U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
[ ] Transition Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number: 0-24159
INDEPENDENT COMMUNITY BANKSHARES, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Virginia 54-1696103
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
111 West Washington Street
Middleburg, Virginia 22117
(Address of Principal Executive Offices)
(703) 777-6327
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
1,778,994 shares of common stock, par value $5.00 per share,
outstanding as of November 10, 1999
o This Form 10-QSB also covers 276,600 Contractual Rights to
Contingent Merger Consideration, which are registered under the
Securities Act of 1933, as amended, pursuant to a registration
statement declared effective on June 27, 1997.
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in Shareholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of Operation
and Financial Condition 10
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Change in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
Independent Community Bankshares, Inc.
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998
------------------ -------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 7,226 $ 8,161
Interest-bearing balances in banks
33 109
Temporary investments:
Federal funds sold
4,405 1,421
Other money market investments
791 3,122
Securities (fair value: September 30, 1999,
$ 63,273, December 31, 1998, $58,159)
63,200 57,786
Loans, net
143,170 124,932
Bank premises and equipment, net
6,436 5,852
Other assets
6,877 4,020
------------------ -------------------
Total assets $ 232,138 $ 205,403
================== ===================
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 43,575 $ 36,883
Interest bearing
152,402 135,797
------------------ -------------------
Total deposits $ 195,977 $ 172,680
Federal funds purchased $ - $ -
Securities sold under agreements to
repurchase
7,068 2,530
Federal Home Loan Bank advances
5,000 6,000
Other liabilities
1,064 1,330
------------------ -------------------
Total liabilities $ 209,109 $ 182,540
------------------ -------------------
Shareholders' Equity
Common stock par value $5.00 per
share, authorized 10,000,000 shares;
issued and outstanding at September 30, 1999 - 1,778,994
issued and outstanding at December 31, 1998 - 1,778,994 $ 8,895 $ 8,895
Capital surplus
1,293 1,293
Retained earnings
14,219 12,495
Accumulated other comprehensive income (loss)
(1,378) 180
------------------ -------------------
Total shareholders' equity $ 23,029 $ 22,863
Total liabilities and shareholders' equity $ 232,138 $ 205,403
================== ===================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
Independent Community Bankshares, Inc.
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Unaudited Unaudited
-----------------------------------------------------
For the Nine Months For the Quarter
Ended September 30, Ended September 30,
1999 1998 1999 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 8,625 $ 7,505 $ 3,028 $ 2,553
Interest on investment securities
Taxable 29 61 8 12
Exempt from federal income taxes 417 470 134 150
Interest on securities available for sale
Taxable 1,182 1,266 421 377
Exempt from federal income taxes 677 513 239 185
Dividends 201 189 74 82
Interest on federal funds sold and other 323 190 149 105
----------- ----------- ------------ ------------
Total interest income $ 11,454 $ 10,194 $ 4,053 $ 3,464
Interest expense
Interest on deposits $ 3,566 $ 3,780 $ 1,205 $ 1,275
Interest on FHLB advances 212 207 70 74
Interest on short-term borrowings 172 9 80 -
----------- ----------- ------------ ------------
Total interest expense $ 3,950 $ 3,996 $ 1,355 $ 1,349
Net interest income $ 7,504 $ 6,198 $ 2,698 $ 2,115
Provision for loan losses 328 135 124 45
----------- ----------- ------------ ------------
Net interest income after provision
for loan losses $ 7,176 $ 6,063 $ 2,574 $ 2,070
Other Income
Commissions and fees from fiduciary
activities $ 805 $ 615 $ 293 $ 191
Service charges on deposit accounts 820 685 268 222
Net gains (losses) on securities
available for sale (11) (64) - (12)
Other operating income 516 274 206 110
----------- ----------- ------------ ------------
Total other income $ 2,130 $ 1,511 $ 767 $ 511
Other Expense $ 242 $ 153 $ 81 $ 56
Advertising
Salaries and employee benefits 3,259 2,738 1,132 981
Net occupancy expense of premises 716 614 253 233
Other operating expenses 1,633 1,320 514 396
----------- ----------- ------------ ------------
Total other expense $ 5,850 $ 4,825 $ 1,980 $ 1,666
----------- ----------- ------------ ------------
Income before income taxes $ 3,456 $ 2,749 $ 1,361 $ 915
Income taxes 823 627 362 159
=========== =========== ============ ============
Net income $ 2,633 $ 2,122 $ 999 $ 756
=========== =========== ============ ============
Earnings per weighted average share:
(1999 - 1,778,994, 1998-1,810,748 shares)
Net income per share, basic $ 1.48 $ 1.17 $ 0.56 $ 0.42
Net income per share, diluted $ 1.47 $ 1.16 $ 0.55 $ 0.41
Dividends per share $ 0.51 $ 0.45 $ 0.17 $ 0.15
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
Independent Community Bankshares, Inc.
Consolidated Statement of Changes in Shareholders' Equity
For the Nine Months Ended September 30, 1999 and 1998
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Capital Comprehensive Retained Comprehensive
Stock Surplus Income (Loss) Earnings Income Total
----------- ----------- ------------------ ----------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances - December 31, 1997 $ 9,063 $ 1,948 $ (199) $ 10,874 $ - $ 21,686
Comprehensive Income
Net income 2,122 2,122 2,122
Other comprehensive income
net of tax: -
Unrealized gain on available for
sale securities 493
Reclassification adjustment for 42
losses realized in net income -----------------
Other comprehensive income, net of tax 535 535 535
-----------------
Total comprehensive income $ 2,657
=================
Cash dividends (1,086) (1,086)
Acquisition of common stock (168) (655) (823)
----------- ----------- ------------------ ----------- ----------
Balances - September 30, 1998 $ 8,895 $ 1,293 $ 336 $ 11,910 $ 22,434
=========== =========== ================== =========== ==========
Balances - December 31, 1998 $ 8,895 $ 1,293 $ 180 $ 12,495 $ - $ 22,863
Comprehensive Income
Net income 2,633 2,633 2,633
Other comprehensive income
net of tax (1,565)
Unrealized loss on available for
sale securities
Reclassification adjustment for
gains realized in net income 7
-----------------
Other comprehensive income, net of tax (1,558) (1,558) (1,558)
-----------------
Total comprehensive income $ 1,075
=================
Cash dividends declared (909) (909)
----------- ----------- ------------------ ----------- ----------
Balances - September 30, 1999 $ 8,895 $ 1,293 $ (1,378) $ 14,219 $ 23,029
=========== =========== ================== =========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
Independent Community Bankshares, Inc.
Consolidated Statement of Cash Flows
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
---------------------------------
September 30, September 30,
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,633 $ 2,122
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 328 135
Depreciation and amortization 490 174
Net (gains) losses on securities available for sale 11 64
Discount accretion and premium amortization on securities, net 63 159
Deferred taxes -- (15)
Net (gains) losses on sale of assets (6) --
Net loss on sale of other real estate 5 --
Originations of loans held for sale (22,136) (5,069)
Proceeds from sales of loans held for sale 22,903 3,716
(Increase) decrease in prepaid income taxes (56) 62
(Increase) decrease in other assets (2,492) 1,251
Increase (decrease) in other liabilities (19) 290
-------- --------
Net cash provided by operating activities $ 1,724 $ 2,889
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity, principal paydowns and calls on
investment securities $ 388 $ 3,024
Proceeds from maturity, principal paydowns and
calls of securities available for sale 4,693 6,639
Proceeds from sale of investment securities 501
Proceeds from sale of securities available for sale 1,988 2,311
Proceeds from sale of bank premises and equipment 117 --
Purchase of investment securities (250) --
Purchase of securities available for sale (15,168) (5,995)
Net (increase) in loans (19,333) (12,922)
Proceeds from sale of other real estate 195 --
Purchases of bank premises and equipment (1,139) (162)
-------- --------
Net cash (used in) investing activities $(28,008) $ (7,105)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts,
and savings accounts $ 18,884 $ 12,888
Net (decrease) increase in certificates of deposits 4,413 (1,936)
Proceeds from Federal Home Loan Bank advances -- 5,000
Dividends declared (909) (1,086)
Acquisition of common stock -- (823)
Payment on Federal Home Loan Bank advances (7,000) (2,800)
New borrowings for Federal Home Loan Bank Advances 6,000 --
Increase (decrease) in securities sold under agreement to
repurchase 4,538 449
-------- --------
Net cash provided by financing activities $ 25,926 $ 11,692
Increase in cash and cash equivalents $ (358) $ 7,476
CASH AND CASH EQUIVALENTS
Beginning $ 12,813 $ 8,609
======== ========
Ending $ 12,455 $ 16,085
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $ 3,740 $ 2,434
Income taxes $ 879 $ 505
SUPPLEMENTAL DISCLOSURES FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Unrealized gain (loss) on securities available for sale $ (2,359) $ (9)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
6
<PAGE>
Independent Community Bankshares, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
For the Nine Months Ended September 30, 1999 and 1998
Note 1.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September 30,
1999 and the results of operations and changes in cash flows for the nine months
ended September 30, 1999 and 1998. The statements should be read in conjunction
with the Notes to Consolidated Financial Statements included in the Company's
Annual Report for the year ended December 31, 1998. The results of operations
for the nine month periods ended September 30, 1999 and 1998 are not necessarily
indicative of the results to be expected for the full year.
Note 2. Securities
<TABLE>
<CAPTION>
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
-------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 250 $ - $ (19) $ 231
Obligations of states and
political subdivisions 11,050 99 (6) 11,143
Mortgaged backed securities 114 - (1) 113
============== ============ ============== ==============
$ 11,414 $ 99 $ (26) $ 11,487
============== ============ ============== ==============
</TABLE>
Securities available for sale as of September 30, 1999 are summarized
below:
<TABLE>
<CAPTION>
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
-------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 4,027 $ - $ (101) $ 3,926
Corporate securities 2,447 30 (207) 2,270
Obligations of states and
political subdivisions 19,172 4 (1,128) 18,048
Mortgaged backed securities 26,790 3 (692) 26,101
Other 1,441 - - 1,441
-------------- ----------- ---------------- --------------
$ 53,877 $ 37 $ (2,128) $ 51,786
============== =========== ================ ==============
</TABLE>
7
<PAGE>
Note 3.
The consolidated loan portfolio is composed of the following:
<TABLE>
<CAPTION>
---------------------------------------
September 30, December 31,
1999 1998
---------------------------------------
(In Thousands)
<S> <C> <C>
Commercial, financial and agricultural $ 17,819 $ 18,880
Real estate construction 11,357 5,436
Real estate mortgage 105,698 93,584
Installment loans to individuals 9,609 8,095
-------------- ----------------
Total loans 144,483 125,995
Less: Unearned income - -
Allowance for loan losses (1,313) (1,063)
-------------- ----------------
Loans, net $ 143,170 $ 124,932
============== ================
</TABLE>
The Company had $454,000 in non-performing assets at September 30,
1999.
Note 4. Reserve for Loan Losses
The following is a summary of transactions in the reserve for loan
losses:
-----------------------------------
September 30, December 31,
1999 1998
-----------------------------------
(In Thousands)
Balance at January 1 $ 1,063 $ 974
Provision charged to operating expense 328 135
Recoveries added to the reserve 26 40
Loan losses charged to the reserve (104) (86)
---------------- ----------------
Balance at the end of the period $ 1,313 $ 1,063
================ ================
8
<PAGE>
Note 5. Earnings Per Share
The following table shows the weighted average number of shares used in
computing earnings per share and the effect on the weighted average number of
shares of potential dilutive common stock. Potential dilutive common stock has
no effect on income available to common shareholders.
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
Per share Per share
Shares Amount Shares Amount
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Basic EPS 1,778,994 $ 1.48 1,810,748 $ 1.17
================ ===============
Effect of dilutive
securities:
Stock options(1) 16,262 19,558
--------------- ---------------
Diluted EPS 1,795,256 $ 1.47 1,830,325 $ 1.16
=============== ================ =============== ===============
</TABLE>
The anti-dilutive effects of 32,000 options were not included in the
calculation.
Note 6. New Accounting Pronouncements
FASB Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued in June 1998. This statement requires companies
to record derivatives on the balance sheet as assets and liabilities, measured
at fair value. Gains and losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. This statement is not expected to
have a material impact on the Company's financial statements. This statement is
effective for fiscal years beginning after June 15, 1999, with earlier adoption
encouraged. The Company will adopt this accounting standard as required by
January 1, 2001.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Summary
Net income for the nine months ended September 30, 1999 increased
24.08% to $2.6 million or $1.47 per diluted share compared to $2.1 million or
$1.16 per diluted share for the first nine months of 1998. Annualized returns on
average assets and equity for the nine months ended September 30, 1999 were
1.61% and 15.27%, respectively, compared to 1.48% and 12.67% for the same period
in 1998.
Total assets for Independent Community Bankshares, Inc. (the "Company")
increased to $232.1 million at September 30, 1999 compared to $205.4 million at
December 31, 1998, representing an increase of $26.7 million or 13.00%. Total
loans at September 30, 1999 were $143.2 million, an increase of $18.3 million
from the December 31, 1998 balance of $124.9 million. The driving forces behind
the loan growth include a good local economy as well as the customers' desire to
seek a local financial institution that has the ability to make decisions
locally regarding credit. The investment portfolio increased 9.34% to $63.2
million at September 30, 1999 compared to $57.8 million at December 31, 1998.
Funds from deposit growth not used for loans were used to purchase both
obligations of U.S. government and municipalities. Deposits increased $23.3
million to $196.0 million from $172.7 million at December 31, 1998. Growth in
the transactional accounts account for $10.3 million of the increase during the
first nine months of 1998. Branch expansion and increased advertising have
promoted awareness of the Company resulting in additional business.
Shareholders' equity was $23.0 million at September 30, 1999. This
represents an increase of .44% from the December 31, 1998 balance of $22.9
million. The book value per common share was $12.95 at September 30, 1999 and
$12.85 at December 31, 1998.
The Company opened two branches within Loudoun County and introduced
internet banking during the second quarter of 1999.
Net Interest Income
Net interest income is the Company's primary source of earnings and
represents the difference between interest and fees earned on earning assets and
the interest expense paid on deposits and other interest bearing liabilities.
Net interest income totaled $7.5 million for the first nine months of 1999
compared to $6.2 million for the same period in 1998. The increase is largely
due to growth in the average earning assets and a strong net interest margin.
Noninterest Income
Noninterest income consisting of fees from deposit accounts, fiduciary
activities as well as mortgage banking was $2.1 million for the first nine
months of 1999 compared to $1.5 million for the same period in 1998. Service
charges on deposit accounts for the first nine months of 1999 totaled $820
thousand compared to $685 thousand for the same period in 1998, an increase of
19.71%. Commissions and fees from fiduciary activities were $805 thousand for
the nine month period ending September 30, 1999 compared to $685 thousand for
the same period in 1998. Other operating income increased to $516 thousand for
the nine months ending September 30, 1999 compared to $275 for the same period
in 1998. Commissions from the mortgage banking department account for a majority
of the increase in other operating income. The mortgage banking department
opened for business in April 1998.
Noninterest Expense
Total noninterest expenses include employee related costs, occupancy
and equipment expense and other overhead. Total noninterest expense was $5.9
million for the first nine months of 1999 compared to $4.8 million for the same
period in 1998. This is a 20.8% increase from 1998 to 1999. Salary and benefit
expense increased 16.0%
10
<PAGE>
from $2.7 million for the nine months ending September 30, 1998 to $3.3 million
for the nine months ending September 30, 1999. Net occupancy expense of premises
increased 16.6% from $614 thousand for the nine months ending September 30, 1998
to $716 thousand for the nine months ending September 30, 1999. Two new
branches, continued branch growth on existing branches and mortgage banking
continue to drive the increase in salary and employee benefit and occupancy
expenses. During 1998, the Company implemented a new marketing strategy that
continues throughout 1999. This new approach has increased advertising expenses
by 58.8% from $153 thousand for the first nine months of 1998 to $242 thousand
for the same period in 1999.
Allowance for Loan Losses
The allowance for loan losses at September 30, 1999 was $1.3 million
compared to $1.1 million at September 30, 1998. The provision for loan losses
for the first nine months of 1999 was $328 thousand compared to $135 thousand
for the same period of 1998. The growth in the loan portfolio has caused the
ratio of the allowance for loan losses to total loans to decrease from .95% at
September 30, 1998 to .91% at September 30, 1999. The decrease of the ratio of
allowance for loan losses to total loans has fueled the increase in the
provision for loan losses in 1999. Management believes the allowance for loan
losses is adequate to cover credit losses inherent in the loan portfolio at
September 30, 1999. Loans classified as loss, doubtful, substandard or special
mention are adequately reserved for and are not expected to have a material
impact beyond what has been reserved.
Capital Resources
Shareholders' equity at September 30, 1999 and September 30, 1998 was
$23.0 million and $22.9 million, respectively. The payment of dividends to
shareholders as well as the decrease in the market value of the investment
portfolio are the contributing factors to lack of growth in shareholders'
equity.
At September 30, 1999 the Company's tier 1 and total risk-based capital
ratios were 14.7% and 15.5%, respectively, compared to 17.1% and 17.9% at
December 31, 1998. The Company's leverage ratio was 10.7% at September 30, 1999
compared to 11.2% at December 31, 1998. The Company's capital structure places
it above the regulatory guidelines which affords the Company the opportunity to
take advantage of business opportunities while ensuring that it has resources to
protect against risk inherent in its business.
Year 2000
The year 2000 issue is defined as the inability of certain computerized
devices (hardware, software and equipment) to process the century date properly
after 1999. Although the actual magnitude and effect of the issue cannot be
reasonably determined in advance, the Company has given the issue a high
priority by appointing a Year 2000 team. The Year 2000 team includes eight
members representing all areas and subsidiaries of the Company.
In 1997 the Year 2000 team began its analysis of the possible
implication to the Company of the year 2000 issue and the development of a plan
to prevent the problem from adversely affecting its operations. The Company's
year 2000 plans are subject to guidelines promulgated by the Federal Financial
Institutions Examination Council ("FFIEC"). The Federal Reserve Bank of Richmond
regularly measures the status of the Company's plans and progress with site
visits and teleconferences.
The plan as adopted and refined by the Company to handle year 2000
issues can be divided into two principal areas:
(1) Resolution of the internal aspects of the year 2000 issue. The
focus of this area includes the effects of the year 2000 issue on
the Company's technology, including computer hardware and
software systems. The Company's internal technology plan includes
(a) locating, listing and prioritizing the specific technology
that is potentially subject to the year 2000 issue (referred to
as the "inventory" phase), (b) assessing the actual exposure of
such technology to the year 2000 issue by inquiry, research,
testing and other means (the "assessment" phase), (c) selecting
the method necessary to resolve the year 2000 issues that were
identified, including replacement, upgrade, repair or abandonment
and implementing the selected
-11-
<PAGE>
resolution method (the "remediation" phase), and (d) testing the
remediated or converted technology to determine the efficacy of
the resolutions (the "testing" phase).
(2) Determination and control of the external aspects of the year
2000 issue. The focus of this area includes (a) assessing the
potential for credit and liquidity risks within the Company as a
result of the investments in, loans to and deposits from our
significant customers, as well as the risk of possible business
interruption by relying on vendors of goods and services due to
year 2000 issues affecting their technology or business, and (b)
developing contingency plans to address failures by external
parties to remediate fully any year 2000 issues that are material
to the Company. Assessment of external parties is accomplished by
written and verbal inquiry and by research to the extent that
reliable information is available.
The Year 2000 team has spent considerable time testing both the
internal and external applications deemed as "mission critical" to daily
business operations. These applications affect the Company's customer
information files. The testing was finalized by March 31, 1999 to confirm
compliance with year 2000 data processing standards. In March 1999, the Company
converted to a new automated teller machine service processor to complete the
last conversion of a "mission critical" link. The processor has been tested and
determined to be year 2000 compliant. The total cost of remediation and testing
is estimated to be between $250 thousand and $350 thousand, with a majority of
the costs being incurred during 1998 and early 1999. This estimate includes some
costs, such as the purchase of computer hardware and software that qualifies as
a depreciable or amortizable assets for accounting purposes, with the related
depreciation or amortization recognized over the estimated lives of the related
assets. However, the majority of the costs will be expensed as incurred. Through
December 31, 1998, the Company had incurred approximately $200 thousand in
noninterest expense associated with the year 2000 problem. Included in
noninterest expense for the first nine months of 1999 is $100 thousand of
expense associated with the year 2000 problem.
The Company has developed a program to continually assess the year 2000
risk amongst its large loan customers. The loan officers have been trained to
complete a precredit year 2000 analysis for all new large loans and renewing
large loans. The program tracks the progress towards year 2000 compliancy of the
identified customers. Loan documents contain convenants regarding the customer's
responsibility towards bringing their company within compliance. Additionally,
letters have been sent to the Company's large commercial customers to inquire of
their year 2000 status. Responses to the letters will be analyzed and any
concerns will be discussed with the Senior Loan Officer.
The Company and its Year 2000 team feel strongly that customer
education and awareness are crucial to the success of year 2000 plan. The
Company hosted a public forum in March 1999 with a representative from the
Federal Reserve Bank of Richmond and the Year 2000 Team. Customers received a
Year 2000 Readiness Question and Answer Disclosure about the Company's status.
In addition, a Year 2000 newsletter was sent out with customers' October 1999
deposit statements. The Year 2000 newsletter discusses the Company's position on
Year 2000 and also fraudulent activity for its customers to look out for related
to year 2000. Updated year 2000 information has been posted on the Company's
website. The Year 2000 team continues to provide employee training about the
status of the Company's year 2000 plan.
The Year 2000 team has developed a contingency plan for areas deemed
"mission critical" for continual operation. The contingency plan considers the
likelihood of problem occurrences based on test results. The Company's
contingency plan addresses operational issues, including communication links
with other entities and the utility and availability of alternative sources
among key vendor relationships. The Company's Board of Directors approved the
contingency plan early in 1999. Testing of the contingency plan began in late
third quarter and will continue through the fourth quarter of 1999. The Year
2000 team will monitor the status of the plan's testing progress.
Maintaining adequate cash reserves and liquidity during the fourth
quarter of 1999 is another priority to management. During the third quarter,
management implemented a plan to build cash reserves based on subjective
assumptions about the potential of unusual cash withdrawals by its customers. In
light of the increased cash reserves, management has provided for increased
security during the fourth quarter. At this time management feels confident that
it has adequately provided for cash needs at year end.
-12-
<PAGE>
At this time, the Company believes that the most likely worst case year
2000 scenario would not have a material effect on the Company's results of
operations, liquidity and financial condition for the year ending December 31,
2000. The Company does not foresee a material loss of revenue due to the year
2000 problem. However, the Company's contingency plan is based on assessments of
the likelihood of a problematic occurrence. The Company believes that no entity
can address the virtually unlimited possible circumstances relating to year 2000
issues, including risks outside of the Company's primary marketplace of Loudoun
County, Virginia. While considered unlikely, the failure of the Company to
successfully implement its year 2000 plan, including modifications and
conversions, or to adequately assess the likelihood of various events relating
to the year 2000 issue, could have a material adverse effect on the Company's
results of operations and financial condition.
Additionally, there can be no assurances that the federal regulators
will not issue new regulatory requirements that require additional work by the
Company and, if issued, that new regulatory requirements will not increase the
cost or delay the completion of the Company's year 2000 plan.
The cost of the project and the date on which the Company plans to
complete the year 2000 modifications are based on management's best estimates,
which are based on numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. There can be no guarantee that these estimates will be achieved and
actual results could differ materially from our plans. Specific factors that
might cause such material differences include, but are not limited to, the
availability of personnel trained in this area, the ability of third party
vendors to correct their software and hardware, the ability of significant
customers to remedy their year 2000 issues and similar uncertainties.
Forward-Looking Statements
Certain information contained in this discussion may include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements are generally identified by phrases
such as "the Company expects," "the Company believes" or words of similar
import. Such forward-looking statements involve known and unknown risks
including, but not limited to, problems with technology utilized by the Company
as described above, changes in general economic and business conditions,
interest rate fluctuations, competition within and from outside the banking
industry, new products and services in the banking industry, risk inherent in
making loans such as repayment risks and fluctuating collateral values, changing
trends in customer profiles and changes in laws and regulations applicable to
the Company. Although the Company believes that its expectations with respect to
the forward-looking statements are based upon reliable assumptions within the
bounds of its knowledge of its business and operations, there can be no
assurance that actual results, performance or achievements of the Company will
not differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements.
13
<PAGE>
Part II. Other information
Item 1. Legal proceedings.
None
Item 2. Change in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
On August 9, 1999, the Company purchased 100 shares (the "Shares") of
the capital stock of Gilkison Patterson Investment Advisers, Inc., an investment
advisory firm based in Alexandria, Virginia ("GPIA.") The Shares represent one
percent of the issued and outstanding capital stock of GPIA. In connection with
this purchase, the Company acquired the right (the "Merger Option") to purchase
all the remaining authorized, issued and outstanding shares of GPIA capital
stock on or after July 1, 2001 and thereafter cause the merger of GPIA into the
Company's wholly-owned subsidiary, The Tredegar Trust Company ("TTC"), both
pursuant to a Stock Purchase and Redemption Agreement dated August 9, 1999
between the Company and GPIA, an Agreement and Plan of Reorganization dated
August 9, 1999 by and among the Company, GPIA, and TTC, and certain related
agreements. The consideration for the Shares and the Merger Option consisted of
$2.26 million in cash and other non-stock consideration. Upon exercise of the
Merger Option, the Company will purchase all of the remaining issued and
outstanding shares of GPIA capital stock for an additional $3.8 million in cash
and shares of the Company's common stock, and GPIA will be merged into TTC, with
TTC remaining as the surviving corporation.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
10.1 Agreement and Plan of Reorganization dated as of August 9, 1999,
between Gilkison & Patterson Investment Advisors, Inc. and the
Company and The Tredegar Trust Company.
10.2 Shareholder Agreement dated as of August 9, 1999, between Robert
C. Gilkison, James H. Patterson, the Company and Gilkison &
Patterson Investment Advisors, Inc.
10.3 Stock Purchase Agreement dated as of August 9, 1999, between
Robert C. Gilkison, James H. Patterson and the Company.
27 Financial Data Schedule (filed electronically only).
b) Reports on Form 8-K - None
14
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDEPENDENT COMMUNITY BANKSHARES, INC.
(Registrant)
Date: 11/15/99 /s/ Joseph L. Boling
----------------- --------------------------------------
Joseph L. Boling
Chairman of the Board & CEO
Date: 11/15/99 /s/ Alice P. Frazier
----------------- --------------------------------------
Alice P. Frazier
Senior Vice President & CFO
15
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
10.1 Agreement and Plan of Reorganization dated as of August 9, 1999,
between Gilkison & Patterson Investment Advisors, Inc. and the
Company and The Tredegar Trust Company.
10.2 Shareholder Agreement dated as of August 9, 1999, between Robert
C. Gilkison, James H. Patterson, the Company and Gilkison &
Patterson Investment Advisors, Inc.
10.3 Stock Purchase Agreement dated as of August 9, 1999, between
Robert C. Gilkison, James H. Patterson and the Company.
27 Financial Data Schedule (filed electronically only).
Exhibit 10.1
AGREEMENT AND PLAN OF REORGANIZATION
between
Gilkison & Patterson Investment Advisors, Inc.
and
Independent Community Bankshares, Inc.
and
The Tredegar Trust Company
August 9, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
The Reorganization and Related Matters
<TABLE>
<CAPTION>
Page
<S> <C>
1.1 The Reorganization................................................... 1
1.2 The Closing and Effective Date....................................... 2
1.3 Definitions.......................................................... 2
ARTICLE 2
Basis and Manner of Exchange
2.1 Conversion of G&P Common Stock....................................... 4
2.2 Manner of Exchange................................................... 4
2.3 Fractional Shares.................................................... 4
2.4 Dividends............................................................ 4
ARTICLE 3
Representations and Warranties
3.1 Representations and Warranties of G&P................................ 5
(a) Organization and Standing................................... 5
(b) Authority................................................... 5
(c) Capital Structure........................................... 5
(d) Ownership of the Stock...................................... 6
(e) Financial Statements........................................ 6
(f) Absence of Undisclosed Liabilities.......................... 6
(g) Legal Proceedings; Compliance with Laws..................... 6
(h) Investment Advisory Activities.............................. 7
(i) Reports..................................................... 9
(j) Regulatory Approvals........................................ 9
(k) Labor Relations............................................. 10
(l) Tax Matters................................................. 10
(m) Property.................................................... 10
(n) Employee Benefits........................................... 11
(o) Investment Securities....................................... 11
(p) Material Contracts.......................................... 11
(q) Insurance................................................... 11
(r) Absence of Material Changes and Events...................... 12
(s) Brokers and Finders......................................... 12
<PAGE>
(t) Environmental Matters....................................... 12
(u) Year 2000 Compliance........................................ 13
3.2 Representations and Warranties of ICBI............................... 13
(a) Organization, Standing and Power............................ 13
(b) Authority................................................... 14
(c) Capital Structure........................................... 14
(d) Financial Statements........................................ 14
(e) Regulatory Approvals........................................ 15
(f) Absence of Material Changes and Events...................... 15
ARTICLE 4
Conduct Prior to the Effective Date
4.1 Access to Records and Properties..................................... 15
4.2 Confidentiality...................................................... 15
4.3 Forbearances of G&P.................................................. 16
(a) Ordinary Course............................................. 16
(b) Capital Stock............................................... 16
(c) Stock Splits, Etc........................................... 16
(d) Compensation; Employment Agreements; Etc.................... 16
(e) Benefit Plans............................................... 16
(f) Dispositions................................................ 16
(g) Acquisitions................................................ 17
(h) Governing Documents......................................... 17
(i) Contracts................................................... 17
(j) Claims...................................................... 17
(k) Adverse Actions............................................. 17
(l) Indebtedness................................................ 17
(m) Commitments................................................. 17
(n) Payables.................................................... 17
4.4 Forbearances of ICBI................................................. 18
4.5 Dividends............................................................ 18
4.6 No Solicitation...................................................... 18
4.7 Regulatory Applications and Approvals................................ 18
4.8 Client Consents...................................................... 18
4.9 Reorganization Consummation.......................................... 19
4.10 Bank Accounts........................................................ 19
4.11 Modification of Transaction.......................................... 19
4.12 Certain Payments..................................................... 19
4.13 Custody ............................................................ 19
4.14 Succession........................................................... 19
ii
<PAGE>
4.15 Fiscal Year.......................................................... 19
ARTICLE 5
Additional Agreements
5.1 Benefit Plans........................................................ 20
5.2 Restricted Stock..................................................... 20
5.3 Indemnification...................................................... 20
ARTICLE 6
Conditions to the Reorganization
6.1 Conditions to Each Party's Obligations to Effect the Reorganization.. 23
(a) Regulatory Approvals........................................ 23
(b) Opinions of Counsel......................................... 23
(c) Legal Proceedings........................................... 23
6.2 Conditions to Obligations of ICBI.................................... 23
(a) Representations and Warranties.............................. 24
(b) Performance of Obligations.................................. 24
(c) Client Consents............................................. 24
6.3 Conditions to Obligations of G&P..................................... 24
(a) Representations and Warranties.............................. 24
(b) Performance of Obligations.................................. 24
ARTICLE 7
Termination
7.1 Termination.......................................................... 24
7.2 Effect of Termination................................................ 25
7.3 Survival of Representations, Warranties and Covenants................ 25
7.4 Expenses............................................................. 25
ARTICLE 8
General Provisions
8.1 Entire Agreement..................................................... 26
8.2 Waiver and Amendment................................................. 26
8.3 Descriptive Headings................................................. 26
8.4 Governing Law........................................................ 26
8.5 Notices.............................................................. 26
8.6 Counterparts......................................................... 27
</TABLE>
iii
<PAGE>
Exhibit A - Plan of Merger between The Tredegar Trust Company and Gilkison &
Patterson Investment Advisors, Inc.
Exhibit B - Schedule of Required Third Party Consents [OMITTED]
Exhibit C - Schedule of Registrations Under Security Laws [OMITTED]
Exhibit D-1 - Investment Advisory Contracts [OMITTED]
Exhibit D-2 - Investment Advisory Contracts [OMITTED]
Exhibit D-3 - Investment Advisory Contracts [OMITTED]
Exhibit D-4 - Investment Advisory Contracts [OMITTED]
Exhibit E - Securities Violations [OMITTED]
Exhibit F - Contracts Involving Annual Payments in Excess of $25,000 [OMITTED]
Exhibit G - Insurance [OMITTED]
The Company will provide the omitted exhibits to the Commission upon
request.
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of August 9, 1999 by and between Gilkison & Patterson Investment
Advisors, Inc., a Virginia corporation with its principal office located in
Alexandria, Virginia ("G&P"), Independent Community Bankshares, Inc., a Virginia
corporation with its principal office located in Middleburg, Virginia ("ICBI"),
and The Tredegar Trust Company, a Virginia corporation wholly-owned by ICBI
("TTC" or the "Surviving Corporation").
WITNESSETH:
WHEREAS, pursuant to a Purchase Agreement, dated June 30, 1999 by and
among G&P, Kahn Brothers Investment Management Corporation ("KBIMC"), Robert C.
Gilkison and James H. Patterson (the "Kahn Agreement"), G&P acquired certain
assets and assumed certain liabilities KBIMC; and
WHEREAS, pursuant to the Kahn Agreement, Robert C. Gilkison and James
H. Patterson acquired all of the issued and outstanding shares of the common
stock of G&P (the "G&P Common Stock"); and
WHEREAS, G&P and ICBI desire to combine their respective businesses;
and
WHEREAS, the boards of directors of ICBI, TTC and G&P deem it advisable
to merge G&P into TTC pursuant to this Agreement, the Plan of Merger attached as
Exhibit A (the "Plan") and the provisions of Va. Code Section 13.1-716, whereby
the holders of shares of common stock of G&P will receive common stock of ICBI
and cash in exchange therefor; and
WHEREAS, 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 of 1986, as amended; and
WHEREAS, the respective Boards of Directors of G&P, TTC and ICBI have
resolved that the transactions described herein are in the best interests of the
parties and their respective shareholders and have authorized and approved the
execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
ARTICLE 1
The Reorganization and Related Matters
1.1 The Reorganization. Subject to the terms and conditions of this
Agreement, at the Effective Date as defined in Section 1.2 hereof, G&P will be
merged with and into TTC (the "Reorganization"). The separate corporate
existence of G&P shall thereupon cease, and TTC will be
1
<PAGE>
the Surviving Corporation in the Reorganization.
1.2 The Closing and Effective Date. The closing of the transactions
contemplated by this Agreement and the Plan shall take place at the offices of
Williams, Mullen, Clark & Dobbins, 1021 East Cary Street, Richmond, Virginia or
at such other place as may be mutually agreed upon by the parties. The
Reorganization shall become effective on the date shown on the Certificate of
Merger issued by the State Corporation Commission of Virginia effecting the
Reorganization (the "Effective Date"). The Effective Date shall not occur before
July 1, 2001. All documents required by the terms of this Agreement to be
delivered at or prior to consummation of the Reorganization will be exchanged by
the parties at the closing of the Reorganization (the "Reorganization Closing"),
which shall be held on or before the Effective Date. At the Reorganization
Closing, TTC and G&P shall execute and deliver to the Virginia State Corporation
Commission (the "SCC") Articles of Merger containing a Plan of Merger in
substantially the form of Exhibit A hereto.
1.3 Definitions. Any term defined anywhere in this Agreement shall have
the meaning ascribed to it for all purposes of this Agreement (unless expressly
noted to the contrary). In addition:
(a) the term "Affiliate" shall mean, with respect to ICBI, any
corporation of which ICBI beneficially owns a majority of the voting stock.
(b) the term "Fair Market Value", with respect to shares of
ICBI Common Stock, shall mean the weighted average sale price for sales of ICBI
Common Stock for the thirty (30) days on which ICBI Common Stock trades
immediately preceding the tenth day before the Effective Date.
(c) the term "ICBI" shall mean Independent Community
Bankshares, Inc., a Virginia corporation, and any corporation with which it may
merge prior to the Effective Date.
(d) the term "ICBI Common Stock" shall mean common stock of
ICBI, par value $5.00 per share, and the common stock of any corporation with
which ICBI may merge prior to the Effective Date.
(e) "Knowledge" of a Person shall mean what the Person should
have known after a reasonable investigation.
(f) "Material Adverse Effect," when used in reference to any
party, shall mean or describe an event, occurrence, or circumstance (including
without limitation, any breach of a representation or warranty contained herein
by such party) which (1) has an effect on the financial condition, results of
operations, or business of such party and its subsidiaries, that, if reduced to
monetary damages, would be in excess of $50,000 or (2) would materially impair
any party's ability to timely perform its obligations under this Agreement or
the consummation of any of the transactions contemplated hereby; provided, that
a Material Adverse Effect with respect to a party shall not include events or
conditions generally affecting the securities industry or the banking industry
or effects resulting from general economic conditions (including changes in
interest
2
<PAGE>
rates), changes in accounting practices or changes to statutes, regulations or
regulatory policies, that do not have a materially more adverse effect on such
party than that experienced by similarly situated financial services companies.
(g) the term "Merger Consideration" shall mean, with respect
to each share of G&P Common Stock issued and outstanding on the Effective Date,
a pro rata share of (A) $1,300,000.00 in cash and (B) shares of ICBI Common
Stock, with an aggregate Fair Market Value of $2,500,000.00; provided, however,
that ICBI shall not be required to issue more than 150,000 shares of ICBI Common
Stock. If the fair market value of 150,000 shares of ICBI Common Stock is less
than $2,500,000.00, the cash portion of the Merger Consideration shall be
increased by an amount equal to the excess of $2,500,000.00 over the Fair Market
Value of 150,000 shares of ICBI Common Stock, such that the total value of the
Merger Consideration is $3,800,000.00. On the day before the Effective Date, G&P
shall redeem one percent (1%) of the issued and outstanding shares of G&P Common
Stock from ICBI for $60,000.00.
(h) the term "Person" shall mean any individual or entity.
(i) the term "Previously Disclosed" by a party shall mean
information set forth in a written disclosure letter that is delivered by that
party to the other party prior to or contemporaneously with the execution of
this Agreement and on a date not more than 30 days prior to the Effective Date
and, in each case, specifically designated as information "Previously Disclosed"
pursuant to this Agreement.
(j) the term "Shareholders" shall mean Robert C. Gilkison and
James H. Patterson.
(k) The capitalized terms set forth below are defined in the
following sections:
Company Reports Section 3.1(i)
Investment Contracts Section 3.1(h)(1)
Kahn Agreement Recitals
Lien Section 3.1(b)(2)
Losses Section 5.3(b)
NASD Section 3.1(i)
Regulatory Authorities Section 3.1(g)(7)
SEC Section 3.1(g)(7)
Self-Regulatory Bodies Section 3.1(i)
Territory Section 3.1(m)(2)
G&P Balance Sheet Section 3.1(e)
G&P Financial Statements Section 3.1(e)
3
<PAGE>
ARTICLE 2
Effect of Reorganization on Common Stock
2.1 Conversion of G&P Common Stock. (a) At the Effective Date, by
virtue of the Reorganization and without any action on the part of the holders
thereof, each share of G&P Common Stock issued and outstanding on the Effective
Date shall cease to be outstanding and shall be converted into the right to
receive the Merger Consideration.
(b) Each holder of a certificate representing any shares of G&P Common
Stock shall thereafter cease to have any rights with respect to such G&P Common
Stock, except the right to receive the consideration described in Sections 2.1
and 2.3 upon the surrender of such certificate in accordance with Section 2.2.
(c) In the event ICBI changes the number of shares of ICBI Common Stock
issued and outstanding prior to the Effective Date, as a result of any stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding ICBI Common Stock and the record date therefor shall be on or
prior to the Effective Date, the number of shares of ICBI Common Stock issued as
part of the Merger Consideration shall be proportionately adjusted.
2.2 Manner of Exchange. As promptly as practicable after the Effective
Date, ICBI shall cause its stock transfer agent, acting as the exchange agent
("Exchange Agent"), to send to each former shareholder of record of G&P
immediately prior to the Effective Date transmittal materials for use in
exchanging such shareholder's certificates of G&P Common Stock for the
consideration set forth in Section 2.1 above and Section 2.3 below. Any
fractional share checks which a G&P shareholder shall be entitled to receive in
exchange for such shareholder's shares of G&P Common Stock, and all dividends
paid on any shares of ICBI Common Stock that such shareholder shall be entitled
to receive prior to the delivery to the Exchange Agent of such shareholder's
certificates representing all of such shareholder's shares of G&P Common Stock
will be delivered to such shareholder only upon delivery to the Exchange Agent
of the certificates representing all of such shares (or indemnity satisfactory
to ICBI and the Exchange Agent, in their judgment, if any of such certificates
are lost, stolen or destroyed). No interest will be paid on any such fractional
share checks or dividends to which the holder of such shares shall be entitled
to receive upon such delivery.
2.3 Fractional Shares. ICBI shall not issue fractional shares. ICBI
will pay the value of such fractional shares in cash on the basis of the Fair
Market Value per share of ICBI Common Stock.
2.4 Dividends. No dividend or other distribution payable to the holders
of record of ICBI Common Stock at or as of any time after the Effective Date
shall be paid to the holder of any certificate representing shares of G&P Common
Stock issued and outstanding at the Effective Date until such holder physically
surrenders such certificate for exchange as provided in Section 2.2 of this
Agreement, promptly after which time all such dividends or distributions shall
be paid (without interest).
4
<PAGE>
ARTICLE 3
Representation and Warranties
3.1 Representations and Warranties of G&P. G&P represents and warrants
to ICBI as follows:
(a) Organization and Standing. (1) G&P is a corporation, duly
organized, validly existing and in good standing under Virginia law and is duly
qualified to do business and is in good standing in the states of the United
States and foreign jurisdictions where its ownership or leasing of property or
the conduct of its business requires it to be so qualified. G&P has the
corporate power and authority necessary to carry on its business as it is now
being conducted and to own all its material properties and assets. G&P has in
effect all federal, state, local, and foreign governmental authorizations
necessary for it to own or lease its properties and assets and to carry on its
business as it is now conducted.
(2) All of the shares of capital stock of G&P are fully paid
and nonassessable.
(b) Authority. (1) The execution and delivery of this
Agreement and the Plan and the consummation of the Reorganization have been duly
and validly authorized by all necessary corporate action on the part of G&P,
except shareholder approval. The Agreement represents the legal, valid, and
binding obligations of G&P, enforceable against G&P in accordance with its terms
(except in all such cases as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceeding may be brought).
(2) The execution, delivery and performance of this Agreement
by G&P, and the consummation of the transactions contemplated hereby, do not and
will not (i) constitute a breach or violation of, or a default under, or cause
or allow the acceleration or creation of any charge, mortgage, pledge, security
interest, restriction, claim, lien, or encumbrance (a "Lien") (with or without
the giving of notice, passage of time or both) pursuant to any law, rule or
regulation or any judgment, decree, order, governmental or non-governmental
permit or license, or agreement, indenture or instrument of G&P, or to which
G&P, or G&P's properties is subject or bound, (ii) constitute a breach or
violation of, or a default under, G&P's charter or by-laws, or (iii) except as
set forth in Exhibit B, require any consent or approval under any such law,
rule, regulation, judgment, decree, order, governmental or non-governmental
permit or license, or the consent or approval of any other party to any such
agreement, indenture or instrument.
(c) Capital Structure. The authorized capital stock of G&P
consists of 10,000 shares of common stock, par value $1.00 per share, of which,
as of the date hereof, 10,000 shares are issued, outstanding, fully paid and
nonassessable, not subject to shareholder preemptive rights and were not issued
in violation of any agreement to which G&P is a party or otherwise bound, or of
any registration or qualification provisions of any federal or state securities
laws. Robert C. Gilkison is the
5
<PAGE>
record holder and beneficial owner of 4,950 shares of G&P Common Stock; James H.
Patterson is the record holder and beneficial owner of 4,950 such shares; and
ICBI is the record holder and beneficial owner of 100 such shares. There are no
outstanding options, warrants or other rights to subscribe for or purchase from
G&P any capital stock of G&P or securities convertible into or exchangeable for
capital stock of G&P.
(d) Ownership of the Stock. Except for investments that are
permissible for a bank holding company under applicable federal laws and
regulations, G&P does not beneficially own, directly or indirectly, any of the
outstanding capital stock or other voting securities of any corporation or other
organization.
(e) Financial Statements. G&P commenced operations on June 30,
1999. G&P has provided ICBI a balance sheet of G&P, dated as of June 30, 1999
(the "G&P Balance Sheet"). From the date hereof until the Effective Date, within
45 days of the end of each calendar quarter, G&P shall furnish to ICBI a
statement of financial condition and related statements of income, cash flows
and changes in shareholders' equity for each calendar quarter (each a "G&P
Financial Statement). The G&P Balance Sheet fairly presents the financial
position of G&P at June 30, 1999 in conformity with generally accepted
accounting principles. Each G&P Financial Statement will fairly present the
financial position of G&P as of the dates indicated and the results of
operations, changes in shareholders' equity and statements of cash flows for the
periods or as of the dates set forth therein (subject, in the case of unaudited
interim statements, to normal recurring audit adjustments that are not material
in amount or effect) in conformity with generally accepted accounting principles
on a consistent basis.
(f) Absence of Undisclosed Liabilities. At June 30, 1999, G&P
had no obligation or liability (contingent or otherwise) of any nature which was
not reflected in the G&P Balance Sheet, except for those which in the aggregate
are immaterial or have been Previously Disclosed.
(g) Legal Proceedings; Compliance with Laws. (1) There are no
actions, suits or proceedings instituted or pending or, to the best knowledge of
G&P's management, threatened against G&P, or against any property, asset,
interest or right of G&P. G&P is not a party to any agreement or instrument or
subject to any judgment, order, writ, injunction, decree or rule that might
reasonably be expected to have a Material Adverse Effect on the condition
(financial or otherwise), business or prospects of G&P.
(2) The conduct of its business by G&P is not in violation, in
any material respect, of any law, statute, ordinance, license, rule or
regulation (including those of the Self-Regulatory Bodies).
(3) G&P has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations with, all
Regulatory Authorities and Self-Regulatory Bodies that are required in order to
permit it to own and operate its business as presently conducted. All such
permits, licenses, authorizations, orders and approvals are in full
6
<PAGE>
force and effect and no suspension or cancellation of any of them is threatened
or reasonably likely. All such filings, applications and registrations are
current. G&P is in good standing with all relevant Regulatory Authorities and is
a member in good standing with all relevant Self-Regulatory Bodies.
(4) G&P has not received any notification or written
communication (or, to its knowledge, any other communication) from any
Regulatory Authority or Self-Regulatory Body (A) asserting that G&P is not in
compliance with any of the statutes, rules, regulations, or ordinances which
such Regulatory Authority or Self-Regulatory Body enforces, or has otherwise
engaged in any unlawful business practice, (B) threatening to revoke any
license, franchise, permit, governmental authorization, or other privilege, (C)
requiring G&P (including any of G&P's directors or controlling persons) to enter
into a cease and desist order, agreement, or memorandum of understanding (or
requiring the board of directors thereof to adopt any resolution or policy) or
(D) restricting or disqualifying the activities of G&P.
(5) G&P is not aware of any pending or threatened
investigation, review or disciplinary proceeding by any Regulatory Authority or
Self-Regulatory Body against G&P or any officer, director or employee thereof.
(6) Neither G&P nor any officer, director or employee thereof,
is a party or subject to any order, directive, decree, condition or similar
arrangement or action (other than exemptive orders) relating to the business of
G&P, with or by any federal, state, local or foreign regulatory authority or
industry trade group.
(7) G&P and each of its officers and employees who are
required to be registered as an investment adviser, investment adviser
representative or agent with the Securities and Exchange Commission (the "SEC"),
the securities commission of any state or any Regulatory Authority or
Self-Regulatory Body (the "Regulatory Authorities"), is duly registered as such
and such registration is in full force and effect, and a list of all such
registrations is disclosed in Exhibit C. All federal, state and foreign
registration requirements have been complied with in all material respects and
such registrations as currently filed, and all periodic reports required to be
filed with respect thereto, are accurate and complete in all material respects.
(h) Investment Advisory Activities. (1) Disclosed in Exhibit D
is a listing of (i) all of the clients to which G&P provides investment
management, investment advisory or sub-advisory services on the date hereof, and
(ii) each contract or agreement, and all amendments thereto, in effect on the
date hereof relating to G&P's rendering of investment advisory or management
services (including without limitation all sub-advisory services) to any client
(together with any such contract or agreement entered into after the date
hereof, the "Investment Contracts"). Each Investment Contract and any subsequent
renewal has been duly authorized, executed and delivered by G&P and each other
party thereto and, to the extent applicable, has been adopted in compliance with
any statute, order, ordinance, rule or regulation to which such Investment
Contract is subject and is a valid and binding agreement of G&P and each other
party thereto, enforceable in accordance with its terms (subject to bankruptcy,
insolvency, moratorium,
7
<PAGE>
fraudulent transfer and similar laws affecting creditors' rights generally and
to general equity principles). Each of G&P and client party thereto is in
compliance in all material respects with the terms of each Investment Contract
to which it is a party, and is not currently in default under any of the terms
of any such Investment Contract. Each such Investment Contract is in full force
and effect. Except as disclosed in Exhibit D, none of the Investment Contracts,
or any other arrangements or understandings relating to G&P's rendering of
investment advisory or management services (including without limitation all
sub-advisory services), contains any undertaking by a client to cap fees or to
reimburse any or all fees thereunder, and all such Investment Contracts or other
arrangements or understandings provide for the payment of fees. Copies of each
Investment Contract, including a current fee schedule, have been supplied to
ICBI. Except as Previously Disclosed, G&P is not an adviser or sub-adviser to
any Investment Company.
(2) Except as disclosed in Exhibit D, G&P has not received any
notice (written or otherwise) that any client is terminating or is planning to
terminate its relationship with G&P or will reduce materially its use of the
services of G&P.
(3) G&P has properly administered, in all respects material
and which could reasonably be expected to be material to the business,
operations or financial condition of G&P, all accounts for which it acts as
investment advisor, in accordance with the terms of the governing documents and
applicable law and regulation and common law. To the best knowledge of G&P,
neither G&P nor any director, officer or employee of G&P has committed any
breach with respect to any such account. The accountings for each such account
are true and correct in all respects and accurately reflect the assets of such
account in all respects.
(4) Listed in Exhibit D is each client that is subject to
ERISA. The accounts of each such client have been managed by G&P in compliance
in all material respects with the applicable requirements of ERISA.
(5) No basis exists upon which G&P would have any material
liability to any client except such liabilities arising in the ordinary course
of business.
(6) G&P has adopted a formal code of ethics and a written
policy regarding insider trading, a copy of each of which has been provided or
supplied to ICBI. Such code and policy comply with Section 17(j) of the
Investment Company Act of 1940 (as amended, the "Investment Company Act"), Rule
17j-1 thereunder and Section 204A of the Investment Advisers Act of 1940 (as
amended, the "Investment Advisers Act"), respectively. The policies of G&P with
respect to avoiding conflicts of interest are as set forth in the most recent
Form ADV thereof, as amended, a copy of which has been delivered or made
available to ICBI, and G&P's "soft-dollar" policies and arrangements satisfy the
requirements of Section 28(e) of the Securities Exchange Act of 1934 (as
amended, the "Exchange Act") and all other applicable laws and regulations.
There have been no violations or allegations of violations of such policies.
(7) Except as disclosed in Exhibit E, neither G&P nor any
other person "associated" (as defined under the Investment Advisers Act) with
G&P, has for a period not less
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than five years prior to the date hereof been convicted of any crime or is or
has been subject to any disqualification that would be a basis for denial,
suspension or revocation of registration of an investment adviser under Section
203(e) of the Investment Advisers Act or Rule 206(4)-4(b) thereunder or of a
broker-dealer under Section 15 of the Exchange Act, or for disqualification as
an investment adviser for any Investment Company pursuant to Section 9(a) of the
Investment Company Act or as an investment adviser representative under any
applicable state or federal law, and there is no basis for, or proceeding or
investigation that is reasonably likely to become the basis for, any such
disqualification, denial, suspension or revocation.
(8) As of the date of this Agreement, G&P has disclosed to all
clients of KBIMC the transactions contemplated by the Kahn Agreement, including
but not limited to, the assignment of the Investment Contracts contemplated by
the Kahn Agreement, which disclosure (i) is true, complete and correct in all
material respects, and (ii) satisfies all applicable requirements of the
Investment Advisers Act and the regulations promulgated thereunder. As to any
client of KBIMC with an Investment Contract that terminates by its terms upon
assignment, G&P has caused such client to enter into a new agreement effective
as of June 30, 1999 on terms and conditions no less favorable than the client's
existing contract with KBIMC which contract complies with the Investment
Advisers Act and the regulations promulgated thereunder. Any such new agreement
shall be deemed an assigned contract for the purposes of the preceding sentence.
(9) G&P is not required to be registered as a broker-dealer
under any state or federal law.
(i) Reports. G&P has timely filed (and, for the past five (5)
years each person associated with G&P has timely filed) all reports,
registrations, statements and other filings, together with any amendments
required to be made with respect thereto, with (i) the SEC, (ii) any other
applicable federal, state or foreign securities, banking, insurance, or other
regulatory authority, and (iii) the National Association of Securities Dealers,
Inc. ("NASD"), or any other self-regulatory body or industry trade group (the
"Self-Regulatory Bodies")(all such reports and statements being collectively
referred to herein as the "Company Reports"), including without limitation all
reports, registrations, statements and filings required under the Investment
Company Act, the Investment Advisers Act, or any applicable state securities. To
the knowledge of G&P and the Shareholders, as of their respective dates, the
Company Reports complied in all material respects with the statutes, rules,
regulations and orders enforced or promulgated by the regulatory authority or
Self-Regulatory Body with which they were filed and did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
(j) Regulatory Approvals. To the knowledge of G&P there is no
reason why the regulatory approvals referred to in Section 6.1(a) should not be
obtained without the imposition of any condition of the type referred to in
Section 6.1(a).
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(k) Labor Relations. G&P is not a party to or bound by any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is it the subject of a proceeding
asserting that it has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel it to bargain with any
labor organization as to wages and conditions of employment, nor is there any
strike or other labor dispute involving it pending or, to the best of its
knowledge, threatened, nor is it aware of any activity involving its employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
(l) Tax Matters. G&P shall file all federal, state and local
tax returns and reports required to be filed, and pay all taxes shown by such
returns to be due and payable. Except as Previously Disclosed, no tax return or
report of G&P 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 G&P by any taxing authority.
(m) (1) Property. Except as Previously Disclosed or reserved
against in the G&P Balance Sheet or G&P Financial Statements, G&P has good and
marketable title free and clear of all material liens, encumbrances, charges,
defaults or equities of whatever character to all of the material properties and
assets, tangible or intangible, reflected in the G&P Financial Statements as
being owned by G&P as of the dates thereof. To the best knowledge of G&P, all
buildings, and all fixtures, equipment, and other property and assets which are
material to its business on a consolidated basis, held under leases or subleases
by G&P are held under valid instruments enforceable in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceeding may be brought). The
buildings, structures, and appurtenances owned, leased, or occupied by G&P are
in good operating condition and in a state of good maintenance and repair, and
to the best knowledge of G&P (i) comply with applicable zoning and other
municipal laws and regulations, and (ii) there are no latent defects therein.
(2) The Company has the right to use within the geographic
territory in which it conducts its business (the "Territory"), and after
consummation of the transactions contemplated hereby will have the right to use
in the Territory, free and clear of any claims of others, all patents, patent
applications, trademarks, service marks (whether registered or unregistered),
trade names, copyrights and other proprietary rights necessary to own and
operate its properties and to carry on its business as currently conducted.
(3) The Company owns or licenses all computer software
developed or currently used by it which is material to the conduct of its
business and has the right to use such software without infringing upon the
intellectual property rights (including trade secrets rights) of a third party.
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(n) Employee Benefit Plans. (1) G&P will deliver for ICBI's
review, as soon as practicable, true and complete copies of all material
pension, retirement, profit-sharing, deferred compensation, stock option, bonus,
vacation or other material incentive plans or agreements, all material medical,
dental or other health plans, all life insurance plans and all other material
employee benefit plans or fringe benefit plans, including, without limitation,
all "employee benefit plans" as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), currently
adopted, maintained, sponsored in whole or in part, or contributed to by G&P for
the benefit of employees, retirees or other beneficiaries eligible to
participate (collectively, the "G&P Benefit Plans"). Any of the G&P Benefit
Plans which is an "employee pension benefit plan," as that term is defined in
Section (32) of ERISA, is referred to herein as a "G&P ERISA Plan." No G&P
Benefit Plan is or has been a multi-employer plan within the meaning of Section
3(37) of ERISA.
(2) Except as Previously Disclosed, all G&P Benefit Plans are
in compliance with the applicable terms of ERISA and the Internal Revenue Code
of 1986, as amended (the "IRC") and any other applicable laws, rules and
regulations, the breach or violation of which could result in a material
liability to G&P on a consolidated basis.
(3) No G&P ERISA Plan is a defined benefit pension plan.
(o) Investment Securities. Except as Previously Disclosed,
none of the investment securities reflected in the G&P Financial Statements is
(i) subject to any restriction, contractual, statutory, or otherwise, which
would impair materially the ability of the holder of such investment to dispose
freely of any such investment at any time or (ii) of a type or in an amount that
ICBI would be prohibited from holding under the Bank Holding Company Act of 1956
(as amended, the "Bank Holding Company Act") or regulations of the Federal
Reserve thereunder.
(p) Material Contracts. Except as disclosed in Exhibit F,
neither G&P nor any of its assets, businesses or operations, is a party to, or
is bound or subject to, or receives benefits under, any material contract, lease
or agreement (i.e., a contract, lease or agreement providing for annual payments
in excess of $25,000). Copies of such contracts or agreements have been supplied
or made available to ICBI. G&P is not in default under any such material
contract, agreement, commitment, arrangement, lease, insurance policy or other
instrument to which it is a party, by which its assets, business or operations
may be bound or subject to, or under which it or any of its assets, business or
operations receives benefits, and there has not occurred any event that, with
the lapse of time or the giving of notice or both, would constitute such a
default by G&P. G&P is not subject to or bound by any contract containing
covenants which limit the ability of G&P to compete in any line of business or
with any person or which involves any restriction of geographical area in which,
or method by which, G&P may carry on its business (other than as may be required
by law or any applicable regulatory authority). Except as disclosed in Exhibit
F, there are no contracts between any affiliate of G&P, on the one hand, and G&P
on the other hand.
(q) Insurance. G&P is insured with reputable insurers against
such risks and in
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such amounts as the management of G&P reasonably has determined to be prudent in
accordance with industry practices. Disclosed in Exhibit G is a complete list,
as of the date hereof, of the material insurance policies related to the
business currently conducted by G&P (copies of which have been supplied to
ICBI). The fidelity insurance of G&P has been and will be maintained in
accordance with all requirements of applicable law. G&P has not made any claim
under any insurance policy and is not aware of any event or condition that is
reasonably likely to give rise to any such claim. G&P 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. G&P has not received notice of cancellation or
non-renewal of any such policy or binder. G&P 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 or 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. G&P has not received notice from any of its insurance
carriers that any insurance premiums will be increased materially 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.
(r) Absence of Material Changes and Events. Since July 1,
1999, there has not been any material adverse change in the condition (financial
or otherwise), aggregate assets or liabilities, assets under management, cash
flow, earnings or business of G&P, and except for entering into this Agreement,
G&P has conducted its business only in the ordinary course consistent with past
practice.
(s) Brokers and Finders. Neither G&P nor any of its officers,
directors or employees, has employed any broker, finder or financial advisor or
incurred any liability for any fees or commissions in connection with the
transactions contemplated herein.
(t) Environmental Matters. (1) There are no legal,
administrative, arbitral or other claims, causes of action or governmental
investigations of any nature, seeking to impose, or that could result in the
imposition, on G&P of any liability arising under any Environmental Laws pending
or, to the best knowledge of G&P, threatened against (A) G&P, (B) any person or
entity whose liability for any Environmental Claim G&P has or may have retained
or assumed either contractually or by operation of law, or (C) any real or
personal property which G&P owns or leases, or has been or is judged to have
managed, supervised or participated in the management of, which liability might
have a Material Adverse Effect on the business, financial condition or results
of operations of G&P. G&P is not subject to any agreement, order, judgment,
decree or memorandum by or with any court, governmental authority, regulatory
agency or third party imposing any such liability.
(2) To the best knowledge of G&P, there are no past or present
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge or disposal of any
Materials of Environmental Concern, that could reasonably form the basis of any
Environmental Claim or other claim or action or governmental investigation that
could result in the imposition of any liability arising under any Environmental
Laws currently in effect or adopted but not yet effective against G&P or against
any person or entity whose liability for any Environmental
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Claim G&P or any G&P Subsidiary has or may have retained or assumed either
contractually or by operation of law.
(3) For the purpose of this Agreement, the following terms
shall have the following meanings:
(i) "Communication" means a communication which is of a
substantive nature and which is made (A) in writing to G&P or any G&P Subsidiary
on the one hand or to ICBI or any ICBI Subsidiary on the other hand, or (B)
orally to a senior officer of G&P or any G&P Subsidiary or of ICBI or any ICBI
Subsidiary, whether from a governmental authority or a third party.
(ii) "Environmental Claim" means any Communication from any
governmental authority or third party alleging potential liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from the
presence, or release into the environment, of any Material of Environmental
Concern.
(iii) "Environmental Laws" means all applicable federal, state
and local laws and regulations, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, that relate to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata). This definition includes, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of Materials
of Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
(iv) "Materials of Environmental Concern" means pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other materials regulated under Environmental Laws.
(u) Year 2000 Compliance. G&P, to its best knowledge,
satisfies all requirements of the Securities and Exchange Commission as to Year
2000 readiness and has made all necessary filings with the Securities and
Exchange Commission related thereto, including but not limited to timely filings
of Form ADV-Y2K.
3.2 Representations and Warranties of ICBI. ICBI represents and
warrants to G&P as follows:
(a) Organization, Standing and Power. ICBI is a corporation
duly organized, validly existing and in good standing under the laws of
Virginia. It has all requisite corporate power and authority to carry on its
business as now being conducted and to own and operate its assets, properties
and business, and ICBI has the corporate power and authority to execute and
deliver this
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Agreement and perform the respective terms of this Agreement and of the Plan.
ICBI is duly registered as a bank holding company under the Bank Holding Company
Act.
(b) Authority. (1) The execution and delivery of this
Agreement and the Plan and the consummation of the Reorganization have been duly
and validly authorized by all necessary corporate action on the part of ICBI.
The Agreement represents the legal, valid, and binding obligation of ICBI,
enforceable against ICBI in accordance with its terms (except in all such cases
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(2) Neither the execution and delivery of the Agreement, the
consummation of the transactions contemplated therein, nor the compliance by
ICBI with any of the provisions thereof will (i) conflict with or result in a
breach of any provision of the Articles of Incorporation or Bylaws of ICBI, (ii)
except as Previously Disclosed, constitute or result in the breach of any term,
condition or provision of, or constitute default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result in
the creation of any lien, charge or encumbrance upon, any property or assets of
the ICBI Companies pursuant to (A) any note, bond, mortgage, indenture, or (B)
any material license, agreement, lease or other instrument or obligation, to
which any of the ICBI Companies is a party or by which any of them or any of
their properties or assets may be bound, or (iii) subject to the receipt of the
requisite approvals referred to in Section 4.6, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to any of the ICBI
Companies or any of their properties or assets.
(c) Capital Structure. The authorized capital stock of ICBI
consists of: 10,000,000 shares of ICBI Common Stock, of which 1,778,994 shares
are issued and outstanding, fully paid and nonassessable, not subject to
shareholder preemptive rights, and not issued in violation of any agreement to
which ICBI is a party or otherwise bound, or of any registration or
qualification provisions of any federal or state securities laws. The shares of
ICBI Common Stock to be issued upon consummation of the Reorganization will have
been duly authorized and, when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable and subject to
no preemptive rights.
(d) Financial Statements. ICBI has previously furnished to G&P
true and complete copies of its audited consolidated balance sheets and related
consolidated statements of income, statements of cash flows, and statements of
stockholders equity for the three year period ended December 31, 1998 (together
with the notes thereto, the "ICBI Financial Statement"). The ICBI Financial
Statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis during the periods presented, and
present fairly the financial position of ICBI as of the respective dates thereof
and the results of its operations for the three year period then ended.
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(e) Regulatory Approvals. ICBI knows of no reason why the
regulatory approvals referred to in Section 6.1(a) should not be obtained
without the imposition of any condition of the type referred to in Section
6.1(a).
(f) Absence of Material Changes and Events. Since December 31,
1998, there has not been any material adverse change in the condition (financial
or otherwise), aggregate assets or liabilities, cash flow, earnings or business
or ICBI, and ICBI has conducted its business only in the ordinary course
consistent with past practice.
ARTICLE 4
Conduct Prior to the Effective Date
4.1 Access to Records; Current Information. (a) Prior to the Effective
Date, ICBI, on the one hand, and G&P on the other, agree to give to the other
party reasonable access to all the premises and books and records (including tax
returns filed and those in preparation) of it and its subsidiaries 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; provided, however, 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.
(b) During the period from the date of this Agreement to the Effective
Date, each of G&P and ICBI shall, and shall cause its representatives to,
promptly notify the other of (1) any material change in its business or
operations, (2) any material complaints, investigations or hearings (or
communications indicating that the same may be contemplated) of any Regulatory
Authority relating to it, (3) any denial of any application filed by it with any
Regulatory Authority with respect to this Agreement, (4) the institution or the
threat of material litigation involving or relating to it, or (5) any event or
condition that might be reasonably expected to cause any of its representations
or warranties set forth herein not to be true and correct as of the Effective
Date (and will use its best efforts to prevent or promptly remedy the same) or
prevent it from fulfilling its obligations hereunder; and in each case shall
keep the other informed with respect thereto.
4.2 Confidentiality. Between the date of this Agreement and the
Effective Date, ICBI and G&P each will maintain in confidence, and cause its
directors, officers, employees, agents and advisors to maintain in confidence,
and not use to the detriment of the other party, any written, oral or other
information obtained in confidence from the other party or a third party in
connection with this Agreement or the transactions contemplated hereby unless
such information is already known to such party or to others not bound by a duty
of confidentiality or such information becomes publicly available through no
fault of such party, unless use of such information is necessary or appropriate
in making any filing or obtaining any consent or approval required for the
consummation of the transactions contemplated hereby or unless the furnishing or
use of such information is required by or necessary or appropriate in connection
with legal proceedings. If the Reorganization is not consummated, each party
will return or destroy as much of such written information as may reasonably be
requested.
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4.3. Forbearances of G&P. From the date hereof until the Effective
Date, except as expressly contemplated by this Agreement, without the prior
written consent of ICBI, G&P will not:
(a) Ordinary Course. Conduct the business of G&P other than in
the ordinary and usual course or fail to use reasonable efforts to preserve
intact its business organization and assets and maintain its rights, franchises
and existing relations with clients, customers, suppliers, employees and
business associates, engage in any new activities or lines of business, or take
any action reasonably likely to have a Material Adverse Effect upon G&P's
ability to perform any of its material obligations under this Agreement. G&P
shall not engage in any business or activity that is impermissible for a bank
holding company under the Bank Holding Company Act or the rules and regulations
of the Board of Governors of the Federal Reserve System. Upon request by G&P,
ICBI will promptly advise G&P whether any particular business, activity or
investment is impermissible for a bank holding company.
(b) Capital Stock. Issue, sell or otherwise permit to become
outstanding, or authorize the creation of, any additional shares of capital
stock of G&P or any rights to acquire capital stock of G&P, or enter into any
agreement with respect to the foregoing, or permit any additional shares of
capital stock of G&P to become subject to new grants of employee options, other
rights to acquire capital stock of G&P or similar stock-based employee rights.
(c) Stock Splits, Etc. Directly or indirectly adjust, split,
combine, redeem, reclassify, purchase or otherwise acquire, any shares of its
capital stock.
(d) Compensation; Employment Agreements; Etc. Enter into,
amend, modify or renew any employment, consulting, severance or similar
agreements or arrangements with any director, officer or employee of G&P, or
grant any salary, wage or other compensation increase or increase any employee
benefit (including incentive or bonus payments), except (1) for normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice, or (2) for employment arrangements for
newly hired employees in the ordinary course of business consistent with past
practice.
(e) Benefit Plans. Enter into, establish, adopt or amend any
pension, retirement, stock option, stock purchase, savings, profit sharing,
deferred compensation, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or any trust
agreement (or similar arrangement) related thereto, in respect of any director,
officer or employee of G&P; provided, however, G&P may maintain a profit sharing
plan and a defined contribution pension plan similar to the profit sharing plan
and defined contribution pension plan previously maintained by KBIMC.
(f) Dispositions. Except for the sale of securities or other
investments or assets in the ordinary course of business consistent with past
practice, sell, transfer, mortgage, encumber or otherwise dispose of or
discontinue any of its material assets, business or properties.
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(g) Acquisitions. Except for the purchase of securities or
other investments or assets in the ordinary course of business consistent with
past practice, acquire any material assets, business, securities or properties
of any other entity.
(h) Governing Documents. Amend G&P's Articles of Incorporation
or By-Laws.
(i) Contracts. Except in the ordinary course of business,
enter into or terminate any material contract or amend or modify in any material
respect any of its existing material contracts.
(j) Claims. Settle any claim, action or proceeding, except for
any claim, action or proceeding involving solely money damages in an amount,
individually and in the aggregate for all such settlements, not more than
$25,000 and which is not reasonably likely to establish an adverse precedent or
basis for subsequent settlements.
(k) Adverse Actions. Knowingly take any action that is
intended or is reasonably likely to (1) result in any of its representations and
warranties set forth in this Agreement being or becoming untrue in any material
respect at any time at or prior to the Effective Date, (2) result in any of the
conditions to the Merger set forth in Article 6 not being materially satisfied
or (3) result in a material violation of any provision of this Agreement except,
in each case, as may be required by applicable law or regulation.
(l) Indebtedness. Other than the indebtedness to ICBI (1)
incur any indebtedness for borrowed money or (2) settle, modify or forgive any
indebtedness for borrowed money owed to G&P.
(m) Commitments. Agree, commit to or enter into any agreement
to take any of the actions prohibited by Sections 4.3(a) through (l).
(n) Payables. Fail to pay all bills as they become due in the
ordinary course of business.
4.4 Forbearances of ICBI. From the date hereof until the Effective
Date, except as expressly contemplated by this Agreement, without the prior
written consent of G&P, which consent shall not be unreasonably withheld, ICBI
will not knowingly take any action that is intended or is reasonably likely to
(1) result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time at or
prior to the Effective Date, (2) result in any of the conditions to the Merger
set forth in Article 6 not being materially satisfied or (3) result in a
material violation of any provision of this Agreement except, in each case, as
may be required by applicable law or regulation.
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4.5 Dividends. G&P agrees that it will not declare or pay any cash
dividend from the date of this Agreement through the Effective Date.
4.6 No Solicitation. Unless and until this Agreement shall have been
terminated pursuant to its terms, neither G&P nor any of its officers,
directors, representatives or agents shall, directly or indirectly, (i)
encourage, solicit or initiate discussions or negotiations with any person other
than ICBI concerning any merger, share exchange, sale of substantial assets,
tender offer, sale of shares of capital stock or similar transaction involving
G&P, (ii) enter into any agreement with any third party providing for a business
combination transaction, equity investment or sale of a significant amount of
assets, or (iii) furnish any information to any other person relating to or in
support of such transaction.
4.7. Regulatory Applications and Approvals. Each of the parties hereto
shall use its reasonable best efforts (A) promptly to prepare and submit
applications to the appropriate Regulatory Authorities for approval of the
Reorganization, and (B) promptly to make all other appropriate filings to secure
all other approvals, consents and rulings which are necessary for the
consummation of the Reorganization. Each of G&P and ICBI agrees to cooperate
with the other and, subject to the terms and conditions set forth in this
Agreement, use its reasonable best efforts to prepare and file all necessary
permits, consents, orders, approvals and authorizations of, or any exemption by,
all third parties and Regulatory Authorities necessary or advisable to
consummate the transactions contemplated by this Agreement. Each of G&P and ICBI
shall have the right to review in advance, and to the extent practicable each
will consult with the other, in each case subject to applicable laws relating to
the exchange of information, with respect to all written information submitted
to any third party or any regulatory authorities in connection with the
transactions contemplated by this Agreement. In exercising the foregoing right,
each of the parties hereto agrees to act reasonably and as promptly as
practicable. Each party hereto agrees that it will consult with the other party
hereto with respect to the obtaining of all material permits, consents,
approvals and authorizations of all third parties and regulatory authorities
necessary or advisable to consummate the transactions contemplated by this
Agreement and each party will keep the other party apprised of the status of
material matters relating to completion of the transactions contemplated hereby.
4.8. Client Consents. As soon as reasonably practicable after the
receipt of a written request from ICBI (which request shall not be made until
ICBI has called a special meeting of the shareholders of G&P to vote on the
Reorganization), G&P shall inform its clients of the transactions contemplated
by this Agreement. G&P shall, in compliance with the Investment Advisers Act,
request written consent of each such client to the assignment to TTC of its
Investment Contract and use its reasonable best efforts to obtain such consent,
or in the case of agreements which prohibit assignment or state by their terms
that they terminate upon assignment, use its reasonable best efforts to enter
into new agreements effective upon the Effective Date. ICBI agrees that, except
in the case of Investment Contracts with respect to clients which prohibit
assignment or state by their terms that they terminate upon assignment or do
not, by their terms, require written consent of the client, G&P may obtain
consent by requesting written consent as aforesaid and informing such client of:
(a) G&P's intention to assign such Investment Contract to TTC; (b) TTC's
intention to continue the advisory services, pursuant to the existing Investment
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<PAGE>
Contract with such client after the Effective Date if such client does not
terminate such agreement prior to the Effective Date; and (c) that the consent
of such client will be implied if such client continues to accept such advisory
services for at least 30 days after receipt of such notice without termination.
4.9 Reorganization Consummation. Subject to the terms and conditions of
this Agreement, each party shall use its best efforts in good faith to take, or
cause to be taken, all actions, and to do or cause to be done all things
necessary, proper or desirable, or advisable under applicable laws, as promptly
as practicable so as to permit consummation of the Reorganization at the
earliest possible date, consistent with Section 1.2 herein, and to otherwise
enable consummation of the transactions contemplated hereby and shall cooperate
fully with the other parties hereto to that end, and each of G&P and ICBI shall
use, and shall cause each of their respective subsidiaries to use, its best
efforts to obtain all consents (governmental or other) necessary or desirable
for the consummation of the transactions contemplated by this Agreement.
4.10 Bank Accounts. G&P intends to maintain its principal bank accounts
with The Middleburg Bank, a wholly-owned subsidiary of ICBI, but shall be
permitted to maintain accounts at other banks.
4.11 Modification of Transaction. At the request of ICBI, G&P agrees to
take such actions as may be reasonably necessary to modify the structure of, or
to substitute parties to (as long as such substitute is ICBI or a wholly-owned
subsidiary of ICBI) the transactions contemplated hereby, provided that such
modifications do not change the Merger Consideration or abrogate the covenants
and other agreements contained in this Agreement.
4.12 Certain Payments. The Shareholders shall indemnify, defend and
hold G&P harmless from and against any and all claims, demands, losses,
liabilities, costs, damages and expenses that are asserted against G&P or that
G&P sustains under the Kahn Agreement.
4.13 Custody. G&P will use its best efforts to transfer custody of all
client funds and securities to TTC as expeditiously as possible; provided that
ICBI and TTC understand that certain clients' relationships with brokers and
banks are such that it is impracticable or impossible to transfer custody of
those clients' assets and that any effort to do so is likely to be unsuccessful.
4.14 Succession. G&P will cooperate with ICBI to identify and hire an
individual acceptable to ICBI and TTC who is intended to be capable of marketing
the services of G&P and learning to perform the duties currently performed by
Robert C. Gilkison or James H. Patterson.
4.15 Fiscal Year. G&P will adopt a fiscal year ending December 31.
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ARTICLE 5
Additional Agreements
5.1 Benefit Plans. Upon consummation of the Reorganization, as soon as
administratively practicable and subject to ICBI's best efforts, employees of
G&P shall be entitled to participate in ICBI pension, benefit, health and
similar plans on the same terms and conditions as employees of ICBI and its
subsidiaries, without waiting periods and giving effect to years of service with
KBIMC and G&P as if such service were with ICBI; provided, however, that no G&P
employee shall receive credit for service with KBIMC or G&P for benefit accrual
purposes under the ICBI defined benefit pension plan. ICBI also shall cause G&P
to honor in accordance with their terms as in effect on the date hereof (or as
amended after the date hereof with the prior written consent of ICBI), all
employment, severance, consulting and other compensation contracts and
agreements Previously Disclosed and executed in writing by G&P on the one hand
and any individual current or former director, officer or employee thereof on
the other hand, copies of which have previously been delivered by G&P to ICBI.
5.2 Restricted Stock. The offer and sale of ICBI Common Stock
contemplated by this Agreement is intended to be exempt from the registration
requirements of the Securities Act of 1933 and applicable state law. ICBI will
not file any registration statement with the Securities and Exchange Commission
or any state. Transfer of the shares of ICBI Common Stock issued as Merger
Consideration will be restricted to the extent necessary to comply with the
Securities Act of 1933 and any applicable state laws. Each share certificate for
shares of ICBI Common Stock issued pursuant to this Agreement shall bear the
following legend:
The shares of stock represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), and no transfer, sale, assignment, pledge,
hypothecation or other disposition of the shares represented by this
Certificate may be made except (a) pursuant to an effective
registration statement under the Securities Act and any applicable
state securities laws or (b) pursuant to an exemption from the
provisions of Section 5 of the Securities Act, and the rules and
regulations in effect thereunder, and applicable state securities laws.
5.3 Indemnification.
(a) Survival of Representations, Warranties and Covenants. All
representations and warranties of the parties contained in this Agreement,
including any exhibits made a part hereof, and any covenants or other agreements
the performance of which is specified to occur on or prior to the Effective
Date, shall survive the Effective Date for the applicable statute of
limitations. Any covenant or other agreement herein any portion of the
performance of which may or is specified to occur after the Effective Date shall
survive the Effective Date.
(b) Obligations of Shareholders. Subject to Section 5.3(e), the
Shareholders hereby agree to indemnify, defend and hold harmless ICBI and its
employees, officers, partners and other affiliates from and against any and all
claims, losses, liabilities, costs, penalties, fines and expenses
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(including reasonable expenses for attorneys, accountants, consultants and
experts), damages, obligations to third parties, expenditures, proceedings,
Taxes, judgments, awards or demands (collectively, "Losses") which any of them
may suffer, incur or sustain arising out of, attributable to, or resulting from:
(a) any inaccuracy in or breach of any of the representations or warranties of
G&P made in or pursuant to this Agreement or in any other agreement, certificate
or document executed in connection herewith or (b) any breach or nonperformance
of any of the covenants or other agreements made by G&P in or pursuant to this
Agreement.
(c) Obligations of ICBI. Subject to Section 5.3(e), ICBI hereby agrees
to indemnify, defend and hold harmless the Shareholder from and against any and
all Losses which either of them may suffer, incur or sustain arising out of,
attributable to, or resulting from: (a) any inaccuracy in or breach of any of
the representations or warranties of ICBI made in or pursuant to this Agreement
or in any other agreement, certificate or document executed in connection
herewith or (b) any breach or nonperformance of any of the covenants or other
agreements made by ICBI in or pursuant to this Agreement.
(d) Procedure. (i) Any party entitled to the benefits of
indemnification hereunder (an "Indemnified Party") and seeking indemnification
for any Losses or potential Losses from a claim asserted by a third party
against the Indemnified Party (a "Third Party Claim") shall give written notice
to the party obligated to provide indemnification hereunder (an "Indemnifying
Party") specifying in detail the source of the Loss or potential Loss under
Section 5.3(b) or Section 5.3(c), as the case may be. Written notice to the
Indemnifying Party of the existence of a Third Party Claim shall be given by the
Indemnified Party promptly after notice of the potential claim; provided,
however, that the Indemnified Party shall not be foreclosed from seeking
indemnification pursuant to this Section 5.3 by any failure to provide such
prompt notice of the existence of a Third Party Claim to the Indemnifying Party
except and only to the extent that the Indemnifying Party actually incurs an
incremental out-of-pocket expense or otherwise has been materially damaged or
prejudiced as a result of such delay.
(ii) Defense. Except as otherwise provided herein, the Indemnifying
Party may elect to compromise or defend, at such Indemnifying Party's own
expense and by such Indemnifying Party's own counsel (which counsel shall be
reasonably satisfactory to the Indemnified Party), any Third Party Claim. If the
Indemnifying Party elects to compromise or defend such Third Party Claim, it
shall, within 30 days after receiving notice of the Third Party Claim (10 days
if the Indemnifying Party states in such notice that prompt action is required),
notify the Indemnified Party of its intent to do so, and the Indemnified Party
shall cooperate, at the expense of the Indemnifying Party, in the compromise of,
or defense against, such Third Party Claim. If the Indemnifying Party elects not
to compromise or defend against the third Party Claim, or fails to notify the
Indemnified Party of its election to do so as herein provided, or otherwise
abandons the defense of such Third Party Claim, (A) the Indemnified Party may
pay (without prejudice of any of its rights as against the Indemnifying Party),
compromise or defend such Third Party Claim (until such defense is assumed by
the Indemnifying Party) and (B) the costs and expenses of the Indemnified Party
incurred in connection therewith shall be indemnifiable by the Indemnifying
Party pursuant to the terms of this Agreement. Notwithstanding anything to the
contrary
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contained herein, in connection with any Third Party Claim in which the
Indemnified Party shall reasonably conclude, based upon the written advice of
its counsel, that (x) there is a conflict of interest between the Indemnifying
Party and the Indemnified Party in the conduct of the defense of such Third
Party Claim or (y) there are specific defenses available to the Indemnified
Party which are different from or additional to those available to the
Indemnifying Party and which could be materially adverse to the Indemnifying
Party, then the Indemnified Party shall have the right to assume and direct the
defense of such Third Party Claim. In such an event, the Indemnifying Party
shall pay the reasonable fees and disbursements of counsel of the Indemnifying
Party and one counsel to all the Indemnified Parties. Notwithstanding the
foregoing, neither the Indemnifying Party nor the Indemnified Party may settle
or compromise any claim over the objection of the other, provided, however, that
consent to settlement or compromise shall not be unreasonably withheld by the
Indemnified Party and provided further, that if the sole settlement relief
payable to a Third Party in respect of such Third Party Claim is monetary
damages that are paid in full by the Indemnifying Party, the Indemnifying Party
may settle such claim without the consent of the Indemnified Party. In any
event, except as otherwise provided herein, the Indemnified Party and the
Indemnifying Party may each participate, at its own expense, in the defense of
such Third Party Claim. If the Indemnifying Party chooses to defend any claim,
the Indemnified Party shall make available to the Indemnifying Party any
personnel or any books, records or other documents within its control that are
reasonably necessary or appropriate for such defense, subject to the receipt of
appropriate confidentiality agreements.
(iii) Miscellaneous. The procedures set forth in Section 5.3(d)(i) and
(ii) above shall apply solely with respect to Third Party Claims and shall not
be deemed to apply to, or otherwise affect or limit, an Indemnified Party's
rights under this Agreement with respect to any claim other than a Third Party
Claim.
(iv) Notice of Non-Third Party Claims. Any Indemnified Party seeking
indemnification for any Loss or potential Loss arising from a claim asserted by
any party to this Agreement against the Indemnifying Party (a "Non-Third Party
Claim") shall give written notice to the Indemnifying Party specifying in detail
the source of the Loss or potential Loss under Section 5.3(b) or Section 5.3(c),
as the case may be. Written notice to the Indemnifying Party of the existence of
a Non-Third Party Claim shall be given by the Indemnified Party promptly after
the Indemnified Party becomes aware of the potential claim; provided, however,
that the Indemnified Party shall not be foreclosed from seeking indemnification
pursuant to this Section 5.3 by any failure to provide such prompt notice of the
existence of a Non-Third Party Claim to the Indemnifying Party except and only
to the extent that the Indemnifying Party actually incurs an incremental
out-of-pocket expense or otherwise has been materially damaged or prejudiced as
a result of such.
(e) Survival of Indemnity. Notwithstanding anything to the contrary in
this Article VIII, no Indemnified Party shall have any right to indemnification
with respect to any matter as to which formal notice satisfying the requirements
of Section 5.3(d)(i) or Section 5.3(d)(iv) shall not have been provided by the
Indemnified Party to the Indemnifying Party prior to the expiration of the
survival period set forth in Section 5.3(a). Any matter as to which a claim has
been asserted by formal notice pursuant to Section 5.3(d) and within the time
limitation applicable by reason of
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<PAGE>
the immediately preceding sentence that is pending or unresolved at the end of
any applicable limitation period under this Section 5.3 or applicable law shall
continue to be covered by this Section 5.3 notwithstanding any applicable statue
of limitations (which the parties hereby waive) until such matter is finally
terminated or otherwise resolved by the parties under this Agreement or by a
court of competent jurisdiction and any amounts payable hereunder are finally
determined and paid.
(f) Minimum and Maximum Losses. No party shall have any right to seek
indemnification under this Agreement for any inaccuracy in or breach of any
representation or warranty made in or pursuant to this Agreement or in any other
agreement, certificate or document executed in connection herewith or for the
breach or nonperformance of the covenants or other agreements made in or
pursuant to this Agreement until Losses of such party exceed $50,000, after
which time only the aggregate amount of such losses in excess of $50,000 shall
be recoverable in accordance with the terms hereof. No party shall have the
right to recover Losses in excess of $4,800,000.00 hereunder.
ARTICLE 6
Conditions to the Reorganization
6.1 Conditions to Each Party's Obligations to Effect the
Reorganization. The respective obligations of each of ICBI and G&P to effect the
Reorganization and the other transactions contemplated by this Agreement shall
be subject to the fulfillment or waiver at or prior to the Effective Date of the
following conditions:
(a) Regulatory Approvals. This Agreement and the Plan of
Merger shall have been approved by the Board of Governors of the Federal Reserve
System and, if required, the Virginia State Corporation Commission, and any
other regulatory authority whose approval is required for consummation of the
transactions contemplated hereby, and such approvals shall not have imposed any
condition or requirement which would so materially adversely impact the economic
or business benefits of the transactions contemplated by this Agreement as to
render inadvisable the consummation of the Reorganization in the reasonable
opinion of the Board of Directors of ICBI or G&P.
(b) Opinions of Counsel. G&P shall have delivered to ICBI and
ICBI shall have delivered to G&P opinions of counsel, dated as of the Effective
Date, as to such matters as they may each reasonably request with respect to the
transactions contemplated by this Agreement and in a form reasonably acceptable
to each of them.
(c) Legal Proceedings. Neither ICBI nor G&P shall be subject
to any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits the consummation of the Reorganization.
6.2 Conditions to Obligations of ICBI. The obligations of ICBI to
effect the Reorganization shall be subject to the fulfillment or waiver at or
prior to the Effective Date of the following additional conditions:
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(a) Representations and Warranties. Each of the
representations and warranties contained herein of G&P shall be true and correct
as of the date of this Agreement and upon the Effective Date with the same
effect as though all such representations and warranties had been made on the
Effective Date, except (i) for any such representations and warranties made as
of a specified date, which shall be true and correct as of such date, (ii) as
expressly contemplated by this Agreement, or (iii) for representations and
warranties the inaccuracies of which relate to matters that, individually or in
the aggregate, do not materially adversely affect the Reorganization and the
other transactions contemplated by this Agreement, and ICBI shall have received
a certificate or certificates signed by the Chief Executive Officer and Chief
Financial Officer of G&P dated the Effective Date, to such effect.
(b) Performance of Obligations. G&P shall have performed in
all material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date, and ICBI shall have received a
certificate signed by the Chief Executive Officer of G&P to that effect.
(c) Client Consents. Clients of G&P representing at least
ninety percent (90%) of funds under management shall have consented to the
assignments of any Investment Contract to TTC.
6.3 Conditions to Obligations of G&P. The obligations of G&P to effect
the Reorganization shall be subject to the fulfillment or waiver at or prior to
the Effective Date of the following additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties contained herein of ICBI shall be true and
correct as of the date of this Agreement and upon the Effective Date with the
same effect as though all such representations and warranties had been made on
the Effective date, except (i) for any such representations and warranties made
as of a specified date, which shall be true and correct as of such date, (ii) as
expressly contemplated by this Agreement, or (iii) for representations and
warranties the inaccuracies of which relate to matters that, individually or in
the aggregate, do not materially adversely affect the Reorganization and the
other transactions contemplated by this Agreement, and G&P shall have received a
certificate or certificates signed by the Chief Executive Officer and Chief
Financial Officer of ICBI dated the Effective Date, to such effect.
(b) Performance of Obligations. ICBI shall have performed in
all material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date, and G&P shall have received a certificate
signed by Chief Executive Officer of ICBI to that effect.
ARTICLE 7
Termination
7.1 Termination. Notwithstanding any other provision of this Agreement,
this Agreement may be terminated and the Reorganization abandoned at any time
prior to the Effective Date:
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(a) By the mutual consent in writing of the parties hereto.
(b) By ICBI or G&P (i) in the event of a material breach by
the other party of any covenant or agreement contained in this Agreement, or
(ii) in the event of an inaccuracy of any representation or warranty of the
other party contained in this Agreement, which inaccuracy would provide the
nonbreaching party the ability to refuse to consummate the Reorganization under
the applicable standard set forth in Section 6.2(a) in the case of ICBI and
Section 6.3(a) in the case of G&P; and, in the case of (i) or (ii), if such
breach or inaccuracy has not been cured by the earlier of 30 days following
written notice of such breach to the party committing such breach or the
Effective Date.
(c) At any time prior to the Effective Date, by ICBI or G&P in
writing, if any of the conditions precedent to the obligations of the other
party to consummate the transactions contemplated hereby cannot be satisfied or
fulfilled prior to the Reorganization Closing, and the party giving the notice
is not in breach of any of its representations, warranties, covenants or
undertakings herein.
(d) At any time, by either party hereto in writing, if any of
the applications for prior approval referred to in Section 6.1(a) are denied,
and the time period for appeals and requests for reconsideration has run.
(e) At any time following December 31, 2001, by either party
hereto in writing, if the Effective Date has not occurred by the close of
business on such date, and the party giving the notice is not in breach of any
of its representations, warranties, covenants or undertakings herein.
7.2 Effect of Termination. In the event of the termination of this
Agreement and the Reorganization pursuant to Section 7.1, this Agreement shall
become void and have no effect, except that (i) the last sentence of Section 4.2
and all of Section 7.4 shall survive any such termination and (ii) a termination
pursuant to Section 7.1(b) shall not relieve or release the breaching party from
any liability for an uncured breach of the covenant, agreement, understanding,
representation or warranty giving rise to such termination.
7.3 Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants in this Agreement shall survive the
Effective Date.
7.4 Expenses. Each of the parties shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated herein, including fees and expenses of its own consultants,
investment bankers, accountants and counsel.
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ARTICLE 8
General Provisions
8.1 Entire Agreement. This Agreement contains the entire agreement
among ICBI, TTC and G&P with respect to the Reorganization and the related
transactions and supersedes all prior arrangements or understandings with
respect thereto.
8.2 Waiver and Amendment. Any term or provision of this Agreement may
be waived in writing at any time by the party which is entitled to the benefits
thereof, and this Agreement may be amended or supplemented by written
instructions duly executed by the parties hereto at any time, except statutory
requirements and requisite approvals of regulatory authorities.
8.3 Descriptive Headings. Descriptive headings are for convenience only
and shall not control or affect the meaning and construction of any provisions
of this Agreement.
8.4 Governing Law. Except as otherwise required or indicated herein,
this Agreement shall be construed and enforced according to the laws of the
Commonwealth of Virginia.
8.5 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by registered or certified mail, postage prepaid, addressed as follows:
If to ICBI:
Joseph L. Boling
Independent Community Bankshares, Inc.
111 West Washington Street
Middleburg, VA 20117
(Tel. 540-687-4220)
Copy to:
Wayne A. Whitham, Jr.
Williams, Mullen, Clark & Dobbins
1021 East Cary Street
P.O. Box 1320
Richmond, VA 23210-1320
(Tel. 804-783-6473)
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If to G&P:
Gilkison & Patterson Investment Advisors, Inc.
1901 N. Beauregard Street
Suite 300
Alexandria, Virginia 22311
(Tel. 703- 931-1366)
Copy to:
Stanley E. Majors, Esq.
Fettmann, Tolchin & Majors, PC
10615 Judicial Drive, #502
Fairfax, VA 22030
(Tel. 703-385-9500)
8.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same agreement.
[execution pages follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers and their corporate
seals to be affixed hereto, all as of the dates first written above.
Independent Community Bankshares, Inc.
By:/s/ Joseph L. Boling
-----------------------------------
Joseph L. Boling,
Chairman and Chief Executive Officer
ATTEST:
/s/ Alice P. Frazier
- ------------------------
- ---------------------
Secretary
Gilkison & Patterson Investment Advisors, Inc.
By:/s/ Robert C. Gilkison
-----------------------------------
Robert C. Gilkison, Chairman
ATTEST:
/s/ James H. Patterson
- ------------------------
- ---------------------
Secretary
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The Tredegar Trust Company
By:/s/ F. E. Deacon, III
-----------------------------------
F. E. Deacon, III, President
ATTEST:
/s/ Alice P. Frazier
- ------------------------
- ---------------------
Secretary
Each of the undersigned hereby agrees that he is personally bound by
the provisions of Section 4.12 and Section 5.3 of this Agreement.
/s/ Robert C. Gilkison
-----------------------------------
Robert C. Gilkison
/s/ James H. Patterson
-----------------------------------
James H. Patterson
29
<PAGE>
EXHIBIT A
PLAN OF MERGER
OF
GILKISON & PATTERSON INVESTMENT ADVISORS, INC.
INTO
the tredegar trust company
ARTICLE 1
Gilkison & Patterson Investment Advisors, Inc., a Virginia corporation
("G&P") shall upon the time that the Articles of Merger are made effective by
the State Corporation Commission of Virginia (the "Effective Time"), be merged
(the "Merger") into The Tredegar Trust Company, a Virginia corporation. The
Tredegar Trust Company shall be the Surviving Corporation (the "Surviving
Corporation"). The Surviving Corporation is a wholly-owned subsidiary of
Independent Community Bankshares, Inc., a Virginia corporation ("ICBI").
ARTICLE 2
Definitions
For all purposes of this Plan:
(a) the term "Fair Market Value", with respect to shares of
ICBI Common Stock, shall mean the weighted average sale price for sales of ICBI
Common Stock for the thirty (30) days on which ICBI Common Stock trades
immediately preceding the tenth day before the Effective Date.
(b) the term "Merger Consideration" shall mean, with respect
to each share of G&P Common Stock issued and outstanding on the Effective Date,
a pro rata share of (A) $1,300,000.00 in cash and (B) shares of ICBI Common
Stock, with an aggregate Fair Market Value of $2,500,000.00; provided, however,
that ICBI shall not be required to issue more than 150,000 shares of ICBI Common
Stock. If the fair market value of 150,000 shares of ICBI Common Stock is less
than $2,500,000.00, the cash portion of the Merger Consideration shall be
increased by an amount equal to the excess of $2,500,000.00 over the Fair Market
Value of 150,000 shares of ICBI Common Stock, such that the total value of the
Merger Consideration is $3,800,000.00.
1
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ARTICLE 3
Effect of Reorganization on Common Stock
3.1 (a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, each share of G&P Common Stock, par
value $1.00 per share, issued and outstanding immediately prior to the Effective
Time shall cease to be outstanding and shall be converted into the right to
receive the Merger Consideration.
(b) Each holder of a certificate representing any shares of G&P Common
Stock shall thereafter cease to have any rights with respect to such G&P Common
Stock, except the right to receive the consideration described in Sections 3.1
and 3.3 upon the surrender of such certificate in accordance with Section 3.2.
3.2 Manner of Conversion. As promptly as practicable after the
Effective Date, ICBI shall cause its stock transfer agent, acting as the
exchange agent ("Exchange Agent"), to send to each former shareholder of record
of G&P immediately prior to the Effective Date transmittal materials for use in
exchanging such shareholder's certificates of G&P Common Stock for the
consideration set forth in Section 3.1 above and Section 3.3 below. Any
fractional share checks which a G&P shareholder shall be entitled to receive in
exchange for such shareholder's shares of G&P Common Stock, and all dividends
paid on any shares of ICBI Common Stock that such shareholder shall be entitled
to receive prior to the delivery to the Exchange Agent of such shareholder's
certificates representing all of such shareholder's shares of G&P Common Stock
will be delivered to such shareholder only upon delivery to the Exchange Agent
of the certificates representing all of such shares (or indemnity satisfactory
to ICBI and the Exchange Agent, in their judgment, if any of such certificates
are lost, stolen or destroyed). No interest will be paid on any such fractional
share checks or dividends to which the holder of such shares shall be entitled
to receive upon such delivery.
3.3 Fractional Shares. ICBI shall issue cash in lieu of fractional
shares. ICBI will pay the value of such fractional shares in cash on the basis
of the Fair Market Value per share of ICBI Common Stock.
3.4 Dividends. No dividend or other distribution payable to the holders
of record of ICBI Common Stock at or as of any time after the Effective Date
shall be paid to the holder of any certificate representing shares of G&P Common
Stock issued and outstanding at the Effective Date until such holder physically
surrenders such certificate for exchange as provided in Section 3.2, promptly
after which time all such dividends or distributions shall be paid (without
interest).
2
Exhibit 10.2
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (the "Agreement") is made and entered into
as of August 9, 1999 by and between ROBERT C. GILKISON ("Gilkison"), JAMES H.
PATTERSON ("Patterson"), INDEPENDENT COMMUNITY BANKSHARES, INC., a Virginia
corporation ("ICBI") and GILKISON & PATTERSON INVESTMENT ADVISORS, INC., a
Virginia corporation ("G&P").
RECITALS
1. Gilkison and Patterson, together, own 9,900 shares of the
common stock of G&P, par value $1.00 per share ("G&P Common Stock"), which are
ninety-nine percent (99%) of the issued and outstanding shares of G&P Common
Stock;
2. ICBI owns the remaining one percent (1%) of the issued and
outstanding shares of G&P Common Stock.
3. The shares of G&P Common Stock owned by Gilkison, Patterson
and ICBI represent one hundred percent (100%) of the authorized, issued and
outstanding shares of G&P Common Stock. G&P has no other class of authorized
capital stock.
4. The parties desire to provide for the merger of G&P into The
Tredegar Trust Company, a wholly-owned subsidiary of ICBI ("Tredegar") at the
option of ICBI, and, pending such merger, for certain matters concerning the
corporate governance of G&P.
<PAGE>
5. The parties also intend that certain provisions of this
Agreement relating to voting rights and other matters shall constitute an
agreement pursuant to Section 13.1-671.1 of the Code of Virginia (1950), as the
same may be from time to time amended as amended, the "Code").
6. G&P has acquired the investment advisory business of Kahn
Brothers Investment Management Corporation, a Virginia corporation ("KBIMC"). In
connection with the transfer of the KBIMC investment advisory business to G&P,
each client has the right to consent to such transfer.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
1. Consideration. (a) In consideration of the rights granted to
ICBI under this Agreement, including the option to acquire G&P by merger, ICBI
shall pay each of Gilkison and Patterson in cash, as follows:
(i) Two Hundred Thousand Dollars ($200,000.00) each when G&P
has obtained consents from former KBIMC clients who account for One Million Two
Hundred Fifty Thousand Dollars ($1,250,000.00) of annual revenue; and
(ii) An additional Two Hundred Thousand Dollars ($200,000.00)
each when G&P has obtained consents from former KBIMC clients who account for
One Million Eight Hundred Seventy Five Thousand Dollars ($1,875,000.00) of
annual revenue; and
2
<PAGE>
(iii) An additional Two Hundred Thousand Dollars ($200,000.00)
each when G&P has obtained consents from former KBIMC clients who account for
Two Million Two Hundred Fifty Thousand Dollars ($2,250,000.00) of annual
revenue.
(b) For purposes of Section 1(a), the amount of revenue a
former KBIMC client accounts for shall be the amount billed such client by KBIMC
for the quarter ended June 30, 1999, multiplied by four. Further, if G&P obtains
clients who were not former KBIMC clients, the parties shall make a good faith
estimate of the annual amount of investment advisory fees expected to be
received from each such client and, for purposes of applying Section 1(a), such
estimated fees shall be counted, just as if such fees were from a former KBIMC
client.
(c) If (i) ICBI rightfully terminates the Merger
Agreement because any representation or warranty of G&P is materially false as
of the date hereof or because G&P materially breaches any covenant of G&P
contained in Article 4 of the Merger Agreement, or (ii) G&P, Gilkison or
Patterson breaches this Agreement, Gilkison and Patterson each shall immediately
pay to ICBI all amounts paid by ICBI under Section 1(a).
2. The Merger. For purposes of this Agreement, "Merger" shall
mean the Merger of G&P with and into Tredegar pursuant to the Agreement and Plan
of Reorganization of even date herewith, entered into by and among ICBI, G&P and
Tredegar (the "Merger Agreement").
3
<PAGE>
3. Voting Rights and Agreements.
(a) The provision of this Section 3 shall constitute an
agreement under Section 13.1-671 of the Code.
(b) The Merger may be considered only at a special
meeting of shareholders of G&P to vote on the Merger, which may be called only
by ICBI. Such a meeting may be called by ICBI on thirty (30) days notice to
Gilkison and Patterson. ICBI shall not be under any obligation to call a special
meeting of shareholders of G&P to vote on the Merger.
(c) Gilkison and Patterson each agrees to vote all shares
of G&P Common Stock held by him at the time of a meeting of shareholders called
by ICBI pursuant to Section 3(a) in favor of the Merger. If ICBI calls a meeting
of shareholders of G&P to vote on the Merger, ICBI shall vote its shares of G&P
Common Stock in favor of the Merger. This Section 3(c) is intended to be
specifically enforceable in accordance with Section 13.1-671 of the Code.
(d) In a vote on the Merger (and only with respect to a
vote on the Merger), each share held by Gilkison and Patterson shall have one
vote and each share held by ICBI shall have 201 votes, such that if ICBI votes
its shares of G&P Common Stock in favor of the Merger, the Merger will have been
approved by the shareholders of G&P.
4
<PAGE>
4. Other Agreements.
(a) From and after the date of this Agreement, the Board
of Directors of G&P shall consist of Gilkison, Patterson and the Chief Executive
Officer of ICBI (currently Joseph L. Boling). If Mr. Boling ceases to serve as
the Chief Executive Officer of ICBI, his successor as Chief Executive Officer of
ICBI shall automatically become a director of G&P. If either Gilkison or
Patterson is unable to continue to serve, as a result of death or disability,
the other shall designate his successor.
(b) Neither the Articles of Incorporation nor the Bylaws
of G&P shall be amended except by the unanimous vote of the holders of G&P
Common Stock.
(c) Neither Gilkison nor Patterson may sell, assign or
otherwise transfer any shares of G&P Common Stock, except to ICBI. ICBI shall
not sell, assign or otherwise transfer any shares of G&P Common Stock, except to
G&P pursuant to Section 4(f). However, no merger or share exchange involving
ICBI shall be deemed a sale, assignment or transfer of G&P Common Stock for
purposes of this Section 4(c) and no change of control of ICBI shall affect the
right of ICBI or its successor in interest to enforce this Agreement.
(d) G&P shall not engage in any business or activity that
is impermissible for a bank holding company under the Bank Holding Company Act
of 1956, as amended, or the rules and regulations of the Board of Governors of
the Federal Reserve System.
5
<PAGE>
(e) Gilkison and G&P are parties to an Employment
Agreement of even date herewith. Patterson and G&P are parties to an Employment
Agreement of even date herewith. G&P will not take action to terminate or amend
either of such employment agreements without the written consent of all
directors of G&P. No contract between ICBI (or any subsidiary of ICBI) and G&P
shall be terminated by G&P without the written consent of all directors of G&P.
(f) If the Merger Agreement terminates, G&P will purchase
and redeem all shares of G&P Common Stock purchased by ICBI pursuant to that
certain Stock Purchase and Redemption Agreement between ICBI and G&P, of even
date herewith, and held by ICBI as of the termination date, at a price of Sixty
Thousand Dollars ($60,000.00). If the Merger is to be consummated, then on or
before the effective date of the Merger, G&P shall redeem all such shares of G&P
Common Stock held by ICBI at a price of Sixty Thousand Dollars ($60,000.00).
(g) Upon approval of the Merger by the shareholders, the
proper officers of G&P shall execute articles of merger at the request of ICBI
or, alternatively, ICBI shall have the right to designate an individual as a
vice-president of G&P with authority to execute the articles of merger on behalf
of G&P.
5. Share Certificates. Each certificate representing shares of
G&P Common Stock shall bear the following legend on the back of the certificate.
ALL SHAREHOLDERS OF GILKISON & PATTERSON INVESTMENT ADVISORS, INC. (THE
"CORPORATION") ARE PARTIES TO AN AGREEMENT DATED AUGUST 9, 1999,
PORTIONS OF WHICH CONSTITUTE AN AGREEMENT UNDER ss.13.1-671.1 OF THE
CODE OF VIRGINIA. SUCH AGREEMENT ESTABLISHES WHO SHALL BE THE DIRECTORS
OF THE CORPORATION;
6
<PAGE>
GOVERNS THE VOTING POWER OF THE SHARES REPRESENTED BY THIS CERTIFICATE
IN REGARD TO SPECIFIC MATTERS; RESTRICTS THE RIGHT TO TRANSFER THE
SHARES REPRESENTED BY THIS CERTIFICATE AND OTHERWISE GOVERNS THE
EXERCISE OF CORPORATE POWERS BY THE DIRECTORS AND SHAREHOLDERS. A COPY
OF SUCH AGREEMENT MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
CORPORATION AT 901 N. BEAUREGARD STREET, SUITE 300, ALEXANDRIA,
VIRGINIA.
6. Amendment. This Agreement may be amended only by a writing
signed by all persons who are shareholders of G&P at the time of any such
amendment.
7. Termination. This Agreement shall terminate on the earlier of
the termination of the Merger Agreement, the effective date of the Merger or
December 31, 2001.
[execution page to follow]
7
<PAGE>
WITNESS the following signatures:
/s/ Robert C. Gilkison
---------------------------------
Robert C. Gilkison
/s/ James H. Patterson
---------------------------------
James H. Patterson
INDEPENDENT COMMUNITY BANKSHARES, INC.
By: /s/ Joseph L. Boling
-----------------------------
Joseph L. Boling
Chairman and Chief Executive Officer
GILKISON & PATTERSON INVESTMENT
ADVISORS, INC.
By: /s/ James H. Patterson
-----------------------------
President
Exhibit 10.3
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
the 9th day of August, 1999, by and between INDEPENDENT COMMUNITY BANKSHARES,
INC., a Virginia corporation ("ICBI"), ROBERT C. GILKISON ("Gilkison") and JAMES
H. PATTERSON ("Patterson"), both Virginia residents and each a shareholder of
GILKISON & PATTERSON INVESTMENT ADVISORS, INC., a Virginia corporation ("G&P")
(Gilkison and Patterson being sometimes individually referred to hereinafter as
a "Shareholder" and collectively referred to hereinafter as the "Shareholders").
RECITALS:
A. Gilkison and Patterson each own 4,950 of the 10,000 currently
issued and outstanding shares of the common stock of G&P.
B. ICBI owns 100 of the 10,000 currently issued and outstanding
shares of the common stock of G&P.
C. ICBI, Gilkison and Patterson are parties to a Shareholder
Agreement dated as of the date hereof (the "Shareholder Agreement"), whereby
Gilkison and Patterson have agreed to vote their shares in favor of the merger
of G&P into The Tredegar Trust Company, a wholly owned subsidiary of ICBI
("TTC"), pursuant to that certain Agreement and Plan of Reorganization dated as
of the date hereof and entered into by and among ICBI, G&P and TTC (the "Merger
Agreement").
D. Under the terms of the Merger Agreement, upon consummation of
the merger of G&P into TTC, Gilkison and Patterson will each receive a
combination of cash and shares of ICBI common stock with an aggregate value of
One Million, Nine Hundred Thousand Dollars ($1,900,000.00) in return for all of
their respective shares of G&P common stock.
E. In order to ensure that shares of G&P common stock held by
Gilkison and Patterson are voted in accordance with the terms of the Shareholder
Agreement, and in consideration of the parties' agreements and covenants
therein, the amounts paid to Gilkison and Patterson thereunder, and the
covenants and agreements herein set forth, the parties agree that it is in their
mutual best interest to provide for the purchase of Gilkison and/or Patterson's
shares in the event of their death in the period between the date hereof and the
date upon which the Merger Agreement terminates (the "Termination Date") in the
manner hereafter set forth.
<PAGE>
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein and of other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree and
covenant as follows:
1. Restricted Shares. All of the shares of G&P common stock now
owned or hereafter acquired by the Shareholders, all shares of stock of G&P
received as a dividend on such shares, and all shares of stock or other
securities of G&P or of any other entity into which such shares shall be
changed, or for which such shares shall be exchanged, whether through
reorganization, recapitalization, stock splits, combinations of shares, merger
or consolidation (collectively, the "Shares") shall be subject to the provisions
of this Agreement.
2. Restriction on Transfer. No Shareholder, nor any successor,
assignee or other representative of any Shareholder, shall sell, pledge, assign,
encumber, hypothecate or otherwise transfer or dispose of (hereafter "Transfer")
all or any portion of his Shares whether by gift, pledge, sale, assignment,
transfer by operation of law, or any other method of disposition, except in
accordance with and subject to the terms of the Shareholder Agreement.
3. Purchase of Stock upon Death. Subject to the limitations set
forth in Sections 8 and 9 hereof, upon the death of any Shareholder (hereinafter
referred to as the "Deceased Shareholder"), ICBI shall purchase from the
Deceased Shareholder's estate, and the personal representative of the Deceased
Shareholder's estate shall sell to ICBI, all of the Shares owned by the Deceased
Shareholder at the date of his death in return for One Million Nine Hundred
Thousand Dollars ($1,900,000.00) in cash (the "Purchase Price"). The Purchase
Price shall be paid to such personal representative of the Deceased
Shareholder's estate in accordance with Section 5 of this Agreement.
4. Full Value of Stock. The parties agree that the Purchase Price
represents the full value of all of the Shares of the Deceased Shareholder;
that, except as otherwise provided in this Agreement, such value shall in no
manner be altered; and that all assets, both tangible and intangible, including
the accounts receivable, good will and trade name of G&P, as well as all
liabilities, including mortgages, liens, or other encumbrances of any kind
whatsoever, if any, of or upon the assets of G&P, have been considered in
determining such Purchase Price.
5. Payment of Purchase Price on Death. Subject to the limitations
set forth in Sections 8 and 9 hereof,, in the event of the death of a
Shareholder, the Purchase Price shall be paid, in full, from the proceeds of the
insurance policies purchased by ICBI in accordance with Section 8 and attached
hereto as Exhibit B to the Deceased Shareholder's personal representative within
ninety (90) days after the later of (i) the date of death of the Deceased
Shareholder and (ii) ICBI's receipt of such proceeds; provided, however, that
ICBI shall apply for such proceeds in the manner set forth in the attached
policy of insurance within thirty (30) days of its receipt of notice of the
death of the Deceased Shareholder..
2
<PAGE>
6. Transfer of Shares. Simultaneously with the receipt of the
Purchase Price by the personal representative of the Deceased Shareholder's
estate, such personal representative shall endorse and deliver all certificates
evidencing the Deceased Shareholder's Shares to ICBI.
7. Legend to be Placed on Stock Certificates. All certificates
for Shares issued by G&P to any Shareholder, whether now outstanding or issued
hereafter, shall bear the following legend:
"The shares of Stock represented by this Certificate are held subject
to the terms, conditions, restrictions on transfer and rights set forth
in a certain Stock Purchase Agreement, dated August 9, 1999, entered
into between the holders of the Stock of this Corporation, as such
Agreement may be amended from time to time. A copy of such Agreement,
together with all amendments thereto, if any, is on file at the
principal office of the Corporation."
8. Insurance. ICBI shall apply for, own, and be the beneficiary
of life insurance policies insuring against the death of each shareholder and
paying to ICBI upon the death of the insured a death benefit equal to not less
than the Purchase Price. Each Shareholder shall take any actions reasonably
required to secure or maintain the insurance policies ICBI is required to own
under this Section 8, including but not limited to submitting to reasonable
physical examinations and providing any medical information required by the
insurer. Upon issuance of such policies, ICBI shall cause the appropriate
information to be recorded on Exhibit A hereto, and the Shareholders and ICBI
shall execute an amendment, consistent with Section 11 hereof, ratifying such
changes and causing the amended Exhibit A to become a part of this Agreement.
ICBI may acquire any additional policies of life insurance that ICBI may deem
necessary or appropriate to carry out this Agreement, and each Shareholder shall
cooperate fully in any such acquisitions.
9. Obligations of ICBI Voidable Upon Failure of Insurance. In the
event that ICBI is with reasonable diligence unable to obtain the policies of
life insurance required by Section 8 hereof, whether due to the uninsurability
of any Shareholder or for any other reason, or the issuer of such policies shall
for any reason fail or refuse to pay to ICBI the death benefits therein set
forth upon the death of any Shareholder, then ICBI may, in its sole and absolute
discretion, unilaterally terminate this Agreement and thereafter be excused from
performance of its obligation to purchase the Deceased Shareholder's Shares as
set forth herein. The parties acknowledge and agree that this Agreement is
intended to protect ICBI against the risk of the death of either or both
Shareholders prior to the termination of the Merger Agreement or the merger of
G&P into TTC in accordance with its terms. The parties therefore further agree
that ICBI shall be under no obligation other than as set forth herein to take
more than reasonable measures to secure the policies of life insurance required
by Section 8 hereof or to contest in any manner a determination by the issuer of
such policies that the death benefits provided thereunder are not payable upon
the death of the insured Shareholder.
10. Payment of Premiums. ICBI shall pay the premiums on any
insurance policies that ICBI is required to own under Section 8 of this
Agreement. All dividends on any such policies will be applied to the payment of
premiums.
3
<PAGE>
11. Amendment of Agreement. This Agreement may be altered,
amended, waived in whole or in part or terminated only by a writing executed by
ICBI and the Shareholders.
12. Termination. This Agreement shall terminate upon the
occurrence of any of the following events (provided that Section 13 shall
survive a termination of this Agreement for ninety (90) days):
a. The termination of the Merger Agreement in accordance
with its terms;
b. The merger of G&P into TTC in accordance with the
terms of the Merger Agreement;
c. The death of both Shareholders and purchase of such
Shareholders' Shares in accordance with the terms
hereof;
d. The termination of this Agreement by ICBI under
Section 9 hereof; or
e. The written agreement of the Shareholders and ICBI.
13. Sale by ICBI. If ICBI purchases the Shares of Gilkison or
Patterson (but not both) pursuant to this Agreement, and the Merger Agreement
terminates, the surviving Shareholder shall have the right to purchase from ICBI
the 4,950 Shares formerly held by the deceased Shareholder by cash payment of
$1,900,000.00 within 180 days after the Merger Agreement terminates.
14. Survival. Unless terminated by ICBI under Section 9 hereof,
this Agreement shall survive the death of a Shareholder and continue in
existence between ICBI and the remaining Shareholder.
15. Notice. Any notice required to be given under this Agreement
shall be considered to have been given when delivered in person to the party to
whom it is required to be given, or when delivered in accordance with the notice
provisions set forth in Section 8.5 of the Merger Agreement.
16. Effect of Agreement. This Agreement shall be binding on and
inure to the respective benefit of the parties, their successors, assigns,
estates and personal representatives, and shall supersede any prior written or
oral understanding with regard to the subject matter hereof.
17. Applicable Law. This Agreement shall be interpreted, governed
and enforced in accordance with the laws of the Commonwealth of Virginia
regardless of the place of residence or domicile of any Shareholder.
18. Descriptive Headings. The descriptive headings of the several
sections of this Agreement are inserted for convenience only and shall not be
deemed to affect the meaning or construction of any of the provisions hereof.
[execution page follows]
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement or have
caused this Agreement to be executed by their duly authorized representatives,
as the case may be, all as of the day and year first above written.
/s/ Robert C. Gilkison
-------------------------------
ROBERT C. GILKISON
/s/ James H. Patterson
-------------------------------
JAMES H. PATTERSON
INDEPENDENT COMMUNITY BANKSHARES, INC.,
a Virginia corporation
By /s/ J. L. Boling
---------------------------------
Title: Chairman & CEO
-----------------------------
<PAGE>
EXHIBIT A
Schedule of Policies
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Owner/Beneficiary Insured Insurance Company Policy Number Amount
</TABLE>
6
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB FOR INDEPENDENT COMMUNITY BANKSHARES, INC. FOR
THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,226
<INT-BEARING-DEPOSITS> 33
<FED-FUNDS-SOLD> 4,405
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,786
<INVESTMENTS-CARRYING> 11,414
<INVESTMENTS-MARKET> 11,487
<LOANS> 144,483
<ALLOWANCE> 1,313
<TOTAL-ASSETS> 232,138
<DEPOSITS> 195,977
<SHORT-TERM> 7,068
<LIABILITIES-OTHER> 1,064
<LONG-TERM> 5,000
0
0
<COMMON> 8,895
<OTHER-SE> 14,134
<TOTAL-LIABILITIES-AND-EQUITY> 232,138
<INTEREST-LOAN> 8,625
<INTEREST-INVEST> 2,506
<INTEREST-OTHER> 323
<INTEREST-TOTAL> 11,454
<INTEREST-DEPOSIT> 3,566
<INTEREST-EXPENSE> 3,950
<INTEREST-INCOME-NET> 7,504
<LOAN-LOSSES> 328
<SECURITIES-GAINS> (11)
<EXPENSE-OTHER> 5,850
<INCOME-PRETAX> 3,456
<INCOME-PRE-EXTRAORDINARY> 3,456
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,633
<EPS-BASIC> 1.48
<EPS-DILUTED> 1.47
<YIELD-ACTUAL> 4.85
<LOANS-NON> 454
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,124
<ALLOWANCE-OPEN> 1,063
<CHARGE-OFFS> 104
<RECOVERIES> 26
<ALLOWANCE-CLOSE> 1,313
<ALLOWANCE-DOMESTIC> 632
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 681
</TABLE>
