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Filed pursuant to rule 424(b)(2)
Registration No. 333-45838
CITIZENS SOUTHERN BANK, INC.
SPECIAL MEETING OF SHAREHOLDERS
MERGER PROPOSAL - YOUR VOTE IS VERY IMPORTANT
The board of directors of Citizens Southern Bank, Inc., has unanimously
approved the merger combining Citizens Southern Bank, Inc., and First Community
Bank, N.A. ("FCB"). FCB is a wholly owned subsidiary of First Community
Bancshares, Inc. ("Bancshares"). If the proposed merger is accomplished, you
will receive 1.74 shares of Bancshares common stock for each share of Citizens
common stock that you own. You generally will not recognize gain or loss for
federal income tax purposes for the shares of Citizens common stock you exchange
for shares of Bancshares common stock.
We cannot complete the merger unless a majority of the shares of Citizens
common stock approves the merger agreement and related plan of merger.
Therefore, there will be a special meeting of Citizens' shareholders to vote on
the merger agreement and related plan of merger.
THE CITIZENS SPECIAL MEETING WILL BE HELD AT 4:30 P.M. ON OCTOBER 25, 2000,
AT 111 CITIZENS DRIVE, IN BECKLEY, WEST VIRGINIA.
We are mailing the enclosed document to you because it is Citizens' proxy
statement that will be used to solicit proxies for the special meeting. This
document also serves as Bancshares' prospectus in connection with the offer and
sale of its common stock to be issued in the merger. This document gives you
detailed information about the proposed merger.
Please read this document carefully. In addition to the information in this
document which we refer to as a proxy statement/prospectus, there is also
important information about the financial and business aspects of Bancshares
that we incorporate into this document by reference. Bancshares will provide
these documents to you, free of charge, if you request them in writing or by
telephone at any time prior to October 15, 2000, from Bancshares, at the
following address and phone number: First Community Bancshares, Inc., Attention:
John M. Mendez, P. O. Box 989, Bluefield, Virginia 24605, Phone (540) 326-9000.
Whether or not you plan to attend the meeting, please take the time to vote
by completing and mailing the enclosed proxy card to us. If you fail to return
your proxy card and fail to vote in person, that will be the same as a vote
against the merger. You can revoke your proxy at any time before its exercise by
filing written revocation with, or by delivering a later dated proxy to,
Citizens' corporate secretary before the meeting, or by attending the meeting,
withdrawing your proxy and voting in person.
On behalf of Citizens' board of directors, I urge you to vote for approval
and adoption of the merger agreement and related plan of merger.
/s/ Samuel L. Elmore
Samuel L. Elmore
President and Chief Executive Officer
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Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved of the Bancshares' common stock to be
issued in the merger or determined if this proxy statement/prospectus is
accurate or adequate. Any representation to the contrary is a criminal offense.
The shares of Bancshares' stock to be issued in the merger are not savings
or deposit accounts or other obligations of any bank or savings association and
are not insured by the Federal Deposit Insurance Corporation or any other
governmental agency.
This proxy statement/prospectus is dated September 25, 2000 and is expected
to be first mailed to shareholders of Citizens on or about September 28, 2000.
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CITIZENS SOUTHERN BANK, INC.
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 25, 2000
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A special meeting of shareholders of Citizens Southern Bank, Inc.
("Citizens") will be held on Wednesday, October 25, 2000, at Citizens' offices
at 111 Citizens Drive, in Beckley, West Virginia, at 4:30 p.m., local time, for
the following purpose:
To vote on the following resolution:
RESOLVED, that the Agreement and Plan of Reorganization, dated as of June
27, 2000 (the "Merger Agreement"), between Citizens and First Community
Bank, N.A., a national association ("FCB"), and related Plan of Merger (the
"Plan"), whereby (a) Citizens will merge into FCB (the "Merger"), and (b)
each share of Citizens common stock outstanding will be converted into the
right to receive 1.74 shares of common stock of First Community Bancshares,
Inc., plus cash in lieu of any fractional share, is hereby authorized and
approved.
At this meeting, holders of record of common stock of Citizens at the close
of business on August 18, 2000, will be entitled to vote. A majority of the
issued and outstanding shares of Citizens must vote in favor of the above
resolution in order to approve the Merger and the Plan.
Citizens' shareholders are entitled to assert dissenters' rights under
Sections 31-1-122 and 31-1-123 of the West Virginia Corporation Act. A copy of
those sections is attached to the following proxy statement/prospectus as
Appendix C.
THE BOARD OF DIRECTORS OF CITIZENS BELIEVES THAT THE PROPOSED MERGER AND
PLAN ARE IN THE BEST INTERESTS OF CITIZENS AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS OF CITIZENS VOTE "FOR" THE MERGER AND THE PLAN.
By Order of the Board of Directors,
/s/ Samuel L. Elmore
Samuel L. Elmore
President and Chief Executive Officer
September 25, 2000
Beckley, West Virginia
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND RELATED TRANSACTIONS
Q: WHAT IS THE PURPOSE OF THIS DOCUMENT?
A: This document serves as both a proxy statement of Citizens and a
prospectus of Bancshares. As a proxy statement, Citizens is providing it
to you because Citizens' board of directors is soliciting your proxy for
use at the special meeting of shareholders called to consider and vote
on the proposed sale of Citizens to Bancshares. As a prospectus, it's
being provided to you because Bancshares is offering to exchange shares
of its common stock for your shares of Citizens' common stock if the
merger is completed.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: For each outstanding share of Citizens' common stock you own, you will
receive 1.74 shares of Bancshares' common stock. This is called the
"exchange ratio."
Bancshares will not issue fractional shares in the merger. Instead, you
will receive a cash payment, without interest, for the value of any
fraction of a share of Bancshares common stock that you would otherwise
be entitled to receive based upon the market value (as determined in the
merger agreement) of a share of Bancshares' common stock at the time of
the merger.
Q: WHAT HAPPENS AS THE MARKET PRICE OF FIRST COMMUNITY BANCSHARES, INC.
COMMON STOCK FLUCTUATES?
A: Because the market value of Bancshares' common stock will fluctuate
before and after the closing of the merger, the value of Bancshares'
common stock that you will receive in the merger will fluctuate as well.
That value could increase or decrease. We urge you to obtain current
market prices for shares of Bancshares' common stock. If the average of
the bid and ask share prices of Bancshares' common stock is less than
$15.00 per share, the Board of Directors of Citizens have the right to
terminate the proposed merger.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this proxy statement/prospectus, just
indicate on your proxy card how you want the proxies to vote your
shares. Then sign, date and mail your proxy in the enclosed postage-paid
envelope. In addition, you may attend Citizens' meeting in person and
vote, whether or not you have signed and mailed your proxy card. If you
sign, date and return your proxy but do not indicate how you want to
vote, we will count your proxy as a vote in favor of the merger
agreement and the merger. If you do not vote or you abstain from voting,
it will have the effect of a vote against the merger agreement and the
merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. There are three ways for you to revoke your proxy and change your
vote. First, you may send a later-dated, signed proxy card prior to the
special meeting of Citizens. Second, you may attend the meeting in
person and vote. Third, you may revoke any proxy by written notice to
the Corporate secretary of Citizens prior to the Citizens' meeting. If
you have instructed a broker to vote your shares, you must follow
directions received from your broker to change your vote.
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Q: IF A BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares on the merger only if you provide
instructions on how to vote. You should instruct your broker how to vote
your shares, following the directions your broker provides. If you do
not provide instructions to your broker, your shares will not be voted
and this will have the effect of voting against the merger.
Q: WHEN DO YOU EXPECT TO MERGE?
A: We are working towards completing the merger as quickly as possible. We
expect to complete the merger early in the fourth quarter of 2000.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. Following the effective date of the merger, Bancshares will mail
instructions to you which explain how to exchange your certificates.
Q: IS THERE OTHER INFORMATION I SHOULD CONSIDER?
A: Yes. Much of the business and financial information about Bancshares
that may be important to you is not included in this document. Instead,
this information is incorporated by reference to documents separately
filed by Bancshares with the Securities and Exchange Commission. This
means that Bancshares may satisfy its disclosure obligations to you by
referring you to one or more documents separately filed by it with the
SEC. See "Where You Can Find More Information" on page 48 for a list of
documents that Bancshares incorporates by reference into this proxy
statement/prospectus and for instructions on how to obtain copies of
these documents. The documents are available to you without charge.
Q: WHAT IF THERE IS A CONFLICT BETWEEN DOCUMENTS?
A: You should rely on the later filed document. Information in this proxy
statement/prospectus may update information contained in one or more of
the Bancshares' documents incorporated by reference. Similarly,
information in documents that Bancshares may file after the date of this
proxy statement/prospectus may update information contained in this
proxy statement/prospectus or information contained in previously filed
documents.
Q: WHOM SHOULD I CALL WITH QUESTIONS OR TO OBTAIN ADDITIONAL COPIES OF THIS
PROXY STATEMENT/PROSPECTUS?
A: Samuel L. Elmore, CEO Citizens Southern Bank, 111 Citizens Drive
Beckley, WV 25801 Phone Number: (304) 252-9400
Q: WHAT ARE THE INCOME TAX CONSEQUENCES OF THE MERGER TO ME?
A: You generally will not recognize any gain or loss when you exchange your
Citizens common stock for Bancshares common stock. However, any cash
received in lieu of fractional shares or upon exercising dissenters'
rights will be subject to federal and state income tax.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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A WARNING ABOUT FORWARD-LOOKING INFORMATION................. iii
SUMMARY..................................................... 1
MEETING OF SHAREHOLDERS..................................... 9
General................................................... 9
Record Date, Voting Rights and Vote Required.............. 9
Voting and Revocation of Proxies.......................... 10
Solicitation of Proxies................................... 10
Recommendation of the Citizens' Board..................... 10
THE MERGER.................................................. 11
Background of and Reasons for the Merger.................. 11
Opinion of Financial Advisor to Citizens.................. 14
Exchange Ratio............................................ 19
Exchange of Citizens' Stock Certificates.................. 19
The Merger Agreement...................................... 21
Indemnification of Directors and Officers................. 26
Rights of Dissenting Shareholders......................... 27
Regulatory Considerations................................. 29
The Subsidiary Bank Merger................................ 29
Material Federal Income Tax Consequences of the Merger.... 30
Cash Received in Lieu of a Fractional Share of Bancshares
Common Stock........................................... 31
Dissenters' Rights........................................ 32
Backup Withholding and Information Reporting.............. 32
Accounting Treatment...................................... 32
Effect on Employees and Employee Benefit Plans............ 32
Restrictions on Resales by Affiliates..................... 33
Management................................................ 33
INFORMATION ABOUT BANCSHARES................................ 34
General................................................... 34
Acquisitions.............................................. 34
Capital................................................... 35
Deposit Insurance Assessments............................. 36
INFORMATION ABOUT CITIZENS.................................. 36
Description of Citizens' Business......................... 36
Business of Citizens...................................... 36
Employees................................................. 37
Competition............................................... 37
Ownership of Certain Beneficial Owners and Management of
Citizens............................................... 38
DESCRIPTION OF BANCSHARES' CAPITAL STOCK.................... 39
General................................................... 39
Bancshares' Common Stock.................................. 39
Bancshares' Preferred Stock............................... 39
Provisions Regarding Bancshares' Board.................... 39
Meetings of Shareholders; Shareholders' Nominations and
Proposals.............................................. 40
</TABLE>
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<TABLE>
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PAGE
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COMPARISON OF THE RIGHTS OF BANCSHARES' SHAREHOLDERS AND
CITIZENS' SHAREHOLDERS.................................... 40
Authorized Capital Stock.................................. 40
Special Meetings of Shareholders.......................... 41
Directors................................................. 41
Dividends and Other Distributions......................... 41
Shareholder Nominations and Shareholder Proposals......... 42
Discharge of Duties; Exculpation and Indemnification...... 43
Mergers, Share Exchanges and Sales of Assets.............. 43
Anti-takeover Statutes.................................... 44
Amendments to Articles of Incorporation and Bylaws........ 44
Shareholders' Rights of Dissent and Appraisal............. 45
Liquidation Rights........................................ 45
SHAREHOLDER PROPOSALS....................................... 46
OTHER BUSINESS.............................................. 46
LEGAL MATTERS............................................... 46
EXPERTS..................................................... 46
WHERE YOU CAN FIND MORE INFORMATION......................... 47
CITIZENS' FINANCIAL STATEMENTS.............................. F-1
APPENDIX A -- Agreement and Plan of Reorganization and Plan
of Merger
APPENDIX B -- Opinion of Baxter Fentriss and Company
APPENDIX C -- Sections 31-1-122 and 31-1-123 of the West
Virginia Corporation Act
</TABLE>
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A WARNING ABOUT FORWARD-LOOKING INFORMATION
Bancshares and Citizens have each made forward-looking statements in this
document and in other documents to which this document refers. These statements
are subject to risks and uncertainties. These statements are based on the
beliefs and assumptions of the management of Bancshares and Citizens and on
information currently available to them or, in the case of information that
appears under the heading "The Merger -- Background of and Reasons for the
Merger" on page 11, information that was available to management of Bancshares
and Citizens as of the date of the merger agreement. You should read these
statements in connection with the notices about forward-looking statements
Bancshares makes in its reports filed under the Securities Exchange Act of 1934.
Forward-looking statements include, but are not limited to, the information
concerning possible or assumed future results of operations of Bancshares or
Citizens described under "Summary," "The Merger -- Background of and Reasons for
the Merger," "Management's Discussion and Analysis of Financial Condition and
Results of Operation" and statements preceded by, followed by or that include
the words "believes," "expects," "assumes," "anticipates," "intends," "plans,"
"estimates" or other similar expressions.
Bancshares and Citizens have made statements in this document regarding
estimated earnings per share of Bancshares and Citizens on a stand-alone basis
and expected cost savings from the merger, maintenance of Citizens' net interest
margin, the anticipated accretive effect of the merger and Bancshares'
anticipated performance in future periods. The realization of cost savings and
the amount of restructuring charges are subject to the risk that the foregoing
assumptions prove to be incorrect, and actual results may be materially
different from those expressed or implied by the forward-looking statements.
Any statements in this document about the anticipated accretive effect of
the merger and Bancshares' anticipated performance in future periods are subject
to risks relating to, among other things, the following:
1. expected cost savings from the merger may not be fully realized or
realized within the expected time frame;
2. the loss of deposits, customers or revenues following the merger may be
greater than expected;
3. competitive pressures among depository and other financial institutions
may increase significantly;
4. costs or difficulties related to the integration of the businesses of
Bancshares and Citizens may be greater than expected;
5. changes in the interest rate environment may reduce margins or the
volumes or values of loans made or held;
6. general economic or business conditions, either nationally or in the
states or regions in which Bancshares and Citizens do business, may be
less favorable than expected, resulting in, among other things, a
deterioration in credit quality or a reduced demand for credit;
7. legislative or regulatory changes, including changes in accounting
standards, may adversely affect the business in which Bancshares and
Citizens are engaged;
8. adverse changes may occur in the securities markets; and
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9. competitors of Bancshares and Citizens may develop products that enable
those competitors to compete more successfully than Bancshares and
Citizens.
Both Bancshares and Citizens believe the forward-looking statements about
the merged company are reasonable. However, Citizens' shareholders should not
place undue reliance on them. Forward-looking statements are not guarantees of
performance. They involve risks, uncertainties and assumptions. The future
results and shareholder values of Bancshares following completion of the merger
may differ materially from those expressed or implied in these forward-looking
statements. Many of the factors that will determine these results and values are
beyond Bancshares' and Citizens' ability to control or predict.
We expressly qualify all subsequent written and oral forward-looking
statements concerning the merger or other matters addressed in this document and
attributable to Bancshares or Citizens or any person acting on their behalf by
the foregoing cautionary statements referred to in this section. Neither
Bancshares nor Citizens undertakes any obligation to release publicly any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this document or to reflect the occurrence of unanticipated
events.
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SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the documents to which we refer you. See "Where You Can Find
More Information" on page 46.
YOU WILL RECEIVE 1.74 SHARES OF BANCSHARES COMMON STOCK FOR EACH SHARE OF
CITIZENS' COMMON STOCK YOU OWN. (PAGE 19)
If the merger is completed, you will receive 1.74 shares of Bancshares'
common stock for each share of Citizens' common stock you own, plus cash instead
of any fractional share. On August 18, 2000, the closing price of Bancshares'
common stock was $15.31, making the value of 1.74 shares of Bancshares' common
stock equal to $26.64. Because the market price of Bancshares' stock fluctuates,
you will not know when you vote precisely what the shares will be worth when
issued in the merger.
THIS TRANSACTION WILL BE GENERALLY TAX-FREE TO SHAREHOLDERS.
Neither company is required to complete the merger unless it receives a
legal opinion from its counsel that the merger will be treated as a
"reorganization" for federal income tax purposes. Therefore, we expect that, for
federal income tax purposes, you generally will not recognize any gain or loss
on the conversion of shares of Citizens common stock into shares of Bancshares'
common stock. Bancshares' attorneys have issued a legal opinion to this effect
and we have included that opinion as an exhibit to the registration statement
Bancshares filed with the SEC for the shares it will issue in the merger. You
will be taxed, however, on any cash that you receive instead of any fractional
share of Bancshares' common stock and, if you properly exercise your right to
dissent to the merger, you will generally be taxed on the cash that you receive
in excess of your basis. Tax matters are complicated, and tax results may vary
among shareholders. We urge you to contact your own tax advisor to understand
fully how the merger will affect you.
BANCSHARES EXPECTS TO CONTINUE PAYING QUARTERLY DIVIDENDS.
Bancshares currently pays regular quarterly dividends on its common stock
and, over the past five years, has had a dividend payout ratio in the range of
approximately 42.5 percent to 56.4 percent of recurring earnings. Bancshares
expects that it will continue to pay a quarterly dividend, but may change that
policy based on business conditions, its financial condition and earnings or
other factors.
CITIZENS' BOARD UNANIMOUSLY RECOMMENDS SHAREHOLDER APPROVAL. (PAGE 10)
Citizens' Board of Directors believes that the merger is in the best
interests of Citizens and Citizens' shareholders and unanimously recommends that
you vote "FOR" approval of the merger agreement and the related plan of merger.
The Citizens' Board believes that, as a result of the merger, you will be able
to achieve greater value than you would if Citizens remained independent.
ACCORDING TO CITIZENS' FINANCIAL ADVISOR, THE EXCHANGE RATIO IS FAIR. (PAGE 14)
Among other factors considered in deciding to approve the merger, Citizens'
Board has received the opinion of its financial advisor, Baxter Fentriss and
Company. According to that opinion, as of June 27, 2000 (the date Citizens'
board voted on the merger) and updated through, September 25, 2000, the date of
this proxy statement/prospectus, the exchange ratio was fair to the holders of
Citizens' common stock from a financial point of view. We have attached this
opinion to this proxy statement/prospectus as Appendix B. You should read this
opinion completely to understand the assumptions made, matters considered and
limitations of the review undertaken by Baxter Fentriss
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in providing its opinion. Citizens has agreed to pay to Baxter Fentriss a fee
based on the value of the consideration paid in the merger. We expect this fee
to be approximately $84,700, of which $7,500 was payable as an advisory fee and
the difference up to 1.25 percent of the transaction value is payable upon the
closing and consummation of the merger.
CITIZENS' SHAREHOLDERS HAVE DISSENTERS' RIGHTS. (PAGE 27)
Under West Virginia law, if you do not vote for the merger and you properly
exercise rights to dissent from the merger and to demand the "fair value" of
your shares of Citizens' common stock, you will have the right to obtain a cash
payment for the "fair value" of your shares as determined by statutory appraisal
proceedings. To exercise these rights, you must comply with the procedural
requirements of the West Virginia Corporation Act. We have attached the relevant
sections of that act to this proxy statement/prospectus as Appendix C. We cannot
predict what the "fair value" of Citizens common stock resulting from the
statutory appraisal proceedings would be. Failure to timely and properly take
any of the steps required under that act may result in a loss of dissenters'
rights.
THE COMPANIES (PAGES 34 AND 36)
First Community Bancshares, Inc.
One Community Place
P.O. Box 989
Bluefield, VA 24605
(540) 326-9000
Bancshares is a bank holding company with one banking subsidiary, FCB, and
more than $1.1 billion in assets. It is the third largest bank holding company
headquartered in Virginia and, through its banking subsidiary, operates 31
branch offices in Virginia, West Virginia, and North Carolina. Additionally,
Bancshares generates and sells mortgages through its mortgage subsidiary, United
First Mortgage, Inc., a wholly owned subsidiary of FCB.
Citizens Southern Bank, Inc.
111 Citizens Drive
Beckley, West Virginia, 25801
(304) 252-9400
Citizens, with $65.4 million in assets and $52.3 million in deposits at
June 30, 2000, maintains two full service bank offices in Beckley, West Virginia
that serve the city of Beckley and surrounding counties. At June 30, 1999,
Citizens maintained 3.89 percent in deposit market share within the Beckley,
West Virginia Rand McNally Atlas (RMA) market as defined by the Federal Reserve
which includes all of the RMA and non-RMA portions of Raleigh, Fayette, Summers
and Boone Counties in Southern West Virginia, excluding the towns of Montgomery
and Smithers in Fayette County but including the town of Whitesville in Boone
County, West Virginia.
IN THE MERGER, CITIZENS WILL MERGE INTO FCB. (PAGE 27)
In the merger, Citizens will merge with and into FCB, which will remain a
wholly owned subsidiary of Bancshares. If Citizens shareholders approve the
merger agreement and related plan at the special meeting, we currently expect to
complete the merger early in the fourth quarter of 2000.
We have attached the merger agreement and plan of merger (Appendix A) at
the back of this proxy statement/prospectus. We encourage you to read the merger
agreement, as it is the legal document that governs the merger.
A MAJORITY VOTE OF THE OUTSTANDING SHARES MUST APPROVE THE MERGER. (PAGE 9)
Approval of the merger agreement and plan of merger requires the
affirmative vote of the holders of at least a majority of the outstanding shares
of Citizens' common stock. If you fail to vote, it will have the effect of a
vote against the merger agreement and the merger. At the record date, the
directors and executive officers of Citizens and their affiliates together owned
about 38 percent of the shares entitled to vote at the
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meeting, and we expect them to vote their shares in favor of the merger
agreement and the merger.
Brokers who hold shares of Citizens' common stock as nominees will not have
authority to vote them with respect to the merger unless the beneficial owners
of those shares provide voting instructions.
The merger does not require the approval of Bancshares' shareholders.
YOU WILL HAVE ONE VOTE FOR EACH SHARE OF CITIZENS COMMON STOCK. (PAGE 9)
If you owned shares of Citizens' common stock at the close of business on
August 18, 2000, the record date, you are entitled to vote on the merger
agreement and plan of merger and any other matters that may be properly
considered at the meeting. On the record date, there were 250,000 shares of
Citizens' common stock outstanding. You will have one vote at the meeting for
each share of Citizens' common stock that you owned on the record date.
SEVERAL CONDITIONS MUST OCCUR BEFORE WE CAN COMPLETE THE MERGER. (PAGE 21)
A number of conditions must be met for us to complete the merger,
including:
- approval of the merger and related plan by the Citizens' shareholders;
- receipt of legal opinions concerning the tax consequences of the merger;
- receipt of legal opinions concerning the completion of all corporate, legal
and operational responsibility in regard to and what would otherwise prohibit
the merger;
- the continuing accuracy of the parties' representations in the merger
agreement; and
- the continuing effectiveness of the registration statement filed with the SEC
covering the shares of Bancshares' stock to be issued in the merger;
WE MUST OBTAIN REGULATORY APPROVAL FOR THE MERGER TO OCCUR. (PAGE 29)
We cannot complete the merger unless approval is received from the Office
of the Comptroller of the Currency as well as the West Virginia Division of
Banking and various state and other regulatory authorities. We anticipate that
the Comptroller of the Currency and the West Virginia Division of Banking will
act upon applications for approval by September 2000. In addition, the merger is
subject to the approval of, or notice to, certain state regulatory authorities,
and we have made the necessary filings with those authorities. The merger cannot
proceed in the absence of these regulatory approvals. We do not know if these
regulatory approvals will be obtained, when we will obtain them, or whether
there will be any litigation challenging them. It is possible that the United
States Department of Justice or any relevant state attorney general could
attempt to challenge the merger on antitrust grounds.
WE CAN TERMINATE OR AMEND THE MERGER AGREEMENT. (PAGE 25)
We can jointly agree at any time prior to the effective time of the merger
to terminate the merger agreement without completing the merger. Either company
can also unilaterally terminate the merger agreement if:
- we do not complete the merger by December 31, 2000; or
- any of the conditions that must be satisfied to complete the merger are not
met on or before the Closing date unless we agree to extend the closing date;
or
- the Comptroller of the Currency or the West Virginia Division of Banking does
not approve the merger and the time period for all appeals or requests for
consideration has expired; or
- either company violates, in a material way, any of its representations,
warranties or obligations under the merger agreement.
Generally, the company seeking to terminate the merger agreement cannot
itself be in viola-
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tion of the merger agreement in a way that would allow the other party to
terminate.
In addition, the merger agreement can be terminated by Bancshares or
Citizens as follows:
- By Citizens' Board, if the share price of Bancshares' common stock is less
than $15.00 per share based on the average bid and ask prices quoted on the
Nasdaq at the close of business on the business day prior to the closing date;
or
- By Bancshares if material adverse information is revealed within 10 days of
the delivery by Citizens of certain schedules as required by the Agreement; or
- By Citizens if its Board authorizes Citizens' management to accept a superior
offer. We describe the types of offers that constitute superior offers under
the heading "Conduct of Citizens and Bancshares' Businesses Prior to the
Effective Time of the Merger" on page 23; or
- By Citizens if its Board withdraws, modifies, conditions or refuses to make
its recommendation to the Citizens' shareholders that they vote to approve the
merger agreement and plan of merger as a result of circumstances relating to a
superior offer or to Baxter Fentriss' fairness opinion.
We can agree to amend or supplement the merger agreement in any way.
However, we cannot alter the exchange ratio of 1.74 shares of Bancshares' common
stock for each share of Citizens' common stock. Either company can waive any of
the requirements of the other company contained in the merger agreement, except
that neither company can waive any required regulatory approval or the
satisfaction of any condition imposed by law. Neither company intends to waive
the condition that it receive a tax opinion. If a tax opinion from its counsel
is not available and Citizens determines to waive this condition, Citizens will
inform you and ask you to vote again on the merger agreement and plan of merger.
BANCSHARES WILL USE PURCHASE ACCOUNTING TREATMENT. (PAGE 32)
Bancshares expects to account for the merger using the purchase method of
accounting. This will result in the creation of goodwill relating to the merger.
This will create charges against future earnings that will result from
amortizing goodwill. This accounting method also means that, after the merger,
Bancshares will include the financial results of Citizens, in its reports, from
the date of combination forward.
BANCSHARES COMMON STOCK TRADES ON NASDAQ. (PAGE 5)
Bancshares' common stock trades on the NASDAQ Level III billboard (under
the symbol "FCBC") where daily bid and ask quotations are available. On June 27,
2000, the last full trading day before public announcement of the proposed
merger, Bancshares' common stock closed at $15.50.
4
<PAGE> 14
MARKET PRICE OF BANCSHARES CAPITAL STOCK AND DIVIDENDS.
Bancshares' common stock is traded on the Nasdaq level III billboard under
the symbol "FCBC". The table below shows the high and low bid prices of
Bancshares' common stock and cash dividends paid per share for the last two
fiscal years plus the interim period. For Bancshares, amounts reflect a 5-for-4
stock split on March 31, 1998 and 1999.
<TABLE>
<CAPTION>
BANCSHARES
--------------------------------
CASH
HIGH LOW DIVIDEND
------ ------ ------------
<S> <C> <C> <C>
Quarter Ended
March 31, 1998............................. $23.68 $19.58 $0.20
June 30, 1998.............................. 34.40 28.80 0.20
September 30, 1998......................... 34.20 24.80 0.20
December 31, 1998.......................... 27.00 21.20 0.24
For year 1998.............................. 34.40 19.58 0.84
Quarter Ended
March 31, 1999............................. 23.20 20.70 0.20
June 30, 1999.............................. 22.90 18.50 0.21
September 30, 1999......................... 23.50 18.88 0.22
December 31, 1999.......................... 21.38 18.00 0.25
For year 1999.............................. 23.50 18.00 0.88
Quarter Ended
March 31, 2000............................. 21.00 17.25 0.22
June 30, 2000.............................. 19.00 15.13 0.23
</TABLE>
5
<PAGE> 15
MARKET PRICE OF CITIZENS SOUTHERN'S CAPITAL STOCK AND DIVIDENDS
Citizens' stock is not traded on an established exchange and there are no
market makers. We use the prices listed below based upon information available
to us through discussions with the bank's shareholders. We have not attempted to
determine the prices for every sale made during these periods. As of August 31,
2000, Citizens' common stock was held of record by 348 persons. Historically,
Citizens has never paid dividends.
<TABLE>
<CAPTION>
QUARTER
HIGH LOW END
------- ------- -------
<S> <C> <C> <C>
Year Ended December 31, 1998:
First Quarter................................. $25 $25 $25
Second Quarter................................ 30 23 25
Third Quarter................................. 28 25 28
Fourth Quarter................................ -- -- --
Year Ended December 31, 1999:
First Quarter................................. $30 $30 $30
Second Quarter................................ 28 26 28
Third Quarter................................. 30 30 30
Fourth Quarter................................ -- -- --
Six Months Ended June 30, 2000:
First Quarter................................. -- -- --
Second Quarter................................ $32 $32 $32
</TABLE>
The table below shows the closing price of Bancshares' common stock on June
27, 2000, the last full trading day before public announcement of the proposed
merger.
<TABLE>
<S> <C>
Bancshares' historical...................................... $15.50
Citizens pro forma equivalent*.............................. $26.97
</TABLE>
*calculated by multiplying Bancshares' per share closing price by the exchange
ratio of 1.74
6
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
We are providing the following information to help you analyze the
financial aspects of the merger. We derived this information from audited
financial statements for 1995 through 1999 and unaudited financial statements
for the six months ended June 30, 2000 and June 30, 1999. This information is
only a summary, and you should read it in conjunction with our historical
financial statements (and related notes) contained in the annual and quarterly
reports and other documents that Bancshares has filed with the SEC along with
other information in this document. See "Where You Can Find More Information" on
page 47. You should not rely on the six-month information as being indicative of
results expected for the entire year or for any future interim period.
FIRST COMMUNITY BANCSHARES, INC. -- HISTORICAL FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF / FOR THE SIX
MONTHS ENDED JUNE 30, AS OF / FOR THE YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest
income............. $ 23,177 $ 21,302 $ 44,242 $ 43,085 $ 42,944 $38,008 $35,472
Net income........... 8,007 7,952 16,852 13,101 15,094 13,917 12,789
Basic earnings per
share.............. 0.92 0.91 1.92 1.49 1.71 1.58 1.46
Diluted earnings per
share.............. 0.92 0.91 1.91 1.49 1.71 1.58 1.46
Cash dividends per
share.............. 0.45 0.41 0.88 0.84 0.83 0.73 0.62
Book value per
share.............. 12.25 11.60 11.86 11.60 11.08 10.11 9.20
Total assets......... 1,114,953 1,025,270 1,088,162 1,053,988 1,042,304 837,597 780,235
Long-term debt....... 10,207 10,197 10,218 18,176 24,330 15,000 15,000
</TABLE>
CITIZENS SOUTHERN BANK, INC. -- HISTORICAL FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF / FOR THE SIX
MONTHS ENDED
JUNE 30, AS OF / FOR THE YEARS ENDED DECEMBER 31,
------------------- ---------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income.............. $ 997 $ 724 $1,683 $1,114 $ 889 $ 711 $ 350
Net income(loss)................. 171 52 150 104 215 26 (148)
Basic earnings per share......... 0.68 0.21 0.60 0.42 0.86 0.11 (0.60)
Diluted earnings (loss) per
share.......................... 0.68 0.21 0.60 0.42 0.86 0.11 (0.60)
Cash dividends per share......... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Book value per share............. 20.16 19.78 19.77 20.44 20.02 19.17 19.06
Total assets................. 65,396 56,599 64,550 48,313 30,606 21,952 12,604
Long-term debt................... 0 0 0 0 0 0 0
</TABLE>
Note: Citizens was incorporated on June 12, 1995 and, therefore, the information
the information presented for 1995 is not indicative of a full year of
operations.
7
<PAGE> 17
COMPARATIVE PER SHARE DATA
We have summarized below the per share information for our companies on a
historical, pro forma combined and equivalent basis. You should read this
information in conjunction with the historical financial statements (and related
notes) contained in the annual and quarterly reports and other documents
Bancshares has filed with the SEC and the historical financial statements (and
related notes) Citizens provides in this document. See "Where You Can Find More
Information" on page 47.
The pro forma combined information gives effect to the merger accounted for
as a purchase business combination, assuming that 1.74 shares of Bancshares'
common stock are issued for each outstanding share of Citizens' common stock.
Pro forma equivalent of Citizens' common share amounts are calculated by
multiplying the pro forma combined amounts by 1.74. You should not rely on the
pro forma information as being indicative of the historical results that we
would have had if we had been combined or the future results that we will
experience after the merger, nor should you rely on the six-month information as
being indicative of results expected for the entire year or for any future
interim period.
<TABLE>
<CAPTION>
AS OF / FOR THE AS OF / FOR THE YEAR
SIX MONTHS ENDED DECEMBER 31,
ENDED JUNE 30, -----------------------
2000 1999 1998 1997
--------------- ----- ----- -----
<S> <C> <C> <C> <C>
Earnings per common share
Basic
Bancshares' historical................ $0.92 $1.92 $1.49 $1.71
Citizens' historical.................. 0.68 0.60 0.42 0.86
Pro forma combined.................... 0.89 1.84 1.42 1.64
Pro forma equivalent of one Citizens'
common share........................ 1.55 3.19 2.47 2.85
Diluted
Bancshares' historical................ 0.92 1.91 1.49 1.71
Citizens' historical.................. 0.68 0.60 0.42 0.86
Pro forma combined.................... 0.88 1.82 1.42 1.64
Pro forma equivalent of one Citizens'
common share........................ 1.53 3.17 2.47 2.85
Cash dividends declared per common share
Bancshares' historical................ 0.45 0.88 0.84 0.83
Citizens' historical.................. 0.00 0.00 0.00 0.00
Pro forma combined.................... 0.45 0.88 0.84 0.83
Pro forma equivalent of one Citizens'
common share........................ 0.78 1.53 1.46 1.44
Shareholders' equity per common share
Bancshares historical................. 12.25 11.86 11.60 11.08
Citizens historical................... 20.16 19.77 20.44 20.02
Pro forma combined.................... 12.37 11.98 11.75 11.29
Pro forma equivalent of one Citizens
common share........................ 21.53 20.85 20.44 19.65
</TABLE>
8
<PAGE> 18
MEETING OF SHAREHOLDERS
GENERAL
We are providing this proxy statement/prospectus to Citizens' shareholders
of record as of August 18, 2000, along with a form of proxy that the Citizens'
Board is soliciting for use at a special meeting of shareholders of Citizens. We
have scheduled the meeting for October 25, 2000 at 4:30 p.m., Eastern Time, at
111 Citizens Drive in Beckley, West Virginia. At the meeting, Citizens
shareholders will vote upon a proposal to approve the merger and related plan
where Citizens would merge with and into FCB. Proxies may be voted on other
matters that may properly come before the meeting, if any, at the discretion of
the proxy holders. The Citizens' Board knows of no other matters except those
incidental to the conduct of the meeting. The agreement and plan of
reorganization is attached as Appendix A.
Whether or not you expect to attend the meeting, your vote is important.
Please complete, date and sign the accompanying proxy and return it to Citizens
in the enclosed postage prepaid envelope.
RECORD DATE, VOTING RIGHTS AND VOTE REQUIRED
Only the holders of Citizens' common stock on the record date will receive
notice of and may vote at the meeting. On the record date, there were 250,000
shares of Citizens' common stock outstanding, held by approximately 322 holders
of record (representing approximately 348 beneficial holders). Each share of
Citizens' common stock is entitled to one vote on each matter submitted at the
meeting.
Approval of the merger agreement and related plan requires the affirmative
vote of the holders of at least a majority of the outstanding shares of
Citizens' common stock. If you do not vote your shares, it will have the same
effect as a vote "against" the merger agreement and related plan of merger.
The proposal to adopt the merger agreement and related plan is a
"nondiscretionary" item, meaning that brokerage firms may not vote shares in
their discretion on behalf of a client if the client has not given voting
instructions. Accordingly, shares held in street name that have been designated
by brokers on proxy cards as not voted with respect to that proposal ("broker
non-vote shares") will not be counted as votes cast on that proposal. Shares
with respect to which proxies have been marked as abstentions also will not be
counted as votes cast on that proposal. In either case the result will be
equivalent to a "NO" vote by the beneficial owners of those shares.
Action on other matters, if any, that are properly presented at the meeting
for consideration will be approved if a quorum is present and the votes in favor
of the matter constitute a majority of the shares represented at the meeting and
entitled to vote. A quorum will be present if a majority of the outstanding
shares of Citizens' common stock entitled to vote is represented at the meeting
in person or by proxy. Shares with respect to which proxies have been marked as
abstentions and broker non-vote shares will be treated as shares present for
purposes of determining whether a quorum is present. The Citizens' Board is not
aware of any other business to be presented at the meeting other than matters
incidental to the conduct of the meeting.
Because approval of the merger agreement and related plan requires the
affirmative vote of the holders of at least a majority of the outstanding shares
of Citizens' common stock, abstentions and broker non-vote shares will have the
same effect as votes against the merger. Accordingly, the Citizens' Board urges
you to complete, date and sign the accompanying proxy and return it in the
enclosed postage prepaid envelope.
9
<PAGE> 19
You should not send in your stock certificates with your proxy cards. See
"The Merger -- Exchange of Citizens' Stock Certificates" on page 19.
If you do not vote for the merger and you properly exercise rights to
dissent to the merger and to demand the "fair value" of your shares of Citizens'
common stock, you will have the right to obtain a cash payment equal to the
"fair value" of your shares. See "The Merger -- Rights of Dissenting
Shareholders" on page 27.
As of the record date, the directors and executive officers of Citizens and
their affiliates beneficially owned a total of 93,785 shares, or 37.51 percent,
of the issued and outstanding shares of Citizens' common stock. We expect these
individuals to vote their shares in favor of the merger, absent a change in
circumstances, including receipt of a "superior offer." The directors and
executive officers of Bancshares and its affiliates and subsidiaries do not
beneficially own any shares of Citizens' common stock.
VOTING AND REVOCATION OF PROXIES
The proxies will vote the shares of Citizens' common stock represented by
properly completed proxies received at or before the time for the meeting (or
any adjournment) as directed by the respective shareholders unless the proxies
are revoked as described below. If no instructions are given, executed proxies
will be voted "FOR" approval of the merger agreement and related plan of merger.
Proxies marked "FOR" approval of the merger agreement and plan of merger and
executed but unmarked proxies will be voted at the discretion of the proxy
holders named therein as to any proposed adjournment of the meeting. Proxies,
which are voted "AGAINST" approval of the Plan, will not be voted in favor of
any motion to adjourn the meeting to solicit more votes in favor of the merger.
If any other matters are properly presented at the meeting and voted upon, the
proxies solicited hereby will be voted on those matters at the discretion of the
proxy holders named therein.
Your attendance at the meeting will not automatically revoke your proxy.
You may, however, revoke a proxy any time before its exercise by: notifying the
Corporate secretary of Citizens in writing or in person at Citizens principal
executive offices; submitting a later-dated proxy to the Corporate secretary of
Citizens at Citizens principal executive offices; or attending the meeting and
withdrawing the proxy before it is voted.
SOLICITATION OF PROXIES
Bancshares will pay for the cost of printing this proxy
statement/prospectus, and will pay all other costs of soliciting proxies.
Directors, officers and other employees of Citizens or its subsidiaries may
solicit proxies personally, by telephone or facsimile or otherwise. None of
these people will receive any special compensation for solicitation activities.
Citizens will arrange with brokerage firms and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the beneficial owners
of stock held of record by such brokerage firms and other custodians, nominees
and fiduciaries, and Citizens will reimburse these record holders for their
reasonable out-of-pocket expenses.
RECOMMENDATION OF THE CITIZENS' BOARD
The Citizens' Board has approved the merger agreement and the related plan
and believes that the proposed transaction is fair to and in the best interests
of Citizens and its shareholders. The Citizens' Board unanimously recommends
that Citizens' shareholders vote "FOR" approval of the plan of merger. See "The
Merger -- Background of and Reasons for the Merger" on page 11.
10
<PAGE> 20
THE MERGER
The following information describes the material aspects of the merger.
This description is not complete and is qualified in its entirety by reference
to the appendices to this proxy statement/prospectus, including the Agreement
and Plan of Reorganization, which are attached to this proxy
statement/prospectus as Appendix A and incorporated herein by reference. We urge
all shareholders to read the appendices in their entirety.
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF MERGER
On June 22, 1999, Citizens' Executive Committee discussed various changes
taking place in the banking and financial industries. The increased dependence
and cost associated with automation, the need to introduce specialized products
and services, increased competition from larger financial institutions and
increased competition from non-bank financial providers prompted the Executive
Committee to address Citizens' alternatives. Considerable discussion was held
regarding various competitive and operational changes affecting Citizens. As a
result of the discussions, one of the alternatives the committee identified was
the possibility of affiliating with a similar size or larger financial
institution.
The Board of Directors at its July 13, 1999, meeting considered the matter
previously discussed by the Executive Committee. Management and the Board
engaged in discussions relating to the future of Citizens and the impact of
Citizens remaining independent or affiliating with another financial
institution. Consideration was given to the lack of shareholder dividends,
liquidity concerns for Citizens' common stock, price multiples that might be
received for Citizens' common stock, the potential for the shareholders to
receive a dividend as well as other matters. Following considerable discussion,
a motion was made and seconded appointing a committee of directors to explore
the affiliation and merger opportunities available to Citizens. The committee
met on several occasions to discuss the plan and the opportunities to affiliate.
During the December 14, 1999, Board of Directors meeting, further
discussion regarding the strategic direction that Citizens should follow
occurred. Following considerable discussion, a decision was made to compile a
list of consulting firms to assist the Board in determining the best
opportunities to enhance shareholder value and that the Executive Committee
narrow the choice to two firms which would make presentations to the Board of
Directors.
During the January 6, 2000, Board of Directors meeting, the Directors
received presentations by Jim Baxter, representing Baxter Fentriss and a
representative of the other firm. Each presentation discussed the options
available to Citizens and afforded the Directors an opportunity to ask
questions. Following the presentations, it was determined that the Board of
Directors should meet on January 11, 2000, to further discuss the presentations.
During the January 11, 2000, Board of Directors meeting, discussions were
held regarding the presentations of the consulting firms. A negotiation
committee was formed and given the authority to negotiate and sign a proposal
contract with Baxter Fentriss.
The Board of Directors met on February 8, 2000, and was informed of the
changes and the signing of the contract with Baxter Fentriss. Upon motion duly
made and seconded, the amended agreement between Baxter Fentriss and Citizens
dated January 10, 2000 was ratified as presented.
11
<PAGE> 21
During February 2000, a memorandum of offering was prepared. During March
2000, 36 potential acquirers were identified regarding the possible affiliation
with Citizens, and fifteen received the confidential memorandum of offering.
Baxter Fentriss received four separate non-binding proposals on April 27, 2000,
and presented them to the Board of Directors on May 2, 2000.
The Board of Directors reviewed the four non-binding proposals regarding
the acquisition of or affiliation with Citizens Baxter Fentriss received. Based
on the review and analysis presented to the Board in detail including the
performance, future growth potential and other factors of each institution,
Baxter Fentriss was instructed to contact Bancshares to narrow the range of its
offer so as to state the exact number of shares being offered. Mr. Baxter
indicated that he would obtain within the following two weeks a specific offer
from Bancshares. It was the consensus of the Directors to authorize Baxter
Fentriss to proceed with discussions with Bancshares concerning its proposal and
to report the results of these discussions to the Board of Directors.
The Board of Directors met on May 9, 2000 and Baxter Fentriss advised that
it had obtained from Bancshares a specific offer for the purchase of Citizens.
Upon motion made and duly seconded, Baxter Fentriss was authorized to go forward
with further negotiations with Bancshares.
During the June 13, 2000 Board of Directors meeting, Baxter Fentriss
updated the Directors as to its negotiations with Bancshares. After performing
due diligence, Bancshares finalized its offer to exchange 435,000 shares of
Bancshares common stock in exchange for the outstanding shares of Citizens, or
an exchange ratio of 1.74.
Counsel for Citizens presented a review of the proposed Agreement and Plan
of Reorganization and his suggested changes, as well as a review of the
regulatory approval process. Baxter Fentriss informed Citizens' Board of
Directors of a news release whereby a management change had taken place at
Bancshares. It was the consensus of the Board of Directors of Citizens to wait
until Wednesday, June 21, 2000, to respond to the proposal of Bancshares
concerning the proposed merger. This delay would allow Citizens to determine the
effect, if any, that the management change would have on the market value of
Bancshares and would allow counsel to finalize the language in the Agreement.
At the meeting of the Board of Directors on June 21, 2000, Citizens'
management reported on its due diligence of Bancshares. For the purpose of
issuing its fairness opinion, Baxter Fentriss also presented the findings of its
due diligence efforts. Baxter Fentriss provided an overview of the financial
condition of Bancshares and indicated that the proposed exchange ratio was fair
to Citizens' shareholders.
In addition, the Board reviewed the changes to the agreement as approved by
legal counsel. After discussions and several questions, and a review of the
resolution as submitted by Citizens' legal counsel authorizing the officers of
the corporation to execute the Agreement, a motion was made and seconded
approving the resolution as presented subject to changes as executive officers
and legal counsel recommended.
At the Executive Committee meeting on June 26, 2000, the Committee reviewed
a memorandum from counsel to Citizens. The memorandum outlined changes made to
the Agreement. After an extensive conversation between the members present at
the meeting, it was determined that the final changes to the Agreement were in
the best interests of the shareholders of Citizens. Subject to counsel's review
of the final changes, the Executive
12
<PAGE> 22
Committee recommended that the President proceed on June 27, 2000 to sign the
Agreement during the regularly scheduled Executive Committee meeting.
During the June 27, 2000 regularly scheduled Executive Committee meeting of
Citizens, representatives of Bancshares and Citizens executed the Agreement.
Bancshares and Citizens publicly announced the proposed merger after the close
of business on June 27, 2000.
CITIZENS' REASONS FOR THE MERGER
The terms of the merger agreement, including the exchange ratio and the
amount of Bancshares' stock to be received by Citizens' shareholders, were the
result of arm's-length negotiations between representatives of Bancshares and
Citizens. Among the factors considered by the Board of Directors of Citizens in
deciding to approve and recommend the terms of the merger were:
- the value of the Bancshares' common stock to be received by Citizens'
shareholders based on the exchange ratio in relation to the market value,
book value, earnings per share and dividend rates of Citizens' common
stock,
- information concerning the financial condition, results of operations,
capital levels, asset quality and prospects of Citizens,
- industry and economic conditions,
- the impact of the merger on the depositors, employees, customers and
communities served by Citizens through expanded commercial, consumer,
trust and banking products and services,
- the opinion of Citizens' financial advisor as to the fairness of the
exchange ratio from a financial point of view to the holders of Citizens'
common stock,
- the general structure of the transaction and the compatibility of
management and business philosophy,
- the likelihood of receiving the requisite regulatory approvals in a
timely manner, and
- the ability of the combined enterprise to compete in relevant banking and
non-banking markets.
In making its determination, the Board of Directors of Citizens did not
ascribe relative weights to the factors which it considered. Your Board of
Directors unanimously recommends that you vote "FOR" the merger agreement and
plan of merger.
BANCSHARES' REASONS FOR THE MERGER
In Bancshares consideration of the merger, its management analyzed not only
the financial characteristics of the transaction but also considered various
organizational and operational criteria including the management structure and
philosophy of Citizens, employer and employee relations operational flow within
the geographic market area served by Citizens, and the impact on existing market
areas bordering those served by Citizens that are currently served by FCB as
well as shareholder perception of the transaction.
13
<PAGE> 23
Various financial characteristics of the transaction were evaluated based
upon Citizens' audited financial statements for the year ended December 31, 1999
as well as information provided by Baxter Fentriss. Pricing models were used to
evaluate the transaction from a financial perspective and based upon the
characteristics of the transaction, it was determined that Citizens would be a
good affiliation candidate and deserved further study.
Citizens serves customers in the Beckley, West Virginia market, an area
that currently borders three of the existing market areas presently served by
FCB. The addition of Citizens would not only create an extension of the service
area to FCB's existing customer base but could be added with limited cost since
it is within FCB's present strategic market area. Additionally, Citizens brings
with it the added depth of a knowledgeable management team experienced in retail
banking which can operate with the same degree of personal service and
autonomous operations as presently deployed throughout Bancshares.
Beckley-Raleigh County has become a growing area within West Virginia due
to several conditions which, when factored together, have given Citizens the
opportunity to take advantage of and rapidly expand its asset base since its
inception in 1995. Several of the industries to which the Beckley, West Virginia
area can greatly attribute its success include tourism, wood processing and
timber. Added to the economic support of growing industries, the Beckley, West
Virginia area is also the crossroads of two major highways (Interstates I-77 and
I-64), which also helps fuel the retail economy and provides a good
infrastructure for future development.
After careful consideration of the facts and circumstances surrounding the
proposed merger, it was decided that Citizens was a very good fit to Bancshares'
organizational goals and philosophies and was positioned in an area logistically
convenient to the operations of FCB.
None of the above information has been updated since the date of the merger
agreement. There can be no certainty that the results described in the above
analysis will be achieved or that actual results will not vary materially from
the estimated results. For more information concerning the factors that could
affect actual results, see "A Warning About Forward-Looking Information" on page
iii.
OPINION OF FINANCIAL ADVISOR
Baxter Fentriss has acted as financial advisor to Citizens in connection
with the merger. Baxter Fentriss assisted Citizens in identifying and
negotiating with prospective acquirers. Baxter Fentriss delivered to Citizens
its opinion dated June 27, 2000, that on the basis of matters referred to
therein, the exchange ratio received by shareholders of Citizens' common stock
is fair from a financial point of view. In rendering its opinion, Baxter
Fentriss consulted with the management of Citizens and Bancshares, and reviewed
the Agreement and Plan of Reorganization entered into on June 27, 2000. Baxter
Fentriss also reviewed certain publicly available information on the parties and
certain additional materials made available by the management of the respective
parties.
In addition Baxter Fentriss discussed with the management of Citizens and
Bancshares their respective businesses and outlook. Baxter Fentriss was involved
in the negotiations between Citizens and Bancshares. No limitations were imposed
by Citizens' Board of Directors upon Baxter Fentriss with respect to the
investigation made or procedures followed by it in rendering its opinion. The
full text of Baxter Fentriss' written opinion is attached as Appendix B to this
proxy statement/prospectus and should be read in its entirety with respect to
the procedures followed, assumptions made, matters considered and qualifications
and limitations on the review undertaken by Baxter Fentriss.
14
<PAGE> 24
Baxter Fentriss' opinion is directed to Citizens' Board of Directors, and
is directed only to the fairness, from a financial point of view, of the
exchange ratio to be received by shareholders of Citizens' common stock. It does
not address Citizens' underlying business decision to effect the proposed
merger, nor does it constitute a recommendation to any Citizens' shareholder as
to how a shareholder should vote with respect to the merger at the shareholders
meeting or as to any other matter.
Baxter Fentriss' opinion was one of many factors taken into consideration
by Citizens' Board of Directors in making its determination to approve the
merger agreement and support the merger, and the receipt of Baxter Fentriss'
opinion is a condition precedent to Citizens consummating the merger. The
opinion of Baxter Fentriss does not address the relative merits of the merger as
compared to any alternative business strategies that might exist for Citizens or
the effect of any other business combination in which Citizens might engage.
Baxter Fentriss, as part of its investment banking business, is continually
engaged in the valuation of financial institutions and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. Baxter Fentriss is a nationally recognized advisor to firms
in the financial services industry on mergers and acquisitions. Citizens
selected Baxter Fentriss as its financial advisor because Baxter Fentriss is an
investment banking firm focusing on transactions involving community banks and
thrifts and because of the firm's extensive experience and expertise in
transactions similar to the proposed merger. Baxter Fentriss is not affiliated
with Citizens, Bancshares or FCB.
In connection with rendering its opinion to Citizens' Board of Directors,
Baxter Fentriss performed a variety of financial analyses. In conducting its
analyses and arriving at its opinion as expressed herein, Baxter Fentriss
considered financial and other factors as it deemed appropriate under the
circumstances including, among others, the following:
- the historical and current financial condition and results of operations
of Citizens and Bancshares including interest income, interest expense,
noninterest income, noninterest expense, earnings, book value, returns on
assets and equity, and possible tax consequences resulting from the
transaction;
- the business prospects of Citizens and Bancshares;
- the economies of Citizens' and Bancshares' respective market areas; and
- the nature and terms of certain other merger transactions that it
believed to be relevant.
Baxter Fentriss also considered its assessment of general economic, market,
financial and regulatory conditions and trends, as well as its knowledge of the
financial institutions industry, its experience in connection with similar
transactions, its knowledge of securities valuation generally, and its knowledge
of merger transactions in West Virginia and throughout the United States.
In connection with rendering its opinion, Baxter Fentriss reviewed:
- the merger agreement;
- drafts of this proxy statement/prospectus;
- the Annual Reports to shareholders of Citizens for the years ended
December 31, 1997 and 1998, Citizens' December 31, 1999 Call Report and
Citizens' March 31,
15
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2000 unaudited internal financial statements, as well as certain current
interim reports to shareholders and regulatory agencies;
- the Annual Reports to shareholders of Bancshares for the years ended
December 31, 1997, 1998 and 1999, Bancshares' March 31, 2000 Form 10-Q,
as well as certain current interim reports to shareholders and regulatory
agencies;
- certain additional financial and operating information with respect to
the business, operations and prospects of Citizens, Bancshares and FCB as
it deemed appropriate.
Baxter Fentriss also:
- held discussions with members of Citizens' and Bancshares' senior
management regarding the historical and current business operation,
financial condition and future prospects of their respective companies;
- reviewed the historical market prices and trading activity for Citizens'
common stock and Bancshares' common stock, as applicable, and compared
them with those of certain publicly traded companies that it deemed to be
relevant;
- compared the results of operations of Citizens and Bancshares with those
of certain banking companies that it deemed to be relevant;
- analyzed the pro-forma financial impact of the merger on Bancshares; and
- conducted such other studies, analyses, inquiries and examinations as
Baxter Fentriss deemed appropriate.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances. Therefore, a
fairness opinion is not readily susceptible to partial analysis or summary
description. Moreover, the evaluation of fairness, from a financial point of
view, of the consideration provided to the holders of Citizens' common stock was
to some extent a subjective one based on the experience and judgment of Baxter
Fentriss and not merely the result of mathematical analysis of financial data.
Accordingly, notwithstanding the separate factors as summarized below, Baxter
Fentriss believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying its opinion. The ranges of valuations resulting
from any particular analysis described below should not be taken to be Baxter
Fentriss' view of the actual value of Citizens or Bancshares.
In performing its analyses, Baxter Fentriss made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Citizens and Bancshares. The
analyses performed by Baxter Fentriss are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
businesses may actually be sold. In rendering its opinion, Baxter Fentriss
assumed that, in the course of obtaining the necessary regulatory approvals for
the merger, no conditions will be imposed that will have a material adverse
effect on the contemplated benefits of the merger, on a pro-forma basis, to
Bancshares.
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<PAGE> 26
The following is a summary of selected analyses performed by Baxter
Fentriss in connection with its opinion.
1. STOCK PRICE HISTORY. Baxter Fentriss analyzed the history of the trading
prices and volume for Citizens' and Bancshares' common stock and compared them
to other publicly traded banks in Virginia and West Virginia. Bancshares traded
at a price earnings multiple of 8.15 and a price book multiple of 1.30. Such
multiples are deemed consistent with pricing multiples for other such
institutions.
2. COMPARATIVE ANALYSIS. Baxter Fentriss analyzed and compared the price to
earnings multiple, price to book multiple, price to assets, and premium on
deposits of Bancshares' offer with 21 other comparable publicly disclosed
community financial institution merger transactions in West Virginia, Virginia
and Kentucky over the last three years. The acquired institution in these
transactions had assets of $100 million or less. Using an aggregate value of
$6.8 million, the respective pricing multiples are as follows: price to earnings
of 45.13; price to book of 1.36; price to assets of 10.52%; and premium on core
deposits of 4.37%.
3. DISCOUNTED CASH FLOW ANALYSIS. Baxter Fentriss performed a discounted
cash flow analysis to determine hypothetical present values for a share of
Citizens' common stock as both a five and ten year investment. Under this
analysis, Baxter Fentriss considered various scenarios for the performance of
Citizens' common stock using a range of growth rates from 6% to 12% for
Citizens' earnings and dividends. A range of terminal values from twelve to
eighteen times earnings was also used in the analysis as well as a range of
discount rates from 12.5% to 14.5%. These ranges of growth rates, discount
rates, and terminal values were chosen based upon what Baxter Fentriss in its
judgement considered to be appropriate taking into account, among other things,
Citizens' past and current performance, the general level of inflation, and
rates of return for fixed income and equity securities in the marketplace
generally and for companies of similar risk profiles. In all of the scenarios
considered, the present value of Citizens' common stock was calculated at less
than the value of Bancshares' offer. Thus, Baxter Fentriss' discounted cash flow
analysis indicated that Citizens' shareholders would be in a better financial
position by receiving the Bancshares' common stock offered in the merger rather
than continuing to hold Citizens' common stock.
Following is a table that summarizes the discounted cash flow analysis that
Baxter Fentriss performed in forming its fairness opinion. The table presents
the ranges of present values that were calculated using growth rates from 6% to
12%, discount rates from 12.5% to 14.5%, terminal values of 14 to 18 times
earnings, and investment time frames of five and ten years. The table uses
Citizens' March 31, 2000 financial data including annualized earnings. An
example of how to read the table is as follows:
Using a discount rate of 12.5%, a terminal value of 14x, and growth rates
of 6% to 12%, the present value of Citizens' common stock is calculated to be in
the range of $15.51 to $20.43 assuming the shares are sold in five years. The
values in the range are less than the $27.08 which Bancshares has offered, which
means that under the assumptions of this particular scenario, a shareholder of
Citizens' common stock would be better off taking Bancshares' offer than holding
Citizens' common stock.
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<PAGE> 27
SUMMARY OF BAXTER FENTRISS DISCOUNTED CASH FLOW ANALYSIS
DISCOUNT RATE OF 12.50% AND GROWTH RATES FROM 6% TO 12%
<TABLE>
<CAPTION>
RANGE OF PRESENT VALUE CALCULATIONS
------------------------------------
TERMINAL VALUE SELL SHARES IN SELL SHARES IN
OF EARNINGS FIVE YEARS TEN YEARS
-------------- ---------------- ----------------
<S> <C> <C>
14x......................... $15.51 to $20.43 $11.52 to $19.98
16x......................... $17.73 to $23.35 $13.17 to $22.83
18x......................... $19.94 to $26.27 $14.84 to $25.69
</TABLE>
DISCOUNT RATE OF 13.50% AND GROWTH RATES FROM 6% TO 12%
<TABLE>
<CAPTION>
RANGE OF PRESENT VALUE CALCULATIONS
------------------------------------
TERMINAL VALUE SELL SHARES IN SELL SHARES IN
OF EARNINGS FIVE YEARS TEN YEARS
-------------- ---------------- ----------------
<S> <C> <C>
14x......................... $14.84 to $19.54 $10.54 to $18.29
16x......................... $16.96 to $22.34 $12.05 to $20.90
18x......................... $19.08 to $25.13 $13.56 to $23.51
</TABLE>
DISCOUNT RATE OF 14.50% AND GROWTH RATES FROM 6% TO 12%
<TABLE>
<CAPTION>
RANGE OF PRESENT VALUE CALCULATIONS
-------------------------------------
TERMINAL VALUE SELL SHARES IN SELL SHARES IN
OF EARNINGS FIVE YEARS TEN YEARS
-------------- ---------------- -----------------
<S> <C> <C>
14x........................ $14.20 to $18.71 $ 9.66 to $16.75
16x........................ $16.23 to $21.38 $11.04 to $19.14
18x........................ $18.26 to $24.05 $12.42 to $21.54
</TABLE>
The discounted cash flow analysis is a widely used methodology. The results
of this methodology are highly dependent upon the numerous assumptions that must
be made and the results thereof are not necessarily indicative of actual values
or actual future results.
4. PROFORMA UNDERLYING VALUE OF THE BANCSHARES' SHARES RECEIVED. Baxter
Fentriss performed an analysis that compares the underlying value of the shares
of Bancshares that shareholders of Citizens would receive as a result of the
merger. In this analysis, the book value per share of $19.92 as of March 31,
2000, annualized earnings per share of $1.49, and 1999 reported earnings of
$1.92 per share were compared to the underlying book value, earnings, and
dividends that each shareholder will receive as a result of the merger. The
analysis was performed using the exchange ratio of 1.74 as described in the
Agreement. Using this exchange ratio, the restated proforma underlying book
value represented by each Citizens' share equates to $20.41, an increase of 2.45
percent. The proforma underlying value of Citizens' annualized March 31, 2000
earnings per share equates to $3.22, an increase of 115.89 percent. The restated
proforma underlying value of Citizens' 1999 reported earnings per share equates
to $3.18, an increase of 429.81 percent. Citizens, at the time of the
transaction announcement, was not issuing dividends to common shareholders. On a
proforma basis as a result of the merger, each shareholder of Citizens' common
stock would receive $1.53 in dividends for each share held.
Using publicly available information on Citizens and Bancshares and
applying the capital guidelines of banking regulators, Baxter Fentriss' analysis
indicated that the merger would not permanently dilute the capital and earnings
capacity of Bancshares and would, therefore, likely not be opposed by the
banking regulatory agencies from a capital
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<PAGE> 28
perspective. Furthermore, Baxter Fentriss considered the likely market overlap
and the Federal Reserve guidelines with regard to market concentration and
concluded that possible antitrust issues do not exist.
Baxter Fentriss has relied, without any independent verification, upon the
accuracy and completeness of all financial and other information reviewed.
Baxter Fentriss has assumed that all estimates were reasonably prepared by
management, and reflect their best current judgments. Baxter Fentriss did not
make an independent appraisal of the assets or liabilities of either Citizens or
Bancshares, and has not been furnished such an appraisal.
No company or transaction used as a comparison in the above analysis is
identical to Citizens, Bancshares, FCB or the merger. Accordingly, an analysis
of the results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies used for comparison in the above analysis.
Baxter Fentriss will be paid (1) a merger fee, equal to approximately 1.25
percent of the aggregate consideration received by Citizens and (2) reasonable
out-of-pocket expenses for its services. Citizens has agreed to indemnify Baxter
Fentriss against certain liabilities, including certain liabilities under
federal securities laws.
EXCHANGE RATIO
In the merger, each share of Citizens' common stock outstanding when the
merger becomes effective (other than shares held by shareholders who have
properly exercised their dissenters' rights) will be converted into the right to
receive 1.74 shares of Bancshares' common stock.
You should be aware that the actual market value of a share of Bancshares'
common stock when the merger becomes effective and at the time certificates for
those shares are delivered following surrender and exchange of your certificates
for shares of Citizens' common stock may be more or less than the closing price
per share of Bancshares' common stock at any other time. You are urged to obtain
information on the market value of Bancshares' common stock that is more recent
than that provided in this proxy statement/prospectus. See
"Summary -- Comparative Market Prices and Dividends" on pages 5 and 6.
No fractional shares of Bancshares' common stock will be issued in the
merger. If you would otherwise be entitled to a fractional share of Bancshares'
common stock in the merger, you will be paid an amount in cash determined by
multiplying the fractional part of the share of Bancshares' common stock by the
average of the bid and ask prices of Bancshares' common stock on the date that
the merger becomes effective. The average bid and ask price per share of
Bancshares' common stock will be computed as reported on the Nasdaq Level III
Electronic Billboard at 4:00 p.m. Eastern Time, or if not reported on the Nasdaq
Level III Electronic Billboard, another authoritative source.
EXCHANGE OF CITIZENS' STOCK CERTIFICATES
When the merger becomes effective, by virtue of the merger and without any
action on the part of Citizens or the Citizens' shareholders, shares of
Citizens' common stock (other than shares held by shareholders who have properly
exercised their dissenters' rights) will be converted into and will represent
the right to receive, upon surrender of the certificate
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<PAGE> 29
representing such shares as described below, whole shares of Bancshares' common
stock and cash instead of any fractional share interest. Promptly after the
merger becomes effective, Bancshares will deliver or mail to you a form letter
of transmittal and instructions for surrender of your Citizens' stock
certificates. When you properly surrender your certificates or provide other
satisfactory evidence of ownership, and return the letter of transmittal duly
executed and completed in accordance with its instructions and any other
documents as may be reasonably requested, Bancshares will promptly deliver to
you the merger consideration to which you are entitled.
You should not send in your stock certificates until you receive the letter
of transmittal and instructions.
Until surrendered as described above, each outstanding Citizens' stock
certificate (other than certificates of shareholders who have properly exercised
their dissenters' rights) will be deemed at the time the merger becomes
effective to represent for all purposes only the right to receive the merger
consideration and any declared and unpaid dividends thereon. No interest will be
paid or accrued on any cash payable for fractional shares as part of the merger
consideration upon the surrender of the certificate or certificates representing
shares of Citizens' common stock. With respect to any Citizens' stock
certificate that has been lost or destroyed, Bancshares will pay the merger
consideration attributable to such certificate upon receipt of a surety bond or
other adequate indemnity, as required in accordance with Bancshares' standard
policy, and evidence reasonably satisfactory to Bancshares of ownership of the
shares in question. After the time that the merger becomes effective, Citizens'
transfer books will be closed and no transfer of the shares of Citizens' common
stock outstanding immediately prior to the effective time will be made.
Bancshares will pay any dividends or other distributions with a record date
before the time that the merger becomes effective that have been declared or
made by Citizens in respect of shares of Citizens' common stock that remain
unpaid when the merger becomes effective, and unless the effective time occurs
prior to the record date for Bancshares' dividend payable in the third quarter
of 2000, in which case the former Citizens' shareholders would receive
Bancshares' dividend rather than Citizens' dividend.
To the extent permitted by law, you will be entitled to vote after the
merger at any meeting of Bancshares' shareholders the number of whole shares of
Bancshares' common stock into which your shares of Citizens' common stock are
converted, regardless of whether you have exchanged your Citizens' stock
certificates for Bancshares' stock certificates. Whenever a dividend or other
distribution is declared by Bancshares on the Bancshares' common stock, the
record date for which is after the effective time, the declaration will include
dividends or other distributions on all shares of Bancshares' common stock
issuable pursuant to the merger agreement. Until the outstanding certificates
formerly representing Citizens' common stock are received, no dividend or other
distribution that becomes payable to the holders of record of Bancshares' common
stock will be delivered to you until you surrender your Citizens' stock
certificate for exchange as described above. Upon surrender of your Citizens'
stock certificate, both the Bancshares' common stock certificate and any
undelivered dividends and cash payments payable under the merger agreement
(without interest) will be delivered and paid to you with respect to each share
of Citizens' common stock represented by your certificate.
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<PAGE> 30
THE MERGER AGREEMENT
EFFECTIVE DATE AND TIME OF THE MERGER
The merger agreement provides that the closing of the merger will take
place on the business day designated by Bancshares that is reasonably acceptable
to Citizens; provided, that the date so designated shall not be earlier than 15
days or later than 120 days following the date of the decision of the Office of
the Comptroller of the Currency approving the Merger. If the merger is approved
at the meeting, it is currently anticipated that the filing of the articles of
merger and the effective time will occur during the fourth quarter of 2000.
CONDITIONS TO THE MERGER
The obligations of Bancshares and Citizens to carry out the merger are
subject to satisfaction (or, if permissible, waiver) of the following conditions
at or before the effective time:
- all corporate action necessary to authorize the execution, delivery and
performance of the Agreement and Plan of Reorganization and the Plan must
have been duly and validly taken by the Board of Directors and
shareholders of Citizens;
- Bancshares' registration statement on Form S-4 relating to the merger
(including any post-effective amendments) must be effective under the
Securities Act of 1933, as amended; no proceedings may be pending or, to
Bancshares' knowledge, threatened by the SEC to suspend the effectiveness
of the registration statement and the Bancshares' common stock to be
issued in the merger must either have been registered or exempt from
registration under applicable state securities laws;
- the parties must have received all regulatory approvals required in
connection with the transactions contemplated by the merger agreement,
all notice periods and waiting periods required with respect to the
approvals must have passed and all approvals must be in effect; and
- neither Bancshares nor Citizens nor any of their respective subsidiaries
may be subject to any order, decree or injunction of a court or agency of
competent jurisdiction that enjoins or prohibits completion of the
transactions provided in the merger agreement.
The obligations of Citizens to carry out the transactions in the merger
agreement are also subject to the satisfaction of the following additional
conditions at or before the effective time, unless, where permissible, waived by
Citizens:
- Bancshares must have performed in all material respects all obligations
and complied in all material respects with all covenants required by the
merger agreement;
- the shares of Bancshares' common stock to be issued in the merger must
have been registered with the Securities Exchange Commission under the
1933 Act;
- Citizens must have received closing certificates from Bancshares to the
effect that certain conditions to the merger have been satisfied; and
- Citizens must have received an opinion of counsel, in form and substance
satisfactory to Citizens, substantially to the effect that the merger
will constitute a reorganization under Section 368 of the Internal
Revenue Code of 1986, as amended, and that the shareholders of Citizens
will not recognize any gain or loss to the extent that they
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<PAGE> 31
exchange shares of Citizens common stock for shares of Bancshares' common
stock, and that
- Citizens must have received the Opinion of the Financial Advisor, dated
as of the date of the proxy material and as of the Closing Date, that the
merger is fair from a financial point of view, to Citizens and its
shareholders.
In addition, all representations and warranties made by Bancshares in the
merger agreement will be evaluated as of the date of the merger agreement and at
the time the merger becomes effective as though made at that time (or on the
date designated, in the case of any representation and warranty that
specifically relates to an earlier date), except as otherwise provided in the
merger agreement or consented to in writing by Citizens. There must not be any
inaccuracies in the representations and warranties of Bancshares in the merger
agreement such that the aggregate effect of such inaccuracies has, or is
reasonably likely to have, a material adverse effect on Bancshares.
The obligations of Bancshares to carry out the transactions in the merger
agreement are also subject to satisfaction of the following additional
conditions at or before the effective time, unless, where permissible, waived by
Bancshares:
- no regulatory approval may have imposed any condition or requirement
that, in the reasonable opinion of the Bancshares' Board, would so
materially adversely affect the business or economic benefits to
Bancshares of the transactions in the merger agreement as to render the
consummation of such transactions inadvisable or unduly burdensome;
provided that any condition or requirement does not relate principally to
any regulatory violation or other failure on the part of Bancshares or a
divestiture requirement that is consistent with regulatory precedent;
- Citizens must have performed in all material respects all of its
obligations and complied in all material respects with all of its
covenants required by the merger agreement;
- Bancshares must have received closing certificates from Citizens to the
effect that certain conditions to the merger have been satisfied;
- Bancshares must have received an opinion of counsel, in form and
substance satisfactory to Bancshares, substantially to the effect that
the merger will constitute a reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended, and that the shareholders of
Citizens will not recognize any gain or loss to the extent that they
exchange shares of Citizens common stock for shares of Bancshares' common
stock.
In addition, all representations and warranties made by Citizens in the
merger agreement will be evaluated at the date of the merger agreement and at
the time the merger becomes effective as though made on and at that time (or on
the date designated, in the case of any representation and warranty that
specifically relates to an earlier date), except as otherwise provided in the
merger agreement or consented to in writing by Bancshares. The representations
and warranties of Citizens regarding the shareholder vote required to approve
the merger and the actions taken to exempt the merger from any applicable
anti-takeover laws must be true and correct (except for inaccuracies that are
immaterial in amount). In addition, there must not be any inaccuracies in any of
the representations and warranties of Citizens in the merger agreement such that
the effect of such inaccuracies individually or in the
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<PAGE> 32
aggregate has, or is reasonably likely to have, a material adverse effect on
Citizens and its subsidiaries taken as a whole.
CONDUCT OF CITIZENS' AND BANCSHARES' BUSINESSES PRIOR TO THE EFFECTIVE TIME OF
THE MERGER
Except with the prior consent of Bancshares, not to be unreasonably or
arbitrarily withheld or delayed, before the effective time of the merger,
Citizens may not:
- carry on its business except in the ordinary course and in substantially
the same manner as previously conducted, or establish or acquire any new
subsidiary or engage in any new type of activity or expand any existing
activities;
- declare or pay any dividend or distribution on its capital stock;
- issue any shares of capital stock;
- purchase any shares of Citizens' capital stock;
- make any material change in the compensation or title of any executive
officer;
- make any material change in the compensation or title of any other
employee, other than those permitted by current employment policies in
the ordinary course of business, any of which changes shall be promptly
reported to Bancshares;
- enter into any new bonus, incentive compensation, deferred compensation,
profit sharing, thrift, retirement, pension, group insurance or other
benefit plan (except as specifically contemplated in the Agreement and
Plan of Reorganization), or any other employment agreement or consulting
agreement or amend any such plan or agreement to increase the benefits
accruing or payable thereunder;
- amend its Articles of Incorporation or bylaws except as necessary to
consummate the merger;
- waive any right of substantial value;
- propose or take any action which would make any representation or
warranty with regards to the Agreement and Plan of Reorganization untrue;
- merge with any other entity or permit any other entity to merge into it,
acquire control over any other entity or dispose of any material amount
of assets or acquire any material amount of assets, in each case other
than in the ordinary course of its business consistent with past
practices;
- enter into, or assume any material contract or obligation, except in the
ordinary course of business;
- change securities portfolio policies;
- enter into any new agreement, amendment or endorsement or make any
changes relating to insurance coverage, including coverage for its
directors and officers, which would result in an additional payment
obligation of $10,000 or more;
- propose to take action with respect to closing of any branches; or
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<PAGE> 33
- agree to do any of the foregoing.
Citizens has also further agreed that between the date of the Agreement and
Plan of Reorganization and the Effective time of the Merger that they will
consult and cooperate with Bancshares regarding:
- loan portfolio management, including management and workout of
nonperforming assets, and credit review and approval procedures, and
- securities portfolio and funds management, including management of
interest rate risk;
- to keep Bancshares advised of all material developments relevant to its
business prior to completion of the merger; and
- to provide Bancshares reasonable access to Citizens' premises, books and
records.
Except with the prior consent of Citizens, not to be arbitrarily or
unreasonably withheld or delayed, before the effective time, neither Bancshares
nor any subsidiary of Bancshares may take any action (or fail to take any
action) that would or might be expected to:
- cause the merger not to constitute a tax-free reorganization;
- result in any inaccuracy of a representation or warranty that would allow
for termination of the merger agreement;
- cause any of the conditions precedent to the transactions contemplated by
the merger agreement to fail to be satisfied;
- fail to comply in any material respect with any laws, regulations,
ordinances or governmental actions applicable to it and to the conduct of
its business.
Bancshares has also agreed to keep Citizens advised of all material
developments relevant to its business prior to completion of the merger.
SUPERIOR OFFERS
Citizens has agreed not to solicit other offers unless it receives a
superior offer. A superior offer is a proposal or offer to acquire or purchase
all or a substantial portion of the assets of or a substantial equity interest
in, or to effect any recapitalization, liquidation or dissolution involving or a
business combination or other similar transaction with, Citizens (including, but
not limited to, a tender offer or exchange offer to purchase Citizens' common
stock) other than as contemplated by the Agreement and Plan Reorganization:
- that did not arise from or involve a breach or violation by Citizens of
the merger agreement;
- was not solicited by Citizens or anyone acting on its behalf;
- that the Citizens' Board determines in its good faith judgment based,
among other things, on advice of its Financial Advisor, to be more
favorable to the Citizens' shareholders and the Merger; and
- the financing for the implementation of which, to the extent required, is
then committed or in the good faith reasonable judgment of the Citizens'
Board of Directors, based, among other things, on advice of the Financial
Advisor, is capable of being obtained by the party making the proposal or
offer.
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<PAGE> 34
WAIVER; AMENDMENT; TERMINATION; EXPENSES
Except with respect to any required regulatory approval or other condition
imposed by law, Bancshares or Citizens may at any time (whether before or after
approval of the merger agreement and plan of merger by the Citizens'
shareholders) extend the time for the performance of any of the obligations or
other acts of the other party and may waive (a) any inaccuracies of the other
party in the representations or warranties contained in the merger agreement,
plan of merger or any document delivered pursuant thereto, (b) compliance with
any of the covenants, undertakings or agreements of the other party, or
satisfaction of any of the conditions precedent to its obligations, contained in
the merger agreement or plan of merger or (c) the performance by the other party
of any of its obligations set out in the merger agreement or plan of merger. The
parties may also mutually amend or supplement the merger agreement in writing at
any time. However, no extension, waiver, amendment or supplement which would
reduce either the exchange ratio or the payment terms for fractional interests
to be provided to holders of Citizens' common stock upon completion of the
merger will be made after the Citizens' shareholders approve the merger
agreement and plan of merger.
If any of the conditions to the obligation of either party to complete the
merger is not fulfilled, that party will consider the materiality of such
nonfulfillment. In the case of the nonfulfillment of a condition to Citizens'
obligations, Citizens will, if it determines it appropriate under the
circumstances, resolicit shareholder approval of the merger agreement and plan
of merger and provide appropriate information concerning the obligation that has
not been satisfied.
The Agreement and Plan of Reorganization shall be terminated, and the
merger abandoned, if the shareholders of Citizens shall not have given the
approval required. Notwithstanding such approval by shareholders this agreement
may be terminated in writing at any time prior to the Effective Time of the
Merger by:
- the mutual consent of FCB and Citizens, as expressed by their respective
boards of directors;
- either FCB or Citizens, as expressed by their respective boards of
directors, after December 31, 2000;
- by FCB in writing authorized by its Board of Directors if Citizens has,
or by Citizens in writing authorized by its Board of Directors if
Bancshares has, in any material respect, breached (i) any covenant or
agreement contained herein, or (ii) any representation or warranty
contained herein, in any case if such breach has not been cured by the
earlier of 30 days after the date on which written notice of such breach
is given to the party committing such breach or the Closing Date;
- either FCB or Citizens, as expressed by their respective boards of
directors, in the event that any of the conditions precedent to the
obligations of such party to consummate the merger have not been
satisfied or waived by the party entitled to so waive on or before the
Closing Date, provided that neither party shall be entitled to terminate
the Agreement pursuant to this subparagraph if the condition precedent or
conditions precedent which provide the basis for termination can
reasonably be and are satisfied within a reasonable period of time, in
which case, the Closing date shall be appropriately postponed;
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<PAGE> 35
- FCB or Citizens, if the Comptroller of the Currency or the West Virginia
Division of Banking deny approval of the merger and the time period for
all appeals or requests for reconsideration have expired;
- Citizens, if the Bancshares' Stock Price is less than $15.00 per share
based on the average bid and ask prices quoted on Nasdaq at the close of
business on the business day prior to the Closing Date;
- FCB if, within ten days of receipt of the Citizens' schedules to be
provided pursuant to this Agreement, it reasonably believes that the
information set forth in such schedules reflects material adverse
information not previously known to FCB and notifies Citizens to that
effect;
- Bancshares, if the holders of more than ten percent of the outstanding
shares of Citizens exercise dissenters' rights with respect to the
Merger.
- In the event of the termination and abandonment of this Agreement and
Plan of Reorganization pursuant to any of the provisions described above,
both the Agreement and Plan of Reorganization shall become void and have
no effect, without any liability on the part of any party or its
directors, officers or shareholders.
In the event this Agreement is terminated other than as permitted under
Section 7.1(a)-(h) of the Agreement and Plan of Reorganization, or if the
stockholders of Citizens fail to approve the proposed transaction, and approve a
merger, sale of assets or similar transaction with a party other than Bancshares
within twelve months, Citizens shall pay to Bancshares, within 30 days following
the effective date of termination hereof or the second meeting of stockholders
as applicable, the sum of $250,000.00 plus the out-of-pocket expenses, not to
exceed $50,000.00, of Bancshares in connection with this transaction, as
compensation for their costs and expenses, their due diligence and other
management efforts, and the loss of opportunity to expand into Citizens' market.
If the Merger is consummated, all expenses of the parties hereto incurred
in connection with the Merger will be borne by Bancshares. If the Merger is not
consummated, each party shall bear its own expense, provided, that if the Merger
is not consummated because of a party's failure to satisfy a condition (other
than the failure of Citizens' shareholders to approve the Merger, or termination
of this Agreement because the Bancshares' Stock Price is less than $15.00) then
the party failing to satisfy the condition will pay the other party's expenses
up to $50,000.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Agreement provides that Bancshares or one of its subsidiaries will
maintain for three years after the Closing Date directors' and officers'
liability insurance providing coverage to directors and officers of Citizens for
acts or omissions occurring prior to the Closing Date. Such insurance shall
provide at least the same coverage and amounts as contained in Citizens' policy
on the date hereof; provided that in no event shall the premium on such policy
exceed $10,000 (the "Maximum Amount"). If the amount of the premiums necessary
to maintain or procure such insurance coverage exceeds the Maximum Amount,
Bancshares shall use its reasonable efforts to maintain the most advantageous
policies of directors' and officers' liability insurance obtainable for a
premium equal to the Maximum Amount. Notwithstanding the foregoing, Bancshares
further agrees to indemnify all individuals who are or may have been officers or
directors of Citizens prior to the Closing Date from any acts or omissions in
such capacities prior to the Closing Date to the same
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extent as the officers and directors of Bancshares. If Bancshares or any of its
successors or assigns consolidates with or merges into any other entity and is
not the continuing or surviving entity, or transfers all or substantially all of
its assets to any entity, then and in each case, Bancshares will make proper
provision so that the successors or assigns of Bancshares shall assume the
obligations described in this paragraph.
RIGHTS OF DISSENTING SHAREHOLDERS
The following is a summary of the steps you must take to perfect your
dissenters' rights under West Virginia law. This summary may not contain all
information that is important to you, and we refer you to Sections 31-1-122 and
31-1-123 of the West Virginia Business Corporation Act (the "Act"), which are
attached in full as Appendix C to this proxy statement/prospectus. You are urged
to read Appendix C in its entirety.
Pursuant to the provisions of the Act, if the merger is consummated, any
shareholder of record of Citizens who objects to the merger and who complies
with Sections 31-1-122 and 31-1-123 of the Act will be entitled to demand and
receive payment in cash of an amount equal to the fair value of all or any
portion of his or her shares of Citizens' common stock. For the purpose of
determining the amount to be received in connection with the exercise of
statutory dissenters' rights, the fair value of a dissenting shareholder's
shares of Citizens' common stock will be determined as of the day prior to the
date on which the shareholder vote was taken with regard to the merger agreement
and plan of merger, excluding any appreciation or depreciation in anticipation
of the merger.
Any Citizens' shareholder desiring to receive payment of the fair value of
his or her Citizens' common stock must:
- deliver to the Secretary of Citizens, prior to the shareholder vote on
the merger agreement and plan of merger, a written objection to the
merger agreement and plan of merger;
- not vote his or her shares in favor of the merger agreement and plan of
merger;
- within ten days after the date on which the vote is taken, make written
demand on Citizens for payment of the fair value of his or her shares;
and
- within twenty days after demanding payment, submit his or her Citizens'
stock certificates for notation that a demand has been made.
Any shareholder making a demand within the above referenced ten-day period
will thereafter be entitled only to payment for the fair value of the shares and
will not be entitled to vote or to exercise any other rights as a shareholder,
and any shareholder failing to make a timely demand will be bound by the terms
of the merger.
Failure of a shareholder to submit his or her Citizens' certificates within
the above referenced 20-day period will, at the option of Citizens (or
Bancshares, as successor to Citizens), terminate his or her rights under Section
31-1- 123 of the Act unless a court of general civil jurisdiction, for good and
sufficient cause shown, otherwise directs.
All written communications from shareholders with respect to the exercise
of dissenters' rights should be mailed before the effective time of the merger
to Citizens Southern Bank, Inc., 111 Citizens Drive, Beckley, West Virginia
25801, Attention: Samuel L. Elmore, and, after the effective time of the merger,
to First Community Bancshares, Inc., One Community Place, P.O. Box 989,
Bluefield, Virginia 24605, Attention: Ruth White. Under the Act, if you
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wish to dissent from the merger, it is not sufficient merely to vote against, to
abstain from voting or to fail to vote on the proposal to approve the merger
agreement and plan of merger. You must also comply with the conditions relating
to the separate written notice of objection to the merger, the separate written
demand for payment of the fair value of shares of Citizens' common stock and the
deposit of the stock certificates.
Within ten days after the merger, Bancshares (as successor to Citizens)
will give written notice to each dissenting shareholder who has made a demand
for payment, including an offer to pay a specified price deemed by Bancshares
(as successor to Citizens) to be the fair value of such shares. The notice and
offer will be accompanied by a balance sheet of Citizens, as of the latest
available date and not more than 12 months prior to making such offer, and a
profit and loss statement for the 12-month period ended on the date of the
balance sheet.
If, within 30 days after the merger, the dissenting shareholder and
Bancshares (as successor to Citizens) agree on the fair value of his or her
Citizens' shares, payment will be made by Bancshares within 90 days after the
merger. Upon payment of the agreed value, the dissenting shareholder will cease
to have any interest in the shares. If, within the 30-day period after the
merger, the dissenting shareholder and Bancshares do not agree upon the fair
value of such shares, then, within 30 days after receipt of written demand from
the dissenting shareholder (which written demand must be given within 60 days
after the merger), or otherwise within the 60-day period at its own election,
Bancshares will file a complaint in a court of general civil jurisdiction
requesting that the fair value of such shares be found and determined. The
complaint will be filed in any court of general civil jurisdiction in Raleigh
County, West Virginia. If Bancshares fails to institute the proceedings, any
dissenting shareholder may do so in the name of Bancshares. All dissenting
shareholders, wherever residing, may be made parties to the proceedings as an
action against their shares quasi in rem. A copy of the complaint will be served
on each dissenting shareholder who is a resident of West Virginia in the same
manner as in other civil actions. Dissenting shareholders who are nonresidents
of West Virginia will be served a copy of the complaint by registered or
certified mail, return receipt requested. In addition, service upon such
nonresident shareholders shall be made by publication, as provided in Rule
4(e)(2) of the West Virginia Rules of Civil Procedure. All shareholders who are
parties to the proceeding will be entitled to judgment against Bancshares for
the amount of the fair value of their shares.
In any such proceeding, the court may, if it so elects, appoint one or more
persons as appraisers to receive evidence and recommend a decision as to fair
value. The appraisers will have the power and authority as specified in the
order of their appointment or any subsequent appointment. The judgment will be
payable only upon and concurrently with the surrender to Bancshares of the
certificates representing such shares. Upon payment of the judgment, the
dissenting shareholder will cease to have any interest in such shares. The
judgment will include an allowance for interest at a rate as the court may find
to be fair and equitable in all the circumstances, from the date on which the
vote was taken on the merger to the date of payment.
The costs and expenses of any such proceeding will be determined by the
court and will be assessed against Bancshares (as successor to Citizens), but
all or any part of such costs and expenses may be apportioned and assessed as
the court may deem equitable against any or all of the dissenting shareholders
who are parties to the proceeding to whom Bancshares has made an offer to pay
for the shares if the court finds that the action of such shareholders in
failing to accept the offer was arbitrary or vexatious or not in good faith.
Expenses will include reasonable compensation for the reasonable expenses of the
appraisers, but will
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exclude the fees and expenses of counsel for and experts employed by any party;
provided, that, if the fair value of the shares as determined materially exceeds
the amount which Bancshares offered to pay, or if no offer was made, the court
in its discretion may award to any shareholder who is a party to the proceeding
such sum as the court may determine to be reasonable compensation for any expert
or experts employed by the shareholder in the proceeding. Any party to the
proceeding may appeal any judgment or ruling of the court as in other civil
cases.
Citizens' shareholders should note that cash paid to dissenting
shareholders in satisfaction of the fair value of their shares will be
recognized as gain or loss for federal income tax purposes, depending upon the
shareholders tax basis in the stock. See "Material Federal Income Tax
Consequences of the Merger" on page 30.
Any Citizens' shareholder who has properly exercised the right to dissent
as described above will have only the rights of a dissenting shareholder under
the Act and will have no right to receive Bancshares' shares or cash instead of
fractional shares in the merger. Any Citizens' shareholder who withdraws a
demand for payment as described above in accordance with the Act or who becomes
ineligible for such payment will have the right to receive the Bancshares'
shares, cash instead of fractional shares and accrued and unpaid dividends to
the extent permitted by the merger agreement.
Failure by a Citizens' shareholder to follow the steps required by the Act
for perfecting dissenters' rights may result in the loss of such rights. In view
of the complexity of these provisions and the requirement that they be strictly
complied with, if you are considering dissenting from the approval and adoption
of the merger agreement and exercising your dissenters' rights under the Act,
you should consult your legal advisors.
REGULATORY CONSIDERATIONS
Citizens and Bancshares have agreed to use their reasonable best efforts to
obtain all regulatory approvals required to consummate the transactions
contemplated by the merger agreement, which include approval from the Office of
the Comptroller of the Currency as well as the West Virginia Division of Banking
and various state and other regulatory authorities. It is anticipated that the
applications of the Comptroller of the Currency and the West Virginia Division
of Banking will be acted upon by September 2000. The merger cannot proceed in
the absence of these regulatory approvals. There can be no assurance as to when
these regulatory approvals will be obtained, that they will be obtained at all
or, if obtained, that there will not be any litigation challenging them. There
can likewise be no assurance that the United States Department of Justice or any
state attorney general will not attempt to challenge the merger on antitrust
grounds, or, if a challenge is made, there can be no assurance as to its result.
Citizens and Bancshares are not aware of any other material governmental
approvals or actions that are required prior to the parties' consummation of the
merger other than those described below. It is presently contemplated that if
any additional governmental approvals or actions are required, they will be
sought. There can be no assurance, however, that any such additional approvals
or actions will be obtained.
THE SUBSIDIARY BANK MERGER
The merger of Citizens' into FCB is expected to occur early during the
fourth quarter of 2000. The merger is subject to approval of the Comptroller of
the Currency under the Bank
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Merger Act. In granting its approval under the Bank Merger Act, the Comptroller
must consider the financial and managerial resources and future prospects of the
existing and proposed institutions and the convenience and needs of the
communities to be served. Further, the Comptroller may not approve any
subsidiary bank merger if it would result in a monopoly, if it would be in
furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States, if the
effect of the subsidiary bank merger in any section of the country may be to
substantially lessen competition or to tend to create a monopoly or if it would
be in any other manner in restraint of trade, unless the Comptroller finds that
the anticompetitive effects of the subsidiary bank merger are clearly outweighed
in the public interest by the probable effect of such merger in meeting the
convenience and needs of the communities to be served. In addition, the
Comptroller must take into account the record of performance of the existing and
proposed institutions under the Community Reinvestment Act of 1977 in meeting
the credit needs of the community, including low-income and moderate-income
neighborhoods, served by the institutions. Applicable regulations also require
publication of notice of the applications for approval of the subsidiary bank
mergers and an opportunity for the public to comment on the applications in
writing and to request a hearing.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following section describes the material U.S. federal income tax
consequences of the merger to holders of Citizens' common stock who hold
Citizens' common stock as a capital asset within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code"), and is the opinion
of counsel to Bancshares. This section does not apply to special classes of
taxpayers, such as:
- financial institutions,
- insurance companies,
- tax-exempt organizations,
- dealers in securities or currencies,
- traders in securities that elect to use a mark to market method of
accounting,
- persons that hold Citizens' common stock as part of a straddle or
conversion transaction,
- persons who are not citizens or residents of the United States, and
- shareholders who acquired their shares of Citizens' common stock through
the exercise of an employee stock option or otherwise as compensation.
The following is based upon the Code, its legislative history, existing and
proposed regulations thereunder and published rulings and decisions, all as
currently in effect as of the date hereof, and all of which are subject to
change, possibly with retroactive effect. Tax considerations under state, local
and foreign laws are not addressed in this proxy statement/prospectus. All
shareholders should consult with their own tax advisors as to the specific tax
consequences of the merger in their particular circumstances, including the
applicability and effect of the alternative minimum tax and any state, local or
foreign and other tax laws and of changes in those laws.
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It is a condition to the merger that Citizens receive an opinion of
counsel, that the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. It is also a
condition to the merger that Bancshares receive an opinion of its counsel, that
the merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and that no gain or loss will
be recognized by shareholders of Citizens who receive shares of Bancshares'
common stock in exchange for shares of Citizens' common stock, except with
respect to cash received instead of fractional shares.
In rendering these opinions, the counsel of Bancshares will require and
rely, as to factual matters, upon representations contained in letters to be
received from Citizens and Bancshares and may require and rely upon similar
letters, as to factual matters, from large Citizens' shareholders. Neither of
these tax opinions will be binding on the Internal Revenue Service. Neither
Bancshares nor Citizens intends to request any ruling from the Internal Revenue
Service as to the U.S. federal income tax consequences of the merger.
Based on factual representations of Bancshares and Citizens, for U.S.
federal income tax purposes:
- the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code,
- each of Bancshares and Citizens will be a party to that reorganization
within the meaning of Section 368(b) of the Code,
- no gain or loss will be recognized by shareholders of Citizens who
receive shares of Bancshares' common stock in exchange for shares of
Citizens' common stock, except with respect to cash received in lieu of
fractional share interests,
- the holding period of Bancshares' common stock received in exchange for
shares of Citizens' common stock will include the holding period of the
Citizens' common stock for which it is exchanged, assuming the shares of
Citizens' common stock are capital assets in the hands of the holder
thereof at the closing of the merger, and
- the basis of the Bancshares' common stock received in the merger will be
the same as the basis of the Citizens' common stock for which it is
exchanged, less any basis attributable to fractional shares for which
cash is received.
CASH RECEIVED IN LIEU OF A FRACTIONAL SHARE OF BANCSHARES COMMON STOCK
A shareholder of Citizens who receives cash in lieu of a fractional share
of Bancshares' common stock will be treated as having received the fractional
share pursuant to the merger and then as having exchanged the fractional share
for cash in a redemption by Bancshares subject to Section 302 of the Code. As a
result, a Citizens' shareholder will generally recognize gain or loss equal to
the difference between the amount of cash received and the portion of the basis
of the shares of Bancshares' common stock allocable to his or her fractional
interest. This gain or loss will generally be capital gain or loss, and will be
long-term capital gain or loss if, as of the date of the exchange, the holding
period for such shares is greater than one year. Long-term capital gain of a
non-corporate holder is generally subject to tax at a maximum federal tax rate
of twenty percent.
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DISSENTERS' RIGHTS
Citizens' shareholders who exercise their dissenters' rights and who
receive cash in exchange for their shares of Citizens' common stock will be
treated as having received that payment in redemption of their shares. In
general, the holder will recognize capital gain or loss measured by the
difference between the amount of cash received and the holder's adjusted tax
basis for the shares. If, however, the holder owns, either actually or
constructively, any Citizens' common stock that is exchanged in the merger for
Bancshares' common stock, the payment for dissenting shares to the holder could,
in certain limited circumstances, be treated as dividend income. In general,
under the constructive ownership rules of the Code, a holder may be considered
to own stock that is owned, and in some cases constructively owned, by certain
related individuals or entities, as well as stock that the holder (or related
individuals or entities) has the right to acquire. Each holder who contemplates
exercising dissenters' rights should consult his or her own tax advisor as to
the possibility that any payment to such holder will be treated as dividend
income.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of cash to a holder surrendering shares of Citizens' common stock
will be subject to information reporting and backup withholding (whether or not
the holder also receives Bancshares' common stock) at a rate of 31 percent of
the cash payable to the holder, unless the holder furnishes its taxpayer
identification number in the manner prescribed in applicable Treasury
Regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions. Any
amounts withheld from payments to a holder under the backup withholding rules
will be allowed as a refund or credit against the holder's U.S. federal income
tax liability, provided the required information is furnished to the Internal
Revenue Service.
ACCOUNTING TREATMENT
Bancshares will exchange 435,000 of its common stock with an estimated
total value of $6,777,000 for 100% of the outstanding shares of Citizens in a
transaction to be accounted for under the purchase method of accounting. Under
purchase accounting, Citizens' assets and liabilities are required to be
adjusted to their estimated fair values. The estimated fair value adjustments
utilized in preparing the unaudited per share proforma financial information
contained in this proxy statement/prospectus have been determined by Bancshares
based upon information set forth in Citizens financial statements and other
available information. Bancshares cannot be sure that such estimated fair values
represent fair values that would ultimately be determined at the acquisition
date. The results of operations of Citizens will be included in the consolidated
results of operations of Bancshares from the date of acquisition. The proforma
information does not necessarily reflect the actual results that would have
occurred during the periods presented, had the companies been combined nor is it
indicative of future results of the combined companies.
EFFECT ON EMPLOYEES AND EMPLOYEE BENEFIT PLANS
All employees of Citizens immediately prior to the Effective Time of the
merger who are employed by FCB following the Effective Time of the merger
("Transferred Employees") will be covered by FCB's employee benefit plans with
eligibility based on their length of service, compensation, job classification,
and position with Citizens. FCB's benefit plans will recognize for purposes of
eligibility to participate and for vesting, all service of Transferred
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Employees with Citizens, subject to applicable break in service rules. Eligible
employees of Citizens shall be permitted to contribute funds distributed upon
termination of Citizens' benefit plans to similar FCB benefit plans.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Bancshares' common stock to be issued in the merger will be
registered under the Securities Act and will be freely transferable, except for
shares issued to any shareholder who may be deemed to be an affiliate of
Citizens for purposes of Rule 145 under the Securities Act of 1933 (the
"Securities Act"). Resales of shares issued to affiliates are not covered by
this proxy statement/prospectus. Affiliates include generally directors,
executive officers and beneficial owners of 10 percent or more of any class of
capital stock of Citizens. Affiliates may not sell their shares of Bancshares'
common stock acquired in the merger except in transactions that are registered
under the Securities Act, permitted by the resale provisions of Rule 145 under
the Securities Act, or as otherwise permitted by the Securities Act.
The restrictions on resales by an affiliate extend also to related parties
of the affiliate, including parties related by marriage who live in the same
home as the affiliate.
Citizens has agreed in the merger agreement to use its best efforts to
cause each person who may be deemed to be an affiliate of Citizens to execute
and deliver to Bancshares a written agreement stating, among other things, that
the affiliate will not offer to sell, transfer or otherwise dispose of any of
the Bancshares' common stock issued to that affiliate in the merger except in
compliance with Rule 145 under the Securities Act, in a transaction that counsel
to Bancshares believes is otherwise exempt from the registration requirements of
the Securities Act, or in an offering registered under the Securities Act.
MANAGEMENT
In the event of liquidation, dissolution or winding up of the affairs of
Citizens, the rights of shareholders of Citizens' common stock are similar to
those outlined above for Bancshares' shareholders. Additionally, Citizens' right
to participate in the assets of any affiliate bank upon an affiliate bank's
liquidation or recapitalization is similar to the rights outlined above for
Bancshares.
After the merger takes place, Citizens' President and Chief Executive
Officer, Samuel L. Elmore, will be employed by FCB as an Executive Vice
President -- Regional Director. Mr. Elmore, during Citizens' last fiscal year,
served on Citizens' board of directors and has been a director since 1998. Mr.
Elmore's principal occupation for the past five years has been President and
Chief Executive Officer (March 2000 -- Present) of Citizens, Executive Vice
President (May 1998 -- March 2000) of Citizens, and President and Chief
Executive Officer (June 1995 -- April 1998) of Bank One, West Virginia. During
the past two fiscal years, Mr. Elmore deferred his salary during 1998 and was
paid $117,000 in 1999.
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INFORMATION ABOUT BANCSHARES
GENERAL
Bancshares serves as the holding company for FCB which conducts commercial
and retail banking operations within the states of Virginia, West Virginia and
North Carolina through 31 full-service banking operations and 11 mortgage
brokerage offices. Bancshares was formed in 1990 by the merger of First
Community Bancshares, Inc. and Flat Top Bancshares, Inc. and is headquartered in
Bluefield, Virginia. In 1997 Bancshares changed its Corporate domicile from
Delaware to Nevada.
On December 29, 1995, Bancshares reorganized its then existing bank
subsidiary, First Community Bank, Inc., Princeton, West Virginia, by splitting
it into two separate banks. This was accomplished by chartering a second,
affiliated, Federal Deposit Insurance Corporation insured state commercial bank
formed through the acquisition of the assets and assumption of the liabilities
of six of First Community Bank, Inc.'s operating divisions and branches located
within Mercer County, West Virginia. This new bank, First Community Bank of
Mercer County, Inc., headquartered in Princeton, West Virginia, consisted of
five divisions with offices in Princeton, Bluefield, and Bluewell, Trust and
Financial Services Division, and Corporate/Administrative Division. The main
office of the reorganized First Community Bank, Inc., was relocated to
Buckhannon, West Virginia. Subsequent bank and branch acquisitions, as mentioned
below, have added to bank's assets base and market coverage area.
Currently, Bancshares is a bank holding company and the banking operations
are expected to remain the principal business and major source of revenue.
Bancshares provides a mechanism for ownership of the subsidiary banking
operations, provides capital funds as required and serves as a conduit for
distribution of dividends to stockholders. Bancshares also considers and
evaluates options for growth and expansion of the existing subsidiary banking
operations.
Bancshares currently derives substantially all of its revenues from
dividends paid by its subsidiary bank. Dividend payments by the bank are
determined in relation to earnings, asset growth and capital position and are
subject to certain restrictions by regulatory agencies.
ACQUISITIONS
Past acquisitions have included Citizens Bank of Tazewell on July 3, 1996,
headquartered in Tazewell, Virginia, the Grafton and Rowlesburg, West Virginia
branches of Huntington National Bank West Virginia on September 26, 1996, Blue
Ridge Bank, headquartered in Sparta, North Carolina on April 9, 1997 with
offices located in Sparta, Elkin, Hays and Taylorsville, North Carolina, and
three branches acquired from First Virginia Bank and Premier Bankshares in
September 1997. Additionally, a denovo branch was opened in Wytheville, Virginia
on August 1, 1997.
More recently and effective with the close of business on April 30, 1999,
First Community Bank, Inc. was converted to a national association entitled
First Community Bank, N.A. Concurrent with this conversion, FCB acquired the
outstanding stock of Blue Ridge Bank from Bancshares; and the operations of
First Community Bank of Mercer County, Inc., First Community Bank of Southwest
Virginia, Inc. and Blue Ridge Bank were merged with and into FCB. Additionally,
the Corporate headquarters of Bancshares and FCB were relocated to the new
Corporate Center in Bluefield, Virginia.
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In September 1999, the Company's wholly owned banking subsidiary, FCB,
acquired United First Mortgage, Inc. (UFM). UFM is a mortgage brokerage business
organized under the laws of the State of Virginia. UFM conducts operations
through eleven facilities situated in eastern Virginia.
CAPITAL
The Federal Reserve has established a minimum requirement for a bank
holding company's ratio of capital to risk-weighted assets (including on-balance
sheet activities and certain off-balance sheet activities, such as standby
letters of credit) of 8 percent. At least half of a bank holding company's total
capital is required to be composed of common equity, retained earnings, and
qualifying perpetual preferred stock, less certain intangibles. This is called
Tier 1 capital. The remainder may consist of certain subordinated debt, certain
hybrid capital instruments and other qualifying preferred stock, and a limited
amount of the loan loss allowance. This is called Tier 2 capital. Tier 1 capital
and Tier 2 capital combined are referred to as total capital. At June 30, 2000,
Bancshares' Tier 1 and total capital ratios were 11.7 percent and 12.9 percent,
respectively. Since January 1, 1998, the Federal Reserve has required bank
holding companies that engage in trading activities to adjust their risk-based
capital to take into consideration market risk that may result from movements in
market prices of covered trading positions in trading accounts, or from foreign
exchange or commodity positions, whether or not in trading accounts, including
changes in interest rates, equity prices, foreign exchange rates or commodity
prices. Any capital required to be maintained pursuant to these provisions may
consist of new "Tier 3 capital" consisting of forms of short-term subordinated
debt. In addition, the Federal Reserve has issued a policy statement, pursuant
to which a bank holding company that is determined to have weaknesses in its
risk management processes or a high level of interest rate risk exposure may be
required to hold additional capital.
The Federal Reserve also has established minimum leverage ratio
requirements for bank holding companies. These requirements provide for a
minimum leverage ratio of Tier 1 capital to adjusted average quarterly assets
equal to 3 percent for bank holding companies that meet specified criteria,
including having the highest regulatory rating. Bank holding companies that do
not meet the specified criteria generally are required to maintain a leverage
ratio of from at least 100 to 200 basis points above the stated minimum.
Bancshares' leverage ratio at June 30, 2000 was 8.2 percent. Bank holding
companies experiencing internal growth or making acquisitions are expected to
maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. Furthermore, these
capital requirements indicate that the Federal Reserve will continue to consider
a "tangible Tier 1 leverage ratio" (deducting all intangibles) in evaluating
proposals for expansion or new activity.
The FDIC has adopted minimum risk-based and leverage ratio regulations to
which state-chartered banks are subject that are substantially similar to those
requirements established by the Federal Reserve. The Office of the Comptroller
of the Currency also has similar regulations that would apply to Bancshares'
national bank subsidiary. Under federal banking laws, failure to meet the
minimum regulatory capital requirements could subject a banking institution to a
variety of enforcement remedies available to federal regulatory authorities,
including, in the most severe cases, the termination of deposit insurance by the
FDIC and placing the institution into conservatorship or receivership. The
capital ratios of Bancshares' bank subsidiary exceeded all minimum regulatory
capital requirements as of June 30, 2000.
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DEPOSIT INSURANCE ASSESSMENTS
The deposits of Bancshares' subsidiary are insured by the FDIC up to the
limits required by law. For the semi-annual period beginning December 30, 1999,
the effective rate of assessments imposed on all FDIC deposits for deposit
insurance ranges from 0 to 27 basis points per $100 of insured deposits,
depending on the institution's capital position and other supervisory factors.
However, because legislation enacted in 1996 requires that both SAIF-insured and
BIF-insured deposits pay a pro rata portion of the interest due on the
obligations issued by the Financing Corporation, the FDIC is currently assessing
both BIF-insured deposits and SAIF-insured deposits an additional 2.06 basis
points per $100 of deposits on an annualized basis to cover those obligations.
You can find additional information about Bancshares in Bancshares' Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, and Current
Reports on Form 8-K dated February 22, 2000, June 13, 2000 and June 30, 2000,
all of which are incorporated by reference in this proxy statement/prospectus.
See "Where You Can Find More Information" on page 47.
INFORMATION ABOUT CITIZENS
DESCRIPTION OF CITIZENS' BUSINESS
Citizens is a West Virginia state-chartered commercial bank that began
banking operations in Beckley, Raleigh County, West Virginia, on June 12, 1995,
in a facility located on Citizens Drive in Beckley.
BUSINESS OF CITIZENS
Citizens' primary business is attracting deposits from the local public and
investing those deposits in securities and loans to individuals and small
businesses in Beckley and surrounding market areas. The bank offers traditional
community banking services, including night depository, traveler's checks, wire
transfers, note collection and ATM's through a national network.
The bank's loan portfolio consists primarily of residential real estate
loans to individuals and businesses, commercial loans to small businesses and
consumer installment loans. Residential real estate loans consist primarily of
mortgages on the borrower's personal residence, and are typically secured by a
first lien on the subject property. Consumer and personal loans are generally
secured, often by first liens on automobiles, consumer goods or depositary
accounts. Commercial loans are generally secured by various collateral,
including commercial real estate, accounts receivable and business machinery and
equipment. The bank's lending personnel adhere to established lending limits and
authorities based on each individual's lending expertise and experience.
The principal economic risk associated with the bank's lending activities
is the creditworthiness of the bank's prospective borrowers. With any loan
category, the level of risk increases or decreases depending on economic
conditions prevailing from time to time. The bank makes a substantial portion of
its loans to working individuals, small business and
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professional persons. As of December 31, 1999, the bank's loan portfolio
consisted of the following:
<TABLE>
<CAPTION>
TYPE OF LOAN PERCENTAGE OF PORTFOLIO
------------ -----------------------
<S> <C>
Residential Real Estate Loans................ 53
Consumer Loans............................... 14
Commercial Loans............................. 30
Construction Loans........................... 3
</TABLE>
The bank's lending activities are subject to a variety of lending limits
that federal law imposes. While differing limits apply in certain circumstances
based on the type of loan or the nature of the borrower, in general, the bank is
subject to a loan-to-one-borrower limit of an amount equal to $756,000.
The FDIC insures all deposit accounts up to $100,000 per depositor, subject
to aggregation rules.
EMPLOYEES
As of August 31, 2000, Citizens employed 19 full-time equivalent employees.
COMPETITION
The principal competitive factors in the markets for deposits and loans are
interest rates, either paid on deposits or charged on loans. The banking
business is highly competitive. The bank serves the City of Beckley, West
Virginia, and surrounding contiguous markets. Citizens faces a high degree of
competition for all of its services from local banks. Citizens directly competes
against ten other financial institutions in Beckley. These institutions consist
of superregional banks, state-wide multi-bank holding companies and local
community banks. The bank's largest competitors are City National Bank, Bank
One, United National Bank and BB&T. As of June 30, 1999, Citizens had a 3.89
percent market share in the Beckley market. The Federal Reserve defines the
Beckley market as Raleigh, Fayette and Summers Counties, excluding the Towns of
Montgomery and Smithers in Fayette County.
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OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CITIZENS
The following sets forth information as of August 18, 2000, relating to the
beneficial ownership of the stock by (a) each person or group known by Citizens
to beneficially own more than 5 percent of its outstanding common stock; (b)
each of the bank's directors; and (c) all directors and executive officers of
Citizens, as a group. Unless otherwise noted, the persons named in the table
have sole investment powers with respect to each of the shares reported as
beneficially owned by them. Unless the table notes otherwise, the address of all
individuals is 111 Citizens Drive, Beckley, West Virginia 25801.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS
---------------- ---------------- ----------------
<S> <C> <C>
Rick O. Adkins................................... 6,817(1) 2.73
Jack H. Allison.................................. 5,117(2) 2.05
Carl E. Campbell................................. 8,817(3) 3.53
Richard L. Cornett, II........................... 21,492(4) 8.60
Lori A. Davis.................................... 2,767(5) 1.11
L. Edward Eckley, III............................ 10,949(6) 4.38
Samuel L. Elmore................................. 310 *
Andrew E. Fox.................................... 2,667(7) 1.07
David M. Hill.................................... 5,350(8) 2.14
Thomas W. Jarrett................................ 14,048(9) 5.62
Carl W. Roop..................................... 2,067 *
Don M. Stacy..................................... 12,717 5.09
Byrd E. White, III............................... 667(10) *
All directors and executive officers as a
group.......................................... 93,785 37.51
</TABLE>
---------------
* Beneficial ownership does not exceed one percent of the class.
(1) Consists of 3,817 shares owned of record; and 3,000 shares owned jointly
with spouse.
(2) Consists of 117 shares owned of record; and 5,000 shares owned by McDonald's
of which Mr. Allison is sole owner.
(3) Consists of 3,817 shares owned of record; and 5,000 shares owned jointly
with spouse.
(4) Consists of 1,292 shares owned of record; and 20,200 shares owned jointly
with spouse.
(5) Consists of 2,500 shares owned of record; and 267 shares owned jointly with
minor children.
(6) Consists of 150 shares owned of record; 9,408 shares owned through pension
plan; 852 shares owned in an Individual Retirement Account; and 472 shares
owned in spouse's Individual Retirement Account and 67 shares owned by L.
Edward Eckley, DDS. LTD.
(7) Consists of 567 shares owned of record; and 2,100 shares owned through a SEP
Individual Retirement Account.
(8) Consists of 350 shares owned of record; and 5,000 shares owned by David Hill
Concrete, Inc., of which Mr. Hill is Treasurer.
(9) Consists of 110 shares owned of record; and 13,938 shares owned by Jarrett
Enterprises, Inc., of which Dr. Jarrett is General Partner.
(10) Consists of 567 shares owned of record; and 100 shares owned by children.
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DESCRIPTION OF BANCSHARES' CAPITAL STOCK
GENERAL
The authorized capital stock of Bancshares consists of 15,000,000 shares of
Bancshares' common stock, par value $1.00 per share and 1,000,000 shares of
preferred stock, with no stated par value. As of July 31, 2000, there were
8,655,530 shares of Bancshares' common stock issued and outstanding. There were
no shares of Bancshares' preferred stock issued and outstanding as of that date.
BANCSHARES' COMMON STOCK
Each share of Bancshares' common stock is entitled to one vote on all
matters submitted to a vote at any meeting of shareholders. Holders of
Bancshares' common stock are entitled to receive dividends when, as, and if
declared by the Bancshares' Board out of funds legally available therefor and,
upon liquidation, to receive pro rata all assets, if any, of Bancshares
available for distribution after the payment of creditors. Holders of
Bancshares' common stock have no preemptive rights to subscribe for any
additional securities of any class that Bancshares may issue, nor any
conversion, redemption or sinking fund rights. Holders of Bancshares' common
stock have no right to cumulate votes in the election of directors. The rights
and privileges of holders of Bancshares' common stock are subject to any
preferences that the Bancshares' Board may set for any series of Bancshares'
preferred stock that Bancshares may issue in the future.
The transfer agent and registrar for Bancshares' common stock is FCB,
through its Trust & Financial Services Division. Bancshares' stock is currently
trading on the Nasdaq level III Billboard under the symbol FCBC.
BANCSHARES' PREFERRED STOCK
Under Bancshares' articles of incorporation, Bancshares may issue shares of
Bancshares' preferred stock in one or more series, as may be determined by the
Bancshares' Board or a duly authorized committee. The Bancshares' Board or
committee may also establish, from time to time, the number of shares to be
included in each series and may fix the designation, powers, preferences and
rights of the shares of each such series and any qualifications, limitations or
restrictions thereof, and may increase or decrease the number of shares of any
series without any further vote or action by the shareholders. Any Bancshares'
preferred stock issued will rank senior to Bancshares' common stock with respect
to the payment of dividends or amounts paid upon liquidation, dissolution or
winding up of Bancshares, or both. In addition, any shares of Bancshares'
preferred stock may have class or series voting rights. Under certain
circumstances, the issuance of shares of Bancshares' preferred stock, or merely
the existing authorization of the Bancshares' Board to issue shares of
Bancshares' preferred stock, may tend to discourage or impede a merger or other
change in control of Bancshares. The number of shares of preferred stock to be
issued, its par or face value, voting powers, designations, preferences,
interest rate, limitations, restrictions and relative rights would be determined
from time to time by resolution of the Board of Directors of Bancshares. No
shares of preferred stock are currently outstanding.
PROVISIONS REGARDING THE BANCSHARES' BOARD
Bancshares' articles of incorporation and bylaws separate the Bancshares'
Board into classes and permit the removal of directors only for cause. This
could make it more difficult
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for a third party to acquire, or discourage a third party from seeking to
acquire, control of Bancshares.
MEETINGS OF SHAREHOLDERS; SHAREHOLDERS' NOMINATIONS AND PROPOSALS
Under Bancshares' bylaws, meetings of the shareholders may be called only
by the Chief Executive Officer, President, Secretary or the Bancshares' Board.
Shareholders of Bancshares may not request that a special meeting of
shareholders be called. This provision could delay until the next annual
shareholders' meeting shareholder actions that are favored by the holders of a
majority of the outstanding voting securities of Bancshares.
The procedures governing the submission of nominations for directors and
other proposals by shareholders may also have a deterrent effect on shareholder
actions designed to result in change of control in Bancshares. See "Comparison
of Shareholders' Rights -- Shareholder Nominations and Shareholder Proposals" on
page 42.
COMPARISON OF THE RIGHTS OF BANCSHARES' SHAREHOLDERS
AND CITIZENS' SHAREHOLDERS
When the merger becomes effective, holders of Citizens' common stock will
become shareholders of Bancshares. The following is a summary of material
differences between the rights of holders of Bancshares' common stock and
holders of Citizens' common stock. Since Bancshares is organized under the laws
of the State of Nevada and Citizens is organized under the laws of the State of
West Virginia, differences in the rights of holders of Bancshares' common stock
and those of holders of Citizens' common stock arise from differing provisions
of the Nevada Statutes and the Act in addition to differing provisions of their
respective articles of incorporation and bylaws.
The following summary does not purport to be a complete statement of the
provisions affecting, and differences between, the rights of holders of
Bancshares' common stock and holders of Citizens' common stock. This summary is
intended to provide a general overview of the differences in shareholders'
rights defined by the governing corporate instruments of Bancshares and
Citizens, or other known material differences.
AUTHORIZED CAPITAL STOCK
BANCSHARES
Bancshares' authorized capital stock consists of 15,000,000 shares of
Bancshares' common stock and 1,000,000 shares of Bancshares' preferred stock.
Bancshares' articles of incorporation authorize the Bancshares' Board to issue
shares of Bancshares' preferred stock in one or more series and to fix the
designation, powers, preferences, and rights of the shares of Bancshares'
preferred stock in each series. As of June 30, 2000, there were 8,661,715 shares
of Bancshares' common stock outstanding. No shares of Bancshares' preferred
stock were issued and outstanding as of that date.
CITIZENS
Citizens' authorized capital stock consists of 499,999 shares of Citizens'
common stock, par value $10.00 per share, and no preferred stock. As of June 30,
2000, there were 250,000 shares of Citizens' common stock outstanding.
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SPECIAL MEETINGS OF SHAREHOLDERS
BANCSHARES
The Bancshares Board may call special meetings of the shareholders of
Bancshares at any time. There is no other provision for calling a special
meeting.
CITIZENS
Special meetings of the shareholders of Citizens may be called at any time
by Citizens' Chairman of the Board, President or by the Board of Directors or by
any number of shareholders owning in the aggregate not less than ten percent of
the stock of Citizens.
DIRECTORS
BANCSHARES
Bancshares' articles of incorporation and bylaws provide for a board of
directors having not less than twelve nor more than 20 members as determined
from time to time by resolution of the board of directors. Currently, the
Bancshares Board consists of 11 directors. The Bancshares Board is divided into
three classes, with directors serving staggered three-year terms. Under
Bancshares' articles of incorporation and bylaws, Bancshares directors may be
removed only for cause and only by the affirmative vote of the holders of more
than two thirds of the stock of the corporation then outstanding and entitled to
vote thereon. Holders of Bancshares common stock do not have cumulative voting
rights in the election of directors.
CITIZENS
Citizens' articles of incorporation and bylaws provide for a board of
directors of not less than five nor more than 25 as fixed from time to time by
resolution of the Citizens' Board. Currently, the Citizens' Board consists of 11
directors. The Citizens' Board is also divided also into three classes, with
directors serving staggered three-year terms. Under Citizens' articles of
incorporation and bylaws, Citizens' directors may be removed, with or without
cause, only by the affirmative vote of the holders of 80 percent of the combined
voting power of then-outstanding shares of stock entitled to vote generally in
the election of directors, voting together as a single class. Holders of
Citizens' common stock have cumulative voting rights in the election of
directors.
DIVIDENDS AND OTHER DISTRIBUTIONS
BANCSHARES
The Nevada corporate statutes prohibit a Nevada corporation from making any
distributions to shareholders, including the payment of cash dividends, that
would render it insolvent or unable to meet its obligations as they become due
in the ordinary course of business. Bancshares is not subject to any other
express regulatory restrictions on payments of dividends and other
distributions. The ability of Bancshares to pay distributions to the holders of
its common stock will depend, however, to a large extent upon the amount of
dividends its bank subsidiary, which is subject to restrictions imposed by
regulatory authorities, pays to Bancshares. In addition, the Federal Reserve
could oppose a distribution by Bancshares if it determined that such a
distribution would harm Bancshares' ability to
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support its bank subsidiary. There can be no assurances that dividends will be
paid in the future. The declaration, payment and amount of any such future
dividends would depend on business conditions, operating results, capital,
reserve requirements and the consideration of other relevant factors by the
Bancshares Board.
CITIZENS
Under the West Virginia Corporation Act, the board of directors of a West
Virginia corporation may declare, and the corporation may pay, dividends except
when the corporation is insolvent or when the payment of dividends would render
the corporation insolvent. Citizens is not subject to any other express
regulatory restrictions on payments of dividends and other distributions.
Banking regulatory authorities may restrict payments if the payment of dividends
would be an unsafe or unsound banking practice.
SHAREHOLDER NOMINATIONS AND SHAREHOLDER PROPOSALS
BANCSHARES
Bancshares' bylaws establish advance notice procedures for the nomination,
other than by or on behalf of the existing management of Bancshares, of
candidates for election as directors. Bancshares' bylaws provide that a
shareholder wishing to nominate a person as a candidate for election to the
Bancshares Board must submit the nomination in writing to the Secretary of
Bancshares at least 30 days before any meeting of stockholders calling for the
election of directors; provided, however, that if less than 30 days notice of
the meeting is given to stockholders, such notice of nomination shall be mailed
or delivered to the Secretary of the Corporation no later than the close of
business on the seventh day following the day on which the notice of the meeting
was mailed. Nominations not made in accordance with the foregoing provisions may
be ruled out of order by the presiding officer or the chairman of the meeting.
In accordance with SEC Rule 14a-8 under the Securities Exchange Act of
1934, shareholder proposals intended to be included in the proxy statement and
presented at a regularly scheduled annual meeting must be received by Bancshares
at least 120 days before the anniversary of the date that the previous year's
proxy statement was first mailed to shareholders. As provided in the SEC rules,
if the annual meeting date has been changed by more than 30 days from the date
of the prior year's meeting, or for special meetings, the proposal must be
submitted within a reasonable time before Bancshares begins to print and mail
its proxy materials.
CITIZENS
A shareholder intending to make a proposal for consideration at a regularly
scheduled annual meeting of Citizens' shareholders that is not intended to be
included in the proxy statement for that meeting must notify Citizens' secretary
in writing at least 40 days prior to the meeting, provided that if less than 50
days' notice or prior public disclosure of the date of the meeting is given or
made to shareholders, Citizens must receive notice from the shareholder no later
than the close of business on the eighth day following the day on which Citizens
mailed or made public disclosure regarding a notice of such meeting. The
shareholder's notice to the Corporate secretary must contain: (a) a brief
description of the business the shareholder intends to bring before the annual
meeting and the reasons for conducting that business at the annual meeting; (b)
the name and address, as they appear on
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Citizens' books, of the shareholder proposing that business; (c) the class and
number of shares of Citizens which that shareholder beneficially owns; and (d)
any material interest that the shareholder has in that business.
Citizens is not subject to the SEC's rules regarding shareholder proposals
intended to be included in the proxy statement and presented at a regularly
scheduled annual meeting.
DISCHARGE OF DUTIES; EXCULPATION AND INDEMNIFICATION
BANCSHARES
The Nevada business statutes require that a director of a Nevada
corporation discharge his or her duties as a director in good faith and with the
view to the interest of the corporation. Directors are presumed to act in good
faith, on an informed basis and with a view to the interests of the corporation.
Bancshares' articles of incorporation provide that the corporation shall
indemnify a director against whom suit is threatened or initiated by reason of
the fact that he is or was a director if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, unless he is found liable to the corporation or its stockholders
except for a breach of the duty of loyalty, certain intentional acts or illegal
distributions. The articles further provide that no director shall be liable to
the corporation or its stockholders except for a breach of the duty of loyalty.
A director facing a change in control who resists such change is subject to the
same duties and presumptions if the directors have reasonable grounds to believe
that a threat to corporate policy and effectiveness exists and the action taken
which impedes the exercise of the stockholders' rights must be reasonable in
relation to that threat.
CITIZENS
West Virginia law requires that a director of a West Virginia corporation
discharge his or her duties as a director in good faith, with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances and in a manner the director reasonably believes to be in the best
interests of the corporation. Indemnification is the practice by which a
corporation pays the expenses of directors and officers who are named as
defendants or otherwise involved in litigation relating to their activities on
behalf of the corporation. Citizens' articles of incorporation provide for
indemnification of Citizens' directors and officers. Also, the indemnification
provision specifies the payments Citizens must make and the binding contractual
nature of Citizens' commitment to do so.
MERGERS, SHARE EXCHANGES AND SALES OF ASSETS
BANCSHARES
The Nevada business statutes generally require that any merger, share
exchange or sale of all or substantially all the assets of a corporation other
than in the ordinary course of business must be approved by a majority of the
voting power or if stockholders are entitled to vote as a class, by a majority
of all votes by each class and representing a majority of all votes entitled to
be voted. Approval of a merger by the shareholders of the surviving corporation
is not required in certain instances, however, including (as in the case of the
merger with Citizens) a merger in which the number of voting shares outstanding
immediately after the merger, plus the number of voting shares issuable as a
result of the merger, does not exceed by more than 20 percent the number of
voting shares outstanding immediately before the merger.
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The Articles of Incorporation of Bancshares require the approval of the
holders of more than 85 percent of the shares to authorize business combinations
with certain parties known as interested stockholders, unless approved by the
directors not affiliated with such stockholders, or unless certain consideration
and disclosure criteria are satisfied.
CITIZENS
Under the Act, any merger, share exchange or sale of all or substantially
all of the assets of a corporation otherwise than in the ordinary course of
business must be approved by the affirmative vote of the majority of the issued
and outstanding shares of each voting group entitled to vote unless a
corporation's articles of incorporation provide otherwise. Citizens' articles of
incorporation contain a fair price provision which requires the approval of the
holders of 80 percent of Citizens' shares entitled to vote as a condition to
specified transactions with an interested shareholder, except in cases in which
either (a) price criteria and procedural requirements are satisfied, or (b) the
transaction is approved by a majority of the disinterested directors. If the
minimum price criteria and procedural requirements are met or the requisite
approval of the Citizens' Board is given, the normal requirements of West
Virginia law would apply. The fair price provision does not apply to the merger
with Bancshares. Therefore, only the affirmative vote of the majority of the
issued and outstanding shares of Citizens' common stock is necessary to approve
the merger with Bancshares.
ANTI-TAKEOVER STATUTES
BANCSHARES
The Nevada statutes require the approval of the holders of a majority of
Bancshares stock before certain acquiring persons can exercise voting rights. If
such voting rights are conferred upon a majority interest, any stockholder not
voting in favor of such rights may compel redemption of his shares.
CITIZENS
West Virginia has not adopted any anti-takeover statutes.
AMENDMENTS TO ARTICLES OF INCORPORATION AND BYLAWS
BANCSHARES
The Nevada statutes provide generally that a Nevada corporation's articles
of incorporation may be amended only upon approval by a majority of the voting
power, or in the case of amendments which would alter the preferences or rights
of any class of shares, upon additional approval by a majority of the voting
power of each class affected by the amendment. Bancshares' articles of
incorporation impose a greater requirement, the affirmative vote of more than
two-thirds of the outstanding shares entitled to vote, to approve an amendment
that would amend, alter or repeal the provisions of the articles of
incorporation or bylaws relating to classification and staggered terms of the
Bancshares Board, removal of directors or any requirement for a supermajority
vote on such an amendment. The Bancshares' articles of incorporation authorize
the Bancshares Board to amend Bancshares' bylaws at any time by vote of a
majority of the board of directors at a meeting called for that purpose.
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CITIZENS
The Act provides that a West Virginia corporation's articles of
incorporation may be amended only upon approval by a majority of the votes cast
within each voting group entitled to vote. In certain circumstances, Citizens'
articles of incorporation and bylaws impose greater requirements. For instance,
Citizens' articles of incorporation and bylaws provide that the affirmative vote
of the holders of at least 80 percent of the outstanding shares entitled to vote
are required to amend or repeal articles of incorporation provisions dealing
with the classification of the board of directors, director nominations,
appointment to newly created directorships, vacancies of directors, removal of
directors, and business combinations by unsolicited and unapproved third
parties. Citizens' bylaws also require a two-thirds' affirmative vote of the
members of the Citizens' Board to amend the bylaws to change the principal
office, change the number of directors, change the number of directors on the
executive committee, or make a substantial change in the duties of the Chairman
of the Board of the Directors or the President.
SHAREHOLDERS' RIGHTS OF DISSENT AND APPRAISAL
BANCSHARES
The holders of Bancshares common stock do not have dissenters rights under
Nevada law, because its stock is included in the national market system by the
National Association of Securities Dealers and is held of record by more than
2,000 stockholders.
CITIZENS
The Act provides that holders of Citizens' common stock have dissenters'
rights in connection with the merger so long as any shareholder of record of
Citizens who objects to the merger complies with Sections 31-1-122 and 31-1-123
of the Act, the full texts of which are attached as Appendix C. Those provisions
are summarized under the heading "Rights of Dissenting Shareholders" on page 27.
LIQUIDATION RIGHTS
BANCSHARES
In the event of the liquidation, dissolution or winding up of the affairs
of Bancshares, holders of outstanding shares of Bancshares' common stock are
entitled to share, in proportion to their respective interests, in Bancshares'
assets and funds remaining after payment, or provision for payment, of all debts
and other liabilities of Bancshares, including any issued and outstanding
preferred stock.
Because Bancshares is a bank holding company, its rights, the rights of its
creditors and of its shareholders, including the holders of the shares of any
Bancshares's preferred stock that may be issued, to participate in the assets of
any subsidiary upon the latter's liquidation or recapitalization may be subject
to the prior claims of the subsidiary's creditors, except to the extent that
Bancshares may itself be a creditor with recognized claims against the
subsidiary.
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CITIZENS
In the event of liquidation, dissolution or winding up of the affairs of
Citizens, the rights of shareholders of Citizens' common stock are similar to
those outlined above for Bancshares' shareholders. Additionally, Citizens' right
to participate in the assets of any affiliate bank upon an affiliate bank's
liquidation or recapitalization is similar to the rights outlined above for
Bancshares.
SHAREHOLDER PROPOSALS
In the event that the merger is not completed, any proposal which a
Citizens shareholder wishes to have presented at the next annual meeting of
shareholders must give notice of such proposals to Citizens not less than 40
days prior to the date of the annual meeting unless the annual meeting is to be
held less than 50 days after Citizens gives notice of the meeting, in which case
shareholders must give notice of such proposals no later than 8 days following
the date on which Citizens gave notice of the annual meeting. It is urged that
any proposals be sent by certified mail, return receipt requested.
OTHER BUSINESS
The Citizens' Board is not aware of any business to come before the meeting
other than those matters described in this proxy statement/prospectus. However,
if any other matters should properly come before the meeting, it is intended
that the proxies solicited hereby will be voted with respect to those other
matters in accordance with the judgment of the persons voting the proxies.
LEGAL MATTERS
The validity of the shares of Bancshares' common stock offered by this
proxy statement/ prospectus will be passed upon by Gentry, Locke, Rakes & Moore,
LLP, Roanoke, Virginia, as counsel to Bancshares. As of the date of this proxy
statement/prospectus, certain members of Gentry, Locke, Rakes & Moore, LLP owned
an aggregate amount of 582 shares of Bancshares' common stock.
EXPERTS
The consolidated financial statements of Bancshares and its subsidiary
incorporated in this prospectus by reference from Bancshares' Annual Report on
Form 10-K for the year ended December 31, 1999 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month period ended June 30, 2000, incorporated by
reference in this Prospectus, Ernst & Young LLP have reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report, included in First
Community Bancshares, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000, and incorporated herein by reference, states that they did not
audit and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted considering the limited nature of the review procedures applied.
The independent auditors are not subject to
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the liability provisions of Section 11 of the Securities Act of 1933 ( the
"Act") for their report on the unaudited interim financial information because
that report is not a "report" or a "part" of the Registration Statement prepared
or certified by the auditors within the meaning of Sections 7 and 11 of the Act.
The consolidated financial statements of Citizens at December 31, 1999 and
1998, and for each of the three years in the period ended December 31, 1999,
included in the Proxy Statement of Bancshares, which is referred to and made a
part of this Prospectus and Registration Statement, have been audited by
Richmond Smith & Co., independent auditors, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
Citizens expects representatives of Richmond, Smith & Co. to attend
Citizens' special meeting. These representatives will have an opportunity to
make a statement if they desire to do so, and Citizens expects that they will be
available to respond to any appropriate questions you may have.
WHERE YOU CAN FIND MORE INFORMATION
Bancshares files annual, quarterly and special reports, proxy statements
and other information with the SEC. Citizens is not a reporting Company under
SEC laws and regulations, and does not file reports thereunder. You may read and
copy any reports, statements or certain other information that Bancshares files
with the SEC at the following SEC locations:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
</TABLE>
Please call the SEC at (800)SEC-0330 for further information on the public
reference rooms. These SEC filings are also available to the public from
commercial document retrieval services and at the Internet world wide web site
maintained by the SEC at "http://www.sec.gov."
Bancshares has filed the registration statement to register with the SEC
the Bancshares' common stock to be issued to Citizens' shareholders in the
merger. This proxy statement/prospectus is a part of that registration statement
and constitutes a prospectus of Bancshares. As allowed by SEC rules, this proxy
statement/prospectus does not contain all the information you can find in
Bancshares' registration statement or the exhibits to the registration
statement.
The SEC allows Bancshares to "incorporate by reference" information in this
proxy statement/prospectus, which means that Bancshares can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered part of this
proxy statement/prospectus, except for any information superseded by information
contained directly in this proxy statement/ prospectus or in later filed
documents incorporated by reference in this proxy statement/prospectus.
47
<PAGE> 57
This proxy statement/prospectus incorporates by reference the documents set
forth below that Bancshares has previously filed with the SEC. These documents
contain important information about Bancshares and its business.
<TABLE>
<CAPTION>
BANCSHARES' SEC FILINGS (FILE NO. 000-19297)
--------------------------------------------
<S> <C>
Quarterly Report on Form 10-Q............. For the fiscal quarter ended June 30,
2000
Annual Report on Form 10-K................ For the fiscal year ended December 31,
1999
Current Reports on Form 8-K............... Filed February 22, 2000, June 13, 2000,
June 30, 2000
Registration Statements on Form 8-A
(describing Bancshares' common stock)..... Filed May 20, 1991
</TABLE>
Bancshares also incorporates by reference additional documents that may be
filed with the SEC between the date of this proxy statement/prospectus and the
completion of the merger or the termination of the merger agreement. These
include periodic reports, such as Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as proxy statements.
Bancshares has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to Bancshares.
If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through Bancshares,
the SEC or the SEC's Internet web site as described above. Documents
incorporated by reference are available from the companies without charge,
excluding all exhibits except those that the companies have specifically
incorporated by reference in this proxy statement/prospectus.
Shareholders may obtain documents incorporated by reference in this proxy
statement/ prospectus by requesting them in writing or by telephone at the
following address:
First Community Bancshares, Inc.
Ruth White
Post Office Box 989
Bluefield, Virginia 24605
(540) 326-9000
If you would like to request documents please do so by October 15, 2000, so
as to receive them before the meeting.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus. Bancshares and Citizens have not
authorized anyone to provide you with information that is different from what is
contained in this proxy statement/ prospectus or in any of the materials that
have been incorporated by reference into this document. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or where the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. This proxy statement/prospectus is dated
September 25, 2000. You should not assume that the information contained in this
proxy statement/prospectus is accurate as of any date subsequent to that date.
Neither the mailing of this proxy statement/prospectus to shareholders nor the
issuance of Bancshares' common stock in the merger creates any implication to
the contrary.
48
<PAGE> 58
CITIZENS SOUTHERN BANK, INC.
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Five-Year Selected Financial Data........................... F-1
Table II -- Yield Analysis.................................. F-2
Management Discussion and Analysis for Year Ended December
31, 1999.................................................. F-3
Financial Statements:
Statements of Financial Condition as of December 31, 1999
and 1998............................................... F-12
Statements of Income for the Three Years Ended December
31, 1999............................................... F-13
Statements of Changes in Shareholders' Equity for the
Three Years Ended December 31, 1999.................... F-14
Statements of Cash Flows for the Three Years Ended
December 31, 1999...................................... F-15
Notes to Financial Statements............................. F-16
Management Discussion and Analysis for the Interim period
Ended June 30, 2000 and 1999.............................. F-27
Interim Financial Statements:
Statements of Financial Condition as of June 30, 2000 and
December 31, 1999...................................... F-31
Statements of Income for the Three and Six Months Ended
June 30, 2000 and 1999................................. F-32
Statements of Cash Flows for the Six Months Ended June 30,
2000 and 1999.......................................... F-33
Statements of Changes in Shareholders' Equity for the Six
Months Ended June 30, 2000 and 1999.................... F-34
Notes to Interim Financial Statements..................... F-35
</TABLE>
<PAGE> 59
CITIZENS SOUTHERN BANK, INC.
FIVE-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS,
EXCEPT PERCENT AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET SUMMARY (AT END OF
PERIOD):
Loans, net of unearned income... $42,729 $27,573 $16,730 $14,858 $ 7,509
Reserve for loan losses......... 530 342 214 194 75
Securities...................... 16,911 11,967 5,636 948 113
Total assets.................... 64,550 48,313 30,606 21,952 12,604
Deposits........................ 53,381 42,301 25,312 16,684 7,726
Other indebtedness.............. 5,997 667 186 399 --
Stockholders' Equity............ 4,942 5,111 5,005 4,792 4,765
SUMMARY OF EARNINGS:
Total interest income........... $ 3,842 $ 2,576 $ 1,753 $ 1,131 $ 412
Total interest expense.......... 2,159 1,462 864 419 62
Provision for loan losses....... 204 130 24 123 75
Non-interest income............. 182 75 42 31 4
Non-interest expense............ 1,431 908 625 587 471
Income tax expense (benefit).... 79 48 67 6 (44)
Net Income (Loss)............... 150 104 215 26 (148)
PER SHARE DATA:
Basic earnings (loss) per common
share......................... $ .60 $ .42 $ .86 $ .11 $ (.60)
Diluted earnings (loss) per
common share.................. .60 .42 .86 .11 (.60)
Cash dividends..................
Book value at year-end.......... 19.77 20.44 20.02 19.17 19.06
SELECTED RATIOS:
Return on average assets........ .27% .26% .82% .15% (2.35)%
Return on average equity........ 2.99% 2.06% 4.38% .55% (6.21)%
Dividend payout................. -- -- -- -- --
Average equity to average
assets........................ 8.91% 12.82% 18.64% 27.66% 37.81%
Risk based capital to risk
adjusted assets............... 13.04% 19.42% 32.30% 37.30% 67.86%
Leverage ratio.................. 8.78% 13.33% 16.35% 21.83% 37.81%
</TABLE>
F-1
<PAGE> 60
CITIZENS SOUTHERN BANK, INC.
TABLE II -- YIELD ANALYSIS
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- --------------------------- ---------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------ ------- -------- ------ ------- -------- ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans:
Commercial, Financial, and
Agriculture................ $ 4,492 $ 351 7.81% $ 2,547 $ 199 7.81% $ 1,660 $ 144 8.67%
Real Estate Mortgage......... 25,174 2,046 8.13% 16,273 1,346 8.27% 12,453 1,031 8.28%
Installment.................. 4,452 351 7.88% 2,604 209 8.03% 2,016 161 7.99%
Other........................ -- -- 0.00% -- -- 0.00% -- -- 0.00%
------- ------ ---- ------- ------ ---- ------- ------ ----
Gross Loans.................. 34,118 2,748 8.05% 21,424 1,754 8.19% 16,129 1,336 8.28%
Allowance for Loan Losses.... (418) -- 0.00% (268) -- 0.00% (205) -- 0.00%
------- ------ ---- ------- ------ ---- ------- ------ ----
Net Loans*................. 33,700 2,748 8.15% 21,156 1,754 8.29% 15,924 1,336 8.39%
------- ------ ---- ------- ------ ---- ------- ------ ----
Investments:
Taxable...................... 16,290 966 5.93% 6,807 410 6.02% 2,762 164 5.94%
Tax Exempt................... -- -- 0.00% -- -- 0.00% -- -- 0.00%
------- ------ ---- ------- ------ ---- ------- ------ ----
Total Investments*......... 16,290 966 5.93% 6,807 410 6.02% 2,762 164 5.94%
------- ------ ---- ------- ------ ---- ------- ------ ----
Federal Funds Sold............. 2,663 128 4.81% 7,540 412 5.46% 4,520 253 5.60%
------- ------ ---- ------- ------ ---- ------- ------ ----
Total Interest Earning
Assets................... 52,653 3,842 7.30% 35,503 2,576 7.26% 23,206 1,753 7.55%
Cash and Due From Banks........ 1,459 1,078 846
Premises and Equipment......... 1,522 1,373 1,377
Other Assets................... 663 377 210
------- ------- -------
Total Assets............... $56,297 $38,331 $25,639
======= ======= =======
Liabilities and Shareholders
Equity
Interest Bearing Deposits:
Demand....................... $ 6,363 $ 221 3.47% $ 2,948 $ 98 3.32% $ 1,502 $ 47 3.13%
Savings...................... 6,805 218 3.20% 6,216 210 3.38% 5,155 178 3.45%
Time......................... 31,086 1,662 5.35% 20,395 1,149 5.63% 11,655 631 5.41%
------- ------ ---- ------- ------ ---- ------- ------ ----
Total Interest Bearing
Deposits................. 44,254 2,101 4.75% 29,559 1,457 4.93% 18,312 856 4.67%
------- ------ ---- ------- ------ ---- ------- ------ ----
Borrowings..................... 1,127 58 5.15% 168 5 2.98% 244 8 3.28%
------- ------ ---- ------- ------ ---- ------- ------ ----
Total Interest Bearing
Liabilities.............. 45,381 2,159 4.76% 29,727 1,462 4.92% 18,556 864 4.66%
------- ------ ---- ------- ------ ---- ------- ------ ----
Non-interest Bearing
Deposits..................... 5,642 3,349 2,075
Other Liabilities.............. 245 180 115
Equity......................... 5,029 5,075 4,893
------- ------- -------
Total Liabilities and
Equity................... $56,297 $38,331 $25,639
======= ======= =======
Net Interest Income............ $1,683 $1,114 $ 889
====== ====== ======
Net Interest Rate Spread....... 2.54% 2.34% 2.90%
==== ==== ====
Net Interest Margin............ 3.20% 3.14% 3.83%
---- ---- ----
</TABLE>
---------------
* Note: There are no tax-exempt investments or loans included.
F-2
<PAGE> 61
CITIZENS SOUTHERN BANK, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DECEMBER 31, 1999
INTRODUCTION AND SUMMARY
The following is management's discussion and analysis of the financial
condition and results of operation for Citizens Southern Bank, Inc. for each of
the three years in the period ended December 31, 1999, 1998 and 1997. This
discussion and analysis should be read in conjunction with the financial
statements and accompanying notes thereto of the Bank as of December 31, 1999
and 1998 and for each of the three years in the period ended in December 31,
1999.
RESULTS OF OPERATION
EARNINGS SUMMARY
Net income for the three years ended December 31, 1999, 1998 and 1997, was
$150,000, $104,000 and $215,000, respectively. On a per share basis, net income
was $.60 in 1999 compared to $.42 in 1998 and $.86 in 1997. Return on average
total assets for the year ended December 31, 1999 was .27% compared to .26% in
1998 and .82% in 1997. Return on average equity was 2.99% for 1999 compared to
2.06% in 1998 and 4.38% in 1997. A summary of significant factors influencing
the Bank's results of operations and related ratios is included in the following
discussion.
NET INTEREST INCOME
The major component of the Bank's net earnings is net interest income,
which is the excess of interest earned on earning assets over the interest
expense incurred on interest bearing sources of funds. Net interest income is
affected by changes in volume, resulting from growth and alterations of the
balance sheet's composition, fluctuations in interest rates and maturities of
sources and uses of funds.
Net interest income totaled $1,683,000, $1,114,000, and $889,000 for the
years ended December 31, 1999, 1998 and 1997 respectively, resulting in a net
interest margin of 3.08% for 1999, compared to 3.03% and 3.72% for 1998 and
1997. In 1999, the yield on interest earning assets increased .03 percent from
7.12% in 1998 to 7.15% in 1999. The rate on interest bearing liabilities
decreased .15 percent from 4.91% in 1998 to 4.76% in 1999. The primary reason
for the improved net interest margin was the Bank's ability to attract time
deposits at a lower cost, partially offset by an increase in cost of borrowings.
Net interest income, average balance sheet amounts, and corresponding
average yields on earning assets and costs of interest bearing liabilities for
the years 1999, 1998 and 1997 are presented in Table II. Table III presents, for
the periods indicated, the changes in interest income and expenses attributable
to (a) changes in volume (changes in volume multiplied by prior period rate) and
(b) changes in rate (change in rate multiplied by prior period volume). Changes
in interest income and expense attributable to both rate and volume have been
allocated between the factors in proportion to the relationship of the absolute
dollar amounts of the change in each.
As identified in Table III, the change in net interest margin from 1999 to
1998 was primarily attributed to the change in volume of certain interest
bearing assets and liabilities.
F-3
<PAGE> 62
CITIZENS SOUTHERN BANK, INC.
TABLE III -- RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 VS. 1998 DECEMBER 31, 1998 VS. 1997
----------------------------- -----------------------------
INCREASE (DECREASE) DUE TO: INCREASE (DECREASE) DUE TO:
VOLUME RATE NET VOLUME RATE NET
-------- ------ ------- -------- ------ -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Earnings Assets:
Available for Sale Securities....... 562 (6) 556 244 2 246
Fed Funds Sold...................... (239) (45) (284) 165 (6) 159
Loans............................... 1,023 (29) 994 433 (15) 418
----- --- ----- ----- --- -----
Total Earning Assets............. 1,346 (80) 1,266 842 (19) 823
----- --- ----- ----- --- -----
Interest-bearing Liabilities:
Interest-bearing Demand............. 118 5 123 48 3 51
Savings Deposits.................... 19 (11) 8 36 (4) 32
Time Deposits....................... 575 (62) 513 491 27 518
Borrowings.......................... 47 6 53 (2) (1) (3)
----- --- ----- ----- --- -----
Total Interest-bearing
Liabilities.................... 759 (62) 698 573 25 598
----- --- ----- ----- --- -----
Change in Net Interest Income......... 587 (18) 569 269 (44) 225
----- --- ----- ----- --- -----
</TABLE>
NONINTEREST INCOME
Noninterest income totaled $182,000, $75,000 and $42,000 for each of the
years ended December 31, 1999, 1998 and 1997, respectively. The most significant
items contributing to the increase of $107,000 in 1999 over the 1998 level was
an increase in service charges on deposit accounts in the amount of $58,000 and
secondary market loan origination fees of $45,000.
NONINTEREST EXPENSE
Noninterest expense totaled $1,431,000, $908,000 and $625,000 for each of
the years ended December 31, 1999, 1998 and 1997, respectively. Total
noninterest expense increased $523,000 from 1998 to 1999. During December 1998,
the Bank established its Branch. Noninterest expense for 1999 reflects a full
year of operating the branch and primarily accounts for the increase in
noninterest expense in 1999 as compared to 1998. In addition, data processing
costs increased $79,000 in 1999 as compared to 1998. Refer to Note 13 of the
accompanying financial statements for further information and additional
discussion regarding the Branch.
INCOME TAX EXPENSE
Income tax expense for the three years ended December 31, 1999, 1998 and
1997 totaled $79,000, $48,000 and $67,000 respectively. Refer to Note 7 of the
accompanying financial statements for further information and additional
discussion of the significant components influencing the effective tax rates.
SECURITIES
Securities comprised approximately 26.4% of total assets at December 31,
1999 compared to 24.5% at December 31, 1998. All securities are classified as
available for sale to provide management with flexibility to better manage its
balance sheet structure and react to asset/liability management issues as
F-4
<PAGE> 63
they arise. Average securities approximate $16.3 million for 1999 as compared to
1998's average of $6.8 million. Refer to Note 2 of the accompanying financial
statements for details of amortized cost, the fair values, unrealized gains and
losses as well as the security classifications by type.
At December 31, 1999, the Bank did not own securities of any one issuer
that exceeded ten percent of shareholders' equity. The maturity distribution of
the securities portfolio at December 31, 1999 together with the weighted average
yields for each range of maturity, are summarized in Table IV.
CITIZENS SOUTHERN BANK, INC.
TABLE IV -- INVESTMENT PORTFOLIO
MARKET VALUE OF SECURITIES AVAILABLE FOR SALE:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
U.S. Government Agencies................................... $16,530 $11,859 $4,795
States and Political Subdivisions.......................... 0 0 0
Federal Home Loan Bank Stock............................... 381 108 91
------- ------- ------
Total............................................... $16,911 $11,967 $4,886
======= ======= ======
</TABLE>
AMORTIZED COST OF SECURITIES AVAILABLE FOR SALE:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1999 1998 1997
------- ------------ ------
<S> <C> <C> <C>
U.S. Government Agencies............................... $17,026 $11,859 $4,797
States and Political Subdivisions...................... 0 0 0
Federal Home Loan Bank Stock........................... 381 108 91
------- ------- ------
Total........................................... $17,407 $11,967 $4,888
======= ======= ======
</TABLE>
MATURITY OF AGENCIES AT AMORTIZED COST:
<TABLE>
<CAPTION>
BALANCE YIELD
------- -----
<S> <C> <C>
December 31, 1999
Maturity:
Within one year............................................. $ 2,250 5.06%
After one year through five years........................... 12,592 6.01%
After five years through ten years.......................... 2,184 5.98%
After ten years............................................. 0 0.00%
------- ----
Total Book Value..................................... $17,026 5.86%
======= ====
</TABLE>
---------------
Note: (1) There were no tax exempt investments
(2) As of December 31, 1997, Citizens had $750,000 in Securities Held to
Maturity which consisted of the following:
-- FHLB $250,000 @ 6.27% Purchased 7/28/97; Maturity 7/28/00; Called
7/28/98
-- FFCB Step-Up $500,000 @ 6.30% Purchased 9/9/97; Maturity 2/2/02;
Called 9/8/98
F-5
<PAGE> 64
LOAN PORTFOLIO
The following table depicts loan balances at December 31, 1999 and 1998 by
types along with their respective total loans outstanding.
CITIZENS SOUTHERN BANK, INC.
TABLE V -- MATURITIES AND RATE SENSITIVITY
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
END OF PERIOD END OF PERIOD END OF PERIOD
BALANCE BALANCE BALANCE
------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Commercial Financial and Other................ $ 5,069 $ 2,916 $ 1,699
Real Estate -- Mortgage....................... 31,747 20,511 12,710
Installment Loans............................. 5,913 4,146 2,302
Other......................................... -- -- 19
------- ------- -------
Total Loans............................ $42,729 $27,573 $16,730
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
MATURITY SCHEDULE:
One Year or Less............................................ $ 9,745
After One Year to five years................................ 20,904
After Five Years............................................ 12,007
-------
Total................................................ $42,656
=======
Loans due after one year with Variable Rate................. $19,425
Fixed Rate.................................................. 13,486
-------
Total................................................ $32,911
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
END OF PERIOD END OF PERIOD END OF PERIOD
BALANCE BALANCE BALANCE
----------------- ----------------- -----------------
<S> <C> <C> <C>
RISK ELEMENTS:
Loans Contractually Past Due over
90 days and still accruing....... $-- $-- $--
Non Accrual Loans.................. 73 6 --
Restructured Loans................. -- -- --
--- -- --
Total Non performing
Loans.................... $73 $6 $--
=== == ==
</TABLE>
Total loans averaged $34.1 million in 1999 compared to $21.4 million in
1998 or an increase of $12.7 million. This increase in the dollar volume of
loans is primarily attributable to the Bank's strategy, which began in 1997 to
aggressively expand the Bank's commercial and real estate loan portfolios.
In the normal course of business, the Bank makes various commitments and
incurs certain contingent liabilities which are disclosed in Notes 9 and 10, but
not reflected in the accompanying financial statements. There have been no
significant changes in these types of commitments and contingent liabilities and
the Bank does not anticipate any material losses as a result of these
commitments.
F-6
<PAGE> 65
RISK ELEMENTS
The Bank, on a quarterly basis, performs a loan evaluation to encompass the
identification of potential problem credits which are included on an internally
generated "watch list". The identification of loans for inclusion on the watch
list is identified by utilizing past due reports, previous internal and external
loan reviews, and classified loans identified as part of regulatory agency loan
reviews. Once this list is compiled, specific loans for collectibility,
performance and collateral protection are reviewed. As a result of the review
process, specific reserves for potential losses are identified and the allowance
for loan losses is adjusted through a provision for loan losses.
CITIZENS SOUTHERN BANK, INC.
TABLE VII -- SUMMARY OF LOAN LOSS EXPERIENCE:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Balance of reserve at beginning of period................... $342 $214 $194
Chargeoffs:
Commercial, Financial and Other........................... 3 -- --
Real Estate Mortgage...................................... -- -- --
Installment............................................... 13 2 4
---- ---- ----
Total Charge-offs.................................... 16 2 4
---- ---- ----
Recoveries:
Commercial, Financial and Other........................... -- -- --
Real Estate Mortgage...................................... -- -- --
Installment............................................... -- -- --
---- ---- ----
Total Recoveries..................................... 0 0 0
---- ---- ----
Net Charge-offs............................................. $ 16 $ 2 $ 4
Provision Expense........................................... 204 130 24
---- ---- ----
Balance at end of period.................................... $530 $342 $214
==== ==== ====
Ratio of Net Chargeoffs to Average Loans Outstanding........ 0.00% 0.00% 0.00%
</TABLE>
ALLOCATION FOR RESERVE FOR LOAN LOSSES:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ ------------------ ------------------
% OF % OF % OF
ALLOWANCE TOTAL ALLOWANCE TOTAL ALLOWANCE TOTAL
--------- ----- --------- ----- --------- -----
(AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT PERCENT DATA)
<S> <C> <C> <C> <C> <C> <C>
Commercial..................... $159 30% $103 30% $64 30%
Real Estate Mortgage........... 297 56% 184 54% 117 55%
Installment.................... 74 14% 55 16% 33 15%
</TABLE>
PROVISION FOR LOAN LOSS
The provision for loan losses represents management's determination of the
amount necessary to be charged against the current period's earnings in order to
maintain the allowance for loan losses at a level
F-7
<PAGE> 66
which is considered adequate in relation to the estimated risk inherent in the
loan portfolio. The provision for loan losses for each of the years ended
December 31, 1999, 1998 and 1997 totaled $204,000, $130,000 and $24,000,
respectively. As discussed in the Loan Portfolio and Risk Elements section of
this analysis, increases in the Bank's provision for loan losses are primarily
attributed to the Bank's continued, strong loan growth. An analysis of the
components comprising the allowance for loan losses for the years ended December
1999, 1998 and 1997, including charge off and recoveries is included in Note 3
of the accompanying financial statements. At December 31, 1999 and 1998
respectively, the allowance for loan losses represented 1.24% and 1.24% of gross
loans or $530,000 and $342,000, and was considered adequate to cover inherent
losses. The Bank maintains an allowance for loan losses at a level considered
adequate to provide for losses that can be reasonably anticipated. The allocated
portion of the Bank's allowance for loan losses is established on a loan by loan
basis. At December 31, 1999, the Bank did not have outstanding any other real
estate owned.
DEPOSITS
Total deposits at December 31, 1999 increased approximately $11.1 million
compared to December 31, 1998. Average interest-bearing deposits increased
approximately $14.7 million during 1999. The growth was primarily the result of
management's decision to aggressively grow the deposit base of the Bank and the
opening of its branch December 15, 1998. This significant growth in deposits is
considered normal since the incorporation of the bank in June 1995, however,
those growth levels may not be attained moving forward. Of the deposits
outstanding at December 31, 1999, $11.9 million related to deposits of $100,000
or more. Those deposits are considered to be more volatile than other deposits
and more subject to leaving the bank upon maturity. A schedule of the periods of
maturity of these accounts is as follows:
TABLE VI -- TIME DEPOSITS OVER $100,000
(IN THOUSANDS OF DOLLARS)
MATURITY OF TIME DEPOSITS $100,000 AND OVER AT DECEMBER 31, 1999:
<TABLE>
<S> <C>
3 months or less............................................ $ 5,703
Over 3 months through 6 months.............................. 4,629
Over 6 months through 12 months............................. 1,614
Over 12 months.............................................. --
-------
Total Time Deposits $100,000 and over................ $11,946
=======
</TABLE>
See Note 5 of the accompanying financial statements for a maturity
distribution of time deposits as of December 31, 1999.
SHORT-TERM BORROWINGS
Total short-term borrowings increased $5.3 million from $667,000 at
December 31, 1998 to $6.0 million at December 31, 1999. See Note 6 of the
financial statements for a discussion of short-term borrowings.
The Bank has available lines of credit from the Federal Home Loan Bank of
Pittsburgh, Pennsylvania "FHLB". At December 31, 1999, the Bank had
approximately $13.0 million of additional available borrowings. Management uses
this line of credit to make additional funds available to customers in the form
of loans. Funds acquired through this program are reflected on the balance sheet
as part of short-term borrowings. Other lines of credit available to the Bank
through correspondent banks total approximately $2.0 million as of December 31,
1999.
F-8
<PAGE> 67
LIQUIDITY
Liquidity is defined as the Bank's ability to meet the customer's loan
demand and meet deposit demands. The Bank monitors its ability to meet
anticipated changes in its sources and use of funds. Liquidity was available
through cash, due from banks, federal funds sold, securities and interest
bearing deposits with other banks maturing within one year and totaled
approximately $3.0 million and $7.0 million at December 31, 1999 and 1998,
respectively. Secondary sources of liquidity are provided by the remaining
securities available for sale, federal funds purchased, FHLB lines of credit and
correspondent bank lines of credit.
CITIZENS SOUTHERN BANK, INC.
TABLE VIII -- ASSET AND LIABILITY MATURITY AND RATE SENSITIVITY
DECEMBER 31, 1999
<TABLE>
<CAPTION>
THREE THREE ONE THREE OVER
MONTHS OR TO TWELVE TO THREE TO FIVE FIVE
LESS MONTHS YEARS YEARS YEARS
--------- --------- -------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Loans:
Commercial....................... $ 1,292 $ 838 $ 819 $ 1,989 $ 60
Real Estate...................... 1,771 4,317 7,210 6,942 11,507
Consumer and Other............... 945 582 1,880 2,064 440
-------- -------- -------- -------- --------
Total Loans................... 4,008 5,737 9,909 10,995 12,007
Investments........................ 1,996 249 1,323 10,894 2,068
Federal Funds sold and other....... 404 -- -- -- --
-------- -------- -------- -------- --------
Total Earning Assets............. $ 6,408 $ 5,986 $ 11,232 $ 21,889 $ 14,075
======== ======== ======== ======== ========
Deposits:
Savings.......................... $ 8,417 $ -- $ -- $ -- $ --
CD's............................. 12,316 10,518 6,929 29 --
-------- -------- -------- -------- --------
Total Deposits................ 20,733 10,518 6,929 29 --
Borrowings......................... 5,750 -- -- -- --
-------- -------- -------- -------- --------
Total Interest Bearing
Liabilities................. $ 26,483 $ 10,518 $ 6,929 $ 29 $ --
======== ======== ======== ======== ========
Interest Sensitivity Gap........... $(20,075) $ (4,532) $ 4,303 $ 21,860 $ 14,075
======== ======== ======== ======== ========
Cumulative Gap..................... $(20,075) $(24,607) $(20,304) $ 1,556 $ 15,631
======== ======== ======== ======== ========
Cumulative Gap as a percent of
Earning Assets................... (313.28)% (411.08)% (180.77)% 7.11% 111.06%
======== ======== ======== ======== ========
</TABLE>
INTEREST RATE RISK MANAGEMENT
The Bank analyzes interest rate risk by monitoring its interest rate
sensitivity "gaps". An asset or liability is said to be interest rate sensitive
within a specified time period if it will mature or reprice within that time
period. The interest rate sensitivity "gap" is defined as the difference between
interest earning assets and interest bearing liabilities maturing or repricing
within a given time period. A 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 interest rate sensitive assets. During a period of
declining interest rates, a positive gap would
F-9
<PAGE> 68
tend to adversely affect net interest income, while a negative gap would tend to
result in an increase in net interest income. During a period of rising interest
rates, a positive gap would tend to result in an increase in net interest income
while a negative gap would tend to affect net interest income adversely.
As shown in Table VIII, the Bank has a cumulative negative interest
sensitivity gap of $24.6 million for the short-term 3-12 month period and a
cumulative negative interest sensitivity gap of $20.3 million for the 1-3 year
period. Included in the one-year period is $8,417,000 of interest bearing
savings deposit, which on a contractual basis are immediately repriceable. The
actual repricing of these deposits tends to lag well behind movements in market
interest rates.
CAPITAL
The capital percentage of the Bank has declined during the past three years
as the Bank experienced substantial growth with limited earnings. While the Bank
has grown, Total capital (to risk weighted assets), Tier I capital (to risk
weighted assets) and Tier I Leverage (to average assets) were 13.04%, 13.04% and
8.78% at December 31, 1999, which is considered well capitalized under
regulatory guidelines for prompt corrective action provisions. The Bank has not
paid a dividend since the inception of the Company in order to facilitate growth
and maintain adequate capital.
At June 30, 2000, Citizens had a Tier I capital ratio of 13.58%, a total
capital ratio of 14.83% and a leverage ratio of 8.31%, which qualify it as "well
capitalized" under the Federal Deposit Insurance Corporation Improvement Act of
1991.
You can find additional information about Citizens by writing to Citizens
Southern Bank, Inc., Attention Samuel L. Elmore, 111 Citizens Drive, Beckley,
West Virginia 25801.
F-10
<PAGE> 69
INDEPENDENT AUDITOR'S REPORT
To The Stockholders and Board of Directors
CITIZENS SOUTHERN BANK
Beckley, West Virginia
We have audited the accompanying balance sheets of CITIZENS SOUTHERN BANK
("THE BANK") as of December 31, 1999 and 1998, and the related statements of
income, changes in stockholders' equity and comprehensive income (loss), and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CITIZENS SOUTHERN BANK at
December 31, 1999 and 1998 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1999 in
conformity with generally accepted accounting principles.
/s/ Richmond, Smith & Co.
Beckley, West Virginia
January 19, 2000
F-11
<PAGE> 70
CITIZENS SOUTHERN BANK
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 2,489,775 $ 1,359,090
Federal funds sold.......................................... 404,000 5,621,000
----------- -----------
CASH AND CASH EQUIVALENTS (NOTE 1)........................ 2,893,775 6,980,090
----------- -----------
Certificates of deposit (Note 2)............................ 98,781 98,429
----------- -----------
INVESTMENT SECURITIES (NOTES 1 AND 2)
Available-for-sale........................................ 16,529,138 11,858,708
Restricted equity security -- Federal Home Loan Bank
stock.................................................. 381,400 108,400
----------- -----------
16,910,538 11,967,108
----------- -----------
LOANS (NOTES 1, 3, 8 AND 9)
Business.................................................. 5,372,416 3,551,670
Real estate loans -- business............................. 8,382,768 6,126,403
Real estate loans -- personal............................. 23,640,409 14,601,783
Loans to individuals...................................... 5,333,396 3,292,797
----------- -----------
Total Loans............................................ 42,728,989 27,572,653
Allowance for loan losses............................ (530,075) (341,920)
----------- -----------
NET LOANS......................................... 42,198,914 27,230,733
Premises and equipment (Notes 1 and 4)...................... 1,609,159 1,580,249
Deferred income tax asset (Note 7).......................... 340,000 105,637
Accrued Interest receivable and other assets................ 499,197 351,149
----------- -----------
TOTAL ASSETS................................................ $64,550,364 $48,313,395
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS (NOTE 5)
Noninterest bearing....................................... $ 5,934,886 $ 5,199,326
Interest bearing.......................................... 47,446,383 37,101,990
----------- -----------
TOTAL DEPOSITS.................................... 53,381,269 42,301,316
Short-term borrowings (Note 6).............................. 5,997,509 666,611
Accrued Interest on deposits................................ 79,963 79,550
Other liabilities........................................... 149,294 154,832
----------- -----------
TOTAL LIABILITIES................................. 59,608,035 43,202,309
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTES 9 AND 10)
STOCKHOLDERS' EQUITY (NOTE 8)
Common stock (Par value $10 per share, 499,999 and 250,000
shares authorized at December 31, 1999 and 1998,
respectively, 250,000 issued and outstanding).......... 2,500,000 2,500,000
Capital surplus........................................... 2,500,000 2,500,000
Retained earnings......................................... 260,583 110,445
Accumulated other comprehensive (loss) income (Note 1).... (318,254) 641
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.................................. 4,942,329 5,111,086
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $64,550,364 $48,313,395
=========== ===========
Book Value Per Share Outstanding (Note 1)................... $ 19.77 $ 20.44
=========== ===========
</TABLE>
F-12
<PAGE> 71
CITIZENS SOUTHERN BANK
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans........................... $2,748,240 $1,754,101 $1,336,328
Interest on federal funds sold....................... 128,174 411,685 253,117
Interest and dividends on investment securities...... 959,038 398,010 158,167
Interest on certificates of deposit and other........ 6,673 11,896 5,622
---------- ---------- ----------
TOTAL INTEREST INCOME............................. 3,842,125 2,575,692 1,753,234
---------- ---------- ----------
INTEREST EXPENSE:
Interest on time deposits of $100,000 or more........ 740,766 518,560 399,082
Interest on other deposits........................... 1,360,778 937,568 456,963
Interest on short-term borrowings.................... 57,890 5,428 8,105
---------- ---------- ----------
TOTAL INTEREST EXPENSE............................ 2,159,434 1,461,556 864,150
---------- ---------- ----------
Net Interest Income.................................. 1,682,691 1,114,136 889,084
Less: Provision for loan losses (Note 3)............. 203,700 129,800 23,700
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES.......................................... 1,478,991 984,336 865,384
---------- ---------- ----------
NON-INTEREST INCOME:
Service charges on deposit accounts.................. 96,498 38,414 26,887
Secondary market loan origination fees............... 56,771 11,818 --
Realized (loss) gain on sale of available-for-sale
securities........................................ (3,750) 625 --
Other Income......................................... 32,024 24,429 14,950
---------- ---------- ----------
TOTAL NONINTEREST INCOME.......................... 181,543 75,286 41,837
---------- ---------- ----------
NON-INTEREST EXPENSES:
Salaries and employee benefits (Notes 10 and 12)..... 723,628 471,138 315,663
Occupancy, furniture and equipment expense........... 249,056 134,222 105,048
Data processing...................................... 139,474 60,958 60,700
Advertising.......................................... 74,425 61,506 29,085
Other expenses....................................... 244,613 179,814 114,994
---------- ---------- ----------
TOTAL NONINTEREST EXPENSES........................ 1,431,196 907,638 625,490
---------- ---------- ----------
Income Before Income Tax............................. 229,338 151,984 281,731
Provision for Income Tax............................. 79,200 47,800 67,200
========== ========== ==========
NET INCOME........................................ $ 150,138 $ 104,184 $ 214,531
NET INCOME PER SHARE (NOTE 1)..................... $ 0.60 $ 0.42 $ 0.86
========== ========== ==========
</TABLE>
F-13
<PAGE> 72
CITIZENS SOUTHERN BANK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
OTHER TOTAL
COMMON CAPITAL RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK SURPLUS EARNINGS INCOME (LOSS) EQUITY
---------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997........ $2,500,000 $2,500,000 $(208,270) $ -- $4,791,730
Comprehensive income:
Net income for the year....... -- -- 214,531 -- 214,531
Other comprehensive loss, net
of deferred income taxes of
$848........................
Comprised of unrealized
holding losses of $2,292 on
available-for-sale
securities.................. -- -- -- (1,444) (1,444)
----------
Total comprehensive income...... 213,087
---------- ---------- --------- --------- ----------
BALANCE, DECEMBER 31, 1997...... $2,500,000 $2,500,000 $ 6,261 $ (1,444) $5,004,817
Comprehensive income:
Net income for the year....... -- -- 104,184 -- 104,184
Other comprehensive income, net
of deferred income taxes of
$363:
Comprised of unrealized
holding gains of $2,479 on
available for sale
securities, net of
reclassification adjustment
for gains included in net
income of $394.............. -- -- -- 2,085 2,085
----------
Total comprehensive income...... 106,269
---------- ---------- --------- --------- ----------
BALANCE, DECEMBER 31, 1998...... 2,500,000 2,500,000 110,445 641 5,111,086
Comprehensive income:
Net income for the year....... -- -- 150,138 -- 150,138
Other comprehensive income net
of deferred income tax credit
of $179,381:
Comprised of unrealized
holding losses of $321,257
on available-for sale
securities, net of
reclassification adjustment
for losses included in net
income of $2,362............ -- -- -- (318.895) (318.895)
----------
Total comprehensive loss........ (168,757)
---------- ---------- --------- --------- ----------
BALANCE, DECEMBER 31, 1999...... $2,500,000 $2,500,000 $ 260,583 $(318,254) 4,942,329
========== ========== ========= ========= ==========
</TABLE>
F-14
<PAGE> 73
CITIZENS SOUTHERN BANK
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income........................................ $ 150,138 $ 104,184 $ 214,531
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 79,255 46,925 43,910
Loss (gain) on sale of securities............. 3,750 (625) --
Provision for loan losses..................... 203,700 129,800 23,700
Premium amortization (discount
accretion) -- net.......................... (2,449) (1,476) (2,368)
Credit for deferred income taxes.............. (55,140) (24,825) (17,800)
Increase in accrued interest receivable and
other assets............................... (148,048) (98,744) (153,542)
Increase in accrued interest on deposits...... 413 42,016 19,907
Increase (decrease) in other liabilities...... (5,538) 89,020 5,784
------------ ------------ -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................... 226,081 286,275 134,122
------------ ------------ -----------
INVESTING ACTIVITIES:
Loan originations and principal payments on
loans -- net............................... (15,171,880) (10,842,842) (1,874,849)
Purchases of available-for-sale securities.... (7,841,451) (14,363,643) (4,996,878)
Proceeds from maturities, calls and sales of
available-for-sale securities.............. 2,671,250 7,301,475 200,000
Proceeds from maturities and calls of
held-to-maturity securities................ -- 750,000 950,000
Purchases of certificates of deposit.......... -- -- (296,097)
Proceeds from sales or maturities of
certificates of deposit.................... -- 198,000 --
Purchases of held-to-maturity securities...... -- -- (750,000)
Purchase of Federal Home Loan Bank common
stock...................................... (273,000) (17,300) (91,100)
Purchases of premises and equipment........... (108,166) (199,437) (10,335)
------------ ------------ -----------
NET CASH USED BY INVESTING ACTIVITIES...... (20,723,247) (17,173,747) (6,869,259)
------------ ------------ -----------
FINANCING ACTIVITIES:
Net increase in deposits...................... 11,079,953 16,989,400 8,628,306
Net increase (decrease) in short-term
borrowings................................. 5,330,898 480,293 (212,441)
------------ ------------ -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................... 16,410,851 17,469,693 8,415,865
------------ ------------ -----------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.............................. (4,086,315) 582,221 1,680,728
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.... 6,980,090 6,397,869 4,717,141
------------ ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......... $ 2,893,775 $ 6,980,090 $ 6,397,869
============ ============ ===========
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Interest on deposits and other borrowings..... $ 2,159,022 $ 1,419,540 $ 844,243
============ ============ ===========
Income taxes.................................. $ 115,960 $ 76,783 $ 85,000
============ ============ ===========
</TABLE>
F-15
<PAGE> 74
CITIZENS SOUTHERN BANK, INC.
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION:
CITIZENS SOUTHERN BANK ("CITIZENS"), organized in 1994, is a local
independent community bank principally owned by residents of Raleigh County,
West Virginia. The Bank began operations on June 12, 1995, in a facility located
on Citizens Drive, Beckley, Raleigh County, West Virginia. A branch location was
opened during mid-December, 1998 (see Note 13). The Bank provides a full range
of commercial banking services to its customers.
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING:
The accounting and reporting policies of CITIZENS conform to generally
accepted accounting principles within the banking industry. The following is a
description of the more significant accounting and reporting policies.
CASH AND CASH EQUIVALENTS:
For the purpose of presentation in the statements of cash flow, CITIZENS
has defined cash and cash equivalents to include cash and due from banks and
federal funds sold.
INVESTMENT SECURITIES:
Management determines the appropriate classification of securities at the
time of purchase. Debt securities that management has the positive intent and
ability to hold to maturity are carried at amortized cost. Other debt securities
to be held for indefinite periods of time are classified as available-for-sale
and carried at estimated fair value. Unrealized holding gains and losses, net of
deferred income taxes, on securities classified as available-for-sale are
carried as a separate component of stockholders' equity entitled, "Accumulated
Other Comprehensive (Loss) Income".
Gains or losses on sales of securities are determined using the specific
identification method and are reported separately in the statements of income.
LOANS:
Interest on loans is computed and credited to operations using methods
which generally result in level rates of return on principal amounts
outstanding.
The accrual of interest income generally is discontinued when a loan
becomes 90 days past due as to principal or interest. When interest accruals are
discontinued, unpaid interest credited to income in the current year is removed
from income, and interest accrued in prior years is charged to the allowance for
loan losses. Management may elect to continue the accrual of interest when the
estimated net realizable value of collateral is sufficient to cover the
principal balance and accrued interest and the loan is in the process of
collection.
Loan origination fees and related loan origination costs are recognized as
collected and incurred, respectively. Management feels the use of this method
does not produce amounts that would be
F-16
<PAGE> 75
CITIZENS SOUTHERN BANK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
materially different than if the costs and fees were deferred and amortized over
the life of the loan, in accordance with current accounting pronouncements.
CITIZENS grants commercial, financial, real estate, and consumer loans to
customers in southern West Virginia. Although CITIZENS has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor their
obligations is either directly or indirectly dependent upon the tourism, health
care, and coal industries. Substantially, all loans outstanding are
collateralized by cash equivalents, real estate, equipment, or personal consumer
goods.
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses is established through provisions for loan
losses charged against income. Loans deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance. The allowance for loan losses is maintained at a
level believed adequate by management to absorb estimated losses based on an
evaluation of the current loan portfolio, which is based on the Bank's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions. There are no loans in
the portfolio categorized by management as impaired under SFAS No. 114.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation.
CITIZENS is depreciating assets for book and tax purposes using the
straight-line and double declining methods, respectively, over periods ranging
from three to thirty-nine years.
INCOME TAXES:
CITIZENS utilizes an asset and liability approach to financial accounting
and reporting for income taxes. The difference between the financial statement
and tax basis of assets and liabilities is determined annually. Deferred income
tax assets and liabilities are computed for those differences that have future
tax consequences using currently enacted tax laws and rates that apply to the
periods in which they are expected to affect taxable income. Valuation
allowances are established, if considered necessary, to reduce the deferred tax
asset to the amount that will more likely than not be realized.
OTHER COMPREHENSIVE INCOME:
Effective January 1, 1998, Citizens adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This Statement
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income is defined as the change in equity (net assets) of a business enterprise
during a period, except those resulting from investments by and distributions to
owners. Other comprehensive income is defined to be revenues, expenses, gains
and losses that under generally accepted accounting principles are included in
comprehensive income but excluded from net income.
F-17
<PAGE> 76
CITIZENS SOUTHERN BANK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The item of other comprehensive income for each of the years presented is
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------ -------
<S> <C> <C> <C>
Unrealized (loss) gain on available-for-sale securities,
net of tax............................................. $(318,895) $2,085 $(1,444)
========= ====== =======
</TABLE>
USE OF ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. The
allowance for loan losses is one of CITIZENS most significant estimates.
RECLASSIFICATIONS:
Certain reclassifications have been made to the 1998 and 1997 financial
statements in order to conform with the current year presentation.
NET INCOME AND BOOK VALUE PER SHARE:
Net income and book value per share are based upon the weighted average
number of shares outstanding of 250,000 for 1999, 1998 and 1997.
ADVERTISING:
CITIZENS expenses advertising costs when the advertisement occurs. Total
advertising costs amounted to $74,425, $61,506, and $29,085 in 1999, 1998 and
1997, respectively.
NOTE 2 -- CERTIFICATES OF DEPOSIT AND INVESTMENT SECURITIES
At December 31, 1999 and 1998, CITIZENS had a certificate of deposit with
an amortized cost of $98,781 and $98,429 respectively, being held as an
investment. It matures in the year 2000. This certificate earns interest at 5.85
percent.
The amortized cost and estimated fair values of investment securities are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Government agencies and
corporation securities.......... $17,026,411 $ -- $(497,273) $16,529,138
=========== ======= ========= ===========
</TABLE>
F-18
<PAGE> 77
CITIZENS SOUTHERN BANK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- CERTIFICATES OF DEPOSIT AND INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Government agencies and
corporation securities........... $11,857,704 $30,011 $(29,007) $11,858,708
=========== ======= ======== ===========
</TABLE>
The amortized cost and estimated fair values of investment securities at
December 31, 1999 and 1998, by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities because certain securities
include the right to call or prepay the obligations prior to their contractual
maturities.
<TABLE>
<CAPTION>
1999
--------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
AVAILABLE-FOR-SALE:
Due in one year or less............................ $ 2,250,000 $ 2,244,693
Due after one but through five years............... 12,592,250 12,216,328
Due after five years............................... 2,184,161 2,068,117
----------- -----------
$17,026,411 $16,529,138
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
AVAILABLE-FOR-SALE:
Due in one year or less............................ $ 175,816 $ 176,477
Due after one but through five years............... 5,497,991 5,513,675
Due after five years............................... 6,183,897 6,168,556
----------- -----------
$11,857,704 $11,858,708
=========== ===========
</TABLE>
At December 31, 1999 and 1998, investment securities with an estimated fair
value of approximately $1,849,000 and $1,921,000, respectively, were pledged to
secure public deposits and repurchase agreements.
Gross realized losses on sale of available-for-sale securities amounted to
$3,750 for the year ended December 31, 1999, and gross realized gains amounted
to $625 for the year ended December 31, 1998. The gross proceeds from sales of
available-for-sale securities amounted to $996,250 and $250,625 for the years
ended December 31, 1999 and 1998, respectively. There were no sales of
securities for the year ended December 31, 1997.
The Federal Home Loan Bank stock, which is carried at its cost, is
considered a restricted investment because its ownership is restricted and it
lacks a market.
F-19
<PAGE> 78
CITIZENS SOUTHERN BANK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- LOANS, ALLOWANCE FOR LOAN LOSSES AND NON-ACCRUAL LOANS
A summary of changes in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR............................ $341,920 $214,246 $193,827
Net Charge-Offs:
Loans charged off, net of recoveries................ (15,545) (2,126) (3,281)
Provision for loan losses........................... 203,700 129,800 23,700
-------- -------- --------
BALANCE, END OF YEAR.................................. $530,075 $341,920 $214,246
======== ======== ========
</TABLE>
At December 31, 1999 and 1998, there were non-accruing loans amounting to
approximately $74,000 and $6,500, respectively. Of the amount at December 31,
1999, $70,000 represented a loan which is 80% secured by the Small Business
Administration.
NOTE 4 -- PREMISES AND EQUIPMENT
Included in the accompanying balance sheets are the following components of
premises and equipment:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Land................................................... $ 611,106 $ 611,106
Bank premises.......................................... 756,138 737,053
Furniture and equipment................................ 449,108 364,578
---------- ----------
1,816,352 1,712,737
Less accumulated depreciation and amortization......... (207,193) (132,488)
---------- ----------
$1,609,159 $1,580,249
========== ==========
</TABLE>
NOTE 5 -- DEPOSITS
The carrying amount of major categories of deposits outstanding are as
follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Non-interest bearing................................. $ 5,934,886 $ 5,199,326
----------- -----------
Interest bearing:
Interest checking.................................. 9,237,158 4,143,380
Money-market deposit accounts...................... 6,517,349 4,054,803
Savings............................................ 2,294,903 1,917,593
Certificates of deposit, $100,000 or more.......... 11,946,480 12,032,335
Other certificates of deposit...................... 17,450,493 14,953,879
----------- -----------
Total Interest Bearing..................... 47,446,383 37,101,990
----------- -----------
$53,381,269 $42,301,316
=========== ===========
</TABLE>
F-20
<PAGE> 79
CITIZENS SOUTHERN BANK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- DEPOSITS (CONTINUED)
At December 31, 1999, the scheduled maturities of certificates of deposit
are as follows:
<TABLE>
<CAPTION>
YEAR(S)
MATURING
--------
<S> <C> <C>
2000................................................ $21,682,330
2001-2002........................................... 7,685,182
2003-2004........................................... 29,461
-----------
$29,396,973
===========
</TABLE>
At December 31, 1999 and 1998, related party deposits, defined as officer,
director or employee deposits amounted to approximately $8,800,000 and
$8,700,000, respectively.
NOTE 6 -- SHORT-TERM BORROWINGS
Short-term borrowings consisted of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Collateralized advances from the Federal Home Loan Bank
of Pittsburgh........................................ $5,750,000 $ --
Securities sold under agreements to repurchase......... 247,509 666,611
---------- ----------
$5,997,509 $ 666,611
========== ==========
</TABLE>
At December 31, 1999, $5,750,000 of FHLB advances with interest rate of
4.05% had an overnight maturity.
CITIZENS is a member of the Federal Home Loan Bank (FHLB). Membership in
the FHLB makes available short-term and long-term borrowings from collateralized
advances. All FHLB advances are collateralized by a similar amount of single
family residential mortgage loans and U.S. Government and Agency Securities. At
December 31, 1999, CITIZENS had approximately $13,000,000 of additional
available borrowings in the form of collateralized advances from FHLB at
prevailing interest rates.
Securities sold under agreements to repurchase generally mature daily and
are secured by selected securities. Information concerning the agreements is
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Average balance during the year........................... $358,365 $168,044
======== ========
Average interest rate during the year..................... 3.92% 3.23%
======== ========
Maximum month-end balance during the year................. $509,873 $666,611
======== ========
Securities underlying the agreements at year-end:
Carrying value.......................................... $470,000 $470,000
======== ========
Estimated fair value.................................... $457,993 $475,308
======== ========
</TABLE>
F-21
<PAGE> 80
CITIZENS SOUTHERN BANK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INCOME TAXES
The net deferred tax asset in the accompanying balance sheets includes the
following amounts of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
DEFERRED TAX ASSET:
Allowance for loan losses............................... $196,000 $126,549
Organization costs...................................... -- 3,960
Excess (deficit) of amortized cost of available-for-sale
securities over their market values.................. 179,000 (223)
-------- --------
375,000 130,286
-------- --------
Less valuation allowance................................ -- --
-------- --------
375,000 130,286
-------- --------
DEFERRED TAX LIABILITY:
Basis of depreciable assets............................. (35,000) (24,649)
-------- --------
NET DEFERRED TAX ASSET.................................... $340,000 $105,637
======== ========
</TABLE>
The provision for income taxes on the statement of income is comprised of
the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
FEDERAL:
Current............................................... $121,159 $73,800 $85,000
Deferred.............................................. (54,520) (28,000) (11,800)
STATE:
Current............................................... 13,181 -- --
Deferred.............................................. (620) 2,000 (6,000)
-------- ------- -------
$ 79,200 $47,800 $67,200
======== ======= =======
</TABLE>
A reconciliation of the differences between the tax provision and the
expected tax expense computed by applying the federal statutory income tax rate
is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Expected income tax expense at federal rate.............. $73,000 $52,000 $96,000
Increase (decrease) in provision resulting from:
State income tax, net of federal tax benefit........... 7,300 3,000 8,500
Change in valuation allowance.......................... -- -- (36,500)
Other items, net....................................... (1,100) (7,200) (800)
------- ------- -------
PROVISION FOR INCOME TAXES............................... $79,200 $47,800 $67,200
======= ======= =======
</TABLE>
F-22
<PAGE> 81
CITIZENS SOUTHERN BANK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- REGULATORY REQUIREMENTS AND RESTRICTIONS
CITIZENS is subject to certain requirements imposed by federal and state
banking statutes and regulations. These requirements, among other things,
establish minimum levels for capital and restrict the amount of dividends that
may be distributed.
CITIZENS is required to maintain average cash balances with the Federal
Reserve Bank or as cash in vault. The amount of the required reserve balance at
December 31, 1999, was approximately $267,000.
CITIZENS is subject to various regulatory capital requirements administered
by the banking regulatory agencies. Under capital adequacy guidelines, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's 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 require CITIZENS 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 Leverage
Ratio (as defined) to average assets (as defined). Management believes, as of
December 31, 1999, that CITIZENS meets all capital adequacy requirements to
which it is subject.
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized CITIZENS as well capitalized. 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 that notification that management
believes have changed the institution's category. However, the volatility of the
unrealized gain or loss on available-for-sale securities, which is a component
of capital, could significantly affect capital adequacy in the future.
The Bank's actual capital amounts and ratios are presented in the following
table (in thousands of dollars, except percentages):
<TABLE>
<CAPTION>
FOR CAPITAL TO BE WELL
ACTUAL ADEQUACY PURPOSES CAPITALIZED
--------------- ----------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total Capital
(to Risk Weighted Assets)........... $4,942 13.04% $3,033 8.00% $3,791 10.00%
Tier I Capital
(to Risk Weighted Assets)........... 4,942 13.04% 1,516 4.00% 2,274 6.00%
Tier I Leverage
(to Average Assets)................. 4,942 8.78% 2,252 4.00% 2,815 5.00%
AS OF DECEMBER 31, 1998:
Total Capital
(to Risk Weighted Assets)........... 5,111 19.42% 2,105 8.00% 2,631 10.00%
Tier I Capital
(to Risk Weighted Assets)........... 5,111 19.42% 1,053 4.00% 1,579 6.00%
Tier I Leverage
(to Average Assets)................. 5,111 13.33% 1,534 4.00% 1,917 5.00%
</TABLE>
CITIZENS cannot make dividend distributions to its stockholders without
regulatory approval.
F-23
<PAGE> 82
CITIZENS SOUTHERN BANK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- REGULATORY REQUIREMENTS AND RESTRICTIONS (CONTINUED)
CITIZENS has granted loans to related parties, consisting of executive
officers, directors and their associates. Related party loans were made on
substantially the same terms, including interest rate and collateral, as those
prevailing at the same time for comparable transactions with unrelated persons
and do not involve more than normal risk of collectibility.
The following presents the activity with respect to related party loans
during 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
BALANCE AT JANUARY 1................................... $3,765,947 $2,209,045
Loans made............................................. 1,582,623 2,580,885
Payoffs and payments collected......................... (1,614,004) (1,023,983)
---------- ----------
Loan balances of entities no longer classified as
related parties at year-end.......................... (644,666) --
---------- ----------
BALANCE AT DECEMBER 31................................. $3,089,900 $3,765,947
========== ==========
</TABLE>
NOTE 9 -- OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK
CITIZENS offers 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 loan commitments, unused lines of credit, and
standby letters of credit. CITIZENS had commitments to extend credit consisting
of unused lines of credit and open loan commitments approximating $4,245,000 and
$3,117,000 as of December 31, 1999 and 1998, respectively. CITIZENS had issued
and outstanding standby letters of credit of approximately $657,000 and $520,000
at December 31, 1999 and 1998, respectively.
Commitments to extend credit are obligations to lend to customers at
prevailing market rates specific sums, as long as no pre-established condition
of the loan agreement is violated. The amount and type of collateral to be
obtained is normally established at the time of the commitment. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.
CITIZENS uses the same credit and collateral policies in making commitments
and conditional obligations as it does for all other lending. Collateral, which
secures these types of commitments, is the same type as collateral for other
types of lending such as accounts receivable, inventory, real estate and
equipment. Management does not expect any material losses as a result of the
commitments.
There were no significant concentrations of credit risk other than the
geographic area and the loan categories disclosed in the accompanying balance
sheets.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
Effective July 1, 1997, CITIZENS entered into an Employment Agreement (the
"Agreement") with its President and Chief Executive Officer ("CEO"). In general,
the Agreement calls on the CEO to provide services in return for a $100,000 per
year salary during the first year of the Agreement. The salary escalates
approximately 5% each year during the remaining two years of the initial term.
The CEO also receives certain other nominal fringe benefits. The Agreement
provides for additional renewal terms, termination of the relationship with
cause and a covenant not to compete by the CEO.
F-24
<PAGE> 83
CITIZENS SOUTHERN BANK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
On November 15, 1998, CITIZENS entered into a lease agreement for branch
office space (see Note 13), with a company owned by a Board of Directors Member
and significant stockholder. The initial term of the lease is for forty months
commencing December 1, 1998. Monthly lease rental payments of $2,663 are due
commencing the fifth month of the initial term. The lease is renewable for five
three-year terms at the option of CITIZENS. Monthly lease rental escalations
during these renewal terms are determinable based on a function of the Consumer
Price Index. An option to purchase the premises is also contained in the
agreement.
CITIZENS has entered into non-cancelable vehicle lease and information
technology service agreements. These operating agreements are for terms of two
and five years, respectively. The technology service agreement's monthly cost is
based primarily on utilization and provides for renewal options. Therefore,
CITIZENS must meet a minimum number of accounts before it incurs additional
charges. The base annual charge for the agreement was $43,200. As the number of
accounts has increased, CITIZENS has incurred additional charges on a per
account basis. The total cost of the information technology service agreement
was $139,474, $60,958, and $60,700 in 1999, 1998 and 1997, respectively.
CITIZENS' current agreement expires June 30, 2000. Management anticipates the
technology service agreement expense will approximate $170,000 in 2000. The cost
of other lease agreements totaled $36,526, $21,042, and $11,484 in 1999, 1998,
and 1997, respectively.
Future minimum payments under non-cancelable lease agreements for years
subsequent to December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000......................................... $32,106
2001......................................... 31,599
2002......................................... 5,268
-------
Total........................................ $68,973
=======
</TABLE>
NOTE 11 -- LINE OF CREDIT
CITIZENS has entered into an agreement with The Bankers' Bank of Kentucky
to periodically borrow Federal Funds. The Bank may borrow, on an unsecured
basis, an amount not to exceed 50% of the Bank's unimpaired capital and surplus.
Should an amount in excess of 50% be requested, the Bank would be required to
pledge marketable securities as additional collateral. There were no borrowings
under the agreement at December 31, 1999 and 1998.
NOTE 12 -- EMPLOYEE BENEFIT PLAN
On April 1, 1996, CITIZENS established a compensation
reduction/profit-sharing plan for its employees under the provisions of Section
401(k) of the Internal Revenue Code. All employees who meet certain eligibility
requirements are allowed to participate in the Plan. Under the Plan, each
participant is allowed to defer the receipt of pay by an amount not less than 1%
nor more than 15% of their compensation before the reduction.
CITIZENS' contributions under the plan are discretionary and will be
determined annually by the Board of Directors. Currently, the Bank will not
match elective deferral contributions in excess of 4% of pay, but CITIZENS will
match fifty percent of the employee's contribution to a maximum of 4% of their
F-25
<PAGE> 84
CITIZENS SOUTHERN BANK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- EMPLOYEE BENEFIT PLAN (CONTINUED)
pay. Contributions to the plan totaled $9,881, $6,493, and $6,433 for the years
ended December 31, 1999, 1998, and 1997, respectively.
NOTE 13 -- NEW BRANCH LOCATION
During mid-December, 1998, CITIZENS opened a branch location on South
Eisenhower Drive, Beckley. This branch is a full service location, including
both deposit and lending activities. Costs associated with the branch are
included in the Statements of Income.
During the fourth quarter of 1998 and during 1999, CITIZENS expended
significant resources in terms of both out-of-pocket costs and personnel
resources in establishing the branch. These costs were expensed as incurred in
accordance with the most recent accounting pronouncements regarding start-up
costs.
NOTE 14 -- YEAR 2000 ("Y2K") ISSUES (UNAUDITED)
Management has considered the impact of "Year 2000 ("Y2K") Issues" on
CITIZENS'information systems and applications and accordingly has developed a
remediation plan. As of January 19, 2000, CITIZENS has not experienced any
significant Y2K related issues.
F-26
<PAGE> 85
CITIZENS SOUTHERN BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
The following discusses changes in financial condition and the results of
operation of "Citizens" for the periods indicated. This discussion should be
read in conjunction with Citizens 1999 audited annual report.
RESULTS OF OPERATION
EARNINGS SUMMARY
Net income for the three months ended June 30, 2000 was $78,000. This
represents an increase of $54,000 or 225% over the same period in 1999. For the
six-month period ended June 30, 2000, Citizen's net income of $171,000 increased
$119,000 or 229% for the same period in 1999. The increase in earnings for the
three-month and six-month periods resulted from growth in earning assets and
improved service fee revenues. Basic and diluted earnings per share were $0.31
for the quarter ended June 30, 2000 compared to the $0.10 reported for the
second quarter of 1999. For the six-month period ended June 30, 2000, basic and
diluted earnings per common share totaled $0.68 compared to $0.21 for the same
period of 1999.
NET INTEREST INCOME
The bank's net interest income on a fully tax equivalent basis totaled
$997,000 for the six-month period ended June 30, 2000 compared to $724,000 for
the same period of 1999, representing an increase of $273,000 or 38%. This
increase resulted from growth in the volume of earning assets for the period
primarily funded by borrowed funds at a cost less than competitive market rates.
Further analysis of the Bank's yields on interest earning assets and
interest-bearing liabilities are presented in Table I.
F-27
<PAGE> 86
CITIZENS SOUTHERN BANK, INC.
TABLE I-YIELD ANALYSIS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
---------------------------- ----------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans:
Loans Taxable............................ $44,923 $1,800 8.06% $30,048 $1,178 7.91%
------- ------ ---- ------- ------ ----
Total Loans............................ 44,923 1,800 8.07% 30,048 1,178 7.91%
Reserve for Loan Losses................ (548) (369)
------- -------
Net Loans-Taxable...................... 44,375 29,679
Investments:
Available for Sale (All Taxable)......... 15,667 485 6.23% 15,237 447 5.92%
------- ------ ---- ------- ------ ----
Total Investments...................... 15,667 485 6.23% 15,237 447 5.92%
Federal Funds Sold....................... 640 21 6.60% 4,370 103 4.75%
------- ------ ---- ------- ------ ----
Total Earning Assets................... 60,682 2,306 7.64% 49,286 1,728 7.07%
Other Assets........................... 4,041 3,489
------- -------
Total Assets........................... $64,723 $52,775
======= =======
Liabilities and Shareholders Equity
Interest Bearing Deposits:
Demand................................... $ 8,280 $ 144 3.50% $ 4,943 $ 83 3.39%
Savings.................................. 7,906 145 3.69% 6,396 98 3.09%
Time..................................... 28,981 792 5.50% 30,398 816 5.41%
Borrowings............................... 7,396 228 6.20% 416 7 3.39%
------- ------ ---- ------- ------ ----
Total Interest Bearing Liabilities..... 52,563 1,309 5.01% 42,153 1,004 4.80%
Non-interest Bearing Deposits............ 6,907 5,273
Other Liabilities........................ 281 259
Equity................................... 4,972 5,090
------- -------
Total Liabilities and Equity........... $64,723 $52,775
======= =======
Net Interest Income...................... $ 997 $ 724
====== ======
Net Interest Rate Spread................. 2.63% 2.27%
==== ====
Net Interest Margin...................... 3.30% 2.96%
==== ====
</TABLE>
PROVISION FOR LOAN LOSS
The provision for loan losses represents management's determination of the
amount necessary to be charged against the current periods earnings in order to
maintain the allowance for loan losses at a level which is considered adequate
in relation to the estimated risk inherent in the loan portfolio. The provision
for loan losses for the first six months of 2000 was $54,000 compared to $81,000
for the same period in 1999. Net charge-offs for the first half of 2000 were
$24,000 as compared to $4,000 over the same period in 1999. At June 30, 2000,
the allowance for loan losses totaled $560,000 or 1.19% of loans as compared to
$530,000 or 1.24% at December 31, 1999. The following is an analysis of the
activity in the Bank's allowance for loan losses for the six-month periods ended
June 30, 2000 and 1999.
F-28
<PAGE> 87
CITIZENS SOUTHERN BANK, INC.
TABLE II -- RESERVE FOR LOAN LOSSES
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Balance Beginning of Year............................... $ 530 $ 342
Net Charge-Offs:
Loans charged off, net of recoveries.................. 24 4
Provision for loan losses............................. 54 81
------- -------
Balance, End of Period.................................. $ 560 $ 419
======= =======
</TABLE>
The bank's non-performing assets and loans past due 90 days or more
increased from $73,000 at December 31, 1999, to $152,000 at June 30, 2000. This
increase resulted principally from two credits totaling $80,000 that are
non-accruing and have a government SBA guarantee. The additional $72,000 is a
real estate loan that is secured by a first lien deed of trust.
NON-INTEREST INCOME AND EXPENSE
Total non-interest income increased approximately $2,000 to $120,000 during
the first six months of 2000 as compared to the first six months of 1999. While
the increase is small, the bank has increased service charges on deposit
accounts from $37,000 for the first six months of 1999 to $73,000 for the same
period in 2000. This increase offset a decrease in other operating income, which
was $59,000 for the six months ended June 30, 1999 as compared to $24,000 for
the same period in 2000. The decrease in other income for 2000 is a result of
increased interest rates that slowed the origination of secondary market real
estate loans, therefore creating a reduction in origination fees.
Total non-interest expense increased approximately $97,000 to $784,000
during the first six months of 2000 as compared to $687,000 for the first six
months of 1999. This increase is primarily attributable to normal increase in
salary and employee benefits and an increase in other operating expense, which
is attributable to settlement with previous management.
FINANCIAL CONDITION
Total assets of the bank were $65,396,000 at June 30, 2000 compared to
$64,554,000 at December 31, 1999. Significant changes in the bank's financial
position between December 31, 1999 and June 30, 2000, are reflected on the
balance sheet as well as the changes in average balances noted on the Yield
Analysis in Table I.
LOANS
The most significant change in the financial condition of the bank resulted
in an increase of $4,273,000 in net loans outstanding to $46,472,000 at June 30,
2000 as compared to $42,199,000 in 1999. This increase was primarily funded by
short-term borrowings from the FHLB.
F-29
<PAGE> 88
DEPOSITS
Total deposits decreased $1,111,000 from $53,381,000 at December 31, 1999
to $52,270,000 at June 30, 2000. This decrease was partially offset by an
increase of $622,000 in securities sold under agreements to repurchase and
management's decision not to aggressively reprice its interest bearing deposits.
CAPITAL
Shareholders equity at June 30, 2000 totaled $5,040,000 compared to
$4,942,000 at December 31, 1999, representing an increase of $98,000. The
increase in retained earnings of $170,000 was offset by an increase in
accumulated other comprehensive loss of $72,000. This increase in other
comprehensive loss is a result of the decline in value of investments held for
sale during the period.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Citizens' environment has not changed substantially from the discussion and
analysis presented for the December 31, 1999 financials included in this proxy
statement/prospectus. A more complete discussion is included with the December
31, 1999 Financial Statements under Interest Rate Risk Management (See page
F-9).
F-30
<PAGE> 89
CITIZENS SOUTHERN BANK, INC. (UNAUDITED)
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999
------- -----------
<S> <C> <C>
Assets
Cash and cash equivalents................................... $ 1,882 $ 2,993
Securities available for sale (amortized cost of $15,265
June 30, 2000; $17,407 December 31, 1999)................. 14,654 16,911
Total loans, net of unearned income......................... 47,032 42,729
Less: allowance for loan losses........................... 560 530
------- -------
Net loans................................................. 46,472 42,199
Premises and equipment, net................................. 1,569 1,609
Other assets................................................ 819 842
------- -------
Total Assets.............................................. $65,396 $64,554
======= =======
Liabilities
Deposits, non-interest bearing.............................. $ 6,692 $ 5,935
Deposits, interest-bearing.................................. 45,578 47,446
------- -------
Total Deposits............................................ 52,270 53,381
Interest, taxes and other liabilities....................... 268 233
Federal funds purchased..................................... 196 248
Securities sold under agreement to repurchase............... 622 0
FHLB borrowings and other indebtedness...................... 7,000 5,750
------- -------
Total Liabilities......................................... 60,356 59,612
------- -------
Stockholders' Equity
Common stock, $10 par value; 250,000 shares authorized and
outstanding in 2000 and 1999, respectively................ 2,500 2,500
Additional paid-in capital.................................. 2,500 2,500
Retained earnings........................................... 431 261
Accumulated other comprehensive loss........................ (391) (319)
------- -------
Total Stockholders' Equity................................ 5,040 4,942
------- -------
Total Liabilities and Stockholders' Equity................ $65,396 $64,554
======= =======
</TABLE>
See Notes to Financial Statements
F-31
<PAGE> 90
CITIZENS SOUTHERN BANK, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans............... $ 1,800 $ 1,178 $ 932 $ 613
Interest on securities available for
sale.................................. 485 447 233 240
Interest on federal funds sold and
deposits.............................. 21 103 15 48
-------- -------- -------- --------
Total Interest Income............... 2,306 1,728 1,180 901
-------- -------- -------- --------
INTEREST EXPENSE:
Interest on deposits..................... 1,081 997 546 518
Interest on borrowings................... 228 7 138 3
-------- -------- -------- --------
Total Interest Expense................ 1,309 1,004 684 521
-------- -------- -------- --------
NET INTEREST INCOME................. 997 724 496 380
PROVISION FOR LOAN LOSSES.................. 54 81 23 46
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES.............................. 943 643 473 334
-------- -------- -------- --------
NON-INTEREST INCOME:
Service charges on deposit accounts...... 73 37 40 20
Other charges, commissions and fees...... 23 22 11 14
Other operating income................... 24 59 17 23
-------- -------- -------- --------
Total Non-Interest Income............. 120 118 68 57
-------- -------- -------- --------
NON-INTEREST EXPENSE:
Salaries and employee benefits........... 378 337 192 176
Occupancy expense of bank premises....... 81 71 41 40
Furniture and equipment expense.......... 45 53 20 27
Other operating expense.................. 280 226 161 114
-------- -------- -------- --------
Total Non-Interest Expense.......... 784 687 414 357
-------- -------- -------- --------
Income before income taxes............... 279 74 127 34
Income tax expense....................... 109 22 49 10
-------- -------- -------- --------
NET INCOME.......................... $ 170 $ 52 $ 78 $ 24
======== ======== ======== ========
Basic and diluted earnings per common
share.................................... $ .68 $ .21 $ .31 $ .10
======== ======== ======== ========
Weighted average shares outstanding........ 250,000 250,000 250,000 250,000
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements
F-32
<PAGE> 91
CITIZENS SOUTHERN BANK, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
--------------------
2000 1999
-------- --------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 171 $ 52
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................... 43 37
Provision for loan losses.............................. 54 81
(Discount accretion) premium amortization-net.......... (2) 1
Decrease (increase) in accrued interest receivable and
other assets.......................................... 62 (121)
Increase (decrease) in other liabilities............... 38 (56)
-------- --------
Net Cash Provided by (Used in) Operating
Activities.......................................... 366 (6)
-------- --------
INVESTING ACTIVITIES:
Loan originations and principal payments on
loans-net............................................. (4,327) (5,743)
Purchase of available for sale securities.............. -- (6,593)
Proceeds from maturities, calls and sales of available
for sale securities................................... 2,250 1,000
Purchase of FHLB common stock.......................... (106) (37)
Purchase of premises and equipment..................... (3) (96)
-------- --------
Net Cash Used in Investing Activities................ (2,186) (11,469)
-------- --------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits.................... (1,111) 8,810
Net increase (decrease) in short-term borrowings....... 1,820 (303)
-------- --------
Net Cash Provided by Financing Activities............ 709 8,507
-------- --------
Decrease in Cash and Cash Equivalents.................. (1,111) (2,968)
Cash and cash equivalents at beginning of year......... 2,993 7,078
-------- --------
Cash and Cash Equivalents at End of Year............... $ 1,882 $ 4,110
======== ========
</TABLE>
See Notes to Financial Statements.
F-33
<PAGE> 92
CITIZENS SOUTHERN BANK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME (LOSS) TOTAL
------ ---------- -------- ------------- ------
(AMOUNTS IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance beginning of the period,
January 1, 1999...................... $2,500 $2,500 $110 $ 1 $5,111
Comprehensive income:
Net Income........................... -- -- 52 -- 52
Other comprehensive income:
Unrealized holding losses on
securities available for sale,
net of tax...................... -- -- -- (217) (217)
------ ------ ---- ----- ------
Comprehensive income............ -- -- 52 (217) (165)
Common dividends declared.............. -- -- -- -- --
------ ------ ---- ----- ------
Balance, June 30, 1999................. $2,500 $2,500 $162 $(216) $4,946
====== ====== ==== ===== ======
Balance beginning of the period,
January 1, 2000...................... $2,500 $2,500 $261 $(319) $4,942
Comprehensive income:
Net Income........................... -- -- 170 -- 170
Other comprehensive income:
Unrealized holding losses on
securities available for sale,
net of tax...................... -- -- -- (72) (72)
------ ------ ---- ----- ------
Comprehensive income............ -- -- 170 (72) 98
Common dividends declared.............. -- -- -- -- --
------ ------ ---- ----- ------
Balance, June 30, 2000................. $2,500 $2,500 $431 $(391) $5,040
====== ====== ==== ===== ======
</TABLE>
See Notes to Financial Statements.
F-34
<PAGE> 93
CITIZENS SOUTHERN BANK, INC.
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION:
CITIZENS SOUTHERN BANK ("CITIZENS"), organized in 1994, is a local
independent community bank principally owned by residents of Raleigh County,
West Virginia. The Bank began operations on June 12, 1995, in a facility located
on Citizens Drive, Beckley, Raleigh County, West Virginia. A branch location was
opened during mid-December, 1998. The Bank provides a full range of commercial
banking services to its customers.
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING:
The accounting and reporting policies of CITIZENS conform to generally
accepted accounting principles within the banking industry. The following is a
description of the more significant accounting and reporting policies.
CASH AND CASH EQUIVALENTS:
For the purpose of presentation in the statements of cash flow, CITIZENS
has defined cash and cash equivalents to include cash and due from banks and
federal funds sold.
INVESTMENT SECURITIES:
Management determines the appropriate classification of securities at the
time of purchase. Debt securities that management has the positive intent and
ability to hold to maturity are carried at amortized cost. Other debt securities
to be held for indefinite periods of time are classified as available-for-sale
and carried at estimated fair value. Unrealized holding gains and losses, net of
deferred income taxes, on securities classified as available-for-sale are
carried as a separate component of stockholders' equity entitled, "Accumulated
Other Comprehensive (Loss) Income".
Gains or losses on sales of securities are determined using the specific
identification method and are reported separately in the statements of income.
LOANS:
Interest on loans is computed and credited to operations using methods
which generally result in level rates of return on principal amounts
outstanding.
The accrual of interest income generally is discontinued when a loan
becomes 90 days past due as to principal or interest. When interest accruals are
discontinued, unpaid interest credited to income in the current year is removed
from income, and interest accrued in prior years is charged to the allowance for
loan losses. Management may elect to continue the accrual of interest when the
estimated net realizable value of collateral is sufficient to cover the
principal balance and accrued interest and the loan is in the process of
collection.
Loan origination fees and related loan origination costs are recognized as
collected and incurred, respectively. Management feels the use of this method
does not produce amounts that would be materially different than if the costs
and fees were deferred and amortized over the life of the loan, in accordance
with current accounting pronouncements.
F-35
<PAGE> 94
CITIZENS SOUTHERN BANK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CITIZENS grants commercial, financial, real estate, and consumer loans to
customers in southern West Virginia. Although CITIZENS has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor their
obligations is either directly or indirectly dependent upon the tourism, health
care, and coal industries. Substantially, all loans outstanding are
collateralized by cash equivalents, real estate, equipment, or personal consumer
goods.
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses is established through provisions for loan
losses charged against income. Loans deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance. The allowance for loan losses is maintained at a
level believed adequate by management to absorb estimated losses based on an
evaluation of the current loan portfolio, which is based on the Bank's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions. There are no loans in
the portfolio categorized by management as impaired under SFAS No. 114.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation.
CITIZENS is depreciating assets for book and tax purposes using the
straight-line and double declining methods, respectively, over periods ranging
from three to thirty-nine years.
INCOME TAXES:
CITIZENS utilizes an asset and liability approach to financial accounting
and reporting for income taxes. The difference between the financial statement
and tax basis of assets and liabilities is determined annually. Deferred income
tax assets and liabilities are computed for those differences that have future
tax consequences using currently enacted tax laws and rates that apply to the
periods in which they are expected to affect taxable income. Valuation
allowances are established, if considered necessary, to reduce the deferred tax
asset to the amount that will more likely than not be realized.
OTHER COMPREHENSIVE INCOME:
Effective January 1, 1998, Citizens adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This Statement
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income is defined as the change in equity (net assets) of a business enterprise
during a period, except those resulting from investments by and distributions to
owners. Other comprehensive income is defined to be revenues, expenses, gains
and losses that under generally accepted accounting principles are included in
comprehensive income but excluded from net income.
USE OF ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in
F-36
<PAGE> 95
CITIZENS SOUTHERN BANK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the financial statements and accompanying notes. Actual results could differ
from those estimates. The allowance for loan losses is one of CITIZENS most
significant estimates.
NOTE 2 -- INFORMATION WITH RESPECT TO FORM S-4 FILERS
The accompanying Management Discussion and Analysis disclosure and
discussion accompanying Citizens' financial statements for June 30, 2000 were
prepared to facilitate certain disclosures to meet Securities and Exchange
Commission filing requirements. Citizens is not a reporting entity to the
Securities and Exchange Commission, and, therefore, the information provided
herein is substantially less in scope than if Citizens had been a reporting
entity. The quarterly financial and other information as would have been
required, had Citizens been required to file Part I of Form 10-Q for the most
recent quarter for which such a report would have been made, is included herein.
F-37
<PAGE> 96
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
FIRST COMMUNITY BANCSHARES, INC.,
FIRST COMMUNITY BANK, N. A.
AND
CITIZENS SOUTHERN BANK, INC.
<PAGE> 97
<TABLE>
<S> <C> <C> <C>
ARTICLE I
GENERAL
1.1 Merger........................................................... A-1
1.2 Issuance of Bancshares Common Stock.............................. A-1
1.3 Taking of Necessary Action....................................... A-1
ARTICLE II
EFFECT OF MERGER ON COMMON STOCK OF CITIZENS
2.1 Conversion of Stock.............................................. A-1
2.2 Manner of Exchange............................................... A-2
2.3 No Fractional Shares............................................. A-2
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Citizens....................... A-2
(a) Organization, Standing and Power............................ A-2
(b) Capital Structure........................................... A-3
(c) Authority................................................... A-3
(d) Investments................................................. A-3
(e) Financial Statements........................................ A-3
(f) Absence of Undisclosed Liabilities.......................... A-4
(g) Tax Matters................................................. A-4
(h) Options, Warrants and Related Matters....................... A-5
(i) Property; Leases............................................ A-5
(j) Additional Schedules Furnished to FCB....................... A-5
(k) Agreements in Force and Effect.............................. A-6
(l) Legal Proceedings; Compliance with Laws..................... A-6
(m) Employee Benefit Plans...................................... A-6
(n) Insurance................................................... A-8
(o) Loan Portfolio.............................................. A-8
(p) Absence of Changes.......................................... A-8
(q) Brokers and Finders......................................... A-8
(r) Reports..................................................... A-9
(s) Environmental Matters....................................... A-9
(t) Community Reinvestment Act.................................. A-10
(u) Disclosure.................................................. A-10
3.2 Representations and Warranties of FCB and Bancshares............. A-10
(a) Organization, Standing and Power............................ A-10
(b) Capital Structure........................................... A-10
(c) Authority................................................... A-10
(d) Financial Statements........................................ A-11
(e) Absence of Undisclosed Liabilities.......................... A-11
(f) Absence of Changes.......................................... A-11
(g) Brokers and Finders......................................... A-11
(h) Reports..................................................... A-11
(i) Tax Matters................................................. A-12
(j) Property; Leases............................................ A-12
(k) Legal Proceedings; Compliance with Laws..................... A-12
(l) Employee Benefit Plans...................................... A-12
(m) Loan Portfolio.............................................. A-13
(n) Environmental Matters....................................... A-13
(o) Community Reinvestment Act.................................. A-13
(p) Disclosure.................................................. A-13
</TABLE>
i
<PAGE> 98
<TABLE>
<S> <C> <C> <C>
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME OF MERGER
4.1 Access to Records and Properties of FCB and Citizens............. A-13
4.2 Registration Statement; Proxy Statement; Shareholder Approval.... A-14
4.3 Operation of the Business of Citizens............................ A-14
4.4 No Solicitation.................................................. A-15
4.5 Regulatory Filings............................................... A-15
4.6 Tax Opinion...................................................... A-16
4.7 Public Announcements............................................. A-16
4.8 Transactions in Bancshares Common Stock.......................... A-16
4.9 Agreement as to Efforts to Consummate............................ A-16
4.10 Adverse Changes in Condition..................................... A-16
4.11 Updating of Schedules............................................ A-16
ARTICLE V
CONDITIONS OF MERGER
5.1 Conditions to Obligations of FCB................................. A-16
(a) Representations and Warranties; Performance of Obligations;
No Adverse Change......................................... A-16
(b) Authorization of Merger..................................... A-17
(c) Opinion of Counsel.......................................... A-17
(d) Registration Statement...................................... A-18
(e) Tax Opinion................................................. A-18
(f) Regulatory Approvals........................................ A-18
(g) Affiliate Letters........................................... A-19
(h) Acceptance by Bancshares Counsel............................ A-19
(i) Disclosure Schedules........................................ A-19
5.2 Conditions to Obligations of Citizens............................ A-19
(a) Representations and Warranties; Performance of Obligations;
No Adverse Change......................................... A-19
(b) Authorization of Merger..................................... A-19
(c) Opinion of Counsel.......................................... A-19
(d) Registration Statement...................................... A-21
(e) Regulatory Approvals........................................ A-21
(f) Tax Opinion................................................. A-21
(g) Acceptance by Citizens' Counsel............................. A-21
(h) Fairness Opinion............................................ A-21
ARTICLE VI
CLOSING DATE; EFFECTIVE TIME OF THE MERGER
6.1 Closing Date..................................................... A-21
6.2 Filings at Closing............................................... A-21
6.3 Effective Time................................................... A-22
ARTICLE VII
TERMINATION; SURVIVAL OF REPRESENTATIONS
WARRANTIES AND COVENANTS; WAIVER AND AMENDMENT
7.1 Termination...................................................... A-22
7.2 Effect of Termination............................................ A-22
7.3 Survival of Representations, Warranties and Covenants............ A-23
7.4 Waiver and Amendment............................................. A-23
</TABLE>
ii
<PAGE> 99
<TABLE>
<S> <C> <C> <C>
ARTICLE VIII
ADDITIONAL COVENANTS
8.1 Registration Statement.................................................................................. A-23
8.2 Employee Benefits....................................................................................... A-23
8.3 Protection of Directors and Officers.................................................................... A-23
ARTICLE IX
MISCELLANEOUS
9.1 Expenses................................................................................................ A-24
9.2 Entire Agreement........................................................................................ A-24
9.3 Descriptive Headings; Recitals.......................................................................... A-24
9.4 Notices................................................................................................. A-24
9.5 Counterparts............................................................................................ A-25
9.6 Governing Law........................................................................................... A-25
Consent of Directors............................................................................................... A-26
Exhibit A -- Plan of Merger........................................................................................ A-27
</TABLE>
iii
<PAGE> 100
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION SECTION IN AGREEMENT
-------- ----------- --------------------
<C> <S> <C>
A Citizens' Articles of Incorporation 3.1(a)(A)
B Citizens' Bylaws 3.1(a)(B)
C Securities Owned by Citizens 3.1(d)
D Citizens' Conflicts, Breaches or Defaults 3.1(c)
E Citizens' Financial Statements 3.1(e)
F Citizens' Tax Matters 3.1(g)
G Salary Rates and Citizens' Common Stock Owned by 3.1(j)(i), 3.1(b)
Employees and Directors of Bank; Owners of 5% of
Citizens' Common Stock
H Notes, Bonds, Mortgages, Indentures, Licenses, Lease 3.1(j)(ii),
Agreements and Other Contracts of Citizens 5.1(c)(v),
5.1(c)(vii)
I Employment Contracts and Related Matters of Citizens 3.1(m)(i),
3.1(j)(iii),
3.1(m)(vii),
3.1(m)(viii)
J Real Estate Owned or Leased by Citizens 3.1(i), 3.1(j)(iv)
K Citizens' Directors and 10% Shareholders 5.1(g)
L Citizens' Legal Proceedings 3.1(l)
M Citizens' Insurance 3.1(n)
N Citizens' Loans 3.1(o)
O Citizens' Material Adverse Changes 3.1(p)
P Citizens' Environmental Matters 3.1(s)
Q Bancshares Tax Matters 3.2(i)
</TABLE>
iv
<PAGE> 101
JUNE 27, 2000
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") made and
entered into as of the 27th day of June, 2000 by and among First Community
Bancshares, Inc., a Nevada corporation ("Bancshares"), First Community Bank, N.
A., a national association ("FCB"), and Citizens Southern Bank, Inc., a banking
corporation incorporated under the laws of West Virginia ("Citizens"), recites
and provides:
A. The Boards of Directors of Bancshares, FCB and Citizens deem it
advisable to merge Citizens into FCB pursuant to this Agreement and the Plan of
Merger attached as Exhibit A (the "Plan of Merger") whereby the holders of
shares of common stock of Citizens ("Citizens Common Stock") will receive common
stock of First Community Bancshares, Inc. ("Bancshares Common Stock") in
exchange therefor.
B. To effectuate the foregoing, the parties desire to adopt a plan of
reorganization in accordance with the provisions of Section 368(a) of the United
States Internal Revenue Code, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual benefits to be derived from
this Agreement, and of the representations, warranties, conditions and promises
herein contained, FCB and Citizens adopt this Agreement whereby at the
"Effective Time of the Merger" (as defined in Article VI hereof) Citizens shall
be merged into FCB in accordance with the Plan of Merger. The outstanding shares
of Citizens Common Stock shall be exchanged for shares of Bancshares Common
Stock on the basis, terms and conditions contained herein and in the Plan of
Merger. In connection therewith, the parties hereto agree as follows:
ARTICLE I
GENERAL
1.1 Merger. Subject to the provisions of this Agreement, at the Effective
Time of the Merger, Citizens shall be merged with and into FCB and the separate
existence of Citizens shall cease. FCB shall continue to conduct all of the
business of Citizens.
1.2 Issuance of Bancshares Common Stock. At the Effective Time of the
Merger, Bancshares will issue shares of its Common Stock of the same class and
standing as is presently issued and outstanding to the extent set forth in, and
in accordance with, the terms of this Agreement and the Plan of Merger.
1.3 Taking of Necessary Action. Prior to and after the Effective Time of
the Merger (as defined in Article VI hereof), subject to the provisions of this
Agreement, FCB, Bancshares, and Citizens, respectively, each shall take all such
action as may be necessary or appropriate to effect the Merger.
ARTICLE II
EFFECT OF MERGER ON COMMON STOCK OF CITIZENS
2.1 Conversion of Stock. At the Effective Time of the Merger.
(a) Each share of Citizens Common Stock which is issued and
outstanding at the Effective Time of the Merger shall, and without any
action by the holder thereof, be converted into the right
A-1
<PAGE> 102
to receive a number of shares of Bancshares Common Stock equal to 1.74
shares for each share of Citizens, for a total of 435,000 shares of
Bancshares common stock to be exchanged for 100% of Citizens common stock
outstanding. All such shares of Bancshares Common Stock shall be validly
issued, fully paid and nonassessable.
(b) In the event that Bancshares changes the number of shares of
Bancshares Common Stock issued and outstanding prior to the Effective Time
as a result of a stock split, stock dividend or other similar
recapitalization, and the record date thereof (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or
similar recapitalization for which a record date is not established) shall
be prior to the Effective Time, the exchange ratio provided for in Section
2.1(a) shall be proportionately adjusted.
2.2 Manner of Exchange. (a) After the Effective Time of the Merger, each
holder of a certificate theretofore evidencing outstanding shares of Citizens
Common Stock, upon surrender of such certificate to the Trust & Financial
Services Division of First Community Bank, N. A., which shall act as exchange
agent, accompanied by a Letter of Transmittal, shall be entitled to receive in
exchange therefor a certificate or certificates representing the number of full
shares of Bancshares Common Stock for which shares of Citizens Common Stock
theretofore represented by the certificate or certificates so surrendered shall
have been exchanged as provided in this Article II. Until so surrendered, each
outstanding Citizens certificate which, prior to the Effective Time of the
Merger, represented Citizens Common Stock will be deemed to evidence the right
to receive the number of shares of Bancshares Common Stock into which the shares
of Citizens Common Stock represented thereby have been converted.
(b) Until such outstanding certificates formerly representing Citizens
Common Stock are surrendered, no dividend payable to holders of record of
Bancshares Common Stock for any period as of any date subsequent to the
Effective Time of the Merger shall be paid to the holder of such
outstanding certificates in respect thereof. After the Effective Time of
the Merger, there shall be no further registry of transfers on the records
of Citizens of shares of Citizens Common Stock. Upon surrender of
certificates of Citizens Common Stock in exchange for Bancshares Common
Stock, there shall be paid to the record holder of the certificates of
Bancshares Common Stock issued in exchange therefor (i) the amount of
dividends theretofore paid with respect to such full shares of Bancshares
Common Stock as of any date subsequent to the Effective Time of the Merger
which have not yet been paid to a public official pursuant to abandoned
property laws; and (ii) at the appropriate payment date the amount of
dividends with a record date after the Effective Time of the Merger but
prior to surrender and a payment date subsequent to surrender. No interest
shall be payable with respect to such dividends upon surrender of
outstanding certificates.
2.3 No Fractional Shares. No certificates or scrip for fractional shares
of Bancshares Common Stock will be issued. In lieu thereof, Bancshares will pay
the value of such fractional shares in cash in an amount equal to such fraction
of a share multiplied by the average of the bid and ask price of Bancshares
Common Stock at the Effective Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Citizens. Citizens represents and
warrants to FCB and Bancshares as follows:
(a) Organization, Standing and Power. Citizens is a corporation duly
organized, validly existing and in good standing under the laws of West
Virginia and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being
A-2
<PAGE> 103
conducted and, subject to the approval of the Plan of Merger by the
shareholders of Citizens as contemplated by Section 4.2, to perform this
Agreement to effect the transactions contemplated hereby. Citizens has
delivered to FCB complete and correct copies of (A) the Articles of
Incorporation of Citizens and all amendments thereto to the date hereof;
and (B) the Bylaws of Citizens as amended to the date hereof, which are
attached hereto as Schedule A and Schedule B, respectively. Citizens'
deposits are insured by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation to the maximum extent permitted by law.
(b) Capital Structure. The authorized capital stock of Citizens
consists of 499,999 shares of common stock, par value $10.00 per share, of
which 250,000 shares are issued and outstanding. As of the Effective Time
of the Merger, the issued and outstanding shares of Citizens Common Stock
will be validly issued, fully paid and nonassessable, except as provided in
W. Va. Code sec. 31A-4-12. Except as disclosed on Schedule G, Citizens
knows of no person who beneficially owns 5% or more of the outstanding
Citizens Common Stock.
(c) Authority. Subject to the approval of the Plan of Merger by the
shareholders of Citizens as contemplated by Section 4.2 hereof, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and by the Plan of Merger have been duly
and validly authorized by all necessary action on the part of Citizens, and
this Agreement is a valid and binding obligation of Citizens, enforceable
in accordance with its terms. The execution and delivery of this Agreement,
the consummation of the transactions contemplated hereby and by the Plan of
Merger and compliance by Citizens with any of the provisions hereof will
not, except as noted on Schedule D, (i) conflict with or result in a breach
of any provision of its respective Articles of Incorporation or Bylaws or a
default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, debenture, mortgage, indenture, license, material agreement or other
material instrument or obligation to which Citizens is a party, by which
any of its properties or assets may be bound (except for such conflict,
breach or default, as to which requisite waivers or consent shall have been
obtained by Citizens prior to the Effective Time of the Merger or the
obtaining of which shall have been waived by FCB); or (ii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Citizens or any of its properties or assets. No consent or approval by any
governmental authority, other than compliance with applicable federal and
state corporate, securities and banking laws, and regulations of the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board")
and the West Virginia Division of Banking, is required to be obtained by
Citizens in connection with the execution and delivery by Citizens of this
Agreement or the consummation by Citizens of the transactions contemplated
hereby or by the Plan of Merger.
(d) Investments. All securities owned by Citizens of record and
beneficially are free and clear of all mortgages, liens, pledges,
encumbrances or any other restriction, whether contractual or statutory,
which would materially impair the ability of Citizens freely to dispose of
any such security at any time, except as noted on Schedule C. Any
securities owned of record by Citizens in an amount equal to 5% or more of
the issued and outstanding voting securities of the issuer thereof have
been noted on Schedule C. To the knowledge of Citizens, there are no voting
trusts or other agreements or undertakings with respect to the voting of
such securities. With respect to all repurchase agreements to which
Citizens is a party, Citizens has a valid, perfected first lien or security
interest in the government securities or other collateral securing the
repurchase agreement, and the value of the collateral securing each such
repurchase agreement equaled or exceeded the amount of the debt secured by
such collateral under such agreement as of the date of this Agreement,
except as noted on Schedule C.
(e) Financial Statements. Schedule E contains copies of the following
financial statements of Citizens (the "Citizens Financial Statements"):
A-3
<PAGE> 104
(i) balance sheets of Citizens as of December 31, 1999 and 1998 and
as of March 31, 2000.
(ii) statements of income of Citizens for each of the three years
ended December 31, 1999, 1998, and 1997 and the three month periods
ended March 31, 2000 and 1999; and
(iii) statements of changes in stockholders' equity of Citizens for
each of the three years ended December 31, 1999, 1998 and 1997 and the
three-month periods ended March 31, 2000 and 1999.
Such financial statements and the notes thereto (except for interim
statements) have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated. Each
of such statements of financial condition, together with the notes thereto,
presents fairly as of its date, the financial condition and assets and
liabilities of Citizens. Such statements of operations and statements of
stockholders' equity, together with the notes thereto, present fairly the
results of operations of Citizens for the periods indicated.
Subject to the limitations imposed by federal and state laws, and except as
disclosed in the Citizens Financial Statements, there are no restrictions
precluding Citizens from paying dividends when, as, and if declared by their
Board of Directors.
(f) Absence of Undisclosed Liabilities. At December 31, 1999 and March
31, 2000, Citizens had no obligations or liabilities (contingent or
otherwise) of any nature which were not reflected in the Citizens Financial
Statements as of such date, or disclosed in the notes thereto, except for
those which in the aggregate are immaterial or disclosed in Schedules
specifically referred to herein.
(g) Tax Matters. Citizens has filed or caused to be filed or (in the
case of returns or reports not yet due) will file all tax returns and
reports required to have been filed by or for it before the Effective Time
of the Merger, and all information set forth in such returns or reports is
or (in the case of such returns or reports not yet due) will be accurate
and complete in all material respects. Citizens has paid or made adequate
provision in all material respects for or (with respect to returns or
reports not yet filed) before the Effective Time of the Merger will pay or
make adequate provision for all taxes, additions to tax, penalties, and
interest for all periods covered by those returns or reports. Except as
disclosed on Schedule F, there are, and at the Effective Time of the Merger
will be, no unpaid taxes, additions to tax, penalties, or interest due and
payable by Citizens or by any other person that are or could become a lien
on any asset or otherwise materially adversely affect the business,
property or financial condition of Citizens. Citizens has collected or
withheld, or will collect or withhold before the Effective Time of the
Merger, all amounts required to be collected or withheld by it for any
taxes, and all such amounts have been, or before the Effective Time of the
Merger will have been, paid to the appropriate governmental agencies or set
aside in appropriate accounts for future payment when due. Citizens is in
material compliance with, and its records contain all applicable
information and documents (including, without limitation, properly
completed IRS Forms W-9) necessary to comply in all material respects with
all information reporting and tax withholding requirements under federal,
state, and local laws, rules, and regulations, and such records identify
with specificity all accounts subject to backup withholding under Section
3406 of the Code. The balance sheets contained in Citizens Financial
Statements fully and properly reflect, as of the dates thereof, the
aggregate liabilities of Citizens for all accrued taxes, additions to tax,
penalties and interest in all material respects. For periods ending after
March 31, 2000, the books and records of Citizens fully and properly
reflect its liability for all accrued taxes, additions to tax, penalties
and interest. Except as disclosed in Schedule F, Citizens has not granted
(nor is it subject to) any waiver of the period of limitations for the
assessment of tax for any currently open taxable period, no tax return or
report of Citizens is under
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examination by any taxing authority or the subject of any administrative or
judicial proceeding, and no unpaid tax deficiency has been asserted against
or with respect to it by any taxing authority. Citizens has not made or
entered into, or holds any asset subject to, a consent filed pursuant to
former Section 341(f) of the Code and the regulations thereunder or a "safe
harbor lease" subject to former Section 168(f)(8) of the Code and the
regulations thereunder. Schedule F describes all tax elections, consents
and agreements affecting Citizens. To the knowledge of Citizens, no
Citizens shareholder is a "foreign person" for purposes of Section 1445 of
the Code.
(h) Options, Warrants and Related Matters. There are no outstanding
unexercised options, warrants, calls, commitments or agreements of any
character to which Citizens is a party or by which is bound, calling for
the issuance of securities of Citizens or any security representing the
right to purchase or otherwise receive any such security.
(i) Property; Leases. Citizens owns (or enjoys use of under capital
leases) all property reflected on the Citizens' Financial Statements as of
March 31, 2000 (except personal property sold or otherwise disposed of in
the ordinary course of business). All property shown as being owned is
owned free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever. Liens for current taxes not yet due
and payable, any unfiled mechanics' liens and such encumbrances and
imperfections of title, if any, are not substantial in character or amount
nor will otherwise materially impair business operations.
Any leases relating to leased property are valid and subsisting and there
does not exist with respect to Citizens' obligations thereunder any material
default or event or condition which, after notice or lapse of time or both,
would constitute a material default thereunder. There is no condemnation
proceeding pending or, to the knowledge of Citizens, threatened which would
preclude or impair the use of any property as presently being used in the
conduct of the business of Citizens. All leases are reflected in Schedule J.
All property and assets material to the business or operations of Citizens
are in an operating condition and state of repair that is fit for their current
intended purpose and such property and assets are adequate for the business and
operations of Citizens as currently conducted.
No notice of violation of zoning laws, building or fire codes or other
statutes, ordinances or regulations relating to the operations of Citizens has
been received by Citizens.
(j) Additional Schedules Furnished to FCB. In addition to any
Schedules furnished to FCB pursuant to other provisions of this Agreement,
Citizens has previously furnished to FCB the following Schedules which are
correct and complete as of the date hereof:
(i) Employees. Schedule G lists (A) name of, current annual salary
rates for, and the number of shares of Citizens Common Stock owned
beneficially by, all present employees of Citizens; and (B) the number
of shares of Citizens Common Stock owned beneficially by each director
of Citizens.
(ii) Certain Contracts. Schedule H lists all notes, bonds,
mortgages, indentures, licenses, lease agreements and other contracts
and obligations to which Citizens is a party, except for those entered
into by Citizens in the ordinary course of their respective businesses
consistent with their prior practices and that do not involve an amount
greater than $10,000.
(iii) Employment Contracts and Related Matters. Except in all cases
as set forth in Schedule I, Citizens is not a party to (A) any
employment contract not terminable at the option of Citizens without
liability; (B) any retirement, stock option, profit sharing or pension
plan or thrift plan or agreement or employee benefit plan (as defined in
Section 3 of the Employee
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Retirement Income Security Act of 1974); (c) any management or
consulting agreement not terminable at the option of Citizens without
liability; or (D) any union or labor agreement.
(iv) Real Estate. Schedule J describes all interests in real
property owned, leased or otherwise claimed by Citizens, including
"other real estate owned."
(k) Agreements in Force and Effect. All material contracts,
agreements, plans, leases, policies and licenses referred to in any
Schedule of Citizens referred to herein are valid and in full force and
effect, and Citizens has not breached any material provision of, nor is in
default in any material respect under the terms of, any such contract,
agreement, lease, policy or license.
(l) Legal Proceedings; Compliance with Laws. Except as set forth in
Schedule L, there is no legal, administrative, arbitration or other
proceeding or governmental investigation pending (including any legal,
administrative, arbitration or other proceeding or governmental
investigation pending involving a violation of federal antitrust laws), or,
to the knowledge of Citizens' management, threatened or probable of
assertion, which might result in money damages payable by Citizens in
excess of insurance coverage, which might result in a permanent injunction
against Citizens, which might result in a change in the zoning or building
ordinances materially affecting the property or leasehold interests of
Citizens, or which otherwise, either individually or in the aggregate, is
likely to have a material adverse affect on the financial condition of
Citizens. Except as set forth in Schedule L, Citizens has complied in all
material respects with any laws, ordinances, requirements, regulations or
orders applicable to its respective business (including environmental laws,
ordinances, requirements, regulations or orders). Citizens has all
licenses, permits, orders or approvals of any federal, state, local or
foreign governmental or regulatory body (collectively, "Permits") that are
material to or necessary for the conduct of the business of Citizens; the
Permits are in full force and effect; no violations are or have been
recorded in respect of any Permits, nor has Citizens received notice of any
such violation; and no proceeding is pending or, to the knowledge of
Citizens, threatened or probable of assertion to revise, revoke or limit
any Permit. Except as set forth in Schedule L, Citizens is not a party to
any currently effective agreements or written understandings with the
Federal Reserve Board, the FDIC, the Division or any other regulatory
authority, except for a Memorandum of Understanding issued by the FDIC
dated March 1, 2000. Citizens and its directors represent and certify in
Schedule L that such Memorandum of Understanding will be of no force with
respect to Bancshares or FCB following the merger in accordance with
correspondence between representatives of Citizens and the FDIC. Citizens
is not subject to any judgment, order, writ, injunction or decree which
materially adversely affects, or might reasonably be expected to materially
adversely affect, the condition (financial or otherwise) or business of
Citizens or the ability to fulfill the respective obligations pursuant to
this Agreement.
(m) Employee Benefit Plans.
(i) Schedule I includes a correct and complete list of, and FCB has
been furnished a true and correct copy of, (A) all qualified pension and
profit-sharing plans, all deferred compensation, consultant, severance,
thrift, option, bonus and group insurance contracts and all other
incentive, welfare and employee benefit plans, trust, annuity or other
funding agreements, and all other agreements that are presently in
effect, or have been approved prior to the date hereof, for the benefit
of employees or former employees of Citizens, or the dependents or
beneficiaries of any employee or former employee of Citizens, whether or
not subject to ERISA (the "Employee Plans"); (B) the most recent
actuarial and financial reports prepared or required to be prepared with
respect to any Employee Plan; and (C) the most recent annual reports
filed with any governmental agency, the most recent favorable
determination letter issued by the Internal Revenue Service, and any
open requests for rulings or determination
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letters, that pertain to any such qualified Employee Plan. Schedule I
identifies each Employee Plan that is intended to be qualified under
Section 401(a) of the Code. With respect to each Employee Plan so
identified and except as set forth in Schedule I, the IRS has issued
favorable determination letters to such plans to the effect that the
forms of such plans (or predecessor plans) satisfy the requirements of
Code Section 401(a) and for all years subsequent to the establishment of
the plans and up to the Effective Time of the Merger, and with respect
to which Citizens' tax returns and the plans' returns on Form 5500 are
open to audit, to Citizens' knowledge the plans have satisfied, in form
and operation, the qualification requirements of Section 401(a) of the
Code, and no action that has been taken or not taken with respect to the
plans subsequent to such date has had or is reasonably expected to have
any adverse impact on the continued qualification of the plans through
the Effective Time of the Merger. The IRS has not revoked any letter of
determination or opinion letter to which reference is made above, nor
has the IRS threatened any such revocation.
(ii) Neither Citizens nor any employee pension benefit plan (as
defined in Section 3(2) of ERISA Ia "Pension Plan"J) maintained or
previously maintained by it, has incurred any material liability to the
Pension Benefit Guaranty Corporation ("PBGC") or to the Internal Revenue
Service with respect to any Pension Plan. There is not currently pending
with the PBGC any filing with respect to any reportable event under
Section 4043 of ERISA nor has any reportable event occurred as to which
a filing is required and has not been made.
(iii) Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior
to the Closing Date under the terms of each Employee Plan. No
accumulated funding deficiency (as defined in Section 302 of ERISA or
Section 412 of the Code) whether or not waived, exists with respect to
any Pension Plan (including any Pension Plan previously maintained by
Citizens). There is no "unfunded current liability" (as defined in
Section 412 of the Code) with respect to any Pension Plan.
(iv) No Employee Plan is a "multi-employer plan" (as defined in
Section 3(37) of ERISA). Citizens has not participated in or agreed to
participate in, a multi-employer plan (as defined in Section 3(37) of
ERISA).
(v) All Employee Plans that are "employee benefit plans," as
defined in Section 3(3) of ERISA, that are maintained by or were
previously maintained by Citizens comply and have been administered in
compliance in all material respects with ERISA and all other legal
requirements, including the terms of such plans, collective bargaining
agreements and securities laws. Citizens has no material liability under
any such plans that are not reflected in Citizens Financial Statements.
(vi) No prohibited transaction has occurred with respect to any
Employee Plan that is an "employee benefit plan" (as defined in Section
3(3) of ERISA) maintained by Citizens or any "employee benefit plan"
previously maintained by Citizens that would result, directly or
indirectly, in material liability under ERISA or in the imposition of a
material excise tax under Section 4975 of the Code.
(vii) Schedule I identifies each Employee Plan that is an "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA) and which is
funded. The funding under each such plan does not exceed the limitations
under Section 419A(b) or 419A(c) of the Code. Citizens is not subject to
taxation on the income of any such plan or any such plan previously
maintained by Citizens.
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(viii) Schedule I identifies the funding (including any individual
accounting) for all post-retirement medical or life insurance benefits
for the employees of Citizens. Schedule I also discloses the funded
status of these Employee Plans.
(n) Insurance. All policies or binders of fire, liability, product
liability, workmen's compensation, vehicular and other insurance held by or
on behalf of Citizens are described on Schedule M and are valid and
enforceable in accordance with their terms, are in full force and effect,
and insure against risks and liabilities to the extent and in the manner
customary for the industry and are deemed appropriate and sufficient by
Citizens. Citizens is not in default with respect to any provision
contained in any such policy or binder and has not failed to give any
notice or present any claim under any such policy or binder in due and
timely fashion. Citizens has not received notice of cancellation or
non-renewal of any such policy or binder. Citizens has no knowledge of any
inaccuracy in any application for such policies or binders, any failure to
pay premiums when due or any similar state of facts that might form the
basis for termination of any such insurance. Citizens has no knowledge of
any state of facts or of the occurrence of any event that is reasonably
likely to form the basis for any material claim against it not fully
covered (except to the extent of any applicable deductible) by the policies
or binders referred to above. Citizens has not received notice from any of
its respective insurance carriers that any insurance premiums will be
materially increased in the future or that any such insurance coverage will
not be available in the future on substantially the same terms as now in
effect.
(o) Loan Portfolio. Each loan outstanding on the books of Citizens is
reflected correctly in all material respects by the loan documentation, was
made in the ordinary course of business, was not known to be uncollectible
at the time it was made, and was made in accordance with Citizens' standard
loan policies in effect at the time the loans were made. The records of
Citizens regarding all loans outstanding on its books are accurate in all
material respects. The reserves for possible loan losses on the outstanding
loans of Citizens and the reserves for other real estate owned by Citizens
as reflected in the Citizens Financial Statements, have been established in
accordance with generally accepted accounting principles and with the
requirements of the Division and the Federal Deposit Insurance Corporation,
and in the best judgment of the management of Citizens, are adequate to
absorb all material known and anticipated loan losses in the loan portfolio
of Citizens, and any losses associated with other real estate owned or held
by Citizens. Except as identified in Schedule N, no loan with a principal
balance in excess of $50,000 has been classified as of the date hereof by
Citizens or regulatory examiners as "Other Loans Specifically Mentioned,"
"Substandard," "Doubtful" or "Loss." Except as identified in Schedule N,
each loan reflected as an asset on Citizens' balance sheets is, to the
knowledge of Citizens, the legal, valid and binding obligation of the
obligor and any guarantor, subject to bankruptcy, insolvency, fraudulent
conveyance and other laws of general applicability relating to or affecting
creditor's rights and to general equity principles, and no defense, offset
or counterclaim has been asserted with respect to any such loan which if
successful would have a material adverse effect on the financial condition,
results of operations or business of Citizens.
(p) Absence of Changes. Except as set forth in Schedule O, since
December 31, 1999, there has not been any material adverse change in the
condition (financial or otherwise), of aggregate assets or liabilities, or
in the earnings or business of Citizens. Since such date the business of
Citizens has been conducted only in the ordinary course.
(q) Brokers and Finders. Citizens has employed the firm of Baxter
Fentriss and Company, Richmond, Virginia, ("Financial Advisor") as broker
on this transaction under Agreement dated January 10, 2000, which provides
for payment of an advisory fee of $7,500 and a success fee of 1.25% of the
aggregate consideration in any transaction (less the $7,500 advisory fee).
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(r) Reports. For the past five years, Citizens has filed all reports
and statements, together with any amendments required to be made with
respect thereto, that were required to be filed with (i) the FDIC; (ii) the
Division; and (iii) any other governmental or regulatory authority or
agency having jurisdiction over its operations. None of such reports or
statements, or any amendments thereto, contains any statement which, at the
time and in the light of the circumstances under which it was made, was
false or misleading with respect to any material fact necessary in order to
make the statements contained therein not false or misleading.
(s) Environmental Matters. For purposes of this subsection, the
following terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any governmental
entity relating to (i) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, producing, release or disposal of Hazardous Substances. The term
"Environmental Law" includes without limitation (I) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended 42 U.S.C.
sec. 9601, et seq; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. sec. 6901, et seq; the Clean Air Act, as amended, 42 U.S.C. sec. 7401, et
seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C. sec. 1251,
et seq; the Toxic Substances Control Act, as amended, 15 U.S.C. sec. 9601, et
seq; the Emergency Planning and Community Right to Know Act, 42 U.S.C. sec.
1101, et seq; the Safe Drinking Water Act, 42 U.S.C. sec. 300f, et seq; and all
comparable state and local laws; and (ii) any common law (including without
limitation common law that may impose strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any material containing any such substance as a component.
Hazardous Substances include without limitation petroleum or any derivative or
by-product thereof, asbestos, radioactive material, and polychlorinated
biphenyls.
"Loan Portfolio Properties and Other Properties Owned" means those
properties owned or operated by Citizens, including those properties serving as
collateral for any loans made by Citizens.
To the knowledge of Citizens, except as set forth in Schedule P,
(i) Citizens has not been and is not currently in violation of or
liable in any material respect under any Environmental Law;
(ii) none of the Loan Portfolio Properties and Other Properties
Owned has been or is in violation of or liable in any material respect
under any Environmental Law; and
(iii) there are no actions, suits, demands, notices, claims,
investigations or proceedings pending or threatened relating to the
liability of the Loan Portfolio Properties and Other Properties Owned
under any Environmental Law, including without limitation any notices,
demand letters or requests for information from any federal or state
environmental agency relating to any such liabilities under or
violations of Environmental Law, except for such violations and
liabilities, and actions, suits, demands, notices, claims,
investigations or proceedings, which would not individually or in the
aggregate have a material adverse effect on the financial condition,
results of operations or business of Citizens.
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(t) Community Reinvestment Act. Citizens has no reason to believe that
the transactions contemplated by this Agreement will not be approved by all
required regulatory authorities for reasons related to compliance by
Citizens with the Community Reinvestment Act of 1977 (12 U.S.C. sec. 2901,
et seq) ("CRA"). Citizens received at least a "satisfactory" CRA rating as
of its last CRA examination and has no reason to believe that its CRA
rating will be downgraded on or before the Closing Date.
(u) Disclosure. Except to the extent of any subsequent correction or
supplement with respect thereto furnished prior to the date hereof, all
written statements, certificates, schedules, lists and other written
information furnished by or on behalf of Citizens at any time to FCB in
connection with this Agreement are true and correct in all material
respects. Each document delivered or to be delivered by Citizens to FCB is
or will be a true and complete copy of such document, unmodified except by
another document delivered by Citizens.
3.2 Representations and Warranties of FCB and Bancshares. FCB and
Bancshares, to the extent applicable, represent and warrant to Citizens as
follows:
(a) Organization, Standing and Power. (i) Bancshares is a corporation
duly organized, validly existing and in good standing under the laws of
Nevada and has all requisite corporate power and authority to own, lease
and operate its properties, to effect the Merger and to carry on its
business as now being conducted. Bancshares has delivered to Citizens
complete and correct copies of (A) the Articles of Incorporation of
Bancshares and all amendments thereto to the date hereof, and (B) the
Bylaws of Bancshares as amended to the date hereof.
(ii) FCB is a national association duly organized, validly existing
and in good standing under the laws of the United States of America and
has all requisite corporate authority to own, lease and operate its
properties, to effect the Merger and to carry on its business as now
being conducted. FCB has delivered to Citizens complete and correct
copies of (A) the Articles of Association of FCB and all amendments
thereto to the date hereof, and (B) the Bylaws of FCB as amended to the
date hereof.
(b) Capital Structure. As of March 31, 2000, the authorized capital
stock of Bancshares consisted of 10,000,000 shares of common stock, par
value $1.00 per share, of which 8,991,586 shares of common stock were
issued, with 8,726,836 such shares outstanding and 264,750 such shares held
in treasury. All of such issued and outstanding shares of common stock were
validly issued, fully paid and nonassessable at such date and all of such
shares issued since March 31, 2000, were issued in all material respects in
compliance with the Securities Act of 1933, as amended.
Bancshares owns all of the issued and outstanding common stock of FCB free
and clear of any liens, claims, encumbrances, charges or rights of third parties
of any kind whatsoever.
(c) Authority. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action on the part of FCB and
Bancshares, and this Agreement is a valid and binding obligation of FCB and
Bancshares, the consummation of the transactions contemplated hereby and
compliance by FCB and Bancshares with any of the provisions hereof will not
(i) conflict with or result in a breach of any provision of FCB's or
Bancshares' respective Articles of Association or Incorporation, or either
of their respective Bylaws or a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement or other instrument or to which FCB or Bancshares is a party, or
by which either of them or any of their properties or assets may be bound;
or (ii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to FCB or Bancshares or any of their
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properties or assets. No consent or approval by any government authority,
other than compliance with applicable federal and state corporate,
securities and banking laws, and regulations of the Office of the
Comptroller of the Currency and the Federal Reserve Board, is required in
connection with the execution and delivery by FCB or Bancshares of this
Agreement or the consummation by FCB and Bancshares of the Merger, or the
Plan of Merger.
(d) Financial Statements. Bancshares has delivered to Citizens copies
of the following financial statements of Bancshares (the "Bancshares
Financial Statements"):
(i) Consolidated Balance Sheets as of December 31, 1999 and 1998
and as of March 31, 2000;
(ii) Consolidated Statements of Income of Bancshares for each of
the three years ended December 31, 1999, 1998, and 1997 and the three
months ended March 31, 2000 and 1999;
(iii) Consolidated Statements of Changes in Stockholders' Equity of
Bancshares for each of the three years ended December 31, 1999, 1998 and
1997.
(iv) Consolidated Statements of Cash Flows of Bancshares for each
of the three years ended December 31, 1999, 1998 and 1997.
Such consolidated financial statements and the notes thereto have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated. Each of such consolidated
balance sheets, together with the notes thereto, presents fairly as of its date
the financial condition and assets and liabilities of Bancshares. The
consolidated statements of income, statements of changes in stockholders' equity
and statements of cash flows, together with the notes thereto, present fairly
the results of operations of Bancshares and its consolidated subsidiary for the
periods indicated.
(e) Absence of Undisclosed Liabilities. At December 31, 1999 and March
31, 2000, Bancshares and its consolidated subsidiaries had no material
liabilities of any nature which were not reflected on the Bancshares
Financial Statements or disclosed in the notes thereto at such date, except
for those which individually or in the aggregate are immaterial.
(f) Absence of Changes. Since December 31, 1999, there has not been
any material adverse change in the condition (financial or otherwise), of
aggregate assets or liabilities, or in the earnings or business of
Bancshares as reflected on its consolidated financial statements as of such
date and for the year then ended.
(g) Brokers and Finders. Neither FCB or Bancshares nor any of its
officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the Merger.
(h) Reports. Since its date of organization, Bancshares has filed all
reports and statements, together with any amendments required to be made
with respect thereto, that were required to be filed with (i) the SEC; (ii)
the Federal Reserve Board; (iii) the FDIC; (iv) the Division; and (v) any
other governmental or regulatory authority or agency having jurisdiction
over their operations. Each of such reports and documents, including the
financial statements, exhibits and schedules thereto, which was filed with
the SEC was in form and substance in compliance with the 1933 Act or the
1934 Act, as the case may be. No such report or statement, or any
amendments thereto, contains any statement which, at the time and in the
light of the circumstances under which it was made, was false or misleading
with respect to any material fact necessary in order to make the statements
contained therein not false or misleading.
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(i) Tax Matters. Bancshares has filed or caused to be filed or (in the
case of returns of reports not yet due) will file all tax returns and
reports required to have been filed by or for it before the Effective Time
of the Merger, and all information set forth in such returns or reports is
or (in the case of such returns or reports not yet due) will be accurate
and complete in all material respects. Bancshares has paid or made adequate
provision in all material respects for or (with respect to returns or
reports not yet filed) before the Effective Time of the Merger will pay or
make adequate provision for all taxes, additions to tax, penalties, and
interest for all periods covered by those returns or reports. Except as
disclosed in Schedule Q, at the Effective Time of the Merger there will be
no unpaid taxes, additions to tax, penalties, or interest due and payable
by Bancshares or by any other person that are or could become a lien on any
asset or otherwise adversely affect the business, property or financial
condition of Bancshares. The consolidated balance sheets of Bancshares
fully and properly reflect, as of the dates thereof, the aggregate
liabilities for all accrued taxes, additions to tax, penalties and interest
in all material respects. Except as disclosed in Schedule Q, no tax return
or report of Bancshares is under examination by any taxing authority or the
subject of any administrative or judicial proceeding, and no unpaid tax
deficiency has been asserted against Bancshares by any taxing authority.
(j) Property; Leases. Bancshares owns (or enjoys use of under capital
leases) all property reflected on its financial statements as of December
31, 1999 (except property sold or otherwise disposed of in the ordinary
course of business). All property shown as being owned is owned free and
clear of all mortgages, liens, pledges, charges or encumbrances of any
nature whatsoever, except those referred to in the notes to the financial
statements. Liens for current taxes not yet due and payable, any unfiled
mechanics' liens and such encumbrances and imperfections of title, if any,
are not substantial in character or amount nor will otherwise materially
impair business operations.
(k) Legal Proceedings; Compliance with Laws. There is no legal,
administrative, arbitration or other proceeding or governmental
investigation pending (including any legal, administrative, arbitration or
other proceeding or governmental investigation pending involving a
violation of the federal antitrust laws), or, to the knowledge of
Bancshares, threatened or probable of assertion, which might result in
money damages payable by Bancshares in excess of insurance coverage, which
might result in a permanent injunction against Bancshares, which might
result in a change in the zoning or building ordinances materially
affecting the property or leasehold interests of Bancshares, or which
otherwise, either individually or in the aggregate, is likely to have a
material adverse affect on the financial condition of Bancshares.
Bancshares has complied in all material respects with any laws, ordinances,
requirements, regulations or orders applicable to its respective business
(including environmental laws, ordinances, requirements, regulations or
orders). Bancshares has all licenses, permits, orders or approvals of any
federal, state, local or foreign governmental or regulatory body that are
material to or necessary for the conduct of its business. All of such
Permits are in full force and effect; no violations are or have been
recorded in respect of any Permits. Bancshares has not entered into any
agreements or written understandings with the Federal Reserve Board, the
FDIC, or any other regulatory authority. Bancshares is not subject to any
judgment, order, writ, injunction or decree which materially adversely
affects, or might reasonably be expected to materially adversely affect,
the condition (financial or otherwise) or business of Bancshares or its
ability to fulfill the respective obligations pursuant to this Agreement.
(l) Employee Benefit Plans. Neither Bancshares nor any employee
pension benefit plan (as defined in Section 3(2) of ERISA) maintained or
previously maintained by it, has incurred any material liability to the
PBGC or to the Internal Revenue Service. There is not currently pending
with the PBGC any filing with respect to any reportable event under Section
4043 of ERISA nor has any reportable event occurred as to which a filing is
required and has not been made. Full payment has been made (or proper
accruals have been established) of all contributions which are
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required for periods prior to the Closing Date under the terms of each
Employee Plan, ERISA or a collective bargaining agreement of Bancshares. No
accumulated funding deficiency (as defined in Section 302 of ERISA or
Section 412 of the Code) whether or not waived, exists with respect to any
Pension Plan of Bancshares. There is no "unfunded current liability" (as
defined in Section 412 of the Code) with respect to any Pension Plan of
Bancshares.
(m) Loan Portfolio. Each loan outstanding on the books of Bancshares
or any Bancshares subsidiaries is reflected correctly in all material
respects by the loan documentation, was made in the ordinary course of
business, was not known to be uncollectible at the time it was made, and
was made in accordance with standard loan policies in effect at the time
the loans were made. The reserves for possible loan losses on such loans
and the reserves for other real estate owned by Bancshares or any
Bancshares subsidiary have been established in accordance with generally
accepted accounting principles and with the requirements of the FDIC, or
any other regulatory authority and, in the best judgment of the management
of Bancshares, are adequate to absorb all material known and anticipated
loan losses in the loan portfolio of Bancshares, and any losses associated
with other real estate owned or held by Bancshares and its subsidiary.
(n) Environmental Matters. There are no actions, suits, demands,
notices, claims, investigations or proceedings pending or threatened
relating to the liability under any Environmental Law (as defined in
Section (s)(iii) of Article III) including, without limitation, any
notices, demand letters or requests for information from any federal or
state environmental agency relating to any such liabilities under or
violations of Environmental Law, except for such violations and
liabilities, and actions, suits, demands, notices, claims, investigations
or proceedings, which would not individually or in the aggregate have a
material adverse effect on the financial condition, results of operations
or business of Bancshares.
(o) Community Reinvestment Act. Bancshares has no reason to believe
that the transactions contemplated by this Agreement will not be approved
by all required regulatory authorities for reasons related to compliance
with the CRA. The subsidiary of Bancshares received a "satisfactory" CRA
rating as of its last CRA examination and Bancshares has no reason to
believe that its CRA rating will be downgraded on or before the Closing
Date.
(p) Disclosure. Except to the extent of any subsequent correction or
supplement with respect thereto furnished prior to the date hereof, all
written statements, certificates, schedules, lists and other written
information furnished by or on behalf of FCB at any time to Citizens in
connection with this Agreement are true and correct in all material
respects. Each document delivered or to be delivered by FCB to Citizens is
or will be a true and complete copy of such document, unmodified except by
another document delivered by FCB.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME OF MERGER
4.1. Access to Records and Properties of FCB and Citizens. Between the
date of this Agreement and the Effective Time of the Merger, FCB and Citizens
each agree to give to the other reasonable access to all its premises and books
and records and to cause its officers to furnish the other with such financial
and operating data and other information with respect to the business and
properties as the other shall from time to time request for the purposes of
verifying the warranties and representations set forth herein, preparing the
Registration Statement (as defined in Section 4.2) and applicable regulatory
filings and preparing consolidated financial statements of Citizens as of a date
prior to the Effective Time of the Merger in order to facilitate FCB in
performance of its post-Closing Date financial reporting
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requirements; provided, that any such investigation shall be conducted in such
manner as not to interfere unreasonably with the operation of the respective
business of the other. FCB, Bancshares and Citizens shall each maintain the
confidentiality of all information furnished to them by the other parties hereto
concerning the business, operations, and financial condition of the party
furnishing such information, and shall not use any such information except in
furtherance of the Merger. If this Agreement is terminated, each party hereto
shall promptly return all documents and copies of, and all work papers received
from the other party hereto. The obligations of confidentiality under this
Section 4.1 shall survive any such termination of this Agreement and shall
remain in effect, except to the extent that (a) one party shall have directly or
indirectly acquired the assets and business of the other party; (b) as to any
particular confidential information with respect to one party, such information
(i) shall become generally available to the public other than as a result of an
unauthorized disclosure by the other party or (ii) was available to the other
party on a nonconfidential basis or regulatory authority prior to its disclosure
by the first party; or (c) disclosure by any party is required by subpoena or
order of a court of competent jurisdiction.
4.2 Registration Statement; Proxy Statement; Shareholder
Approval. Citizens will duly call and will hold a meeting of its shareholders as
soon as practicable for the purpose of approving the Merger and in connection
therewith will recommend to shareholders that they vote in favor of the Merger,
except as in the case of a Superior Offer, as defined in Section 4.4. Citizens
will comply fully with the provisions of Section 31-1-117 of the West Virginia
Code, the 1933 Act and the 1934 Act and the rules and regulations of the SEC
under such acts, and the Articles of Incorporation and Bylaws of Citizens
relating to the call and holding of a meeting of shareholders for such purpose.
Bancshares and Citizens will jointly prepare the proxy statement-prospectus to
be used in connection with such meeting (the "Proxy Statement-Prospectus") and
Bancshares will prepare and file with the SEC a Registration Statement on Form
S-4 (the "Registration Statement"), of which such Proxy Statement-Prospectus
shall be a part, and use its best efforts promptly to have the Registration
Statement declared effective. In connection with the foregoing, Bancshares will
comply with the requirements of the 1933 Act and the 1934 Act and the rules and
regulations of the SEC under such Acts with respect to the offering and sale of
Bancshares Common Stock in connection with the Merger and with all applicable
state Blue Sky and securities laws. The notices of such meetings and the Proxy
Statement-Prospectus shall not be mailed to Citizens shareholders until the
Registration Statement shall have become effective under the 1933 Act. Citizens
covenants that none of the information supplied by Citizens, and Bancshares
covenants that none of the information supplied by Bancshares, for inclusion in
the Proxy Statement-Prospectus will, at the time of the mailing of the Proxy
Statement-Prospectus to Citizens shareholders, contain any untrue statements of
a material fact nor will any such information omit any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they were made, not misleading; and at all times
subsequent to the time of the mailing of the Proxy Statement-Prospectus,
including the date of the meeting of Citizens shareholders to which the
statement relates and the Effective Time of the Merger, none of such information
in the Proxy Statement-Prospectus, as amended or supplemented, will contain an
untrue statement of a material fact or omit any material fact required to be
stated therein in order to make the statements therein, in light of the
circumstances in which they were made, not misleading.
4.3 Operation of the Business of Citizens. Citizens agrees that from the
date hereof to the Effective Time of the Merger, it will operate its business
substantially as presently operated and only in the ordinary course, and,
consistent with such operation, it will use its best efforts to preserve intact
its present business organization and relationships with persons having business
dealings with it. Without limiting the generality of the foregoing, Citizens
agrees that it will not, without the prior written consent of FCB, unless
consistent with past practices and in the ordinary course of business (i) make
any material change in the compensation or title of any executive officer; (ii)
make any material change in the compensation or title of any other employee,
other than those permitted by current employment
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policies in the ordinary course of business, any of which changes shall be
promptly reported to FCB; (iii) enter into any new bonus, incentive
compensation, deferred compensation, profit sharing, thrift, retirement,
pension, group insurance or other benefit plan (except as otherwise specifically
contemplated in this Agreement), or any other employment or consulting agreement
or amend any such plan or agreement to increase the benefits accruing or payable
thereunder; (iv) create or otherwise become liable with respect to any
indebtedness for money borrowed or purchase money indebtedness except in the
ordinary course of business; (v) amend Citizens' Articles of Incorporation, or
its Bylaws except as may be necessary to consummate the Merger; (vi) issue or
contract to issue any shares of Citizens capital stock or securities
exchangeable for or convertible into capital stock; (vii) purchase any shares of
Citizens capital stock; (viii) enter into or assume any material contract or
obligation, except in the ordinary course of business; (ix) waive any right of
substantial value; (x) propose or take any other action which would make any
representation or warranty in Section 3.1 hereof untrue; (xi) change securities
portfolio policies; (xii) enter into any new agreement, amendment or endorsement
or make any changes relating to insurance coverage, including coverage for its
directors and officers, which would result in an additional payment obligation
of $10,000 or more; (xiii) pay any dividend; or (xiv) propose or take action
with respect to the closing of any branches. Citizens further agrees that,
between the date of this Agreement and the Effective time of the Merger, they
will consult and cooperate with FCB regarding (a) loan portfolio management,
including management and workout of nonperforming assets, and credit review and
approval procedures, and (b) securities portfolio and funds management,
including management of interest rate risk.
4.4 No Solicitation. Unless and until this Agreement shall have been
terminated pursuant to its terms, neither Citizens nor any of its respective
officers, directors, representatives, agents or affiliates shall, directly or
indirectly, encourage, solicit or initiate discussions or negotiations (with any
person or entity other than FCB) concerning any merger, sale of substantial
assets, tender offer, sale of shares of stock or similar transaction involving
Citizens or disclose, directly or indirectly, any information not customarily
disclosed to the public concerning Citizens, afford to any other person access
to the properties, books or records of Citizens or otherwise assist any person
preparing to make or who has made such an offer, or enter into any agreement
with any third party providing for a business combination transaction, equity
investment or sale of a significant amount of assets. Citizens will promptly
communicate to FCB the terms of any proposal which either of them may receive in
respect to any of the foregoing transactions; provided, however, that this
Section 4.4 shall not apply to furnishing information or to participating in
negotiations or discussions with any person that has made, or that the Citizens'
Board of Directors determined in good faith is reasonably likely to make, a
Superior Offer, if the Citizens' Board of Directors determines in good faith,
after consultation with outside legal counsel, that its failure to take such
actions would constitute a breach of its fiduciary duty to Citizens'
shareholders. For purposes of this Agreement, "Superior Offer" shall mean a
proposal or offer to acquire or purchase all or a substantial portion of the
assets of or a substantial equity interest in, or to effect any
recapitalization, liquidation or dissolution involving, or a business
combination or other similar transactions with, Citizens (including, but not
limited to, a tender offer or exchange offer to purchase Citizens' Common Stock)
other than as contemplated by this Agreement: (i) that did not arise from or
involve a breach or violation by Citizens of any provision of this Agreement;
(ii) was not solicited by Citizens or anyone acting on its behalf; (iii) that
the Citizens' Board of Directors determines in its good-faith judgment, based,
among other things, on the advice of its Financial Advisor, to be materially
more favorable to the Citizens' shareholders and the Merger; and (iv) the
financing for the implementation of which, to the extent required, is then
committed or in the good-faith reasonable judgment of the Citizens' Board of
Directors, based, among other things, on advice of the Financial Advisor, is
capable of being obtained by the party making the proposal or offer.
4.5 Regulatory Filings. FCB and Citizens shall jointly prepare all
regulatory filings required to consummate the transactions contemplated by the
Agreement and the Plan of Merger and submit the
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filings for approval with the applicable agency or agencies, as soon as
practicable after the date hereof. FCB and Citizens shall use their best efforts
to obtain approvals of such filings.
4.6 Tax Opinion. FCB and Citizens shall use their best efforts to obtain
the tax opinion referred to in paragraph (e) of Section 5.1 and paragraph (f) of
Section 5.2 hereof.
4.7 Public Announcements. Each party will consult with the other before
issuing any press release or otherwise making any public statements with respect
to the Merger and shall not issue any press release or make any such public
statement prior to such consultations except as may be required by law.
4.8 Transactions in Bancshares Common Stock. Other than the issuance of
Bancshares Common Stock in connection with the operation in the ordinary course
of Bancshares' Dividend Reinvestment Plan and Employee Stock Ownership Plan,
none of Bancshares, Citizens or the directors and executive officers of either
of them or any person or entity on their behalf will purchase, sell or otherwise
acquire or dispose of any shares of Bancshares Common Stock during the period of
calculation of the Bancshares Stock Price.
4.9 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each of FCB and Citizens agrees to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective, as soon as practicable
after the date of this Agreement, the transactions contemplated by this
Agreement, including, without limitation, using reasonable effort to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated herein.
Each of FCB and Citizens shall use its best efforts to obtain consents of all
third parties and governmental bodies necessary or desirable for the
consummation of the transactions contemplated by this Agreement.
4.10 Adverse Changes in Condition. Bancshares and Citizens each agrees to
give written notice promptly to the other concerning any material change in its
condition from the date of this Agreement until the Effective Time of the Merger
that might adversely affect the consummation of the transactions contemplated
hereby or upon becoming aware of the occurrence or impending occurrence of any
event or circumstance which may cause or constitute, or with the lapse of time
might result in, a material breach of any of the representations, warranties or
covenants of such party contained herein. Each of Bancshares and Citizens shall
use its best efforts to prevent or promptly remedy the same.
4.11 Updating of Schedules. From the date of execution of this Agreement
until the consummation of the Merger, Citizens agrees to keep up to date all of
the Schedules hereto and to notify Bancshares concerning any changes or
additions or events which have caused, or with the lapse of time may cause, any
such change or addition in any of the Schedules hereto.
ARTICLE V
CONDITIONS OF MERGER
5.1 Conditions to Obligations of FCB. The obligations of FCB to perform
this Agreement are subject to the satisfaction of the following conditions
unless waived by FCB.
(a) Representations and Warranties; Performance of Obligations; No
Adverse Change. The representations and warranties of Citizens set forth in
Section 3.1 hereof shall be true and correct in all material respects as of
the date of this Agreement and as of the Effective Time of the Merger as
though made on and as of the Effective Time of the Merger; Citizens shall
have performed in all
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material respects all obligations required to be performed by them under
this Agreement prior to the Effective Time of the Merger; there shall have
occurred no material adverse change in the condition (financial or
otherwise), assets, liabilities, properties or business of Citizens from
March 31, 2000 to the Effective Date of the Merger; and FCB shall have
received a certificate of authorized officers of Citizens to such effects.
(b) Authorization of Merger. All action necessary to authorize the
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated herein (including the shareholder action
referred to in Section 4.2) shall have been duly and validly taken by the
Board of Directors of Citizens, and by the shareholders of Citizens, and
Citizens shall have full power and right to merge on the terms provided
herein.
(c) Opinion of Counsel. FCB shall have received an opinion or opinions
of Jackson & Kelly PLLC, special counsel to Citizens, or other counsel
reasonably satisfactory to FCB, dated the Closing Date and reasonably
satisfactory to counsel to FCB to the effect that:
(i) Citizens is a corporation organized and in good standing under
the laws of the State of West Virginia and has all requisite corporate
power to own, lease and operate its properties and to carry on its
business as now being conducted as described in the Registration
Statement and Proxy Statement-Prospectus.
(ii) Citizens has full power to carry out the transactions provided
for in the Agreement; all corporate and other proceedings required to be
taken by or on the part of Citizens to authorize them to execute and
deliver the Agreement and to consummate the transactions contemplated
thereby and by the Plan of Merger have been duly and validly taken; the
Agreement has been duly and validly authorized, executed and delivered
by Citizens and constitutes a valid and binding obligation of Citizens
enforceable in accordance with its terms except as same (A) may be
limited by bankruptcy, insolvency, reorganization or other similar laws
relating to the rights of creditors, and (B) is subject to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or law); and the Plan of Merger has
been approved by the Board of Directors and the shareholders of
Citizens;
(iii) All outstanding shares of Citizens Common stock to be
exchanged for shares of Bancshares Common Stock at the Effective Time of
the Merger have been duly authorized and are validly issued, fully paid
and nonassessable, except as provided in W. Va. sec. 31A-4-12.
(iv) To the knowledge of such counsel, except as disclosed in
Section 3.1(h) of the Agreement, Citizens is not a party to or bound by
any outstanding option or agreement to sell, issue, buy or otherwise
dispose of or acquire any shares of Citizens Common Stock or other
security of Citizens;
(v) Execution and delivery by Citizens of the Agreement,
consummation by Citizens of the transactions contemplated hereby, and
compliance by Citizens with the provisions hereof will not conflict with
or result in a breach of any provision of the Articles of Incorporation
or Bylaws of Citizens, as applicable, or, a default (or give rise to
rights of termination, cancellation or acceleration) under the terms,
conditions, or provisions of any note, bond, mortgage, indenture,
license, agreement or any other instrument or listed in Schedule H (such
counsel having no knowledge of any item called for by such schedule
which is not disclosed therein), or violate any court order, writ,
injunction or decree applicable to Citizens or any of its properties or
assets, of which such counsel has knowledge after making inquiry with
respect thereto;
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(vi) Such counsel does not know of any litigation that is pending
or threatened which might result in money damages payable by Citizens in
excess of insurance coverage, which might result in a permanent
injunction against Citizens or which, individually or in the aggregate,
might otherwise have a material adverse effect on Citizens or the
transactions contemplated by this Agreement;
(vii) Such counsel does not know of any default under, or the
occurrence of any event which with the lapse of time, action or inaction
by a third party would result in a default under any outstanding
indenture, contract or agreement listed in Schedule H to the Agreement
(such counsel having no knowledge of any item called for by such
Schedule which is not disclosed therein) or under any governmental
license or permit or a breach of any provision of the Articles of
Incorporation or Bylaws of Citizens, as applicable;
(viii) All legal obligations of Citizens pertaining to consummation
of the Merger under the laws of West Virginia and the United States,
including receipt of all regulatory approvals required to be obtained by
Citizens, other than actions to be taken after the Effective Time and
the completion of legal obligations not the responsibility of Citizens
pursuant to this Agreement, have been completed to the satisfaction of
such counsel in all material respects;
(ix) On the basis of facts within their knowledge, such counsel has
no reason to believe that (except as to financial statements and other
financial data of either party, or as to material relating to, and
supplied by, Bancshares for inclusion in the Proxy Statement-Prospectus,
as to which no belief need be expressed) the Proxy Statement-Prospectus
(as amended or supplemented, if so amended or supplemented) contained
any untrue statement of a material fact or omitted any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading as of (A) the time the Registration Statement
became effective, (B) the time of the meeting of Citizens shareholders
referred to in Section 4.2 of the Agreement, or (C) at the Closing Date.
(d) Registration Statement. The Registration Statement shall be
effective under the 1933 Act and Bancshares shall have complied with or be
exempt from all state securities laws or "blue sky" registration
requirements related to the offer and issuance of Bancshares Common Stock
in connection with the Merger, and neither the Registration Statement nor
any such permit, authorization or exemption shall be subject to a stop
order or threatened stop order by the SEC or any state securities
authority.
(e) Tax Opinion. Bancshares and Citizens shall have received, in form
and substance reasonably satisfactory to them, an opinion of Gentry Locke
Rakes & Moore LLP to the effect, for federal income tax purposes, that
consummation of the Merger will constitute a "reorganization" as defined in
Section 368(a) of the Code and no taxable gain will be recognized by
Bancshares, FCB or Citizens upon consummation of the Merger.
(f) Regulatory Approvals. All required approvals from federal and
state regulatory authorities having jurisdiction to permit Citizens and FCB
to consummate the Merger and Bancshares to issue its Common Stock to
Citizens shareholders shall have been received and all related waiting
periods shall have expired, all applicable federal and state laws governing
the Merger shall have been complied with and there shall not be in any
order or decree of any regulatory authority any condition or requirement
reasonably deemed objectionable to Bancshares or FCB, and more
specifically, FCB shall not be required to assume responsibility under the
March 1, 2000 FDIC Memorandum of Understanding beyond its current duty to
maintain adequate programs in support of consumer compliance.
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(g) Affiliate Letters. Each person listed on Schedule K shall have
executed and delivered a commitment and undertaking to the effect that (i)
such shareholder will dispose of the shares of Bancshares Common Stock
received by him in connection with the Merger only in accordance with the
provisions of paragraph (d) of Rule 145; (ii) such shareholder will not
dispose of any such shares until Bancshares has received an opinion of
counsel acceptable to it that such proposed disposition will not violate
the provisions of any applicable securities laws; (iii) that they will not
sell or reduce their risk with respect to the Bancshares shares acquired in
the Merger until after the publication of combined financial results
covering 30 days of combined operations; and (iv) the certificates
representing said shares may bear a legend referring to the foregoing
restrictions.
(h) Acceptance by Bancshares Counsel. The form and substance of all
legal matters contemplated hereby and of all papers delivered hereunder
shall be reasonably acceptable to counsel for Bancshares.
(i) Disclosure Schedules. Within 45 days after the date of this
Agreement, FCB shall have received from Citizens the Schedules required to
be provided pursuant to this Agreement.
5.2 Conditions to Obligations of Citizens. The obligations of Citizens to
perform this Agreement are subject to the satisfaction of the following
conditions unless waived by Citizens:
(a) Representations and Warranties; Performance of Obligations; No
Adverse Change. The representations and warranties of Bancshares and FCB
set forth in Section 3.2 hereof shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time of
the Merger as though made on and as of the Effective Time of the Merger;
Bancshares and FCB shall have performed all obligations required to be
performed by them under this Agreement prior to the Effective Time of the
Merger; there shall have occurred no material adverse change in the
condition (financial or otherwise), assets, liabilities, properties or
business of Bancshares from March 31, 2000 to the Effective Date of the
Merger; and Citizens shall have received a certificate of authorized
officers of Bancshares to such effects.
(b) Authorization of Merger. All action necessary to authorize the
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby shall have been duly and validly
taken by the boards of directors of Bancshares and FCB; FCB shall have full
power and right to merge and to acquire and assume the assets and
liabilities of Citizens on the terms provided herein.
(c) Opinion of Counsel. Citizens shall have received an opinion of
Gentry Locke Rakes & Moore LLP, special counsel to Bancshares and FCB,
dated the Closing Date and reasonably satisfactory to counsel to Citizens
to the effect that:
(i) The shares of Bancshares Common Stock to be issued pursuant to
the Agreement have been duly registered under the 1933 Act;
(ii) All legal obligations of Bancshares pertaining to consummation
of the Merger under the laws of the State of West Virginia, Commonwealth
of Virginia and the United States of America including the receipt of
all regulatory approvals required to be obtained by Bancshares, other
than action to be taken after the Effective Time and the completion of
legal obligations not the responsibility of Bancshares pursuant to this
Agreement, have been completed to the satisfaction of such counsel in
all material respects; and
(iii) On the basis of facts within their knowledge, such counsel
has no reason to believe that (except as to financial statements and
other financial data of any party hereto, or as to material relating to,
and supplied by, Citizens for inclusion in the Proxy
Statement-Prospectus, as to which no belief need be expressed) the Proxy
Statement-Prospectus (as amended or
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supplemented, if so amended or supplemented) contained any untrue
statement of a material fact or omitted any material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading
(A) as of the time the Registration Statement became effective; (B) as
of the time of the special meeting of shareholders of Citizens mentioned
in Section 4.2 of the Agreement; or (C) as of the Closing Date.
(iv) Bancshares (a corporation) and FCB (a national association)
are organized and in good standing under the laws of Nevada and the
United States of America, respectively, and have all requisite corporate
power to own, lease and operate their respective properties and to carry
on their respective business as described in the Registration Statement
and Proxy Statement-Prospectus.
(v) Bancshares and FCB have full power to carry out the
transactions provided for in the Agreement; all corporate and other
proceedings required to be taken by or on the part of Bancshares and FCB
to authorize them to execute and deliver the Agreement and to consummate
the transactions contemplated hereby and by the Plan of Merger have been
duly and validly taken; the Agreement has been duly and validly
authorized, executed and delivered by Bancshares and FCB and constitutes
a valid and binding obligation of Bancshares and FCB enforceable in
accordance with its terms except as same (A) may be limited by
bankruptcy, insolvency, reorganization or other similar laws relating to
the rights of creditors; and (B) is subject to general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or law); and the Plan of Merger has been approved
by the Boards of Directors of Bancshares and FCB, respectively; and the
shares of Bancshares Common Stock have been duly authorized and when so
issued will be validly issued, fully paid and nonassessable.
(vi) All outstanding shares of Bancshares Common Stock have been
duly authorized and are validly issued, fully paid and nonassessable;
(vii) Execution and delivery by Bancshares and FCB of the
Agreement, consummation by Bancshares and FCB of the transactions
contemplated hereby, and compliance by Bancshares and FCB with the
provisions thereof will not conflict with or result in a breach of any
provisions of either Bancshares' or FCB's respective Articles of
Incorporation or Association, or either of their Bylaws or a default (or
give rise to rights of termination, cancellation or acceleration) under
any of the terms, conditions, or provisions of any note, bond, mortgage,
indenture, license, agreement or any other instrument of Bancshares or
FCB known to such counsel, or violate any court order, writ, injunction
or decree applicable to Bancshares or FCB or any of their properties or
assets, of which such counsel has knowledge after making inquiry with
respect thereto;
(viii) Such counsel does not know of any litigation that is pending
or threatened which might result in money damages payable by Bancshares
or FCB in excess of insurance coverage, which might result in a
permanent injunction against Bancshares or FCB or which, individually or
in the aggregate, otherwise might have a material adverse effect on
Bancshares or FCB or the transactions contemplated by this Agreement;
(ix) Such counsel does not know of any default under, or the
occurrence of any event which with the lapse of time, action or inaction
by a third party would result in a default under any outstanding
indenture, contract or agreement or under any governmental license or
permit or a material breach of any provision of the Articles of
Incorporation, or Bylaws of Bancshares;
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(d) Registration Statement. The Registration Statement shall be
effective under the 1933 Act and Bancshares shall have complied or be
exempt from all state securities laws or "blue sky" registration
requirements related to the offer and issuance of Bancshares Common Stock
in connection with the Merger, and neither the Registration Statement nor
any such permit, authorization or exemption shall be subject to a stop
order or threatened stop order by the SEC or any state securities
authority.
(e) Regulatory Approvals. All required approvals from federal and
state regulatory authorities having jurisdiction to permit Citizens and FCB
to consummate the Merger and Bancshares to issue its Common Stock to
Citizens' shareholders shall have been received and all related waiting
periods shall have expired.
(f) Tax Opinion. Citizens and Bancshares shall have received, in form
and substance reasonably satisfactory to it, an opinion of Gentry Locke
Rakes & Moore LLP to the effect, for federal income tax purposes, that
consummation of the Merger will constitute a "reorganization" as defined in
Section 368(a) of the Code; that no taxable gain will be recognized by
Bancshares, FCB or Citizens upon consummation of the Merger; that no
taxable gain will be recognized by a Citizens' shareholder on the exchange
by such shareholder of shares of Citizens' Common Stock solely for shares
of Bancshares Common Stock; that the basis of Bancshares Common Stock
received in the Merger will be the same as the basis of the Citizens'
Common Stock surrendered in exchange therefor; that the holding period of
such Bancshares Common stock will include the holding period of the
Citizens' Common Stock surrendered in exchange therefor, if such Citizens'
Common Stock is held as a capital asset at the Effective Time of the
Merger; and if the Exchange Ratio results in the issuance of a fractional
share interest, that a Citizens' shareholder who receives cash in lieu of a
fractional share of Bancshares Common Stock will recognize gain or loss
equal to any difference between the amount of cash received and the
shareholder's basis in the fractional share interest.
(g) Acceptance by Citizens' Counsel. The form and substance of all
legal matters contemplated hereby and of all papers delivered hereunder
shall be reasonably acceptable to counsel for Citizens.
(h) Fairness Opinion. Citizens shall have received the opinion of the
Financial Advisor, dated as of the date of the proxy materials referred to
in Section 4.2 and as of the Closing Date, that the Merger is fair, from a
financial point of view, to Citizens and its shareholders.
ARTICLE VI
CLOSING DATE; EFFECTIVE TIME OF THE MERGER
6.1 Closing Date. Unless another date or place is agreed to in writing by
the parties, the closing of the transactions contemplated in this Agreement
shall take place at the Corporate Center of FCB at One Community Place,
Bluefield, Virginia, at 10:00 A.M., local time, on such date as FCB shall
designate to Citizens and is reasonably acceptable to Citizens; provided, that
the date so designated shall not be earlier than 15 days or later than 120 days
following the date of the decision of the Office of the Comptroller of the
Currency approving the Merger (the "Closing Date").
6.2 Filings at Closing. Subject to the provisions of Article V, at the
Closing Date, FCB shall cause appropriate documents memorializing the Merger to
be filed with the Office of the Comptroller of the Currency ("Comptroller") and
each of FCB, Bancshares, and Citizens shall take any and all lawful actions to
cause the Merger to become effective.
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6.3 Effective Time. Subject to the terms and conditions set forth herein,
including receipt of all required regulatory approvals, the Merger shall become
effective at the time the Merger is made effective by the Comptroller (the
"Effective Time of the Merger").
ARTICLE VII
TERMINATION; SURVIVAL OF REPRESENTATIONS
WARRANTIES AND COVENANTS; WAIVER AND AMENDMENT
7.1 Termination. This Agreement shall be terminated, and the Merger
abandoned, if the shareholders of Citizens shall not have given the approval
required by Section 5.1(b). Notwithstanding such approval by such shareholders,
this Agreement may be terminated in writing at any time prior to the Effective
Time of the Merger by:
(a) The mutual consent of FCB and Citizens, as expressed by their
respective boards of directors;
(b) Either FCB or Citizens, as expressed by their respective boards of
directors, after December 31, 2000;
(c) By FCB in writing authorized by its Board of Directors if Citizens
has, or by Citizens in writing authorized by its Board of Directors if FCB
has, in any material respect, breached (i) any covenant or agreement
contained herein, or (ii) any representation or warranty contained herein,
in any case if such breach has not been cured by the earlier of 30 days
after the date on which written notice of such breach is given to the party
committing such breach or the Closing Date;
(d) Either FCB or Citizens, as expressed by their respective boards of
directors, in the event that any of the conditions precedent to the
obligations of such party to consummate the Merger have not been satisfied
or waived by the party entitled to so waive on or before the Closing Date,
provided that neither party shall be entitled to terminate this Agreement
pursuant to this subparagraph (d) if the condition precedent or conditions
precedent which provide the basis for termination can reasonably be and are
satisfied within a reasonable period of time, in which case, the Closing
date shall be appropriately postponed;
(e) FCB or Citizens, if any of the Federal Reserve Board, the
Comptroller or the Division deny approval of the Merger and the time period
for all appeals or requests for reconsideration have expired;
(f) Citizens, if the Bancshares Stock Price is less than $15.00 per
share based on the average bid and ask price quoted on NASDAQ at the close
of business on the business day prior to the Closing Date;
(g) FCB if, within ten days of receipt of the Citizens Schedules to be
provided pursuant to this Agreement, it reasonably believes that the
information set forth in such Schedules reflects material adverse
information not previously known to FCB and notifies Citizens to that
effect;
(h) Bancshares, if the holders of more than ten percent (10%) of the
outstanding shares of Citizens exercise dissenters' rights with respect to
the Merger.
7.2 Effect of Termination.
(a) In the event of the termination and abandonment of this Agreement
and Merger pursuant to Section 7.1, this Agreement, other than the
provisions of Sections 4.1 (last sentence) and 9.1
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shall become void and have no effect, without any liability on the part of
any party or its directors, officers or shareholders.
(b) In the event this Agreement is terminated other than as permitted
under Section 7.1(a)-(h), or if the stockholders of Citizens fail to
approve the proposed transaction, and approve a merger, sale of assets or
similar transaction with a party other than FCB and Bancshares within
twelve months, Citizens shall pay to FCB, within 30 days following the
effective date of termination hereof or the second meeting of stockholders
as applicable, the sum of $250,000.00 plus the out-of-pocket expense, not
to exceed $50,000.00, of FCB and Bancshares in connection with this
transaction, as compensation for their costs and expenses, their due
diligence and other management efforts, and the loss of opportunity to
expand into Citizens' market.
7.3 Survival of Representations, Warranties and Covenants. The respective
representations and warranties, covenants and agreements (except for those
contained in Sections 1.3, 2.2, 2.3, 4.1 (last sentence), 7.3, 8.2, 9.1, 9.2,
9.3, and 9.6, which shall survive the effectiveness of the Merger) of
Bancshares, FCB, and Citizens contained herein shall expire with, and be
terminated and extinguished by, the effectiveness of the Merger and shall not
survive the Effective Time of the Merger.
7.4 Waiver and Amendment. Any term or provision of this Agreement may be
waived in writing at any time by the party which is, or whose shareholders are,
entitled to the benefits thereof; and this Agreement may be amended or
supplemented by written instructions duly executed by all parties hereto at any
time, whether before or after the meeting of Citizen' shareholders referred to
in Section 4.2 hereof, except statutory requirements and requisite approvals of
shareholders and regulatory authorities.
ARTICLE VIII
ADDITIONAL COVENANTS
8.1 Registration Statement. Bancshares, FCB and Citizens acknowledge that
the Merger is a transaction to which the 1933 Act is applicable. Each of the
parties agree to comply with the provisions of the 1933 Act and all rules and
regulations of the SEC promulgated pursuant to the 1933 Act and cooperate in
connection with the preparation and filing by Bancshares of a Registration
Statement under the 1933 Act relating to the Merger. Bancshares and Citizens
agree (a) to give their respective authorized representatives complete access to
the books, records and files of the other party at any reasonable time for the
purpose of preparing such Registration Statement and Proxy Statement; (b) to
provide the other party upon request such information relating to their
businesses and financial condition, as shall be appropriate in connection with
the preparation of said Registration Statement and Proxy Statement; and (c) to
submit to the other party for its prior approval all press releases or other
oral or written statements made or issued which relate to the Merger in any
manner.
8.2 Employee Benefits. All employees of Citizens immediately prior to the
Effective Time of the Merger who are employed by FCB following the Effective
Time of the Merger ("Transferred Employees") will be covered by FCB's employee
benefit plans with eligibility based on their length of service, compensation,
job classification, and position with Citizens. FCB's benefit plans will
recognize for purposes of eligibility to participate and for vesting, all
service of Transferred Employees with Citizens, subject to applicable break in
service rules. Eligible employees of Citizens shall be permitted to contribute
funds distributed upon termination of Citizens' benefit plans to similar FCB
benefit plans.
8.3 Protection of Directors and Officers. FCB shall provide and keep in
force for a period of three years after the Closing Date directors' and
officers' liability insurance providing coverage to directors and officers of
Citizens for acts or omissions occurring prior to the Closing Date. Such
insurance shall provide at least the same coverage and amounts as contained in
Citizens' policy on the
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date hereof; provided, that in no event shall the premium on such policy exceed
$10,000 (the "Maximum Amount"). If the amount of the premiums necessary to
maintain or procure such insurance coverage exceeds the Maximum Amount, FCB
shall use its reasonable efforts to maintain the most advantageous policies of
directors' and officers' liability insurance obtainable for a premium equal to
the Maximum Amount. Notwithstanding the foregoing, FCB further agrees to
indemnify all individuals who are or may have been officers or directors of
Citizens prior to the Closing Date from any acts or omissions in such capacities
prior to the Closing Date to the same extent as the officers and directors of
FCB. If FCB or any of its successors or assigns shall consolidate or merge with
any other entity and shall not be the continuing or surviving entity of such
consolidation or merger or shall transfer all or substantially all of its assets
to any entity, then and in each case, proper provisions shall be made so that
the successors and assigns of FCB shall assume the obligations set forth in this
Section 8.3.
ARTICLE IX
MISCELLANEOUS
9.1 Expenses. If the Merger is consummated, all expenses of the parties
hereto incurred in connection with the Merger will be borne by FCB. If the
Merger is not consummated, each party shall bear its own expense, provided, that
if the Merger is not consummated because of a party's failure to satisfy a
condition (other than the failure of Citizens' shareholders to approve the
Merger, or termination of this Agreement because the Bancshares Stock Price is
less than $15.00) then the party failing to satisfy the condition will pay the
other party's expenses up to $50,000. Nothing contained in this Section 9.1
shall relieve any party from liability for damages for any breach of this
Agreement.
9.2 Entire Agreement. This Agreement contains the entire agreement among
Bancshares, FCB and Citizens with respect to the Merger and the related
transactions and supersedes all prior arrangements or understandings with
respect thereto.
9.3 Descriptive Headings; Recitals. The descriptive headings and recitals
contained in this Agreement are for convenience only and shall not control or
affect the meaning or construction of any provisions of this Agreement.
9.4 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by telecopier or registered or certified mail, postage prepaid, or by
recognized overnight delivery service, addressed as follows:
IF TO BANCSHARES OR FCB:
First Community Bancshares, Inc.
One Community Place
P. O. Box 989
Bluefield, Virginia 24605-0989
Attention: Mr. John M. Mendez, President & CEO
Fax: (540) 326-9010
COPY TO:
Jerry J. Cameron, Esquire
Brewster, Morhous & Cameron
418 Bland Street
P. O. Box 529
Bluefield, WV 24701
Fax: (304) 327-9317
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Eugene E. Derryberry, Esquire
Gentry Locke Rakes & Moore
10 Franklin Road, SE
P. O. Box 40013
Roanoke, VA 24022-0013
Fax: (540) 983-9469
IF TO CITIZENS:
Citizens Southern Bank, Inc.
111 Citizens Drive
Beckley, WV 25801
Attention: Mr. Samuel L. Elmore, CEO
Fax: (304) 252-9418
COPY TO:
Charles Dunbar, Esquire
Jackson & Kelly PLLC
1600 Laidley Tower (Zip 25301)
P. O. Box 553
Charleston, WV 25322
Fax: (304) 340-1080
9.5 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute one agreement.
9.6 Governing Law. Except as may otherwise be required by the laws of the
United States of America, this Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be executed on their behalf and their Corporate seals affixed and attested by
their officers thereunto duly authorized, all as of the day and year first above
written.
<TABLE>
<S> <C>
ATTEST: (SEAL) FIRST COMMUNITY BANCSHARES, INC.
By: /s/ JOHN M. MENDEZ
By: /s/ ROBERT L. BUZZO --------------------------------------
-------------------------------------- Name: John M. Mendez
Name: Robert L. Buzzo
ATTEST: (SEAL) FIRST COMMUNITY BANK, N. A.
By: /s/ JOHN M. MENDEZ By: /s/ ROBERT L. BUZZO
-------------------------------------- --------------------------------------
Name: John M. Mendez Name: Robert L. Buzzo
ATTEST: (SEAL) CITIZENS SOUTHERN BANK, INC.
By: /s/ DON M. STACEY By: /s/ JACK H. ALLISON
-------------------------------------- --------------------------------------
Name: Don M. Stacey Name: Jack H. Allison
</TABLE>
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CONSENT OF DIRECTORS
The undersigned, being all of the members of the Board of Directors of
Citizens Southern Bank, Inc. ("Citizens"), do hereby consent to the aforesaid
Agreement and do individually agree to support the Agreement, to vote the shares
of Citizens each owns or controls in favor of the transaction described in the
Agreement, to recommend its approval by the other stockholders of Citizens,
subject to the provisions of Section 4.4 of the Agreement, and to comply with
Section 5.1(g) of the Agreement.
/s/ RICK O. ADKINS
------------------------------------------------
Rick O. Adkins
/s/ JACK H. ALLISON
------------------------------------------------
Jack H. Allison
/s/ CARL E. CAMPBELL
------------------------------------------------
Carl E. Campbell
/s/ RICHARD L. CORNETT, II
------------------------------------------------
Richard L. Cornett, II
/s/ LORI A. DAVIS
------------------------------------------------
Lori A. Davis
/s/ L. EDWARD ECKLEY, III
------------------------------------------------
L. Edward Eckley, III
/s/ SAMUEL L. ELMORE
------------------------------------------------
Samuel L. Elmore
/s/ ANDREW E. FOX
------------------------------------------------
Andrew E. Fox
/s/ DAVID M. HILL
------------------------------------------------
David M. Hill
/s/ THOMAS W. JARRETT
------------------------------------------------
Thomas W. Jarrett
/s/ CARL W. ROOP
------------------------------------------------
Carl W. Roop
/s/ DON M. STACEY
------------------------------------------------
Don M. Stacy
/s/ BYRD E. WHITE, III
------------------------------------------------
Byrd E. White, III
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EXHIBIT A
PLAN OF MERGER OF
FIRST COMMUNITY BANCSHARES, INC.
FIRST COMMUNITY BANK, N.A.
AND
CITIZENS SOUTHERN BANK, INC.
Section 1. Citizens Southern Bank, Inc., a West Virginia corporation
("Citizens"), shall, at the time that the Articles of Merger are made effective
by the Office of the Comptroller of the Currency (the "Effective Time of the
Merger"), be merged (the "Merger") with and into First Community Bank, N.A., a
national association ("FCB"), which is a subsidiary of First Community
Bancshares, Inc. ("Bancshares"), a Nevada corporation, with FCB to be the
surviving corporation (the "Surviving Corporation").
Section 2. Conversion of Stock. At the Effective Time of the Merger, each
share of Citizens' Common Stock ("Citizens' Common Stock") issued and
outstanding immediately prior to the Effective Time of the Merger, other than
Dissenting Shares (as hereinafter defined), and which, under the terms of
Section 3 of this Plan of Merger, is to be converted into and exchangeable for
Common Stock of Bancshares ("Bancshares Common Stock") shall be converted into
the right to receive 1.74 shares of Bancshares Common Stock.
Section 3. Manner of Conversion of Citizens' Common Stock. The manner in
which outstanding shares of Citizens' Common Stock shall be converted into
Bancshares Common Stock, as specified in Section 2 hereof, after the Effective
Time of the Merger, shall be as follows:
(i) Each share of Citizens' Common Stock shall be converted into 1.74
shares of Bancshares Common Stock.
(ii) No fractional shares of Bancshares Common Stock shall be issued,
but instead the value of fractional shares shall be paid in cash (less all
applicable withholding taxes), as determined in accordance with Section 2.3
of the Agreement (defined below).
(iii) Certificates for shares of Citizens' Common Stock shall be
submitted for exchange for Bancshares Common Stock accompanied by the
Letter of Transmittal to be furnished by Citizens within fifteen business
days after the Effective Time of the Merger, to shareholders of record as
of the Effective Time of the Merger. Until so surrendered, each outstanding
certificate, which prior to the Effective Time of the Merger, represented
Citizens' Common stock, shall be deemed to evidence only the right to
receive 1.74 shares of Bancshares Common Stock. Until such outstanding
shares formerly representing Citizens' Common stock are surrendered, no
dividend payable to holders of record of Bancshares Common Stock as of any
date subsequent to the Effective Time of the Merger shall be paid to the
holder of such outstanding certificates in respect thereof. Upon such
surrender, dividends accrued or declared on Bancshares Common Stock shall
be paid in accordance with Section 2.2 of the Agreement and Plan of
Reorganization dated as of June 27, 2000, among First Community Bancshares,
Inc., First Community Bank, N. A. and Citizens Southern Bank, Inc. (the
"Agreement").
Section 4. Articles of Association, Bylaws and Directors of the Surviving
Association. At and following the Effective Time of the Merger, there shall be
no change caused by the Merger in the Articles of Association (except any change
caused by the filing of Articles of Merger relating to the Merger), Bylaws, or
Board of Directors of the Surviving Association.
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Section 5. Effect of the Merger. The Merger, upon the Effective Time of the
Merger, shall have the effect provided by Section 92A.250 of the Nevada Revised
Statutes.
Section 6. Amendment. The Boards of Directors of FCB and Citizens reserve
the right to amend this Plan of Merger at any time prior to the Effective Time
of the Merger, provided, however, that any such amendment made subsequent to the
submission of this Plan of Merger to the shareholders of Citizens, may not: (i)
alter or change the amount or kind of shares, securities, cash, property or
rights to be received in exchange for or in conversion of all or any of the
shares of any class or series of Citizens; (ii) alter or change any of the terms
and conditions of this Plan of Merger if such alteration or change would
adversely affect the shares of any class or series of Citizens; or (iii) alter
or change any term of the Articles of Incorporation of Citizens (except as
provided herein).
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APPENDIX B
June 27, 2000
The Board of Directors
Citizens Southern Bank, Inc.
111 Citizens Drive
Beckley, WV 25801
Dear Members of the Board:
Citizens Southern Bank, Inc., Beckley, West Virginia, ("Citizens") and First
Community Bancshares, Inc., Bluefield, VA ("Bancshares") have entered into an
agreement providing for the merger of Citizens into the wholly owned banking
subsidiary of Bancshares, First Community Bank, N.A. ("FCB") through an exchange
of shares ("Merger"). The terms of the merger are set forth in the Agreement and
Plan of Reorganization ("Agreement") dated June 27, 2000.
The terms of the merger provide that, with the possible exception of those
shares as to which dissenters' rights may be perfected, each share of Citizens
common stock, $10.00 par value, will be exchanged for the right to receive 1.74
shares of First Community common stock, $1.00 par value (the "Exchange Ratio"),
subject to certain adjustments.
You have asked our opinion as to whether the Exchange Ratio is fair to the
respective shareholders of Citizens from a financial point of view.
In rendering our opinion, we have evaluated the consolidated financial
statements of Citizens and Bancshares available to us from published sources. In
addition, we have, among other things: (a) to the extent deemed relevant,
analyzed selected public information of certain other financial institutions and
compared Citizens and Bancshares from a financial point of view to the other
financial institutions; (b) compared the terms of the merger with the terms of
certain other comparable transactions to the extent information concerning such
acquisitions was publicly available; (c) reviewed the Agreement and related
documents; (d) reviewed the historical market price of Citizens' common stock
and Bancshares' common stock; and (e) made such other analyses and examinations
as we deemed appropriate. We also met with various senior officers of Citizens
and Bancshares to discuss the foregoing as well as other matters that may be
relevant.
We have not independently verified the financial and other information
concerning Citizens or Bancshares or other data which we have considered in our
review. We have assumed the accuracy and completeness of all such information,
however, we have no reason to believe that such information is not accurate and
complete. Our conclusion is rendered on the basis of securities market
conditions prevailing as of the date hereof and on the conditions and prospects,
financial and otherwise, of Citizens and Bancshares as they exist and are known
to us as of March 31, 2000.
We have acted as financial advisor to Citizens and in connection with the Merger
will receive from Citizens a fee for our services, a significant portion of
which is contingent upon the consummation of the Merger.
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It is understood that this opinion may be included in its entirety in any
communication by Citizens or the Board of Directors to the shareholders of
Citizens. The opinion may not, however, be summarized, excerpted from or
otherwise publicly referred to without our prior written consent.
Based on the foregoing, and subject to the limitations described above, we are
of the opinion that the Exchange Ratio is fair to the shareholders of Citizens
from a financial point of view.
Sincerely,
/s/ BAXTER FENTRISS AND COMPANY
Baxter Fentriss and Company
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<PAGE> 131
APPENDIX C
(sec.) 31-1-122. Right of shareholders to dissent.
Any shareholder of a corporation shall have the right to dissent from any
of the following corporate actions:
(a) Any plan of merger or consolidation to which the corporation is a
party; or
(b) Any sale or exchange of all or substantially all of the property
and assets of the corporation not made in the usual and regular course of
its business, including a sale in dissolution, but not including a sale
pursuant to an order of a court having jurisdiction in the premises or a
sale for cash on terms requiring that all or substantially all of the net
proceeds of sale be distributed to the shareholders in accordance with
their respective interests within one year after the date of sale.
A shareholder may dissent as to less than all of the shares registered in
his name. In that event, his rights shall be determined as if the shares as to
which he has dissented and his other shares were registered in the names of
different shareholders.
(sec.) 31-1-123. Rights of dissenting shareholders; procedure for
purchasing of dissenting shareholders' shares; civil action for determining
value of shares; procedure for transferring of such shares to corporation and
payment therefor.
(a) Any shareholder electing to exercise his right to dissent, pursuant to
section one hundred twenty-two of this article, shall file with the corporation,
prior to or at the meeting of shareholders at which such proposed corporate
action is submitted to a vote, a written objection to such proposed corporate
action. If such proposed corporate action be approved by the required vote and
such shareholder shall not have voted in favor thereof, such shareholder may,
within ten days after the date on which the vote was taken or if a corporation
is to be merged without a vote of its shareholders into another corporation, any
of its shareholders may, within fifteen days after the plan of such merger shall
have been mailed to such shareholders, make written demand on the corporation,
or, in the case of a merger or consolidation, on the surviving or new
corporation, domestic or foreign, for payment of the fair value of such
shareholder's shares, and, if such proposed corporate action is effected, such
corporation shall pay to such shareholder, upon surrender of the certificate or
certificates representing such shares, the fair value thereof as of the day
prior to the date on which the vote was taken approving the proposed corporate
action, excluding any appreciation or depreciation in anticipation of such
corporate action. Any shareholder failing to make demand within the ten-day
period shall be bound by the terms of the proposed corporate action. Any
shareholder making such demand shall thereafter be entitled only to payment as
in this section provided and shall not be entitled to vote or to exercise any
other rights of a shareholder.
(b) No such demand may be withdrawn unless the corporation shall consent
thereto. If, however, such demand shall be withdrawn upon consent, or if the
proposed corporate action shall be abandoned or rescinded or the shareholders
shall revoke the authority to effect such action, or if, in the case of a
merger, on the date of the filing of the articles of merger the surviving
corporation, is the owner of all the outstanding shares of the other
corporations, domestic and foreign, that are parties to the merger, or if no
demand or petition for the determination of fair value by a court of general
civil jurisdiction have been made or filed within the time provided in
subsection (e) of this section, or if a court of general civil jurisdiction
shall determine that such shareholder is not entitled to the relief provided by
this section, then the right of such shareholder to be paid the fair value of
his shares shall cease and his status as a shareholder shall be restored,
without prejudice to any corporate proceedings which may have been taken during
the interim.
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(c) Within ten days after such corporate action is effected, the
corporation, or, in the case of a merger or consolidation, the surviving or new
corporation, domestic or foreign, shall give written notice thereof to each
dissenting shareholder who has made demand as herein provided, and shall make a
written offer to each shareholder to pay for such shares at a specified price
deemed by such corporation to be fair value thereof. Such notice and offer shall
be accompanied by a balance sheet of the corporation the shares of which the
dissenting shareholder holds, as of the latest available date and not more than
twelve months prior to the making of such offer, and a profit and loss statement
of such corporation for the twelve months' period ended on the date of such
balance sheet.
(d) If within thirty days after the date on which such corporate action is
effected the fair value of such shares is agreed upon between any such
dissenting shareholder and the corporation, payment therefor shall be made
within ninety days after the date on which such corporate action was effected,
upon surrender of the certificate or certificates representing such shares. Upon
payment of the agreed value the dissenting shareholder shall cease to have any
interest in such shares.
(e) If within such period of thirty days, a dissenting shareholder and the
corporation do not so agree, then the corporation shall within thirty days after
receipt of written demand from any dissenting shareholder, which written demand
must be given within sixty days after the date on which such corporate action
was effected, file a complaint in a court of general civil jurisdiction
requesting that the fair value of such shares be found and determined, or the
corporation may file such complaint at any time within such sixty-day period at
its own election. Such complaint shall be filed in any court of general civil
jurisdiction in the county in which the principal office of the corporation is
situated, or, if there be no such office in this state, in the county in which
any dissenting shareholder resides or is found or in which the property of such
corporation, or any part of it, may be. If the corporation shall fail to
institute such proceedings, any dissenting shareholder may do so in the name of
the corporation. All dissenting shareholders wherever residing, may be made
parties to the proceedings as an action against their shares quasi in rem. A
copy of the complaint shall be served on each dissenting shareholder who is a
resident of this state in the same manner as in other civil actions. Dissenting
shareholders who are nonresidents of this state shall be served a copy of the
complaint by registered or certified mail, return receipt requested. In
addition, service upon such nonresident shareholders shall be made by
publication, as provided in Rule 4(e)(2) of the West Virginia Rules of Civil
Procedure. All shareholders who are parties to the proceeding shall be entitled
to judgment against the corporation for the amount of the fair value of their
shares. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The appraisers shall have such power and authority as shall be specified
in the order of their appointment or any subsequent appointment. The judgment
shall be payable only upon and concurrently with the surrender to the
corporation of the certificate or certificates representing such shares. Upon
payment of the judgment, the dissenting shareholder shall cease to have any
interest in such shares. The judgment shall include an allowance for interest at
such rate as the court may find to be fair and equitable in all the
circumstances, from the date on which the vote was taken on the proposed
corporate action to the date of payment. The costs and expenses of any such
proceeding shall be determined by the court and shall be assessed against the
corporation, but all or any part of such costs and expenses may be apportioned
and assessed as the court may deem equitable against any or all of the
dissenting shareholders who are parties to the proceeding to whom the
corporation shall have made an offer to pay for the shares if the court shall
find that the action of such shareholders in failing to accept such offer was
arbitrary or vexatious or not in good faith. Such expenses shall include
reasonable compensation for and reasonable expenses of the appraisers, but shall
exclude the fees and expenses of counsel for and experts employed by any party;
but if the fair value of the shares as determined materially exceeds the amount
which the corporation offered to pay therefor, or if no offer was made, the
court in its discretion may award to any shareholder who is a party to the
proceeding such sum as the court may determine to be reasonable
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compensation to any expert or experts employed by the shareholder in the
proceeding. Any party to the proceeding may appeal any judgment or ruling of the
court as in other civil cases.
(f) Within twenty days after demanding payment for his shares, each
shareholder demanding payment shall submit the certificate or certificates
representing his shares to the corporation for notation thereon that such demand
has been made. His failure to do so shall, at the option of the corporation,
terminate his rights under this section unless a court of general civil
jurisdiction, for good and sufficient cause shown, shall otherwise direct. If
shares represented by a certificate on which notation has been so made shall be
transferred, each new certificate issued therefor shall bear similar notation,
together with the name of the original dissenting holder of such shares, and a
transferee of such shares shall acquire by such transfer no rights in the
corporation other than those which the original dissenting shareholder had after
making demand for payment of the fair value thereof.
(g) Shares acquired by a corporation pursuant to payment of the agreed
value therefor or to payment of the judgment entered therefor, as in this
section provided, may be held and disposed of by such corporation as in the case
of other treasury shares, except that, in the case of a merger or consolidation,
they may be held and disposed of as the plan of merger or consolidation may
otherwise provide.
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