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Pinnacle Bankshares Corporation
622 Broad Street
Altavista, Virginia 24517
Dear Fellow Shareholders:
You are cordially invited to attend the 1998 Annual Meeting of
Shareholders of Pinnacle Bankshares Corporation, the holding company
for The First National Bank of Altavista. The meeting will be held on
Tuesday, April 14, 1998, at 11:30 a.m. at the Fellowship Hall of
Altavista Presbyterian Church, located at 707 Broad Street, Altavista,
Virginia. The accompanying Notice and Proxy Statement describe the
matters to be presented at the meeting. Enclosed is our 1997 Annual
Report to Shareholders that will be reviewed at the Annual Meeting.
Please complete, sign, date and return the enclosed proxy card
as soon as possible. Whether or not you will be able to attend the
Annual Meeting, it is important that your shares be represented and
your vote recorded. The proxy may be revoked at any time before it is
voted at the Annual Meeting.
We appreciate your continuing loyalty and support of The First
National Bank of Altavista and Pinnacle Bankshares Corporation.
Sincerely,
Robert H. Gilliam, Jr.
President &
Chief Executive Officer
Altavista, Virginia
March 10, 1998
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Pinnacle Bankshares Corporation
622 Broad Street
Altavista, Virginia 24517
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 14, 1998
The 1998 Annual Meeting of Shareholders of Pinnacle Bankshares
Corporation (the "Company") will be held at the Fellowship Hall of Altavista
Presbyterian Church, located at 707 Broad Street, Altavista, Virginia, on
Tuesday, April 14, 1998, at 11:30 a.m. for the following purposes:
1. To elect four Class I directors to serve until the 2001
Annual Meeting of Shareholders, as described in the Proxy
Statement accompanying this notice.
2. To approve the Company's 1997 Incentive Stock Plan, the
material terms of which are described in the Proxy
Statement accompanying this notice.
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Shareholders of record at the close of business on February 10, 1998,
are entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
By Order of the Board of Directors
Dawn P. Crusinberry
Secretary
March 10, 1998
IMPORTANT NOTICE
Please complete, sign, date and return the enclosed proxy card in the
accompanying postage paid envelope so that your shares will be represented at
the meeting. Shareholders attending the meeting may personally vote on all
matters which are considered, in which event the signed proxies are revoked.
Pinnacle Bankshares Corporation
622 Broad Street
Altavista, Virginia 24517
PROXY STATEMENT
1998 ANNUAL MEETING OF SHAREHOLDERS
April 14, 1998
GENERAL
The following information is furnished in connection with the
solicitation by and on behalf of the Board of Directors of the enclosed proxy to
be used at the 1998 Annual Meeting of Shareholders (the "Annual Meeting") of
Pinnacle Bankshares Corporation (the "Company") to be held Tuesday, April 14,
1998, at 11:30 a.m. at the Fellowship Hall of Altavista Presbyterian Church,
located at 707 Broad Street, Altavista, Virginia. The approximate mailing date
of this Proxy Statement and accompanying proxy is March 10, 1998.
Revocation and Voting of Proxies
Execution of a proxy will not affect a shareholder's right to attend
the Annual Meeting and to vote in person. Any shareholder who has executed and
returned a proxy may revoke it by attending the Annual Meeting and requesting to
vote in person. A shareholder may also revoke his proxy at any time before it is
exercised by filing a written notice with the Company or by submitting a proxy
bearing a later date. Proxies will extend to, and will be voted at, any properly
adjourned session of the Annual Meeting. If a shareholder specifies how the
proxy is to be voted with respect to any proposals for which a choice is
provided, the proxy will be voted in accordance with such specifications. If a
shareholder fails to specify with respect to such proposals, the proxy will be
voted FOR proposals 1 and 2, as set forth in the accompanying notice and further
described herein.
Voting Rights of Shareholders
Only those shareholders of record at the close of business on
February 10, 1998, are entitled to notice of and to vote at the Annual Meeting,
or any adjournments thereof. The number of shares of common stock of the Company
outstanding and entitled to vote at the Annual Meeting is 719,025. The Company
has no other class of stock outstanding. A majority of the votes entitled to be
cast, represented in person or by proxy, will constitute a quorum for the
transaction of business. Each share of Company Common Stock entitles the record
holder thereof to one vote upon each matter to be voted upon at the Annual
Meeting.
With regard to the election of directors, votes may be cast in favor
or withheld. If a quorum is present, the nominees receiving a plurality of the
votes cast at the Annual Meeting will be elected directors; therefore, votes
withheld will have no effect. The approval by the holders of a majority of the
Company's Common Stock represented at the Annual Meeting is required for
adoption of the 1997 Incentive Stock Plan. Thus, although abstentions and broker
non-votes (shares held by customers which may not be voted on certain matters
because the broker has not received specific instructions from the customer) are
counted for purposes of determining the presence or absence of a quorum for the
transaction of business, they are generally not counted for purposes of
determining whether such proposals have been approved and therefore have no
effect.
Solicitation of Proxies
The cost of solicitation of proxies will be borne by the Company.
Solicitations will be made only by the use of the mails, except that officers
and regular employees of the Company and The First National Bank of Altavista
(the "Bank") may make solicitations of proxies by telephone, telegram, special
letter, or by special call, acting without compensation other than regular
compensation. It is contemplated that brokerage houses and other nominees,
custodians, and fiduciaries will be requested to forward the proxy soliciting
material to the beneficial owners of the stock held of record by such persons,
and the Company will reimburse them for their charges and expenses in this
connection.
Securities Ownership of Certain Beneficial Owners
To the Company's knowledge, no shareholder of the Company owns 5% or
more of the outstanding common stock. For information regarding securities
ownership by members of the Company's Board of Directors and management, please
see "Election of Directors" below.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company's Board is divided into three classes (I, II, and III) of
directors. The term of office for Class I directors will expire at the Annual
Meeting. Four persons named below, each of whom currently serves as a director
of the Company, will be nominated to serve as a Class I director. If elected,
the Class I nominees will serve until the 2001 Annual Meeting of Shareholders.
The persons named in the proxy will vote for the election of the nominees named
below unless authority is withheld. The Company's Board believes that the
nominees will be available and able to serve as directors, but if any of these
persons should not be available or able to serve, the proxies may exercise
discretionary authority to vote for a substitute proposed by the Company's
Board.
Certain information concerning the nominees for election at the
Annual Meeting as Class I is set forth below, as well as certain information
about the Class II directors and Class III directors, who will continue in
office until the 1999 and 2000 Annual Meetings of Shareholders, respectively.
Common
Shares of Ownership as a
Director of Company Percentage of
Name (Age) and Principal Occupation Company Beneficially Common Stock
Address Last Five Years Since (1) Owned (2)(3) Outstanding
------- --------------- --------- ------------ -----------
Class I Directors (Nominees) (Serving until the 2001 Annual Meeting)
John P. Erb (54) Assistant Superintendent 1989 1,701(4) *
Altavista, Virginia Campbell County Schools
Robert L. Finch (67) Former 1986 8,052(5) 1%
Altavista, Virginia President & Treasurer
Finch & Finch, Inc.
Robert H. Gilliam, Jr. (52) President & CEO 1979 5,880(6) *
Lynch Station, Virginia The First National Bank
Of Altavista
R. B. Hancock, Jr. (47) President & Owner 1994 1,755(7) *
Huddleston, Virginia R.B.H., Inc. d/b/a Napa
Auto Parts
Class II Directors (Serving until the 1999 Annual Meeting)
Alvah P. Bohannon, III (50) President 1985 1,920 *
Altavista, Virginia Altavista Motors, Inc.
James P. Kent, Jr. (58) Partner 1980 8,523(8) 1%
Hurt, Virginia Kent & Kent
Percy O. Moore (64) Retired 1989 1,701(4) *
Altavista, Virginia Customer Service
Supervisor
Class III Directors (Serving until the 2000 Annual Meeting)
Herman P. Rogers, Jr. (54) Plant Manager 1997 1,500(4) *
Altavista, Virginia BGF Industries, Inc.
Carroll E. Shelton (47) Senior Vice President 1990 3,911(9) *
Hurt, Virginia The First National Bank
of Altavista
Kenneth S. Tyler, Jr. (57) Retired President & CEO 1976 1,791 *
Altavista, Virginia The Lane Company, Inc.
John L. Waller (54) Owner & Operator 1989 1,701(10) *
Hurt, Virginia Waller Farms, Inc.
All directors and executive 39,367 5.5%
officers as a group (12 persons)
- ------------------
* Less than 1.0%; based on total outstanding shares of 719,025 shares as of the
date of this Proxy Statement.
(1) Reflects year that director initially served on the Board of the
Bank, the Company's sole subsidiary.
Effective May 1, 1997, the Company became the holding company for Bank.
(2) For purposes of this table, beneficial ownership has been determined in
accordance with the provision of Rule 13d-3 of the Securities Exchange
Act of 1934 under which, in general, a person is deemed to be the
beneficial owner of a security if he has or shares the power to vote or
direct the voting of the security or the power to dispose of or direct
the disposition of the security, or if he has the right to acquire
beneficial ownership of the security within sixty days.
(3) Includes shares held by affiliated corporations, close relatives, and
children, and shares held jointly with spouses or as custodians or
trustees for children.
(4) Shares held jointly with spouse.
(5) 462 of the reported shares as held jointly with spouse, 15 shares held
solely in spouse's name and 795 shares held indirectly by Finch &
Finch, Inc., of which Mr. Finch is a majority shareholder.
(6) Includes 1,200 shares which represents shares that Mr. Gilliam has the
option to purchase as of May 1, 1998 under the 1997 Incentive Stock
Option.
(7) 1,575 of the reported shares held jointly with spouse and 180
shares held as custodian for minor child.
(8) 825 of the reported shares held solely in spouse's name.
(9) 2,961 shares are held jointly with spouse; and includes 800 shares
which represents shares that Mr. Shelton has the option to purchase as
of May 1, 1998 under the 1997 Incentive Stock Option.
(10) 78 of the reported shares held in name of majority children living at
home.
Meetings and Committees of the Board of Directors.
The Board of Directors conducts its business through meetings of the
Company's Board and through committees of the Bank's Board, certain of which are
set forth below. The Company became the holding company for the Bank in May
1997, and currently, the Bank's committees make recommendations to the Company's
Board regarding the audit, personnel and nominating functions. During calendar
year 1997, the Company's Board of Directors held 5 meetings and the Bank's Board
of Directors held 13 meetings. No director attended fewer than 75 percent of the
total meetings of the Company's and the Bank's Boards of Directors and the Bank
committees on which he or she served during this period.
Audit Committee. The Bank's Audit Committee meets to review reports of
the Bank's internal auditor who reports directly to the Audit Committee and
reviews the annual report of the Bank's independent auditors. Members of the
Audit Committee are Messrs. Bohannon, Finch, Hancock, Moore and Waller, and they
met four times in 1997.
Personnel Committee. The Bank's Personnel Committee reviews officer and
employee compensation and employee benefit plans and makes recommendations to
the Board concerning such matters. The Personnel Committee makes recommendations
as to the employment of officers of the Bank. Members of the Personnel Committee
are Messrs. Erb, Hancock, Moore, Rogers, Tyler and Gilliam, and they met six
times in 1997.
Nominating Committee. The Nominating Committee's duties include
consideration of candidates for board election. The Nominating Committee makes a
recommendation to the Board concerning candidates for any vacancy that may occur
and the entire Board then determines which candidate(s) should be nominated for
the shareholders' approval. Members of the Nominating Committee are Messrs. Erb,
Kent, Tyler and Gilliam, and they met two times in 1997. While the Board of
Directors will consider nominees recommended by shareholders, it has not
actively solicited recommendations from the Bank's shareholders for nominees,
nor has it established any procedures for this purpose.
Transactions with Management
Directors and officers of the Bank and persons with whom they are
associated have had, and expect to have in the future, banking transactions with
the Bank in the ordinary course of their businesses. In the opinion of
management of the Bank, all such loans and commitments for loans were made on
substantially the same terms, including interest rates, collateral and repayment
terms as those prevailing at the same time for comparable transactions with
other persons, were made in the ordinary course of business, and do not involve
more than a normal risk of collectibility or present other unfavorable features.
Directors' Fees
All directors of the Bank received an annual retainer of $3,250 in 1997
and, in addition, the outside directors received $125.00 for each committee
meeting attended.
Interest of Management in Certain Transactions
As of December 31, 1997, borrowing by all policy-making officers,
directors, principal shareholders and their associates amounted to $2,393,000 or
17%, of total capital. The maximum aggregate amount of such indebtedness during
1997 was $2,393,000 or 17%, of total year-end capital. These loans were made in
the ordinary course of the Bank's business, on the same terms, including
interest rates and collateral, as those prevailing at the same time for
comparable transactions with others, and do not involve more than the normal
risks of collectibility or present other unfavorable features. The Bank expects
to have in the future similar banking transactions with officers, directors,
principal shareholders and their associates.
EXECUTIVE COMPENSATION
The following table provides information concerning Mr. Gilliam,
President and CEO, the only executive officer of the Company whose compensation
exceeded $100,000 for any of the three years ended December 31, 1997. All
compensation was paid by the Bank, the Company's wholly-owned subsidiary. The
Company paid no compensation in 1997.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal All Other
Position Year Salary($)(1) Bonus($) Compensation($)(2)
-------- ---- ------------ -------- ------------------
Robert H. Gilliam, Jr. 1997 118,250 13,800 1,724
President & Chief 1996 106,150 12,378 1,855
Executive Officer 1995 101,650 8,924 1,247
(1) Includes a Board retainer of $3,250 in 1997, $3,000 in 1996, and
$2,500 in 1995.
(2) Cost (based on IRS uniform cost table) of more than $50,000 of
group-term life insurance provided by employer.
Stock Options. The following table shows all grants of options to Mr.
Gilliam in 1997:
Option Grants in Last Fiscal Year
% of Total
Options Granted Exercise or
Options To Employees in Base Price Expiration
Name Granted (#)(1) Fiscal Year ($/Sh) Date
---- -------------- ----------- ------ ----
Robert H. Gilliam, Jr. 6,000 40% 20.00 12/30/07
(1) Vesting is as follows: One-fifth by May 1, 1998; and one-fifth each
year thereafter for four consecutive years.
Employee Benefit Plans
Retirement Plan. The Bank maintains a Non-Contributory Defined
Benefit Retirement Plan (the "Retirement Plan") covering substantially all
employees who have reached the age of 21 and have been fully employed for at
least one year. The Retirement Plan, sponsored by the Virginia Bankers
Association, provides participants with retirement benefits related to salary
and years of credited service. Employees become vested after five plan years of
service, and the normal retirement date is the plan anniversary date nearest the
employee's 65th birthday. The Retirement Plan does not cover directors who are
not active officers. The amount expensed for the Retirement Plan during the year
ended December 31, 1997, was $81,899.
The following table shows the estimated annual retirement benefits
payable to employees in the average annual salary and years of service
classifications set forth below assuming retirement at the normal retirement age
of 65.
Years of Credited Service
Consecutive Five-Year
Average Salary 15 20 25 30 35
-------------- ------ ------ ------ ------ ----
$ 25,000 $ 5,625 $ 7,500 $ 9,375 $11,250 $12,188
40,000 $10,203 $13,603 $17,004 $20,405 $22,306
55,000 $15,265 $20,353 $25,442 $30,530 $33,556
75,000 $22,015 $29,353 $36,692 $44,030 $48,556
100,000 $30,453 $40,603 $50,754 $60,905 $67,306
125,000 $38,890 $51,853 $64,817 $77,780 $86,056
150,000 $47,328 $63,103 $78,879 $94,655 $104,806
Benefits under the Retirement Plan are based on a straight life
annuity assuming full benefit at age 65, no offsets, and covered compensation of
$29,311 for a person age 65 in 1997. Compensation is currently limited to
$160,000 by Internal Revenue Code. The estimated annual benefit payable under
the Retirement Plan upon retirement is $71,156 for Mr. Gilliam, credited with 40
years of service. Benefits are estimated on the basis that he will continue to
receive, until age 65, covered salary in the same amount paid in 1997.
Profit Sharing/401(k) Plan. The Bank adopted a Defined Contribution
Profit Sharing Thrift Plan (the "Thrift Plan") effective January 1, 1997. The
Thrift Plan, sponsored by the Virginia Bankers Association, includes a 401(k)
savings provision which authorizes a maximum voluntary salary deferral of up to
15% of compensation, subject to statutory limitations. All full-time employees
who have reached the age of 21 with at least six months of service are eligible
to participate. Contributions and earnings, which are tax-deferred, may be
invested in various investment vehicles offered through the Virginia Bankers
Association. The profit sharing arrangement allows for employer contributions in
such amount, if any, which the Board of Directors shall determine. Employees
become 100% vested in any employer contributions which may be made after five
plan years of service. The Bank made no contributions to the Thrift Plan for the
year ended December 31, 1997.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors, executive
officers and 10% beneficial owners of the Company's Common Stock to file reports
concerning their ownership of Common Stock. The Company believes that its
officers and directors complied with all filing requirements under Section 16(a)
of the Securities Exchange Act of 1934 during 1997, except that Mr. Gilliam
filed an amendment to his initial Form 3 filing.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ELECTION OF THE NOMINEES LISTED ABOVE.
PROPOSAL TWO
APPROVAL OF THE 1997 INCENTIVE STOCK PLAN
General. The Company's 1997 Incentive Stock Plan (the "Incentive Plan")
was adopted by the Board of Directors to be effective on May 1, 1997, subject to
the approval by the holders of a majority of the Company's Common Stock
represented at the Annual Meeting. The Incentive Plan makes available up to
25,000 shares of Common Stock for awards to key employees of the Company and its
subsidiaries in the form of stock options, stock appreciation rights and
restricted stock (collectively, "Awards"), all as more fully described below.
The following description of the Incentive Plan is qualified in its
entirety by reference to the Incentive Plan, a copy of which may be obtained by
request delivered to the secretary of the Company at the address set forth on
the Notice of this Proxy Statement.
Purpose. The purpose of the Incentive Plan is to promote the success of
the Company and its subsidiaries by providing incentives to key employees that
will promote the identification of their personal interests with the long-term
financial success of the Company and with growth in shareholder value. The Plan
is designed to provide flexibility to the Company in its ability to motivate,
attract, and retain the services of key employees upon whose judgment, interest,
and special effort the successful conduct of its operation is largely dependent.
Administration. Under the terms of the Incentive Plan, the non-employee
directors of the Personnel Committee of The First National Bank of Altavista,
the wholly-owned subsidiary of the Company (the "Committee") will be appointed
to administer the plan. No director may serve as a member of the Committee if he
is eligible to participate in the Plan or was at any time within one year prior
to his appointment to the Committee eligible to participate in the Plan. The
Committee will have the power to determine the key employees to whom Awards
shall be made.
Each Award under the Incentive Plan will be made pursuant to a written
agreement between the Company and the recipient of the Award (the "Agreement").
In administering the Incentive Plan, the Committee will have the authority
subject to approval, amendment and modification by the Board of Directors of the
Company, to determine the terms and conditions upon which Awards may be made and
exercised, to determine terms and provisions of each Agreement, to construe and
interpret the Incentive Plan and the Agreements, to establish, amend or waive
rules or regulations for the Incentive Plan's administration, to accelerate the
exercisability of any Award, the end of any performance period or termination of
any period of restriction, and to make all other determinations and take all
other actions necessary or advisable for the administration of the Incentive
Plan.
Subject to the terms, conditions and limitations of the Incentive Plan,
the Committee may modify, extend or renew outstanding Awards, or, if authorized
by the Board of Directors, accept the surrender of outstanding Awards and
authorize new Awards in substitution therefor, including Awards with lower
exercise prices or longer terms than the surrendered Awards. The Board may
terminate, amend or modify the Incentive Plan from time to time in any respect
without shareholder approval, unless the particular amendment or modification
requires shareholder approval under the Internal Revenue Code of 1986, as
amended (the "Code"), the rules and regulations under Section 16 of the
Securities Exchange Act (the "Exchange Act") or pursuant to any other applicable
laws, rules or regulations.
The Incentive Plan will expire on April 30, 2007, unless sooner
terminated by the Board.
Eligibility. All employees of the Company and its subsidiaries who are
deemed to be key employees ("Key Employees") by the Committee are eligible for
Awards under the Incentive Plan. Key Employees include officers or other
employees of the Company and its subsidiaries who, in the opinion of the
Committee, can contribute significantly to the growth and profitability of, or
perform services of major importance to, the Company and its subsidiaries.
Directors who are not also officers or employees of the Company or its
subsidiaries are not eligible for Awards under the Plan.
Awards granted under the Incentive Plan may not be assigned,
transferred, pledged or otherwise encumbered by a participant, other than by
will or the laws of descent and distribution. Awards may be exercised during the
recipient's lifetime only by the recipient or, in the case of disability, by the
recipient's legal representative. Such Awards also are not exercisable until at
least six months after the grant of the Award. Subject to other applicable
restrictions, shares granted as Restricted Stock may not be transferred or sold
until at least six months after the grant of the Award.
Options. The Incentive Plan authorizes the grant of incentive stock
options within the meaning of Section 422A of the Code ("ISOs") and
non-qualified stock options ("NQSOs") (collectively, "Options"). The Option
terms applicable to such Options will be determined by the Committee, but no
Option will be exercisable in any event until at least six months after its
grant (except in cases of death or disability) or after ten years from its
grant. All Options granted as ISOs shall comply with all applicable provisions
of the Code and all other applicable rules and regulations governing ISOs. All
other Option terms will be determined by the Committee in its sole discretion.
Tandem SARS. The Incentive Plan authorizes the grant of stock
appreciation rights granted in tandem with Options ("Tandem SARs").
A Tandem SAR may be exercised with respect to all or part of the shares
subject to the related Option, and entitles the holder, upon exercise, to
receive, without any payment to the Company (other than required withholding
amounts), cash or Common Stock or a combination thereof equivalent in value to
the excess of the fair market value on the exercise date of the shares of Common
Stock represented by the Tandem SAR over the option exercise price of the
related Option.
A Tandem SAR may be exercised only when the current value of the Tandem
SAR exceeds the exercise price of the related Option. A Tandem SAR shall expire
no later than, and is exercisable and transferable subject to the conditions of,
the related Option. In no event may a Tandem SAR be exercised sooner than six
months from the date of grant (except in the case of death or disability).
If a Tandem SAR is exercised, it will reduce correspondingly the number
of shares of Common Stock represented by the related Option, and exercise of the
related Option will similarly reduce the number of shares represented by the
Tandem SAR. The Committee retains sole discretion to approve or disapprove an
optionee's election to receive cash to the extent required by Exchange Act Rule
16b-3 or the terms of the particular Agreement. When an optionee who is a
director or executive officer of the Company subject to Section 16(a) under the
Exchange Act elects to receive cash upon exercise of a Tandem SAR and the
Committee consents thereto, such Tandem SAR will be deemed to have been
exercised on the date when the Common Stock has its highest fair market value
during the period specified in Rule 16b-3 in which the Tandem SAR is exercised.
Restricted Stock. The Incentive Plan permits the award of shares of
restricted stock ("Restricted Stock"). However, no more than one-third of the
shares authorized to be issued under the Incentive Plan may be granted as
Restricted Stock. Restricted Stock may not be disposed of by the recipient until
certain restrictions established by the Committee lapse. Recipients of
Restricted Stock are not required to provide consideration other than the
rendering of services. The recipient shall have, with respect to the Restricted
Stock, all the rights of a stockholder of the Company, including the right to
vote the shares, and the right to receive any cash dividends on the shares. Upon
termination of employment during the period of restriction for reasons other
than death, disability or retirement, all Restricted Stock will be forfeited
subject to such exceptions, if any, as are authorized by the Committee and set
forth in the Agreement. In all events other than death, or disability of the
recipient, the applicable period of restriction may not be less than six months.
Shares Subject to the Incentive Plan. Up to 25,000 shares of Common
Stock may be issued under the Incentive Plan. Except as set forth below, shares
of Common Stock issued in connection with the exercise of, or as other payment
for an Award will be charged against the total number of shares issuable under
the Incentive Plan. If any Award granted (for which no material benefits of
ownership have been received, including dividends), with respect to a Tandem
SAR, terminates, expires or lapses for any reason other than as a result of
being exercised (other than by exercise of a related Option), or if shares
issued (for which no material benefits of ownership have been received,
including dividends) pursuant to an Award are forfeited, Common Stock subject to
such Award will be available for further Awards.
In order to reflect such events as stock dividends, stock splits,
recapitalizations, mergers, consolidations or reorganizations by the Company,
the Committee will adjust the number of shares subject to each outstanding
Award, the exercise price and the aggregate number of shares from which grants
or awards may be made.
Change in Control. In order to maintain all the participants' rights in
the event of a Change in Control of the Company (as that term is defined in the
Incentive Plan), the Committee, as constituted before such Change in Control,
may take in its sole discretion any one or more of the following actions either
at the time an Award is made or any time thereafter: (i) provide for the
acceleration of any time periods relating to the exercise or realization of any
such Award so that such Award may be exercised or realized in full on or before
a date initially fixed by the Committee; (ii) provide for the purchase or
settlement of any such Award by the Company, upon the participant's request, for
an amount of cash equal to the amount which could have been obtained upon the
exercise of such Award or realization of such participant's rights had such
Award been currently exercisable or payable; (iii) make such adjustment to any
such Award then outstanding as the Committee deems appropriate to reflect such
Change in Control; or (iv) cause any such Award then outstanding to be assumed,
or new rights substituted therefor, by the acquiring or surviving corporation in
such Change in Control.
Certain Federal Income Tax Consequences.
Incentive Stock Options. An optionee will not recognize income on the
grant of an ISO, and an optionee generally will not recognize income on the
exercise of an ISO, except as described in the following paragraph. Under these
circumstances, no deduction will be allowable to the Company in connection with
either the grant of such Options or the issuance of shares upon exercise
thereof.
However, if the exercise of an ISO occurs more than three months after
the optionee ceased to be an employee for reasons other than death or disability
(or more than one year thereafter if the optionee ceased to be an employee by
reason of permanent and total disability), the exercise will not be treated as
the exercise of an ISO, and the optionee will be taxed in the same manner as on
the exercise of a NQSO, as described below. For the Option to qualify as an ISO
upon the optionee's death, the optionee must have been employed at the Company
for at least three months before his or her death.
Gain or loss from the sale or exchange of shares acquired upon exercise
of an ISO generally will be treated as capital gain or loss. If, however, shares
acquired pursuant to the exercise of an ISO are disposed of within two years
after the Option was granted or within one year after the shares were
transferred pursuant to the exercise of the Option, the optionee generally will
recognize ordinary income at the time of the disposition equal to the excess
over the exercise price of the lesser of the amount realized or the fair market
value of the shares at the time of exercise (or, in certain circumstances, at
the time such shares became either transferable or not subject to a substantial
risk of forfeiture). The exercise of an ISO may result in a tax to the optionee
under the alternative minimum tax because as a general rule the excess of the
fair market value of stock received on the exercise of an ISO over the exercise
price is defined as an item of "tax preference" for purposes of determining
alternative minimum taxable income.
Non-qualified Options and Tandem SARs. A participant will not recognize
income on the grant of a NQSO or a Tandem SAR, but generally will recognize
income upon the exercise of a NQSO or a Tandem SAR. The amount of income
recognized upon the exercise of a NQSO will be measured by the excess, if any,
of the fair market value of the shares at the time of exercise over the exercise
price, provided that the shares issued are either transferable or not subject to
a substantial risk of forfeiture. The amount of income recognized upon the
exercise of a Tandem SAR will be equal to the amount of cash received and the
fair market value of any shares received at the time of exercise, provided the
shares issued are either transferable or not subject to a substantial risk of
forfeiture, plus the amount of any taxes withheld.
If shares received on the exercise of a NQSO or a Tandem SAR are
nontransferable and subject to a substantial risk of forfeiture then, unless the
optionee elects to recognize income at the time of receipt of such shares, the
optionee will not recognize ordinary income until the shares become either
transferable or are not subject to a substantial risk of forfeiture. For these
purposes, shares will be treated as nontransferable and subject to a substantial
risk of forfeiture for as long as the sale of the shares at a profit could
subject the optionee to suit under Section 16(b) of the Exchange Act. In the
circumstances described in this paragraph, the amount of income recognized is
measured with respect to the fair market value of the shares at the time the
income is recognized.
In the case of ordinary income recognized by an optionee as described
above in connection with the exercise of a NQSO or a Tandem SAR, the Company
will be entitled to a deduction in the amount of ordinary income so recognized
by the optionee, provided the Company satisfies certain federal income tax
withholding requirements.
Restricted Stock. A recipient of Restricted Stock is not required to
include the value of such shares in ordinary income until the first time his
rights in the shares are transferable or are not subject to a substantial risk
of forfeiture, whichever occurs earlier, unless he elects to be taxed on receipt
of the shares. With respect to Awards granted under the Incentive Plan that are
settled either in cash or in stock or other property that is either transferable
or not subject to substantial risk of forfeiture, the recipient will recognize
ordinary income at the time of receipt of the cash, stock or other property. In
the circumstances described in this paragraph, the amount of such income will be
equal to the amount of cash received, or the excess of the fair market value of
the shares or other property received at the time the income is recognized over
the amount (if any) paid for the shares or other property. The Company will be
entitled to a deduction in the amount of the ordinary income recognized by the
recipient for the employer's taxable year which includes the last day of the
recipient's taxable year in which he recognizes such income, provided the
Company satisfies certain federal income tax withholding requirements.
General. The rules governing the tax treatment of Awards that may be
granted under the Incentive Plan are quite technical, so that the above
description of tax consequences is necessarily general in nature and does not
purport to be complete. Moreover, statutory provisions are, of course, subject
to change, as are their interpretations, and their application may vary in
individual circumstances.
Accounting Treatment. Under current accounting principles, neither the
grant nor the exercise of a stock option with an exercise price not less than
the fair market value of the Common Stock at the date of grant would require a
charge against earnings.
The Tandem SARs will require a charge to earnings of the Company in an
amount equal to the difference between the current market value of the Common
Stock and the exercise price. Depending upon the specific provisions of any
Restricted Stock granted, a charge to earnings representing the value of the
benefit conferred may be required. Under certain circumstances, this charge may
be spread over any period of restriction applicable to such an Award.
Effective Date. If approved by the shareholders, the Incentive Plan
will be treated as effective as of May 1, 1997.
Vote Required. The affirmative vote of the holders of a majority of the
Common Stock represented in person or by proxy voting at the Annual Meeting,
assuming a quorum is present, is required to ratify and approve the Incentive
Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
ADOPTION OF THE PROPOSED INCENTIVE PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick, LLP, served as the Company's principal independent
certified public accountants for the fiscal year ended December 31, 1997. No
company has been selected by the Board of Directors to act as the Company's
independent certified public accountants for the current fiscal year. The Board
will make this decision later in the year. A representative of KPMG Peat
Marwick, LLP will be present at the Annual Meeting and will be given the
opportunity to make a statement and respond to appropriate questions from the
shareholders.
OTHER BUSINESS
As of the date of this Proxy Statement, management of the Company has
no knowledge of any matters to be presented for consideration at the Annual
Meeting other than those referred to above. If any other matters properly come
before the Annual Meeting, the persons named in the accompanying proxy intend to
vote such proxy, to the extent entitled, in accordance with their best judgment.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of shareholders intended to be presented at the 1999 Annual
Meeting must be received by the Company no later than November 6, 1998. Under
applicable law, the Board of Directors need not include an otherwise appropriate
shareholder proposal (including any shareholder nominations for director
candidates) in its proxy statement or form of proxy for that meeting unless the
proposal is received by the Company's Secretary, at the Company's principal
office in Altavista, Virginia, on or before the date set forth above.
By Order of the Board of Directors
Dawn P. Crusinberry
Secretary
Altavista, Virginia
March 10, 1998
A copy of the Company's Annual Report on Form 10-KSB Report
(including exhibits) as filed with the Securities and Exchange Commission for
the year ended December 31, 1997, will be furnished without charge to
shareholders upon written request directed to the Company's Secretary as set
forth on the first page of this Proxy Statement.
P R O X Y Pinnacle Bankshares Corporation
1998 Annual Meeting of Shareholders
Held April 14, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned Shareholder hereby constitutes and appoints Edward Bell,
Jr., Robert I. Steele and Claude N. Woodson, or any of them, proxies of the
undersigned, with full power of substitution, to vote the shares of common
stock of Pinnacle Bankshares Corporation, outstanding in the name of the
undersigned, at the 1998 Annual Meeting of Shareholders of Pinnacle Bankshares
Corporation to be held at the Fellowship Hall of Altavista Presbyterian Church,
located at 707 Broad Street, Altavista, Virginia, on the 14th day of April,
1998, at 11:30 a.m., and at any adjournment of adjournments thereof, with all
powers the undersigned would possess if personally present:
ITEM 1: To elect the four (4) nominees listed below as Class I Directors
to serve until the 2001 Annual Meeting of Shareholders, as further described in
the Proxy Statement accompanying this Proxy.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
John P. Erb
Robert L. Finch
Robert H. Gilliam, Jr.
R. B. Hancock, Jr.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write the nominee's name on the space provided below.)
I withhold authority
for-----------------------------------------------------------
ITEM 2: To approve the Company's 1997 Incentive Stock Option Plan, the
material terms of which are described in the Proxy Statement accompanying this
Proxy.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
ITEM 3: To take action upon such other matters as may properly come before
the meeting or any adjournment of adjournments thereof.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ON ITEMS 1 AND 2 LISTED
ABOVE, AND YOUR PROXY WILL BE VOTED FOR ITEMS 1 AND 2 IF NO SPECIFICATION IS
MADE. IF ANY OTHER MATTERS COME BEFORE THE MEETING, THIS PROXY BE VOTED WITH
RESPECT THERETO IN THE INTEREST OF THE COMPANY ACCORDING TO THE BEST JUDGMENT
OF THE PERSON OR PERSONS VOTING THE PROXY.
This proxy is revocable by you at any time prior to the voting of the
shares represented, by notifying the Secretary of the Company in writing before
such vote or by filing another proxy with the Secretary bearing a later date.
Shareholders who are present at the meeting may withdraw their proxy and vote
in person. When signing as attorney, executor, administrator, trustee or
guardian, please give your full title as such. Both joint holders should sign.
Dated ------------------------------ , 1998 ------------------------------ (SEAL)
Number of Shares -------------
- --------------------------------- (SEAL) ------------------------------ (SEAL)
Return to:
Pinnacle Bankshares Corporation
P. O. Box 29
Altavista, Virginia 24517-0029