UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
Commission File Number: 33-77568
VALLEY FINANCIAL CORPORATION
VIRGINIA 54-1702380
(State of Incorporation) (I.R.S. Employer
Identification Number)
36 Church Avenue, S.W.
Roanoke, Virginia 24011
(Address of principal executive offices)
(540) 342-2265
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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
At August 12, 1996, 964,040 shares of the issuer's common stock, no par value,
were outstanding.
Transitional small business disclosure format: Yes No X .
<PAGE>
VALLEY FINANCIAL CORPORATION
FORM 10-QSB
June 30, 1996
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Loss 4-5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan
of Operation 10
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
VALLEY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
---------------- --------------
<S> <C> <C>
Assets
Cash and due from banks (note 2) $1,690,101 $1,016,076
Money market investments:
Federal funds sold 1,799,000 2,336,000
Interest-bearing deposits 10,395 55,039
Total money market investments 1,809,395 2,391,039
Securities available for sale (note 3) 5,597,736 5,282,614
Loans:
Commercial loans 7,136,147 4,234,885
Commercial real estate loans 5,909,911 4,346,540
Residential real estate loans 9,839,896 4,840,781
Loans to individuals 729,154 401,519
Total loans 23,615,108 13,823,725
Less allowance for loan losses (note 4) (235,040) (137,341)
Total net loans 23,380,068 13,686,384
Premises and equipment 1,445,526 1,451,754
Organizational costs 221,458 250,344
Other assets 439,799 276,500
Total assets $34,584,083 $24,354,711
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing demand deposits 2,819,390 3,213,830
Interest bearing demand deposits 6,160,196 3,712,803
Savings deposits 210,867 143,511
Certificates of deposits > $100,000 3,326,834 1,670,927
Other time deposits 14,125,046 7,375,795
Total deposits 26,642,333 16,116,866
Other liabilities 595,927 173,153
Total liabilities 27,238,260 16,290,019
Preferred stock, no par value. Authorized 10,000,000
shares; none issued and outstanding
Common stock, no par value. Authorized 10,000,000
shares; issued and outstanding 964,040 at June 30, 1996
and December 31, 1995 (note 5) 9,089,330 9,089,330
Accumulated deficit (1,689,294) (1,035,064)
Unrealized gains (losses) on securities available-for-sale,
net of deferred tax expense (benefit) (54,213) 10,426
Total shareholders' equity 7,345,823 8,064,692
Total liabilities and shareholders' equity $34,584,083 $24,354,711
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
VALLEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
<TABLE>
<CAPTION>
For the Period For the Period
January 1, 1996 January 1 1995
Through Through
June 30, 1996 June 30, 1995
<S> <C> <C>
Interest Income:
Interest and fees on loans $799,626 $14,703
Interest on money market investments 42,179 37,055
Interest on securities available for sale 166,329 266,648
Total interest income 1,008,134 318,406
Interest Expense:
Interest on certificates of deposit $100,000 73,996 2,333
Interest on other deposits 372,798 11,366
Interest on borrowed funds 252 0
Total interest expense 447,046 13,699
Net interest income 561,088 304,707
Provision for loan losses (note 4) 97,699 15,917
Net interest income after provision for loan losses 463,389 288,790
Noninterest income:
Service charges on deposit accounts 25,144 548
Other fee income 10,143 250
Securities gains 887 0
Total noninterest income: 36,174 798
Noninterest Expense:
Compensation expense 736,654 320,059
Occupancy and equipment expense, net 131,952 42,429
Data processing expense 36,490 4,310
Marketing and advertising expense 57,487 63,371
Office supply expense 14,273 35,678
Other expense 147,839 60,447
Amortization of organizational expense 29,098 9,629
Total noninterest expense 1,153,793 535,923
Net loss ($654,230) ($246,335)
Net loss per share (note 6) ($0.68) ($0.30)
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
VALLEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
<TABLE>
<CAPTION>
For the Period For the Period
April 1, 1996 April 1, 1995
Through Through
June 30, 1996 June 30, 1995
<S> <C> <C>
Interest Income:
Interest and fees on loans $472,550 $14,703
Interest on money market investments 16,615 37,055
Interest on securities available for sale 92,930 84,972
Total interest income 582,095 136,730
Interest Expense:
Interest on certificates of deposit > $100,000 43,445 2,333
Interest on other deposits 217,638 11,366
Interest on borrowed funds 252 0
Total interest expense 261,335 13,699
Net interest income 320,760 123,031
Provision for loan losses (note 4) 43,674 15,917
Net interest income after provision for loan losses 277,086 107,114
Noninterest income:
Service charges on deposit accounts 14,485 548
Other fee income 9,296 250
Securities gains 12 0
Total noninterest income: 23,793 798
Noninterest Expense:
Compensation expense 532,010 209,928
Occupancy and equipment expense, net 68,284 34,208
Data processing expense 18,208 4,310
Marketing and advertising expense 30,685 63,371
Office supply expense 6,956 35,678
Other expense 72,408 28,450
Amortization of organizational expense 14,654 9,629
Total noninterest expense 743,205 385,574
Net loss ($442,326) ($277,662)
Net income loss per share (note 6) ($0.46) ($0.34)
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
VALLEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Period For the Period
January 1, 1996 January 1, 1995
Through Through
June 30, 1996 June 30, 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ($654,230) ($246,335)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for loan losses 97,699 15,917
Depreciation and amortization of bank premises and equipment 71,015 11,922
Amortization of organizational expenses 28,886 9,629
Amortization/accretion of premiums/discounts, net 12,349 (15,814)
Gain on sale of securities (887) 0
Increase in other assets (135,371) (109,603)
Increase (decrease) in other liabilities 428,145 (31,978)
Net cash used in operating activities (152,394) (366,262)
Cash Flows From Investing Activities
Net decrease in money market investments 581,644 (5,465,840)
Purchases of premises and equipment (64,787) (1,041,252)
Purchases of securities available-for-sale (1,975,835) (34,508,988)
Proceeds from sales, calls and maturities of securities
available-for-sale 1,551,313 31,790,000
Net increase in loans (9,791,383) (2,277,610)
Organizational costs 0 (9,518)
Net cash used in investing activities (9,699,048) (11,513,208)
Cash Flows From Financing Activities
Iincrease in time deposits greater than $100,000 1,655,907 400,927
Increase in other time deposits 6,749,251 2,177,420
Net increase in other deposits 2,120,309 2,546,725
Increase (decrease) in advances from related parties 0 (817,000)
Proceeds from common stock issued 0 8,154,520
Redemption of common stock 0 (14)
Common stock issuance costs 0 (243,414)
Net cash provided by financing activities 10,525,467 12,219,164
Net Increase (Decrease) in Cash and Due From Banks 674,025 339,694
Cash and Due From Banks at Beginning of Period 1,016,076 26,970
Cash and Due From Banks at End of Period $1,690,101 $366,664
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
VALLEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 1996
(Unaudited)
Organization and Summary of Significant Accounting Policies
(1) General
Valley Financial Corporation (the "Company"), a development
stage enterprise through May 15, 1995, was incorporated under
the laws of the Commonwealth of Virginia on March 15, 1994,
primarily to serve as a holding company for Valley Bank, N.A.
(the "Bank"), upon formation of the Bank. Prior to the
formation of the Company, the Company's organizers (the
"Organizers") formed a limited liability company (the
"Organizational L.C.") to organize the Company and the Bank
and to provide for financing of organizational and other
costs. The consolidated financial statements reflect the
operations of the Company and the Organizational L.C. since
the date of formation of the Organizational L.C. on January 6,
1994. During 1995, all necessary applications and approvals
were completed with appropriate regulatory authorities to
allow the formation and opening of the Bank. The Bank's main
office opened for business on May 15, 1995 and a branch office
was opened September 11, 1995. Accordingly, the Company is no
longer considered to be in the development stage. The
Company's fiscal year end is December 31.
The consolidated financial statements of the Company conform
to generally accepted accounting principles and to general
banking industry practices. The interim period financial
statements are unaudited; however, in the opinion of
management, all adjustments of a normal recurring nature which
are necessary for a fair presentation of the financial
statements herein have been included. The financial statements
herein should be read in conjunction with the Company's 1995
Annual Report on Form 10-KSB.
(2) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks.
7
<PAGE>
(3) Securities
The carrying values and approximate market values of
investment securities at June 30, 1996, are shown in the table
below. As of June 30, 1996, investments with an amortized cost
of $200,000 were pledged as collateral for public deposits.
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Approximate
Securities held to maturity: Costs Gains Losses Fair Values
- - ------------------------------------------ --------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury 0 0 0 0
U.S. Government agencies 0 0 0 0
Total securities held to maturity 0 0 0 0
Securities available for sale:
- - --------------------------------------------
U.S. Treasury $1,906,082 0 ($3,953) $1,902,129
U.S. Government agencies $2,746,763 0 ($67,104) $2,679,659
States and political subdivisions $566,032 0 ($11,084) $554,948
Equity securities $461,000 0 0 $461,000
Total securities available for sale $5,679,877 0 ($82,141) $5,597,736
- - -------------------------------------------- --------------- -------------- --------------- -----------------
Total securities $5,679,877 0 ($82,141) $5,597,736
- - -------------------------------------------- --------------- -------------- --------------- -----------------
</TABLE>
(4) Allowance for Loan Losses
Changes in the allowance for loan losses are as follows:
Balance at January 1, 1996 $137,341
Provision for loan losses 97,699
Recoveries 0
Charged off loans 0
Balance at June 30, 1996 $235,040
(5) Common Stock Offering
The Company commenced a public offering of its Common Stock in
July 1994, which offering terminated on July 14, 1995. The
offering sold 964,040 shares of Common Stock at $10 per share,
representing total gross proceeds to the Company of
$9,640,400, reduced by $551,070 of direct stock issuance costs
associated with the offering, resulting in net proceeds of
$9,089,330.
8
<PAGE>
(6) Net Loss Per Share
Net loss per share is based upon the weighted average number
of common shares outstanding during the period.
9
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
General. The Company was incorporated as a Virginia stock corporation
on March 15, 1994, primarily to own and control all of the capital stock of the
Bank. Prior to the formation of the Company, the Organizers formed the
Organizational L.C. to organize the Company and the Bank, and to provide for
financing of organizational and other costs. Any financial information for the
period ended June 30, 1995, contained herein, reflects the operations of the
Company and the Organizational L.C. for a portion of the development period
since the date of formation of the Organizational L.C. on January 6, 1994.
The Organizers received final approval of their application to charter
the Bank from the OCC on May 15, 1995, and final approval of their application
for deposit insurance from the FDIC on May 15, 1995. The Bank opened for
business on May 15, 1995, at its main office in the City of Roanoke, and opened
its branch office on September 11, 1995, in the County of Roanoke. In July 1995,
the Company completed its initial public offering of 964,040 shares of its
common stock, no par value, at a price of $10.00 per share. The Offering
resulted in gross proceeds to the Company of $9,640,400, reduced by $551,070 of
direct stock issuance costs associated with the Offering, for net proceeds of
$9,089,330. Of the net proceeds of the Offering, $7,900,000 has been invested in
the Bank as equity capital and the remainder retained at the parent company for
working capital needs and future financial flexibility.
Total assets at June 30, 1996 were $34,584,083, up from $24,354,711 at
December 31, 1995, reflecting growth in the Bank's deposits and earning assets.
The principal components of the Company's assets at the end of the period were
$1,690,101 in cash and due from banks, $1,809,395 in money market investments,
$5,597,736 in securities available-for-sale, $23,615,108 in loans and $1,445,526
in premises and equipment. Total liabilities at June 30, 1996 were $27,238,260,
up from $16,290,019 at December 31, 1995, with the increase almost entirely
represented by $10,525,467 growth in deposits. Total shareholders' equity at
June 30, 1996 was $7,345,823, consisting of $9,089,330 in net proceeds from the
Company's initial public offering, reduced by the accumulated deficit of
$1,689,294 and $54,213 of unrealized losses on securities available-for-sale,
net of the related deferred tax benefit. At December 31, 1995, total
shareholder's equity was $8,064,692.
The Company had a net loss of $654,230 for the six months ended June
30, 1996, compared with a net loss of $246,335 for the comparable period in
1995. The loss results from higher noninterest expenses in virtually all
categories as the Bank in 1996 maintained properties, staffed two offices and
sustained a provision for an Allowance for Loan and Lease Losses. For the six
months ended June 30, 1995, these expenses were either nonexistent or at
much-reduced levels as the Bank did not open for business until May 15, 1995.
Also, the Company enjoyed interest income of $181,676 in the period ended June
30, 1995, a significant portion of which represented interest on escrowed stock
subscription funds which the Company could not record as income until the
conditions to the breaking of escrow on the stock subscription proceeds were
satisfied and the Company took possession of those funds on January 27, 1995.
Included in compensation expense for the first six months and the second quarter
of 1996 is the present value of future severance payments the Company is
obligated to make to Guy W. Byrd, Jr., who resigned as President and Chief
Executive Officer of the Company and the Bank on June 20, 1996.
As previously mentioned, the Bank opened for business on May 15, 1995.
Accordingly,
10
<PAGE>
comparison of operations for the first six months of 1996 with the first six
months of 1995, which included a significant preopening period, is not
considered meaningful. The following discussion is intended to focus on the
results for 1996 as well as discussing future factors of significance to the
Company.
Net interest income was $561,088 for the six months ended June 30, 1996
and is attributable to interest income from securities, loans and money market
investments exceeding the cost associated with interest paid on deposits. The
Company benefitted from the investment income derived from these sources while
interest expense increased at a slower rate as deposits were taken by the Bank.
A provision for loan losses of $97,699 was provided in recognition of
management's estimate of risks inherent with lending activities. The allowance
for loan losses was $235,040 as of June 30, 1996 and represents approximately 1%
of total loans outstanding. The Bank did not have any nonperforming assets as of
June 30, 1996; nor did it have any loans past due more than thirty days. Due to
the Bank's limited operating history, management's estimates on which the loan
loss provision is premised are based primarily on industry practices, peer group
comparisons, knowledge of the individual credits within the loan portfolio and
consideration of local economic factors. Although these factors are subjective,
management believes the allowance is adequate as of June 30, 1996 and will
periodically evaluate the reasonableness of future provisions considering the
specific nature of the portfolio, historical operating trends as available and
other economic and industry factors.
Noninterest income consists of service charges and fees on accounts and
other miscellaneous income. Future levels of noninterest income are expected to
increase as a direct result of business growth and expansion. Noninterest
expense of $1,153,793 is the most significant factor contributing to the net
loss of $654,230 for the six months ended June 30, 1996. As previously
mentioned, and with the exception of severance expense associated with the
resignation of the former President of the Company, increases in virtually all
categories are attributable to the opening of the Bank and include hiring staff,
acquiring and maintaining properties and equipment and other normal expenses
associated with the operations of the Company. While expenses are expected to
increase in future years, it is anticipated that there will be a correlation to
business growth and expansion as opposed to the significant outlays involved
with the opening of a new business.
The Company's financial position at June 30, 1996 reflects liquidity
and capital levels currently adequate to fund anticipated future business
expansion. Capital ratios are well in excess of required regulatory minimums for
a well-capitalized institution. The proceeds from the initial public stock
offering have been invested in securities, loans, premises and equipment and
used to fund expenses associated with the operations of the Company. All
investment securities at June 30, 1996 were classified as available for sale.
This classification in management's opinion is appropriate as it affords maximum
flexibility in managing liquidity and funding the Bank's future business growth,
although changes in interest rates result in unrealized gains or losses on
available-for-sale securities being reflected directly as a component of
shareholders' equity.
11
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its 1996 Annual Meeting of Shareholders on April 24, 1996, at
which meeting five Class B directors were re-elected to new three year terms.
The following table indicates the total votes in favor of, and withheld from
voting on, the re-election of each Class B director, and provides certain
information with respect to those directors whose term of office continued past
the 1996 Annual Meeting of Shareholders:
<TABLE>
<CAPTION>
DIRECTOR NAME TERM OF AFFIRMATIVE VOTES
OFFICE VOTES WITHHELD
<S> <C> <C> <C>
Class B Directors
Abney S. Boxley, III 1996 - 1999 735,721 100
W. Jackson Burrows 1996 - 1999 735,721 100
William D. Elliot 1996 - 1999 735,521 300
Barbara B. Lemon 1996 - 1999 735,721 100
Ward W. Stevens, M.D. 1996 - 1999 735,721 100
Directors Continuing in Office After 1996 Annual Meeting
Class C Directors
Guy W. Byrd, Jr. 1994 - 1997
(resigned 6/20/96)
Lawrence H. Hamlar 1994 - 1997
A. Wayne Lewis 1994 - 1997
George W. Logan 1994 - 1997
Maury L. Strauss 1994 - 1997
Class A Directors
Eddie F. Hearp 1995 - 1998
Anna L. Lawson 1995 - 1998
John W. Starr, M.D. 1995 - 1998
Michael E. Warner 1995 - 1998
</TABLE>
12
<PAGE>
Subsequent to the 1996 Annual Meeting of Shareholders, Guy W. Byrd, Jr. resigned
as a Class C director and was replaced in office by Ellis L. Gutshall.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The Company filed the following exhibits for the quarter ended June 30,
1996:
10.11. Severance Agreement dated June 20, 1996 between the Company
and Guy W. Byrd, Jr.
27. Financial Data Schedule
(b) The Company filed two reports on Form 8-K relating to the quarter ended
June 30, 1996. The first, dated June 20, 1996, reported the resignation
of Guy W. Byrd, Jr. as President, Chief Executive Officer and a
director of the Company and the Bank. It also reported the naming of
Ellis L. Gutshall as President, Chief Executive Officer and a director
of the Company and the Bank, and of A. Wayne Lewis as Executive Vice
President of the Company and the Bank. The second report on Form 8-K,
dated July 19, 1996, reported the details of the Company's severance
obligation to Guy W, Byrd, Jr. pursuant to his employment agreement
with the Company.
13
<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.
VALLEY FINANCIAL CORPORATION
August 13, 1996 /S/ Ellis L. Gutshall
Date Ellis L. Gutshall, President
and Chief Executive Officer
August 13, 1996 /S/ A. Wayne Lewis
Date A. Wayne Lewis, Executive Vice President
and Chief Financial Officer
14
<PAGE>
Exhibit 10.11
Severance Agreement
This Agreement is made and entered into as of the 20th day of June, 1996,
by and between Guy W. Byrd, Jr. ("Byrd") and Valley Financial Corporation
("VFC"), a Virginia bank holding company.
Whereas, pursuant to an Employment Agreement dated as of April 8, 1994, as
amended ("Employment Agreement"), Byrd was employed as President and Chief
Executive Officer of VFC and its wholly owned subsidiary, Valley Bank, N.A.
("VBNA"), respectively, and was a member of the Board of Directors of VFC and
VBNA, respectively. VFC and VBNA are hereinafter jointly referred to as
"Valley".
Whereas, on June 20, 1996, Byrd resigned as President and Chief Executive
Officer of Valley and from the Boards of Directors of Valley and pursuant to
agreement reached with VFC such resignation was treated as a termination of
Byrd's employment not for "Cause" as defined in the Employment Agreement and
pursuant to Section IV C (i) thereof;
Whereas, in connection with the termination of Byrd's employment certain
additional agreements between Byrd and VFC were reached in respect to his
severance as an employee of Valley;
Whereas, the parties desire to memorialize these additional agreements
pursuant hereto.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
promises herein set forth and other good and valuable consideration, the receipt
and sufficiency of which are acknowledged, the parties agree as follows:
<PAGE>
1. Byrd confirms his resignation as an officer, employee and director of
VFC and VBNA, respectively, effective June 20, 1996, and Byrd and VFC confirm
their agreement that such resignation shall be treated as a termination of
Byrd's employment not for Cause pursuant to Section IV C (i) of the Employment
Agreement.
2. VFC shall pay Byrd the compensation provided for in Section IV C (i) of
the Employment Agreement in thirty-one (31) equal monthly installments of
$10,958.33 each on the last day of each month commencing with the last day of
July, 1996, and continuing on the last day of each succeeding month with a final
installment on January 31, 1999. These monthly installments shall be reduced by
the loan payments provided in paragraph 4. of this Agreement.
3. Byrd may participate in VFC's health insurance plan until the earlier of
the date Byrd is reemployed or the end of the 90 day period commencing on June
21, 1996, on the same terms and conditions as if Byrd were an employee of VFC
during that period. Byrd's participation in the health insurance plan shall
automatically end as of the last day of such ninety day period or on the day
when Byrd is reemployed, whichever first occurs. This paragraph does not
constitute a waiver by Byrd of his rights under COBRA with respect to health
insurance.
4. Byrd acknowledges that he owes VFC the principal sum of $97,088.82, plus
accrued interest from April 1, 1996, in connection with the financing by VFC
("Life Insurance Loan") of certain premiums on two life insurance policies with
aggregate face amounts of approximately $800,000, as to which Byrd is the owner.
Byrd agrees that, within 30 days from the date of this Agreement, he will repay
to VFC the sum of at least
2
<PAGE>
$50,000 to be applied to the principal balance of the Life Insurance Loan. VFC
agrees to finance the remaining principal balance of the Life Insurance Loan not
to exceed the amount of $47,088.82, plus accrued interest from April 1, 1996,
over a period of thirty-one (31) months coinciding with the period specified in
section 2 hereof during which VFC shall pay Byrd compensation. The unpaid
principal balance shall accrue interest at a variable rate equal to the average
quarterly federal funds rate as published by the Federal Reserve Bank of
Richmond (which variable rate shall be automatically adjusted quarterly on the
first day of each calendar quarter in accordance with the average federal funds
rate for the immediately preceding quarter) through the date of repayment in
full. Byrd irrevocably and unconditionally authorizes repayments of the Life
Insurance Loan, principal and interest, to be deducted by VFC from the amounts
paid to him under Section 2 hereof automatically before remittance thereof to
him. Byrd agrees to sign a promissory note to VFC's order on the standard form
of VBNA and containing terms not inconsistent herewith to evidence the Life
Insurance Loan, including collateral assignments of the underlying policies to
secure the Life Insurance Loan.
5. VFC, represents and Byrd acknowledges, that the Option Exercise Criteria
as defined in Section V. of the Employment Agreement have not been met to date
with respect to the option referred to in Section V A(i). Byrd agrees that he is
not entitled to and shall not under any circumstances at any time become
entitled to exercise the options granted under Section V of the Employment
Agreement and Byrd hereby waives any right to claim them at any future time.
6. VFC agrees: (a) to pay Byrd the balance of his salary at the rate in
effect on
3
<PAGE>
June 20, 1996, the date of termination of his employment, for June no later than
July 1, 1996. This amount shall include salary for the period from June 20, 1996
to June 30, 1996; (b) to pay Byrd an additional $5,000 on July 1, 1996 to cover
unsubmitted expense reimbursements, the cost of a physical examination, parking,
unused vacation and other incidental expenses; and (c) to waive the rights and
benefits of Byrd's covenant not to compete as set forth in Section XII B. of the
Employment Agreement.
7. The obligations and agreements of Valley set forth in the preceding
paragraphs of this Agreement are expressly conditioned on Byrd's continuing
compliance with the following:
(a) Byrd shall not violate his confidentiality obligations under Section
XII of the Employment Agreement and shall not and shall not permit, allow,
cause, facilitate, and/or encourage, directly or indirectly, through others the
disclosure to any person or entity any facts or opinions concerning or make any
public statements about or otherwise reveal to any person or entity the
circumstances surrounding the termination of his employment with Valley, his
resignation as a director of Valley or any aspect of the management or
administration of Valley, or of its policies and procedures, governance,
personnel, financial condition or any other aspect of its business, operations
or affairs except to the extent disclosed by Valley in its public announcements,
releases or filings. Byrd shall inform the members of his immediate family of
the obligations imposed by this paragraph and understands that any disclosure by
them or others contrary to the requirements of this paragraph shall cause Byrd
to be in violation of this paragraph 7(a) as fully as if Byrd himself had made
the disclosure.
4
<PAGE>
(b) The obligations set forth in Section 7(a) shall not apply to
disclosures required by law or to the extent approved in writing in advance by
Valley.
(c) The obligations set forth in Section 7(a) shall be in addition to and
not in substitution of the obligations of Byrd respecting confidentiality set
forth in Section XII of the Employment Agreement.
8. Valley agrees that it shall not and shall not permit, allow, cause,
facilitate and/or encourage, directly or indirectly, through others the
disclosure to any person or entity any facts or opinions concerning or make any
public statements about the circumstances surrounding the termination of Byrd's
employment with Valley or his resignation as a director of Valley except (a) to
the extent disclosed by Valley in its public announcements, releases or filings;
(b) to banking or other regulatory authorities; (c) to securities exchanges and
similar agencies with respect to VFC's securities; (d) as requested by Byrd; (e)
as required by law; (f) to officers and directors of Valley in the course of
their responsibilities. Valley agrees that any disclosure contrary to this
paragraph 8 by the directors and officers of Valley or members of their
immediate family shall constitute a breach of this Agreement.
9. Each party shall pay its own legal fees and related and other expenses
incurred in connection with the enforcement of this Agreement, whether or not
such party prevails.
10. Except as provided in this Agreement and except for continuing
obligations under Section IV (C)(i) and Sections XII A., C. and D. of the
Employment Agreement each party hereby unconditionally releases and discharges
the other and, in the case of Valley, VFC's and VBNA's respective directors,
officers, agents, employees and representatives from all claims, demands, causes
of action, suits, losses, damages and expenses, known or
5
<PAGE>
unknown, matured or unmatured, absolute or contingent, of every kind, nature or
description, whether in tort, contract or otherwise, whether at law or in
equity, arising out of, incurred in connection with, or resulting from, the
Employment Agreement, the termination of Byrd's employment with VFC and/or VBNA,
and/or the resignation of Byrd from the Boards of Directtors of VFC or VBNA.
11. The parties agree that this Severance Agreement constitutes the
complete, final and entire agreement as to the matters contemplated hereby or
provided for herein and may not be amended or modified except in a writing
signed by the parties. This Severance Agreement shall be binding upon and inure
to the benefit of the parties and their respective heirs, personal
representatives, successors and assigns.
12. This Severance Agreement shall be governed by the laws of the
Commonwealth of Virginia. The parties agree that any lawsuit between them shall
be brought only in a federal or state court located in the City of Roanoke,
Virginia and the parties waive any objection to and expressly consent to
jurisdiction and venue in such courts.
IN WITNESS WHEREOF, the parties have executed this Severance Agreement as
of the date and year first written above.
/S/ Guy W. Byrd, Jr.
Guy W. Byrd, Jr.
Valley Financial Corporation
Attest:
By: /S/ A. Wayne Lewis /S/ Ellis L. Gutshall
Executive Vice President/Secretary Title: President and CEO
6
<PAGE>
Valley Bank, N.A.
Attest:
By: /S/ A. Wayne Lewis /S/ Ellis L. Gutshall
Executive Vice President/Secretary Title: President and CEO
7
<PAGE>
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