removed by the
Tenant at the expiration of the lease term, however, the Tenant shall restore
the Premises in accordance with the existing architecture and in the same
condition as at the inception of this lease.
Any improvements so constructed by the Tenant shall be subject to and meet
all applicable building codes.
2. TERM: The term of the lease shall be for an initial period of five (5)
years with the option to the Tenant to renew the lease for two (2) additional
five (5) year terms. The initial term shall begin as hereinafter provided.
<PAGE>
3 RENT:
A. Tenant shall pay rent during the initial five year period in the
sum of One Hundred Eighty Thousand Dollars($180,000.00) payable in equal monthly
installments of Three Thousand Dollars ($3,000.00) each due and payable on the
first day of each month during the lease term.
B. Should the Bank exercise its option to renew for one (1)
additional five (5) year term, the total rent for the term shall increase 25%
(5% for each year of the initial term) or the percentage rise, during the
initial lease term, in the Consumer Price Index for Urban Wage Earners and
Clerical Workers published by the U. S. Department of Labor (1967 equals 100),
whichever is greater. (For example: should the 25% increase be applicable, the
monthly rental for each month during the renewal term would equal $3,750.00.
Should the CPI increase 30% during the initial lease term, the monthly rental
for each month during the renewal term would equal $3,900.00.)
C. Should the Bank exercise its option to renew for a second
additional five (5) year term, the total rental shall be determined as follows:
1. The parties agree to negotiate a fair market rental;
2. Should the parties be unable to agree, as provided in
Paragraph C(1) above, each party shall select a duly qualified appraiser to
determine fair market rental. Should the rental appraisals vary 10% or less, the
rent shall be established by an average of the two;
3. Should the two rental appraisals vary more than 10%, the two
appraisers shall select a third appraiser to determine fair market rental. The
decision of the third appraiser shall be final, however, in no case will the
final rental exceed or be lower than the two prior rental appraisals and in no
case will the rental be less than the prior five (5) year term;
D. In the event Tenant fails to pay monthly rental within fifteen
(15) calendar days after the due date, Tenant shall promptly pay Landlord a late
fee of 5% of the monthly rent then due. Should the Tenant fail to pay said late
fee and rent, the Landlord shall be entitled to all relief, including attorney's
fees, as is provided in Paragraph 22 herein.
4. PERSONAL PROPERTY: The Landlord further leases unto the Tenant, as
part of this lease, the vault door, front and back teller counter fixtures,
cameras, drive-up window and deal drawer, night deposit and chest. Tenant shall
keep and maintain said personal property in operating condition at its expense.
Upon expiration of the lease term, Tenant shall deliver to Landlord all keys,
operating manuals, documents, and combinations relating to the aforesaid items
of personal property, so that Landlord may operate said items in working order.
If the aforesaid items are not in working order, they will be repaired at the
Tenant's expense.
2
<PAGE>
5. USE OF PREMISES: The Premises shall be used and occupied for the
purpose of a branch bank and for no other purpose. Tenant shall, at its own risk
and expense, keep in force all governmental licenses and permits necessary for
such use.
6. QUIET ENJOYMENT: Tenant, upon payment of the rents herein reserved,
and performance of all of the terms, conditions and covenants herein contained,
shall have, hold, and enjoy the Premises during the full term of this lease,
subject and subordinate to all of the terms, covenants and conditions of this
lease.
7. COVENANTS OF LANDLORD: Landlord covenants with Tenant that (i)
Landlord is a limited partnership created and operated in accordance with
Virginia law and has the right to lease the Premises in the manner aforesaid,
and (ii) Landlord presently owns the Premises in fee simple and has marketable
title thereto. Tenant accepts this lease subject and subordinate to the present
state of title of the leased Premises and to any lien now or hereinafter
existing upon the leased Premises and to any renewal, extension or modification
thereof.
8. SUBORDINATION: Tenant agrees and acknowledges that this lease is and
shall be subject and subordinate at all times to any and all mortgages and deeds
of trust currently and hereafter placed upon the Premises, and to all renewals,
modifications, consolidations, participations, replacements and extensions
thereof; provided, however, that so long as Tenant is not in default hereunder,
Tenant's rights and privileges under this lease shall continue in full force and
effect and Tenant's occupancy shall not be disturbed, nor shall the leasehold
estate granted by this lease be materially, adversely affected, during the term
of this lease or during any extension thereof, except in accordance with the
terms of this lease. It is the intention of the parties that this provision
shall be self-operative and that no further instrument shall be required to
effect the subordination of this lease.
Tenant agrees at any time and from time to time within ten (10) days after
notice to execute, acknowledge, and deliver to Landlord a statement, in writing,
and in form and substance acceptable to Landlord, certifying that this lease is
unmodified and in full force and effect (or if there have been modifications
that the lease is in full force and effect as modified and stating the
modifications), the dates to which the rent and other charges have been paid in
advance, if any, and whether or not there exists any default in the performance
of any term, condition or covenant of this lease and, if so, specifying each
such default, it being intended that any such statement delivered pursuant to
this paragraph may be relied upon by Landlord and by any mortgagees, prospective
purchasers or prospective mortgagees of Landlord's interest in all or any part
of the property on which the Premises is located. The failure of Tenant to
provide such estoppel certificates or other letters, as may be required, within
ten (10) days after notice by Landlord shall constitute an Event of Default by
Tenant and shall entitle Landlord to pursue any of the remedies for default set
forth in this lease.
9. DELIVERY OF POSSESSION: Possession of the Premises shall be delivered
to Tenant at the commencement of the term as herein set forth.
3
<PAGE>
10. UTILITIES: Tenant shall pay for electricity, water and sewage that is
metered to the Premises and for any other utility added in the future (example -
natural gas).
11. MAINTENANCE: Landlord shall maintain in good working order the outer
shell of the leased building, including roof, brick, mortar, electrical systems,
heating system, air conditioning and plumbing. The Tenant shall maintain the
windows, floors, inside walls, ceiling, carpets, wall coverings, glass and
doors. Janitorial services shall be provided by Tenant at its expense.
Room temperature, in all areas of the leased building, shall not be lower
than 66(degrees) Fahrenheit or higher than 77(degrees) Fahrenheit. If the
Landlord is unable to maintain the foregoing temperature range for a reasonable
period of time, it shall attempt to correct by installing vertical blinds. If
the installation of vertical blinds fails to keep the room temperature within
said temperature range, a small through-the-wall unit may be installed to
correct the temperature in the area adversely affected. if the installation and
use of this through-the-wall unit fails to maintain said temperature range, the
Tenant shall require, and the Landlord shall provide, whatever is necessary to
maintain temperature range as herein provided.
Snow removal from the Tenant's drive-up lanes shall be the responsibility
of the Tenant. The Tenant shall maintain, at its expense, the lawn and shrubbery
on the Premises.
12. COMPLIANCE WITH LAW: Tenant shall comply with all governmental laws,
ordinances and regulations applicable to the use of the Premises whether
material or incidental to said use and shall promptly comply with all changes in
governmental laws, ordinances, regulations, orders and directives affecting the
Premises. Tenant shall not commit, or suffer to be committed, any waste upon the
Premises or any nuisance.
13. ASSIGNMENT AND SUBLEASING: Tenant may not assign this lease or any
interest herein or sublet the whole or any part of the Premises, or permit the
same to be occupied by anyone other than Tenant, without in each instance having
first obtained Landlord's prior written consent.
14. REAL ESTATE TAXES: The Tenant shall pay to the Landlord 100% of the
real estate taxes on the building and on that portion of the Landlord's real
property on which the building is situate; along with 185 feet of property
frontage on Electric Road and running 150 feet deep. The real estate taxes
herein required to be paid by the Tenant to the Landlord shall be determined
from the Roanoke County Real Estate Assessor's Office calculations and as billed
by Landlord to Tenant. Said payments from the Tenant shall be due within ten
(10) days from the receipt of a bill from Landlord.
15. PARKING: Tenant's patrons and personnel may utilize parking spaces
within the Premises owned by the Landlord on a first come first serve basis.
4
<PAGE>
16. INSURANCE:
A. Tenant covenants and agrees that it will, at all times during the
entire term of this lease, keep in full force and effect a policy of
comprehensive public liability insurance issued by a reputable insurance company
licensed to do business in the Commonwealth of Virginia with respect to Premises
and the business conducted by Tenant thereon, in which there shall be a combined
single limit of not less than ONE MILLION DOLLARS ($1,000,000.00).
B. Tenant also covenants and agrees to maintain at its cost
throughout the term of this lease, with respect to all of its personal property,
tenant improvements and alterations, a policy of standard fire and extended
coverage insurance including glass breakage coverage, to the extent of at least
the full replacement value thereof.
C. All insurance policies required to be carried by Tenant under
this lease shall name, as additional insureds, Landlord or any other entity
having an insurable interest or liability in or relating to the Premises
(including any mortgagee of Landlord) . All insurance policies described or
required by this paragraph shall provide that the insurance thereunder shall not
be cancellable prior to thirty (30) days' written notice thereof to Landlord and
the other additional insureds, if any. A certified copy of such policies and any
renewals thereof or certificates of such insurance shall be delivered to
Landlord prior to Tenant's taking possession of the Premises and any renewals of
said policies shall be delivered to Landlord at least fifteen (15) days prior to
the expiration of the policies or upon request of Landlord. Any such policies
shall be primary and noncontributing with insurance carried by Landlord. All
insurance to be maintained under this paragraph shall be in form and substance
and with insurance companies acceptable to Landlord.
D. Landlord covenants and agrees that it will at all times during
the term of this lease obtain and keep in force insurance on the Premises and
all improvements thereon, except as otherwise provided in Subparagraph B above,
to the extent of at least the replacement cost of said building and improvements
(excluding footings and foundations). Such policy shall contain coverage against
loss, damage or destruction by fire and such other hazards as are commonly
covered and protected against under policies of insurance known as extended
coverage insurance as the same may exist from time to time according to the laws
of the Commonwealth of Virginia and may contain a deductible clause not to
exceed TWENTY-FIVE THOUSAND DOLLARS ($25,000.00).
E. Landlord and Tenant do hereby waive all rights of recovery and
causes of action which either has, or may have, or which may arise hereafter
against the other, whether caused by negligence or otherwise, for any damage to
the Premises, property or business caused by any of the perils covered by fire
and extended coverage, building and contents, insurance, or for which either
party may be reimbursed as a result of insurance coverage affecting any loss
suffered by the parties.
5
<PAGE>
17. SIGNAGE: The brick and electrical wiring to the existing free standing
sign for the First Virginia Bank sign shall remain and may be utilized by the
Tenant, but not the sign itself. The Tenant may install such signage as is equal
to the existing First Virginia Bank signage and as allowed under the ordinances
of Roanoke County. However, the signage shall not be greater than the equivalent
of the existing First Virginia Bank signage without the prior written consent of
the Landlord, which consent may be withheld at Landlord's sole discretion.
18. FIRE AND CASUALTY DAMAGE: In the event the Premises are damaged or
destroyed by fire or other cause, Tenant shall give immediate notice thereof to
Landlord. The rights and obligations of Landlord and Tenant in the event of such
casualty shall be as follows:
A. If the Premises are totally destroyed by fire or other cause, or,
in the judgment of Landlord, the Premises is so damaged that rebuilding or
repairs cannot reasonably be completed within 120 working days after the date of
written notification by Tenant to Landlord of the happening of the damage,
Landlord or Tenant shall have the right to terminate this lease upon written
notice to the other given within sixty (60) days after the date of such damage
or destruction, and the rent and additional rent shall be abated for the
unexpired portion of the lease, effective as of the date of such damage.
B. If the Premises are damaged by fire or other cause such that, in
the judgment of Landlord, rebuilding or repairs can be reasonably completed
within 120 working days from the date of written notification by Tenant to
Landlord of the happening of the damage, or if, pursuant to Paragraph 18A above,
neither Landlord nor Tenant elects to terminate this lease upon the total
destruction of the Premises, this lease shall not terminate, and Landlord shall
proceed with reasonable diligence to rebuild or repair the building and the
Premises to substantially the condition that existed immediately prior to such
damage; provided, however, that the obligation of Landlord to repair such damage
shall be limited to the footings, foundations, exterior walls, roof, and the
interior improvements of the Premises originally installed by Landlord, but not
including any construction, alterations or improvements installed by Tenant and
provided further that if fifty percent (50%) or more of the Premises is damaged
or destroyed, Landlord or Tenant shall have the option to terminate this lease
rather than to rebuild or repair the Premises, in which event the rent and
additional rent shall be abated for the unexpired portion of the lease,
effective as of the date of such damage. If there should be a substantial
interference with Tenant's use of the Premises as a result of such damage or
destruction such that Tenant cannot conduct its business in the Premises, then
the rent shall abate for such time as Tenant is unable to use the Premises,
provided, further, that such damage or destruction was not caused by the
negligence of Tenant, its agents, employees, contractors or invitees.
19. CONDEMNATION:
A. If the Premises, and/or any of the two drive-up lanes, are
rendered unusable by the taking of any lawful authority under the power of
eminent domain, this lease may be terminated
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at the sole option of the Tenant. The Tenant shall notify the Landlord within
thirty (30) days after any such taking by any lawful authority and any such
---
termination herein by the Tenant shall be within ninety (90) days of the taking.
B. If the Tenant chooses not to terminate this lease, all of the
provisions herein shall remain in full force and effect with respect to the
portion of the Premises remaining after such taking, except that the rent shall
be reduced for the balance of the term, on a pro-rata basis, to the extent the
Premises has been diminished in quantity and usefulness to the Tenant.
C. In any event, the Tenant shall be entitled to participate in any
and all awards for such taking to the extent of any loss, by the Tenant, of any
improvements installed by the Tenant and situate on the Premises at the time of
such taking.
20. INDEMNIFICATION BY TENANT: Tenant will protect, indemnify and save
harmless Landlord from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including without
limitation, reasonable attorney's fees and expenses) imposed upon or incurred by
or asserted against Landlord by reason of (a) any occurrence,, injury to or
---
death of persons (including workmen) or loss of or damage to property occurring
on or about the Premises, (b) any use, non-use or condition of the Premises, (c)
any failure on the part of Tenant to perform or comply with any of the terms of
this lease, or (d) performance of any labor or services or the furnishing of any
materials or other property in respect of the Premises or any part thereof. In
case any action, suit or proceeding is brought against Landlord by reason of any
such occurrence, Tenant, upon Landlord's request, will at Tenant's expense
resist and defend such action, suit or proceeding, or cause the same to be
resisted and defended by counsel designated by the insurer whose policy covers
such occurrence or by counsel designated by Tenant. The obligations of Tenant
under this paragraph arising by reason of any such occurrence having taken place
during the term of this lease shall survive any expiration or termination of
this lease.
21. LANDLORD'S RIGHT OF ENTRY: Landlord and its authorized agents or
designees shall have the right to enter the Premises at any reasonable time for
the following purposes: (a) inspecting the general condition and state of repair
of the Premises; (b) the making of repairs required by Landlord; (c) showing of
the Premises, within the last one hundred eighty (180) days of the term of this
Agreement, to any prospective Tenant; or (d) the showing of the building for any
other legal or reasonable purpose. During the last one hundred and eighty (180)
days of the term of this lease, Landlord and its authorized agents shall have
the right to erect on or about the Premises a sign advertising the property for
lease or for sale. The foregoing notwithstanding, Landlord and its agents and
designees, shall also have the right to enter the Premises at any time there is
an emergency in the Premises.
The Landlord shall have the right to show the Premises to any prospective
Purchaser at any reasonable time.
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22. DEFAULT BY TENANT: Each of the following events shall be deemed to be
an "Event of Default" by Tenant under this lease:
A. Tenant's failure to pay any installment of the rent on the date
the same is due if such failure shall continue for a period of twenty (20)
calendar days.
B. Tenant's failure to comply with any term, provision or covenant
of this lease, other than the payment of rent, if such failure shall continue
for more than thirty (30) days after notice thereof to Tenant.
Upon the occurrence of either of such events of default, Landlord shall
have the right at Landlord's election to pursue, in addition to and cumulative
of any other rights Landlord may have, at law or in equity, any one or more of
the following remedies without any notice or demand whatsoever:
1. Terminate this lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord, may, without prejudice to any other remedy that it may have for
possession or arrearages in rent or additional rent, enter upon and take
possession of the Premises and expel or remove Tenant and any other person who
may be occupying the Premises or any part thereof without being liable for
prosecution or y claim of damages therefor; and Tenant agrees to pay to Landlord
-
on demand the amount of all loss and damage that Landlord may suffer by reason
of such termination, whether through inability to relet the Premises on
satisfactory terms or otherwise.
2. Without terminating this lease, enter upon and take
possession of the Premises and expel or remove Tenant and any other person who
may be occupying the Premises or any part thereof without being liable for
prosecution or any claim for damages therefor; and relet the Premises and
receive the rent therefor; and Tenant agrees to pay to Landlord on demand any
deficiency that may arise by reason of such reletting. Any improvements to the
real estate shall remain the property of the Landlord.
3. In case of re-entry, repossession or termination of this
lease, whether or not the same is the result of the institution of summary or
other proceedings, Tenant shall remain liable (in addition to other accrued
liabilities), to the extent legally permissible, for the rent, additional rent
and all other charges provided for herein until the date this lease would have
expired had such termination, re-entry or repossession not occurred.
All the rights and remedies herein given to the Landlord for the recovery
of the Premises because of the default by the Tenant in the payment of any stuns
that may be payable pursuant to the terms of this lease, or upon the breach of
any of the terms hereof, or the rights to re-enter and take possession of the
Premises upon the happening of any of the defaults or breaches of any such
covenants, or the right to maintain any action for rent or damages and all other
rights and remedies allowed at law or in equity, are hereby reserved and
conferred upon the Landlord as
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distinct, separate and cumulative remedies, and no one of them, whether
exercised by the Landlord, shall be deemed to be in exclusion of any of the
others.
In the event that the Landlord should bring suit for possession of the
premises, for the recovery of any sum due under or because of the breach of any
covenant of this lease, or for any other relief against Tenant, or should Tenant
bring any action for any relief against Landlord arising out of this lease, and
Landlord should prevail in any such suit, Tenant shall pay to the Landlord all
reasonable attorney's fees, which shall be deemed to have accrued on the date
such action is instituted and shall be enforceable even though such action is
not prosecuted to judgment.
4. Upon termination and/or default, the ownership of all fixed
leasehold improvements of the Tenant shall revert to the Landlord.
23. NOTICES: All notices, statements, demands, requests, consents,
approvals, authorizations, offers, agreements, appointments or designations
under this lease by either party to the other shall be in writing and shall be
sufficiently given and served upon the other party if sent by certified mail,
return receipt requested, postage prepaid, addressed as follows:
IF TO TENANT:
Clark Owen, Jr.
Salem Bank & Trust, N. A.
P.0. Box 979
Salem, Virginia 24153
IF TO LANDLORD:
Oak Grove Income Associates
c/o Westwind Properties
P.0. Box 1138
Roanoke, Virginia 24006
and to such other place as Landlord may from time to time designate by notice to
Tenant. Notice sent in compliance with this paragraph shall be deemed given on
the third (3rd) day next succeeding the day on which it is sent.
---
24. GOVERNING LAW: This lease shall be construed and governed by the
applicable laws of the Commonwealth of Virginia.
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25. MISCELLANEOUS PROVISIONS:
A. Whenever the singular number is used in this lease and when
required by the context, the same shall include the plural, and the masculine
gender shall include the feminine and neuter genders, and the word "person"
shall include corporation, firm, or association. If there be more than one
tenant, the obligations imposed under this lease upon Tenant shall be joint and
several.
B. The marginal headings or titles to the paragraphs of this lease
are not a part of this lease and shall have no effect upon the construction or
interpretation of any part of this lease.
C. This instrument contains all of the agreements and conditions
made between the parties to this lease and may not be modified orally or in any
other manner than by an agreement in writing signed by all the parties to this
lease, or their respective successors in interest.
D. Time is of the essence of each term and provision of this lease.
E. The terms and provisions of this lease shall be binding upon and
inure to the benefit of the executors, administrators, successors and assigns of
Landlord and Tenant.
F. If any provision of this lease shall at any time be deemed to be
invalid or illegal by the entry of a final judgment from a court of competent
jurisdiction, which judgment is not subject to appeal, then, in that event, this
lease shall continue in full force and effect with respect to the remaining
provisions of the lease as if the invalidated provision had not been contained
herein.
G. This lease shall not be recorded, but a memorandum of lease
describing the property herein demised, giving the term of this lease and
renewal rights, if any, and referring to this lease may be recorded by either
party at the sole expense of the party so recording such memorandum of lease.
H. This lease may be executed in counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
26. INCEPTION OF LEASE TERM: It is the understanding of the parties hereto
that First Virginia Bank will be vacating the Premises on or about March 18,
1991. Thereafter, would follow a sixty (60) day "cooling-off" period during
which term First Virginia Bank would be solely responsible for the rent.
However, the Tenant would be allowed to enter and inspect the Premises during
this sixty (60) day "cooling-off" period and, in the last thirty (30) days of
this period, the Tenant could perform work and alterations on the Premises.
Accordingly, the
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inception date for the initial lease term would be May 18, 1991. Should Tenant
perform work and alterations on the Premises during the last said thirty (30)
days as aforesaid, the Tenant shall pay a rental to the Landlord of $1,500.00.
The parties understand that First Virginia Bank might not vacate the
Premises on or about March 18, 1991. If that be the case, the foregoing
described schedule would be adjusted accordingly. However, in no event shall
this lease term begin later than November 1, 1991. Should this lease term be
delayed until after November 1, 1991, the Tenant, at its sole option, may
terminate this lease.
The Tenant shall set forth by written notice the actual inception date of
this lease and shall deliver said notice to the Landlord by certified mail,
return receipt requested. In the absence of the Tenant's notice as aforesaid,
the Landlord shall notify the Tenant of the inception date of the lease upon
Tenant's occupancy or renovation of the Premises.
27. CONTINGENCY: This lease agreement is expressly contingent upon the
Tenant obtaining approval, within ninety (90) days of the execution of this
lease, from the office of the Comptroller of the Currency to open and operate a
branch bank on the Premises. The Tenant shall, upon execution of this lease,
immediately apply for such approval and shall vigorously pursue said approval.
Should this approval not be obtained within ninety (90) days, Tenant will notify
Landlord of the status of its application before the Office of the Comptroller
of the Currency. This lease shall terminate if the Tenant cannot demonstrate to
the satisfaction of the Landlord that approval will be granted before November
1, 1991.
This lease agreement is subject to the acquisition by the Landlord of the
items of personal property listed in Paragraph 4 herein from First Virginia
Bank. Should Landlord be unable to acquire said personal property, this lease
may be terminated at the option of the Tenant.
28. HOLDING OVER: If the Tenant shall remain in possession of the
Premises, or any part thereof, after the expiration of the term of this lease,
such holding over shall constitute and be construed as a tenancy from month to
month only, at a monthly rental of double the monthly rent applicable during the
last month of the term of the lease. Tenant shall also be subject to all of the
conditions, provisions and obligations of this lease, insofar as the same are
applicable to a month to month tenancy. Nothing contained herein shall
constitute permission granted or inferred for Tenant to remain in possession
beyond the exact termination date of this lease.
IN WITNESS WHEREOF, the Landlord and Tenant have signed and sealed this
lease as of the date and year above written:
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LANDLORD: OAK GROVE INCOME ASSOCIATES,
a Virginia limited partnership
By________________________________________
Title_____________________________________
TENANT: SALEM BANK & TRUST, N. A.
a banking institution organized under the laws of
the United States
By________________________________________
Title_____________________________________
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Lease - EXHIBIT 10.7
THIS LEASE made this 12 day of March, 1997 by and between EAST MAIN PROPERTIES,
-- -----
L.L.C. (hereafter Landlord), and the SALEM BANK AND TRUST, NATIONAL ASSOCIATION,
(hereafter, collectively, Tenant), provided:
1. Premises. Landlord leases to Tenant and Tenant hires from Landlord office
space described as follows:
Approximately 5,190 square feet of office space located on the first floor,
as designated on Exhibit "A", together with access to eight (8) parking
spaces, to be designated by the Landlord from time to time.
in the building situated at the southwest corner of Main Street and College
Avenue in the City of Salem, Virginia, commonly known as the Salem Bank Building
(hereafter Building) together with all appurtenances thereto belonging,
including, but not limited to, the right in common with others to use the
lobbies, stairways, and other public and service portions of the Building for
the respective purposes for which they are intended (hereafter Common Areas).
In addition to the eight (8) parking spaces described above, Tenant shall
have the sole and exclusive use of the estimated seven (7) parking spaces behind
(to the south) of the demised premises for parking or such other bank related
use as the Bank may, deem proper.
Landlord shall provide such paving and means of ingress and egress as are
necessary to enable Tenant to operate a "drive-in window" to the rear (south) of
the demised premises.
2. Term. The term of this Lease shall be commencing on the 1st day of March
----
1997, and ending on the 28th day of February 2007.
3. Use. Tenant shall use Premises solely for the operation of a banking
---
facility and shall not permit any other operation which might cause additional
premium to be payable for insurance on Premises or the Building against fire or
other hazard, or which might render void or voidable any such Federal, State or
local laws, ordinances and regulations attached hereto, and incorporated herein
as a part hereof and with such further reasonable rules and regulations as
Landlord may
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prescribe from time to time for the safety, care and cleanliness of the Building
and the comfort, quiet and conveniences of occupants of the Building.
4. Rent.
----
4.1 Tenant shall pay the Landlord as base rental for the initial ten (10) year
term of the Lease, the total sum of $782,652.50, Seven-Hundred Eighty Two
Hundred Thousand and Six Hundred Fifty-Two Dollars and Fifty Cents, apportioned
and payable as follows:
Lease Term Annual Monthly Per Sq. Ft.
3/1/97 to 2/28/98 $59,529.36 $4,960.79 $11.47
3/1/98 to 2/28/99 61,605.36 5,133.78 11.87
3/1/99 to 2/28/00 63,785.16 5,315.43 12.29
3/1/00 to 2/28/01 66,016.80 5,501.40 12.72
3/1/02 to 2/28/02 68,352.36 5,696.03 13.17
3/1/03 to 2/28/03 70,739.76 5,894.98 13.63
3/1/04 to 2/28/04 73,230.96 6,102.58 14.11
3/1/05 to 2/28/05 75,774.00 6,314.50 14.60
3/1/06 to 2/28/06 78,420.96 6,535.08 15.11
3/1/07 to 2/29/07 81,171.60 6,764.30 15.64
3/1/08 to 2/29/08 84,026.16 7,002.18 16.19
4.2 During the initial term and during any renewal or extension of this Lease,
Tenant shall pay all monthly rental installments in legal tender of the United
States without demand, deduction or offset, in advance, on or before the first
day of each month. timely payment being of the essence.
4.3 For purposes of this Lease, the expression "base rental" shall mean the
fixed minimum rent payable by the Tenant exclusive of all additional rent and
other charges required to be made by the Tenant as provided in this Lease.
4.4 Tenant covenants and agrees during the initial term of this Lease and
during any extension or renewal of this Lease to pay as additional charge or
rental the sum of twenty-five
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($25.00) Dollars for each rental installment not paid within five (5) days of
the due date thereof. In the event Tenant fails to pay monthly rental
installment within ten days of the date due then the penalty,. shall become Ten
(10%) percent of such installment due. That portion for the rental of any period
of less than one calendar month shall be pro-rated and paid in advance.
4.5 Tenant agrees to pay Landlord as additional rent Twenty (20%) percent of
any increase in real property taxes, or other assessments or governmental
impositions of any kind which are imposed upon the building, the land upon which
it is constructed, and the parking area available to tenants of the building,
over $8,576.25 (1978 calendar year property taxes).
4.6 Tenant agrees to pay Landlord as additional rent Twenty (20%) percent of
any increase in the cost of premiums for fire, extended coverage, and public
liability insurance on the building over that charged for the base year 1978, or
$1,900.00.
4.7 Landlord shall deliver to Tenant a statement setting forth the amount of
real estate taxes and insurance costs and comparable figures for the base year.
Within thirty (30) days after the delivery of such statements, Tenant shall pay
to Landlord its proportionate share of such increase as provided in Sections 4.6
and 4.7 above.
5. Option to Renew.
---------------
The Tenant shall have the right, privilege and option to extend this lease
for two (2) additional periods of five (5) years each from the date of the
expiration of the then current lease term, provided it is not in default
thereunder, upon the following terms and conditions:
(a) Tenant shall give Landlord notice in writing of its intention to
exercise each renewal option at least ONE (1) YEAR prior to the
expiration of the then current lease term.
(b) Should Tenant exercise its option to renew for the aforementioned
periods of five (5) years, all terms and conditions of the original
Lease shall prevail during the extension periods except the rents due
thereunder shall be as follows:
Tenant's Initials _________
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First Five (5) Year Renewal Term:
--------------------------------
Lease Term Annual Monthly Per Sq. Ft.
3/1/08 to 2/28/08 $ 86,984.40 $7,248.70 $16.76
3/1/09 to 2/28/09 90,046.56 7,503.88 17.35
3/1/10 to 2/28/10 93,212.40 7,767.70 17.96
3/1/11 to 2/28/11 96,482.16 8,040.18 18.59
3/1/12 to 2/28/12 99,855.60 8,321.30 19.24
Second Five (5) Year Renewal Term:
---------------------------------
Lease Term Annual Monthly Per Sq. Ft.
3/1/13 to 2/28/13 $103,332.96 $8,611.08 $19.91
3/1/14 to 2/28/14 106,965.96 8,913.83 20.61
3/1/15 to 2/28/15 110,702.76 9,225.23 21.33
3/1/16 to 2/28/16 114,595.20 9,549.60 22.08
3/1/17 to 2/28/17 118,591.56 9,882.63 22.85
6. Repairs and Maintenance.
-----------------------
6.1 Landlord, at its sole expense, and throughout the term of this Lease, shall
make all structural repairs to the building, including the exterior walls, roof,
gutters, downspouts, any interior support columns and all structural floor
surfaces, plumbing mains to building, electrical conduits to building, heating
and air conditioning equipment, but excluding without limitation all floor
coverings and interior partitions. Landlords shall also perform exterior
painting and shall maintain all common areas which provide access to or service
the premises; provided, however, that Landlord shall have no responsibility to
make any repairs unless and until Landlord receives written notice of the need
for such repair. Tenant shall give Landlord prompt written notice of
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<PAGE>
any damage to or defect on the structural portions of the Premises or the common
areas. Landlord shall have a reasonable time after receipt of notice to
investigate the need for repairs and to complete them where necessary.
6.2 Landlord shall also have no responsibility to repair any damages which
arise out of or are caused by Tenant's use or occupancy of the Premises or by
Tenant's installation of equipment in or upon the Premises or by any act or
omission of Tenant or any employee, agent, contractor or invitee of Tenant. If
the need for such repairs is occasioned by the negligent or willful act of
Tenant, its agents, employees or invitees, such repairs shall be made by
Landlord, and shall be charged to Tenant.
6.3 Anything in this Lease to the contrary notwithstanding, Landlord shall have
no responsibility to Tenant for and shall have no duty to repair, replace or
restore any damage whatsoever to the fixtures, improvements,. alterations,
furniture or any other property owned, installed, made by, or in the possession
of Tenant, unless caused by the Landlord's negligence or refusal to maintain the
building.
6.4 The Tenant at its sole expense shall make all other repairs, including
repairs and replacements to the interior necessary to keep the Leased premises,
building, improvements, and fixtures in good order and repair and the interior
of the building neat and attractive. Lessee will, at the expiration of the term
of this Lease or any renewal thereof. deliver up the leased premises in as good
order and condition as received, reasonable wear and tear and damage by fire or
other casualty of the kind insured against in standard policies of fire
insurance with extended coverage excepted.
7. Alterations, Additions and Fixtures.
-----------------------------------
7.1 Subject to the provisions of Section 7.3 hereof, Tenant shall have the
right to install in the Premises any trade fixtures from time to time during the
term of this Lease; provided, however, that no such installation or removal
thereof shall affect the structural portions of the Building. and the Tenant
shall repair and restore any damage or injury to the Premises
Tenant's Initials _________
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<PAGE>
caused thereby. Tenant shall have the right, at Tenant's sole expense, to
display logo on building, subject to the provisions of paragraphs 7.1, 7.2 and
7.3.
7.2 Tenant shall not make or permit to be made any alterations,
improvements, or additions to the Premises without, on each occasion first
presenting to Landlord plans and specifications therefore and obtaining
Landlord's priority written consent thereto; except that Tenant may make minor
non-structural changes to the interior of the Premises without the consent of
Landlord provided that: (I) Tenant supplies Landlord with plans and
specifications and any necessary permits therefore at least ten days in advance
of commencing construction thereof; (II) such alterations and improvements do
not impair the structural strength of the Building or any other improvements or
reduce the value of the Premises; (III) Tenant shall take or cause to be taken
all steps that are required by Section 7.3 hereof and that are required or
permitted by law in order to avoid the imposition of any mechanic's, laborer's
or materialman's lien upon the Premises or the Building; and (IV) the occupants
adjoining the Premises are not annoyed or disturbed by- reason thereof. Any and
all alterations, improvements and additions to the Premises which are
constructed, installed or otherwise made by Tenant shall be the property of
Tenant until the expiration or sooner termination of this lease; at which time
all such alterations and additions shall remain on the Premises and become the
property of the Landlord without payment therefore by Landlord; unless, upon
termination of this Lease, Landlord shall give written notice to Tenant to
remove the same; in which event Tenant shall promptly remove such alterations,
improvements and additions, and promptly repair and restore any damages to the
Premises or the Building caused by the installation or removal thereof. In the
event Tenant fails to promptly remove any alterations, improvements and
additions and to so repair or restore the Premises, promptly after receipt of
notice to do so from Landlord, Landlord may so remove, repair or restore and
recover as additional rent from Tenant all of Landlord's costs incurred in so
doing.
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7.3 Mechanics' liens. Tenant shall promptly pay any contractor or materialman
who shall supply labor, work or materials to Tenant at the Premises so as to
minimize the possibility of a lien attaching to the Premises or the Building.
Tenant shall take all steps permitted by law- in order to avoid the imposition
of any mechanic's, laborer's or materialman's lien upon the Premises or the
Building. Should any such lien or notice of lien be filed, Tenant shall bond
against or discharge the same within fifteen days after the lien or claim is
filed or formal notice of said lien or claim has been issued regardless of the
validity of such lien or claim. Nothing in this Lease is intended to authorize
Tenant to do or cause any work or labor to be done or any, material to be
supplied for the account of Landlord, all of the same to be solely for the
Tenant's risk and expense. Throughout this Lease, the term "mechanic's lien" is
used to include any lien, encumbrance or charge levied or imposed upon the
Premises or the Building or any interest therein or income therefrom on account
of any mechanic's, laborer's or material man's lien or arising out of any, debt
or liability to or any materialman or laborer and shall include without
limitation any mechanic's notice of intention given to Landlord or Tenant, any
stop order given to Landlord or Tenant, any notice of refusal to pay naming
Landlord or Tenant and any injunctive or equitable action brought by any person
entitled to any mechanic's lien.
8. Utilities and Services.
----------------------
8.1 Landlord shall furnish elevator service at all times so that there shall
always be at least one elevator subject to call.
8.2 Tenant shall at all times have access to the Premises subject to reasonable
miles and regulations.
8.3 Landlord shall furnish normal and reasonable janitorial services for the
common areas of the Building. Tenant shall keep the interior of the premises in
good repair and shall furnish all janitorial service and supplies, painting.
replacement of incandescent Tenant's Initials florescent bulbs. interior window
washing, and other similar utilities, services rendered on or supplied in
connection with the Leased Premises.
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<PAGE>
8.4 Landlord shall cause the necessary mains, conduits, and other facilities to
be provided and maintained to supply cold water, and electrical current, sewage
drains and elevator service to the Building. Any equipment, machinery, meters
or fixtures which may be installed by Tenant (at Tenant's sole expense) on or
about the Premises shall be in accordance with plans and specifications approved
by Landlord in writing prior to their installation. Landlord shall furnish cold
water only for lavatory, drinking and office cleaning purposes without
additional charge. All other utilities shall be metered to and be paid by
Tenant.
8.5 Tenant will furnish heat and air conditioning during the seasons of the
year when heat and air conditioning is required 24 hours per day, 365 days per
year, as needed to protect Building Monday through Sunday.
8.6 Landlord reserves the right to interrupt, curtail or suspend any and all of
the services furnished pursuant to this paragraph when necessary by reason of
accident or emergency, or for repairs, alterations, replacements, or
improvements, as reasonably determined solely by Landlord. On the event of such
interruption, Landlord shall restore such services with reasonable dispatch, but
shall have no responsibility or liability for such interruption; and there will
be no abatement of rent or suspension of any of Tenant's other covenants under
this Lease.
9. Negative Covenants.
------------------
9.1 Tenant shall not, without Landlord's prior written consent, make
alterations, additions or improvements to Premises.
9.2 Tenant shall not, without the prior written consent of the Landlord,
mortgage, pledge or encumber this Lease. This covenant shall be binding upon
the legal representatives of Tenant, and upon every person to whom Tenant's
interest under this Lease passes by operation of law.
9.3 Tenant shall not vacate nor abandon the Premises during the term of this
Lease except for temporary repairs or casualty.
9.4 Tenant shall not permit any equipment on the Premises which would exceed
the normal demands placed on the Building's electrical, water, heating, or air
conditioning systems. nor shall
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Tenant permit any equipment which would exceed a maximum floor load of 80 pounds
per square foot.
10. Insurance.
---------
Landlord. at its sole expense, shall carry fire and extended coverage
insurance on the Building in such an amount as shall be necessary to comply with
the standard co-insurance clause and comprehensive general liability insurance
in a single limit amount of not less than $1,000,000 for any occurrence
resulting in personal injury, death or property damage in or about the Building
with insurance companies of Landlord's choice. A copy of such policy shall be
fumished to Tenant.
Tenant. at Tenant's sole cost and expense, shall maintain and keep in
effect throughout the term of this Lease, insurance with companies licensed to
do business in the state in which the Premises is located against loss or damage
to all improvements to and contents of the Premises by fire or such other
casualties as may be included in a standard all-risk insurance policy in an
amount equal to the full insurable value of the improvements and contents, which
policy shall name the Landlord as an additional insured as its interest may
appear and a copy of such policy shall be provided to the Landlord. Each policy
shall also provide that it may not be canceled without first giving ten-day
advance written notice to the Landlord of cancellation. Tenant shall also
provide and maintain comprehensive general liability insurance for bodily
injury, death, and property damage in or about the Premises with such limits as
may be reasonable required by Landlord from time to time but not less than a
single limit of $1,000,000 for each occurrence.
In the event Tenant shall fail, refuse or neglect to obtain or to maintain
any insurance that it is required to provide, or to furnish Landlord with
satisfactory evidence of coverage within the time required, Landlord shall have
the right to purchase such insurance and charge Tenant as additional rent to
premiums paid by Landlord therefore.
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11. Indemnification of Landlord.
Tenant will indemnify Landlord and save Landlord harmless from and against
any and all claims. actions, damages, liability and expense (including without
limitation fees of attorneys, investigators and experts) in connection with the
loss of life, personal injury or damage to property caused to any person in or
about the Premises or arising out of the occupancy or use by Tenant, its
employees, agents and invitees, of the Premises or any part thereof or
occasioned wholly or in part by any act or omission of Tenant, its agents,
contractors, employees, licensees or invitees; unless such loss, injury or
damage was caused by the negligence of Landlord, its agents, employees,
licensees or invitees. Without limiting the foregoing, Tenant will forever
release and hold Landlord harmless from all claims arising out of damage to
Tenant's property. In case any such claim, action or proceeding is brought
against Landlord. upon notice from Landlord and at Tenant's sole cost and
expense, Tenant shall resist or defend such claim, action or proceeding or shall
cause to be resisted or defended by its insurer.
12. Waiver of Subrogation.
---------------------
Landlord and Tenant hereby release each other to the extent of the
releasing party's insurance coverage, from any and all liability for any loss or
damage covered by such insurance which may be inflicted upon the property of
such party even if such loss or damage shall be brought about by the fault or
negligence of the other party, its agent or employees-, provided. however, that
this release shall be effective only with respect to loss or damage occurring
during such time as the appropriate policy of insurance shall contain a clause
to the effect that this release shall not affect such policy or the right of the
insured to recover thereunder. If any policy does not permit such a waiver, when
the party to benefit therefrom requests that such a waiver be obtained. the
other party agrees to obtain an endorsement to its insurance policies permitting
such waiver of subrogation if it is available.
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<PAGE>
13. Landlord's Liability.
--------------------
Landlord shall not be responsible for any latent defect or change in the
condition of Premises or of the Building, or of any resulting damage to person
or property. Landlord shall not be liable for loss to any property of Tenant as
a result of theft or misplacement unless as the result of a negligent act of
Landlord. Landlord shall not be liable for any death, injury, loss or damage to
persons or property however caused unless due to the negligence or willful act
of Landlord.
14. Fire.
----
14.1 If the Building is damaged by fire or any- other casualty to such extent
that (I) the cost of restoration, as reasonably estimated by Landlord, will
equal or exceed thirty (30%) percent of the replacement value (exclusive of
foundation) of the Building immediately prior to the occurrence, or (II) if the
time necessary to restore the Building, as reasonably estimated by Landlord,
will exceed ninety (90) days, Landlord may, within thirty (30) days of such
occurrence of such damage, give notice to Tenant of Landlord's election to
terminate this Lease. In the event of such election, the Lease shall terminate
on the third day after the give of said notice, and tenant shall surrender
possession of Premises as quickly as is practicable and the rent and all
additional rent shall be apportioned as of the date of such surrender and any
rent paid for any period beyond such date shall be repaid to Tenant.
14.2 If Landlord does not elect to terminate this Lease, Landlord shall restore
the Building and Premises with reasonable dispatch, subject to delays beyond
Landlord's control and delays in the making of insurance adjustments by
Landlord. Landlord need not restore fixtures and improvements installed or
owned by Tenant.
14.3 In any case in which use of Premises is affected by any damage to the
Building, there shall be either an abatement or an equitable reduction in rent
depending on the time period and the extent to which Premises are not reasonably
usable for the purposes for which they are leased hereunder. If the damage
results from the fault of Tenant or Tenant's agents, servants, visitors',
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<PAGE>
or licensees, Tenant shall not be entitled to any abatement or reduction of
rent, except to any extent that Landlord receives the proceed of rent insurance
in lieu of such rent.
14.4 In no event shall Landlord's obligations to restore include fixtures,
improvements or other property of Tenant.
14.5 In case of any damage or destruction to the Premises or any contents
thereof, each party hereto shall look first to its own insurer before making any
claim against the other.
15. Condemnation.
------------
15.1 Termination.
If all of the Building is covered by a condemnation order or decree or, if
any portion of the Building including the Premises is covered by a condemnation
order or decree and, in Landlord's sole opinion, it would be impractical or the
condemnation proceeds are insufficient to restore the Building or the remainder
of the Premises; then, in any such event, this Lease shall terminate and all
obligations hereunder shall cease as of the date upon which possession is taken
by the condemnor and the Tenant to Landlord to that date and all rent prepaid
for periods beyond that date shall forthwith be repaid by Landlord to Tenant.
15.2 If there is a partial condemnation and Landlord has not exercised its right
to terminate on the date upon which the condemn shall have obtained possession,
the obligations of Landlord and Tenant under the Lease shall be unaffected by
such condemnation except that there shall be an equitable abatement for the
balance of the term of the base rent according to the value of the Premises
before and after the date upon which the condemnor shall have taken possession.
In the event that the parties are unable to agree upon the amount of such
abatement, either party may submit the issue to arbitration conducted in
accordance with the procedures, rules and regulations of the American
Arbitration Association, then in effect relating to commercial disputes.
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15.3 Award.
Tenant shall have no right to participate or share in any condemnation
claim, damage, award or settlement in lieu of thereof with respect to any taking
of any nature unless the amount of same is not subtracted from the award which
Landlord would otherwise be entitled to receive; provided however, that Tenant
shall not be precluded from claiming or receiving payment for Tenant's
relocation and moving expenses as may be permitted under applicable law so long
as the amount of same is not subtracted from the award which Landlord is
entitled to receive.
15.4 Temporary Taking.
If the condemnor should take only the right to possession for a fixed
period of time or for the duration of an emergency or other temporary condition,
then, notwithstanding anything hereinabove provided, this Lease shall continue
in full force and effect without any abatement of rent, but the amounts payable
by the condemnor with respect to any period of time prior to the expiration or
sooner termination of the Lease shall be paid by the condemnor to Landlord and
the condemnor shall be paid by the condemnor to Landlord and the condemnor shall
be considered a subtenant of Tenant. Landlord shall apply the amount received
from the condemnor applicable to the rent due hereunder net of costs to Landlord
for the collection thereof, or as much thereof as may be necessary for the
purpose, toward the amount due from Tenant as rent for that period; and, Tenant
shall pay to Landlord any deficiency between the amounts thus paid by the
condemnor and the amount of the rent, or Landlord shall pay to Tenant any excess
of the amount of the award over the amount of the rent.
16. Subordination.
-------------
This Lease is subject and subordinate to all ground or underlying leases
and to all mortgages or deeds of trust which may now or hereafter affect such
leases, the Building. or site composed of the land on which the Building is
situated, and to all renewals, modifications, replacements and extensions
thereof. The foregoing subordination provisions shall be self-operative and no
further instrument of subordination shall be required by any mortgagee or other
interest party; provided however, that in confirmation of such subordination
requested by
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<PAGE>
Landlord, Tenant hereby constitutes and appoints Landlord to Tenant's attorney
in fact to execute an), such subordination instrument on behalf of Tenant.
17. Notices.
-------
Any notice by either party to the other shall be in writing and shall be
deemed to be duly given only if delivered personally or mailed by registered or
certified mail in a post-paid envelope addressed (a) if to Tenant, at Building,
and (b) if to Landlord, at Landlord's address first above set forth, or at such
other addresses as Tenant or Landlord, respectively, may designate in writing.
18. Landlord's Right to Inspect and Repair.
--------------------------------------
Landlord and its agents, officers, employees, or licensees may enter
Premises at any reasonable time, on reasonable notice to Tenant (except that no
notice need be given in event of an emergency) for the purpose of inspecting or
the making of repairs, replacements and additions in, to, on and about Premises
or the Building.
19. Landlord's Right to Show.
------------------------
Landlord may show premises to prospective purchasers and mortgagees during
the term of this Lease and to prospective tenants in the last one (1)-year
period prior to termination of the Lease.
20. Assignment. Subleasing and Holding Over.
----------------------------------------
20.1 Tenant agrees that it will not transfer or assign this Lease, nor lease or
sublease the whole or any part of the Premises ,without the written consent of
Landlord. Consent by Landlord to any assignment or sublease shall not be
unreasonably withheld, but no such assignment or sublease shall release Tenant
from liability hereunder except upon the express written agreement of the
Landlord. Consent by, Landlord to any assignment or sublease must be in writing
executed by all parties.
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<PAGE>
20.2 This Lease and all the terms, covenants, conditions, and provisions herein
contained shall be binding upon and shall ensure to the benefit of the parties
hereto and their representatives, heirs, successors, and assigns (if assigned in
accordance with the terms herein set out above).
20.3 If Tenant, or any person claiming through Tenant, shall continue to occupy
the Premises after the expiration or earlier termination of the term or any
renewal of this Lease, such occupancy shall be deemed to be under a month-to-
month tenancy under the same terms and conditions as set forth in this Lease,
except Lease shall be 120% the amount so indicated. Furthermore, any holding
over without Landlord's prior written consent shall constitute a default
hereunder and shall be subject to all the remedies available to Landlord
hereunder.
21. Quiet Enjoyment.
---------------
Subject to the other terms of this Lease, Landlord covenants that Tenant,
upon performing all its obligations hereunder, shall have quiet and peaceable
possession of Premises during the term hereof.
22. Default and Remedies.
--------------------
If Tenant shall:
(a) Fail to pay any installment of Base Rent, additional rent or any other
amount due and payable hereunder when due, whether or not such payment shall
have been demanded;
(b) Fail to perform or comply with any other condition or agreement
expressed or implied herein and fail to remedy such lack of compliance within 10
days after notice from Landlord of such default;
(c) Liquidate or cease to exist, admit insolvency, seek relief under any
law for relief of debtors, make any assignment for the benefit of creditors or
in the event of any like occurrence which, in the sole judgment of Landlord,
evidences the serious financial insecurity of the Tenant or if the estate of
Tenant created by this Lease shall be levied upon or taken by execution of
process of Law, then and in any of such cases regardless of any waiver or
consent to any earlier
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<PAGE>
event of remedies available to Landlord under applicable Law, all of such rights
and remedies being cumulative and non-exclusive, including without limitation
the following:
(1) Landlord may terminate this Lease upon giving Tenant five (5)
days' advance written notice of termination and this Lease shall terminate on
the date specified in such notice. Tenant shall quit and surrender the Premises
by said date and shall remain liable as set forth below;
(2) Landlord may enter upon the Premises forthwith or at any
subsequent time without notice or demand (which notice or demand is hereby
expressly waived by Tenant) and thereby terminate the estate hereby created and
expel Tenant and those claiming under it and remove all of Tenant's property
therefrom without being guilty of any manner of trespass. Tenant shall remain
liable as set forth below and Landlord shall not be liable or responsible for
any loss or damage to Tenant's property thereafter.
(3) In the event of termination of this Lease as provided above,
Tenant shall pay to Landlord as current liquidated damages the Base Rent, the
additional rent and all other amounts payable hereunder up to and including the
date of termination. Landlord, at its sole option, may either (I) accelerate
the payment of all remaining Base Rent for the balance of the Lease term which
Tenant shall pay to Landlord upon demand or (II) permit Tenant to pay to
Landlord the Base Rent, additional rent and all additional amounts becoming due
and payable after the date of termination until the expiration of the lease
term, whether or not the Premises shall be relet and as and when due in
accordance with the provisions hereof, as if this Lease had remained in effect,
less the net proceeds to the Landlord of any reletting of such Premises, after
deducting all expenses in connection with such reletting, including without
limitation, all costs, fees and courts, repairing, cleaning, refurbishing and
remodeling the Premises for relenting.
(4) Nothing contained in this section shall be deemed to require the
Landlord to relet the Premises or to take any other action with regard to the
Premises. Landlord shall not be liable for any failure to relet, collect rent,
or take any other action with regard to the Premises
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<PAGE>
after termination of this Lease. Tenant hereby waives any right of redemption
that it may at any time have by reason of Tenant's default or conviction
hereunder.
(d) Tenant further agrees that all personal property located in or about
the Premises shall be liable for rent, and for said damages, costs and any other
charges payable as rent, and for all costs of distress, watchmen's wages and or
officer's commission of 5% and in case any goods have been removed from the
Premises, Landlord may follow, take or return said goods to the Premises or
distrain on and sell the same wherever found, Tenant hereby waiving the benefit
of all laws made, or to be made, exempting property from levy or sale on a
judgment for said rent, damages, costs or any other charges payable as rent.
23. Expenses of Enforcement.
-----------------------
The Tenant hereby agrees to pay all costs, expenses fees, and charges
incurred by the Landlord in enforcing by legal action or otherwise any of the
provisions covenants, and conditions of the Lease, including reasonable
attorney's fees.
24. Memorandum of Lease and Certificate.
-----------------------------------
Either Landlord or Tenant, at any time and from time to time and within
five (5) days after receiving written request, shall execute, acknowledge and
deliver to the requesting party a short form or memorandum of this Lease for
recording purposes.
Either Landlord or Tenant, at any time and from time to time and within
five (5) days after receiving written request shall execute, acknowledge and
deliver to the requesting party a written instrument in recordable form
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications); certifying that Tenant has accepted possession
of the Premises, stating the date on which the term of the Lease commenced and
the dates to which minimum rent, additional rent and other charges have been
paid in advance, if any; stating that the best knowledge of the signer of such
instrument Landlord or Tenant is not in default of this Lease; stating any other
fact or certifying any other condition reasonably requested by Landlord or
Tenant or required by any mortgagee or prospective mortgagee or purchaser of the
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Premises or any interest therein or by any assignee of Landlord's or Tenant's
interest in this Lease or by any assignee of any mortgage. The foregoing
instrument shall be addressed to Landlord or Tenant and to any mortgagee,
prospective mortgagee, purchaser or other party specified by Landlord or Tenant.
25. Rights Cumulative.
-----------------
All rights, powers, and privileges conferred hereunder upon parties hereto
shall be cumulative. but not restrictive to those given by law
26. Title and paragraph Headings.
----------------------------
The titles and paragraph headings used herein are for convenience only and
are not substantive in any way.
27. Separability Clause.
-------------------
Should any provision of the Lease be or become void or unenforceable, the
remaining provisions thereof shall remain in full force and effect.
28. Entire Agreement.
----------------
This Lease contains the entire agreement between Landlord and Tenant
relating to the Premises and supersedes all prior and contemporaneous
negotiations, understandings and agreements, written or oral, between the
parties. This Lease shall not be amended or modified except by written
instrument executed by both parties.
29. No Representations.
------------------
Neither party has made any representations or promises except as contained
herein or in some future writing signed by the party making such representation
or promise.
30. Additional Sections.
-------------------
The following Additional Sections 1 through 2 attached hereto are hereby
made a part hereof.
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<PAGE>
IN WITNESS the following signatures and seals:
Tenant: SALEM BANK & TRUST, NATIONAL ASSOCIATION
By: __________________________________________________
Date: __________________________________________________
Landlord: EAST MAIN PROPERTIES, L.L.C.
By: __________________________________________________
David A. Thompson, Manager
Date: __________________________________________________
STATE OF VIRGINIA
City OF Salem, TO-WIT:
- ---- -----
The foregoing Lease Agreement was acknowledged before me this 14/th/ day of
------
March, 1997, by President, of Salem Bank and Trust, National Association.
---------
My commission expires: 1-31-98
-------
_____________________________________________
Notary Public
STATE OF VIRGINIA
County OF Roanoke, TO-WIT:
- ------ -------
The foregoing Lease Agreement was acknowledged before me this 19/th/ day of
------
March, 1997, by David A. Thompson, of East Main Health Investors, L. L.C.
- ----- -----------------
My commission expires: May 31, 1999
------------
_____________________________________________
Notary Public
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<PAGE>
RULES AND REGULATION REFERRED TO IN THE FOREGOING LEASE
- -------------------------------------------------------
1. The sidewalks, entrances, passages, courts, elevators, vestibules.
stairways, corridors and public parts of the Building shall not be obstructed or
encumbered by Tenant or used by Tenant for any purpose other than ingress and
egress to and from the Premises.
2. No awnings, air conditioning units or other projections shall be
attached to the outside walls or windowsills of the Building or otherwise
project from the Building, without the prior written consent of Landlord.
3. Windows in the Premises shall not be covered or obstructed by Tenant,
nor shall any bottles, parcels or other articles be placed on the windowsills or
in the halls or in any other part of the Building, nor shall any article be
thrown out of the doors or windows of the Premises.
4. Tenant shall not alter the floor covering of the Premises without the
prior written consent of Landlord.
5. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or interfere with other tenants or those having business with
them.
6. Tenant shall, upon the termination of this tenancy, deliver to
Landlord all keys to any space within the Building, either furnished to, or
otherwise procured by, Tenant, and in the event of the loss of any keys so
furnished, Tenant shall pay to Landlord the cost of replacement.
7. The carrying in or out of freight, furniture or bulky matter of any
description must take place during such hours as Landlord may from time to time
reasonably determine. The installation and moving of such freight, furniture or
bulky matter shall be made upon previous notice to the superintendent of the
Building and the persons employed by Tenant for such work must be reasonably
acceptable to Landlord. Tenant may, subject to the provisions of the
immediately preceding sentence, move freight, furniture, bulky matter and other
material into or out of the premises provided Tenant pays the additional costs,
if any, incurred by Landlord for elevator operators, security guards and other
expenses arising by reason of such move by Tenant if-, at least two (2) days
prior to such move, Landlord requests that Tenant deposit with
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<PAGE>
Landlord, as security for Tenant's obligation to pay such additional costs, a
sum which Landlord reasonably estimates to be the amount of such additional
costs, then Tenant shall deposit such sum with Landlord as security for such
costs.
8. Landlord reserves the right to prescribe the weight and position of
all safes and other heavy equipment so as to distribute properly the weight
thereof and to prevent any unsafe condition from business machines and other
equipment shall be placed and maintained by Tenant at Tenant's expense in
settings sufficient in Landlord's reasonable judgment to absorb and prevent
unreasonable vibration, noise and annoyance.
9. Venetian blinds shall be used on all windows. All curtains, blinds,
shades screen and other fixtures must be of a quality, type, design and color,
and attached in a manner approved by Landlord.
10. Premises shall not be defaced in any way. No nails shall be driven,
no screws inserted, there shall be no boring or cutting for wires, and no
changes in electric fixtures or other appurtenances of the Premise, without the
prior written consent of the Landlord, which consent shall not be unreasonably
withheld.
11. For the general welfare of all tenants and the overall security of the
Building, Landlord may require all persons entering and/or leaving the Building
at times other than normal business hours to register with the Building
attendant or other employees of Landlord,, who may deny entry during such hours
to any person who fails satisfactorily to identify himself.
12. No bicycles or vehicles of any kind shall be brought into or kept
about the Premises or Common Area of the Building (except for any garage that
may be a part of the Building).
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<PAGE>
Lease - EXHIBIT 10.8
LEASE AGREEMENT
This LEASE AGREEMENT is made and entered into this 1/st/ day of December,
----- --------
1999, between VIRGINIA LUTHERAN HOMES, INC., a Virginia corporation, hereinafter
called "Landlord", party of the first part, and SALEM BANK AND TRUST, N.A., a
national banking association, hereinafter called "Tenant", party of the second
part.
WITNESSETH:
That the Landlord hereby lets and demises unto Tenant and Tenant hereby
takes and holds from the Landlord, as Tenant, the following described space in
the Brandon Oaks retirement community, hereinafter called "Community", located
on 3804 Brandon Avenue, SW, Roanoke, Virginia 24018-1499: approximately 317
square feet of floor space being further shown on Exhibit "A" hereto and
hereinafter referred to as the "Demised Premises". The Demised Premises are to
be used by Tenant for the purpose of operating a branch bank.
1. Term. The Lease Agreement for the Demised Premises shall be for the
-----
term commencing on April 1, 2000 and ending five (5) years thereafter (the
"Initial Term"). Provided the Tenant is not in default under the Lease
Agreement, Tenant shall have the option to extend the Lease Term for two
additional five-year terms ("Option Terms"). Tenant shall exercise its option,
in writing, if at all, no later than six months prior to the expiration of the
Initial Term for the first Option Term and no later than six months prior to the
expiration of the first Option Term for the second Option Term. If Tenant does
not provide notice of its intention to exercise its option within such time
periods, the Lease Agreement shall terminate upon expiration of the then current
term. Should the Tenant not have its banking facility open for business by April
3, 2000, the lease shall be terminated provided that the delay is caused by the
Tenant and not the Landlord.
2. Regulatory Approval. Commencement of this Lease is subject to Tenant's
--------------------
receipt of authority to establish a branch bank at the Community from the Office
of the Comptroller of
<PAGE>
the Currency. In the event of a conflict between the terms and conditions of
this Lease Agreement and federal and state banking laws and regulations, the
federal provisions will prevail.
3. Basic Annual Rent. Tenant hereby agrees to pay in the Initial Term
------------------
basic annual rent for the Demised Premises at the rate of Nineteen Thousand Two
Hundred Dollars per year or Sixteen Hundred Dollars per month. Basic annual rent
during the first Option Term, if any, shall be agreed upon prior to the
Commencement Date of the first Option Term and shall be at the then current
market rate, not to exceed the rate of inflation as determined by the consumer
price index during the prior five year lease period. Basic annual rent during
the second Option Term, if any, shall be agreed upon prior to the Commencement
Date of the second Option Term and shall be at the then current market rate, not
to exceed the rate of inflation as determined by the consumer price index during
the prior five year lease period. Should the parties fail to agree upon a then
current market rate, the Tenant shall have the option to cancel any further
Option Term even if the additional term has been requested in writing. In the
event that the Commencement Date occurs on a day other than the first day of a
calendar month, the monthly rent for the month during which the Commencement
Date occurs shall be paid on the Commencement Date and shall be prorated on the
basis of the actual number of days in said month. In the event that the Lease
Agreement expires or terminates on a day other than the last day of a calendar
month, the monthly rent for the month during which expiration or termination
occurs shall be prorated on the basis of the actual number of days in said
month.
4. Use and Occupancy of the Demised Premises.
------------------------------------------
(a) Tenant hereby agrees to use and occupy the Demised Premises for
the purposes of a banking office to be operated in a careful and proper manner.
Tenant will be the only financial institution who is permitted to operate a
banking office at the Community during the period this Agreement is in effect.
Products and services to be supplied by Tenant or its business partner include,
but are not limited to: check cashing; opening and servicing of checking,
statement savings, NOW and market rate accounts; savings certificates; U. S.
Savings Bonds; U. S.
2
<PAGE>
Treasury Securities; Travelers Cheques; official bank checks and money orders;
checkbook reconciliation; wire transfers; direct deposit services; financial
counseling; and estate planning.
(b) Tenant will provide safe deposit boxes at the Community site.
(c) Tenant will insure its accounts through the Federal Deposit
Insurance Corporation ("FDIC") to the maximum limits established by the FDIC
(presently 1 00,000) or such greater limits as required by law.
(d) All services provided by Tenant are for the primary use of the
Community residents and staff. Tenant may make its services known and available
to all residents, staff and family members of residents and staff of the
Community. Tenant may disseminate information on the banking services offered by
the Tenant to the residents and staff of the Community in a manner which is
agreeable to the Landlord. Landlord shall be reasonable in considering its
agreement to Tenant's dissemination of information on banking services. Except
for the notational reference to the branch bank in lists of the banking offices
of Tenant as specifically follows, "Brandon Oaks" (a controlled access
retirement community facility), 3804 Brandon Avenue, S.W., Roanoke, Virginia
24018-1499, advertising of the branch bank by Tenant outside of the Community
without the prior consent of Landlord is prohibited.
(e) The branch bank will be operated by a full time branch manager
from 9:00 a.m. to 2:00 p.m. Monday through Friday and for such additional or
different hours as the Landlord and Tenant shall mutually agree.
(f) Tenant will conform to and obey all laws and ordinances and all
rules, regulations, requirements and orders of all municipal, county, state or
federal authorities or agencies, respecting the use and occupancy of the Demised
Premises. Tenant will obtain all required permits and licenses incident to its
use of the Demised Premises and pay any taxes and fees resulting from such use.
(g) Tenant will, at its own expense, recruit, employ, train and
properly supervise all employees necessary for the smooth and efficient
operation of the branch bank.
3
<PAGE>
(h) All employees of Tenant will wear appropriate business dress
and/or identification and, when on the Community premises, will conduct
themselves in a manner consistent with the standards, quality and image of the
Community.
(i) The Tenant shall not use, or permit the use of, the Demised
Premises in a manner that is unlawful; or knowingly in contravention of the
Certificate of Occupancy for the Community; or which, in the reasonable judgment
of Landlord, may in any way impair or interfere with the operation of the
Community, occasion discomfort, inconvenience or annoyance to any of the
residents of the Community, or impair the appearance of the Community.
(j) Tenant will keep, observe and conform with all Community Policies
and Rules and Regulations which reasonably apply to Tenant.
5. Tenant's Improvements,
---------------------
(a) With the Landlord's written approval, which shall not be
unreasonably withheld, the Tenant may, at its sole expense, make such additional
improvements to the Demised Premises as it may consider necessary for its use
thereof including installation of equipment such as a vault, 24 hour automated
teller machine (ATM), and safe deposit boxes, such improvements and equipment
installations, however, to be subject to the further provisions of this Section
3.
(b) Not less than sixty (60) days prior to April 1, 2000, Tenant will
supply Landlord with working drawings detailing the interior decorating scheme
and/or any improvements and equipment installations that Tenant intends to
effect prior to occupancy of the Demised Premises. Thereafter, Landlord shall
have thirty (30) days within which to give or withhold its consent to the
proposed decorating scheme and/or improvements and equipment installations, such
consent not to be unnecessarily withheld.
(c) Prior to the Lease Commencement Date, Landlord shall permit
Tenant access to the building for the purpose of installing any improvements,
furnishings, fixtures or equipment.
4
<PAGE>
(d) At the expiration or termination of this Lease Agreement, Tenant
shall return the Demised Premises to the Landlord and shall not remove any
additions, improvements or alterations, including but not limited to,
partitions, doorways, carpeting, wall covering, lighting fixtures, decorative
trim or millwork, and built-in counters, bookcases, closets or other cabinet
work, which thereupon become the property of Landlord. Notwithstanding anything
to the contrary contained herein, Tenant shall be entitled to remove, at the
termination of this Lease Agreement all moveable furniture and equipment
provided by Tenant and, Tenant's security equipment; safe and safe deposit boxes
so long as such items are removed in a workmanlike manner and the Demised
Premises are returned to Landlord with normal wear and tear expected.
6. Services.
--------
(a) The Landlord covenants and agrees, without additional cost or
expense
to Tenant, to provide the following:
(i) Heating and air conditioning in reasonable quantities for
the normal use of the Demised Premises.
6
(ii) All maintenance and janitorial services to the Demised
Premises.
(iii) Reasonable ventilation within the Demised Premises. (iv)
Electricity for normal office use.
(v) Reasonable structural building repairs within the Demised
Premises except (i) reasonable repairs necessitated by negligence or willful act
of Tenant or its employees and (ii) repairs to any improvements, additions or
alterations installed by Tenant.
(vi) Payment of all bills for water, electricity and heat used
in the Demised Premises.
(vii) Payment of the real estate taxes, if any, on the Community
building, including the Demised Premises. Tenant will pay as additional rent
any taxes which may be assessed against the Landlord or the Tenant as a result
of this Lease Agreement.
5
<PAGE>
(viii) Removal of snow and ice from the parking lot, driveways,
entrances, walkways and sidewalks adjacent to the building and maintenance of
all paved areas, lawns, shrubs and landscaping within or adjacent to the
building.
7. Insurance.
---------
(a) Tenant will provide and maintain at all times and at its own
expense:
(i) Workers' Compensation insurance including employers
liability that complies with the workers' compensation laws applicable to the
Tenant and all employees working for the Tenant.
(ii) Comprehensive general liability insurance, including
products and contractual liability, for bodily injury or property damage with a
combined single limit of not less than $1,000,000.00 per occurrence. Such
insurance shall name Landlord as additional insured.
8. Indemnification. Tenant covenants and agrees that throughout the
----------------
Initial Term of this Lease agreement and any Option Term thereof it will
protect, indemnify, defend and hold harmless Landlord and it officers,
directors, agents, employees, affiliated companies, successors and/or assigns
from and against any and all claims, actions, liability, suits, demands,
damages, judgments and all other expenses, including attorney's fees, in
connection with its use of the premises as a branch bank in the Demised Premises
conducted by Tenant with the exception of losses caused by the negligence or
willful misconduct of Landlord, it agents and employees.
9. Assignment. Tenant will not transfer or assign this Lease Agreement,
-----------
nor let or sublet the whole or any part of said Demised Premises, nor permit the
Demised Premises to be used by others without the prior written consent of the
Landlord, which shall not be unreasonably refused.
10. Access to Demised Premises. Tenant will allow Landlord or its agents
---------------------------
to have access to the Demised Premises at any reasonable time for the purpose of
inspection, or in the event of fire or other property damage, or for the purpose
of making any repairs Landlord
6
<PAGE>
considers necessary or desirable, or for any other purposes for the reasonable
protection of the Demised Premises or of the building of which they are a part.
11. Damage Notice. Tenant will give Landlord prompt notice of any defects
--------------
or breakage in the structure of fixtures of said Demised Premises.
12. Fire and Casualty Damage.
-------------------------
(a) If the Demised Premises are damaged by fire or other casualty,
Tenant shall give immediate written notice thereof to Landlord.
(b) If the Demised Premises should be totally destroyed by fire or
other casualty, or if they should be so damaged that rebuilding or repairs
cannot be completed within one hundred eighty (180) days after the date upon
which Landlord is notified by Tenant of such damage, this Lease Agreement shall
terminate and the rent shall be abated during the unexpired portion of this
Lease Agreement, effective upon the date of the occurrence of such damage.
(c) If the Demised Premises should be damaged by fire or other
casualty, but only to such extent that rebuilding or repairs can be completed
within one hundred eighty days after the date upon which Landlord is notified by
Tenant of such damage, this Lease Agreement shall not terminate, but Landlord
shall, at its expense, proceed with reasonable diligence to rebuild and repair
Demised Premises to substantially the condition in which they existed prior to
such damage. If the Demised Premises are untenable in whole or in part
following such damage, the rent payable hereunder during the period in which
they are untenable shall be reduced to such extent as may be fair and reasonable
under all the circumstances. However, notwithstanding the foregoing, there
shall be no adjustment of rent if such fire or other casualty shall have been
caused by the negligence or improper conduct of Tenant or its officers, agents
or employees. In the event that Landlord shall fail to complete such repairs
and rebuilding within one hundred eighty (180) days after the date upon which
Landlord is notified by Tenant of such damage, Tenant may at its option
terminate this Lease Agreement by delivering written notice of termination to
Landlord as Tenant's exclusive remedy, whereupon all rights and obligations
hereunder shall cease.
7
<PAGE>
13. Condemnation. If the whole or any part of the Demised Premises shall
-------------
be taken in any eminent domain, condemnation, compulsory acquisition or similar
proceeding by any competent authority for any public or quasi-public use or
purpose with the result that it is unreasonable to continue to operate the
Demised Premises as a branch bank, this Lease Agreement shall terminate from the
date of possession of the part so taken.
14. Landlord's Remedies in the Event of Default. If Tenant shall fail to
-------------------------------------------
pay any rent to Landlord when such rent is due and payable under the terms of
this Lease, and such default shall continue for a period of fifteen (I 5) days
after written notice thereof has been given to Tenant by Landlord, or if Tenant
shall fail to perform any other duty or obligation imposed upon him by the terms
of this Lease, and such default shall continue for a period of thirty (30) days
after written notice of such default has been given to Tenant by Landlord, or if
Tenant shall be adjudged bankrupt, or make a general assignment for the benefit
of its creditors, or if a receiver of any property of Tenant in or upon the
Demised Premises be appointed in any action, suit, or proceeding by or against
Tenant and such appointment shall not be vacated or annulled within sixty (60)
days, or if the interest of Tenant in the Demised Premises shall be sold under
execution or other legal process, then, and in any such event, Landlord shall
have, in addition to any other rights and remedies to which he may be entitled,
the right to enter upon the Demised Premises and again have, repossess and enjoy
the same as if this Lease had not been made, and thereupon this Lease shall
terminate without prejudice, however, to the right of Landlord to recover from
Tenant all rent due under this Lease. The Tenant shall also be obligated to pay
reasonable attorney's fees and costs as well as interest on any unpaid
installment of rent. In the event of any such default and re-entry, Landlord
shall endeavor to re-let the Demised Premises for the remainder of the then
existing term whether such term be the initial term or any renewed or extended
term.
15. Quiet enjoyment. The Landlord covenants and agrees that Tenant, on
---------------
performing all of the covenants and agreements herein contained, shall
peacefully and quietly, have, hold and enjoy the Demised Premises for the
term(s) aforesaid. Tenant agrees to keep said Demised
8
<PAGE>
Premises in good order and condition and surrender same at the expiration or
other termination of the Lease Agreement, to remove all goods and effects from
the Demised Premises not the property of the Landlord, and to yield up to the
Landlord the Demised Premises, and all keys, locks, and other attached
improvements connected therewith, in the same order in which they were received,
ordinary wear and tear excepted.
16. Notice. All notices will be in writing and sent by registered or
------
certified mail, addressed as follows:
To Tenant: President
Salem Bank and Trust, NA
P. 0. Box 979
Salem, Va 24153
To Landlord: Virginia Lutheran Homes, Inc.
Attn: Executive Officer
3804 Brandon Avenue
Roanoke, Virginia 24018
Osterhoudt, Ferguson, Natt, Aheron & Agee
Attn: Edward A. Natt, Esquire
P. 0. Box 20068
Roanoke, Virginia 24018
or to such other persons or places as either party may from time to time
designate by notice.
17. Successors and Assigns. It is mutually agreed that the covenants,
----------------------
conditions and agreements herein contained are alike binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and/or assigns.
18. Force Majeure. If, because of acts of God, civil disturbance,
-------------
governmental action, strikes or other labor disputes, vendor delays, or other
unavoidable cause, either party is unable to perform its obligations hereunder,
such non-performance shall not be considered a breach of the Agreement.
19. Equal Opportunity Employer. Tenant affirms that it is an Equal
--------------------------
9
<PAGE>
Opportunity Employer and will comply with all laws and regulations prohibiting
employment discrimination in the performance of the Agreement.
20. Waiver, The failure of either party to insist upon a strict
------
performance of any of terms or provisions of this Lease Agreement, or to
exercise any option, right or remedy herein contained, shall not be construed as
waiver or as a relinquishment for the future of such term, provision, option,
right or remedy, but the same shall continue and remain in full force and
effect. No waiver by either party of any term or provision hereof shall be
deemed to have been made unless expressed in writing and signed by such party.
21. Partial Invalidity, This Agreement shall be construed in accordance
------------------
with the laws of the Commonwealth of Virginia. If any portion of this Lease
Agreement shall be declared invalid by order, decree or judgment of a court, the
Lease Agreement shall be construed as if such portion had not been inserted
herein except when such construction would operate as an undue hardship on
Landlord or Tenant or constitute a substantial deviation from the general intent
and purpose of said parties as reflected in the Lease Agreement.
22. Subordination. This Agreement and the term and estate hereby granted
-------------
are and shall be subject and subordinate to any underlying leases, mortgages or
deeds of trust which now or may hereafter affect the real property of which the
Demised Premises form a part; and the Tenant shall execute and deliver, upon the
demand of Landlord, or its successors in interest, any and all instruments as
required subordinating, in the manner requested by Landlord, this Agreement to
such lease, mortgage or deed of trust. The Tenant shall permit Landlord, any
landlord under any of the underlying leases, any mortgages under any of the
underlying mortgages and any trustees under any of the underlying deeds of
trust, and their representatives, to enter the Premises at such hours as shall
not unreasonably interfere with the Tenant's business, for the purpose of
inspection and permit them or any of their agents or contractors so to enter for
the purpose of complying with any law, order or requirement of any governmental
authority or insurance body, or exercising any right reserved to Landlord
hereunder. Notwithstanding
10
<PAGE>
anything to the contrary contained herein, so long as Tenant is not in default,
Tenant's rights under this Lease Agreement shall not be affected by such
subordination.
23. Recording and Short Form Lease. Tenant agrees not to record this Lease
------------------------------
without the express prior written consent of Landlord and further agrees that
any recording thereof in violation of this provision shall make this Lease null
and void at Landlord's election. Further, Tenant agrees to execute, acknowledge
and deliver at any time after the date of this Lease, at the request of
Landlord, a "Short Form Lease" suitable for recording. All recording costs,
fees or charges due and payable upon the recording of such Short Form Lease
(including, without limitation, any and all taxes due or collectible upon such
recording) shall be payable in full by the party recording the same.
24. Community Alterations. In the event during the term this Lease
---------------------
Agreement is in effect structural alterations, renovation, remodeling or
construction within the Community is to take place affecting the Demised
Premises to the extent that bank operations may no longer be conducted feasibly,
Landlord agrees to use its best efforts to relocate the Demised Premises to a
comparable location within the Community. In the event that an agreement of such
relocation cannot be accomplished, either party may terminate this Lease
Agreement.
25. Parking. The Tenant agrees that it will not permit any of its
-------
officers or employees to park automobiles any place upon the Premise of the
Community except in those areas specifically designated from time to time by
Landlord.
26. Use of Community Facilities by Tenant. Tenant's employees shall have
-------------------------------------
access to restrooms and dining facilities. Tenant shall also have access to
meeting rooms for programs and providing banking services to residents, staff
and family members of residents and staff.
27. Signs. Tenant will not permit any sign, advertisements, or notices to
-----
be displayed, inscribed upon, or affixed on any part of the outside of the
Community buildings except with the written approval of the Landlord which shall
not be unreasonably withheld. On the interior of the Community, signs
identifying the Demised Premises shall be permitted by the Landlord.
11
<PAGE>
28. No Partnership. The undertakings, covenants, obligations and
--------------
agreements of the parties hereto shall in no way be construed as forming nor
shall this Agreement be considered to have formed in any way a joint venture or
partnership between the parties hereto, which relationship shall always remain
that of Landlord and Tenant.
29. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between Landlord and Tenant. Any amendment or modification of the Agreement must
1 5 be in writing and signed by Landlord and Tenant.
IN WITNESS WHEREOF, the authorized representatives of the parties hereto
have executed this Lease Agreement the day and year first above written.
Witness: VIRGINIA LUTHERAN HOMES, INC.
___________________________ By:_______________________________
Title:
Witness: SALEM BANK AND TRUST, N. A.
___________________________ By:_______________________________
Title:
DRAFT: November 8, 1999
12
<PAGE>
Lease - EXHIBIT 10.9
4415 Pheasant Ridge Rd.,
Suite 102
Roanoke, Virginia 24014
Roanoke, Virginia 24014
Telephone: (540) 776-0606
Fax: (540) 776-2848
OFFICE LEASE
THIS AGREEMENT OF LEASE (hereinafter referred to as "the Lease") entered
into this 10/th/ day of August 1999, by and between East Main Properties, LLC.,
------ ------ -- -------------------------
(hereinafter referred to as the Landlord"), and Salem Bank & Trust.,
------------------
(hereinafter referred to as "the Tenant"), and REALSTAR REALTORS, 4415 Pheasant
Ridge Rd., Suite 102, Roanoke, Virginia 24014 (hereinafter referred to as "the
Agent").
WITNESSETH, THAT FOR AND IN CONSIDERATION of the mutual entry Into this
Lease by the parties hereto, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged by each party hereto, the
Landlord hereby leases to the Tenant and the Tenant hereby leases from the
Landlord all that real property situated and lying In City of Salem which
-------------
consists of the space (containing approximately 550 rentable square feet)
---------------------------------------------------
outlined on attached "Exhibit A" (hereinafter referred to as "the Premises") and
located in a building hereinafter referred to as "the Building" at 220 East Main
-------------
Street, Salem, Virginia 24153 (suite 10)
- ----------------------------------------
SUBJECT TO THE OPERATION AND EFFECT of any and all instruments and matters
of record or In fact, UPON THE TERMS AND SUBJECT TO THE CONDITIONS which
are hereinafter set forth;
Section 1. TERM. This Lease shall be for a term (hereinafter referred to as
the Term commencing on September 1, 1999 purely referred to as the Commencement
-----------------
Date, and terminating at 11:59 PM local time on the 31 st day of August 2000
----- -----------
provided Tenant gives Landlord notice at least 90 days prior to the expiration
of the term of it's intent not to renew this lease. Otherwise, it shall renew
month-to-month under the provisions set forth In subsection 9.1.
Section 2. USE.
2.1 The Tenant shall, continuously throughout the term, occupy and use the
Premises for and only for office purposes and in strict accordance with all
---------------
applicable laws and regulations of governmental authorities. In its use of the
Premises and the remainder of the Property, Tenant will not use or permit or
suffer the use of the Leased Premises for any unwanted or offensive business or
purpose. Tenant will not, without the prior written consent of Landlord, use or
permit the walls, fences or roof of the Leased Premises to be used for
advertising purposes.
2.2 In its use of the Premises and the remainder of the Property, the
Tenant shall not violate any applicable law, ordinance or regulation.
<PAGE>
2.3 Except for the parking of automobiles In the ordinary course, the
Tenant shall not place or permit its agents or employees to place any trash or
other objects anywhere within the Building or the rest of the Property (other
than within the Premises) without first obtaining Landlord's express written
consent thereto.
Section 3. RENT.
3.1 AMOUNT. As rent for the Premises (all of which is hereinafter
referred to collectively as "Rent" ), the Tenant shall pay to the Landlord all
of the following:
(a) BASE RENT. Tenant shall pay as base rent for the demised premises for
each year of the term hereof the sum of $6,600 Dollars ($6,600.00), payable in
------
advance in equal monthly installments of $550.00 Dollars ($550.00), plus (if the
-------
term commences on a day other than the first (1st) of a calendar month), one
three hundred sixty-fifth (1/365) of the base rent for each day of such calendar
month falling within the term. For monthly rent over term.
(b) ADDITIONAL RENT. Additional rent (hereinafter referred to as
"Additional Rent") is the amount of any payment referred to as such in any
provision of this Lease which accrues whiles this Lease is in effect.
(c) LEASE YEAR. As used in the provisions of this Lease, the term "Lease
Year" means a period of twelve (12) consecutive calendar months. The first
Lease Year shall commence on September 1 1999 and each succeeding Lease Year
----------- --
shall commence on the anniversary date of the first Lease year.
3.2 WHEN DUE AND PAYABLE.
(a) The Base Rent for any Lease Year shall be due and payable in twelve
(12) consecutive, equal monthly installments, in advance, on the first (1st) day
of each calendar month during with Lease Year; provided that the installment of
the Base Rent payable for the first full calendar month of the Term (and, if the
Term commences on a day other than the first (1st) day of a calendar month, that
portion of the Base Rent which is payable for such month) shall be due and
payable on the full execution and delivery of this Lease.
3.3 WHERE AND HOW PAYABLE. The Tenant shall pay the Rent, In lawful
currency of the United States of America, without offset or deduction, to the
Landlord by delivering or mailing (postage prepaid) to the Agent, REALSTAR
REALTORS, 4415 Pheasant Ridge Rd., Roanoke, Virginia 24014 or to such other
address or in such other manner as this Lease by giving written notice thereof
to the Tenant. Any payment made by the Tenant to the Landlord on account of
Rent may be credited by the Landlord to the payment of any Rent then past due
before being credited to Rent currently falling due. Any such payment which is
less than the amount of Rent then due shall constitute a payment made on account
thereof, the parties hereto hereby agreeing that the Landlord's acceptance of
such payment (whether or not with or accompanied by an endorsement or statement
that such lesser amount or the Landlord's acceptance thereof constitutes payment
in full of the amount of Rent then due) shall not alter or impair the Landlord's
rights hereunder to be paid all of such amount then due, or in any other
respect.
3.4 LATE CHARGE. In the event any installment of rent is not paid within
five (5) business days after it becomes due, a late fee of 5% may be charged.
3.5 TAX ON LEASE. If federal, state or local law hereafter imposes any
tax, assessment, levy or other charge (other than any income tax) directly or
indirectly upon (a) the Landlord with respect to this Lease or the value
thereof, (b) the Tenants use or occupancy of the Premises (c) the Base Rent,
Additional Rent or any other sum payable under this Lease, or (d)
<PAGE>
this transaction, except it and to the extent that such tax assessment, levy or
other charge is included in the Annual Operating Costs the Tenant shall pay the
amount thereof as Additional Rent to the Landlord upon demand, unless the Tenant
is prohibited by law from doing so, in which event the Landlord may, at its
election, terminate this Lease by giving written notice thereof to the Tenant.
Section 4. ASSIGNMENT AND SUBLETTING.
4.1 The Tenant shall not mortgage, pledge or encumber this Lease.
4.2 The Tenant shall not assign this Lease, or sublet or underlet any or
all of the Premises, or permit any other person or entity to occupy any or all
of the Premises, without on each occasion first obtaining the Landlord's written
consent thereto (which consent shall not be unreasonably withheld, but may be
conditioned, inter alia, upon the entry by the assignee into an appropriate
instrument by which it assumes the Tenant's obligations under the provisions of
this Lease). For purposes of the foregoing provisions of this subsection, a
transfer, by any person or persons controlling the Tenant on the date hereof, of
such control to a person or persons not controlling the Tenant on the date
hereof shall be deemed to be an assignment of this Lease. No such action taken
with or without the Landlord's consent shall in any way relieve or release the
Tenant from liability for the timely performance of all of the Tenant's
obligations hereunder. The Landlord shall be entitled to receive and retain,
and the Tenant shall promptly remit to the Landlord, any profit which may inure
to the Tenants benefit as a result of any such assignment, subletting or
underletting, whether or not consented to by the Landlord.
4.3 Anything contained in the foregoing provisions of this Section to the
contrary notwithstanding, neither the Tenant nor any other person having an
interest in the possession, use, occupancy or utilization of the Premises or any
other portion of the Property shall enter into any lease, sublease, license,
concession or other agreement for the use, occupancy or utilization of space in
the Premises or any other portion of the Property which provides for any rental
or other payment for such use, occupancy or utilization based in whole or in
part upon the net income or profit derived by any person from the space in the
premises or other portion of the Property so leased, used, occupied or utilized
(other than any amount based on a fixed percentage or percentages of receipts or
sales).
Section 5. TENANT'S PLAN FOR IMPROVEMENTS.
5.1 LEASEHOLD IMPROVEMENTS. The tenant shall make said leashold
improvements.
5.2 ACCEPTANCE OF POSSESSION. Except for (a) latent defects or incomplete
work which would not reasonably have been revealed by an inspection of the
Premises made for the purpose of discovering the same at the time of the
Tenant's assumption of possession of the Premises, and (b) any other items of
incomplete work which are set forth on a punch list submitted to and approved in
writing by the Landlord prior to such assumption of possession, by its
assumption of possession of the Premises, the Tenant shall for all purposes of
this Lease be deemed to have accepted them and to have acknowledged them to be
in the condition called for hereunder.
Section 6. FIRE AND OTHER CASUALTY.
6.1 GENERAL If the Premises are damaged by fire or any other casualty
during the Term, (a) the Landlord shall restore the Premises with reasonable
promptness (taking Into
<PAGE>
account the time required by the Landlord to effect a settlement with, and to
procure any insurance proceeds from, any insurer against such casualty, but in
any event within one hundred fifty (150) days after the date of such casualty)
to substantially their condition immediately prior to such casualty, and may
temporarily enter and possess any or all of the Premises for such purpose
(provided, that the Landlord shall not be obligated to repair, restore or
replace any fixture, improvement, alteration, furniture or other property owned,
installed or made by the Tenant); but
(b) the times for commencement and completion of any such restoration
shall be extended for the period (not longer than sixty (60) days) of any delay
occasioned by the Landlord in doing so arising out of any of the causes
enumerated in the provisions of subsection 5.1. If the Landlord undertakes to
restore the Premises and such restoration is not accomplished within the said
period of one hundred fifty (150) days plus the period of any extension thereof,
as aforesaid, the Tenant may terminate this Lease by giving written notice
thereof to the Landlord within thirty (30) days after the expiration of such
period, as so extended; and
(c) for so long as the Tenant is deprived of the use of any or all of the
Premises on account of such casualty, the Base Rent and any Additional Rent
payable under the provisions of subsection 3.2 shall be abated in proportion to
the number of square feet of the Premises rendered substantially unfit for
occupancy by such casualty, unless, because of any such damage, the undamaged
portion of the Premises is made materially unsuitable for use by the Tenant for
the purposes set forth in the provisions of Section 2, in which event the Base
Rent and any such Additional Rent shall be abated entirely during such period of
deprivation.
6.2 SUBSTANTIAL DESTRUCTION. Anything contained in the foregoing
provisions of this Section to the contrary notwithstanding.
(a) if during the Term the Building is so damaged by fire or any other
casualty that (i) either the Premises or (whether or not the Premises are
damaged) the Building are rendered substantially unfit for occupancy, as
reasonably determined by the Landlord, or (II) the Building is damaged to the
extent that the Landlord reasonably elects to demolish the Building, then in
either case the Landlord may elect to terminate the Term as of the date of the
occurrence of such damage, by giving written notice thereof to the Tenant within
thirty (30) days after such date; and
(b) in such event, (i) the Tenant shall pay to the Landlord the Base Rent
and any Additional Rent (apportioned, where applicable) to the time of such
termination (ii) the Landlord shall repay to the Tenant any and all prepaid Rent
for periods beyond such termination, and (iii) the Landlord may enter upon and
repossess the Premises without further notice.
6.3 TENANT'S NEGLIGENCE. Anything contained in any provision of this Lease
to the contrary notwithstanding, if any such damage to the Premises, the
Building or both are caused by or result from the negligent or intentionally
tortious act or omission of the Tenant, those claiming under the Tenant or any
of their respective officers, employees, agents or invitees,
(a) the Rent shall not be suspended or apportioned as aforesaid, and
(b) except it and to the extent that the Landlord upon demand, as
Additional Rent, the cost of (i) any repairs and restoration made or
to be made as a result of damage, of (ii) (if the Landlord elects not
to restore the Building) any damage or loss which the Landlord may
incur as a result of such damage.
<PAGE>
Section 7. MAINTENANCE AND SERVICES.
7.1 ORDINARY SERVICES. The Landlord shall furnish the Premises with (a)
electricity suitable for their intended use for the purposes set forth in the
provisions of Section 2, (b) heating and air conditioning for the comfortable
use and occupancy of the Premises between 8:00 o'clock a.m. and 6:00 o'clock
p.m. Monday through Friday and 8:00 o'clock a.m. and 1:00 o'clock p.m. on
Saturday (except for legal holidays) of each week during the Term.
7.2 MAINTENANCE AND ALTERATIONS BY TENANT.
(a) Tenant will be responsible for all minor interior repairs. (example:
leaking faucets, loose door handles, etc.)
(b) The Tenant shall not make or permit to be made any alteration,
addition or improvement to the Premises without first obtaining the Landlord's
written consent thereto (which, in the case of non-structural alterations,
additions and improvements only, shall not be unreasonably withheld). If the
Landlord consents to any such proposed alteration, addition or improvements, it
shall be made at the Tenants sole expense (and the Tenant shall hold the
Landlord harmless from any cost incurred on account thereon, and at such time
and in such manner as not unreasonably to interfere with the use and enjoyment
of the remainder of the Property by any tenant thereof or any other person.
(c) Tenant shall change lock to fit existing master system.
7.3 MAINTENANCE BY LANDLORD.
(a) The Landlord shall maintain the roof, structure and the remainder of
the exterior of the Building, as well as each sidewalk and parking lot from time
to time existing within the Property, all in good order and repair (which
maintenance shall include the removal of snow from each such sidewalk and
parking lot). Landlord shall also be responsible for all major interior repairs
including, but not limited to, mechanical, plumbing, heating and electrical.
(b) COMMON AREAS. The Landlord shall furnish, supply and maintain any and
all hallways, stairways, lobbies, elevators, heating and air conditioning
facilities, electrical, sanitary sewer and water lines and facilities, restroom
facilities, grounds and parking areas, the other common areas of the Building
not contained within the Premises, and the rest of the Property (other than the
Premises), all at the Landlord's expense except as is set forth in the provision
of Section 3 or any other provision of this lease. Tenant will furnish
janitorial services for the premises.
(c) If the Tenant determines that the Landlord has not taken any action
which it is required to take under the foregoing provisions of this subsection,
the Tenant shall take no action hereunder on account hereof unless the Landlord
has failed to take such action diligently and within a reasonable time after the
Tenant has given written notice to the Landlord.
7.4 PERSONAL PROPERTY INSURANCE. That all personal property in said
premises shall be and remain at Tenant's sole risk, and Landlord shall not be
liable for any damage to nor loss of such personal property arising from any
acts of negligence of any other persons, nor from the leaking of the roof, not
from the bursting, leaking or overflowing of water, sewer or steam pipes, not
from heating or plumbing fixtures, nor from electric wires or fixtures, nor from
any other cause whatsoever; nor shall the Landlord be liable for any injury to
the person of the Tenant or other persons in said premises; the Tenant expressly
agreeing to save the Landlord harmless in ail such cases.
Section 8. DEFAULTS BY THE TENANT.
<PAGE>
8.1 DEFINITION. As used in the provisions of this Lease, each of the
following events shall constitute, and is hereinafter referred to as, an "Event
of Default":
(a) If the Tenant (i) fails to pay the Rent or any other sum which the
Tenant is obligated to pay by any provision of this Lease, when and as it is due
and payable hereunder and without demand therefore, or (ii) in any respect
violates any of the terms, conditions or covenants set forth in the provisions
of this Lease; or
(b) if the Tenant (i) applies for or consents to the appointment of a
receiver, trustee or liquidator of the Tenant or of all or a substantial part of
its assets, (ii) files a voluntary petition in bankruptcy or admits in writing
its inability to pay its debts as they come due, (iii) makes an assignment for
the benefit of its creditors, (iv) files a petition or an answer seeking a
reorganization or an arrangement with creditors, or seeks to take advantage of
any insolvency law, (v) performs any other act of bankruptcy, or (vi) files an
answer admitting the material allegations of a petition filed against the Tenant
in any bankruptcy, reorganization or insolvency proceeding; or
(c) if (i) an order, Judgement or decree is entered by any court of
competent jurisdiction adjudicating the Tenant a bankrupt or an insolvent,
approving a petition seeking such a reorganization, or appointing a receiver,
trustee or liquidator of the Tenant or of all or a substantial part of its
assets, or (ii) there otherwise commences with respect to the Tenant or any of
its assets any proceeding under any bankruptcy, reorganization, arrangement,
insolvency, readjustment receivership or similar law, and if such order,
judgment, decree or proceeding continues unstayed for more than sixty (60)
consecutive days after the expiration of any stay thereof.
8.2 NOTICE TO TENANT: GRACE PERIOD. Anything contained in the provisions
of this Section to the contrary notwithstanding, upon the occurrence of an Event
of Default the Landlord shall not exercise any right or remedy which it holds
under any provision of this Lease or under applicable law unless and until
(a) the Landlord has given written notice thereof to the Tenant, and
(b) the Tenant has failed, (i) if such Event of Default consists of the
failure to pay money, within ten (10) days thereafter to pay all of such money,
or (ii) if such Event of Default consists of something other than the failure to
pay money, within thirty (30) days thereafter actively, diligently and in good
faith to proceed to cure such Event of Default and to continue to do so until it
is fully cured; provided, that
(c) such notice shall be required, and the Tenant shall be entitled to
such grace period, (i) more than twice during any twelve (12) month period, or
(ii) if the Tenant has substantially terminated or is in the process of
substantially terminating its continuous occupancy and use of the Premises for
the purpose set forth in the provisions of Section 2, or (iii) if any Event of
Default enumerated in the provisions of paragraphs 8.1 (b) or 8.1 (c) has
occurred.
8.3 LANDLORD'S RIGHTS UPON EVENT OF DEFAULT. Upon the occurrence of any
Event of Default, the Landlord may
(a) re-enter and repossess the Premises and any and all improvements
thereon and additions thereto;
(b) declare the entire balance of the Rent for the remainder of the Term
to be due and payable, and collect such balance if any manner not inconsistent
with applicable law;
(c) relet any or all of the Premises for the Tenant's account for any or
all of the remainder of the Term as hereinabove defined, or for a period
exceeding such remainder, in
<PAGE>
which event the Tenant shall pay to the Landlord any deficiency in the Base rent
and any additional rent resulting, with respect to such remainder, from such
reletting, as well as the cost to the Landlord of any attorney's fees or of any
repairs or other action (including those taken in exercising the Landlord's
rights under any provision of this Lease) taken by the Landlord on account of
such Event of Default; and/or
(d) pursue any combination of such remedies and/or any other remedy
available to the Landlord on account of such Event of Default under applicable
law.
8.4 LANDLORD'S RIGHT TO CURE. Upon the occurrence of an Event of Default,
the Landlord shall be entitled (but shall not be obligated), in addition to any
other rights which it may have hereunder or under applicable law as a result
thereof, and after giving the Tenant written notice of the Landlord's intention
to do so except in the case of emergency, to cure such Event of Default, and the
Tenant shall reimburse the Landlord for all expenses incurred by the Landlord in
doing so, plus interest thereon at a lesser of the rate of twelve percent (12%)
per annum or the highest rate then permitted on account thereof by applicable
law, which expenses and interest shall be additional rent and shall be payable
by the Tenant immediately upon demand therefore by the Landlord.
Section 9. HOLDING OVER. The Tenant shall not continue to occupy the
Premises after the expiration or earlier termination of the Term or any renewal
thereof, unless the Landlord consents in writing to such continuation of
occupancy, in which event
9.1 such occupancy shall (unless the parties hereto otherwise agree in
writing) be deemed to be under a month-to-month tenancy, which shall continue
until either party hereto notifies the other in writing, by at least sixty (60)
days before the first day of any calendar month, that the parity giving such 60
days notice elects to terminate such tenancy at the end of 60 days, in which
event such tenancy shall so terminate. If such written notice is not given, the
Tenant will owe rent for 60 days starting from the first day of any calendar
month until 60 days written notice is given on the first of any calendar month.
9.2 anything contained in the foregoing provisions of this Section to the
contrary notwithstanding, the rental payable with respect to each monthly period
shall equal one hundred twenty-five (125%) percent of one-twelfth (1/12) of the
base rent plus any increases during the term and the additional rent payable
under the provisions of Section 3 (calculated in accordance with such provisions
of Section 3 as if this lease had been renewed for a period of twelve (12) full
calendar months after such expiration or earlier termination of the Term or such
renewal); and
9.3 such month-to-month tenancy shall be upon the same terms and subject
to the same conditions as those set forth in the provisions of this lease,
provided, that if the Landlord gives to the Tenant, by at least sixty (60) days
before the end of any calendar month during such month-to-month tenancy, written
notice that such terms and conditions (including any thereof relating to the
amount and payment of Rent) shall, after such month, be modified in any manner
specified in such notice, then such tenancy shall, after such month, be upon the
said terms and subject to the said conditions, as so modified.
Section 10. LANDLORD'S RIGHT OF ENTRY. The Landlord and its agents shall
be entitled to enter the Premises at any reasonable time.
10.1 to inspect the Premises,
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10.2 to exhibit the Premises to any existing or prospective purchaser or
mortgagee thereof or any prospective tenant thereof,
10.3 to make any alteration, improvement or repair to the Building or the
Premises, or
10.4 during the last three (3) months of the original term and all renewals
or extensions thereof, Landlord shall have the right to place "For Rent" or "For
Sale" signs in conspicuous places on the Leased Premises and to otherwise
advertise the Leased Premises for rent or sale, in addition to having the rights
of entry and inspection set forth herein.
10.5 for any other purpose relating to the operation or maintenance of the
Property; provided, that the Landlord shall (a) (unless doing so is impractical
or unreasonable because of emergency) give the Tenant at least twenty-four (24)
hours, prior notice of its intention to enter the Premises, and (b) use
reasonable efforts to avoid thereby interfering any more than is reasonably
necessary with the Tenant's use and enjoyment thereof.
Section 11. INSURANCE AND INDEMNIFICATION.
11.1 INCREASE IN RISK. The Tenant
(a) shall not do or permit to be done any act or thing as a result of
which either (i) any policy of insurance of any kind covering any or all of the
Property or any liability of the Landlord in connection therewith may become
void or suspended, or (ii) the insurance risk under any such policy would (in
the opinion of the insurer thereunder) be made greater; and
(b) shall pay as additional rent the amount of any increase in any premium
for such insurance resulting from any breach of such covenant.
11.2 INSURANCE TO BE MAINTAINED BY TENANT. The Tenant shall maintain at
its expense, throughout the Term, insurance against loss or liability in
connection with bodily injury, death, property damage and destruction, occurring
within the Premises or arising out of the use thereof by the Tenant or its
agents, employees, officers or invitees, visitors and guests under one or more
policies of general public liability insurance having such limits as to each as
are reasonably required by the Landlord from time to time (but in any event of
not less than (a) Five Hundred Thousand only ($500.000.00) combined single limit
for injury to or death of any one or more persons during any one occurrence, and
for property damage or destruction during any one occurrence. Such policies
shall name the Landlord, the Tenant (and, at the Landlord's request, any
Mortgagee), and the Agent as the insured parties, shall provide that they shall
not be cancelable without at least thirty (30) days, prior written notice to the
Landlord (and at the Landlord's request, any such Mortgagee), and shall be
issued by insurers of recognized responsibility licensed to do business in
Virginia. A Certificate of insurance for this coverage shall be on file with
the Agent at all times during this lease or any extensions or renewals thereof.
11.3 INSURANCE TO BE MAINTAINED BY LANDLORD. The Landlord shall maintain
throughout the Term all-risk or fire and extended coverage insurance upon the
Building, in such minimum amounts and having such forms of coverage as are
required from the time to time by the Landlord's lender. The cost of the
premiums for such insurance and of each endorsement thereto shall be deemed, for
purposes of Section 3, to be part of the costs of operating and maintaining the
property.
11.4 WAIVER OF SUBROGATION. If either party hereto is paid any proceeds
under any policy of insurance naming such party as an insured, on account of any
loss, damage or liability, then such party hereby releases the other party
hereto, to and only to the extent of the amount of such proceeds, from any and
all liability for such loss, damage or liability, notwithstanding that such
loss, damage or liability may arise out of the negligent or intentionally
<PAGE>
tortious act or omission of the other party, its agents or employees; provided,
that such release shall be effective only with respect to loss or damage
occurring during such time as the appropriate policy of insurance of the
releasing party provides that such release shall not impair the effectiveness of
such policy or the insured's ability to recover thereunder. Each party hereto
shall use reasonable efforts to have a clause to such effect included in its
said policies, and shall promptly notify the other in writing if such clause
cannot be included in any such policy.
11.5 LIABILITY OF PARTIES. Except if and to the extent that such party
is released from liability to the other party hereto pursuant to the provisions
of subsection 1 1.4,
(a) the Landlord (i) shall be responsible for, and shall indemnify and
hold harmless the Tenant against and from any and all liability arising out of,
any injury to or death of any person or damage to any property, occurring
anywhere upon the Property, if, only if and to the extent that such injury,
death or damage is approximately caused by the negligent or intentionally
tortuous act or omission of the Landlord or its agents, officers or employees,
but (ii) shall not be responsible for or be obligated to indemnify or hold
harmless the Tenant against or from any liability for any such injury, death or
damage occurring anywhere upon the Property (including the Premises), by reason
of the Tenant's occupancy or use of the Premises or any other portion of the
Property, or because of fire, windstorm, act of God or other cause unless
proximately caused by such negligent or intentionally tortious act or omission,
as aforesaid; and (b) subject to the operation and effect of the foregoing
provisions of this subsection, the Tenant shall be responsible for, and shall
indemnify and hold harmless the Landlord against and from, any and all Lability
arising out of any injury to or death of any person or damage to any properly,
occurring within the Premises.
Section 12. EMINENT DOMAIN.
12.1 RIGHT TO AWARD.
(a) If any or all of the Premises are taken by the exercise of any power
of eminent domain or are conveyed to or at the direction of any governmental
entity under a threat of any such taking (each of which is hereinafter referred
to as a "Condemnation") the Landlord shall be entitled to collect from the
condemning authority thereunder the entire amount of any award made in any such
proceeding or a consideration of such deed, without deduction therefrom for any
leasehold or other estate held by the Tenant by virtue of this Lease.
(b) The Tenant hereby (i) assigns to the Landlord all of the Tenant's
right, title, and interest, if any, in and to any such award, (ii) waives any
right which it may otherwise have In connection with such Condemnation, against
the Landlord or such condemning authority, to any payment for (A) the value of
the then unexpired portion of the Term, (B) leasehold damage and (C) any damage
to or diminution of the value of the Tenant's leasehold interest hereunder or
any portion of the Premises not covered by such Condemnation; and (iii)i agrees
to execute any and all further documents which may be required in order to
facilitate the Landlord's collection of any and all such awards.
(c) Subject to the operation and effect of the foregoing provisions of
this Section, the Tenant may seek, in a separate proceeding, a separate award on
account of any damages of costs incurred by the Tenant as a result of such
Condemnation, so long as such separate award in no way diminishes any award or
payment which the Landlord would otherwise receive as a result of such
Condemnation.
12.2 EFFECT OF CONDEMNATION.
<PAGE>
(a) If (i) all of the Premises are covered by a Condemnation, or (ii) any
part of the Premises is covered by a Condemnation and the remainder thereof is
insufficient for the reasonable operation therein of the Tenant's business, or
(iii) any of the Building is covered by a Condemnation and, in the Landlord's
reasonable opinion, it would be impractical to restore the remainder thereof,
then, in any such event the Term shall terminate on the date upon which
possession of so much of the Premises or the Building, as the case may be, as is
covered by such Condemnation is taken by the condemning authority thereunder,
and all Rent (including, by way of example rather than of limitation, any
Additional Rent payable pursuant to the provisions of subsection 3.2), taxes,
and other charges payable hereunder shall be prorated and paid to such date.
(b) If there is a Condemnation and the Term does not terminate pursuant to
the foregoing provisions of this subsection, the operation and effect of this
Lease shall be unaffected by such Condemnation, except that the Base Rent and
the Additional Rent payable under the provisions of Section 3 shall be reduced
in proportion to the square footage of floor area, if any, of the Premises
covered by such Condemnation.
12.3 If there is a Condemnation, the Landlord shall have no Lability to the
Tenant on account of any (a) interruption of the Tenant's business upon the
Premises, (b) diminution in the Tenant's ability to use the Premises, or (c)
other injury or damage sustained by the Tenant as a result of such Condemnation.
12.4 Except for any separate proceeding brought by the Tenant under the
provisions of paragraph 12.1 (c), the Landlord shall be entitled to conduct any
such condemnation proceeding and any settlement thereof free of interference
from the Tenant, and the Tenant hereby waives any right which it might otherwise
have to participate therein.
Section 13. MECHANICS' AND MATERIALMEN'S LIENS. The Tenant shall:
13.1 Bond, remove or have removed any mechanics', materialman's or other
lien filed or claimed against any or all of the Premises, the Property, or any
other property owned or leased by the Landlord, by reason of labor or materials
provided for or at the request of the Tenant or any of its contractors or
subcontractors (other than labor or materials provided by the Landlord pursuant
to the provisions of Section 5), or otherwise arising out of the Tenant's use or
occupancy of the Premises or any other portion of the Property, and
13.2 Indemnify and hold harmless the Landlord against and from any and all
liability or expense (including, by way of example rather than of limitation,
that of reasonable attorneys, fees) incurred by the Landlord on account of any
such lien or claim.
Section 14. QUIET ENJOYMENT; SURRENDER. The Landlord hereby covenants that
the Tenant, on paying the Rent and performing the covenants set forth herein,
shall peaceably and quietly hold and enjoy, throughout the Term, (a) the
Premises, and (b) such right as the Tenant may hold hereunder with respect to
the remainder of the Property (including, by way of example rather than of
limitation, any such right to use any parking lot within the Property).
14.2 SURRENDER.
(a) Upon the expiration or earlier termination of the Term, the Tenant
shall surrender the Premises and a full set of keys to the Landlord in good
order and repair (damages reasonably beyond the Tenant's control and ordinary
wear and tear excepted), and broom clean.
<PAGE>
(b) Any and all improvements, repairs alterations and all other property
attached to, sued in connection with or otherwise installed upon the Premises
(i), shall become the Landlord's property without payment therefore by the
Landlord at the expiration of the lease term, and (ii) shall be surrendered to
the Landlord upon the expiration of earlier termination of the Term, except that
any machinery, equipment or fixtures installed by the Tenant and used in the
conduct of the Tenants trade or business (rather than to service the Premises or
any of the remainder of the Building or the property generally) shall remain the
Tenants property and shall be removed by the Tenant at the expiration or earlier
termination of the Term and the Tenant shall promptly thereafter fully restore
any of the Premises or the Building damaged by such installation or removal
thereof.
Section 15. RULES AND REGULATIONS. The Landlord hereby reserves the right
to prescribe, at its sole discretion, reasonable rules and regulations
(hereinafter referred to as the "Rules and Regulations"), having uniform
applicability to all tenants of the Building and governing the use and the
enjoyment of the Building and the remainder of the Property; provided, that the
Rules and Regulations shall not materially interfere with the Tenants use and
enjoyment of the Premises, in accordance with the provisions of this Lease, for
the purposes enumerated in the provisions of Section 2. The Tenant shall adhere
to the Rules and Regulations and shall cause its agents, employees, invitees,
visitors and guests to do so. If required by the Landlord of this property, a
copy of the Rules and Regulations in effect on the date hereof is attached
hereto as "Exhibit B".
Section 16 SUBORDINATION; ATTORNMENT AND NON-DISTURBANCE.
16.1 SUBORDINATI0N. This Lease shall be subject and subordinate at all
times to the lien of any first mortgage, first deed of trust, ground lease
and/or other instrument of encumbrance heretofore or hereafter placed by the
Landlord upon any or all of the Premises or the remainder of the Property and of
all renewals, modifications, consolidations, replacements and extensions thereof
(each of which is herein referred to as a "Mortgage"), all automatically and
without the necessity of any further action on the part of the Tenant to
effectuate such subordination.
16.2 ATTORNMENT AND NON-DISTURBANCE. The Tenant shall, within five (5)
days at the request of the Landlord or the holder of any Mortgage (herein
referred to as a "Mortgagee"),
(a) execute, enseal, acknowledge and deliver such further instrument or
instruments evidencing such subordination as the Landlord or such Mortgagee may
deem necessary or desirable and
(b) attorn to such Mortgagee, provided that such Mortgagee agrees with the
Tenant that such Mortgagee will, in the event of a foreclosure of any such first
mortgage or deed of trust (or termination of any such ground lease) take no
action to interfere with the Tenant's rights hereunder, except upon the
occurrence of an Event of Default.
16.3 Anything contained in the provisions of this Section to the contrary
notwithstanding, any Mortgagee may at any time subordinate the lien of its
Mortgage to the operation and effect of this lease without the necessity of
obtaining the Tenant's consent thereto, by giving the Tenant written notice
thereof, in which event this lease shall be deemed to be senior to such Mortgage
without regard to their respective dates of execution, delivery and/or
recordation among the land Records of the said County, and thereafter such
Mortgagee shall have
<PAGE>
the same rights with respect to this lease as though this lease had been
executed and recorded among the said land Records before the execution and
delivery of such Mortgage.
Section 17. ESTOPPEL CERTIFICATE. The Tenant shall from time to time,
within five (5) days after being requested to do so by the landlord or any first
Mortgagee, execute, enseal, acknowledge and deliver to the Landlord an
Instrument in recordable form,
17.1 Certifying
(a) that this lease is unmodified and in full force and effect (or, if
there has been any modification thereof, that It is In full force and effect as
to so modified, stating therein the nature of such modifications;
(b) as to the dates to which the Base Rent and any Additional Rent and
other charges arising hereunder have been paid In advance of the dates on which
payment thereof Is due hereunder, If any;
(c) as to the amount of any prepaid Rent or any credit duo to the Tenant
hereunder;
(d) that the Tenant has accepted possession of the Premises, and the date
on which the Term commenced;
(e) as to whether, to the best knowledge information and belief of the
signer of such certificate, the Landlord is then in default In the performance
of any of Its obligations hereunder (and, If so, specifying the nature of each
such default); and
(f) as to any other fact or condition reasonably requested by the
Landlord, any first Mortgagee or prospective first Mortgagee or purchaser of any
or all of the Promises, the Properly or any Interest therein, or any assignee or
prospective assignee If any interest of the Landlord under this Lease; and 17.2
Acknowledging and agreeing that any statement contained In any such certificate
may be relied upon by the Landlord and any such other parson.
Section 18. NOTICES. Any notice, demand, consent, approval, request or
other communication or document to be provided hereunder to a party hereto shall
be
18.1 In writing to:
Realstar Realtors TENANT: Salem Bank & Trust
4415 Pheasant Ridge Rd. 220 E. Main St.
Roanoke, VA 24014 Salem, VA 24153
18.2 And deemed to have been provided (a) forty-eight (48) hours after
being sent as certified or registered mail In the United States malls, postage
prepaid, return receipt requested, to the address of such parity set forth
hereinabove or to such other address in the United States of America as such
party may designate from time to time by notice to the other, or (b) (if such
party's receipt thereof Is acknowledged in writing) given by hand or other
delivery to such party.
Section 19. GENERAL
19.1 EFFECTIVENESS. This Lease shall become effective upon and only upon
the execution and delivery hereof by each party hereto.
19.2 COMPLETE AND FINAL UNDERSTANDING. This Lease represents the complete
understanding between the parties hereto as to the subject matter hereof, and
supersedes all prior negotiations, representations, warranties, statements or
agreements, either written or oral, between the parties hereto as to the same.
<PAGE>
19.3 AMENDMENT. This Lease may be amended by and only by an instrument
executed and delivered by each party hereto.
19.4 APPLICABLE LAW. This lease shall be given effect and construed by
application of the law of the Commonwealth of Virginia and any action or
proceeding arising hereunder shall be brought In the courts of Virginia
provided, that if any such action or proceeding arises under the Constitution,
laws or treaties of the United States of America, or if there is a diversity of
citizenship between the parties thereto, so that it is to be brought in a United
States District Court, it shall be brought in the United States District Court
of the Western District of Virginia.
19.5 WAIVER. The Landlord shall not be deemed to have waived the exercise
of any right which It holds hereunder unless such waiver is made expressly and
In writing (and no delay or omission by the Landlord in exercising any such
right shall be deemed to be a waiver of the future exercise thereof. No such
waiver made with respect to any instance Involving the exercise of any such
right shall be deemed to be a waiver with respect any other such instance, or
any other such right.
19.6 TIME OF ESSENCE. Time shall be of the essence of this Lease.
19.7 HEADINGS. The headings of the Sections, subsections, paragraphs and
sub-paragraphs hereof are provided herein for and only for convenience or
reference, and shall not be considered In construing their contents.
19.8 CONSTRUCTION. As used herein,
(a) the term "person" means a natural person, a trustee, a corporation, a
partnership and any other form of legal entity; and
(b) all references made (i) n the neuter, masculine or feminine gender
shall be deemed to have been made in all such genders (ii) in the singular or
plural number shall be deemed to have been made, respectively, in the plural or
singular number as well, and (iii) to any Section, subsection, paragraph or sub-
paragraph shall, unless therein expressly Indicated to the contrary, be deemed
to have been made to such Section, subsections paragraph or sub-paragraph of
this Lease.
19.9 EXHIBITS. Each writing or plat referred to herein as being attached
hereto as an exhibit or otherwise designated herein as an exhibit hereto is
hereby made a part hereof.
19.10 SEVERABILITY. No determination by any court, governmental body or
otherwise that any provision of this Lease or any amendment hereof is Invalid or
unenforceable in any instance shall affect the validity or enforceability of (a)
any other provision thereof, or (b) such provision in any circumstance not
controlled by such determination. Each such provision shall be valid and
enforceable to the fullest extent allowed by, and shall be construed wherever
possible as being consistent with, applicable law.
19.11 DEFINITION OF "THE LANDLORD".
19.11.1 As used herein, the term "the Landlord" means the entity
hereinabove named as such, and Its heirs, personal representatives, successors
and assigns (each of whom shall have the same rights, remedies, powers,
authorities and privileges as it would have had, had It originally signed this
Lease as the Landlord),
19.11.2 No person holding the Landlord's interest hereunder (whether
or not such person Is named as the Landlord" herein) shall have any liability
hereunder after such person ceases to hold such Interest, except for any such
liability accruing while such person holds such interest.
19.11.3 Neither the Landlord nor any principal of the Landlord,
whether disclosed or undisclosed, shall have any personal Liability under any
provision of this Lease, If the Landlord
<PAGE>
defaults in the performance of any of its obligations hereunder or otherwise,
the Tenant shall look solely to the Landlord's equity, interest and rights in
the Property for satisfaction of the Tenants remedies on account thereof.
19.12 DEFINITION OF "THE TENANT". As used herein, the term 'the Tenant"
means each person hereinabove named as such and such person's heirs, personal
representatives, successors and assigns, each of whom shall have the same
obligations liabilities, rights and Privileges as ft would have possessed had it
originally executed this Lease as Tenant, provided, that no such right or
privilege shall Inure to the benefit of any assignee of the Tenant, immediate or
remote, unless the assignment to such assignee is made in accordance with the
provisions of Section 4. Whenever two or more persons constitute the Tenant all
such persons shall be jointly and severally liable for the performance of the
Tenant's obligations hereunder.
Section 20. THE AGENT. In consideration of the Agent's services in
procuring this lease, Landlord covenants with and for the benefit of the Agent
as follows: The Agent Is to receive a lease commission Under Separate Agreement
------------------------
of the rent during the original term and all renewals or extensions thereof or
any new lease of the leased Premises between any person and "Tenant, its
successors or assigns" (such phrase used herein to Include such entity in which
Tenant, Its successors or assigns may have an Interest as a stockholder,
partner, lender of money or otherwise), and no sale transfer, assignment
cancellation or release, including a sale or conveyance to Tenant, its
successors or assigns, shall affect the Agents right to such commission which is
hereby made a lien on the leased Premises and all equipment thereon, if any.
The Agent shall have the right to collect all rents due hereunder so that its
commission may be paid in Installments as the rent is received, and retained by
the Agent before remitting the rent (less commissions) to Landlord, but if any
act be done to deprive the Agent of Its right to collect the rent, then the
whole amount of its commission then unpaid shall, at the Agents option,
immediately become due and payable.
Landlord further covenants with and for the benefit of the Agent that if
Tenant, its successors or assigns shall at any time during the original term and
at renewals or extensions thereof (or during any new lease of the Leased
Promises between any person and Tenant, its successors or assigns), purchase the
Leased Premises, then In consideration of the Agents consummating this lease,
the Agent shall receive on the date the Leased Premises are transferred a
commission Under Separate Agreement of gross amount of the purchase price. Such
------------------------
a sales commission shall be in addition to the rental commissions provided for
In the immediately preceding paragraph up to the transfer of said property and
is hereby made a lien on the Leased Promises.
As used in this paragraph, the term "Tenant" shall mean and include not
only Tenant as named in this contract but also the following:
A) If Tenant is a corporation, (1) the successors and/or assigns of
Tenant; (2) any stockholder, director, officer or affiliate of named Tenant or
its successors or assigns; (3) any family member of any stockholder, director,
officer or affiliate of named Tenant or Its successors or assigns; and/or (4)
any corporation which has any stockholder that is also a stockholder or family
member of a stockholder of named Tenant or its successors or assigns.
B) If Tenant is an individual, (1) the heirs and/or assigns of Tenant
or, H plural, of any Tenant; (2) any family member of Tenant or, if plural, of
any Tenant; (3) any corporation in which named Tenant (or, if plural, in which
any Tenant) Is a stockholder and/or (4) any
<PAGE>
corporation which has any stockholder that is also a family member of Tenant or,
if plural of any Tenant.
"Family member(s), "as used In this paragraph shall include one's father,
mother, brother, brothers spouse, sister, sisters spouse, husband, wife, son,
son's spouse, daughter, daughters spouse, grandson, grandson's spouse,
granddaughter and/or granddaughters spouse.
In connection with all acts done or suffered by the Agent for Landlord
concerning the Leased Premises, Landlord further agrees to Indemnify and save
the Agent harmless from all fines, judgements, suits, claims, demands, and
actions of any kind (including any costs and attorneys fees), and from liability
for injury suffered by an employee or contractor (not in the permanent employ of
the Agent) engaged by the Agent for the benefit of Landlord.
All parties acknowledge that the REALTOR Is the Agent of the Landlord, not
the Tenant, The REALTORS fiduciary duties of loyalty and faithfulness are owed
to the Landlord who Is their principal. REALTORS are required by law and their
Code of Ethics to treat the Tenant honestly and fairly.
This is a legal and binding document. Legal assistance should be obtained if
either party deems appropriate.
IN WITNESS WHEREOF, each party hereto has executed and ensealed this Lease,
or has caused it to be executed and ensealed on its behalf by Rs duly authorized
representatives, the day and year first above written.
WITNESS: LANDLORD:East Main Properties, LLC
__________________________________ _____________________________________
WITNESS: TENANT:Salem Bank and Trust
__________________________________ _____________________________________
WITNESS: LEASING AGENT: ROBERT HARTMAN
REALSTAR REALTORS, L.L.C.
__________________________________ _____________________________________
<PAGE>
EXHIBIT "B"
RULES AND REGULATIONS WHICH ARE REFERRED TO
IN THE FOREGOING LEASE AND ARE A PART THEREOF
1 The sidewalks, entries, halls and passages shall not be obstructed by the
Tenant or used by him for any other purpose than for Ingress and egress to
and from the above demised promises. Fire exits are to be kept free from
obstructions at all times,
2. No doors or windows that reflect or admit light into the premises of said
building shall be covered or obstructed.
3. No sign, advertisement or notice shall be Inscribed, painted or affixed on
any part of the outside or inside of the said building, except (1) on the
doors or adjacent windows of the leased premises, and then only of such
color, style, size and material as the Lessor shall determine, and (2)
otherwise as the Lessor shall approve in writing, and then only In such
place, in such manner, and under such conditions as the Lessor shall
prescribe and at Lessee's expense. At the expiration of this Lease, the
Lessee agrees to remove all such signs at his own expense; nor shall any
additional lock be placed upon any door In the demised premises without the
written consent of the Lessor.
4. The Lessee shall not do or permit anything to be done in said premises, or
bring or keep anything therein, which will increase the rate of fire
insurance on said building, or an the property kept therein, or obstruct or
Interfere with the rights of other tenants, or in any way injure or annoy
them, or do or permit to be done anything In conflict with the regulations
of the Fire Department, or with any Insurance policy upon said building or
any part thereof, or with any rules established by the Board of Health, or
with the ordinances of the County of Roanoke, Virginia, or the laws of the
State of Virginia, or of the United States of America.
5. The Lessor shall have the right to prescribe the weight, size and proper
location of safes and other weighty articles before the same are admitted
into the Building, and any such damage done to the building in the putting
In or out of such articles, or during the time they are In or on the
premises, shall be made good by the Lessee. All persons employed In the
moving of safes, furniture or other bulky articles In and out of the
building must be acceptable to the Lessor, and such work Is to be done only
at the time designated by the Lessor.
6. The Lessee shall not cause unnecessary delay or unreasonable labor by
reason of his carelessness or indifference to the preservation of good
order and cleanliness.
7. No carpet, rug or other articles shall be hung or shaken out of any window
or door, and nothing shall be thrown, swept or dropped by the Lessee, his
agents, employees or visitors out of the windows or doors, or into the
court of the building; nor shall animals or birds be brought or kept in or
about the building.
<PAGE>
8. No shades, Venetian blinds, or draperies shall be put up except as approved
by Lessor. The Lessee shall keep shades and Venetian blinds in proper
repair and condition and be responsible for all damage thereto. If the
Lessee desires telegraphic, telephonic, or other connections by wire, the
Lessor will direct the electricians as to where and how the wires are to be
introduced and without such directions no boring or cutting for wires or
attaching of wires to the outside of the building will be permitted.
9. No paintings alterations or decorations of any kind to any part of the
building shall be made by the Lessee.
10. The Lessee shall not use any method of heating or cooling other than that
provided for by the Lessor herein, without the written consent of the
Lessor.
11. Nothing shall be placed on the outside of the building, or on the widows,
window sills or projections.
12. Before all persons leave the premises at the close of the business, tenants
must see that the doors are securely locked and lights are extinguished.
No tenant, or agent, employee or visitor of the tenant or other person,
shall go upon the roof of the building without the written consent of the
Lessor. No machinery of any kind will be allowed to be operated on
premises Without the written consent of the Lessor, ordinary office
equipment excepted.
13. The use of rooms as sleeping apartments Is absolutely prohibited, No
doormat will be permitted outside Lessee's entry door.
14, Any newspaper, magazine or other advertising done from said premises,
which, In the opinion of the Lessor, Is objectionable, shall be immediately
discontinued upon notice from the Lessor.
15. Except as provided in Tenants Lease, Lessor shall not be responsible to any
tenant for the non-observance or violation of any of the rules and
regulations by any other tenant.
16. Lessee shall provide at its own expense, commercial floor pads which Lessee
shall place and maintain under all desks and secretarial desks In order to
prevent excessive wear and tear of floor covering.
<PAGE>
LANDLORD: East Main Properties, LLC
__________________________________
TENANT: Salem Bank and Trust
__________________________________
LEASING AGENT: ROBERT HARTMAN
REALSTAR REALTORS, L.L.C.
__________________________________
<PAGE>
EXHIBIT A
<PAGE>
Lease - EXHIBIT 10.10
LEASE AND OPTION TO PURCHASE
----------------------------
AGREEMENT
---------
THIS LEASE, made and entered into this 26th day of January, 1996, by and
between MAGGIE COMPTON SIMMERS, widow, party of the first part, and hereinafter
referred to as "Landlord"; and SALEM BANK & TRUST, a banking organization having
its principal office in the City of Salem, Virginia, party of the second part,
and hereinafter referred to as "Tenant" provides:
SECTION 1. Premises. Landlord leases to Tenant and Tenant hires from
--------
Landlord the property described as follows:
Lots 4 and 5, Section 1, Riverland Court, Subdivision, known as 1406
Colorado Street, Salem, Virginia. All fixtures attached to the building as
of the date of this Agreement are leased with the premises.
SECTION 2. Term. The initial term of this Lease shall be for a term of
----
five (5) years commencing on February 16, 1996, and ending on February 15, 2001,
at midnight. Tenant may renew the lease for a second five (5) year term if
notice of the intent to renew is given to Landlord by Tenant ninety (90) days
prior to the expiration of the initial term of lease, in accordance with the
notice provisions set forth herein. Tenant may renew the lease for a third five
(5) year term if notice of the intent to renew is given to Landlord by Tenant
ninety (90) days prior to the expiration of the second term of the lease, in
accordance with the notice provisions set forth herein.
SECTION 3. Possession. If Landlord is unable to give possession of Premises
----------
on the date of commencement of the term of this Lease, by reason of the holding
over of any tenant or occupant, rent shall abate for the period that possession
by Tenant is delayed.
SECTION 4. Use. Tenant shall use Premises for banking purposes only and
---
shall not permit any other operation which might cause an additional premium to
be payable for insurance on Premises or the Building against fire or other
hazard, or which might render void or voidable
C.O. Jr. _________
M.C. S. __________
<PAGE>
any such insurance. Tenant covenants that it shall comply with all Federal,
State, City, County or other municipal laws, ordinances and regulations.
SECTION 5. Rent. Tenant shall pay to Landlord as annual rent in legal
----
tender of the United States without offset or deduction the sum of Seven Hundred
Dollars ($700.00) per month, payable in advance on the sixteenth day of each
month during the term hereof, without demand therefor being made, at P.0. Box
183, Salem, Virginia, 24153, or at such other place as Landlord shall designate
in writing.
(A) In the event that Tenant exercises the option to renew this lease for
a second term the rent for that second term shall be Eight Hundred Dollars
($800.00) per month, payable in advance on the sixteenth day of each month
during said second term. In the event that Tenant exercises the option to renew
this lease for a third term, the rent for that third term shall be Nine Hundred
Dollars ($900.00) per month, payable in advance on the sixteenth day of each
month during said third term.
There shall be no security or damage deposit payable to Landlord by reason
of this Lease.
SECTION 6. Charges. During the term of the Lease, Tenant shall pay
all utility charges, taxes and insurance.
"Utility Charges" include charges for water, sewage, electricity, heating,
and any taxes imposed thereon.
"Taxes" include local real estate taxes, business or use taxes as charged
against the premises, but do not include local, state, or federal income taxes
payable by Landlord.
"Insurance" includes:
(i) fire and extended coverage for the replacement value of the
building and for any equipment furnished by Landlord, and naming
Landlord in the loss payable or beneficiary clause, and
(ii) liability insurance naming Landlord as an insured party in an
amount not less than $300,000.
C.O. Jr. _________
M.C. S. __________
2
<PAGE>
SECTION 7. Negative Covenants.
------------------
(A) Tenant shall not without Landlord's prior written consent make
alterations, additions or improvements to Premises, unless said changes relate
to the equipping and maintenance of the Premises as a Banking facility.
(B) Tenant shall not commit or permit any act which results in any wasting
of Premises.
(C) Tenant shall not vacate nor abandon the Premises during the term of
this Lease except for temporary repairs or casualty.
(D) Tenant shall not permit any equipment on the Premises which would
exceed the normal demands placed on the Building's electrical, water, heating or
air conditioning systems.
SECTION 8. Care and Repair.
---------------
(A) Tenant shall maintain Premises in the same good condition as they
shall be at the commencement of this Lease, ordinary wear and tear excepted.
Tenant shall, at its expense, make such repairs to the demised premises and the
fixtures and appurtenances therein necessitated by the negligence of Tenant
(except fire or other casualty caused by Tenant's negligence, as long as the
fire or other casualty insurance policies insuring Landlord are not invalidated
by this provision) or by the use of the demised premises in a manner not
provided in the Lease. All damage or injury to the Premises and to its fixtures,
appurtenances and equipment or to the building or to its fixtures, appurtenances
and equipment for which Landlord has not been or will not be reimbursed by
insurance shall be repaired, restored or replaced promptly by Tenant at its sole
cost and expense, which repairs, restorations and replacements shall be in
quality and class equal to the original work or installations.
Tenant shall, at its expense, make all repairs and replacements, structural
or otherwise, necessary or desirable to keep in good order and repair the
parking area and the interior and exterior of the Premises including Landlord's
equipment.
C.O. Jr. _________
M.C. S. __________
3
<PAGE>
(B) All improvements made by Tenant to Premises which are so attached to
Premises that they cannot be removed without material injury to Premises, shall
at Landlord's option become the property of Landlord upon installation. Tenant
shall at its sole cost and expense not later than the last day of the term
remove all of its personal property and those improvements made by Tenant which
have not become the property of Landlord, including trade fixtures, cabinet
work, movable paneling, partitions and the like, repair all injury done by or in
connection with the installation or removal of such property and improvements,
and surrender Premises in as good condition as they were at the beginning of the
term, ordinary wear and tear and damage by fire or other casualty not due to the
misuse or neglect of Tenant or Tenant's agents, servants, visitors or licensees
excepted.
(C) A drive-in window facility and/or a banking vault, if installed and
placed in or (in the premises by Tenant, shall not be considered an improvement
attached to the Premises regardless of how affixed to the Premises.
(D) All property of Tenant remaining on the Premises after the last day of
the term of this Lease shall conclusively be deemed abandoned and may be removal
by Landlord, unless Tenant has given notice to the contrary, and Tenant shall
reimburse Landlord for the cost of such removal. Landlord may have any such
property stored at Tenant's risk and expense.
SECTION 9. Services.
--------
Landlord shall provide no services.
SECTION 10. Fire.
----
(A) If the Building is damaged by fire or any other casualty to such
extent that (i) the cost of restoration, as reasonably estimated by Tenant, will
equal or exceed 60% of the replacement value (exclusive of foundation) of the
Building immediately prior to the occurrence, or (ii) if the time necessary to
restore the Building, as reasonably estimated by Tenant, will exceed ninety (90)
days, Tenant may, within 30 days after occurrence of such damage, give notice to
Landlord of Tenant's election to terminate this Lease. In the event of such
election, the
C.O. Jr. _________
M.C. S. __________
4
<PAGE>
Lease shall terminate on the third day after the giving of said notice, and
Tenant shall surrender possession of Premises as quickly as is practicable and
the rent an all additional rent shall be apportioned as of the date of such
surrender and any rent paid for any period beyond such date shall be repaid to
Tenant.
(B) If Tenant does not elect to terminate this Lease, Tenant shall restore
the Building and Premises with reasonable dispatch, subject to delays beyond
Tenant's control and delays in the making of insurance adjustments by Tenant.
(C) In any case in which use of Premises is affected by any damage to the
Building, there shall be either an abatement or an equitable reduction in rent
depending on the time period and the extent to which Premises are not reasonably
usable for the purposes for which they are leased hereunder. If the damage
results from the fault of Tenant, Tenant shall not be entitled to any abatement
or reduction of rent, except to any extent that Landlord receives the proceeds
of rent insurance in lieu of such rent.
SECTION 11. Condemnation.
------------
(A) If all or part of the building or the land comprising the site on
which the Building is situated shall be taken or condemned (or sold under threat
of such taking) by a competent authority for any public or quasi-public use or
purpose, Landlord may, by 30 days notice to Tenant terminate this Lease; and if
so much of Premises shall be so taken as to leave the untaken part insufficient
for the purposes for which Premises were leased hereunder, either Landlord or
Tenant may, by notice to the other, terminate this Lease.
(B) In the event of a termination pursuant to either of the foregoing
conditions, this Lease shall terminate on the date when title vests pursuant to
such taking. Tenant shall have no claim against the Landlord for the value of
the unexpired term hereof or of any fixtures and improvements owned by Tenant or
for moving expenses or other consequential damages; provided, however, that
Tenant may participate in any condemnation award if such participation does not
affect the rights or award of Landlord. The rent and additional rent shall be
apportioned
C.O. Jr. _________
M.C. S. __________
5
<PAGE>
as of the date of such title vesting and any rent paid in advance beyond such
date shall be refunded to the Tenant.
(C) If this Lease shall continue after any such taking, Landlord shall
restore Premises to a tenantable condition and rent shall be equitably abated
during the period of restoration.
SECTION 12. Default. Upon the occurrence of any of the following
-------
events, and expiration of the applicable period herein provided for curing such
event, without notice, if no notice is required, or with the required notice,
then there shall be an "Event of Default":
(i) If Tenant takes advantage of any debtor relief proceeding where-by
the rent is to be deferred.
(ii) If Tenant makes an assignment for the benefit of creditors or takes
any action under any voluntary insolvency or bankruptcy act.
(iii) If Tenant does not pay any monthly rental payment, or any other sum
to be paid by Tenant hereunder, without just cause.
(iv) If Tenant fails in the performance of any of the covenants or
conditions hereof.
SECTION 13. Landlord's Remedies Upon an Event of Default.
---------------------------------------------
(A) Upon the occurrence of any Event of Default, Landlord may:
(i) Enter Premises to cure a non-monetary default by Tenant and add the
cost of such cure to the amount of the next rental payment.
(ii) Cancel and terminate this Lease on not less than thirty days prior
written notice to Tenant. On the date specified in such notice Tenant shall
then quit and surrender Premises to Landlord, but Tenant shall remain liable as
herein provided. Upon such termination, Landlord may resume possession of
Premises by any lawful means, and remove Tenant and its effects and hold
Premises as if this Lease had not been made.
(iii) Landlord may reenter Premises without terminating this Lease and
prepare Premises for reletting and may occupy or relet Premises. In such event
Tenant will remain
C.O. Jr. _________
M.C. S. __________
6
<PAGE>
responsible for the difference in rental paid by the new Lessee if by Tenant,
but only for the duration of the term of the lease.
(B) Failure of Landlord to reenter the Premises, or to exercise any of its
rights hereunder upon any default, shall not be deemed a waiver of any
subsequent default or defaults. All of Landlord's rights shall be cumulative
and shall not preclude Landlord from exercising any other rights which he may
have at law or in equity.
SECTION 14. No Waiver. Failure of either Landlord or Tenant to insist
---------
upon strict observance of any provision of this Lease shall not be deemed a
waiver of such or any other provision of this Lease in any other instance.
SECTION 15. Notices. Any notice by either party to the other shall be in
-------
writing and shall be deemed to be duly given only if delivered personally or
mailed by registered or certified mail with return receipt requested in a
postpaid envelope addressed (a) if to Tenant, at the Building and the main
offices of Tenant in Salem, Virginia, and, (b) if to Landlord, at P. 0. Box 183
Salem, Virginia, 24153, or at such other addresses as Tenant or Landlord,
respectively, may designate in writing. Notice shall be deemed to have been
duly given: if delivered personally, upon delivery; if mailed, upon the receipt
of delivery notice from the U.S. Post Office.
SECTION 16. Landlord's Right to Inspect and Repair.
--------------------------------------
Landlord and its agents, officers, employees, or licensees may enter
Premises at any reasonable time, on reasonable notice to Tenant (except that no
notice need be given in event of an emergency) for the purpose of inspection or
the making of repairs, replacements and additions in, to, on and about Premises
or the Building.
SECTION 17. Landlord's Right to Show. Landlord may after giving notice to
------------------------
Tenant show Premises to prospective purchasers and mortgagors. During the last
three (3) months of the term of this lease, Landlord may show the Premises to
prospective tenants. The Landlord's right to show under this Section is limited
to showing the Premises during business hours during which time the lobby of the
Premises is not open to the public.
C.O. Jr. _________
M.C. S. __________
7
<PAGE>
SECTION 18. Assignment and Subleasing; Successors and Assigns.
-------------------------------------------------
Tenant agrees that it will not transfer or assign this Lease, nor lease or
sublease the whole or any part of the Premises without the written consent of
Landlord; provided that the foregoing shall not prevent the assignment of this
Lease to any corporation with which Tenant may merge or consolidate, or any
wholly owned subsidiary of Tenant. Consent by Landlord to any assignment or
sublease shall not be unreasonably withheld, but no such assignment or sublease
shall release Tenant from liability hereunder except upon the express written
agreement of Landlord. Consent by Landlord to any assignment or sublease shall
not constitute a waiver of the necessity of such consent to any subsequent
assignment or subletting.
This Lease and all the terms, covenants, conditions and provisions herein
contained shall be binding upon and shall inure to the benefit of the parties
hereto and their respective personal representatives, heirs, successors and
assigns (if assigned in accordance with the terms herein set out above).
SECTION 19. Quiet Enjoyment. Subject to the other terms of this Lease,
---------------
Landlord covenants that Tenant, upon performing all its obligations hereunder,
shall have quiet and peaceable possession of Premises during the term hereof.
SECTION 20. Option to Purchase Premises. Tenant is hereby granted the
---------------------------
option to purchase the Premises during the term of this Lease at any time during
a term of the Lease.
The actual Value of the property on January 26, 1996, for the land and
building involved is agreed to be One Hundred Sixty Seven Thousand Eight Hundred
Seventy Four Dollars ($167,874.00), which value the parties agree is to be
increased at the rate of five percent (5%) per annum so that the value on
February 1, 1997, is One Hundred Seventy Six Thousand Two Hundred Eighty Seven
Dollars and will continue at the rate of five percent (5%) thereafter during the
term of the Lease or until the option to purchase is exercised.
The Landlord agrees that in the event Tenant exercises its option to
purchase that she, her heirs or assigns will finance up to seventy percent (70%)
of the purchase price for a period of ten
C.O. Jr. _________
M.C. S. __________
8
<PAGE>
(10) years from the date of the exercise of the option with the principal and
interest payable in monthly installments, the interest being established at the
rate of (13%) per annum and that the note evidencing this debt shall be secured
by a deferred purchase money deed of trust.
SECTION 21. Entire Agreement. This Lease contains the entire agreement
----------------
between Landlord and Tenant relating to the Premises and supersedes all prior
and contemporaneous negotiations, understandings and agreements, written or
oral, between the parties. This Lease shall not be amended or modified except
by written instrument executed by both parties.
SECTION 22. No Representations. Neither party has made any
------------------
representations or promises except as contained herein or in some future writing
signed by the party making such representation or promise.
SECTION 23. No Partnership. Landlord does not in any way for any purpose
--------------
become a partner of Tenant in the conduct of its business.
SECTION 24. Rights Cumulative. All rights, powers, and privileges
-----------------
conferred hereunder upon parties hereto shall be cumulative, but not restrictive
to those given by law.
SECTION 25. Title and Paragraph Headings. The titles and paragraph
----------------------------
headings used herein are for convenience only and are not substantive in any
way.
SECTION 26. Separability Clause. Should any provisions of the Lease be or
-------------------
become void or unenforceable, the remaining provisions hereof shall remain in
full force and effect.
SECTION 27. Heirs and Assigns. This Lease shall be binding upon the
heirs, assigns, and successors in interest to either party hereto.
_____________________________________
Maggie Compton Simmers
SALEM BANK & TRUST, N.A.
By:__________________________________
Clark Owen, Jr., President
C.O. Jr. _________
M.C. S. __________
9
<PAGE>
STATE OF VIRGINIA,
CITY OF SALEM, to-wit:
The foregoing instrument was acknowledged before me this 7/th/ day of
-----
February, 1996, by Maggie Compton Simmers.
- --------
My Commission expires May 31, 1999
------------
______________________________
Notary Public
STATE OF VIRGINIA
CITY OF SALEM, to-wit:
The foregoing instrument was acknowledged before me this 7/th/ day of
-----
February, 1996, by Clark Owen, Jr., President of Salem Bank and Trust.
- --------
My Commission expires May 31, 1999
------------
______________________________
Notary Public
C.O. Jr. _________
M.C. S. __________
10
<PAGE>
Lease to - EXHIBIT 10.11
SALEM BANK AND TRUST, N.A.
- --------------------------------------------------------------------------------
TELEPHONE (540) 387-0223 P.O. BOX 979 SALEM, VIRGINIA 24153
May 14,1998
Radsue Texas Bar-B-Q
110 East Main Street
Salem, VA 24153
Dear Rad & Sue:
This letter will confirm the renewal of your lease at the current terms and
conditions through April 30, 2000.
We are pleased that you decided to continue your lease with us.
Sincerely,
Gill R. Roseberry
Senior Vice President & Cashier
GRR/Ibw-
<PAGE>
RADSUE TEXAS BAR-B-Q
110 E. Main Salem, VA 24153 540-389-7352
April 28, 1998
Gill R. Roseberry
Senior Vice President & Cashier
Salem Bank & Trust, N.A.
P.0. Box 979
Salem, VA 24153
Dear Gill:
This letter is pursuant to our recent conversations. We know that you have had
other matters on your mind but we need to confirm our lease situation for the
next two years.
We hereby acknowledge that we will be renewing our lease at 110 East Main
Street, Salem Virginia for an additional two (2) years at our current lease
rate. The lease will run from May 1, 1998 to April 30, 2000.
Looking forward to our continuing presence in your building we remain
Sincerely yours,
___________________, ___________________
Radford Thomas Sue S. Thomas
<PAGE>
ADDENDUM TO LEASE
OLDE NEWBERRY BUILDING
THIS ADDENDUM TO LEASE is made this _____ day of ________,1993 by SALEM
BANK & TRUST, N. A. (hereinafter referred to as "Landlord") and RADFORD THOMAS
and SUE S. THOMAS (hereinafter referred to as "Tenant").
WITNESSETH
----------
WHEREAS, by Lease dated February 19, 1992 (herein "Lease"), certain
premises (herein "Leased Premises") in the Olde Newberry Building, 110 East Main
Street, Salem, Virginia 24153, were leased by Downtown East Realty, Inc. to the
Tenant; and
WHEREAS, subsequent to said Lease, the Leased Premises were sold to Salem
Bank & Trust, N. A., and the Lease was assigned by Downtown East Realty, Inc. to
Salem Bank & Trust, N. A.; and
WHEREAS, the Landlord has agreed to lease to Tenant and the Tenant has
agreed to lease from Landlord certain additional premises in the said Olde
Newberry Building.
NOW, THEREFORE, IN CONSIDERATION of the covenants herein contained, the
parties hereto agree as follows:
1. In addition to the Leased Premises, the Landlord hereby leases to
Tenant and the Tenant hereby leases from the Landlord the space adjacent, and
just South of, the Leased Premises, as shown on Appendix A to the Lease (herein
"Additional Leased Premises").
2. In addition to the rent due and payable under the terms of the Lease,
the Tenant shall pay as Annual Rent on the Additional Leased Premises for each
Lease Year of the term hereof, the sum of $_________ payable in equal monthly
installments of $__________,_ the first monthly installment to be made on the
commencement date of this Lease and the second and all subsequent monthly
payments to be made on the first day of each and every calendar month after the
commencement date.
3. All other terms of the Lease shall be binding upon the Landlord and
Tenant and the terms of the Lease are hereby incorporated by reference and made
a part hereof. These terms include, but are not limited to, the Consumer Price
Index Adjustment provision as contained in the Lease.
4. The Lease of the Additional Leased Premises shall commence on ________
_____, 1993 and expire at 11:59 p.m. on April 30, 1994.
WITNESS the following the signatures and seals:
<PAGE>
SALEM BANK & TRUST, N. A.
By___________________________________
Its
_____________________________________
Radford Thomas
_____________________________________
Sue S. Thomas
<PAGE>
LEASE
OLDE NEWBERRY BUILDING
THIS LEASE is made this 19th day of February, 1992, by Downtown East
---- -------- ----
Realty, Inc. (hereinafter referred to as "LANDLORD"), and Radford Thomas and Sue
----------------------
S. Thomas (hereinafter referred to as "Tenant").
- ---------
WITNESSETH
Landlord hereby rents to Tenant and Tenant hereby rents from Landlord the
leased premises described, upon the following terms and conditions:
1. Leased Premises: Landlord hereby leases to Tenant, and Tenant hereby
---------------
leases from Landlord, for the term and upon the conditions hereinafter provided,
that certain storeroom, located in the Olde Newberry Building, 110 East Main
Street, Salem, Virginia 24153 (hereinafter referred to as the "Center"), 764
---
square feet, such space being hereinafter referred to as the "Leased Premises",
and outlined in Red on Exhibit A attached hereto.
2. Terms: The term of this Lease shall commence on May 1, 1992 and expire
----- -----------
at 11:59 o'clock p.m. April 30, 1994
--------------
3. Use of Leased Premises: The leased premises shall be used and promptly
----------------------
occupied by Tenant for the purpose of A Restaurant. Tenant shall not use or
------------
knowingly permit any part of the leased premises to be used for any unlawful
purpose. Tenant agrees to comply with all federal, state, county and municipal
laws and ordinances and all rules and regulations and order of any duly
constituted authority, present or future, which affect the conduct of Tenant's
business on the leased premises.
4. Option to Renew: Tenant may, at its option, so long as it is not in
---------------
default under any of the terms hereof, upon written notice to Landlord more than
six (6) months prior to the end of the preceding term, renew this lease for one
---
(1) consecutive term(s) upon the same terms and conditions for two (2) years.
- --- -------
5. Rent: Tenant shall pay as Annual Rent for the Leased Premises for each
----
"Lease Year" of the term hereof the sum of $4,375.36 (Four Thousand Three
------------------------------
Hundred Seventy-Five Dollars & thirty-six cents) payable in equal monthly
- ------------------------------ -----------------
installments, in advance of $364.61 (Three Hundred Sixty-Four Dollars and sixty-
---------------------------------------------------
one Cents) the first monthly installment to be made upon the Commencement Date
- --------------
of this lease, and the second and all subsequent monthly payments to be made on
the first day of each and every calendar month after the Commencement Date.
Tenant shall pay rent to Landlord at 508 East Main Street, Salem, Virginia
24153, or to such other party and address as Landlord may designate from time to
time by written notice to Tenant, without demand and without deduction, set-off
or counterclaim. If Landlord shall at any time or times accept said rent after
it shall become due and payable, such acceptance shall not excuse
<PAGE>
delay upon subsequent occassions, or constitute or be construed as, a waiver of
any or all Landlord's rights hereunder.
6. Consumer Price Index Adjustment: Each calendar year during the
-------------------------------
original term and any extension of the term of the lease, the annual rent shall
be adjusted using the preceding calendar year just ended as the base year and
averaged monthly, increase in the base year in accordance with changes in the
cost of living which shall be determined by the U.S. Consumer Price Index - "All
Items" - as compiled by the U.S. Department of Labor or an index substituted for
it by the U.S. Government. In no event, however, shall the monthly basic rent
be reduced to an amount less than the initial monthly basic rent in effect as of
the Commencement Date of this Lease nor shall the increase exceed, in any one
given year, Four Percent (4%) of the then existing annual rental payments.
7. Hours: Tenant shall open for business no later than 11:00 a.m. each
-----
day and close no earlier than 4:00 p.m. on weekdays; and open for business no
later than 12:00 noon and close no earlier than 3:00 p.m. on Saturdays, except
that Tenant is not required to remain open on Sundays or legal holidays.
Hours are subject to change.
8. Utilities: The utilities, included in the annual rental, required for
---------
the operation of the leased premises, include electricity, natural gas, sewage
treatment and water. The cost of Tenant's phone service, however, is not
included and is the responsibility of each tenant.
9. Taxes and Insurance: Included in the annual rental is a charge of
-------------------
$173.36 per year to cover Tenant's pro rata share of all real estate and
- -------
personal property taxes, fire and extended coverage insurance for the entire
premises including the Landlord's public liability and business interruption
insurance.
10. Pro rata Share: Pro rata share shall mean the ratio expressed as a
--------------
percentage of the Tenant's leased area of the premises to the entire rentable
area in the building. For the purpose of this lease, the Tenant's leasable area
is Four (4%)
---------
11. Taxes and Insurance Escalations: Each calendar year the Tenant shall
-------------------------------
be provided by the Landlord with a detailed statement of all taxes and insurance
--------
costs.
Recognizing that the costs mentioned above in paragraphs 8, 9 & 11
will vary from year to year, the Tenant and Landlord agree that the rent will be
adjusted to reflect any increases or decreases provided, however, that any
insurance increase is not due to the negligence of the Landlord.
If there was an overpayment by the Tenant during the previous year,
the Landlord will repay the Tenant for such overpayment. If there was an
underpayment by the Tenant during the previous year, then within 30 days upon
presentation of statement to Tenant by Landlord, Tenant shall pay Landlord for
such underpayment and annual rent shall be adjusted upward by an amount of the
previous year's shortage to cover the escalated costs.
<PAGE>
Calculations for utility costs included in the annual calendar year
rental are based upon the Tenant's premises being used 55 hours per week and a
connected electrical load of __________ watts. Should the hours be greater than
55 or the electrical load of exceed ___________ watts, then the Tenant shall pay
a surcharge to cover such excess.
12. Lease Year - Calendar Year: The term "lease year" shall mean the
--------------------------
twelve (12) month period beginning on the first day of the first full month of
the initial term of this lease and ending on the last day of each twelfth (12th)
month thereafter. If there shall be a period at the beginning or the ending of
the Tenant's term which is less than the full twelve (12) month calendar year
(beginning January 1 and ending December 31), then such shorter periods shall be
considered a separate calendar year and the calendar year costs prorated for
purposes of determining the amount of the charge for such shorter periods.
13. Indemnity and Public Liability Insurance: The Tenant agrees to
----------------------------------------
indemnify and save harmless the Landlord from and against all claims of whatever
arising from any act, omission, or negligence of the Tenant, or the Tenant's
contractors, licensees, agents, servants, or employees, or arising from any
accident, injury or damage whatsoever, caused to any person, or to the property
of any person occurring during the term hereof in or about the Tenant's leased
premises where such accident, damage or injury results or is claimed to have
resulted from an act, omission or negligence on the part of the Tenant or the
Tenant's agents or employees.
Tenant agrees to maintain in full force during the term hereof, a
policy of public liability and property damage insurance under which Landlord
(and such other persons as are in privity of estate with the Landlord as may be
sent out in notice from time to time) is named as additional named insured with
the Tenant. Each such policy shall be noncancellable with respect to the prior
written notice to the Landlord, and a duplicate original or certificate thereof
shall be delivered to the Landlord from the insurance agent no later than 30
days after commencement date of lease. The minimum limits of liability of such
insurance shall be $500,000.00 for injury (or death) to any one person, and
-----------
$1,000,000.00 for injury (or death) to more than one person, and $50,000.00 with
- ------------- ----------
respect to property. The above limits are subject to the Tenant's ability to
obtain such coverage through normal course of business.
14. Other Insurance: The Landlord shall keep the leased premises insured
---------------
against loss or damage by fire, with the usual extended coverage endorsement and
such other insurance as the then holder of the first mortgage may require, in
amounts not less than eighty (80%) percent of the full insurable value thereof.
The Tenant agrees that it shall keep its fixtures, merchandise and
equipment insured against loss or damage with the usual extended coverage
endorsement. It is understood and agreed that the Tenant assumes all risk of
damage to its own property arising from any cause whatsoever, including, without
limitation, loss by theft or otherwise.
15. Sign: Tenant may erect one (1) interior window sign to be located in
----
the front window (in space provided) facing main street. The sign shall be
subject to the approval of the Landlord as to location, size and design, and
shall be purchased, erected and maintained at the
<PAGE>
expense of the Tenant. Tenant shall not erect or paint any other sign without
prior written approval from Landlord which shall not be unreasonably withheld.
Menu: A menu is to be placed in a framed, plastic covered unit to be
----
secured to the inside of the building, in the window, as noted in Appendix A.
Texas Flag: A 3'x 51 Texas Flag will be displayed on a free standing
----------
staff outside the building in a location as noted in Appendix A.
No Political signage shall be erected on the exterior, common area, or
windows facing the common area of the building.
16. Improvements and Alterations: Tenant shall be free to make
----------------------------
alterations, redecorations, or improvements in and to the Leased Premises only
after written approval by Landlord. All alterations, decorations, additions, or
improvements in or to the storeroom made by either party shall remain upon and
be surrendered with the Leased Premises as a part thereof at the end of the term
hereof without disturbance, molestation, or injury; provided, however, that if
Tenant is not in default in the performance of any of its obligations under this
Lease, Tenant shall have the right to remove, at Tenant's expense, prior to the
expiration or termination of the term of this Lease, all decorations, signs,
tables, computers, chairs, sinks, refrigeration equipment (refrigerators, ice
chests, freezers, etc.), cooking equipment (ranges, hot pots, steam units,
infrared units, etc.). Decorations to be removed by Tenant on vacation of lease
space include, but are not limited to: the Mobil Flying Red Horse, any prints
such as those by Frederic Remington, the RADSUE neon sign any stained glass or
other artifacts, signs, equipment, inventory or decorations as the Tenant from
time to time may place in the leased premises. If such property of Tenant is not
removed by Tenant prior to the expiration or termination of this Lease, the same
shall become the property of Landlord and shall be surrendered with the Leased
Premises as a part thereof, unless prior written permission is received, from
the Landlord, stating that Tenant's property may remain for a specified time.
None of the above shall affect the structural safety of the building and must be
in accordance with all building and safety codes whether they be federal, state,
county or municipal laws, ordinances, rules, regulations, or orders of any duly
constituted authority, present or future, which affect the Tenant's leased area.
Landlord will not be liable for any labor or materials furnished Tenant upon its
order and no lien therefore shall attach to or affect the interest of the
Landlord in and to the leased premises
16A. Tenant shall have the right of first refusal to lease the adjacent
space just south of his leased space as noted on Appendix A.
17. Repairs By Landlord: Landlord will keep and maintain all exterior and
-------------------
structural parts of the leased premises in good safe condition and in good order
and repair.
18. Landlord Not Liable For Damages: The Landlord shall not be liable for
-------------------------------
any damage or injury to any person or property caused by or resulting from
faulty sprinkler, steam, electricity, gas, water, rain, ice or snow, of any leak
or flow from or into any part of the leased
<PAGE>
premises or the Center area of which the same is a part, or from any damage or
injury resulting or arising from any other cause or happening whatsoever, unless
notwithstanding any other provision hereof, Landlord shall not be liable to
Tenant or any insurance company insuring Tenant for any loss or damage to
Tenant's merchandise or property within the leased premises which was or could
have been covered by fire and extended coverage or boiler or sprinkler damage
insurance, even though such loss or damage may have been occassioned by the
negligence of Landlord, its agents or employees.
19. Maintenance Of Common Facilities: Landlord will provide adequate
--------------------------------
lighting, during business hours, for the Center, and connecting corridors,
walkways and other appropriate common facilities within the Center, and keep and
maintain the same in good, safe condition, sightly in appearance, free of
obstructions and in good order and repair.
20. Landlord's Right To Enter: Tenant shall permit Landlord to erect, use
-------------------------
and maintain pipes and conduits in and through the leased premises. Landlord,
its agents or representatives, shall have the right to enter leased premises at
reasonable times to examine the same or show them to prospective purchasers or
tenants or to effect repairs. Tenant shall permit, during the six months next
preceding expiration of its lease term, signs or notices indicating that
premises are for lease or sale, to be posted and remain on leased premises.
21. Insolvency or Bankruptcy of Tenant: In the event Tenant makes an
----------------------------------
assignment for the benefit of creditors, or a receiver of Tenant's assets is
appointed, or Tenant files a voluntary petition in any bankruptcy or insolvency
proceeding, or an involuntary petition in any bankruptcy or insolvency
proceeding is filed against Tenant and the same is not discharged within sixty
(60) days, or Tenant is adjudicated as bankrupt, Landlord shall have the option
of terminating this Lease by sending written notice, being given by Landlord to
Tenant, the term of this Lease shall, at the option of Landlord, end, and
Landlord shall be entitled to immediate possession of the Leased Premises.
22. Condemnation. If the Leased Premises be taken under the power of
------------
eminent domain, this lease shall terminate upon the effective date thereof. If
a portion of the Leased Premises, or a portion of the building of which the
Leased Premises are a part, or if twenty (20%) percent or more of the remainder
of the Center be taken under the power of eminent domain, the Landlord and
Tenant shall each have the right to terminate this Lease on notice to the other
within thirty (30) days after the date of such taking. If the lease be
continued, the Landlord shall immediately proceed to restoring the remaining
portion of the Leased Premises or to enter to the extent necessary or possible
to render the premises reasonably suited for its intended purpose; and the
rental shall be reasonably apportioned. If the lease shall be terminated, the
rental shall be adjusted as of the time of termination, and the Tenant shall
have no claim against Landlord for the value of the unexpired portion of the
lease term. The Tenant shall not be entitled to any part of the condemnation
award, except that Tenant's right to compensation, if any, for its fixtures or
personal property shall not be affected thereby.
23. Fire or Other Casualty, If the Leased Premises be damaged by fire or
----------------------
other casualty without fault or negligence on the part of Tenant, its employees
or invitees, Landlord, unless it shall elect otherwise as hereinafter provided,
shall promptly repair the same. If Leased
<PAGE>
Premises be damaged by fire or other casualty to such an extent as to render the
premises untenantable, or if substantial damage from fire or other casualty
shall occur within the last five (5) years of lease term or if the Leased
Premises should be damaged to such an extent that the cost of restoration would
exceed sixty (60%) percent of the amount it would have cost to restore the
Leased Premises in their entirety at the time of such damage, Landlord or
Tenant, if such damage is not the result of an act or negligence of the Tenant,
may elect, within thirty (30) days after the damage shall occur, to terminate
the lease, but if the Landlord elects to repair the Leased Premises, the rent
shall abate until the premises are restored to a tenantable condition, except
that there shall be no abatement of rent if damages be caused by act or
negligence of tenant, its employees or invitees.
24. Default: Abandonment of Leased Premises, a default of ten (10) days in
-------
payment of rent, a breach of any of the covenants or conditions of this lease
continuing for more than five (5) days after notice thereof from Landlord,
death, dissolution or commencement of any proceedings to dissolve Tenant,
termination of existence, insolvency, business failure, appointment of a
Receiver, assignment for benefit of creditors of all or any part of the property
of Tenant, or commencement of any proceedings under any bankruptcy or insolvency
law by or against Tenant, shall be deemed a default by Tenant under this Lease.
No failure on the part of Landlord to enforce any covenant or provision herein,
nor the waiver of any right hereunder by Landlord shall discharge or invalidate
such covenant or provisions or any other covenant, condition, or provision
hereof, or affect the right of Landlord to enforce the same in event of a
subsequent breach of default.
25. Remedies on Default: In the event of default by Tenant, Landlord, may
-------------------
at it's option, without notice to Tenant, terminate this lease and reenter the
Leased Premises and again have, possess and enjoy the same as of its former
estate, but no such reentry shall be deemed an acceptance of a surrender of this
lease. In the event of reentry for default, Landlord may, at it's option, relet
the leased premises or any part thereof, as agent for Tenant, or any sum which
it may deem reasonable, but Landlord shall not be under any obligation to relet
the premises for any purpose other than that specified in this Lease. In event
of termination for default,
Tenant shall remain liable for all its obligations under this lease,
and for such loss and damages as Landlord may sustain as a result of Tenant's
breach hereof.
26. Landlord May Cure Tenant's Default: In event of any breach of any
----------------------------------
covenant, condition or provision of this lease by Tenant, Landlord may, after
reasonable notice to Tenant, cure such breach for the account and at the expense
of the Tenant. Tenant shall promptly reimburse Landlord for any expenses,
including reasonable attorney's fee, it may incur as a result of any breach
hereof by Tenant.
27. Other Instruments: Tenant agrees to execute all such other and
-----------------
additional instruments or letters as Landlord may consider necessary or
appropriate hereto, including, but not limited to, confirmation of completion
date, confirmation of beginning date of lease terms, memorandum of lease for
recordations, and instruments necessary to effect subordination of this lease.
<PAGE>
28. Quiet Enjoyment: Landlord expressly covenants for the Tenant's quiet
---------------
enjoyment of its term.
29. Tenant Holding Over: If Tenant continues to occupy the Leased Premises
-------------------
after expiration of its lease term, and Landlord elects to accept rent
thereafter, a tenancy from month to month, upon the same terms and conditions,
including rental, terminable by either party in not less than one month's
notice, shall be created.
30. Rights and Duties On Renewal: All rights and duties for Landlord and
----------------------------
Tenant during the term of this lease shall continue during any renewal or
extension hereof.
31. Notices And Payments: Any notice which, under the terms of this lease,
--------------------
or any applicable statute, may or must be given by or to the parties hereto,
shall be in writing and may be given by mailing the same by registered or
certified mail addressed to the other party at the address set forth in the
caption hereof, or at such other address as the party may designate from time to
time by notice given in the same manner.
32. This lease shall be governed by, construed and enforced in accordance
with the laws of the State of Virginia.
33. This lease contains the entire agreement between the parties and shall
not be modified in any manner except by an instrument in writing executed by the
parties.
WITNESS the following signatures and seals the date hereof:
ATTEST: LANDLORD
____________________________ _____________________________
BY___________________________
ATTEST: TENANT
____________________________ _____________________________
Radford Thomas
____________________________ _____________________________
Sue S. Thomas
<PAGE>
Lease to - EXHIBIT 10.12
January 28, 2000
Gill Roseberry
Salem Bank & Trust
P.0. Box 979
Salem, Virginia 24153
Dear Gill:
As discussed this morning, T.A. Carter will probably be able to give up the
storage space (rented from Salem Bank & Trust), by at least the end of May 2000
if not sooner.
We have cleaned out most of the records, but have to wait until at least April
15 before disposing of the remainder of the boxes. I will be in touch with you
around that time with a more definite date.
Thanks for your patience.
Sincerely,
Sandra S. Ferris
<PAGE>
SALEM BANK AND TRUST, N.A.
- --------------------------------------------------------------------------------
TELEPHONE (540) 387-0223 P.O. BOX 979 SALEM, VIRGINIA 24153
July 16, 1997
Mrs. Sandra S. Ferris
T.A. Carter, Jr., Architect
P.0. Box 622
Salem, VA 24153
RE: Storeroom Lease
Olde Newberry Building
Dear Sandy:
I apologize for being so later in getting this lease out to you, but I have been
in the midst of a computer conversion which has taken all my time.
The lease is exactly like the old one except the dollars have changed.
Since you wanted it to start on January 1, I have dated it as of the first
business day in January (January 2, 1997).
If everything is in order, please sign one copy and return it to me in the
postage paid envelope enclosed.
Should you have any questions, please feel free to call me.
Sincerely,
Gill R. Roseberry
Senior Vice President & Cashier
Encl.
<PAGE>
LEASE
STOREROOM - OLDE NEWBERRY BUILDING
SALEM, VIRGINIA
THIS LEASE is made this 2/nd/ day of January,1997, by SALEM BANK& TRUST,
----- ------- --
N.A. (hereinafter referred to as "Landlord"), and CARTER ASSOCIATES, INC.
(hereinafter referred to as "Tenant").
WITNESSETH
In consideration of the mutual agreements hereinafter set forth, the
parties hereto mutually agree as follows:
1. Demised Premises. Landlord hereby leases to Tenant, and Tenant hereby
----------------
leases from Landlord, for the term and upon the conditions hereinafter provided,
1 Storeroom of 1,215 square feet located in the Olde Newberry Building, 110 East
Main Street, Salem, Virginia 24153 (hereinafter referred to as the "Storeroom"),
as outlined in red on Exhibit A attached hereto and made a part hereof (such
space being hereinafter referred to as the "Demised Premises").
2. Term. The term of this Lease shall commence on January 1, 1997 and
----
shall expire at 11:59 o'clock p.m. December 31, 2004.
3. Option to Renew. Tenant may at its option, so long as it is not in
---------------
default under any of the terms hereof, upon written notice to Landlord one (1)
month prior to the end of the preceding term, renew this lease for 1 consecutive
-
term upon the same terms and conditions for-ONE (1) YEAR EACH.
------------------
4. Rent. Tenant shall pay as base rent for the Demised Premises for each
----
year of the term hereof the sum of $4,896.36 (Four Thousand Eight Hundred
-------- ----------------------------
Ninety-Six Dollars and Thirty-Six Cents) payable in equal monthly installments,
- ----------------------------------------
in advance of $408.03 (Four Hundred Eight Dollars and Three Cents) the first
----------------------------------------------------
monthly installment to be made upon the Commencement Date of this lease, and the
second and all subsequent monthly payments to be made on the first day of each
and every calendar month after the Commencement Date. Tenant shall pay rent to
Landlord at 110 East Main Street, Salem, Virginia 24153, or to such other party
and address as Landlord may designate from time to time by written notice to
Tenant, without demand and without deduction, set-off or counterclaim. If
Landlord shall at any time or times accept said rent after it shall become due
and payable, such acceptance shall not excuse delay upon subsequent occasions,
or constitute, or be construed as, a waiver of any or all Landlord's right
hereunder.
<PAGE>
5. Use of Demised Premises. Tenant will promptly use and occupy the
-----------------------
Demised Premises following the Commencement Date, solely for a storage facility.
6. Indemnity and Public Liability Insurance. The Tenant agrees to
----------------------------------------
indemnify and save harmless the Landlord from and against all claims of whatever
arising from any act, omission, or negligence of the Tenant, or the Tenant's
contractors, licenses, agents, servants, or employees, or arising from any
accident, injury or damage whatsoever caused to any person, or to the property
of any person occurring during the term hereof in or about the Tenant's leased
premises where such accident, damage or injury results or is claimed to have
resulted from an act, omission or negligence on part of the Tenant or the
Tenant's agents or employees.
Tenant agrees to maintain in full force during the term hereof a
policy of public liability and property damage insurance under which Landlord
(and such other persons as are in privity of estate with the Landlord as may be
set out in notice from time to time) are named as additional named insured with
the Tenant. Each such policy shall be noncancellable with respect to the
Landlord and the Landlord's said designess without ten (10) day's prior written
notice to the Landlord, and a duplicate original or certificate thereof shall be
delivered to the Landlord. The minimum limits of liability of such insurance
shall be $1,000,000.00 for injury (or death) to any one person, and
-------------
$3,000,000.00 for injury (or death) to more than one person, and $250,000.00
- ------------- -----------
with respect to property. The above limits are subject to the Tenant's ability
to obtain coverage through normal course of business.
7. Other Insurance. The Tenant agrees that it shall keep its fixtures,
---------------
merchandise, and equipment insured against loss or damage by fire with the usual
extended coverage endorsement. It is understood and agreed that the Tenant
assumes all risk of damage to its own property arising from any cause
whatsoever, including, without limitation loss by theft or otherwise.
8. Assignment and Subletting. Tenant will not assign, transfer, mortgage
-------------------------
or encumber this Lease or the Demised Premises without obtaining the prior
written consent of the Landlord, nor shall any assignment or transfer of this
Lease be effectuated by operation of law or otherwise without the prior written
consent of the Landlord, which consent will not be unreasonably withheld.
Tenant may sublet or rent the Demised Premises or any portion thereof only with
the prior consent of the Landlord. In the event that Tenant defaults hereunder,
Tenant hereby assigns to Landlord the rent due from any assignee or subtenant of
Tenant and hereby authorizes each such subtenant to pay said rent directly to
Landlord.
9. Improvements. Tenant shall be free to make alterations,
------------
redecorations, or improvements in and to the Demised Premises. All alterations,
decorations, additions or improvements in or to the Storeroom made by either
party shall remain upon and be surrendered with the Demised Premises as a part
thereof at the end of the term hereof without disturbance, molestation, or
injury; provided, however, that if Tenant is not in default in the performance
of any of its obligations under this Lease, Tenant shall have the right to
remove, prior to the expiration or termination of the term of this Lease, all
movable furniture, furnishings or equipment installed on the Demised Premises at
the expense of Tenant, and if such property of Tenant is not removed by Tenant
prior to the expiration or termination of this
<PAGE>
Lease, the same shall become the property of Landlord and shall be surrendered
with the Demised Premises as part thereof, unless prior written permission is
received stating that Tenant's property may remain for a specified time. None of
the above shall affect the structural safety of the building.
10. Maintenance by Tenant. Tenant shall suffer no waste or injury to the
---------------------
Demised Premises or the fixtures and equipment therein, and shall, at the
expiration or other termination of the term of this Lease, surrender up the
Demised Premises in the same order and condition in which they are on the Lease
Commencement Date, ordinary wear and tear and damage by the elements, fire or
other casualties excepted.
11. Inspection. Tenant will permit Landlord, or its representative to
----------
enter the Demised Premises, without charge therefore to Landlord and without
diminution of the rent payable by Tenant, to examine, inspect and protect the
same, and make such alterations and/or repairs as in the judgement of Landlord
may be deemed necessary, or to exhibit the same to prospective Tenants during
the last Thirty (30) days of the term of this Lease.
12. Default of Tenant. If Tenant shall fail to pay any monthly
-----------------
installment of rent as aforesaid (although no legal or formal demand has been
made therefore), or shall violate or fail to perform any of the other
conditions, covenants or agreements on its part contained in this or in any
other lease of space in the Building, and such failure to pay rent or such
violation or failure shall continue for a period of ten (10) days after the due
date of such payments and after written notice of any such other violation or
failure to Tenant by Landlord, then and in any of said events this Lease shall,
at the option of Landlord, cease and terminate upon at lease ten (10) days prior
written notice of such election to Tenant by Landlord, and if such failure to
pay rent or such violation or failure shall continue to the date set forth in
such notice of termination, then this Lease shall cease and terminate without
further notice to quit or of Landlord's intention to reenter, the same being
hereby waived, and Landlord may proceed to recover possession under and by
virtue of the provisions of the laws of the Commonwealth of Virginia or by such
other proceedings, including re-entry and possession, as may be applicable.
13. Covenants of Landlord. Landlord covenants that it has the right to
---------------------
make this Lease for the term aforesaid, and that if Tenant shall pay the rental
and perform al of the covenants, terms and conditions of this Lease to be
performed by Tenant, Tenant shall, during the term hereby created, freely,
peacefully and quietly occupy and enjoy the full possession of the Demised
Premises without molestation or hindrance by Landlord or any party claiming
through or under Landlord.
14. Notices. All notices or other communications hereunder shall be in
-------
writing and shall be deemed duly given if delivered in person or by certified or
registered mail, return receipt requested, first-class postage paid (I) if to
Landlord, at 110 East Main Street, Salem, Virginia 24153 and (II) if to Tenant,
-------------------------------------------
at 508 East Main Street, Salem, Virginia 24153 unless notice of a change of
-------------------------------------------
address is given pursuant to the provisions of this Article.
15. Entire Agreement. This Lease, together with Exhibit A, attached
----------------
hereto, contains and embodies the entire agreement of the parties hereto, and
representations,
<PAGE>
inducements or agreements, oral or otherwise, between the parties not contained
in this Lease and exhibits, shall be of any force or effect. This Lease may not
be modified, changed or terminated in whole or in part in any manner other than
by an agreement in writing duly signed by both parties hereto.
Landlord and Tenant have each executed this Lease under seal on the day and
year hereinabove written.
LANDLORD:
SALEM BANK & TRUST, N.A.
BY: ______________________________
TENANT:
CARTER ASSOCIATES, INC.
BY: ______________________________
<PAGE>
Exhibit 23(a)
CONSENT OF KPMG LLP
The Board of Directors
Salem Bank and Trust, National Association
We consent to the inclusion herein of our report dated February 25, 2000,
relating to the consolidated balance sheets of Salem Bank and Trust, National
Association and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of income and comprehensive income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999, which report is also included in the December
31, 1999 Annual Report on Form 10-KSB of Salem Bank and Trust, National
Association.
KPMG LLP
Roanoke, Virginia
May 4, 2000
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<PAGE>
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<NAME> SALEM BANK AND TRUST, NATIONAL ASSOCIATION
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