S-4 1 fcbc20230113b_s4.htm FORM S-4 fcbc20230117_8k.htm

Table of Contents

As filed with the Securities and Exchange Commission on January 18, 2023.

Registration No. ___-______

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

FIRST COMMUNITY BANKSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Virginia

6022

55-0694814

(State or Other Jurisdiction of Incorporation or Organization)

(Primary Standard Industrial
Classification Code Number)

(I. R. S. Employer
Identification Number)

 

P.O. Box 989

Bluefield, Virginia 26405-0989

(276) 326-9000

 

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrants Principal Executive Offices)

 

William P. Stafford, II

First Community Bankshares, Inc.

29 College Drive

Bluefield, Virginia 26405

(276) 326-9000

 

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

with copies to:

Sandra M. Murphy, Esq.

Bowles Rice LLP

600 Quarrier Street

P.O. Box 1386

Charleston, West Virginia 25325

(304) 347-1131

Robert A. Singer, Esq.

Brooks, Pierce, McLendon, Humphrey & Leonard, LLP

230 North Elm Street

2000 Renaissance Plaza

Greensboro, North Carolina 27401

(336) 271-3123

Approximate date of commencement of proposed sale to the public: as soon as practicable after this registration statement becomes effective.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

     

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 


Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This document shall not constitute an offer to sell or the solicitation of any offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

PRELIMINARY-SUBJECT TO COMPLETION-DATED JANUARY 18, 2023

 

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MERGER PROPOSED-YOUR VOTE IS VERY IMPORTANT

 

Dear Shareholder:

 

On November 17, 2022, Surrey Bancorp (which we refer to as “Surrey”) and First Community Bankshares, Inc. (which we refer to as “First Community”) entered into an Agreement and Plan of Merger (which, as it may be amended, supplemented or modified from time to time, we refer to as the “merger agreement”), pursuant to which Surrey will merge with and into First Community (which we refer to as the “merger”). Immediately following the completion of the merger, Surrey Bank & Trust, Surrey’s wholly-owned bank subsidiary, will merge with and into First Community Bank, First Community’s wholly-owned bank subsidiary, with First Community Bank continuing as the surviving bank (which we refer to as the “bank merger”).

 

In the merger, each share of Surrey common stock and Class A common stock issued and outstanding immediately prior to the completion of the merger (other than certain excluded shares as described in the attached proxy statement/prospectus) will be converted into the right to receive 0.7159 (the “exchange ratio”) shares of First Community common stock (which we refer to as the “merger consideration”). Based on First Community’s closing price of $38.43 per share on November 17, 2022, the 0.7159 exchange ratio represented an implied value of approximately $27.51 for each share of Surrey common stock and Surrey Class A common stock.

 

We encourage you to obtain current market quotations for the common stock of First Community and Surrey before you vote. First Community common stock is currently quoted on the Nasdaq Global Select Market (which we refer to as the “NASDAQ”) under the symbol “FCBC.” Surrey common stock is currently quoted on the OTC Pink Marketplace (which we refer to as the “OTC Pink”) under the symbol “SRYB.”

 

Based on the number of shares of Surrey common stock and Class A common stock outstanding on [●], 2023, the record date for the Surrey special meeting, we expect that holders of shares of Surrey common stock and Surrey Class A common stock outstanding as of immediately prior to the closing of the merger will hold, in the aggregate, approximately [15.6]% of the issued and outstanding shares of First Community common stock immediately following the closing of the merger (including shares received in respect of Surrey restricted stock awards and without giving effect to any shares of First Community common stock held by Surrey shareholders prior to the merger). As a result, current First Community shareholders will hold, in the aggregate, approximately [84.4]% of the outstanding shares of First Community common stock immediately following the closing of the merger. An increase or decrease in the number of outstanding shares of Surrey common stock and Surrey Class A common stock prior to completion of the merger could cause the actual number of shares issued upon completion of the merger to change.

 

 

The merger is intended to be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”) and holders of Surrey common stock or Class A common stock are not expected to recognize any gain or loss for United States federal income tax purposes on the exchange of shares of Surrey common stock or Surrey Class A common stock for shares of First Community common stock in the merger, except to the extent holders receive cash in lieu of any fractional shares of First Community common stock.

 

Surrey will hold a special meeting of its shareholders in connection with the merger. Holders of Surrey common stock and Surrey Class A common stock, voting as separate groups, will be asked to vote to approve the merger agreement and to approve related matters, as described in the attached proxy statement/prospectus.

 

The special meeting of Surrey shareholders will be held on [●], 2023 at [●] [a.m./p.m.] (local time) at [●].

 

Your vote is important. We cannot complete the merger unless the holders of Surrey common stock and Surrey Class A common stock approve the merger agreement. Approval of the merger agreement requires the affirmative vote of the holders of (1) a majority of the outstanding shares of Surrey common stock entitled to vote on the proposal and (2) a majority of the outstanding shares of Surrey Class A common stock entitled to vote on the proposal. Regardless of whether or not you plan to attend the special meeting, please take the time to vote your shares in accordance with the instructions contained in the enclosed proxy statement/prospectus.

 

The Surrey board of directors unanimously recommends that holders of Surrey common stock and holders of Surrey Class A common stock vote FOR the approval of the merger agreement and FOR the other matters to be considered at the Surrey special meeting.

 

The enclosed proxy statement/prospectus describes the special meeting, the merger, the documents related to the merger and other related matters. Please carefully read the entire proxy statement/prospectus, including the section entitled Risk Factors, for a discussion of the risks relating to the proposed merger. You also can obtain information about the proposed merger and First Community from documents that First Community has filed with the Securities and Exchange Commission that are attached as appendices to this proxy statement/prospectus and about Surrey in Surrey’s annual reports by accessing Surrey’s website at www.surreybank.com under the tab “About Us” and then under the heading “Investor Relations” and “Shareholder Relations”.

 

If you have any questions concerning the merger, please contact Edward C. Ashby, III, 145 N. Renfro Street, Mount Airy, North Carolina, 27030 at (333)783-3900. We look forward to seeing you at the special meeting.

 

 

 

Sincerely,

 

       

 

 

 

 

 

 

Robert H. Moody

 

 

 

Chairman of the Board of Directors 

 

 

 

Surrey Bancorp 

 

 

Neither the Securities and Exchange Commission nor any state securities commission or any bank regulatory agency has approved or disapproved the securities to be issued in the merger or determined if the enclosed proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

 

The securities to be issued in the merger are not deposit accounts or other obligations of any bank or non-bank subsidiary of either First Community or Surrey, and they are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

 

The date of the enclosed proxy statement/prospectus is [●], 2023, and it is first being mailed or otherwise delivered to the shareholders of Surrey on or about [●], 2023.

 

 

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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

 

To the Shareholders of Surrey Bancorp:

 

Surrey Bancorp (which we refer to as “Surrey”) will hold a special meeting of shareholders on [●] 2023 at [●] (local time) at [●], to consider and vote upon the following matters:

 

 

(1)

For the holders of Surrey common stock, voting as a separate class from the holders of Surrey Class A common stock, to approve the Agreement and Plan of Merger, dated November 17, 2022, between Surrey and First Community Bankshares, Inc. (as such agreement may from time to time be amended, which we refer to as the “merger agreement”). We refer to this transaction as the “merger” and this proposal as the “common shareholder merger proposal.”

     
 

(2)

For the holders of Surrey common stock, voting as a separate class from the holders of Surrey Class A common stock, to approve one or more adjournments of the special meeting, if necessary or appropriate to permit further solicitation of proxies from the holders of Surrey common stock in favor of the common shareholder merger proposal. We refer to this proposal as the “common shareholder adjournment proposal.”

     
 

(3)

For the holders of Surrey Class A common stock, voting as a separate class from the holders of Surrey common stock, to approve the merger agreement. We refer to this proposal as the “Class A common shareholder merger proposal.”

     
 

(4)

For the holders of Surrey Class A common stock, voting as a separate class from the holders of Surrey common stock, to approve one or more adjournments of the special meeting, if necessary or appropriate to permit further solicitation of proxies from the holders of Surrey Class A common stock in favor of the Class A common shareholder merger proposal. We refer to this proposal as the “Class A common shareholder adjournment proposal.”

     

The affirmative vote of the holders of a majority of the outstanding shares of Surrey common stock, voting as a separate class from the holders of Surrey Class A common stock, is required to approve the common shareholder merger proposal. The affirmative vote of a majority of the votes cast by the holders of Surrey common stock is required to approve the common shareholder adjournment proposal.

 

The affirmative vote of the holders of a majority of the outstanding shares of Surrey Class A common stock, voting as a separate class from the holders of Surrey common stock, is required to approve the Class A common shareholder merger proposal. The affirmative vote of a majority of the votes cast by the holders of Surrey Class A common stock is required to approve the Class A common shareholder adjournment proposal.

 

Surrey will transact no other business at the special meeting except for business properly brought before the special meeting or any adjournment thereof.

 

The merger cannot be completed unless Surrey common shareholders approve the common shareholder merger proposal and Surrey Class A common shareholders approve the Class A common shareholder merger proposal. The proxy statement/prospectus accompanying this notice describes the merger agreement and the transactions contemplated thereby, as well as the proposals to be considered at the special meeting. Please review the proxy statement/prospectus carefully.

 

 

We have fixed the close of business on [●], 2023 as the record date for the determination of shareholders entitled to notice of, and to vote at, the Surrey special meeting (which we refer to as the “Surrey record date”). Only holders of record of Surrey common stock or Surrey Class A common stock at the close of business on that date are entitled to notice of, and to vote at, the Surrey special meeting or any adjournment thereof.

 

The Surrey board of directors has unanimously approved the merger agreement and the merger and unanimously recommends that holders of Surrey common stock vote FOR the common shareholder merger proposal and the common shareholder adjournment proposal. The Surrey board of directors also unanimously recommends that holders of Surrey Class A common stock vote FOR the Class A common shareholder merger proposal and the Class A common shareholder adjournment proposal.

 

Your vote is very important. We cannot complete the merger unless holders of Surrey common stock and holders of Surrey Class A common stock, voting separately, approve the merger agreement.

 

Whether or not you plan to attend the Surrey special meeting, we encourage you to execute and return the enclosed proxy card promptly in the enclosed self-addressed envelope or to vote your shares in advance of the Surrey special meeting by Internet or phone, as described in the accompanying proxy statement/prospectus. If you decide to attend the Surrey special meeting, then you may, if you desire, revoke the proxy and vote your shares in person. If you hold your shares in street name through a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished by the record holder.

 

You have the right to assert appraisal rights with respect to the merger and demand in writing that First Community Bankshares, Inc. pay the fair value of your shares of Surrey common stock or Surrey Class A common stock under applicable provisions of North Carolina law. In order to exercise and perfect appraisal rights, you must give written notice of your intent to demand payment for your shares to Surrey before the vote is taken on the merger agreement at the special meeting and you must not vote in favor of the merger. A copy of the applicable North Carolina statutory provisions is included in the proxy statement/prospectus as Appendix C and a description of the procedures to demand and perfect appraisal rights is included in the section entitled The Merger - Dissenters Appraisal Rights for Surrey Shareholders beginning on page [].

 

The enclosed proxy statement/prospectus provides a detailed description of the Surrey special meeting, the merger, the documents related to the merger and other related matters. We urge you to read the proxy statement/prospectus, including any documents attached to this proxy statement/prospectus, and its appendices carefully and in their entirety.

 

If you have any questions concerning the merger or the proxy statement/prospectus, would like additional copies of the proxy statement/prospectus or need help voting your shares of Surrey common stock or Surrey Class A common stock, please contact Surrey’s proxy solicitor, Regan & Associates, Inc., (1) by mail at 505 Eighth Avenue- Suite 800, New York, NY 10018; or (2) by phone at (800) 737-3426.

 

On behalf of the Surrey board of directors, thank you for your prompt attention to this important matter.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

Robert H. Moody

 

Chairman of the Board of Directors

 

 

REFERENCES TO ADDITIONAL INFORMATION

 

This document includes important business and financial information about First Community that is included in documents filed with the U.S. Securities and Exchange Commission (which we refer to as the SEC) that have been attached as appendices to this proxy statement/prospectus.

 

In addition, documents filed with the SEC by First Community are available free of charge through the SEC website (http://www.sec.gov) or by requesting them in writing or by telephone from First Community or Surrey at the following addresses:

 

First Community Bankshares, Inc.

29 College Drive

Bluefield, Virginia 24605-0989

Attention: David D. Brown

Telephone: (276) 326-9000

Surrey Bancorp

145 N Renfro Street

Mount Airy, North Carolina 27030

Attention: Edward C. Ashby, III

Telephone: (336) 783-3900

 

Regan & Associates, Inc.

505 Eighth Avenue, Suite 800

New York, NY 10018

Attention: Artie Regan

Telephone: (800) 737-3426

   

You will not be charged for any of these documents that you request. Surrey shareholders requesting documents should do so by [•], 2023, in order to receive them before their special meeting.

 

This proxy statement/prospectus attaches as appendices documents that First Community previously filed with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as set forth below. Any statement contained in such a document shall be deemed to be modified or superseded for purposes of this proxy statement/prospectus to the extent that a statement contained in this proxy statement/prospectus or in an appendix hereto consisting of a document filed with the SEC subsequent to such document modifies or replaces such statement.

 

Set forth below is a list of the documents previously filed with the SEC by First Community under the Exchange Act that are attached as appendices to this proxy statement/prospectus.

 

 

Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 3, 2022 (Appendix D);

 

Definitive Proxy Statement on Schedule 14A filed with the SEC on March 16, 2022 (Appendix E);

 

Quarterly Reports on Form 10-Q for the quarter ended March 31, 2022, filed with the SEC on May 10, 2022, for the quarter ended June 30, 2022 filed with the SEC on August 5, 2022 and for the quarter ended September 30, 2022 filed with the SEC on November 8, 2022 (Appendix F); and

 

Current Reports on Form 8-K, filed with the SEC on March 14, 2022, April 1, 2022, May 2, 2022, May 31, 2022, June 17, 2022, November 18, 2022 and December 1, 2022 (Appendix G).

 

You should rely only on the information contained in or attached to this document. No one has been authorized to provide you with information that is different from that contained in, or attached to this document. This document is dated [•], 2023, and you should assume that the information in this document is accurate only as of such date. You should assume that the filings with the SEC attached as appendices to this document are accurate as of the date of such filing. Neither the mailing of this document to Surrey shareholders nor the issuance by First Community of shares of First Community common stock in connection with the merger will create any implication to the contrary.

 

Information on the websites of First Community or Surrey, or any subsidiary of First Community or Surrey, is not part of this document. You should not rely on that information in deciding how to vote.

 

This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Except where the context otherwise indicates, information contained in this document regarding Surrey has been provided by Surrey and information contained in, or attached to, this document regarding First Community has been provided by First Community.

 

See “Where You Can Find More Information” beginning on page [•].

 

 

TABLE OF CONTENTS

 

 

Page

   

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SURREY SPECIAL MEETING

1

SUMMARY

8

Information Regarding First Community and Surrey

8

The Merger

9

Closing and Effective Time of the Merger

9

Merger Consideration

9

Conversion of Shares; Exchange of Certificates

10

Material U.S. Federal Income Tax Consequences of the Merger

10

Dissenters Appraisal Rights for Surrey Shareholders

11

Opinion of Surreys Financial Advisor

11

Recommendation of the Surrey Board of Directors

11

Interests of Surrey Directors and Executive Officers in the Merger

12

Treatment of Surrey Restricted Stock

12

Regulatory Approvals

12

Conditions of Completion of the Merger

13

Agreement Not to Solicit Other Offers

14

Termination of the Merger Agreement

14

Termination Fee

15

Public trading Markets

15

Surrey Special Meeting

15

Surrey Voting Agreements

17

Comparison of Shareholders Rights

17

Risk Factors

17

EQUIVALENT PRO-FORMA MARKET VALUE OF COMMON STOCK

18

RISK FACTORS

19

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

26

INFORMATION ABOUT THE SURREY SPECIAL MEETING

27

Time, Date, and Place

27

Purpose of the Special Meeting

27

Recommendation of the Surrey Board of Directors

28

Required Vote

28

Treatment of Abstentions; Failure to Vote

28

Record Date and Quorum

28

How to Vote

29

Shares Held in Street Name; Broker Non-Votes

30

Revocation of Proxies

30

Shares Subject to Voting Agreements

30

Shares Held by Directors and Executive Officers

31

Solicitation of Proxies

31

Attending the Surrey Special Meeting

31

Questions and Additional Information

31

SURREY PROPOSALS

32

Proposal No. 1: Common Shareholder Merger Proposal

32

Proposal No. 2: Common Shareholder Adjournment Proposal

32

Proposal No. 3: Class A Common Shareholder Merger Proposal

32

Proposal No. 4: Class A Common Shareholder Adjournment Proposal

33

THE MERGER

34

Terms of the Merger

34

Background of the Merger

34

Recommendation of the Surrey Board of Directors and Surreys Reasons for the Merger

36

 

 

First Communitys Reasons for the Merger

39

Opinion of Surreys Financial Advisor

41

Certain Surrey Unaudited Prospective Financial Information

48

Interests of Surrey Directors and Executive Officers in the Merger

49

Public Trading Markets

51

First Communitys Dividend Policy

51

Regulatory Approvals

52

Dissenters Appraisal Rights for Surrey Shareholders

53

Board of Directors and Management of First Community Following the Merger

56

THE MERGER AGREEMENT

56

Explanatory Note Regarding the Merger Agreement

57

Terms of the Merger

34

Effect of the Merger

57

Closing and Effective Time

57

Merger Consideration

58

Fractional Shares

58

Treatment of Surrey Restricted Stock Awards

58

Conversion of Shares; Exchange of Certificates

58

Withholding

59

Dividends and Distributions

59

Organizational Documents of the Surviving Corporation

59

Board of Directors

59

Representations and Warranties

59

Conduct of Business Pending the Completion of the Merger

61

Regulatory Matters

66

Employee Benefits Matters

66

Dividends

68

Loan Program Credentialing

68

Director and Officer Indemnification and Insurance

68

Surrey Shareholder Meeting and Recommendation of the Surrey Board of Directors

69

Agreement Not to Solicit Other Offers

69

Conditions to Completion of the Merger

70

Termination of the Merger Agreement

71

Termination Fee

72

Effect of Termination

73

Expenses and Fees

73

Amendment, Waiver and Extension of the Merger Agreement

73

Surrey Voting Agreements

73

ACCOUNTING TREATMENT

73

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

74

Tax Consequences of the Merger Generally

75

U.S. Federal Income Tax Consequences of the Merger to U.S. Holders of Surrey Common Stock and Surrey Class A Common Stock

75

Cash Instead of Fractional Shares

76

Cash Received on Exercise of Dissenters Appraisal Rights

76

Information Reporting and Withholding

76

THE COMPANIES

77

First Community

77

Surrey

78

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SURREY

80

DESCRIPTION OF FIRST COMMUNITY BANKSHARES, INC. CAPITAL STOCK

81

COMPARISON OF SHAREHOLDERS RIGHTS

83

LEGAL MATTERS

92

EXPERTS

92

DEADLINES FOR SUBMITTING SHAREHOLDER PROPOSALS

92

WHERE YOU CAN FIND MORE INFORMATION

93

 

 

APPENDICES: Page

 

Appendix A -

Agreement and Plan of Merger dated November 17, 2022 by and between First Community Bankshares, Inc. and Surrey Bancorp

A-1

Appendix B -

Opinion of Raymond James & Associates, Inc.

B-1

Appendix C -

Provisions of North Carolina Business Corporation Act Relating to Dissenters’ Appraisal Rights

C-1

Appendix D -

First Community Bankshares, Inc. Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 3, 2022

D-1

Appendix E -

First Community Bankshares, Inc. Definitive Proxy Statement on Schedule 14A filed with the SEC on March 16, 2022

E-1

Appendix F -

First Community Bankshares, Inc. Quarterly Reports on Form 10-Q for the quarter ended March 31, 2022, filed with the SEC on May 10, 2022, for the quarter ended June 30, 2022 filed with the SEC on August 5, 2022 and for the quarter ended September 30, 2022 filed with the SEC on November 8, 2022

F-1

Appendix G -

First Community Bankshares, Inc. Current Reports on Form 8-K filed with the SEC on March 14, 2022, April 1, 2022, May 2, 2022, May 31, 2022, June 17, 2022, November 18, 2022 and December 1, 2022

G-1

 

 

 

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SURREY SPECIAL MEETING

 

The following are some questions that you may have about the merger and the Surrey special meeting and brief answers to those questions. We urge you to read carefully the remainder of this proxy statement/prospectus because the information in this section does not provide all of the information that might be important to you with respect to the merger and the Surrey special meeting. Additional important information is also contained in the documents attached as appendices to this proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page [●].

 

Q:

What are Surrey shareholders being asked to vote on?

 

A:

Holders of Surrey common stock, voting as a separate class from the holders of Surrey Class A common stock, are being asked to vote on the following proposals:

 

 

to approve the merger agreement (which we refer to as the “common shareholder merger proposal”); and

 

 

to approve one or more adjournments of the special meeting, if necessary or appropriate to permit further solicitation of proxies from the holders of Surrey common stock in favor of the common shareholder merger proposal (which we refer to as the “common shareholder adjournment proposal”).

 

Holders of Surrey Class A common stock, voting as a separate class from the holders of Surrey common stock, are being asked to vote on the following proposals:

 

 

to approve the merger agreement (which we refer to as the “Class A common shareholder merger proposal”); and

 

 

to approve one or more adjournments of the special meeting, if necessary or appropriate to permit further solicitation of proxies from the holders of Surrey Class A common stock in favor of the Class A common shareholder merger proposal (which we refer to as the “Class A common shareholder adjournment proposal”).

 

The merger cannot be completed unless Surrey common shareholders approve the common shareholder merger proposal and Surrey Class A common shareholders approve the Class A common shareholder merger proposal.

 

Q:

What vote is required to approve each proposal at the special meeting?

 

A:

Common Shareholder Merger Proposal: The affirmative vote of the holders of a majority of the outstanding shares of Surrey common stock as of the record date and entitled to vote thereon is required to approve the common shareholder merger proposal.

 

Common Shareholder Adjournment Proposal: The affirmative vote of a majority of the votes cast by the holders of Surrey common stock on the common shareholder adjournment proposal is required to approve the common shareholder adjournment proposal.

 

Class A common shareholder Merger Proposal: The affirmative vote of the holders of a majority of the outstanding shares of Surrey Class A common stock as of the record date and entitled to vote thereon is required to approve the Class A common shareholder merger proposal.

 

Class A common shareholder Adjournment Proposal: The affirmative vote of a majority of the votes cast by the holders of Surrey Class A common stock on the Class A common shareholder adjournment proposal is required to approve the Class A common shareholder adjournment proposal.

 

 

Q:

How does the Surrey board of directors recommend that I vote?

 

A:

The Surrey board of directors recommends that holders of Surrey common stock vote “FOR” the common shareholder merger proposal and “FOR” the common shareholder adjournment proposal (if necessary or appropriate), and recommends that holders of Surrey Class A common stock vote “FOR” the Class A common shareholder merger proposal and “FOR” the Class A common shareholder adjournment proposal (if necessary or appropriate).

 

Q:

What will I receive in the merger?

 

A:

If the merger is completed, you will receive 0.7159 shares (which we refer to as the “exchange ratio”) of First Community common stock for each share of Surrey common stock and Surrey Class A common stock that you hold immediately prior to the merger (which we refer to as the “merger consideration”). First Community will not issue any fractional shares of First Community common stock in the merger. Instead, a Surrey shareholder who otherwise would have received a fraction of a share of First Community common stock will receive an amount in cash rounded to the nearest whole cent. This cash amount will be determined by multiplying (1) the fraction of a share of First Community common stock to which the holder would otherwise be entitled by (2) the average closing price of First Community common stock reported on the Nasdaq Global Select Market (which we refer to as “NASDAQ”) for the 30 consecutive full trading days ending on the trading day immediately prior to the later of the date on which the last regulatory approval is received (disregarding any waiting period) or the date on which the common shareholder merger proposal and Class A common shareholder merger proposal are approved (which later date we refer to as the “determination date”; and which average closing price we refer to as the “First Community average closing price”). See the section entitled “The Merger Agreement-Terms of the Merger-Merger Consideration” beginning on page [●].

 

Based on First Community’s closing price of $38.43 per share on November 17, 2022, the last trading day before the announcement of the merger agreement, the merger consideration represented an implied value of approximately $27.51 per share of Surrey common stock and Surrey Class A common stock. Based on First Community’s closing price of $[●] per share on [●], 2023, the last practicable trading day before the mailing of this proxy statement/prospectus, the merger consideration represented an implied value of approximately $[●] per share of Surrey common stock and Surrey Class A common stock.

 

We encourage you to obtain current market quotations for the common stock of First Community and Surrey before you vote.

 

If the merger is completed, Surrey shareholders will be entitled to receive dividends with a record date after the effective time of the merger on shares of First Community common stock received in the merger. See the section entitled “The Merger Agreement-Terms of the Merger-Dividends and Distributions” on page [●].

 

Q:

What equity stake will First Community and Surrey shareholders hold in First Community immediately following the merger?

 

A:

As a result of the merger, based on the number of shares of Surrey common stock and Surrey Class A common stock outstanding on [●], 2023, the Surrey record date, we expect that holders of shares of Surrey common stock and Surrey Class A common stock as of immediately prior to the closing of the merger will hold, in the aggregate, approximately [15.6]% of the issued and outstanding shares of First Community common stock immediately following the closing of the merger (including shares received in respect of Surrey restricted stock awards and without giving effect to any shares of First Community common stock held by Surrey shareholders prior to the merger). As a result, current First Community shareholders will hold, in the aggregate, approximately [84.4]% of the outstanding shares of First Community common stock immediately following the closing of the merger.

 

 

Q:

Will the value of the merger consideration change between the date of this proxy statement/prospectus and the time the merger is completed?

 

A:

The value of the merger consideration may fluctuate between the date of this proxy statement/prospectus and the completion of the merger based upon the market value for First Community common stock. The exchange ratio in the merger is a fixed number of shares of First Community common stock. Any fluctuation in the market price of First Community common stock after the date of this proxy statement/prospectus and before the effective time of the merger will change the value of the shares of First Community common stock that Surrey shareholders will receive.

 

Surrey shareholders should obtain current stock price quotations for First Community common stock. First Community common stock is traded on NASDAQ under the symbol “FCBC.”

 

Q:

How will the merger affect Surrey equity awards?

 

A:

At the effective time of the merger, (which we refer to as the “effective time”), each share of restricted stock awarded to any employee or service provider of Surrey and its subsidiaries under Surrey’s 2017 Long-Term Stock Incentive Plan (which we refer to as the “restricted stock plan”) that is unvested and subject to restrictions (which we refer to as an “unvested Surrey restricted stock award”) shall fully vest in accordance with the terms of the restricted stock plan and the applicable award agreement and shall be canceled and converted automatically into the right to receive the merger consideration payable pursuant to the merger agreement on the shares of Surrey common stock subject to the unvested Surrey restricted stock award, treating the shares of Surrey common stock subject to such unvested Surrey restricted stock award in the same manner as all other shares of Surrey common stock for such purposes.

 

Q:

When and where is the special meeting?

 

A:

The Surrey special meeting will be held on [●], 2023 at [●] (local time) at [●].

 

Q:

Who can vote at the special meeting of shareholders?

 

A:

Holders of shares of Surrey common stock and Surrey Class A common stock at the close of business on [●], 2023, which is the date that the Surrey board of directors has fixed as the record date for the Surrey special meeting, are entitled to vote at the Surrey special meeting.

 

Q:

What do I need to do now?

 

A:

After you have carefully read this proxy statement/prospectus and have decided how you wish to vote your shares, please vote your shares promptly so that they are represented and voted at the Surrey special meeting.

 

If you are a shareholder of record of Surrey as of the Surrey record date, you may submit your proxy before the special meeting in one of the following ways:

 

 

Use the toll-free number shown on your proxy card;

 

 

Visit the website shown on your proxy card to vote via the Internet;

 

 

Complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope; or

 

 

Cast your vote in person at the special meeting.

 

If your shares are held in “street name” through a broker, bank or other nominee, that institution will send you separate instructions describing the procedure for voting your shares. “Street name” shareholders who wish to vote at the special meeting will need to obtain a proxy form from their broker, bank or other nominee.

 

 

Q:

What constitutes a quorum for the special meeting?

 

A:

For the special meeting of Surrey shareholders, (i) the presence, in person or by proxy, of holders of a majority of the outstanding shares of Surrey common stock entitled to vote at the Surrey special meeting will constitute a quorum for the transaction of business, and (ii) the presence, in person or by proxy, of holders of a majority of the outstanding shares of Surrey Class A common stock entitled to vote at the Surrey special meeting will constitute a quorum for the transaction of business.

 

Abstentions and broker non-votes, if any, will be included in determining the number of shares of Surrey common stock or Surrey Class A common stock, as applicable, present at the Surrey special meeting for the purpose of determining the presence of a quorum.

 

Q:

Why is my vote important?

 

A:

If you do not return your proxy, it will be more difficult for Surrey to obtain the necessary quorum to hold the special meeting and to obtain the approval of the common shareholder merger proposal and the Class A common shareholder proposal. In addition, your failure to submit a proxy or vote in person, or failure to instruct your bank, broker or other nominee how to vote, or abstention will have the same effect as a vote “AGAINST” the common shareholder merger proposal and the Class A common shareholder merger proposal.

 

The merger agreement must be approved by the affirmative vote of (i) a majority of the outstanding shares of Surrey common stock as of the record date and entitled to vote on the merger agreement and (ii) a majority of the outstanding shares of Surrey Class A common stock as of the record date and entitled to vote on the merger agreement.

 

The Surrey board of directors unanimously recommends that Surrey common shareholders vote “FOR” the common shareholder merger proposal and that Surrey Class A common shareholders vote “FOR” the Class A common shareholder merger proposal.

 

Q:

If my shares of Surrey common stock and/or Class A common stock are held in street name by my bank, broker or other nominee, will my bank, broker or other nominee automatically vote my shares for me?

 

A:

No. If your bank, broker or other nominee holds your shares of Surrey common stock and/or Class A common stock in “street name,” your bank, broker or other nominee will vote your shares only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your bank, broker or other nominee with this proxy statement/prospectus. Any such shares for which you do not give voting instructions will constitute a broker non-vote and will have the effect of a vote AGAINST the common shareholder merger proposal or the Class A common shareholder merger proposal, as applicable.

 

Q:

Can I attend the special meeting and vote my shares in person?

 

A:

Yes. All shareholders of Surrey, including shareholders of record and shareholders who hold their shares through banks, brokers or other nominees, are invited to attend the special meeting. If you are not a shareholder of record, you must obtain a proxy, executed in your favor, from the record holder of your shares, such as a bank, broker or other nominee, to be able to vote in person at the special meeting. Please bring proper identification to the special meeting, together with proof that you are a record owner of Surrey common stock or Surrey Class A common stock, as the case may be. If your shares are held in street name, please bring acceptable proof of ownership to the special meeting, such as a letter from your broker or an account statement showing that you beneficially owned shares of Surrey common stock or Surrey Class A common stock, as applicable, on the record date.

 

 

Q:

What will happen if I return my proxy or voting instruction card without indicating how to vote?

 

A:

Except as described below, if you sign and return your proxy or voting instruction card without indicating how to vote on any particular proposal, the shares represented by your proxy will be voted as recommended by the Surrey board of directors. Unless you check the box on your proxy card to withhold discretionary authority, the proxy holders may use their discretion to vote on other matters relating to the special meeting, as applicable.

 

Q:

Can I change my vote?

 

A:

Yes. If you are the record holder of your shares, you may revoke your proxy in any of the following ways:

 

 

1.

submitting another valid proxy card bearing a later date;

 

 

2.

prior to the special meeting, by logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number specified on your proxy card, in each case if you are eligible to do so, and following the instructions on the proxy card;

 

 

3.

attending the special meeting and voting your shares in person; or

 

 

4.

delivering prior to the Surrey special meeting a written notice of revocation to Surrey at the following address: 145 N Renfro Street, Mount Airy, North Carolina 27030, Attention: Edward C. Ashby, III.

 

If you choose to send a completed proxy card bearing a later date or a notice of revocation, the new proxy card or notice of revocation must be received by [●] (local time) on [●], 2023. Attendance at the special meeting will not, in and of itself, constitute revocation of a proxy. If you hold your shares in street name with a bank, broker or other nominee, you must follow the directions you receive from your bank, broker or other nominee to change your vote.

 

Q:

Who may solicit proxies on Surrey behalf?

 

A:

In addition to solicitation of proxies by Surrey by mail, proxies may also be solicited by Surrey directors and employees personally, and by telephone, facsimile or other means. Surrey has also made arrangements with Regan & Associates, Inc. to assist in soliciting proxies. For more information on solicitation of proxies in connection with the special meeting, see “Information About the Surrey Special Meeting - Solicitation of Proxies” beginning on page [●].

 

Q:

What are the U.S. federal income tax consequences of the merger to Surrey shareholders?

 

A:

The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and First Community and Surrey will each be a party to that reorganization within the meaning of Section 368(b) of the Code for U.S. federal income tax purposes. It is a condition to the respective obligations of First Community and Surrey to complete the merger that each of First Community and Surrey receives a legal opinion to that effect. Neither First Community nor Surrey currently intends to waive this opinion condition to its obligation to consummate the merger. If either First Community or Surrey waives this opinion condition after this proxy statement/prospectus is declared effective by the Securities and Exchange Commission (the “SEC”), or if the U.S. federal income tax consequences of the merger to Surrey shareholders have materially changed, First Community and Surrey will recirculate appropriate soliciting materials to resolicit the votes of Surrey shareholders. Accordingly, holders of Surrey common stock and holders of Surrey Class A common stock are not expected to recognize any gain or loss for U.S. federal income tax purposes on the exchange of shares of Surrey common stock or Surrey Class A common stock, as applicable, for shares of First Community common stock in the merger, except with respect to any cash received in lieu of fractional shares of First Community common stock.

 

 

For further information, see the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page [●].

 

The U.S. federal income tax consequences described above may not apply to all holders of Surrey common stock or Surrey Class A common stock. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your independent tax advisor for a full understanding of the particular tax consequences of the merger to you.

 

Q:

Am I entitled to appraisal rights?

 

A:

Yes. Surrey shareholders have the right to assert appraisal rights with respect to the merger and to demand in writing that First Community pay the fair value of their shares of Surrey common stock and Surrey Class A common stock under applicable provisions of North Carolina law. In order to exercise and perfect appraisal rights, a Surrey shareholder must give written notice of his, her or its intent to demand payment for his, her or its shares to Surrey, as applicable, before the vote is taken on the merger at the Surrey special meeting, as applicable, and must not vote in favor of the merger. A copy of the applicable North Carolina statutory provisions is included in this proxy statement/prospectus as Appendix C.

 

A description of the procedures to demand and perfect appraisal rights is included in the following section: “The Merger - Dissenters Appraisal Rights for Surrey Shareholders” beginning on page [●].

 

Q:

If I am a Surrey shareholder, should I send in my Surrey stock certificates now?

 

A:

No. Please do not send in your Surrey stock certificates with your proxy. After the completion of the merger, an exchange agent agreed upon by First Community and Surrey will send you instructions for exchanging Surrey stock certificates for the merger consideration. See the section entitled “The Merger Agreement-Terms of the Merger-Conversion of Shares; Exchange of Certificates” beginning on page [●].

 

Q:

What should I do if I hold my shares of Surrey common stock or Surrey Class A common stock in book-entry form?

 

A:

You are not required to take any special additional actions if your shares of Surrey common stock or Surrey Class A common stock are held in book-entry form. After the completion of the merger, the exchange agent will send you instructions for converting your book-entry shares into the merger consideration.

 

Q:

What should I do if I receive more than one set of voting materials?

 

A:

Surrey shareholders may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold shares of Surrey common stock or Surrey Class A common stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold such shares. If you are a holder of record of Surrey common stock or Surrey Class A common stock and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive or otherwise follow the voting instructions set forth in this proxy statement/prospectus to ensure that you vote every share of Surrey common stock or Surrey Class A common stock that you own.

 

Q:

When do you expect to complete the merger?

 

A:

First Community and Surrey expect to complete the merger in the second quarter of 2023. However, neither First Community nor Surrey can assure you of when or if the merger will be completed. Surrey must first obtain the approval of Surrey shareholders for the merger and First Community and Surrey must each satisfy certain other closing conditions, including receipt of necessary regulatory approvals. For further information, see the section entitled “The Merger Agreement-Conditions to Completion of the Merger” beginning on page [●].

 

 

Q:

What happens if the merger is not completed?

 

A:

If the merger is not completed, Surrey common and Class A common shareholders will not receive any consideration for their shares of Surrey common stock or Surrey Class A common stock in connection with the merger. Instead, Surrey will remain an independent company and Surrey common stock and Surrey Class A common stock will remain outstanding. In addition, if the merger agreement is terminated in certain circumstances, Surrey may be required to pay a termination fee. See the section entitled “The Merger Agreement-Termination Fee” beginning on page [●], for a complete discussion of the circumstances under which a termination fee will be required to be paid.

 

Q:

Are there any risks that I should consider in deciding whether to vote for the approval of the merger agreement?

 

A:

Yes. You should read and carefully consider the risk factors set forth in the section entitled “Risk Factors” beginning on page [●]. You also should read and carefully consider the risk factors of First Community contained in the documents that are attached as appendices to this proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page [●].

 

Q:

Whom should I call with questions or to obtain additional copies of this proxy statement/prospectus?

 

A:

If you have any questions concerning the merger or this proxy statement/prospectus, would like additional copies of this proxy statement/prospectus or need help voting your shares of Surrey common stock or Surrey Class A common stock, you should contact Regan & Associates, Inc., (1) by mail at 505 Eighth Avenue- Suite 800, New York, NY 10018; or (2) by phone at (800) 737-3426.

 

 

SUMMARY

 

The following summary highlights selected information from this proxy statement/prospectus. It does not contain all of the information that is important to you. Each item in this summary refers to the page where that subject is discussed in more detail. You should carefully read the entire proxy statement/prospectus, including the documents attached as appendices to this proxy statement/prospectus and the other documents to which we refer to understand fully the merger. See the section entitled Where You Can Find More Information beginning on page [] on how to obtain copies of those documents. In addition, the merger agreement is attached as Appendix A to this proxy statement/prospectus. We encourage you to read the merger agreement because it is the legal document that governs the merger.

 

Unless the context otherwise requires throughout this proxy statement/prospectus, First Community and the Company refers to First Community Bankshares, Inc., Surrey refers to Surrey Bancorp and we, and our refer collectively to First Community and Surrey.

 

Information Regarding First Community and Surrey:

 

First Community Bankshares, Inc. (see page [●])

29 College Drive

Bluefield, Virginia 24605

Attention: David D. Brown

Phone: (276) 326-9000

 

First Community, a financial holding company, was founded in 1989 and incorporated under the laws of the Commonwealth of Virginia in 2018. The Company is the successor to First Community Bancshares, Inc., a Nevada corporation, pursuant to an Agreement and Plan of Reincorporation and Merger, the sole purpose of which was to change the Company’s state of incorporation from Nevada to Virginia. The reincorporation was completed on April 24, 2018. The Company’s principal executive office is located at One Community Place, Bluefield, Virginia. The Company provides banking products and services to individual and commercial customers through its wholly-owned subsidiary First Community Bank, a Virginia-chartered banking institution founded in 1874. First Community Bank has branch offices in Virginia, West Virginia, North Carolina and Tennessee. First Community Bank offers wealth management and investment advice through its Trust Division and wholly-owned subsidiary First Community Wealth Management.

 

First Community focuses on building financial partnerships and creating enduring and complete relationships with businesses and individuals through a personal and local approach to banking and financial services. First Community strives to be the bank of choice in the markets it serves by offering impeccable service and a complete line of competitive products that include:

 

 

demand deposit accounts, savings and money market accounts, certificates of deposit, and individual retirement arrangements;

 

 

commercial, consumer, and real estate mortgage loans and lines of credit;

 

 

various credit card, debit card, and automated teller machine card services;

 

 

corporate and personal trust services; and

 

 

investment management services.

 

As of September 30, 2022, on a consolidated basis, First Community had total assets of $3.16 billion, total deposits of $2.71 billion, total net loans of $2.33 billion, and shareholders’ equity of $412 million.

 

Additional information about First Community is included in documents attached as appendices to this proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page [●].

 

 

Surrey Bancorp (see page [])

145 N Renfro Street

Mount Airy, North Carolina 27030

Attention: Edward C. Ashby, III

Phone: (336) 783-3900

 

Surrey Bancorp is a bank holding company organized under the laws of North Carolina in 2003 and registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (which we refer to as the “BHCA”). Surrey conducts the majority of its business operations through its wholly-owned bank subsidiary, Surrey Bank & Trust. Surrey’s single direct subsidiary is Surrey Bank & Trust, which is a North Carolina state-chartered bank that was incorporated in 1996. Surrey Bank & Trust provides comprehensive individual and corporate financial services through its main and branch offices in Mount Airy, North Carolina and branch offices in Stuart, Virginia, and Pilot Mountain, North Wilkesboro and Elkin, North Carolina.  These services include demand and time deposits as well as commercial, installment, mortgage and other consumer lending services, insurance and investment services. Surrey Bank & Trust offers retail and commercial banking products and services to individuals, businesses and local government customers.

 

At September 30, 2022, Surrey had total consolidated assets of $500 million, net loans of $244 million, deposits of $436 million and stockholders’ equity of $57 million. Surrey common stock is quoted on the OTC Pink under the symbol “SRYB.”

 

The Merger (see page [])

 

The terms and conditions of the merger are contained in the merger agreement, a copy of which is included as Appendix A to this proxy statement/prospectus and is incorporated by reference herein. You should read the merger agreement carefully and in its entirety, as it is the legal document governing the merger.

 

In the merger, Surrey will merge with and into First Community, with First Community as the surviving corporation in the merger. Immediately following the effective time of the merger, Surrey Bank & Trust will merge into First Community Bank, with First Community Bank as the surviving bank in the bank merger.

 

Closing and Effective Time of the Merger (see page [])

 

The closing date is currently expected to occur in the second quarter of 2023. On the closing date, First Community will file articles of merger with the State Corporation Commission of the Commonwealth of Virginia and the North Carolina Secretary of State. The merger will become effective at such time as the articles of merger are filed or such later time as may be specified in the articles of merger (which we refer to as the “effective time”). Neither First Community nor Surrey can predict the actual date on which the merger will be completed because it is subject to factors beyond each company’s control, including whether or when the required regulatory approvals and Surrey shareholder approvals will be received.

 

Merger Consideration (see page [●])

 

Under the terms of the merger agreement, each share of Surrey common stock and Surrey Class A common stock issued and outstanding immediately prior to the completion of the merger (other than dissenting shares as described below and shares of Surrey common stock owned and Surrey Class A common stock owned directly or indirectly by First Community, Surrey or their wholly-owned subsidiaries (in each case, other than shares of Surrey common stock and Surrey Class A common stock held in a fiduciary capacity or in connection with debts previously contracted) (together, the “excluded shares”)) will be converted into the right to receive 0.7159 shares of First Community common stock.

 

First Community will not issue any fractional shares of First Community common stock in the merger. Instead, a Surrey shareholder who otherwise would have received a fraction of a share of First Community common stock will receive an amount in cash rounded to the nearest whole cent. This cash amount will be determined by multiplying the fraction of a share of First Community common stock to which the holder would otherwise be entitled by the First Community average closing price.

 

 

First Community common stock trades on NASDAQ under the symbol “FCBC.” Surrey common stock trades on the OTC Pink under the ticker symbol “SRYB.” The following table presents the closing price of First Community common stock and Surrey common stock on November 17, 2022, the last trading day before the date of the public announcement of the merger agreement, and [●], 2023, the last practicable trading day prior to the mailing of this proxy statement/prospectus. The table also presents the equivalent value of the merger consideration per share of Surrey common stock on those dates, calculated by multiplying the closing sales price of First Community common stock on those dates by the exchange ratio.

 

Date

 

 

First

Community

closing
sale price

 

   

Surrey closing
sale price

 

   

Equivalent

Surrey per
share value

 

 

November 17, 2022

  $ 38.43     $ 15.00     $ 27.51  

[●], 2023

 

[●]

   

[● ]

   

[●]

 

 

Although the exchange ratio is fixed, the value of the shares of First Community common stock to be issued in the merger will fluctuate between now and the closing date of the merger. Surrey shareholders should obtain current stock price quotations for First Community common stock.

 

Conversion of Shares; Exchange of Certificates; Book Entry Shares (see page [●])

 

Promptly after the effective time of the merger, First Community’s exchange agent will mail to each holder of record of Surrey common stock and Surrey Class A common stock that is converted into the right to receive the merger consideration a letter of transmittal and instructions for the surrender of the holder’s Surrey stock certificate(s) for the merger consideration (including cash in lieu of any fractional First Community shares).

 

Please do not send in your certificate(s) until you receive these instructions.

 

You will not be required to take any special additional actions if your shares of Surrey common stock or Surrey Class A common stock are held in book-entry form. After the effective time of the merger, First Community’s exchange agent will send you instructions for converting your book-entry shares into the merger consideration.

 

Material U.S. Federal Income Tax Consequences of the Merger (see page [●])

 

The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code and it is a condition to the respective obligations of Surrey and First Community to complete the merger that each of Surrey and First Community receives a legal opinion to that effect. Accordingly, the merger will generally be tax-free to holders of Surrey common stock and Surrey Class A common stock for U.S. federal income tax purposes on the exchange of shares of Surrey common stock and Surrey Class A common stock for shares of First Community common stock in the merger, except with respect to any cash received instead of fractional shares of First Community common stock that such holder of Surrey common stock and Surrey Class A common stock would otherwise be entitled to receive. For further information, see the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page [●].

 

The U.S. federal income tax consequences described above may not apply to all holders of Surrey common stock and Surrey Class A common stock. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your tax advisor for a full understanding of the particular tax consequences of the merger to you.

 

 

Dissenters Appraisal Rights for Surrey Shareholders (see page [] and Appendix C)

 

Each Surrey shareholder has the right to assert appraisal rights with respect to the merger and demand in writing that he, she or it be paid the fair value of the shares of his, her or its Surrey common stock or Surrey Class A common stock under the applicable provisions of North Carolina law following the consummation of the merger. There are specific requirements that shareholders must follow to assert and perfect their appraisal rights.

 

A copy of the applicable North Carolina statutory provisions is included in the proxy statement/prospectus as Appendix C, and a description of the procedures to demand and perfect appraisal rights is included in the section entitled “The Merger - Dissenters Appraisal Rights for Surrey Shareholders” beginning on page [●].

 

Due to the complexity of the procedures for exercising dissenters’ right to seek appraisal, Surrey shareholders who are considering exercising such rights are encouraged to seek the advice of legal counsel. Failure to strictly comply with the applicable North Carolina statutory provisions will result in the loss of the right of appraisal.

 

Opinion of Surreys Financial Advisor (see page [] and Appendix B)

 

At the November 17, 2022 meeting of the Surrey board of directors, representatives of Raymond James & Associates, Inc. (which we refer to as “Raymond James”) rendered Raymond James’ oral opinion, which was also confirmed in writing on November 17, 2022, as to the fairness of the merger consideration, as of such date, from a financial point of view, to the holders of Surrey’s outstanding common stock, based upon and subject to the qualifications, assumptions and other matters considered in connection with the preparation of its opinion.

 

The full text of the written opinion of Raymond James, dated November 17, 2022, which sets forth, among other things, the various qualifications, assumptions and limitations on the scope of the review undertaken, is attached as Appendix B to this proxy statement/prospectus. Raymond James provided its opinion for the information and assistance of the Surrey board of directors (solely in its capacity as such) in connection with, and for purposes of, its consideration of the merger and its opinion only addresses whether the merger consideration to be received by the holders of the common stock in the merger pursuant to the merger agreement was fair, from a financial point of view, to such holders. The opinion of Raymond James did not address any other term or aspect of the merger agreement or the merger contemplated thereby. The Raymond James opinion does not constitute a recommendation to the Surrey board of directors or any holder of Surrey common stock as to how the Surrey board of directors, such shareholder or any other person should vote or otherwise act with respect to the merger or any other matter.

 

For further information, see the section entitled “The Merger-Opinion of Surreys Financial Advisor" beginning on page[●]  .

 

Recommendation of the Surrey Board of Directors (see page [])

 

The Surrey board of directors has determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Surrey and its shareholders and has unanimously adopted the merger agreement and approved the merger.

 

The Surrey board of directors unanimously adopted the merger agreement and approved the merger and unanimously recommends that Surrey common shareholders vote “FOR” the common shareholder merger approval and the adjournment proposal and that Surrey Class A common stock shareholders vote “FOR” the Class A common shareholder merger proposal and the Class A common shareholder adjournment proposal.

 

For the factors considered by the Surrey board of directors in reaching its decision to approve the merger agreement, see the section entitled “The Merger-Recommendation of the Surrey Board of Directors and Surreys Reasons for the Merger” beginning on page [●].

 

 

Interests of Surrey Directors and Executive Officers in the Merger (see page [●])

 

In considering the recommendation of the Surrey board of directors with respect to the merger agreement, Surrey shareholders should be aware that some of Surrey’ directors and executive officers have interests in the merger that are different from, or in addition to, the interests of Surrey shareholders generally. Interests of officers and directors that may be different from or in addition to the interests of Surrey shareholders include, among others:

 

 

1.

The merger agreement describes the acceleration of vesting of shares of the unvested Surrey restricted stock granted under Surrey’s restricted stock plan and the conversion of such shares into shares of First Community common stock in connection with the merger. Certain officers have restricted stock awards.

 

 

2.

Edward C. Ashby, III, the Chief Executive Officer of Surrey and Surrey Bank & Trust, and a director of Surrey, Pedro A. Pequeno, II, the President of Surrey and its subsidiary, Surrey Bank & Trust, and Mark H. Towe, Senior Vice President and Chief Financial Officer of Surrey and Surrey Bank & Trust, have interests that exist because of, among other things, their employment and change in control agreements with Surrey, rights under Surrey’s benefit and deferred compensation plans, and agreements and arrangements with First Community and its subsidiary First Community Bank, respecting continued service as an employee, contractor and/or director after the merger.

 

 

3.

Current Surrey directors, Edward C. Ashby, III and Robert H. Moody, will join the board of First Community Bank upon completion of the merger. Members of the First Community Bank board are expected to receive compensation consistent with the compensation paid to current non-employee directors of First Community Bank. For 2022, such compensation included an annual retainer fee with a value of approximately $22,500 paid in cash and $22,500 paid in restricted stock units vesting over one year.

 

 

4.

Surrey’ directors and executive officers are entitled to continued indemnification and director and officer insurance coverage under the merger agreement.

 

These interests are discussed in more detail in the section entitled “The Merger-Interests of Surrey Directors and Executive Officers in the Merger” beginning on page [●]. The Surrey board of directors was aware of the different or additional interests set forth herein and considered such interests along with other matters in adopting and approving the merger agreement and the transactions contemplated thereby, including the merger.

 

Treatment of Surrey Restricted Stock (see page [●])

 

At the effective time of the merger, referred to as the effective time, each share of restricted stock awarded to any employee or service provider of Surrey and its subsidiaries under Surrey’s restricted stock plan that is unvested and subject to restrictions (which we refer to as an “unvested Surrey restricted stock award”) shall fully vest in accordance with the terms of the restricted stock plan and the applicable award agreement and shall be canceled and converted automatically into the right to receive the merger consideration payable pursuant to the merger agreement on the shares of Surrey common stock underlying the unvested Surrey restricted stock, treating the shares of Surrey common stock subject to such unvested Surrey restricted stock in the same manner as all other shares of Surrey common stock for such purposes.

 

Regulatory Approvals (see page [●])

 

Completion of the merger and the bank merger are subject to various regulatory approvals and notifications, including approvals from the Board of Governors of the Federal Reserve System (which we refer to as the “Federal Reserve Board” or the “Federal Reserve”), the Virginia State Corporation Commission Bureau of Financial Institutions and the North Carolina Office of the Commissioner of Banks. First Community and Surrey have agreed to use their reasonable best efforts to obtain all requisite regulatory approvals.

 

On January 11, 2023 First Community and Surrey and/or their respective subsidiaries filed the necessary applications and notifications to obtain these regulatory approvals. Although the parties currently believe they should be able to obtain all regulatory approvals in a timely manner, they cannot be certain when or if they will obtain them or, if obtained, whether they will contain terms, conditions or restrictions not currently contemplated that will be detrimental to or have a material adverse effect on the combined company after the completion of the merger. However, in no event will First Community be required, or will Surrey be permitted (without First Community’s prior written consent), to agree to any condition or restriction that would so materially and adversely impact the economic or business benefits to First Community of the transactions contemplated by the merger agreement that, had such condition or requirement been known, First Community would not, in its reasonable judgment, have entered into the merger agreement (we refer to such condition as a “burdensome condition”). The regulatory approvals to which the completion of the merger and bank merger are subject are described in more detail under the section entitled “The Merger-Regulatory Approvals” beginning on page [●].

 

 

Conditions to Completion of the Merger (see page [●])

 

The completion of the merger depends on a number of conditions being satisfied or, where permitted, waived, including:

 

 

the approval of the merger agreement by holders of Surrey common stock and Surrey Class A common stock;

 

 

receipt of all required regulatory approvals, consents or waivers to permit the consummation of the transactions contemplated by the merger agreement, and the expiration or termination of all statutory waiting periods;

 

 

the absence of any order, decree, injunction or proceeding by any governmental entity of competent jurisdiction prohibiting or enjoining the consummation of the merger or the bank merger, and the absence of any statute, rule or regulation that prohibits or makes illegal the consummation of the merger or the bank merger;

 

 

the effectiveness of the registration statement of which this proxy statement/prospectus is a part with respect to the First Community common stock to be issued upon the consummation of the merger under the Securities Act of 1933, as amended (the “Securities Act”), and the absence of any proceedings pending or threatened by the SEC to suspend the effectiveness of the registration statement;

 

 

the authorization of the listing of the First Community common stock to be issued upon the consummation of the merger on NASDAQ, without objection to the listing from NASDAQ;

 

 

receipt by each of First Community and Surrey of an opinion of its respective legal counsel as to certain tax matters;

 

 

the accuracy of the representations and warranties of each other party in the merger agreement as of November 17, 2022 and as of the closing date as though made at and as of the closing date, subject to the materiality standards provided in the merger agreement (and the receipt by each party of certificates from the other party to such effect);

 

 

the performance by the other party in all material respects of all obligations required to be performed by it at or prior to the effective time of the merger under the merger agreement (and the receipt by each party of certificates from the other party to such effect); and

 

 

the absence of a material adverse effect on the other party.

 

In addition, First Community’s obligation to complete the merger is subject to the following conditions:

 

 

none of the requisite governmental approvals will contain a requirement or condition that would so materially and adversely impact the economic or business benefits of the merger or the bank merger to First Community that, had such requirement or condition been known, First Community would not have entered into the merger agreement;

 

 

Edward C. Ashby, III shall have entered into a consulting agreement with First Community and not taken any action to cancel or terminate such agreement; and

 

 

 

First Community Bank shall have been qualified with the U.S. Small Business Administration (which we refer to as the “SBA”), the U.S. Department of Agriculture (which we refer to as the “USDA”) and any other lending program of a governmental entity in which Surrey Bank & Trust participated as of November 17, 2022.

 

No assurance is given as to when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.

 

Agreement Not to Solicit Other Offers (see page [●])

 

Surrey has agreed to a number of limitations with respect to soliciting, negotiating and discussing acquisition proposals involving persons other than First Community, and to certain related matters. The merger agreement does not, however, prohibit Surrey from considering an unsolicited bona fide acquisition proposal from a third party if certain specified conditions are met. Surrey’s non-solicitation obligations are discussed in more detail in the section entitled “The Merger Agreement-Agreement Not to Solicit Other Offers” beginning on page [●].

 

Termination of the Merger Agreement (see page [●])

 

The merger agreement can be terminated at any time prior to completion of the merger by mutual consent, or by either party in the following circumstances:

 

 

Surrey shareholders do not approve the merger agreement at the Surrey special meeting, except that this right to terminate is only available to Surrey if it has materially complied with its obligation to use reasonable best efforts to obtain the Surrey shareholders’ approval;

 

 

any required regulatory approval has been denied and such denial has become final and non-appealable, or a governmental authority or court has issued a final, unappealable order permanently prohibiting consummation of the transactions contemplated by the merger agreement, unless the failure to obtain the requisite approval was due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements in the merger agreement;

 

 

the merger has not been consummated by July 31, 2023 (which we refer to as the “outside date”), except that this right to terminate will not be available to the party whose failure to perform or observe the covenants and agreements in the merger agreement is the reason for the failure to complete the merger by the outside date; or

 

 

there is a breach by the other party of any covenant or agreement contained in the merger agreement, or any representation or warranty of the other party becomes untrue, in each case such that the conditions to closing would not be satisfied and such breach or untrue representation or warranty has not been or cannot be cured by the earlier of the outside date or within 30 days after the giving of written notice to such party of such breach, except that this right to terminate will not be available to the party seeking to terminate if it is then in material breach of the merger agreement.

 

First Community may also terminate the merger agreement if:

 

 

Surrey breaches in any material respect its obligations not to solicit other acquisition proposals, or its obligation to submit the merger agreement to Surrey shareholders for approval and to use reasonable best efforts to obtain the Surrey shareholders’ approval; or

 

 

if the Surrey board of directors does not unanimously publicly recommend in this proxy statement/prospectus that Surrey shareholders approve the merger agreement or withdraws or revises its recommendation in a manner adverse to First Community.

 

 

Surrey may also terminate the merger agreement if, within the five day period following the determination date, both of the following conditions are satisfied:

 

 

the First Community average closing price (which is the average of the closing sales price of First Community common stock reported on NASDAQ over the 30 consecutive trading days ending on the later of (A) the date on which the last regulatory approval necessary is received (disregarding any waiting period) or (B) the date on which the Surrey shareholders approve the merger (which we refer to as the “determination date”)) is less than $27.14; and

 

 

the ratio, the numerator of which is the First Community average closing price and the denominator which is $31.93 is less than 85% of the index ratio calculated by dividing the average of closing price for the NASDAQ Bank Index for the 30 consecutive full trading days ending on the trading date immediately prior to the determination date by $4,269.44

 

However, if Surrey chooses to exercise this termination right, First Community has the option, within five days of receipt of notice from Surrey, to increase the exchange ratio or pay an additional cash payment with respect to each share of Surrey common stock and Class A common stock as part of the merger consideration and prevent termination under this provision.

 

Termination Fee (see page [●])

 

Surrey will pay First Community a $4.0 million termination fee if the merger agreement is terminated in the following circumstances:

 

 

First Community terminates the merger agreement because (1) Surrey breaches its obligations in any material respect regarding the solicitation of other acquisition proposals or submission of the merger agreement to Surrey shareholders or (2) the Surrey board of directors does not unanimously publicly recommend in this proxy statement/prospectus that Surrey shareholders approve the merger agreement or withdraws or revises its recommendation in a manner adverse to First Community; or

 

 

if (1) the merger agreement is terminated (A) by either party because the Surrey shareholder approvals have not been obtained at the Surrey shareholders’ meeting, or (B) by either party because the merger has not occurred by the outside date and the Surrey shareholder approvals have not been obtained, or (C) by First Community because of an uncured material breach by Surrey, (2) an acquisition proposal has been publicly announced or communicated and (3) within 12 months of such termination Surrey consummates or enters into an agreement with respect to an acquisition proposal (whether or not it is the same acquisition proposal).

 

Except in the case of fraud or a willful and material breach of the merger agreement, the payment of the termination fee will fully discharge the party paying such fee from any losses that may be suffered by the other party arising out of the termination of the merger agreement.

 

Public Trading Markets (see page [●])

 

First Community will cause the shares of First Community common stock to be issued to the holders of Surrey common stock and Surrey Class A common stock in the merger to be authorized for listing on NASDAQ, subject to official notice of issuance, prior to the effective time of the merger.

 

Surrey Special Meeting (see page [●])

 

The special meeting is being held for the following purposes:

 

 

for the holders of Surrey common stock, voting as a separate class from the holders of Surrey Class A common stock, to approve the merger (which we refer to as the “common shareholder merger proposal”);

 

 

 

for the holders of Surrey common stock, voting as a separate class from the holders of Surrey Class A common stock, to approve one or more adjournments of the special meeting, if necessary or appropriate to permit further solicitation of proxies from the holders of Surrey common stock in favor of the common shareholder merger proposal (which we refer to as the “common shareholder adjournment proposal”);

 

 

for the holders of Surrey Class A common stock, voting as a separate class from the holders of the Surrey common stock, to approve the merger (which we refer to as the “Class A common shareholder merger proposal”); and

 

 

for the holders of Surrey Class A common stock, voting as a separate class from the holders of Surrey common stock, to approve one or more adjournments of the special meeting, if necessary or appropriate to permit further solicitation of proxies from the holders of Surrey Class A common stock in favor of the Class A common shareholder merger proposal (which we refer to as the “Class A common shareholder adjournment proposal”).

 

The Surrey board of directors has fixed the close of business on [•], 2023 as the record date for determining the holders of Surrey common stock and the holders of Surrey Class A common stock entitled to receive notice of and to vote at the special meeting.

 

As of the record date, there were [4,099,788] shares of Surrey common stock outstanding and entitled to vote at the Surrey special meeting held by [●] holders of record and [87,095] shares of Surrey Class A common stock outstanding and entitled to vote at the Surrey special meeting held by [●] holders of record. Each share of Surrey common stock entitles the holder thereof as of the record date to one vote at the special meeting on each proposal to be considered at the special meeting by the common shareholders. Each share of Surrey Class A common stock entitles the holder thereof as of the record date to one vote at the special meeting on each proposal to be considered at the special meeting by the Class A common shareholders.

 

A total of [●] shares of Surrey common stock, representing approximately [●]% of the outstanding shares of Surrey common stock entitled to vote at the Surrey special meeting and [●] shares of Surrey Class A common stock, representing [●]% of the outstanding shares of Surrey Class A common stock entitled to vote at the Surrey special meeting, are subject to voting and support agreements among First Community, Surrey and each of Surrey’s directors (which we refer to collectively as the “Surrey voting agreements”). Pursuant to the Surrey voting agreements, each director has agreed to, on the terms and subject to the conditions set forth therein, vote the shares of Surrey common stock and Class A common stock, as applicable, beneficially owned by him or her in favor of the merger agreement and against any proposal made in competition with the merger, as well as certain other customary restrictions with respect to the voting and transfer of his or her shares of Surrey common stock and Class A common stock.

 

The holders of a majority of the outstanding shares of Surrey common stock, present in person or represented by proxy, will constitute a quorum for purposes of the matters being voted upon by the common shareholders. The holders of a majority of the outstanding shares of Surrey Class A common stock, present in person or represented by proxy, will constitute a quorum for purposes of the matters being voted upon by the Class A common shareholders.

 

The affirmative vote of the holders of a majority of the outstanding shares of Surrey common stock entitled to vote thereon is required to approve the common shareholder merger proposal. The affirmative vote of the holders of a majority of the outstanding shares of Surrey Class A common stock entitled to vote thereon is required to approve the Class A common shareholder merger proposal. The affirmative vote of a majority of the votes cast by the holders of Surrey common stock is required to approve the common shareholder adjournment proposal. The affirmative vote of a majority of the votes cast by the holders of Surrey Class A common stock is required to approve the Class A common shareholder adjournment proposal.

 

The merger cannot be completed unless the Surrey common shareholders approve the common shareholder merger proposal and the Surrey Class A common shareholders approve the Class A common shareholder merger proposal. Therefore, it is essential that Surrey common shareholders approve the common shareholder merger proposal and that Surrey Class A common shareholders approve the Class A common shareholder merger proposal. If Surrey common shareholders fail to approve the common shareholder adjournment proposal or if Surrey Class A common shareholders fail to approve the Class A common shareholder adjournment proposal, the merger may nonetheless occur provided that Surrey common shareholders approve the common shareholder merger proposal and Surrey Class A common shareholders approve the Class A common shareholder merger proposal.

 

 

Surrey Voting Agreements (see page [])

 

Each of the directors of Surrey has entered into a Surrey voting agreement with First Community and Surrey, in which each such person agreed, on the terms and subject to the conditions set forth therein, to vote the shares of Surrey common stock and Surrey Class A common stock beneficially owned by him or her in favor of the common shareholder merger proposal and the Class A common shareholder merger proposal, as applicable, and against any proposal made in competition with the merger, as well as certain other customary restrictions with respect to the voting and transfer of his or her shares of Surrey common stock and Surrey Class A common stock.

 

For more information regarding the Surrey voting agreements, see the sections entitled “Information About the Surrey Special Meeting-Shares Subject to Voting Agreements” on page [●] and “The Merger Agreement-Surrey Voting Agreements” beginning on page [●].

 

Comparison of Shareholders Rights (see page [])

 

The rights of Surrey shareholders who become First Community shareholders after the merger will be governed by the articles of incorporation and bylaws of First Community rather than the articles of incorporation and bylaws of Surrey. For more information, see the section entitled “Comparison of Shareholders Rights” beginning on page [●].

 

Risk Factors (see page [])

 

Before voting at the Surrey special meeting, you should carefully consider all of the information contained or attached to this proxy statement/prospectus, including the risk factors set forth in the section entitled “Risk Factors” or described in First Community’s reports filed with the SEC, which are attached as appendices to this proxy statement/prospectus. For more information, see the sections entitled “References to Additional Information” and “Where You Can Find More Information” beginning on page [●].

 

 

EQUIVALENT PRO FORMA MARKET VALUE OF COMMON STOCK

 

First Community common stock is listed and trades on NASDAQ under the ticker symbol “FCBC.” As of [●], 2023, there were [●] shares of First Community common stock outstanding and approximately [●] holders of record.

 

Surrey common stock is quoted on the OTC Pink under the ticker symbol “SRYB.” As of the Surrey record date, there were [4,099,788] shares of Surrey common stock outstanding and approximately [●] holders of Surrey common stock of record and [87,095] shares of Surrey Class A common stock outstanding and approximately [●] holders of Surrey Class A common stock of record.

 

The following table sets forth historical per share market values for First Community common stock (i) on November 17, 2022, the last trading day prior to public announcement of the merger agreement, and (ii) on [●], 2023, the most recent practicable date before the printing and mailing of this proxy statement/ prospectus. The table also shows the equivalent pro forma market value of Surrey common stock on those dates.

 

The equivalent pro forma market value of Surrey common stock is obtained by multiplying the historical market price of First Community common stock by the exchange ratio. Accordingly, the pro forma market value (i) on November 17, 2022 is determined by multiplying $38.43 by the exchange ratio of 0.7159 and (ii) on [●], 2023 is determined by multiplying $[●] by the exchange ratio of 0.7159.

 

The historical market prices represent the last sale prices on or before the dates indicated. The market price of First Community common stock at the time of the merger may be higher or lower than the closing prices of First Community common stock on the dates shown in the table and, therefore, the market value of the First Community common stock that you receive may be higher or lower than the equivalent pro forma market value shown in the table.

 

Historical Market Price

 

   

First

Community

closing
sale price

 

   

Surrey closing

sale price

 

   

Equivalent

Surrey
Pro Forma
Market Value

 

 

November 17, 2022

  $ 38.43     $ 15.00     $ 27.51  

[●]

 

[●]

   

[●]

   

[●]

 

 

Once the merger is completed, there will be no further private or public market for Surrey common stock.

 

The market prices of both First Community common stock and Surrey common stock will fluctuate prior to the merger. Surrey shareholders should obtain current stock price quotations for First Community common stock.

 

COMPARATIVE MARKET PRICES AND DIVIDENDS

 

The following table sets forth for the periods indicated:

 

 

the high and low closing sales prices of Surrey common stock as reported on the OTC Pink; and

 

 

semi-annual and special cash dividends paid per share by Surrey.

 

 

   

Surrey Common Stock

 

Quarter Ended

 

High

   

Low

   

Dividend 1

 

2020:

                       

March 31

  $ 15.25     $ 9.30     $ 0.105  

June 30

    11.60       9.91       0.105  

September 30

    12.24       11.00       0.105  

December 31

    11.62       11.00       0.205  

2021:

                       

March 31

  $ 12.75     $ 11.62     $ 0.105  

June 30

    15.50       12.67       0.105  

September 30

    15.00       14.65       0.105  

December 31

    17.30       14.90       0.225  

2022:

                       

March 31

  $ 16.87     $ 15.00     $ 0.105  

June 30

    15.75       14.01       0.105  

September 30

    14.70       14.00       0.105  

December 31

    25.90       14.10       0.255  
2023:                        
March 31 (January 1 through January 17)   $ 24.15       23.70       -  

 

1 Surrey Class A common stock received a dividend preference of $0.03 per share.

 

RISK FACTORS

 

In addition to general investment risks and the other information contained in or attached to this proxy statement/prospectus, including the matters described under the caption “Risk Factors” in the Annual Report on Form 10-K filed by First Community for the year ended December 31, 2021, attached hereto as Appendix D, and the matters addressed under the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” beginning on page [●]. Surrey shareholders should consider the matters described below carefully in determining whether to vote to approve the merger agreement.

 

Risks Related to the Merger and First Communitys Business Upon Completion of the Merger

 

Because the sale price of the First Community common stock may fluctuate, you cannot be sure of the value of the merger consideration that you will receive in the merger.

 

Under the terms of the merger agreement, each share of Surrey common stock and Surrey Class A common stock issued and outstanding immediately prior to the completion of the merger (other than (1) dissenting shares as described below and (2) shares of Surrey common stock and Surrey Class A common stock owned directly or indirectly by Surrey, First Community or their wholly-owned subsidiaries (in each case, other than shares of Surrey common stock or Surrey Class A common stock held in a fiduciary capacity or in connection with debts previously contracted (together, the “excluded shares”)) will be converted into the right to receive 0.7159 shares of First Community common stock.

 

The market price of First Community’s common stock could be subject to significant fluctuations due to changes in sentiment in the market regarding First Community’s operations or business prospects, including market sentiment regarding First Community’s entry into the merger agreement. These risks may be affected by:

 

 

operating results that vary from the expectations of First Community management or of securities analysts and investors;

 

 

developments in First Community’s business or in the financial services sector generally;

 

 

regulatory or legislative changes affecting First Community’s industry generally or its business and operations;

 

 

 

operating and securities price performance of companies that investors consider to be comparable to First Community;

 

 

changes in estimates or recommendations by securities analysts or rating agencies;

 

 

announcements of strategic developments, acquisitions, dispositions, financings, and other material events by First Community or its competitors; and

 

 

changes in global financial markets and economies and general market conditions, such as interest or foreign exchange rates, stock, commodity, credit or asset valuations or volatility.

 

Many of these factors are beyond the control of First Community and Surrey. We make no assurances as to whether or when the merger will be completed. Surrey shareholders should obtain current sale prices for shares of First Community common stock before voting their shares of Surrey common stock and Surrey Class A common stock at the Surrey special meeting.

 

The market price of First Community common stock after the merger may be affected by factors different from those affecting the shares of Surrey or First Community currently.

 

Upon completion of the merger, holders of Surrey common stock and Surrey Class A common stock will become holders of First Community common stock. First Community’s business differs from that of Surrey, and, accordingly, the results of operations of the combined company and the market price of the combined company’s shares of common stock may be affected by factors different from those currently affecting the independent results of operations of each of First Community and Surrey. For a discussion of the business of First Community and of certain factors to consider in connection with First Community’s business, see the documents attached as appendices to this proxy statement/prospectus or described elsewhere in this proxy statement/prospectus.

 

First Community may fail to realize all of the anticipated benefits of the merger.

 

First Community and Surrey have operated and, until the completion of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and cost savings, will depend, in part, on First Community’s ability to successfully combine and integrate the businesses of First Community and Surrey in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. The loss of key employees could adversely affect First Community’s ability to successfully conduct its business, which could have an adverse effect on First Community’s financial results and the value of First Community common stock. If First Community experiences difficulties with the integration process, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause First Community and/or Surrey to lose customers or cause customers to remove their accounts from First Community and/or Surrey and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of First Community and Surrey during this transition period and for an undetermined period after completion of the merger on the combined company. In addition, the actual cost savings of the merger could be less than anticipated.

 

The success of the merger will also depend on First Community’s ability to:

 

 

Maintain existing relationships with depositors of Surrey to minimize withdrawals of deposits prior to and subsequent to the merger;

 

 

Maintain and enhance existing relationships with borrowers to limit unanticipated losses of loans made by Surrey;

 

 

 

Control its non-interest expense to maintain overall operating efficiencies; and

 

 

Compete effectively in the communities served by First Community and Surrey and in nearby communities.

 

First Community may not be able to manage effectively its growth resulting from the merger.

 

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.

 

Before the transactions contemplated by the merger agreement, including the merger and the bank merger, may be completed, various approvals must be obtained from bank regulatory authorities. In determining whether to grant these approvals the regulators consider a variety of factors, including the regulatory standing of each party and the factors described under the section entitled “The Merger-Regulatory Approvals beginning on page [●]. An adverse development in either party’s regulatory standing or these factors could result in an inability to obtain approval or delay their receipt. These regulators may impose conditions on the completion of the merger or the bank merger or require changes to the terms of the merger or the bank merger. Such conditions or changes could have the effect of delaying or preventing completion of the merger or the bank merger or imposing additional costs on or limiting the revenues of the combined company following the merger and the bank merger, any of which might have an adverse effect on the combined company following the merger. See the section entitled “The Merger-Regulatory Approvals” beginning on page [●].

 

The regulatory approvals may not be received at all, may not be received in a timely fashion, and may contain conditions on the completion of the merger that are not anticipated or cannot be met. If the consummation of the merger is delayed, including by a delay in receipt of necessary governmental approvals, the business, financial condition and results of operations of each company may also be materially adversely affected.

 

First Community may fail to realize the cost savings estimated for the merger.

 

Although First Community estimates that it will realize from the merger pre-tax cost savings of approximately $3.69 million annually (excluding one-time costs and expenses associated with the merger) when fully phased in, it is possible that the estimates of the potential cost savings could turn out to be incorrect. In addition, future business developments may require First Community to continue to operate or maintain some facilities or support functions that are currently expected to be combined or reduced. The cost savings estimates also depend on First Community’s ability to combine the businesses of First Community and Surrey in a manner that permits those costs savings to be realized. If the estimates turn out to be incorrect or First Community is not able to combine the two companies successfully, the anticipated cost savings may not be fully realized or realized at all, or may take longer to realize than expected.

 

The combined company may be unable to retain First Community and/or Surrey personnel successfully after the merger is completed.

 

The success of the merger will depend in part on the combined company’s ability to retain the talents and dedication of key employees currently employed by First Community and Surrey. It is possible that these employees may decide not to remain with First Community or Surrey, as applicable, while the merger is pending or with the combined company after the merger is consummated. If key employees terminate their employment, or if an insufficient number of employees is retained to maintain effective operations, the combined company’s business activities may be adversely affected and management’s attention may be diverted from successfully integrating Surrey to hiring suitable replacements, all of which may cause the combined company’s business to suffer. In addition, First Community and Surrey may not be able to locate suitable replacements for any key employees who leave either company, or to offer employment to potential replacements on reasonable terms.

 

 

Surreys directors and executive officers have interests in the merger that may differ from the interests of Surrey shareholders.

 

Surrey shareholders should be aware that some of Surrey’s directors and executive officers have interests in the merger that are different from, or in addition to, those of Surrey shareholders generally. The Surrey board of directors was aware of these interests and considered these interests, among other matters, when making its decision to approve the merger agreement, and in recommending that Surrey shareholders vote in favor of approving the merger agreement.

 

For a more complete description of these interests, see the section entitled “The Merger-Interests of Surrey Directors and Executive Officers in the Merger” beginning on page [●].

 

Termination of the merger agreement could negatively impact First Community and Surrey.

 

The merger may be terminated as a result of factors beyond First Community’s and Surrey’s control. See the section entitled “The Merger Agreement-Termination of the Merger Agreement” beginning on page [●] for a complete discussion of the circumstances under which the merger agreement may be terminated. If the merger agreement is terminated, there may be various consequences. For example, First Community’s or Surrey’s businesses may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated, the market price of the First Community common stock or the Surrey common stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed. If the merger agreement is terminated under certain circumstances, subject to conditions and exceptions, Surrey may be required to pay to First Community a termination fee of $4.0 million. See the section entitled “The Merger Agreement-Termination Fee” beginning on page [●], for a complete discussion of the circumstances under which any such termination fee will be required to be paid.

 

If the merger agreement is terminated and a party’s board of directors seeks another merger or business combination, such party’s shareholders cannot be certain that such party will be able to find a party willing to engage in a transaction on more attractive terms than the merger.

 

First Community and Surrey will be subject to business uncertainties and contractual restrictions while the merger is pending.

 

Uncertainty about the effect of the merger on employees, customers, suppliers and vendors may have an adverse effect on the business, financial condition and results of operations of Surrey and/or First Community. These uncertainties may impair First Community’s or Surrey’s ability to attract, retain and motivate key personnel, depositors and borrowers pending the consummation of the merger, as such personnel, depositors and borrowers may experience uncertainty about their future roles following the consummation of the merger. Additionally, these uncertainties could cause customers (including depositors and borrowers), suppliers, vendors and others who deal with us to seek to change existing business relationships with us or fail to extend an existing relationship with us. In addition, competitors may target each party’s existing customers by highlighting potential uncertainties and integration difficulties that may result from the merger.

 

Each of First Community and Surrey has a small number of key personnel. The pursuit of the merger and the preparation for the integration may place a burden on each company’s management and internal resources. Any significant diversion of management attention away from ongoing business concerns and any difficulties encountered in the transition and integration process could have a material adverse effect on each company’s business, financial condition and results of operations.

 

In addition, the merger agreement restricts each party from taking certain actions without the other party’s consent while the merger is pending. These restrictions may, among other matters, prevent such party from pursuing otherwise attractive business opportunities, selling assets, incurring indebtedness, engaging in significant capital expenditures in excess of certain limits set forth in the merger agreement, entering into other transactions or making other changes to such party’s business prior to consummation of the merger or termination of the merger agreement. These restrictions could have a material adverse effect on each party’s business, financial condition and results of operations. See the section entitled “The Merger Agreement-Conduct of Business Pending the Completion of the Merger” beginning on page [●] for a description of the restrictive covenants applicable to Surrey and First Community.

 

 

The merger may distract management of First Community and Surrey from their other responsibilities.

 

The merger could cause the respective management groups of First Community and Surrey to focus their time and energies on matters related to the transaction that otherwise would be directed to their business and operations. Any such distraction on the part of either company’s management, if significant, could affect its ability to service existing business and develop new business and adversely affect the business and earnings of First Community or the business and earnings of the combined company.

 

If the merger is not completed, First Community and Surrey will have incurred substantial expenses without realizing the expected benefits of the merger.

 

Each of First Community and Surrey has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of filing, printing, and mailing this proxy statement/prospectus, and all filing and other fees paid to the SEC in connection with the merger. If the merger is not completed, First Community and Surrey would have to recognize these expenses without realizing the expected benefits of the merger.

 

Failure to complete the merger could negatively affect the market price of Surrey common stock.

 

If the merger is not completed for any reason, Surrey will be subject to a number of material risks, including the following:

 

 

The market price of Surrey common stock may decline to the extent that the current market prices of its shares reflect a market assumption that the merger will be completed;

 

 

Costs relating to the merger, such as legal, accounting and financial advisory fees, and, in limited circumstances, termination fees, must be paid even if the merger is not completed;

 

 

The diversion of management’s attention from the day-to-day business operations and the potential disruption to Surrey’s employees and business relationships during the period before the effective time of the merger may make it difficult to regain financial and market positions if the merger does not occur; and

 

 

If Surrey’s board of directors seeks another merger or business combination, Surrey shareholders cannot be certain that Surrey will be able to find a party willing to pay an equivalent or greater consideration than that which First Community has agreed to pay in the merger.

 

The merger agreement limits Surreys ability to pursue alternative acquisition proposals and requires Surrey to pay a termination fee of $4.0 million under limited circumstances, including circumstances relating to acquisition proposals.

 

The merger agreement prohibits Surrey from soliciting, initiating, inducing or encouraging, or taking any action to facilitate certain third-party acquisition proposals. See the section entitled “The Merger Agreement-Agreement Not to Solicit Other Offers” beginning on page [●]. The merger agreement also provides that Surrey will be required to pay a termination fee in the amount of $4.0 million in the event that the merger agreement is terminated under certain limited circumstances, including an adverse recommendation change by the Surrey board of directors. See the sections entitled “The Merger Agreement-Termination of the Merger Agreement” beginning on page [●] and “The Merger Agreement-Termination Fee” beginning on page [●]. These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of Surrey from considering or proposing such an acquisition.

 

 

The merger will not be completed unless important conditions are satisfied.

 

Specified conditions set forth in the merger agreement must be satisfied or waived to complete the merger. If the conditions are not satisfied or waived, to the extent permitted by law or stock exchange rules, the merger will not occur or will be delayed and each of First Community and Surrey may lose some or all of the intended benefits of the merger. The following conditions, in addition to other closing conditions, must be satisfied or waived, if permissible, before First Community and Surrey are obligated to complete the merger:

 

 

The merger agreement and merger must be duly approved by the requisite vote of the shareholders of Surrey;

 

 

All required regulatory approvals must be obtained;

 

 

The absence of any law or order by a court or governmental authority that prohibits, restricts or makes illegal the merger;

 

 

First Community Bank shall have been qualified with the SBA, USDA and any other lending program of a governmental entity in which Surrey Bank & Trust participated on November 17, 2022;

 

 

The registration statement on Form S-4 shall become effective under the Securities Act and no stop order shall have been issued or threatened by the SEC; and

 

 

To the extent required, the shares of First Community common stock to be issued in the merger must be approved for listing on NASDAQ.

 

The shares of First Community common stock to be received by Surrey shareholders as a result of the merger will have different rights from the shares of Surrey common stock and Surrey Class A common stock.

 

Upon completion of the merger, Surrey shareholders will become First Community shareholders and their rights as shareholders will be governed by the First Community articles of incorporation and bylaws. The rights associated with Surrey common stock and Surrey Class A common stock are different from the rights associated with First Community common stock. See the section entitled “Comparison of Shareholders Rights” beginning on page [●] for a discussion of the different rights associated with First Community common stock.

 

First Community shareholders and Surrey shareholders will have a reduced ownership and voting interest in the combined company after the merger and will exercise less influence over management, as compared to their ownership and voting interests in First Community and Surrey, respectively.

 

First Community shareholders and Surrey shareholders currently have the right to vote in the election of the board of directors and on other matters affecting First Community and Surrey, respectively. Upon completion of the merger, each Surrey shareholder who receives shares of First Community common stock will become a First Community shareholder, with a percentage ownership of First Community that is smaller than such shareholder’s percentage ownership of Surrey. Based on the number of shares outstanding on the Surrey record date, we expect that holders of shares of Surrey common stock and Surrey Class A common stock as of immediately prior to the closing of the merger will hold, in the aggregate, approximately [15.6]% of the issued and outstanding shares of First Community common stock immediately following the closing of the merger (including shares received in respect of Surrey restricted stock awards and without giving effect to any shares of First Community common stock held by Surrey shareholders prior to the merger). As a result, current First Community shareholders will hold, in the aggregate, approximately [84.4]% of the outstanding shares of First Community common stock immediately following the closing of the merger. Because of this, Surrey shareholders will have less influence on the management and policies of First Community than they now have on the management and policies of Surrey.

 

 

If the merger and the bank merger do not constitute a reorganization under Section 368(a) of the Code, then each Surrey shareholder may be responsible for payment of U.S. income taxes related to the merger.

 

The United States Internal Revenue Service, or the IRS, may determine that the merger does not qualify as a nontaxable reorganization under Section 368(a) of the Code. In that case, each Surrey shareholder receiving First Community common stock would recognize a gain or loss equal to the difference between the (i) the sum of the fair market value of First Community common stock and the amount of cash consideration, if any, received by the Surrey shareholder in the merger and (ii) the Surrey shareholder’s adjusted tax basis in the shares of Surrey common stock or Surrey Class A common stock exchanged therefor.

 

The opinion of Surreys financial advisor delivered to its board of directors prior to the signing of the merger agreement will not reflect changes in circumstances following the date of the opinion.

 

The Surrey board of directors received an opinion (rendered verbally and confirmed in a written opinion, dated November 17, 2022, from its financial advisor regarding the fairness of the merger consideration, from a financial point of view as of the date of such opinion to the holders of Surrey common stock. Subsequent changes in the operation and prospects of First Community or Surrey, general market and economic conditions and other factors that may be beyond the control of First Community or Surrey may significantly alter the value of First Community or Surrey or the prices of the shares of First Community common stock or Surrey common stock and Surrey Class A common stock by the time the merger is completed. The opinion of Surrey’s financial advisor did not address the fairness of the merger consideration, from a financial point of view at the time the merger is completed, or as of any other date other than the date of such opinion. For a description of the opinion of Surrey’s financial advisor, see the section entitled “The Merger-Opinion of Surreys Financial Advisor” beginning on page [●].

 

Litigation against Surrey or First Community, or the members of the Surrey board of directors or First Community board of directors, could prevent or delay the completion of the merger.

 

Purported shareholder plaintiffs may assert legal claims related to the merger. The results of any such potential legal proceeding would be difficult to predict and such legal proceedings could delay or prevent the merger from being completed in a timely manner. The existence of litigation related to the merger could affect the likelihood of obtaining the required approval from Surrey shareholders. Moreover, any litigation could be time consuming and expensive, and could divert the attention of the respective management teams of Surrey and First Community away from their companies’ regular business. Any lawsuit adversely resolved against Surrey, First Community or the members of the Surrey board of directors or First Community’s board of directors could have a material adverse effect on each party’s business, financial condition and results of operations.

 

One of the conditions to the consummation of the merger is that neither First Community nor Surrey shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction that enjoins or prohibits the consummation of the merger or the bank merger and no governmental entity shall have instituted any proceeding to enjoin or prohibit the consummation of the merger, the bank merger or any transactions contemplated by the merger agreement. Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed or any regulatory proceeding and a claimant secures injunctive or other relief or a governmental authority issues an order or other directive enjoining or prohibiting the completion of the transactions contemplated by the merger agreement, including the merger, then such injunctive or other relief may prevent the merger from being completed in a timely manner or at all.

 

There are certain risks relating to First Communitys business.

 

You should read and consider risk factors specific to First Community’s business that will also affect the combined company after the merger. These risks are described in the section entitled “Risk Factors” in First Community’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and in other documents attached as appendices to this proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page [●].

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement/prospectus, including information included in, or attached to, this proxy statement/prospectus, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to: (1) statements about the benefits of the merger, including future financial and operating results and cost savings that may be realized from the merger; (2) statements about our respective plans, objectives, expectations and intentions and other statements that are not historical facts; and (3) other statements identified by words such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based upon current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond First Community’s and Surrey’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Accordingly, actual results may differ materially from those expressed in, or implied by, the forward-looking statements.

 

Some of the factors that may cause actual results or earnings to differ materially from those contemplated by the forward-looking statements include, but are not limited to, those discussed under the section entitled “Risk Factors” and those discussed in the filings of First Community with the SEC that are attached as appendices to this proxy statement/prospectus, as well as the following:

 

 

the inability to close the merger and the bank merger in a timely manner;

 

 

the failure to complete the merger due to the failure of Surrey shareholders to approve the merger;

 

 

the failure to obtain the requisite regulatory approvals and meet other closing conditions to the merger on the expected terms and schedule;

 

 

the potential impact of announcement or consummation of the merger on relationships with third parties, including customers, employees and competitors;

 

 

business disruption following the merger;

 

 

First Community’s potential exposure to unknown or contingent liabilities of Surrey;

 

 

the challenges of integrating, retaining, and hiring key personnel;

 

 

the failure to attract new customers and retain existing customers in the manner anticipated;

 

 

the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger;

 

 

changes in First Community’s share price before closing, including as a result of the financial performance of First Community and Surrey prior to closing, or more generally due to broader stock market movements and the performance of financial companies and peer group companies;

 

 

the expected cost savings, synergies and other financial benefits from the merger might not be realized within the expected time frames or at all as a result of, among other things, changes in general economic and market conditions, interest and exchange rates, monetary policy, laws and regulations and their enforcement, and the degree of competition in the markets in which First Community and Surrey operate;

 

 

 

Surrey’s business may not be integrated into First Community’s business successfully, or such integration may take longer to accomplish than expected;

 

 

operating costs, customer losses and business disruption following the merger, including adverse developments in relationships with employees, may be greater than expected; and

 

 

management time and effort may be diverted to the resolution of merger-related issues.

 

Because these forward-looking statements are subject to assumptions and uncertainties, First Community’s and the combined company’s actual results may differ materially from those expressed or implied by these forward-looking statements. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this proxy statement/prospectus or the date of any document attached to this proxy statement/prospectus. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect us.

 

All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement/prospectus, and attributable to First Community, Surrey or any person acting on their behalf, respectively, are expressly qualified in their entirety by the cautionary statements contained or referred to in this “Cautionary Statement Regarding Forward-Looking Statements” beginning on page [●]. Neither First Community nor Surrey undertakes any obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement/prospectus or to reflect the occurrence of unanticipated events, unless obligated to do so under the federal securities laws.

 

INFORMATION ABOUT THE SURREY SPECIAL MEETING

 

This section contains information about the special meeting that Surrey has called to allow Surrey common shareholders to vote on the common shareholder merger proposal and the common shareholder adjournment proposal and to allow the Surrey Class A common shareholders to vote on the Class A common shareholder merger proposal and the Class A common shareholder adjournment proposal.

 

The Surrey board of directors is mailing this proxy statement/prospectus to you, as a Surrey shareholder, on or about [●], 2023. Together with this proxy statement/prospectus, the Surrey board of directors is also sending to you a notice of the special meeting of Surrey shareholders and a form of proxy that the Surrey board of directors is soliciting for use at the Surrey special meeting and at any adjournments or postponements of the Surrey special meeting.

 

Time, Date, and Place

 

The special meeting is scheduled to be held on [●], 2023 at [●] (local time) at [●].

 

Purpose of the Special Meeting

 

The special meeting is being held for the following purposes:

 

 

1.

for the holders of Surrey common stock, voting as a separate class from the holders of Surrey Class A common stock, to approve the common shareholder merger proposal;

 

 

2.

for the holders of Surrey common stock, voting as a separate class from the holders of Surrey Class A common stock, to approve the common shareholder adjournment proposal;

 

 

3.

for the holders of Surrey Class A common stock, voting as a separate class from the holders of Surrey common stock, to approve the Class A common shareholder merger proposal; and

 

 

4.

for the holders of Surrey Class A common stock, voting as a separate class from the holders of Surrey common stock, to approve the Class A common shareholder adjournment proposal.

 

 

Recommendation of the Surrey Board of Directors

 

The Surrey board of directors recommends that holders of Surrey common stock vote “FOR” the common shareholder merger proposal and “FOR” the common shareholder adjournment proposal (if necessary or appropriate); and recommends that holders of Surrey Class A common stock vote “FOR” the Class A common shareholder merger proposal and “FOR” the Class A common shareholder adjournment proposal (if necessary or appropriate). See “The Merger-Recommendation of the Surrey Board of Directors and Surreys Reasons for the Merger” beginning on page [•].

 

Required Vote

 

Common Shareholder Merger Proposal

 

The affirmative vote of the holders of a majority of the outstanding shares of Surrey common stock as of the record date and entitled to vote thereon is required to approve the common shareholder merger proposal.

 

Class A Common Shareholder Merger Proposal

 

The affirmative vote of the holders of a majority of the outstanding shares of Surrey Class A common stock as of the record date and entitled to vote thereon is required to approve the Class A common shareholder merger proposal.

 

Common Shareholder Adjournment Proposal

 

The affirmative vote of a majority of the votes cast by the holders of Surrey common stock on the common shareholder adjournment proposal is required to approve the common shareholder adjournment proposal.

 

Class A Common Shareholder Adjournment Proposal

 

The affirmative vote of a majority of the votes cast by the holders of Surrey Class A common stock is required to approve the Class A common shareholder adjournment proposal.

 

Treatment of Abstentions; Failure to Vote

 

For purposes of the special meeting, an abstention occurs when a Surrey shareholder attends the Surrey special meeting, either in person or by proxy, but abstains from voting on one or more proposals.

 

 

For the common shareholder merger proposal and the Class A common shareholder merger proposal, an abstention or failure to vote will have the same effect as a vote cast “AGAINST” such proposals.

 

 

For the common shareholder adjournment proposal and the Class A common shareholder adjournment proposal, an abstention or failure to vote will have no effect on the outcome of the vote. For each of these proposals, abstentions are not treated as votes cast and will have no effect on the outcome of the vote, though abstentions are counted towards establishing a quorum.

 

Record Date and Quorum

 

[●], 2023 has been fixed as the record date for the determination of Surrey shareholders entitled to notice of, and to vote at, the Surrey special meeting and any adjournment thereof. At the close of business on the Surrey record date, there were [4,099,788] shares of Surrey common stock outstanding and entitled to vote at the Surrey special meeting held by [●] holders of record and [87,095] shares of Surrey Class A common stock outstanding and entitled to vote at the Surrey special meeting held by [●] holders of record.

 

 

The presence at the Surrey special meeting, in person or by proxy, of holders of a majority of the outstanding shares of Surrey common stock entitled to vote at the Surrey special meeting will constitute a quorum for purposes of the matters being voted upon by the common shareholders. The presence at the Surrey special meeting, in person or by proxy, of holders of a majority of the outstanding shares of Surrey Class A common stock entitled to vote at the Surrey special meeting will constitute a quorum for purposes of the matters being voted upon by the Class A common shareholders. All shares of Surrey common stock and Surrey Class A common stock present in person or represented by proxy, including abstentions and broker non-votes, if any, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the Surrey special meeting.

 

How to Vote

 

Each copy of this proxy statement/prospectus mailed to holders of Surrey common stock and Class A common stock is accompanied by a form of proxy with instructions for voting.

 

If you are a shareholder of record of Surrey as of the Surrey record date, you should complete and return the proxy card accompanying this proxy statement/prospectus, regardless of whether you plan to attend the Surrey special meeting.

 

 

Toll-Free Number. You may use the toll-free number shown on your proxy card to vote your shares.

 

 

Voting by Internet. You may vote your shares by visiting the website shown on your proxy card to vote via the Internet.

 

 

Voting by Proxy. Your proxy card includes instructions on how to vote by mailing in the proxy card. If you choose to vote by proxy, please mark each proxy card you receive, sign and date it, and promptly return it in the envelope enclosed with the proxy card. If you sign and return your proxy without instruction on how to vote your shares, your shares of Surrey common stock will be voted “FOR” the common shareholder merger proposal and “FOR” the common shareholder adjournment proposal, and your shares of Surrey Class A common stock will be voted “FOR” the Class A common shareholder merger proposal and “FOR” the Class A common shareholder adjournment proposal.

 

 

Voting in Person. If you are a shareholder of record, you can vote in person by submitting a ballot at the Surrey special meeting. Nevertheless, we recommend that you vote by proxy as promptly as possible, even if you plan to attend the Surrey special meeting. This will ensure that your vote is received. If you attend the Surrey special meeting, you may vote by ballot, thereby canceling any proxy previously submitted.

 

If you hold your shares in “street name” through a bank, broker or other nominee, you must direct your bank, broker or other nominee how to vote in accordance with the instructions you have received from your bank, broker or other nominee.

 

All shares represented by valid proxies that Surrey receives through this solicitation, and that are not revoked, will be voted in accordance with your instructions on the proxy card. If you make no specification on your proxy card as to how you want your shares voted before signing and returning it, your proxy for your shares of Surrey common stock will be voted “FOR” the common shareholder merger proposal and “FOR” the common shareholder adjournment proposal, and your proxy for your shares of Surrey Class A common stock will be voted “FOR” the Class A common shareholder merger proposal and “FOR” the Class A common shareholder adjournment proposal. No matters other than the matters described in this proxy statement/prospectus may be presented for action at the Surrey special meeting or at any adjournment of the Surrey special meeting.

 

YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. SHAREHOLDERS WHO ATTEND THE SURREY SPECIAL MEETING MAY REVOKE THEIR PROXIES BY VOTING IN PERSON.

 

 

Shares Held in Street Name; Broker Non-Votes

 

If your bank, broker or other nominee holds your shares of Surrey common stock or Surrey Class A common stock in “street name,” your bank, broker or other nominee will vote your shares only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your bank, broker or other nominee with this proxy statement/prospectus. Any such shares for which you do not give voting instructions will constitute a broker non-vote, and will have the effect of a vote AGAINST the common shareholder merger proposal or the Class A common stock merger proposal, as applicable. Broker non-votes will have no effect on the outcome of the common adjournment proposal or the Class A common stock merger proposal.

 

Revocation of Proxies

 

You can revoke your proxy at any time before your shares are voted. If you are a shareholder of record, then you can revoke your proxy by:

 

 

1.

submitting another valid proxy card bearing a later date;

 

 

2.

prior to the Surrey special meeting, logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number specified on your proxy card, in each case if you are eligible to do so and following the instructions on the proxy card;

 

 

3.

attending the Surrey special meeting and voting your shares in person; or

 

 

4.

delivering prior to the Surrey special meeting a written notice of revocation to Surrey at the following address: 145 N. Renfro Street, Mount Airy, North Carolina 27030.

 

If you choose to send a completed proxy card bearing a later date or a notice of revocation, the new proxy card or notice of revocation must be received by [●] [●] (local time) on [●], 2023. Attendance at the Surrey special meeting will not, in and of itself, constitute revocation of a proxy. If you hold your shares in street name with a bank, broker or other nominee, you must follow the directions you receive from your bank, broker or other nominee to change your vote.

 

Shares Subject to the Surrey Voting Agreements

 

A total of [●] shares of Surrey common stock, representing approximately [●]% of the outstanding shares of Surrey common stock entitled to vote at the Surrey special meeting and [●] shares of Surrey Class A common stock, representing [●]% of the outstanding shares of Surrey Class A common stock entitled to vote at the Surrey special meeting, are subject to the Surrey voting agreements. Pursuant to the Surrey voting agreements, each director has agreed to, on the terms and subject to the conditions set forth therein, vote the shares of Surrey common stock and Class A common stock as applicable, beneficially owned by him or her in favor of the merger agreement and against any proposal made in competition with the merger, as well as certain other customary restrictions with respect to the voting and transfer of his or her shares of Surrey common stock and Class A common stock.

 

The foregoing description of the Surrey voting agreements does not purport to be complete and is qualified in its entirety by reference to the full text of the Surrey voting agreements, a form of which is included as Exhibit A to the merger agreement attached to this proxy statement/prospectus as Appendix A.

 

 

Shares Held by Directors and Executive Officers

 

As of the Surrey record date, Surrey’s directors and executive officers and their affiliates beneficially owned and were entitled to vote, in the aggregate, a total of (1) [●] shares of Surrey common stock, representing approximately [●]% of the outstanding shares of Surrey common stock entitled to vote at the Surrey special meeting, and (2) [●] shares of Surrey Class A common stock, representing approximately [●]% of the outstanding shares of Surrey Class A common stock entitled to vote at the Surrey special meeting. For more information about the beneficial ownership of Surrey common stock and Surrey Class A common stock by each greater than 5% beneficial owner, each director and executive officer of Surrey, and all Surrey directors and executive officers as a group, see the section entitled “Security Ownership of Certain Beneficial Owners and Management of Surrey” on page [●].

 

Solicitation of Proxies

 

Proxies for the Surrey special meeting are being solicited on behalf of the Surrey board of directors. Surrey will bear the entire cost of soliciting proxies from you. Surrey will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of Surrey common stock and Surrey Class A common stock. Proxies will be solicited principally by mail, but may also be solicited by the directors, officers, and other employees of Surrey in person or by telephone, facsimile or other means of electronic communication. Directors, officers and employees will receive no compensation for these activities in addition to their regular compensation but may be reimbursed for out-of-pocket expenses in connection with such solicitation. Surrey has also made arrangements with Regan & Associates, Inc. to assist it in soliciting proxies and has agreed to pay it approximately $12,500 for these services.

 

Attending the Surrey Special Meeting

 

All holders of Surrey common stock and Surrey Class A common stock, including shareholders of record and shareholders who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the Surrey special meeting. Shareholders of record can vote in person at the Surrey special meeting. If you are not a shareholder of record, you must obtain a proxy executed in your favor from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote in person at the Surrey special meeting. If you plan to attend the Surrey special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership. In addition, you must bring a form of personal photo identification with you in order to be admitted. Surrey reserves the right to refuse admittance to anyone without proper proof of share ownership and without proper photo identification. The use of cameras, sound recording equipment, communications devices or any similar equipment during the Surrey special meeting is prohibited without Surrey’s express written consent.

 

Questions and Additional Information

 

If you have more questions about the merger or how to submit your proxy or vote, or if you need additional copies of this proxy statement/prospectus or the enclosed proxy card or voting instructions, please contact Surrey at:

 

Surrey Bancorp

145 N Renfro Street

Mount Airy, North Carolina 27030

Attention: Edward C. Ashby, III

Phone: (336) 783-3900

Regan & Associates, Inc.

Eighth Avenue - Suite 800

New York, NY 10018

Attention: Artie Regan

Phone: (800) 737-3426

 

 

SURREY PROPOSALS

 

PROPOSAL NO. 1: COMMON SHAREHOLDER MERGER PROPOSAL

 

Surrey is asking its common shareholders to approve the common shareholder merger proposal. Holders of Surrey common stock should read this proxy statement/prospectus carefully and in its entirety for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this proxy statement/prospectus as Appendix A.

 

The Surrey board of directors has determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Surrey and its shareholders and has unanimously adopted the merger agreement and approved the merger. See the section entitled “The Merger-Recommendation of the Surrey Board of Directors and Surreys Reasons for the Merger” beginning on page [●] for a more detailed discussion of the recommendation of the Surrey board of directors.

 

The Surrey board of directors unanimously recommends a vote FOR the common shareholder merger proposal.

 

PROPOSAL NO. 2: COMMON SHAREHOLDER ADJOURNMENT PROPOSAL

 

The Surrey special meeting may be adjourned to another time or place, if necessary or appropriate, to permit, among other things, further solicitation of proxies if necessary to obtain additional votes in favor of the common shareholder merger proposal.

 

If, at the Surrey special meeting, the number of shares of Surrey common stock present or represented and voting in favor of the common shareholder merger proposal is insufficient to approve such proposal, Surrey intends to move to adjourn the Surrey special meeting in order to solicit additional proxies for the approval of the common shareholder merger proposal.

 

In this proposal, Surrey is asking its common shareholders to authorize the holder of any proxy solicited by the Surrey board of directors on a discretionary basis to vote in favor of adjourning the Surrey special meeting to another time and place for the purpose of soliciting additional proxies, including the solicitation of proxies from Surrey common shareholders who have previously voted.

 

The Surrey board of directors unanimously recommends a vote FOR the common shareholder adjournment proposal.

 

PROPOSAL NO. 3: CLASS A COMMON SHAREHOLDER MERGER PROPOSAL

 

Surrey is asking its Class A common shareholders to approve the Class A common shareholder merger proposal. Holders of Surrey Class A common stock should read this proxy statement/prospectus carefully and in its entirety for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this proxy statement/prospectus as Appendix A.

 

The Surrey board of directors has determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Surrey and its shareholders and has unanimously adopted the merger agreement and approved the merger. See the section entitled “The Merger-Recommendation of the Surrey Board of Directors and Surreys Reasons for the Merger” beginning on page [●] for a more detailed discussion of the recommendation of the Surrey board of directors.

 

The Surrey board of directors unanimously recommends a vote FOR the Class A common shareholder merger proposal.

 

 

PROPOSAL NO. 4: CLASS A COMMON SHAREHOLDER ADJOURNMENT PROPOSAL

 

The Surrey special meeting may be adjourned to another time or place, if necessary or appropriate, to permit, among other things, further solicitation of proxies if necessary to obtain additional votes of Class A common stock in favor of the Class A common shareholder merger proposal.

 

If, at the Surrey special meeting, the number of shares of Surrey Class A common stock present or represented and voting in favor of the Class A common shareholder merger proposal is insufficient to approve such proposal, Surrey intends to move to adjourn the Surrey special meeting in order to solicit additional proxies for the approval of the Class A common shareholder merger proposal.

 

In this proposal, Surrey is asking its Class A common shareholders to authorize the holder of any proxy solicited by the Surrey board of directors on a discretionary basis to vote in favor of adjourning the Surrey special meeting to another time and place for the purpose of soliciting additional proxies, including the solicitation of proxies from Surrey Class A common shareholders who have previously voted.

 

The Surrey board of directors unanimously recommends a vote FOR the Class A common shareholder adjournment proposal.

 

 

THE MERGER

 

Terms of the Merger

 

Each of the First Community board of directors and the Surrey board of directors has unanimously approved the merger agreement. The merger agreement provides for the merger of Surrey with and into First Community, with First Community continuing as the surviving corporation. Immediately following the completion of the merger, Surrey Bank & Trust will merge with and into First Community Bank, with First Community Bank continuing as the surviving bank.

 

In the merger, each share of Surrey common stock and Surrey Class A common stock issued and outstanding immediately prior to the completion of the merger (other than the excluded shares) will be converted into the right to receive the merger consideration.

 

First Community will not issue any fractional shares of First Community common stock in the merger. Instead, a Surrey shareholder who otherwise would have received a fraction of a share of First Community common stock will receive an amount in cash rounded to the nearest whole cent. This cash amount will be determined by multiplying the fraction of a share of First Community common stock to which the holder would otherwise be entitled by the average closing price of First Community common stock reported on the Nasdaq Global Select Market (which we refer to as “NASDAQ”) for the 30 consecutive full trading days ending on the trading day immediately prior to the later of the date on which the last regulatory approval is received (disregarding any waiting period) or the date on which the common shareholder merger proposal and Class A common shareholder merger proposal are approved (which later date we refer to as the “determination date”; and which average closing price we refer to as the “First Community average closing price”). For a discussion of the treatment of restricted stock awards outstanding under Surrey’s restricted stock plan as of the effective time, see the section entitled “The Merger Agreement-Treatment of Surrey Equity Awards” beginning on page [●].

 

Surrey shareholders are being asked to approve the merger agreement. See the section entitled “The Merger Agreement” beginning on page [●] for additional and more detailed information regarding the legal documents that govern the merger, including information about the conditions to the completion of the merger and the provisions for terminating or amending the merger agreement.

 

Background of the Merger

 

The following chronology summarizes the key meetings and events that led to the signing of the merger agreement. In this process, management and representatives of Surrey and First Community had many conversations, both by telephone and in person, about the potential transaction and alternatives. The chronology below covers only key events leading up to signing of the merger agreement and does not purport to catalogue every related conversation among or between the parties.

 

As part of Surrey’s continuing efforts to enhance shareholder value, the Surrey board of directors, in consultation with management and its financial and other advisors, has periodically evaluated various strategies, including continued independence, merging with similarly-sized banks, and being acquired by another financial institution. After several discussions over the course of several months, the Surrey board directed management to engage Raymond James, an investment banking firm, to formally advise Surrey on the status of the bank merger market and potentially represent it in the event the Surrey board determined to pursue a strategic transaction. Before Surrey determined to engage Raymond James as its exclusive financial advisor, the board considered, among other things, Raymond James’ knowledge of Surrey and the North Carolina and Virginia markets, as well as Raymond James’ experience as a nationally recognized investment banking firm with significant experience in mergers and acquisitions, including bank mergers and acquisitions. On July 7, 2022, Surrey executed an engagement letter with Raymond James setting forth the terms of its engagement.

 

 

The Surrey board of directors invited Raymond James to present at the board’s strategic planning session on August 8, 2022, held offsite at the Greensboro, N.C. offices of its general counsel, Brooks, Pierce, McLendon, Humphrey & Leonard, LLP (which we refer to as “Brooks Pierce”). Raymond James provided an update on industry trends and the bank merger market generally, the potential capacity to pay of various potential acquirers and the profiles of those potential acquirers. Raymond James also shared with the Surrey board that, prior to the meeting, it had been approached by a representative of Performance Trust Capital Partners, LLC (which we refer to as “Performance Trust”), the financial advisor to the First Community board of directors, conveying First Community’s interest in pursuing a negotiated acquisition of Surrey. Representatives from Brooks Pierce then reviewed with the Surrey board its fiduciary duties in connection with its consideration of a strategic transaction. After considering First Community’s interest and the ability of other financial institutions to acquire Surrey, the Surrey board directed Raymond James to contact four financial institutions, including First Community, to gauge their level of interest in pursuing a potential business combination with Surrey.

 

Raymond James then began contacting potential business combination partners on behalf of Surrey. Raymond James also worked with Surrey’s management and Brooks Pierce to prepare a detailed presentation to be distributed to potential bidders. Of the four financial institutions contacted, two of the institutions declined to consider a potential transaction; however, the two other institutions, including First Community, entered into nondisclosure agreements with Surrey and were provided access to an online data room containing confidential information on Surrey. In August and September 2022, Raymond James and Surrey’s management had numerous conversations with representatives of the two institutions. Also, during August 2022, Surrey’s management had two in-person meetings with the senior management of one of these institutions, which institution we refer to as Institution A, as they explored a possible combination of Institution A and Surrey.

 

On August 18, 2022, Raymond James invited First Community and Institution A to submit an indication of interest before 5:00 p.m. on September 9, 2022. Prior to the deadline, the chief executive officer of Institution A advised Mr. Ashby that Institution A did not intend to submit an indication of interest, explaining that he believed Institution A was unable to offer a price that Surrey would find acceptable, but that should Surrey be dissatisfied with the outcome of the current bid process, Institution A would be willing to proceed with a directly negotiated transaction.

 

On September 8, 2022, Surrey received First Community’s initial indication of interest, proposing a 100% stock transaction, with each share of Surrey common stock and Surrey Class A common stock being exchanged for 0.7203 shares of First Community common stock. Based on First Community’s then 10-day volume-weighted average closing price of $31.93 per share, this exchange ratio represented an implied value of approximately $23.00 for each share of Surrey common stock and Surrey Class A common stock, or an aggregate price of $96.3 million.

 

On September 13, 2022, the Surrey board scheduled a meeting to evaluate the results of the request for indications of interest conducted by Raymond James. In advance of the board meeting, Raymond James requested that First Community supplement its September 9 indication of interest in order to provide the Surrey board with greater detail in advance of the board meeting. First Community provided the requested supplemental information on September 12. At the September 13 board meeting, Raymond James reported on its discussions with the four financial institutions previously identified to the board, including First Community, as well as the responses to the request for indications of interest. The board then reviewed with Raymond James and Brooks Pierce the terms of First Community’s indication of interest including, among other things, the proposed consideration, exchange ratio, double trigger walk-away right, termination fee, corporate governance, personnel considerations, and estimated timeline for the proposed combination. Representatives from Raymond James also provided a detailed analysis of First Community, including, among other things, First Community’s historical financial results, loan and deposit totals by products, stock price metrics, stock price performance versus major stock indices, loan and deposit composition on a standalone and combined basis, yields and costs on a standalone and combined basis, and a proforma of the branch network.

 

Representatives from Brooks Pierce then reviewed with the members of the Surrey board of directors their fiduciary duties in connection with consideration of a business combination transaction.

 

The Surrey board asked questions of Raymond James and Brooks Pierce throughout the meeting, and the members discussed, among other things, opportunities to conduct reverse due diligence, the current state of the economic environment, execution risk for a potential transaction, the protections offered by a double trigger walk-away right, the income tax consequences for Surrey’s shareholders, and the ability for Surrey to pay a special dividend to its shareholders in 2022.

 

 

Following these discussions, and based on the presentation by Raymond James and the terms of the indication of interest of First Community (which addressed First Community’s typical dividend practices), the board unanimously concluded that it was in the best interests of Surrey and its shareholders to accept First Community’s indication of interest and proceed to negotiate a definitive agreement. On September 13, 2022, Surrey signed the indication of interest with First Community committing to a 60-day exclusivity period, following which First Community conducted additional due diligence on Surrey and Surrey performed reverse due diligence on First Community. Meetings and merger negotiations between the management teams of each company continued throughout the due diligence period both on an impromptu and scheduled basis and via both telephone and in-person meetings. In addition, each company exchanged materials and information in an online data room and scheduled and conducted on-site meetings to facilitate mutual due diligence.

 

On October 17, 2022, First Community’s counsel provided an initial draft of the definitive merger agreement. Over the next month, the parties exchanged drafts of the definitive merger agreement, disclosure schedules and other ancillary transaction documents and engaged in negotiations about various aspects of the draft documents. Mr. Ashby continued to keep the Surrey board advised of the progress of discussions and negotiations.

 

On November 8, 2022, senior management of First Community met with the Surrey board and management to discuss First Community’s history, financial data, products and services, strategic objectives and culture.

 

As First Community concluded its due diligence, it sought to confirm estimated transaction costs, including the early termination fees payable to Surrey’s core processor. In doing so, First Community concluded that the actual transaction costs would be approximately $750,000 higher than originally anticipated. Following extensive discussion between the parties’ respective management and financial advisors, First Community and Surrey agreed to reduce the exchange ratio from 0.7203 to 0.7159, equating to approximately 17 cents per share, based on First Community’s closing price of $38.43 per share on November 17, 2022.

 

On November 13, 2022, drafts of the merger agreement, the disclosure schedules and the consulting agreement for Mr. Ashby were provided to Surrey’s directors for their review. Four days later, Surrey’s board and management met with Raymond James and Brooks Pierce to discuss the definitive transaction documents and the status of the proposed transaction. Representatives of Raymond James provided a detailed analysis of the financial aspects of the proposed merger and delivered Raymond James’ opinion, orally and in writing, that the merger consideration was fair, from a financial point of view, to the holders of Surrey’s outstanding common stock and Class A common stock. A copy of Raymond James’ written opinion is attached to this document as Appendix B and a summary of the fairness opinion is included below in “Opinion of Surreys Financial Advisor,” beginning on page [•].

 

Representatives of Brooks Pierce then reviewed the merger agreement, the ancillary agreements and applicable legal concepts, highlighting any recent changes made to the draft documents circulated on November 13, 2022. After a thorough discussion and deliberations about the proposed transaction, upon a motion duly made and seconded, Surrey’s board unanimously adopted the merger agreement and the ancillary documents and approved the transactions contemplated by such documents, including the merger.

 

Also on November 17, 2022, the First Community board unanimously adopted the merger agreement and approved the merger, following which Surrey and First Community executed the definitive merger agreement and ancillary agreements.

 

On November 18, 2022, the parties issued a joint press release publicly announcing the transaction prior to the opening of the financial markets.

 

Recommendation of the Surrey Board of Directors and Surreys Reasons for the Merger

 

After careful consideration, the Surrey board, at a meeting held on November 17, 2022, unanimously determined the merger agreement and the transactions contemplated thereby to be fair and in the best interest of Surrey and its shareholders. Accordingly, the Surrey board unanimously adopted the merger agreement, approved the merger and recommends that Surrey’s shareholders vote “FOR” the approval of the merger agreement.

 

 

In evaluating the merger agreement and reaching its decision to adopt the merger agreement, approve the merger and recommend that Surrey’s shareholders approve the merger agreement, Surrey’s board consulted with Surrey’s management, as well as its outside legal and financial advisors, and considered a number of factors, including the following material factors (not in any relative order of importance):

 

 

the Surrey board’s knowledge and understanding of Surrey’s business, operations, financial condition, asset quality, earnings and prospects, and of First Community’s business, operations, financial condition, asset quality, earnings and prospects, taking into account the conversations had with, and the presentations made by, First Community’s senior management as part of Surrey’s reverse due diligence review and information provided by Surrey’s financial advisors;

 

 

its understanding of First Community’s commitment to enhancing its strategic position in Surrey’s market area, its prospects for the future and its projected financial results, and the Surrey board’s belief that the combined enterprise would benefit from First Community’s ability to take advantage of economies of scale and grow in the current economic environment;

 

 

First Community’s earnings track record and the market performance of its common stock;

 

 

the ability of Surrey’s shareholders to benefit from First Community’s potential growth and stock appreciation since it is more likely that the combined entity will have superior future earnings and prospects compared to Surrey’s earnings and prospects on an independent basis due to greater operating efficiencies and better penetration of commercial and consumer markets;

 

 

the perceived ability of First Community to complete a merger transaction from a financial and regulatory perspective, including its recent history of a successful merger transaction;

     
 

the financial and other terms of the merger agreement, including the amount and nature of the merger consideration proposed to be paid, which Surrey’s board reviewed with its outside financial and legal advisors, including:

 

 

that it does not preclude a third party from making an unsolicited acquisition proposal to Surrey and that, under certain circumstances, Surrey may furnish non-public information to and engage in discussions with such a third party regarding an acquisition proposal, as more fully described under the section entitled “The Merger Agreement-Agreement Not to Solicit Other Offers,” beginning on page [•];

     
 

the ability of the Surrey board of directors to submit the merger agreement to shareholders without a favorable recommendation or any recommendation, as more fully described under the section entitled “The Merger Agreement-Surrey Shareholder Meeting and Recommendation of the Surrey Board of Directors,” beginning on page [•];

     
 

Surrey’s ability to terminate the merger agreement if the trading price of First Community common stock declines under circumstances provided for in the merger agreement, as more fully described under the section entitled “The Merger Agreement-Termination of the Merger Agreement,” beginning on page [•];

     
 

First Community’s agreement to use its reasonable best efforts to obtain regulatory approval.

   

 

 

the fact that the outside date under the merger agreement allows for sufficient time to complete the merger; and

 

 

the Surrey board’s belief that the proposed merger with First Community will generally be a tax-free transaction to Surrey’s shareholders with respect to First Community common stock received by virtue of the merger.

 

 

 

the potential expense-saving and revenue-enhancing opportunities in connection with the merger, the related potential impact on the combined company’s earnings and the fact that the nature of the stock consideration would allow former Surrey shareholders to participate in the potential future upside as First Community shareholders;

 

 

the anticipated effect of the acquisition on Surrey’s retained employees and the terms of severance for employees who would not be retained;

 

 

the long-term and short-term interests of Surrey and its shareholders, and the interests of Surrey’s employees, customers, creditors and suppliers, and the community and societal considerations of the communities in which Surrey maintains offices;

 

 

the financial analyses provided by Raymond James, Surrey’s financial advisor, regarding the merger, and its opinion, delivered to Surrey’s board on November 17, 2022, to the effect that, as of that date and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Raymond James in rendering its opinion, the merger consideration to be received under the terms of the merger agreement was fair, from a financial point of view, to Surrey’s shareholders;

 

 

its knowledge of the current environment in the financial services industry, including national, regional and local economic conditions, continued industry consolidation, increased regulatory burdens, evolving trends in technology and increasing nationwide and global competition, the current financial market conditions, the current environment for community banks, particularly North Carolina and the surrounding states, and the likely effects of these factors on Surrey’s and the combined company’s potential growth, development, productivity, profitability and strategic options, and the historical prices of Surrey and First Community common stock;

 

 

its knowledge of Surrey’s prospects as an independent entity, including challenges relating to increasing regulatory burdens and overhead expense;

 

 

its knowledge of the strategic alternatives available to Surrey, including the challenges for organic growth by a financial institution of Surrey’s size; and

 

 

its belief that the merger is more favorable to Surrey’s shareholders than the alternatives to the merger, which belief was formed based on the careful review undertaken by the Surrey board, with the assistance of its management and outside legal and financial advisors.

 

Surrey’s board also considered potential risks and a variety of potential negative factors in connection with its deliberations concerning the merger agreement and the merger, including the following material factors (not in any relative order of importance):

 

 

the fact that, while Surrey expects that the merger will be consummated, there can be no assurance that all conditions to the parties’ obligations to complete the merger agreement will be satisfied, including the risk that certain regulatory approvals, the receipt of which are conditions to the consummation of the merger, might not be obtained, and, as a result, the merger may not be consummated;

 

 

the restrictions on the conduct of Surrey’s business prior to the completion of the merger, which are customary for merger agreements involving financial institutions, but which, subject to specific exceptions, could delay or prevent Surrey from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of Surrey absent the pending completion of the merger;

 

 

the significant risks and costs involved in connection with entering into or completing the merger, or failing to complete the merger in a timely manner, or at all, including as a result of any failure to obtain required regulatory approvals or shareholder approval, such as the risks and costs relating to diversion of management and employee attention from other strategic opportunities and operational matters, potential employee attrition, and the potential effect on business and customer relationships;

 

 

 

the fact that Surrey would be prohibited from soliciting acquisition proposals after execution of the merger agreement, and the possibility that the $4.0 million termination fee payable by Surrey upon the termination of the merger agreement under certain circumstances could discourage other potential acquirers from making a competing bid to acquire Surrey;

 

 

the fact that some of Surrey’s directors and executive officers have other interests in the merger that are different from, or in addition to, their interests as Surrey shareholders generally, as more fully described under the section entitled “-Interests of Surrey Directors and Executive Officers in the Merger,” beginning on page [•]; and

 

 

the possibility of litigation in connection with the merger.

 

Based on the factors described above, the Surrey board determined that the merger of Surrey with First Community and the merger of Surrey Bank & Trust with First Community Bank would be advisable and in the best interests of Surrey and its shareholders, and adopted the merger agreement, approved the merger and resolved to recommend its approval to the shareholders of Surrey.

 

The foregoing discussion of the material information and factors considered by the Surrey board of directors is not intended to be exhaustive. The Surrey board of directors evaluated the above factors and unanimously determined that the merger was in the best interests of Surrey and its shareholders. In reaching its determination to approve the merger and recommend that Surrey shareholders approve the merger, the Surrey board of directors considered the totality of the information presented to it and did not assign any relative or specific weights to any of the individual factors considered, although individual directors may have given different weights to different factors. The Surrey board of directors considered these factors, including the potential risks, uncertainties and disadvantages associated with the merger, in the aggregate rather than separately and determined the benefits of the merger to be favorable to and outweigh the potential risks, uncertainties and disadvantages of the merger. This explanation of the Surrey board of directors’ reasoning and certain other information presented in this section are forward-looking in nature and, therefore, should be read in the context of the factors discussed under “Cautionary Statement Concerning Forward-Looking Statements,” beginning on page [•].

 

Accordingly, the Surrey board of directors unanimously adopted the merger agreement and approved the merger, and unanimously recommends that the Surrey common shareholders vote FOR the common shareholder merger approval and the common shareholder adjournment proposal, and that the Surrey Class A common shareholders vote FOR the Class A common shareholder merger proposal and the Class A common shareholder adjournment proposal.

 

First Communitys Reasons for the Merger

 

After careful consideration, the First Community board of directors, at a series of meetings, culminating with a meeting held on November 17, 2022, unanimously determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of First Community and its shareholders.

 

 

In reaching its decision to adopt the merger agreement and approve the merger and the other transactions contemplated by the merger agreement, the First Community board of directors evaluated the merger agreement and the merger in consultation with First Community management, as well as with First Community’s outside financial and legal advisors, and considered a number of factors, including the following material factors:

 

 

each of First Community’s, Surrey’s and the combined company’s businesses, operations, financial condition, asset quality, earnings and prospects. In reviewing these factors, the First Community board of directors considered its view that Surrey’s financial condition and asset quality are sound, that Surrey’s business and operations complement those of First Community, and that the merger and the other transactions contemplated by the merger agreement would result in a combined company with a larger and more diversified market presence and a more attractive funding base, than First Community on a stand-alone basis. The First Community board of directors further considered that Surrey’s earnings and prospects, and the synergies potentially available in the proposed merger, create the opportunity for the combined company to have superior future earnings and prospects compared to First Community’s earnings and prospects on a stand-alone basis. In particular, the First Community board of directors considered the following:

 

 

the strategic rationale for the merger, given its potential of increasing First Community’s market share in the Northwestern North Carolina market and the overlap of Surrey’s and First Community’s existing franchises;

 

 

its belief that the merger will combine two strong banking institutions to create a leading regional banking franchise with enhanced commercial and community banking expertise and complementary product sets, bolstering First Community’s presence and filling gaps in First Community’s footprint in Northwestern North Carolina;

 

 

the potential for bringing together seasoned bank operators having a common vision with similar values, with talented, motivated workforces and compatible corporate cultures; and

 

 

the expanded possibilities, including organic growth and future acquisitions, that would be available to the combined company given its larger size, asset base, capital, and footprint.

 

 

the anticipated pro forma impact of the merger on the combined company, including the expected positive impact on certain financial metrics;

 

 

its understanding of the current and prospective environment in which First Community and Surrey operate, the competitive environment for financial institutions generally and the likely effect of these factors on First Community both with and without the merger;

 

 

its review and discussions with First Community management concerning the due diligence examination of Surrey’s business;

 

 

its expectation that First Community will retain its strong capital position and asset quality upon completion of the merger;

 

 

the continued employment of certain of Surrey’s senior executive officers and many of Surrey’s other employees and the participation of two of Surrey’s directors as directors of First Community Bank, which the First Community board of directors believed will enhance the likelihood of realizing the strategic benefits that First Community expects to derive from the merger;

 

 

the opinion, dated November 17, 2022, of Performance Trust, the financial advisor to the First Community board of directors, to the effect that, as of that date and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Performance Trust, as set forth in such opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to First Community; and

 

 

its review with its outside legal advisor, Bowles Rice LLP, of the terms of the merger agreement, including the tax treatment, deal protection and termination provisions.

 

The First Community board of directors also considered potential risks relating to the merger, including the following:

 

 

First Community may not realize all of the anticipated benefits of the merger, including the possibility of encountering difficulties in achieving anticipated cost synergies and savings in the amounts estimated or in the time frame contemplated;

 

 

 

the possibility of encountering difficulties in successfully integrating Surrey’s business, operations and workforce with those of First Community;

 

 

the regulatory and other approvals required in connection with the merger and the bank merger and the risk that such regulatory approvals will not be received in a timely manner or may impose unacceptable conditions;

 

 

the substantial costs that First Community will incur in connection with the merger even if it is not consummated; and

 

 

the diversion of management attention and resources from the operation of First Community’s business and toward the completion of the merger.

 

While the First Community board of directors considered the foregoing potentially positive and potentially negative factors, the First Community board of directors concluded that, overall, the potentially positive factors outweighed the potentially negative factors. Accordingly, the First Community board of directors unanimously determined the merger agreement to be fair, advisable and in the best interests of First Community and its shareholders.

 

The foregoing discussion of the information and factors considered by the First Community board of directors is not intended to be exhaustive, but includes the material factors considered by the First Community board of directors. In view of the wide variety of the factors considered in connection with its evaluation of the merger and the complexity of these matters, the First Community board of directors did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, the individual members of the First Community board of directors may have given different weight to different factors. The First Community board of directors considered all these factors as a whole and considered the factors overall to be favorable to, and to support, its determination.

 

The foregoing explanation of the First Community board of directors’ reasoning and all other information presented in this section contains information that is forward-looking in nature, and therefore should be read in light of the factors discussed in “Cautionary Statement Regarding Forward-Looking Statements” beginning on page [●].

 

Opinion of Surreys Financial Advisor

 

Surrey retained Raymond James as its financial advisor on July 7, 2022. Pursuant to that engagement, the Surrey board of directors requested that Raymond James evaluate the fairness, from a financial point of view, to the holders of outstanding Surrey common stock and Surrey Class A common stock of the merger consideration to be received by such holders pursuant to the merger agreement. Surrey selected Raymond James as its financial advisor based upon Raymond James’ knowledge of Surrey and the North Carolina and Virginia markets, as well as Raymond James’ experience as a nationally recognized investment banking firm with significant experience in mergers and acquisitions, including bank mergers and acquisitions.

 

At the November 17, 2022 meeting of the Surrey board of directors, representatives of Raymond James rendered its oral opinion, confirmed by delivery of a written opinion to the Surrey board of directors dated November 17, 2022, as to the fairness, as of such date, from a financial point of view, to the holders of outstanding Surrey common stock and Surrey Class A common stock of the merger consideration to be received by such holders in the merger pursuant to the merger agreement, based upon and subject to the qualifications, assumptions and other matters considered in connection with the preparation of its opinion.

 

The full text of the written opinion of Raymond James is attached as Appendix B to this proxy statement/prospectus. The summary of the opinion of Raymond James set forth below is qualified in its entirety by reference to the full text of such written opinion. Holders of Surrey common stock and Surrey Class A common stock are urged to read this opinion in its entirety.

 

 

Raymond James provided its opinion for the information of the Surrey board of directors (solely in its capacity as such) in connection with, and for purposes of, its consideration of the merger and its opinion only addresses whether the merger consideration to be received by the holders of Surrey common stock and Surrey Class A common stock in the merger pursuant to the merger agreement was fair, from a financial point of view, to such holders as of the date of such opinion. The opinion of Raymond James does not address any other term or aspect of the merger agreement or the merger contemplated thereby. The Raymond James opinion does not constitute a recommendation to the Surrey board of directors or to any holder of Surrey common stock and Surrey Class A common stock as to how the Surrey board of directors, such shareholder or any other person should vote or otherwise act with respect to the merger or any other matter. Raymond James does not express any opinion as to the likely trading range of First Community common stock following the merger, which may vary depending on numerous factors that generally impact the price of securities or on the financial condition of First Community at that time.

 

In connection with its review of the proposed merger and the preparation of its opinion, Raymond James, among other things:

 

 

reviewed the financial terms and conditions as stated in the draft of the merger agreement electronically distributed to Surrey’s executive officers and legal counsel by counsel to First Community on November 16, 2022 (which we refer to in this section as the “draft agreement”);

 

 

reviewed certain information related to the historical condition and prospects of Surrey, as made available to Raymond James by or on behalf of Surrey, including, but not limited to, financial projections prepared by the management of Surrey (which we refer to in this section as the “projections”);

 

 

reviewed Surrey’s: (a) audited consolidated financial statements for the years ended December 31, 2021, December 31, 2020 and December 31, 2019; and (b) unaudited consolidated financial statements for the quarters ended March 31, 2022, June 30, 2022, and September 30, 2022;

 

 

reviewed Surrey’s recent publically available regulatory filings and certain other publicly available information regarding Surrey;

 

 

reviewed the financial and operating performance of Surrey and those of other selected public companies that Raymond James deemed to be relevant;

 

 

considered certain publicly available financial terms of certain transactions Raymond James deemed to be relevant;

 

 

reviewed the current and historical market prices and trading volume for Surrey’s common stock and the current market prices of the publicly traded securities of certain other companies that Raymond James deemed to be relevant;

 

 

conducted such other financial studies, analyses and inquiries and considered such other information and factors as Raymond James deemed appropriate;

 

 

received a certificate addressed to Raymond James from a member of senior management of Surrey regarding, among other things, the accuracy of the information, data and other materials (financial or otherwise) provided to, or discussed with, Raymond James by or on behalf of Surrey; and

 

 

discussed with members of the senior management of Surrey and First Community certain information relating to the aforementioned and any other matters which Raymond James deemed relevant to its inquiry including, but not limited to, the past and current business operations of Surrey and First Community and the financial condition, future prospects and operations of Surrey and First Community, respectively.

 

 

With Surrey’s consent, Raymond James assumed and relied upon the accuracy and completeness of all information supplied by or on behalf of Surrey, or otherwise reviewed by or discussed with Raymond James, and Raymond James did not undertake any duty or responsibility to, nor did Raymond James, independently verify any of such information. Furthermore, Raymond James did not undertake any independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which Surrey or First Community is a party or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which Surrey or First Community may be subject. With Surrey’s consent, Raymond James made no assumption concerning, and its opinion therefore did not consider, the potential effects of any such litigation, claims or investigations or possible assertions.

 

Raymond James did not make or obtain an independent appraisal of the assets or liabilities (contingent or otherwise) of Surrey. Raymond James is not an expert in accounting principles generally accepted in the United States of America (which we refer to as “GAAP”) or the evaluation of loan and lease portfolios for purposes of assessing the adequacy of the allowances for loan and lease losses or any other reserves of either of Surrey and First Community; accordingly, Raymond James assumed that such allowances and reserves are in the aggregate adequate to cover such losses. 

 

With respect to the projections and any other information and data provided to or otherwise reviewed by or discussed with Raymond James, Raymond James, with Surrey’s consent, assumed that the projections and such other information and data were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of management of Surrey, and Raymond James relied upon Surrey to advise Raymond James promptly if any information previously provided became inaccurate or was required to be updated during the period of its review. Raymond James expressed no opinion with respect to the projections or the assumptions on which they were based.

 

Raymond James relied upon and assumed, without independent verification, that the final form of the merger agreement would be substantially similar to the draft agreement reviewed by Raymond James in all respects material to its analysis, and that the merger would be consummated in accordance with the terms of the merger agreement without waiver of or amendment to any of the conditions thereto. Furthermore, Raymond James assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the merger agreement were true and correct and that each party will perform all of the covenants and agreements required to be performed by it under the merger agreement without being waived. Raymond James also relied upon and assumed, without independent verification, that (i) the transaction would be consummated in a manner that complies in all respects with all applicable international, federal and state statutes, rules and regulations, and (ii) all governmental, regulatory or other consents and approvals necessary for the consummation of the transaction would be obtained and that no delay, limitations, restrictions or conditions would be imposed or amendments, modifications or waivers made that would have an effect on the merger or Surrey that would be material to its analysis or opinion.

 

Raymond James expressed no opinion as to the underlying business decision to effect the merger, the structure or tax consequences of the merger, or the availability or advisability of any alternatives to the merger. The Raymond James opinion is limited to the fairness, from a financial point of view, of the merger consideration to be received by the holders of Surrey common stock and Surrey Class A common stock. Raymond James expressed no opinion with respect to any other reasons (legal, business, or otherwise) that may support the decision of the Surrey board of directors to approve or consummate the merger. Furthermore, no opinion, counsel or interpretation was intended by Raymond James on matters that require legal, accounting or tax advice. Raymond James assumed that such opinions, counsel or interpretations had been or would be obtained from appropriate professional sources. Furthermore, Raymond James relied, with the consent of Surrey, on the fact that Surrey was assisted by legal, accounting and tax advisors, and, with the consent of Surrey relied upon and assumed the accuracy and completeness of the assessments by Surrey and its advisors, as to all legal, accounting and tax matters with respect to Surrey and the merger, including, without limitation, that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code.

 

In formulating its opinion, Raymond James considered only the merger consideration to be received by the holders of Surrey common stock and Surrey Class A common stock, and Raymond James did not consider, and its opinion did not address, the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Surrey, or such class of persons, in connection with the merger whether relevant to the merger consideration or otherwise. Raymond James was not requested to opine as to, and its opinion did not express an opinion as to or otherwise address, among other things: (1) the fairness of the merger to the holders of any class of securities, creditors or other constituencies of Surrey, or to any other party, except and only to the extent expressly set forth in the last sentence of its opinion or (2) the fairness of the merger to any one class or group of Surrey’s or any other party’s security holders or other constituents vis-à-vis any other class or group of Surrey’s or such other party’s security holders or other constituents (including, without limitation, the allocation of any consideration to be received in the merger amongst or within such classes or groups of security holders or other constituents). Raymond James expressed no opinion as to the impact of the merger on the solvency or viability of Surrey or First Community or the ability of Surrey or First Community to pay their respective obligations when they come due.

 

 

Material Financial Analyses

 

The following summarizes the material financial analyses reviewed by Raymond James with the Surrey board of directors at its meeting on November 17, 2022, which material was considered by Raymond James in rendering its opinion. No company or transaction used in the analyses described below is identical or directly comparable to Surrey, First Community or the merger.

 

Selected Companies Analysis. Raymond James analyzed the relative valuation multiples of 15 publicly-traded financial institutions that satisfied the following criteria: (i) headquartered in North Carolina, South Carolina, or Virginia; (ii) had total assets between $300 million and $800 million; and (iii) had last twelve months return on average assets greater than 0.50%. This group excluded targets of announced mergers and mutual holding companies. The selected companies that Raymond James deemed relevant included the following:

 

 

Selected Companies for
Surrey Bancorp


PB Financial Corporation (PBNC)

Village Bank and Trust Financial Corp. (VBFC)

Bank of Botetourt (BORT)

Community First Bancorporation (CFOK)

Bank of South Carolina Corporation (BKSC)

Touchstone Bankshares, Inc. (TSBA)

Citizens Bancorp of Virginia, Inc. (CZBT)

Oak Ridge Financial Services, Inc. (BKOR)

KS Bancorp, Inc. (KSBI)

Lumbee Guaranty Bank (LUMB)

M&F Bancorp, Inc. (MFBP)

Oak View Bankshares, Inc. (OAKV)

Lifestore Financial Group, Inc. (LSFG)

blueharbor bank (BLHK)

The Farmers Bank of Appomattox (FBPA)

 

 

Raymond James calculated various financial multiples for each company, including: (i) price to tangible book value per share; (ii) price to tangible book value per share excluding accumulated other comprehensive income; (iii) price to last-twelve-months earnings per share; (iv) and price to last quarter annualized earnings per share. Raymond James reviewed the mean, median, 25th percentile and 75th percentile relative valuation multiples of the selected public companies and compared them to corresponding valuation multiples for Surrey implied by the merger consideration. The results of the selected public companies’ analysis are summarized below:

 

   

Surrey

   

Deal

   

Mutiple Range

 
   

Statistic

   

Metric

   

25th Percentile

   

Mean

   

Median

   

75th Percentile

 
                                                 

Price/Tangible Book Value per Share

  $ 13.66       202 %     100 %     133 %     115 %     148 %

Price/TBVPS (ex AOCI)

    13.68       202 %     83 %     101 %     95 %     119 %

Price/LTM EPS

    1.52    

18.2x

   

7.6x

   

9.0x

   

8.9x

   

9.1x

 

Price/LQA EPS

    2.03    

13.6x

   

7.0x

   

8.2x

   

7.6x

   

9.3x

 

 

Furthermore, Raymond James applied the mean, median, 25th percentile and 75th percentile relative valuation multiples for each of the metrics to Surrey’s actual financial results and determined the implied equity price per share of Surrey common stock, including the Surrey Class A common stock, and then compared those implied equity values per share to the implied value of the merger consideration, as of November 16, 2022, of $27.64 per share. The results of this are summarized below:

 

   

Surrey

   

Deal

   

Mutiple Range

 
   

Statistic

   

Metric

   

25th Percentile

   

Mean

   

Median

   

75th Percentile

 
                                                 

Price/Tangible Book Value per Share

  $ 13.66       202 %   $ 13.70     $ 18.10     $ 15.64     $ 20.15  

Price/TBVPS (ex AOCI)

    13.68       202 %     11.38       13.88       12.95       16.30  

Price/LTM EPS

    1.52    

18.2x

      11.48       13.61       13.47       13.89  

Price/LQA EPS

    2.03    

13.6x

      14.25       16.71       15.51       18.78  
                                               
Merger Consideration   $ 27.64                                        

 

Selected Transaction Analysis. Raymond James analyzed publicly available information relating to selected regional transactions announced since January 1, 2021 involving financial institution targets headquartered in the Southeast, which includes Alabama, Arkansas, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and West Virginia, with total assets between $300 million and $800 million and return on average assets over the last twelve months greater than 0.50%. Raymond James also analyzed publicly available information relating to selected national transactions announced since January 1, 2022 involving financial institutions headquartered in the United States with total assets between $300 million and $800 million and return on average assets over the last twelve months greater than 0.50%. Both regional and national transactions excluded: (i) transactions without publicly disclosed deal value or sufficient financial information; (ii) merger of equals; and (iii) transactions in which less than 100% of equity ownership was acquired. The selected national and regional transactions (with respective transaction announcement dates shown) used in the analysis included:

 

National Transactions: 

 

City Holding Company/ Citizens Commerce Bancshares, Inc. – October 18, 2022

 

Taichung Commercial Bank Co., Ltd./ American Continental Bancorp – September 30, 2022

 

TowneBank/ Farmers Bankshares, Inc. – August 18, 2022

 

MVB Financial Corp./ Integrated Financial Holdings, Inc. – August 12, 2022

 

Bank First Corporation/ Hometown Bancorp, Ltd. – July 26, 2022

 

HomeTrust Bancshares, Inc./ Quantum Capital Corp. – July 25, 2022

 

Somerset Savings Bank, SLA/ Regal Bancorp, Inc. – July 25, 2022

 

CrossFirst Bankshares, Inc./ Farmers & Stockmens Bank – June 13, 2022

 

Middlefield Banc Corp./ Liberty Bancshares, Inc. (Ada, OH) – May 26, 2022

 

Cambridge Bancorp/ Northmark Bank – May 23, 2022

 

DFCU Financial/ First Citrus Bancorporation, Inc. – May 12, 2022

 

Nmb Financial Corp/ Noah Bank – April 13, 2022

 

Arizona Federal Credit Union/ Horizon Community Bank – March 10, 2022

 

BAWAG Group AG/ Peak Bancorp Inc. – February 2, 2022

 

 

 

Bank First Corporation/ Denmark Bancshares, Inc. – January 19, 2022

 

Civista Bancshares, Inc./ Comunibanc Corp. – January 10, 2022

 

Selected Regional Transactions:

 

TowneBank/ Farmers Bankshares, Inc. – August 18, 2022

 

MVB Financial Corp./ Integrated Financial Holdings, Inc. – August 12, 2022

 

HomeTrust Bancshares, Inc./ Quantum Capital Corp. – July 25, 2022

 

DFCU Financial/ First Citrus Bancorporation, Inc. – May 12, 2022

 

SouthPoint Bancshares, Inc./ Merchants Financial Services, Inc. – August 25, 2021

 

Seacoast Banking Corporation of Florida/ Sabal Palm Bancorp, Inc. – August 23, 2022

 

Lake Michigan Credit Union/ Pilot Bancshares, Inc. – June 16, 2021

 

United Community Banks, Inc./ Aquesta Financial Holdings, Inc. – May 27, 2021

 

Colony Bankcorp, Inc./ SouthCrest Financial Group, Inc. – April 22, 2021

 

SmartFinancial, Inc./ Sevier County Bancshares, Inc. – April 14, 2021

 

Seacost Banking Corporation of Florida/ Legacy Bank of Florida – March 23, 2021

 

BancorpSouth Bank/ FNS Bancshares, Inc. – January 13, 2021

 

Raymond James examined valuation multiples of transaction value compared to the target companies’: (i) most recent quarter tangible common equity at announcement; (ii) most recent quarter tangible common equity excluding accumulated other comprehensive income at announcement; (iii) last twelve months net income at announcement; and (iv) premium to core deposits (total deposits less time deposits greater than $100,000). Raymond James adjusted earnings of subchapter S corporations using an effective tax rate of 21%. Raymond James reviewed the mean, median, 25th percentile and 75th percentile relative valuation multiples of the selected transactions and compared them to corresponding valuation multiples for Surrey implied by the merger consideration. Furthermore, Raymond James applied the mean, median, 25th percentile and 75th percentile relative valuation multiples to Surrey’s tangible common equity, tangible common equity excluding accumulated other comprehensive income, last twelve months net income, and core deposits to determine the implied equity price per share and then compared those implied equity values per share to the implied value of the merger consideration, as of November 16, 2022, of $27.64 per share. The results of the selected transactions analysis are summarized below:

 

National Transactions

 

   

Surrey

   

Deal

   

Mutiple Range

   

Implied Values Range

 
    Statistic     Metric    

25th Percentile

   

Mean

   

Median

   

75th Percentile

   

25th Percentile

   

Mean

   

Median

   

75th Percentile

 
                                                                                 

Price/Tangible Book Value per Share

  $ 57,006       204 %     131 %     164 %     164 %     193 %   $ 17.82     $ 22.23     $ 22.28     $ 26.24  

Price/TBVPS (ex AOCI)

    57,089       203 %     124 %     154 %     156 %     180 %     16.86       20.94       21.22       24.45  

Price/LTM EPS

    6,345    

18.3x

   

11.3x

   

15.7x

   

15.3x

   

18.3x

      17.05       23.71       23.07       27.71  

Price/LQA EPS

    407,266       14.5 %     4.2 %     7.7 %     7.2 %     9.8 %     17.69       21.03       20.53       23.03  

 

Regional Transactions

 

   

Surrey

   

Deal

   

Mutiple Range

   

Implied Values Range

 
   

Statistic

   

Metric

   

25th Percentile

   

Mean

   

Median

   

75th Percentile

   

25th Percentile

   

Mean

   

Median

   

75th Percentile

 
                                                                                 

Price/Tangible Book Value per Share

  $ 57,006       204 %     149 %     171 %     169 %     192 %   $ 20.26     $ 23.23     $ 22.87     $ 26.01  

Price/TBVPS (ex AOCI)

    57,089       203 %     146 %     163 %     156 %     185 %     19.88       22.16       21.17       25.17  

Price/LTM EPS

    6,345    

18.3x

   

11.0x

   

13.4x

   

12.6x

   

17.3x

      16.69       20.30       19.10       26.16  

Price/LQA EPS

    407,266       14.5 %     4.8 %     7.8 %     6.7 %     9.7 %     18.25       21.10       20.10       22.98  

 

Discounted Cash Flow Analysis. Raymond James performed a discounted cash flow analysis of Surrey based on projections provided by management of Surrey. Raymond James used tangible common equity in excess of a target ratio of 8.0% of tangible assets at the end of each projection period for free cash flow. Consistent with the periods included in the projections, Raymond James used calendar year 2026 as the final year for the analysis and applied multiples, ranging from 11.5x to 13.5x, to calendar year 2026 net income in order to derive a range of terminal values for Surrey in 2026.

 

 

The projected free cash flows and terminal values were discounted using rates ranging from 16.5% to 14.5%. Raymond James arrived at its discount rate ranges by using the 2021 Duff & Phelps Valuation Handbook. The resulting range of present equity values was divided by the number of diluted shares outstanding. Raymond James reviewed the range of per share prices derived in the discounted cash flow analysis and compared them to the implied value of the merger consideration, as of November 16, 2022, of $27.64 per share. The results of the discounted cash flow analysis indicated a range of values from $22.67 per share to $26.24 per share. The results of the discounted cash flow analysis are summarized below:

 

   

Implied

 
   

per Share Value

 
   

Low

   

High

 
                 

Implied per Share Value

  $ 22.67     $ 26.24  

 

Additional Considerations. The preparation of a fairness opinion is a complex process and is not susceptible to a partial analysis or summary description. Raymond James believes that its analyses must be considered as a whole and that selecting portions of its analyses, without considering the analyses taken as a whole, would create an incomplete view of the process underlying its opinion. In addition, Raymond James considered the results of all such analyses and did not assign relative weights to any of the analyses, but rather made qualitative judgments as to significance and relevance of each analysis and factor, so the ranges of valuations resulting from any particular analysis described above should not be taken to be the view of Raymond James as to the actual value of Surrey.

 

In performing its analyses, Raymond James made numerous assumptions with respect to industry performance, general business, economic and regulatory conditions and other matters, many of which are beyond the control of Surrey. The analyses performed by Raymond James are not necessarily indicative of actual values, trading values or actual future results which might be achieved, all of which may be significantly more or less favorable than suggested by such analyses. Such analyses were provided to the Surrey board of directors (solely in its capacity as such) and were prepared solely as part of the analysis of Raymond James of the fairness, from a financial point of view, to the holders of Surrey common stock other than any excluded shares to be received by such holders in connection with the merger pursuant to the merger Agreement. The analyses do not purport to be appraisals or to reflect the prices at which companies may actually be sold, and such estimates are inherently subject to uncertainty. The opinion of Raymond James was one of many factors taken into account by the Surrey board of directors in making its determination to approve the merger. Neither Raymond James’ opinion nor the analyses described above should be viewed as determinative of the Surrey board of directors’ or Surrey management’s views with respect to Surrey, First Community or the merger. Raymond James provided advice to Surrey with respect to the merger. Raymond James did not, however, recommend any specific amount of consideration to the Surrey board of directors or that any specific merger consideration constituted the only appropriate consideration for the merger. Surrey placed no limits on the scope of the analysis performed, or opinion expressed, by Raymond James.

 

The Raymond James opinion was necessarily based upon market, economic, financial and other circumstances and conditions existing and disclosed to it on November 16, 2022, and any material change in such circumstances and conditions may affect the opinion of Raymond James, but Raymond James does not have any obligation to update, revise or reaffirm that opinion. Raymond James relied upon and assumed, without independent verification, that there had been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of Surrey since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Raymond James that would be material to its analyses or its opinion, and that there was no information or any facts that would make any of the information reviewed by Raymond James incomplete or misleading in any material respect.

 

Raymond James has not provided any other investment banking services to Surrey in the two years preceding the date of its opinion. During the two years preceding the date of its opinion, (i) Raymond James has engaged in certain fixed income trading activity with First Community Bank for which it has earned income and (ii) an affiliate of Raymond James provided services to First Community Bank relating to its wealth management business, for which Raymond James has received commissions and fees.

 

 

For services rendered in connection with the delivery of its opinion, Surrey paid Raymond James a fee of $250,000 upon delivery of its opinion. Surrey will also pay Raymond James a customary fee for advisory services in connection with the merger equal to approximately $1.4 million (less the fee paid upon delivery of the opinion, the amount of which shall be deducted), which is contingent upon the closing of the merger. The actual amount of the fee Surrey will pay Raymond James for its advisory services is subject to the final amount of the merger consideration at closing. Surrey also agreed to reimburse Raymond James up to $35,000, unless a greater amount is authorized by Surrey, for its expenses incurred in connection with its services, including the fees and expenses of its counsel, and will indemnify Raymond James against certain liabilities arising out of its engagement.

 

Raymond James is actively involved in the investment banking business and regularly undertakes the valuation of investment securities in connection with public offerings, private placements, business combinations and similar transactions. In the ordinary course of business, Raymond James may trade in the securities of Surrey and First Community for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities. Raymond James may provide investment banking, financial advisory and other financial services to Surrey and/or First Community or other participants in the merger in the future, for which Raymond James may receive compensation.

 

Certain Surrey Unaudited Prospective Financial Information

 

Surrey does not as a matter of course publicly disclose forecasts or internal projections as to future performance, revenues, earnings, financial condition or other results because of, among other reasons, the inherent uncertainty of the underlying assumptions and estimates. However, Surrey is including in this proxy statement/prospectus certain limited unaudited prospective financial information for Surrey. Such information contains unaudited prospective financial information for Surrey on a stand-alone, pre-merger basis, respectively, to give Surrey shareholders access to certain information that was provided to the Surrey board of directors and to Raymond James in connection with its fairness opinion. We refer to such prospective information as “prospective information”. The prospective information may differ in certain respects from what Surrey uses for its internal purposes.

 

The prospective information provided was prepared in good faith on a reasonable basis based on the best available information at the time, but was not prepared for the purpose of public disclosure. As such, the inclusion of such information in this proxy statement/prospectus should not be regarded as an indication that Surrey or any other recipient of such information considered, or now considers, such information to be necessarily predictive of actual future results. The Surrey prospective financial information was not prepared with a view toward complying with the guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation or presentation of financial information. Neither Elliott Davis, PLLC, FORVIS LLP, nor any other independent registered public accountants or independent accountants has compiled, examined or performed any procedures with respect to such information, or expressed any opinion or any other form of assurance on such information or their achievability.

 

The prospective financial information reflects numerous estimates and assumptions made by Surrey with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to Surrey’s business, all of which are difficult to predict and many of which are beyond Surrey’s respective control. Such information also reflects assumptions as to certain business decisions that are subject to change. The prospective financial information reflects subjective judgment in many respects and is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. Accordingly, such information constitutes forward-looking information and is subject to risks and uncertainties that could cause actual results to differ materially from the results forecasted in such prospective information, including, but not limited to, First Community’s and Surrey’s performance, industry performance, general business and economic conditions, customer requirements, competition, adverse changes in applicable laws, regulations or rules, and the various risks set forth in this proxy statement/prospectus and in the reports filed by First Community with the SEC. For other factors that could cause the actual results to differ, see the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements beginning on page [●].”

 

 

The prospective information does not take into account any circumstances or events occurring after the date they were prepared, including the transactions contemplated by the merger agreement, and do not take into account the effect of any possible failure of the merger to occur. Neither Surrey nor its financial advisors nor its affiliates intend to, and each of them disclaims any obligation to, update, revise or correct the prospective financial information if they are or become inaccurate, even in the short-term. The inclusion of such information in this proxy statement/prospectus is not and should not be deemed an admission or representation by Surrey that such information is viewed by Surrey as material information of Surrey, particularly in light of the inherent risks and uncertainties associated with such information. The prospective information presented below is not meant to influence your decision whether to vote in favor of the common shareholder merger proposal, the Class A common shareholder merger proposal or any other proposal to be considered at the special meeting but is being presented solely because it was made available to and considered by Surrey’s board of directors and financial advisor in connection with the merger.

 

The following prospective financial information was utilized by Raymond James, with Surrey’s consent, in performing financial analyses in connection with its fairness opinion:

 

   

12 Months Ended

 

 
   

December 31,

2022

   

December 31,

2023

   

December 31,

2024

   

December 31,

2025

 

Net Income ($MMs)

  $ 7.3     $ 8.3     $ 8.4     $ 8.9  

Earnings Per Share

  $ 1.74     $ 1.99     $ 2.00     $ 2.11  

Common Dividends Per Share

  $ 0.62     $ 0.48     $ 0.48     $ 0.48  

Total Assets ($MMs)

  $ 484.4     $ 471.4     $ 492.7     $ 520.3  

 

Interests of Surrey Directors and Executive Officers in the Merger

 

In the merger, the directors and executive officers of Surrey will receive the same merger consideration for their Surrey shares as the other Surrey shareholders. In considering the recommendation of the Surrey board of directors that you vote to approve the merger agreement, you should be aware that some of the executive officers and directors of Surrey may have interests in the merger and may have arrangements, as described below, that may be considered to be different from, or in addition to, those of Surrey shareholders generally. The Surrey board of directors was aware of these interests and considered them, among other matters, in reaching its decision to adopt and approve the merger agreement and to recommend that you vote in favor of approving the merger agreement. See the section entitled “-Background of the Merger” and “-Recommendation of the Surrey Board of Directors and Surreys Reasons for the Merger” beginning on page [●]. Surrey shareholders should take these interests into account in deciding whether to vote “FOR” the common shareholder merger proposal and “FOR” the Class A common shareholder merger proposal. These interests are described in more detail below, and certain of them are quantified in the narrative below.

 

For purposes of this disclosure, Surrey’s executive officers are: Edward C. Ashby, III, Pedro A. Pequeno, II, and Mark H. Towe.

 

Employment and Change of Control Agreements

 

Surrey and Surrey Bank & Trust have entered into employment and change of control agreements with each of their executive officers: Edward C. Ashby, III, Pedro A. Pequeno, II, and Mark H. Towe. These agreements provide that each executive is entitled to receive a change-of-control payment, if such executive is terminated (other than for cause) or terminates his employment for good reason within 24 months after the consummation of the merger, of 2.99 times Executive’s “average annual base compensation” as defined under Section 280G(b) of the Code, plus reimbursement for certain welfare benefits for the executive and his dependents for 12 months or until such time as executive obtains substantially similar coverages, whichever is earlier, all subject to reduction if such payments, and any other compensation to be received by executive in connection with the merger, would otherwise be an ‘excess parachute payment’ under Code Section 280G.

 

 

In the alternative, each executive is entitled to receive a lump sum termination payment if such executive is terminated (other than for cause) or terminates his employment for good reason, other than in connection with a change of control, equal to the amount of base salary that would have been due and payable through the end of the term of his agreement, i.e., three years, plus pro-rated bonus and reimbursement for certain welfare benefits for the executive and his dependents for 12 months or until such time as the executive obtains substantially similar coverages, whichever is earlier.

 

In exchange for those payments, for a two year period commencing on the date of such termination of employment, each executive agreed not to (1) solicit customers of Surrey or Surrey Bank & Trust or their successors, including First Community and First Community Bank, as applicable, for any competing insured depository institution, (2) solicit employees of Surrey or Surrey Bank & Trust or their successors, including First Community and First Community Bank, as applicable, to terminate their employment with any of the foregoing companies, and (3) compete against Surrey or Surrey Bank & Trust or their successors, including First Community and First Community Bank, as applicable, within a 25-mile radius of the main office or any branch office of Surrey Bank & Trust, and, if the executive continues employment after the effective time, the main office or any branch office of First Community and First Community Bank.

 

The parties have agreed that certain lump sum cash payments will be made to Messrs. Ashby, Pequeno and Towe in exchange for termination of the above-described agreements, provided that (i) the executive enters into a mutually satisfactory release at the effective time and (ii) the two year period during which the executive agrees not to solicit customers, solicit employees or compete against Surrey or Surrey Bank & Trust or their successors, as described above, shall commence at the effective time. The lump sum cash payments have been calculated based on the alternative (termination of the agreement not in connection with a change of control, other than for cause or resignation for good reason) described above, but still subject to the 280G cutback. The lump sum cash payments are estimated as follows: (i) for Mr. Ashby, the total lump sum settlement payment is calculated to be [$816,318] (after taking into account an anticipated 280G cutback, which will be finalized prior to the effective time); (ii) for Mr. Towe, the total lump sum settlement payment is calculated to be [$495,530] (after taking into account an anticipated 280G cutback, which will be finalized prior to the effective time); and (iii) for Mr. Pequeno, the total lump sum settlement payment is calculated to be $[793,036] (with no 280G cutback).

 

Salary Continuation Agreements, Certain Life Insurance Benefits.

 

Ashby, Pequeno, and Towe have also each entered into Executive Salary Continuation Agreements with Surrey Bank & Trust. Each of the executives will vest in the full benefit, payable for life in monthly installments commencing on the first day of the month after such executive retires or attains age 65, whichever is later. In addition, Ashby, Pequeno, and Towe each are parties to a split dollar agreement and a supplemental life insurance agreement, which provide for the payment of certain death benefits to their beneficiaries. The split dollar agreements provide for 100% vesting upon a change of control.

 

Board of Directors

 

Current Surrey directors, Edward C. Ashby, III and Robert H. Moody, will join the board of First Community Bank upon completion of the merger. Members of the First Community Bank board are expected to receive compensation consistent with the compensation paid to current non-employee directors of First Community Bank. For 2022, such compensation included an annual retainer fee with a value of approximately $22,500 paid in cash and $22,500 paid in restricted stock units that cliff-vest over one year after the grant date.

 

Indemnification and Insurance

 

As described under the section entitled “The Merger Agreement-Director and Officer Indemnification and Insurance” beginning on page [●] from and after the completion of the merger, First Community will indemnify and hold harmless all current and former directors, officers and employees of Surrey or any of its subsidiaries against all liabilities arising out of the fact that such person is or was a director, officer or employee of Surrey or any of its subsidiaries if the claim is based in or arises out of any matter of fact existing or occurring at or before the effective time of the merger (including the merger and the other transactions contemplated by the merger agreement), regardless of whether such claims are asserted before or after the effective time, to the fullest extent such person would have been indemnified under articles of incorporation and bylaws of Surrey as in effect on November 17, 2022 and as permitted by applicable law.

 

 

The merger agreement requires First Community to maintain for a period of six years after completion of the merger Surrey’s currently existing directors and officers liability insurance policy, or policies having at least the same coverage and amounts and containing terms and conditions that are no less favorable in any material respect to the insured persons than the existing policy, with respect to claims arising from facts or events that occurred prior to the completion of the merger, and covering such individuals who are currently covered by such insurance. However, First Community is not required to spend in the aggregate an amount more than 200% of the annual premium payment on Surrey’s current directors and officers liability insurance policy. If First Community is unable to maintain a policy as described for less than that amount, First Community will obtain as much comparable insurance as is available for that amount. In lieu of such a policy, after consultation with First Community, Surrey may (1) substitute a six-year “tail” prepaid policy with terms no less favorable in any material respect to the indemnified parties than Surrey’s existing policy as of November 17, 2022 or (2) obtain extended coverage for the six-year period under Surrey’s existing insurance programs. If First Community (or any of its successors or assigns) merges with another person and is not the continuing entity, or if First Community transfers or conveys all or substantially all of its properties or assets to another person, then First Community will ensure that its successors and assigns assume First Community’s indemnification and insurance obligations.

 

[Employment of Executive Officer

 

In connection with the merger, First Community Bank has made an offer to Mr. Pequeno to serve as the Senior Vice President & Regional Manager of First Community Bank following consummation of the merger.]

 

Engagement as Consultant

 

Also, in connection with the merger, First Community Bank has entered into a consulting agreement with Mr. Ashby, whereby he has agreed to provide consulting services to First Community Bank, as an independent contractor, for a period of 12 months following the effective time of the merger, unless sooner terminated by either party. If First Community Bank terminates the consulting agreement prior to expiration of the twelve-month period (other than for intentional misconduct or repeated failure to perform services), Mr. Ashby will receive the consulting fees of $12,500.00 per month for the remainder of the period, subject to reduction by the amount of earnings of Mr. Ashby from other employment or consulting fees during such remaining period.

 

First Community Bank has also offered Mr. Towe an opportunity to provide consulting services to First Community Bank, as an independent contractor, for a period of four months, unless sooner terminated by either party. Mr. Towe will receive a consulting fee of $[●] per month.

 

Public Trading Markets

 

The First Community common stock is listed for trading on NASDAQ under the symbol “FCBC,” and the Surrey common stock is quoted on the OTC Pink under the symbol “SRYB.” Upon completion of the merger, the Surrey common stock will no longer be quoted on the OTC Pink. Following the merger, shares of First Community common stock will continue to be traded on NASDAQ.

 

Under the merger agreement, First Community will cause the shares of First Community common stock to be issued or reserved for issuance in the merger to be approved for listing on NASDAQ, subject to notice of issuance. The merger agreement provides that neither First Community nor Surrey will be required to complete the merger if such shares are not authorized for listing on NASDAQ, subject to notice of issuance.

 

First Communitys Dividend Policy

 

On October 25, 2022, the First Community board of directors declared a quarterly cash dividend of $0.29 per share on First Community common stock, which was paid on November 18, 2022 to shareholders of record as of the close of business on November 4, 2022. Historically, First Community has paid a regular quarterly dividend to holders of its common stock in February, May, August and November of each calendar year.

 

 

First Community’s principal source of cash flow is derived from dividends paid by First Community Bank. There are various restrictions by regulatory agencies related to dividends paid by First Community Bank to First Community and dividends paid by First Community to its shareholders. The payment of dividends by First Community and First Community Bank may be limited by certain factors, such as requirements to maintain capital above regulatory guideline minimums.

 

Prior approval from the Federal Reserve Board is required for First Community Bank to declare or pay a dividend to First Community if the total of all dividends declared in any given year exceed the total of First Community Bank’s net profits for that year and its retained profits for the preceding two years, less any required transfers to surplus or to fund the retirement of preferred stock. Dividends paid by First Community to shareholders are subject to oversight by the Federal Reserve Board. Federal Reserve Board policy states that bank holding companies generally should pay dividends on common stock only from income available over the past year if prospective earnings retention is consistent with the organization’s expected future needs, asset quality, and financial condition.

 

Regulatory agencies have the authority to limit or prohibit First Community and First Community Bank from paying dividends if the payments are deemed to constitute an unsafe or unsound practice. The appropriate regulatory authorities have stated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only from current operating earnings. In addition, First Community Bank may not declare or pay a dividend if, after paying the dividend, First Community Bank would be classified as undercapitalized. In the current financial and economic environment, the Federal Reserve Board has discouraged payout ratios that are at maximum allowable levels, unless both asset quality and capital are very strong, and has noted that bank holding companies should carefully review their dividend policy. Bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to their banking subsidiaries.

 

No assurances can be given that any dividends will be paid by First Community or that dividends, if paid, will not be reduced or eliminated in future periods. Special cash dividends, stock dividends or returns of capital may, to the extent permitted by the policies and regulations of the Federal Reserve Board, be paid in addition to, or in lieu of, regular cash dividends. Dividends from First Community will depend, in large part, upon receipt of dividends from First Community Bank, and any other banks which First Community acquires, because First Community will have limited sources of income other than dividends from First Community Bank and earnings from the investment of proceeds from the sale of shares of common stock retained by First Community. The First Community board of directors may change its dividend policy at any time, and the payment of dividends by bank holding companies is subject to legal and regulatory limitations as discussed above.

 

Regulatory Approvals

 

First Community and Surrey have agreed to use their reasonable best efforts to take promptly all actions and to do promptly all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by the merger agreement. However, in no event will First Community be required, or will Surrey and its subsidiaries be permitted (without First Community’s prior written consent), to agree to any condition or restriction that would so materially and adversely impact the economic or business benefits to First Community of the transactions contemplated by the merger agreement that, had such condition or requirement been known, First Community would not, in its reasonable judgment, have entered into the merger agreement (we refer to such condition as a “burdensome condition”).

 

Federal Reserve Board. The transactions contemplated by the merger agreement require approval by the Federal Reserve pursuant to Section 3 of the BHCA unless the Federal Reserve waives that requirement, and pursuant to Section 18(c)(2)(B) of the Federal Deposit Insurance Act (which we refer to as the “Bank Merger Act”).

 

 

The Federal Reserve takes into consideration a number of factors when acting on applications filed under Section 3 of the BHCA and the Bank Merger Act. These factors include the effect of the merger on competitiveness in affected banking markets, the financial and managerial resources (including consideration of the capital adequacy, liquidity, and earnings performance, as well as the competence, experience and integrity of the officers, directors and principal shareholders, and the records of compliance with applicable laws and regulations) and future prospects of the combined organization. The Federal Reserve also considers the effectiveness of the applicant in combatting money laundering, the convenience and needs of the communities to be served, as well as the extent to which the proposal would result in greater or more concentrated risks to the stability of the U.S. banking or financial system. The Federal Reserve has the authority to deny an application if it concludes that the combined organization would have inadequate capital. In addition, the Federal Reserve can withhold approval of the merger if, among other things, it determines that the effect of the merger would be to substantially lessen competition in the relevant market. Further, the Federal Reserve must consider whether the combined organization meets the requirements of the Community Reinvestment Act of 1977 (which we refer to as the “CRA”) by assessing the involved entities’ records of meeting the credit needs of the local communities in which they operate, consistent with the safe and sound operation of such institutions.

 

In addition, a period of 15 to 30 days must expire following approval by the Federal Reserve before completion of the merger is allowed, within which period the United States Department of Justice and the Federal Trade Commission may file objections to the merger under the federal antitrust laws.

 

Virginia Department of Financial Institutions. To complete the merger and the bank merger, First Community and First Community Bank are required to submit applications to, and receive approval from, the Virginia State Corporation Commission Bureau of Financial Institutions (which we refer to as the “VBFI”). The VBFI will review the application to determine whether the merger and the bank merger complies with Virginia law. The criteria considered by the VBFI are similar to those considered by the Federal Reserve Board.

 

North Carolina Office of the Commissioner of Banks. To complete the merger and the bank merger, First Community and First Community Bank are required to submit applications to, and receive approval from, the North Carolina Office of the Commissioner of Banks (which we refer to as the “NCCOB”). The NCCOB will review the application to determine whether the merger and the bank merger complies with North Carolina law. The criteria considered by the NCCOB are similar to those considered by the Federal Reserve.

 

First Community has filed an application with the Federal Reserve for approval under the Bank Merger Act and filed a request for a waiver of the prior approval requirement under Section 3 of the BHCA using procedures outlined in applicable regulations. Applications were also filed by First Community with the VBFI and NCOCB. Based on information available as of the date hereof, First Community and Surrey believe that the merger does not raise significant regulatory concerns and that we will be able to obtain all requisite regulatory approvals. However, neither First Community nor Surrey can assure you that all of the regulatory approvals described above will be obtained and, if obtained, we cannot assure you as to the timing of any such approvals, First Community’s ability to obtain the approvals on satisfactory terms, or the absence of any litigation challenging such approvals. In addition, there can be no assurance that such approvals will not impose conditions or requirements that would reasonably be expected to have a material adverse effect on the financial condition, results of operations, assets, or business of the surviving corporation and its subsidiaries, taken as a whole, after giving effect to the merger.

 

Neither First Community nor Surrey is aware of any material governmental approvals or actions that are required for completion of the merger other than those described above. It is presently contemplated that if any such additional governmental approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

 

Dissenters Appraisal Rights for Surrey Shareholders

 

Surrey shareholders will have the right to assert appraisal rights with respect to the merger and demand in writing to be paid the fair value of their shares of Surrey common stock or Surrey Class A common stock under applicable provisions of North Carolina law following consummation of the merger by First Community as the surviving company following the merger. In order to exercise and perfect appraisal rights, you must generally give written notice of your intent to demand payment for your shares to Surrey before the vote is taken on the merger at the Surrey special meeting and you must not vote in favor of the merger. A copy of the applicable provisions of the North Carolina Business Corporation Act (which we refer to as the “NCBCA”) is included in this proxy statement/prospectus as Appendix C.

 

The following is only a summary of the rights of a dissenting Surrey shareholder, is not a complete statement of law pertaining to appraisal rights under the NCBCA, and is qualified in its entirety by reference to the full text of the provisions of the NCBCA pertaining to appraisal rights, a copy of which is attached as Appendix C hereto and incorporated into this discussion by reference. If you intend to exercise your right to dissent, you should carefully review the following summary and comply with all requirements of the NCBCA. You should also consult with your attorney.

 

 

The NCBCA provides in detail the procedure you must follow if you wish to exercise your appraisal rights. In summary, to exercise appraisal rights, you must satisfy the following conditions:

 

 

You must be entitled to vote on the merger.

 

 

You must deliver to Surrey before the vote on the merger agreement is taken at the special meeting of Surrey shareholders written notice of your intent to demand payment for your shares if the merger is completed.  

 

 

You must not vote your shares in favor of the merger agreement at the Surrey special meeting.

 

In other words, you do not have to vote against the merger agreement, or even vote at all, in order to exercise appraisal rights, but you may not vote in favor of the merger agreement, and in all cases you must give the required written notice. If you fail to satisfy these requirements, you will not be entitled to exercise appraisal rights or to receive payment for your shares under the provisions of the NCBCA pertaining to appraisal rights. Even if you vote against the merger agreement (either in person or by proxy), you still have to send the required notice of intent in order to exercise appraisal rights. You should remember that, as described in the sections entitled, “Information About the Surrey Special Meeting - How to Vote” beginning on page [●], if you return a signed proxy card but fail to provide instructions as to the manner in which your shares are to be voted, you will be considered to have voted in favor of the merger agreement and you will not be able to assert appraisal rights. If you do not return a proxy card or otherwise vote at all at the Surrey special meeting, as applicable, you will not be treated as waiving your appraisal rights as long as you have given the required notice of intent as described above.

 

If you are a Surrey shareholder and you intend to assert your appraisal rights, your notice of intent should be mailed or delivered to Surrey’s corporate secretary at Surrey’s corporate office located at 145 N Renfro Street, Mount Airy, North Carolina, 27030, or it may be hand delivered to Surrey’s corporate secretary at the Surrey special meeting (before the voting on the merger agreement begins).

 

If you deliver a timely notice of intent, do not vote in favor of the merger agreement and the merger agreement is approved by Surrey shareholders at the Surrey special meeting (or any adjournment of the Surrey special meeting), then, within ten days following the effective date of the merger, First Community, as the surviving company, will send you a written notice called an appraisal notice to your address shown in Surrey’s current record of shareholders, as long as you have satisfied the requirements to exercise appraisal rights. The appraisal notice will include another copy of the provisions of the NCBCA, pertaining to appraisal rights and will:

 

 

include a form you can use for demanding payment that will (i) specify the first date of any announcement to Surrey shareholders of the terms of the merger, (ii) require you to certify whether you acquired beneficial ownership of your shares of Surrey common stock or Surrey Class A common stock before that date, and (iii) require you to certify that you did not vote for or consent to the merger;

 

 

state where Surrey share certificates for certificated shares must be deposited and the date by which those certificates must be deposited;

 

 

specify where the form described above must be sent and the date by which First Community must receive the form (which may not be fewer than 40 nor more than 60 days after the date of mailing of the appraisal notice), and state that you will have waived the right to demand appraisal with respect to your shares unless the form is received by First Community by such date;

 

 

state First Community’s estimate of the fair value of the shares;

 

 

 

state that, if requested in writing, First Community will provide, to the shareholder, within 10 days after the date by which First Community must receive the form, the number of shareholders who returned the form by the specified date and the total number of shares owned by them; and

 

 

state the date by which the notice to withdraw must be received, which date must be within 20 days after the date by which First Community must receive the form.

 

After receipt of the appraisal notice, you must deliver to First Community a written payment demand and, in the case of certificated shares, deposit your Surrey share certificates with First Community by the date set forth in and in accordance with the terms and conditions of the appraisal notice, and certify whether you acquired beneficial ownership of your shares of Surrey common stock and/or Surrey Class A common stock before the announcement date. Otherwise, you will not be entitled to payment for your shares. Additionally, if you were not the beneficial owner of your shares of Surrey common stock and/or Surrey Class A common stock on the announcement date as set forth in the appraisal notice, First Community may elect to withhold payment. If you deliver a payment demand, certify your beneficial ownership and, and in the case of certificated shares, deposit your share certificates, as required by the appraisal notice, you will lose all rights as a Surrey shareholder to receive the merger consideration, unless you withdraw your payment demand by the date specified in the appraisal notice.

 

Within 30 days after the form is due, First Community will pay you (provided that you have satisfied all requirements to exercise appraisal rights) the amount First Community estimates to be the fair value of your shares, plus interest accrued to the date of payment. First Community’s payment will be accompanied by:

 

 

the annual financial statements of Surrey, which shall be as of a date ending not more than 16 months before the date of payment, or, if such annual financial statements are not available, First Community shall provide reasonably equivalent information;

 

 

the latest available quarterly financial statements of Surrey;

 

 

a statement of First Community’s estimate of the fair value of the shares, which estimate must equal or exceed First Community’s estimate given in the appraisal notice; and

 

 

a statement of your right to demand further payment if you are not satisfied with the payment and that failure to demand further payment within a specified time will be deemed acceptance of First Community’s estimate as full payment.

 

If you believe that the amount paid by First Community, or the amount of First Community’s payment offer, as described above is less than the fair value of your shares of Surrey common stock or Surrey Class A common stock or that the interest due is incorrectly calculated, then you may notify First Community in writing of your own estimate of the fair value of your shares of Surrey common stock or Surrey Class A common stock and may demand payment of your estimate plus interest. A shareholder offered payment who is dissatisfied with that offer must reject the offer and demand payment of the shareholder’s estimate of the fair value of the shares plus interest. If you fail to take any such action within the 30 days after First Community makes or offers payment for your shares, you will be deemed to have waived your rights to demand payment and shall be entitled only to the payment of fair value as calculated by First Community.

 

If you have taken all required actions and your demand for payment remains unsettled, First Community may file a lawsuit within 60 days after receiving the payment demand and petition the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. If First Community does not begin the action within the 60-day period, it will pay each shareholder who asserts appraisal rights whose demand remains unsettled the amount demanded. In the court proceeding described above, the court may appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. In addition, First Community will make all shareholders who assert appraisal rights whose demands remain unsettled parties to the proceeding. Each shareholder who asserts appraisal rights made a party to the proceeding must be served with a copy of the complaint and will be entitled to judgment for the amount, if any, by which the court finds the fair value of his, her or its shares, plus interest, to exceed the amount paid by First Community, or for the value, plus accrued interest, of his, her or its after-acquired shares for which First Community elected to withhold payment.

 

 

The court will determine the cost of any court proceeding, including reasonable compensation and reimbursement of expenses for appraisers appointed by the court. Those costs will be assessed against First Community unless the court determines that some or all of the shareholders who assert appraisal rights acted arbitrarily, vexatiously or not in good faith in demanding payment, in which event the court may assess costs against those shareholders. The court may assess the fees and expenses of experts and counsel against First Community if it finds that it did not substantially comply with the requirements of the statutes, or against any party who acted arbitrarily, vexatiously or not in good faith in asserting or defending against appraisal rights. If the court finds that the services of counsel for any shareholder who asserts appraisal rights were of substantial benefit to other shareholders similarly situated, the court may award counsel fees, to be paid out of the amounts awarded the shareholders who asserted appraisal rights who were benefited. If a shareholder who asserts appraisal rights must bring an action against First Community to require it to pay the amount First Community estimates to be the fair value of the shares plus interest, and the shareholder is successful, the court will assess costs against First Community.

 

Board of Directors and Management of First Community Following the Merger

 

Under the merger agreement, First Community has agreed, prior to the closing date, to appoint two members of the current board of directors of Surrey, selected by First Community in consultation with Surrey (which we refer to as the “Surrey Designees”), to the board of directors of First Community Bank. First Community has selected Edward C. Ashby, III, and Robert H. Moody, as the Surrey Designees. The directors of First Community holding office immediately prior to the effective time, will continue to serve as the directors of the surviving corporation from and after the effective time of the merger and will hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

 

The executive officers of First Community immediately prior to the effective time of the merger will be the executive officers of the surviving corporation and will hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

 

Information regarding the executive officers and directors of First Community is contained in documents filed by First Community with the SEC and attached as appendices to this proxy statement/prospectus, including First Community’s Annual Report on Form 10-K for the year ended December 31, 2021 attached hereto as Appendix D and its definitive proxy statement on Schedule 14A for its 2022 annual meeting, filed with the SEC on March 16, 2022 and attached hereto as Appendix E. See the section entitled “Where You Can Find More Information.”

 

Information regarding the directors of Surrey is included in this proxy statement/prospectus under the section entitled “Security Ownership of Certain Beneficial Owners and Management of Surrey” beginning on page [●].

 

THE MERGER AGREEMENT

 

The following describes certain aspects of the merger, including certain material provisions of the merger agreement. The following description of the merger agreement is subject to, and qualified in its entirety by reference to, the merger agreement, which is attached to this proxy statement/prospectus as Appendix A and is incorporated by reference into this proxy statement/prospectus. We urge you to read the merger agreement carefully and in its entirety, as it is the legal document governing the merger.

 

 

Explanatory Note Regarding the Merger Agreement

 

The merger agreement and this summary of terms are included to provide you with information regarding the terms of the merger agreement. Factual disclosures about First Community and Surrey contained in this proxy statement/prospectus or in the public reports of First Community filed with the SEC and attached as appendices to this proxy statement/prospectus may supplement, update or modify the factual disclosures about First Community and Surrey contained in the merger agreement. The merger agreement contains representations and warranties by First Community, on the one hand, and by Surrey, on the other hand. The representations, warranties and covenants made in the merger agreement by First Community and Surrey were qualified and subject to important limitations agreed to by First Community and Surrey in connection with negotiating the terms of the merger agreement. In particular, in your review of the representations and warranties contained in the merger agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purpose of establishing circumstances in which a party to the merger agreement may have the right not to consummate the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the merger agreement, rather than establishing matters as facts. The representations and warranties also may be subject to a contractual standard of materiality different from that generally applicable to shareholders and reports and documents filed with the SEC and some were qualified by the matters contained in the confidential disclosure schedules that First Community and Surrey each delivered in connection with the merger agreement and certain documents filed with the SEC. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement/prospectus, may have changed since November 17, 2022.

 

For the foregoing reasons, the representations and warranties or any descriptions of those provisions should not be read alone or relied upon as characterizations of the actual state of facts or condition of First Community or Surrey or any of their respective subsidiaries or affiliates. Instead, such provisions or descriptions should be read only in conjunction with the other information provided elsewhere in this proxy statement/prospectus or in the documents attached as appendices to this proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page [●].

 

Terms of the Merger

 

Effect of the Merger

 

Each of the First Community board of directors and the Surrey board of directors has unanimously adopted the merger agreement and approved the merger. Pursuant to the merger agreement, Surrey will merge with and into First Community with First Community surviving the merger as the surviving corporation. We sometimes refer to First Community following the merger as the “surviving corporation.” As a result of the merger, there will no longer be any publicly held shares of Surrey common stock or Surrey Class A common stock. Surrey shareholders will participate in the surviving corporation’s future earnings and potential growth only through their ownership of First Community common stock. All of the other incidents of direct ownership of Surrey common stock or Surrey Class A common stock, such as the right to vote on certain corporate decisions, to elect directors and to receive dividends and distributions from Surrey, will be extinguished upon completion of the merger but will become analogous rights in First Community. First Community is a Virginia corporation and governed by Virginia law. Surrey is a North Carolina corporation and governed by North Carolina law. Your rights under Virginia law, the First Community articles of incorporation and the First Community bylaws will differ in some respects from your rights under North Carolina law, the Surrey articles of incorporation and the Surrey bylaws. For more detailed information regarding a comparison of your rights as a shareholder of Surrey and First Community, see the section entitled “Comparison of Shareholders Rights” beginning on page [●].

 

From and after the effective time, the surviving corporation will possess all of the properties, rights, privileges, powers and franchises of Surrey and be subject to all debts, liabilities and obligations of Surrey.

 

Closing and Effective Time

 

On the closing date, the surviving corporation will effect the merger by filing articles of merger with the State Corporation Commission of the Commonwealth of Virginia and the North Carolina Secretary of State. The merger will become effective as of the date and time of filing the articles of merger or, if mutually agreed upon by the parties, at a later time specified in such articles of merger (which we refer to as the “effective time”).

 

The merger will be completed only if all conditions to the merger discussed in this proxy statement/prospectus and set forth in the merger agreement are either satisfied or waived. See the section entitled “-Conditions to Completion of the Merger” beginning on page [●]. It currently is anticipated that the completion of the merger will occur in the second quarter of 2023, subject to the receipt of regulatory approvals and other customary closing conditions, but neither Surrey nor First Community can guarantee when or if the merger will be completed.

 

 

Merger Consideration

 

Under the terms of the merger agreement, each share of Surrey common stock and Surrey Class A common stock issued and outstanding immediately prior to the completion of the merger (other than (1) dissenting shares as described below and (2) shares of Surrey common stock and shares of Surrey Class A common stock owned directly or indirectly by Surrey, First Community or their wholly-owned subsidiaries (other than shares of Surrey common stock or Surrey Class A common stock held in a fiduciary capacity or in connection with debts previously contracted) (together, the “excluded shares”)) will be converted into the right to receive 0.7159 shares of First Community common stock (which we refer to as the “exchange ratio”).

 

If the shares of common stock of either First Community or Surrey are increased, decreased or changed into or exchanged for a different number or kind of shares or securities before the merger is completed as a result of a stock dividend, stock repurchase, subdivision, reclassification, recapitalization, split, combination, exchange of shares or similar change in capitalization, or if there is any extraordinary dividend or distribution paid, then the merger consideration will be proportionately adjusted to give holders of Surrey common stock and Surrey Class A common stock the same economic effect as contemplated by the merger agreement prior to such event.

 

Fractional Shares

 

First Community will not issue any fractional shares of First Community common stock in the merger. Instead, a Surrey shareholder who otherwise would have received a fraction of a share of First Community common stock will receive an amount in cash rounded to the nearest whole cent. This cash amount will be determined by multiplying the fraction of a share of First Community common stock to which the holder would otherwise be entitled by the First Community average closing price.

 

Treatment of Surrey Restricted Stock Awards

 

At the effective time of the merger, referred to as the “effective time,” each restricted stock award held by any employee or service provider of Surrey and its subsidiaries under Surrey’s 2017 Long-Term Stock Incentive Plan (which we refer to as the “restricted stock plan”) that is unvested and subject to restrictions (which we refer to as an “unvested Surrey restricted stock award”) shall fully vest in accordance with the terms of the restricted stock plan and the applicable award agreement and shall be canceled and converted automatically into the right to receive the merger consideration payable pursuant to merger agreement on the shares of Surrey common stock underlying the unvested Surrey restricted stock award, treating the shares of Surrey common stock subject to such unvested Surrey restricted stock award in the same manner as all other shares of Surrey common stock for such purposes.

 

Conversion of Shares; Exchange of Certificates

 

The conversion of Surrey common stock and Surrey Class A common stock into the right to receive the merger consideration will occur automatically at the effective time of the merger. After completion of the merger, the exchange agent will exchange certificates representing shares of Surrey common stock and Surrey Class A common stock or book-entry shares for the merger consideration, with any cash in lieu of fractional shares, and any unpaid dividends and distributions on the First Community common stock deliverable in respect of each share of Surrey common stock and Surrey Class A common stock to be exchanged pursuant to the terms of the merger agreement.

 

As soon as reasonably practicable after the effective time, the exchange agent will mail appropriate transmittal materials and instructions to those persons who were holders of record of Surrey common stock or Surrey Class A common stock. These materials will contain instructions on how to surrender shares of Surrey common stock and Surrey Class A common stock in exchange for the merger consideration, with any cash in lieu of fractional shares, and any unpaid dividends and distributions on the First Community common stock deliverable in respect of each share of Surrey common stock that the holder is entitled to exchange under the merger agreement.

 

If a certificate for Surrey common stock or Surrey Class A common stock has been lost, stolen, mutilated or destroyed, the exchange agent will issue the merger consideration, with any cash in lieu of fractional shares, and any unpaid dividends and distributions on the First Community common stock deliverable in respect of each share of Surrey common stock or Surrey Class A common stock upon receipt of (1) an affidavit of that fact by the claimant and (2) such bond as the exchange agent may direct as indemnity against any claim that may be made against it with respect to such lost, stolen, mutilated or destroyed certificate.

 

 

After the effective time of the merger, there will be no further transfers on the stock transfer books of Surrey.

 

Withholding

 

First Community and the exchange agent will be entitled to deduct and withhold from the merger consideration otherwise payable to any Surrey shareholder such amounts as First Community or the exchange agent, as applicable, is required to deduct and withhold under any applicable federal, state, local or foreign tax law. If any such amounts are withheld, these amounts will be treated for all purposes of the merger agreement as having been paid to the Surrey shareholders from whom they were withheld.

 

Dividends and Distributions

 

Whenever a dividend or other distribution is declared by First Community on First Community common stock, for which the record date is after the effective time of the merger, the declaration will include dividends or other distributions on all shares of First Community common stock issuable under the merger agreement, but such dividends or other distributions will not be paid to the holder thereof until such holder has duly surrendered or transferred his, her or its Surrey stock certificates or book-entry shares.

 

Organizational Documents of the Surviving Corporation

 

The articles of incorporation and bylaws of First Community that are in effect immediately prior to the effective time will be the articles of incorporation and bylaws of the surviving corporation.

 

Board of Directors

 

Prior to the closing date, First Community Bank will appoint the Surrey Designees to the board of directors of First Community Bank. The directors of First Community holding office immediately prior to the effective time will continue to serve as the directors of the surviving corporation from and after the effective time. The directors of First Community Bank holding office immediately prior to the effective time, including the Surrey Designees, will continue to serve as directors of the surviving corporation from and after the effective time.

 

Representations and Warranties

 

The merger agreement contains customary representations and warranties of First Community and Surrey relating to their respective businesses. The representations and warranties in the merger agreement will not survive the effective time of the merger.

 

The representations and warranties made by Surrey to First Community relate to a number of matters, including the following:

 

 

corporate matters, including due organization, qualification and the organizational structure;

 

 

capitalization;

 

 

authority relative to execution and delivery of the merger agreement and the absence of conflicts with, violations of, or a default under organizational documents or other obligations as a result of the merger;

 

 

governmental filings and consents necessary to complete the merger;

 

 

the timely filing of regulatory reports;

 

 

 

financial statements;

 

 

undisclosed liabilities;

 

 

the absence of any event or action that would, or would reasonably be expected to, constitute a material adverse effect since December 31, 2021;

 

 

litigation matters;

 

 

the absence of regulatory actions;

 

 

compliance with applicable laws;

 

 

tax matters;

 

 

certain material contracts;

 

 

intellectual property and IT systems;

 

 

labor matters;

 

 

employee benefit plans;

 

 

real and personal property;

 

 

receipt of a fairness opinion regarding the merger consideration;

 

 

brokers or financial advisor fees;

 

 

environmental matters;

 

 

loan portfolio matters;

 

 

anti-takeover provisions;

 

 

interests of certain persons in Surrey’s business;

 

 

insurance;

 

 

investment securities and derivatives;

 

 

indemnification;

 

 

corporate documents and records;

 

 

Community Reinvestment Act and regulatory compliance matters;

 

 

internal controls;

 

 

tax treatment of the mergers; and

 

 

related party transactions.

 

 

Certain representations and warranties of First Community and Surrey are qualified as to “materiality” or “material adverse effect.”

 

For purposes of the merger agreement, a “material adverse effect” when used in reference to Surrey or First Community, means an effect, circumstance, occurrence or change that, individually or in the aggregate, (1) is material and adverse to the business, financial condition or results of operations of such party and its subsidiaries taken as a whole, or (2) materially prevents, impairs or threatens the ability of such party to perform its obligations under the merger agreement or timely consummate the transactions contemplated by the merger agreement; however in the case of clause (1) of this sentence only, a material adverse effect will not be deemed to include any effect, circumstance, occurrence or change resulting from:

 

 

changes, after November 17, 2022, in laws, rules or regulations, GAAP or regulatory accounting requirements or interpretations thereof that apply to financial and/or depository institutions and/or their holding companies generally, except to the extent that the effects of such changes are materially disproportionately adverse to the business, financial condition or results of operations of such party and its subsidiaries, taken as a whole, as compared to comparable U.S. banking organizations;

 

 

changes, after November 17, 2022, in economic conditions affecting financial institutions generally, including changes in the general level of market interest rates, except to the extent that the effects of such changes are materially disproportionately adverse to the business, financial condition or results of operations of such party and its subsidiaries, taken as a whole, as compared to comparable U.S. banking organizations;

 

 

actions and omissions of First Community or Surrey required under the merger agreement including expenses incurred by the parties in consummating the transactions contemplated by the merger agreement;

 

 

worsening of national or international political or social conditions, including the engagement by the United States in hostilities or the occurrence of any military or terrorist attack upon or within the United States, except to the extent that the effects of such changes are materially disproportionately adverse to the business, financial condition or results of operations of such party and its subsidiaries, taken as a whole, as compared to comparable U.S. banking organizations;

 

 

natural disaster or other force majeure event, except to the extent that the effects of such changes are materially disproportionately adverse to the business, financial condition or results of operations of such party and its subsidiaries, taken as a whole, as compared to comparable U.S. banking organizations; or

 

 

the facts and circumstances giving rise or contributing to failure to meet internal or other estimates, predictions, projections or forecasts of financial performance, except to the extent such facts or circumstances are themselves excepted from the definition of material adverse effect.

 

Conduct of Business Pending the Completion of the Merger

 

Surrey has agreed that, until the effective time of the merger and unless permitted by First Community, or to the extent required by laws or regulation of any governmental entity, or as expressly contemplated or permitted by the merger agreement or as required by law, it will not and will not permit any of its subsidiaries to:

 

General Business

 

 

conduct its business other than in the ordinary course consistent with past practice;

 

 

fail to use its reasonable best efforts to maintain and preserve intact its business organization, properties, leases, loans, deposit accounts, employees and advantageous business relationships and retain the services of its key employees;

 

 

 

take any action that would adversely affect or materially delay the ability to perform its obligations under the merger agreement or to consummate the transactions contemplated by the merger agreement;

 

Indebtedness

 

 

incur, modify, extend or renegotiate any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any person, other than deposits in the ordinary course of business consistent with past practice;

 

 

prepay any indebtedness or other similar arrangements to cause Surrey to incur any prepayment penalty;

 

 

purchase any brokered certificates of deposit;

 

Capital Stock

 

 

adjust, split, combine or reclassify its capital stock;

 

 

make, declare or pay any dividends or make any other distribution on its capital stock;

 

 

grant any person any right to acquire any shares of its capital stock or make any grant or award under the Surrey restricted stock plan;

 

 

issue any additional shares of capital stock or any securities or obligations convertible or exercisable for any shares of its capital stock;

 

 

redeem or otherwise acquire any shares of its capital stock other than a security interest or because of the enforcement of a security interest and other than provided in the merger agreement;

 

Dispositions

 

 

other than in the ordinary course of business consistent with past practice (including the sale, transfer or disposal of other real estate owned (which we refer to as “OREO”) if the loan associated with the OREO is $100,000 or more or the proposed sale, transfer or disposal would result in a discount of the loan associated with the OREO of 25% or more), sell, transfer, mortgage, encumber or otherwise dispose of any of its real property or other assets to any person other than to its subsidiary, or cancel, release or assign any indebtedness to any such person or claims to any such person;

 

Investments

 

 

make any equity investment, either by purchase of securities, contributions to capital, property transfers, or purchase of any property or assets of any other person, or form any new subsidiary;

 

Contracts

 

 

renew, amend or terminate any material contract, make any change in its material contracts or enter into any contract that would constitute a material contract under the merger agreement;

 

Loans

 

 

except for loans or commitments for loans that have previously been approved by Surrey prior to November 17, 2022, make, renegotiate, renew, increase the amount of, extend the term of, modify or purchase any loans, or make any commitment in respect of any of the foregoing, except with respect to any secured loan or commitment (in either case that does not involve a guaranty from a governmental entity, including, but not limited to the USDA or SBA) wherein the total credit exposure is less than $2,000,000 or any unsecured loan or commitment (in either case that does not involve a guaranty from a governmental entity, including, but not limited to the USDA or SBA) wherein the total credit exposure is less than $350,000 which is made in conformity with existing lending practices to a borrower, and with collateral located within Surrey’s primary geographic service area;

 

 

 

make any new loan, or commit to make any new loan, to any director or executive officer of Surrey, Surrey Bank & Trust or related entity, or, amend, renew or increase any existing loan, or commit to do so, with any director or executive officer of Surrey, Surrey Bank & Trust or related entity, in either case, without first consulting with First Community, where such loan, commitment, modification or renewal would require prior approval by the Surrey’s Board of Directors pursuant to the policies of the Surrey or Surrey Bank & Trust or applicable law;

 

Benefit Plans

 

 

except as required by any Surrey benefit plan in effect on November 17, 2022, (1) increase the compensation or benefits payable to any employee or director, (2) pay, or commit to pay, any bonus, change in control, retention, pension, retirement allowance or contribution, except for payment of annual cash bonuses in respect of the fiscal year in effect as of November 17, 2022 in the ordinary course of business consistent with past practice, or (3) fund any rabbi trust or similar arrangement;

 

 

except as required by any Surrey benefit plan in effect on November 17, 2022, become a party to, renew or amend any employee benefit, compensation plan, employment severance, or change in control agreement, except for amendments that are required by law;

 

 

except as required by any Surrey benefit plan in effect on November 17, 2022, amend, modify or revise the terms of any outstanding Surrey stock option or stock-based compensation or voluntarily accelerate the vesting of, or the lapsing of restrictions with respect to, any Surrey stock-based compensation; or make any contributions to any defined contribution plan or Surrey benefit plan that are not made in the ordinary course of business consistent with past practice;

 

 

except as required by any Surrey benefit plan in effect on November 17, 2022, elect to any office with the title of vice president or higher any person who does not hold such office as of November 17, 2022 or nominate to the Surrey board of directors any person who is not a member as of November 17, 2022;

 

 

except as required by any Surrey benefit plan in effect on November 17, 2022, hire or terminate any employee with an annualized salary that exceeds $50,000, other than terminations for “cause”;

 

Litigation and Settlement

 

 

commence any action or proceeding other than to enforce any obligation owed to Surrey and in accordance with past practice, or settle any claim, action or proceeding against it involving payment of money damages in excess of $50,000 that would not impose any material restrictions on Surrey’s operations;

 

Governing Documents

 

 

amend the governing documents of Surrey or its subsidiaries;

 

 

Deposits

 

 

increase or decrease the rate of interest paid on time deposits or on certificates of deposit, except in the ordinary course of business consistent with past practice;

 

Debt Security

 

 

purchase any debt security, including mortgage-backed and mortgage- related securities, other than U.S. government and U.S. government agency securities with final maturities of less than two years;

 

Capital Expenditures

 

 

make any capital expenditures in excess of $50,000 other than existing binding commitments as of November 17, 2022 and ordinary course immaterial expenditures reasonably necessary to maintain existing assets in good repair;

 

Branches

 

 

establish or commit to establish any new branch office or file any application to relocate or terminate any banking office;

 

Futures and Similar Financial Actions

 

 

enter into any futures contract, option, swap agreement, interest rate cap, interest rate floor, interest rate exchange agreement, or take any other action for purposes of hedging the exposure of its interest-earning assets or interest-bearing liabilities to changes to market rates of interest;

 

Policies

 

 

make any changes in policies in any material respect in existence on November 17, 2022 with regard to: the extension of credit, or the establishment of reserves with respect to possible loss thereon or the charge off of losses incurred thereon; investments; asset/liability management; deposit pricing or gathering; underwriting, pricing, originating, acquiring, selling, servicing or buying or selling rights to service, loans; its hedging practices and policies; or other material banking policies, in each case except as may be required by changes in applicable law or regulations, GAAP, or at the direction of a governmental entity;

 

Communications

 

 

except as required by law or for communications in the ordinary course of business consistent with past practice that do not relate to the merger: (1) issue any communication of a general nature to employees without prior consultation with First Community and, to the extent related to employment, benefit or compensation information addressed in the merger agreement or related to the transactions contemplated by the merger agreements, without the prior consent of First Community; or (2) issue any communication of a general nature to customers without the prior approval of First Community;

 

Environmental Assessments

 

 

except with respect to foreclosures in process as of November 17, 2022, foreclose upon or take a deed or title to any commercial real estate (1) without providing prior notice to First Community, if requested by First Community, and conducting a Phase I environmental assessment of the property, or (2) if the Phase I environmental assessment reflects the presence of any hazardous material or underground storage tank;

 

 

Taxes

 

 

make, change or rescind any material tax election concerning Surrey’s taxes or tax returns, change an annual tax accounting period, adopt or change any material tax accounting method, file any amended tax return, settle any material tax claim or assessment or surrender any right to claim a tax refund;

 

Accounting

 

 

implement or adopt any change in its accounting principles, practices or methods, other than as may be required by GAAP or regulatory guidelines;

 

New Lines of Business

 

 

enter into any new lines of business;

 

Mortgage Loan Servicing

 

 

purchase or sell any mortgage loan servicing rights other than in the ordinary course of business consistent with past practice;

 

Merger or Liquidation

 

 

merge or consolidate Surrey Bank & Trust or any subsidiary with any other person or restructure, reorganize or completely or partially liquidate or dissolve itself or any of its subsidiaries;

 

Tax-Free Reorganization

 

 

knowingly take action that would prevent or impede the merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code;

 

Other Agreements

 

 

take any action that is intended or would reasonably be likely to result in any of Surrey’s representations and warranties set forth in the merger agreement being or becoming untrue in any material respect at any time prior to the effective time, or in any of the closing conditions not being satisfied or in a violation of any provision of the merger agreement; or

 

 

agree to take, commit to take or adopt any resolutions in support of any of the actions prohibited by the section in the merger agreement governing Surrey’s conduct of business until the completion of the merger.

 

First Community has agreed that, until the effective time of the merger and unless permitted by Surrey, or to the extent required by laws or regulations of any governmental entity, or as expressly contemplated or permitted by the merger agreement or as required by law, it will not and will not permit any of its subsidiaries to:

 

 

conduct its business other than in the ordinary course consistent with past practice;

 

 

fail to use its reasonable best efforts to maintain and preserve intact its business organization, properties, leases, employees and advantageous business relationships and retain the services of its key employees;

 

 

take any action that would adversely affect or materially delay the ability to perform its obligations under the merger agreement or to consummate the transactions contemplated by the merger agreement, including causing any other application to a bank governmental entity for approval of a merger to be submitted for filing before the application related to the merger is filed with such bank governmental entity;

 

 

 

take any action that is intended or expected to result in any of First Community’s representations and warranties set forth in the merger agreement being or becoming untrue in any material respect at any time prior to the effective time, or in any of the closing conditions not being satisfied or in a violation of any provision of the merger agreement;

 

 

knowingly take any action that would prevent or impede the merger from qualifying as reorganization under the Code;

 

 

amend or repeal its articles of incorporation or bylaws in a manner that would adversely affect Surrey or any Surrey shareholder relative to other holders of First Community common stock or the transactions contemplated by the merger agreement; or

 

 

agree to take, commit to take or adopt any resolutions in support of any of the actions prohibited by the section in the merger agreement governing First Community’s conduct of business until the completion of the merger.

 

Regulatory Matters

 

First Community and Surrey will use their reasonable best efforts to take promptly all actions and to do promptly all things necessary, proper or advisable, under applicable laws and regulations, to consummate and make effective the transactions contemplated by the merger agreement. First Community and Surrey have filed all necessary applications, notices and other filings with any governmental entity, the approval of which is required to complete the merger and related transactions. However, in no event will First Community be required, or will Surrey and its subsidiaries be permitted (without First Community’s prior written consent), to agree to any condition or restriction that would so materially and adversely impact the economic or business benefits to First Community of the transactions contemplated by the merger agreement that, had such condition or requirement been known, First Community would not, in its reasonable judgment, have entered into the merger agreement (we refer to such condition as a “burdensome condition”). First Community and Surrey have also agreed to furnish each other with all information reasonably necessary or advisable in connection with any statement, filing, notice or application in connection with the transactions contemplated by the merger agreement.

 

Employee Benefits Matters

 

At the sole discretion of First Community, First Community may maintain Surrey’s health and welfare plans for employees of Surrey and its subsidiaries immediately before the effective time and whose employment is not terminated before the effective time (which we refer to as “Surrey continuing employees”) through the end of the calendar year in which the effective time occurs.

 

Notwithstanding the foregoing, if First Community determines to terminate one or more of Surrey’s health and/or other welfare plans, then, at the request of First Community, made at least 30 days before the effective time, Surrey or its subsidiaries shall adopt resolutions, to the extent required, providing that Surrey’s applicable health and welfare plans will be terminated effective immediately before the effective time (or such later date as requested by First Community in writing or as may be required to comply with any applicable advance notice or other requirements contained in such plans or provided for by law) and shall arrange for termination of all corresponding insurance policies, service agreements and related arrangements effective on the same date to the extent not prohibited by the terms of the arrangements or applicable law.

 

No coverage of any of the Surrey continuing employees or their dependents shall terminate under any of Surrey’s health and welfare plans before the time the Surrey continuing employees or their dependents, as applicable, become eligible to participate in the health and welfare plans, programs and benefits common to similarly-situated employees of First Community and its subsidiaries and their dependents and, consequently, no Surrey continuing employee shall experience a gap in coverage.

 

 

Subject to the terms of the merger agreement, Surrey continuing employees shall, if applicable, be subject to the employment terms, conditions and rules applicable to other similarly situated employees of First Community. First Community shall use commercially reasonable efforts to ensure that Surrey continuing employees who become covered under health and welfare plans, programs and benefits of First Community or any of its subsidiaries shall (i) receive credit for any co-payments and deductibles paid under Surrey’s health and welfare plans for the plan year in which coverage commences under First Community’s health and welfare plans and (ii) shall not be subject to any pre-existing conditions under any such plans or arrangements, in each case, to the same extent as applied under Surrey’s health and welfare plans immediately prior to the effective time. Surrey employees who are not Surrey continuing employees and their qualified beneficiaries will have the right to continued coverage under group health plans of First Community only in accordance with COBRA.

 

The merger agreement provides that all Surrey and Surrey Bank & Trust employees whose employment is eliminated as a result of the bank merger, except for employees with individual agreements that provide for payment of severance under certain circumstances (which we refer to as “affected Surrey employees”) will be eligible to participate in First Community Bank’s severance policy (which we refer to as the “First Community Bank severance policy”). The First Community Bank severance policy applies to all full-time and part-time employees.

 

The standard severance benefit for each affected Surrey employee is two weeks of base pay and payment of all accrued but unused vacation. An additional tier of enhanced severance benefits may be available to affected Surrey employees who timely sign (and do not revoke) a severance agreement and waiver, which will describe in detail the benefits to be provided and will also include a release of all claims that might exist. Affected Surrey employees who timely sign (and do not revoke) a severance agreement and waiver may receive two forms of additional benefits. First, the eligible affected Surrey employee will receive an additional severance payment that is based upon length of service with Surrey. Part-time employees will receive severance pay on a pro-rated scale in accordance with their regularly scheduled hours.

 

Length of Service

 

Severance Period

Five years or less

 

2 weeks

Six to nineteen years

 

1 week per year

Twenty or more years

 

24 weeks

 

All severance payments will be subject to all required federal and state payroll taxes and will be paid over the duration of the severance period unless the affected Surrey employee requests to receive a lump sum. Second, if the affected employee is a participant in the group health and dental insurance plans, the enhanced severance benefit also includes an extension of existing health insurance (provided the affected employee agrees to withholding of the employee portion of the insurance premium from the severance pay), for the applicable severance period or partial payment of the premium associated with the continuation of such coverage under COBRA, all subject to certain additional terms and conditions set forth in the First Community severance policy.

 

First Community and Surrey may jointly elect, in amounts mutually satisfactory to First Community and Surrey, to enter into retention bonus agreements with key employees of Surrey, with an aggregate bonus pool of up to $200,000.00. No retention bonus payment will be made that would constitute an “excess parachute payment” within the meaning of Section 280G of the Code.

 

First Community will credit continuing Surrey’s employees for their service with Surrey under First Community’s benefit plans for purposes of eligibility and vesting (but not benefit accrual) to the same extent such service was credited under Surrey’s benefit plans, except that First Community will not credit continuing Surrey employees for service (1) to the extent it would result in a duplication of benefits under First Community benefit plans, (2) to the extent accrued but unused vacation is paid to Surrey’s employees at the effective time, (3) if similarly situated employees of First Community do not receive service credit under First Community benefit plans, or (4) with respect to any First Community benefit plan which is grandfathered or frozen.

 

 

With respect to First Community’s health and welfare plans, First Community will use commercially reasonable efforts to ensure that continuing Surrey employees who become covered under First Community’s health and welfare plans will (1) receive credit for co-payments and deductibles paid under Surrey’s health and welfare plans for the plan year in which such continuing Surrey employee commences participating in First Community’s health and welfare plans and (2) not be subject to any pre-existing conditions under First Community’s health and welfare plans, in each case, to the same extent as applied under Surrey’s health and welfare plans immediately prior to the effective time.

 

If requested by First Community at least 60 days in advance of the effective time, the Surrey Bank & Trust 401(k) Contributory Savings Plan will terminate immediately prior to the effective time.

 

Dividends

 

First Community and Surrey shall coordinate with each other regarding the declaration, setting of record dates, and payment dates of dividends with respect to shares of Surrey common stock, Surrey Class A common stock and First Community common stock.

 

Loan Program Credentialing

 

First Community and Surrey have agreed to cooperate with one another and exercise reasonable best efforts to qualify First Community Bank with the SBA, USDA and any other lending program of a governmental entity in which Surrey Bank & Trust participates as of November 17, 2022 so that First Community Bank may participate in any such programs after the effective time.

 

Director and Officer Indemnification and Insurance

 

The merger agreement provides that from and after the completion of the merger, First Community will indemnify and hold harmless all current and former directors and officers of Surrey or any of its subsidiaries against all liabilities arising out of the fact that such person is or was a director or officer of Surrey or any of its subsidiaries if the claim is based in or arises out of any matter of fact existing or occurring at or before the effective time of the merger (including the merger and the other transactions contemplated by the merger agreement), regardless of whether such claims are asserted before or after the effective time, to the fullest extent such person would have been indemnified under Surrey’s articles of incorporation and bylaws as in effect on November 17, 2022 and as permitted by applicable law.

 

The merger agreement requires First Community to maintain for a period of six years following the effective time of the merger Surreys’ currently existing directors and officers liability insurance policy, or policies of at least the same coverage and amounts and containing terms and conditions that are no less favorable in any material respect to the insured persons than the existing policy, with respect to claims arising from facts or events that occurred prior to the completion of the merger, and covering such individuals who are currently covered by such insurance. However, First Community is not required to spend in the aggregate an amount more than 200% of the annual premium payment on Surrey’s current directors’ and officers’ liability insurance policy (which we refer to as the “premium cap”). If First Community is unable to maintain a policy as described for less than that amount, First Community will obtain as much comparable insurance as is available for that amount. In lieu of such a policy, after consultation with First Community, Surrey may (1) substitute a six-year “tail” prepaid policy with terms no less favorable in any material respect to the indemnified parties than Surrey’s existing policy as of November 17, 2022 or (2) obtain extended coverage for the six-year period under Surrey’s existing insurance programs, in either case, to the extent that such policy coverage may be obtained for an aggregate amount of not more than the premium cap. If First Community (or any of its successors or assigns) merges with another person and is not the continuing entity, or if First Community transfers or conveys all or substantially all of its properties or assets to another person, then First Community will ensure that its successors and assigns assume First Community’s indemnification and insurance obligations.

 

 

Surrey Shareholder Meeting and Recommendation of the Surrey Board of Directors

 

Surrey has agreed to hold a special meeting of its shareholders for the purpose of voting upon approval of the merger agreement as promptly as practicable. Among other things, Surrey will (1) through its board of directors, recommend that its common shareholders and Class A common shareholders approve the merger agreement and (2) use its reasonable best efforts to obtain from its shareholders the requisite shareholder approval of the merger agreement.

 

Notwithstanding the foregoing, before the Surrey shareholder approval is obtained, the Surrey board of directors may withdraw or modify or change in a manner adverse to First Community its recommendation (which we refer to as a “change in company recommendation”) if: (1) the Surrey board of directors concludes in good faith (after consultation with its outside legal advisors) that the failure to do so would be reasonably likely to result in a violation of its fiduciary duties under applicable law; (2) Surrey has complied in all material respects with its non-solicitation obligations described below; and (3) Surrey has provided First Community at least three business days’ prior written notice of the intention of the Surrey board of directors to take such action. In addition, the Surrey board of directors may make a change in company recommendation relating to an acquisition proposal only if (1) during the three business day period following Surrey’s delivery of written notice to First Community, Surrey has considered any adjustments or modifications to the merger agreement proposed by First Community and engaged in good faith discussions with First Community regarding such adjustments or modifications, and (2) at the end of such period, the Surrey board of directors nevertheless determines in good faith (after consultation with its outside legal counsel, and taking into account any proposals, amendments or modifications made or agreed to by First Community) that the acquisition proposal continues to constitute a superior proposal. In the event there is an amendment to any material term of the acquisition proposal, Surrey is also required to notify First Community of the amendment and to consider any proposed adjustments or modifications to the merger agreement proposed by First Community, but the notification and proposal period described in the preceding sentence will be two business days instead of three business days.

 

Agreement Not to Solicit Other Offers

 

From November 17, 2022 until the effective time of the merger, Surrey will not, and will not authorize or permit any of its subsidiaries or any of its subsidiaries’ officers, directors, employees, and any investment banker, financial advisor, attorney, accountant or other representative, directly or indirectly: (1) solicit, initiate, induce or knowingly encourage, or knowingly take any action to facilitate, any inquiries, offers, discussions or the making of any proposal that constitutes or could reasonably be expected to lead to, an acquisition proposal by a third party; (2) furnish any confidential or non-public information regarding Surrey, or afford access to any such information or data, to any person in connection with or in response to an acquisition proposal by a third party or an inquiry or indication of interest that could reasonably be expected to lead to such an acquisition proposal; (3) continue or otherwise participate in any discussions or negotiations, or otherwise communicate in any way with any person other than First Community, regarding an acquisition proposal by a third party; (4) approve, endorse or recommend any acquisition proposal by a third party; (5) release any person from, waive any provisions of, or fail to use its reasonable best efforts to enforce any confidentiality agreement or standstill agreement to which Surrey is a party; or (6) enter into or consummate any agreement, agreement in principle, letter of intent, arrangement or understanding contemplating any acquisition proposal by a third party or requiring Surrey to abandon, terminate or fail to consummate the transactions contemplated by the merger agreement.

 

An “acquisition proposal” is a proposal that could lead to any of the following transactions:

 

 

any merger, consolidation, share exchange, business combination or other similar transaction involving Surrey or its subsidiaries;

 

 

any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 20% or more of the consolidated assets of Surrey in a single transaction or series of transactions;

 

 

any tender offer or exchange offer for 20% or more of the outstanding shares of Surrey capital stock or the filing of a registration statement under the Securities Act in connection therewith;

 

 

any transaction that is similar in form, substance or purpose to any of the foregoing transactions; or

 

 

 

any public announcement, notice or regulatory filing or a proposal, plan or intention to do any of the foregoing transactions or any agreement to engage in any of the foregoing transactions.

 

Surrey will be responsible for any violation of the non-solicitation obligations set forth in the merger agreement by its representatives.

 

However, Surrey and its representatives may, before the Surrey shareholder approval is obtained, engage in discussions and negotiations with, or provide any nonpublic information or data to, a third party in response to an unsolicited bona fide written acquisition proposal by such person if (1) the Surrey board of directors determines in its good faith, after consultation with its outside legal counsel, that the acquisition proposal constitutes or is reasonably likely to lead to a superior proposal, (2) Surrey is not then in breach of its non-solicitation obligations (as described above), (3) the Surrey board of directors determines in its good faith, after consultation with its outside legal counsel, that the failure to take such action would reasonably be expected to violate the directors’ fiduciary obligations to Surrey shareholders under applicable law, (4) before taking such action Surrey provides written notice to First Community and enters into a confidentiality agreement having provisions that are no more favorable to such person than the confidentiality agreement between First Community and Surrey is to First Community and (5) Surrey substantially concurrently provides to First Community any information furnished to such third party that was not previously provided to First Community. Other than the confidentiality agreement described in the prior sentence, during the term of the merger agreement, Surrey will not, and will cause its subsidiaries and its and their representatives not to on its behalf, enter into any definitive transaction agreement relating to any acquisition proposal.

 

As used in the merger agreement, a “superior proposal” is an unsolicited, bona fide written offer or proposal made by a third party to consummate an acquisition proposal that: (1) the Surrey board of directors determines in good faith, after consulting with its outside legal counsel and its financial advisor, would, if consummated, result in a transaction that is more favorable to the Surrey shareholders than the transactions contemplated by the merger agreement (taking into account all factors relating to such proposed transaction deemed relevant by the Surrey board of directors and any adjustments to the terms and conditions of such transactions proposed by First Community in response to such acquisition proposal); (2) is for 100% of the outstanding shares of Surrey common stock and Surrey Class A common stock or all or substantially all of the assets of Surrey; and (3) is reasonably likely to be completed on the terms proposed, in each case taking into account all legal, financial, regulatory and other aspects of such acquisition proposal.

 

If Surrey receives an acquisition proposal or information request from a third party or enters into negotiations with a third party regarding a superior proposal, Surrey must notify First Community orally within one business day, and within two business days in writing, of the receipt of the acquisition proposal or information request and provide First Community with information about the third party and its proposal or information request. Surrey will keep First Community informed of any developments of any such acquisition proposals orally within one calendar day, and within two days in writing.

 

Finally, Surrey has agreed to cease immediately and terminate any and all existing activities, discussions or negotiations with any third parties with respect to any acquisition proposal or alternative transaction or similar transaction, and terminate access to all non-public information furnished by or on behalf of Surrey to third parties.

 

Conditions to Completion of the Merger

 

First Community’s and Surrey’s respective obligations to complete the merger are subject to the fulfillment or waiver of the following conditions:

 

 

the approval of the merger agreement by holders of Surrey common stock and holders of Surrey Class A common stock;

 

 

receipt of all required regulatory approvals, consents or waivers to permit the consummation of the transactions contemplated by the merger agreement, and the expiration or termination of all statutory waiting periods;

 

 

 

the absence of any order, decree, injunction or proceeding by any governmental entity of competent jurisdiction prohibiting or enjoining the consummation of the merger or the bank merger, and the absence of any statute, rule or regulation that prohibits or makes illegal the consummation of the merger or the bank merger;

 

 

the effectiveness of the registration statement of which this proxy statement/prospectus is a part with respect to the First Community common stock to be issued upon the consummation of the merger under the Securities Act, and the absence of any proceedings pending or threatened by the SEC to suspend the effectiveness of the registration statement;

 

 

the authorization of the listing of the First Community common stock to be issued upon the consummation of the merger on NASDAQ, without objection to the listing from NASDAQ;

 

 

receipt by each of First Community and Surrey of an opinion of its respective legal counsel as to certain tax matters;

 

 

the accuracy of the representations and warranties of each other party in the merger agreement as of November 17, 2022 and as of the closing date as though made at and as of the closing date, subject to the materiality standards provided in the merger agreement (and the receipt by each party of certificates from the other party to such effect);

 

 

the performance by the other party in all material respects of all obligations required to be performed by it at or prior to the effective time of the merger under the merger agreement (and the receipt by each party of certificates from the other party to such effect); and

 

 

the absence of a material adverse effect on the other party.

 

In addition, First Community’s obligation to complete the merger is subject to the following conditions:

 

 

none of the requisite governmental approvals will contain a requirement or condition that would so materially and adversely impact the economic or business benefits of the merger or the bank merger to First Community that, had such requirement or condition been known, First Community would not have entered into the merger agreement;

 

 

Edward C. Ashby, III shall have entered into a consulting agreement with First Community and shall have not taken any action to cancel or terminate such agreement; and

 

 

First Community Bank shall have been qualified with the SBA, USDA and any other lending program of a governmental entity in which Surrey Bank & Trust participates as of November 17, 2022.

 

Neither Surrey nor First Community can provide assurance as to when or if all of the conditions to the merger can or will be satisfied or waived by the appropriate party. As of the date of this proxy statement/prospectus, neither Surrey nor First Community has reason to believe that any of these conditions will not be satisfied.

 

Termination of the Merger Agreement

 

The merger agreement can be terminated at any time prior to completion of the merger by mutual consent, or by either party in the following circumstances:

 

 

Surrey shareholders do not approve the merger agreement at the Surrey special meeting, except that this right to terminate is only available to Surrey if it has materially complied with its obligation to use reasonable best efforts to obtain the Surrey shareholders’ approval;

 

 

 

any required regulatory approval has been denied and such denial has become final and non-appealable, or a governmental authority or court has issued a final, unappealable order permanently prohibiting consummation of the transactions contemplated by the merger agreement, unless the failure to obtain the requisite approval was due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements in the merger agreement;

 

 

the merger has not been consummated by July 31, 2023 (which we refer to as the “outside date”), except that this right to terminate will not be available to the party whose failure to perform or observe the covenants and agreements in the merger agreement is the reason for the failure to complete the merger by the outside date; or

 

 

there is a breach by the other party of any covenant or agreement contained in the merger agreement, or any representation or warranty of the other party becomes untrue, in each case such that the conditions to closing would not be satisfied and such breach or untrue representation or warranty has not been or cannot be cured by the earlier of the outside date or within 30 days after the giving of written notice to such party of such breach, except that this right to terminate will not be available to the party seeking to terminate if it is then in material breach of the merger agreement.

 

First Community may also terminate the merger agreement if:

 

 

Surrey breaches in any material respect its obligations not to solicit other acquisition proposals, or its obligation to submit the merger agreement to Surrey shareholders for approval and to use reasonable best efforts to obtain the Surrey shareholders’ approval; or

 

 

if the Surrey board of directors does not unanimously publicly recommend in this proxy statement/prospectus that Surrey shareholders approve the merger agreement or withdraws or revises its recommendation in a manner adverse to First Community.

 

Surrey may also terminate the merger agreement if, within the five-day period following the determination date, both of the following conditions are satisfied:

 

 

the First Community average closing price (which is the average of the closing sales price of First Community common stock reported on NASDAQ over the 30 consecutive trading days ending on the later of (A) the date on which the last regulatory approval necessary is received (disregarding any waiting period) or (B) the date on which the Surrey shareholders approve the merger (which we refer to as the “determination date”)) is less than $27.14; and

 

 

the ratio, the numerator of which is the First Community average closing price and the denominator which is $31.93 is less than 85% of the index ratio calculated by dividing the average of closing price for the NASDAQ Bank Index for the 30 consecutive trading days ending on the trading date immediately prior to the determination date by $4,269.44.

 

However, if Surrey chooses to exercise this termination right, First Community has the option, within five days of receipt of notice from Surrey, to increase the exchange ratio or pay an additional cash payment with respect to each share of Surrey common stock and Surrey Class A common stock as part of the merger consideration and prevent termination under this provision.

 

Termination Fee

 

Surrey will pay First Community a $4.0 million termination fee if the merger agreement is terminated in the following circumstances:

 

 

First Community terminates the merger agreement because (1) Surrey breaches its obligations in any material respect regarding the solicitation of other acquisition proposals or submission of the merger agreement to Surrey shareholders or (2) the Surrey board of directors does not unanimously publicly recommend in this proxy statement/prospectus that Surrey shareholders approve the merger agreement or withdraws or revises its recommendation in a manner adverse to First Community; or

 

 

 

if (1) the merger agreement is terminated (A) by either party because the Surrey shareholder approval has not been obtained at the Surrey shareholders’ meeting or (B) by either party because the merger has not occurred by the outside date and Surrey shareholder approval has not been obtained or (C) by First Community because of an uncured material breach by Surrey, (2) an acquisition proposal has been publicly announced or communicated and (3) within 12 months of such termination Surrey consummates or enters into an agreement with respect to an acquisition proposal (whether or not it is the same acquisition proposal).

 

Effect of Termination

 

If the merger agreement is terminated, it will become void, except that both First Community and Surrey will remain liable for any fraud or willful and material breach of the merger agreement and designated provisions of the merger agreement will survive the termination, including those relating to payment of fees and expenses and the confidential treatment of information.

 

Expenses and Fees

 

Except as set forth above, each of First Community and Surrey will be responsible for all costs and expenses incurred by it in connection with the negotiation and completion of the transactions contemplated by the merger agreement.

 

Amendment, Waiver and Extension of the Merger Agreement

 

Before the effective time of the merger, First Community and Surrey may agree to waive, amend or modify any provision of the merger agreement. However, after the vote by Surrey shareholders, First Community and Surrey can make no amendment or modification that would reduce the amount or alter or change the kind of consideration to be received by Surrey shareholders or that would contravene any provisions of the Virginia Stock Corporation Act and the NCBCA, as amended or applicable state and federal banking laws, rules and regulations.

 

Surrey Voting Agreements

 

A total of [●] shares of Surrey common stock, representing approximately [●]% of the outstanding shares of Surrey common stock entitled to vote at the Surrey special meeting and [●] shares of Surrey Class A common stock, representing [●]% of the outstanding shares of Surrey Class A common stock entitled to vote at the Surrey special meeting, are subject to the Surrey voting agreements. Pursuant to the Surrey voting agreements, each Surrey director has agreed to, on the terms and subject to the conditions set forth therein, vote the shares of Surrey common stock and Class A common stock as applicable, beneficially owned by him or her in favor of the merger agreement and against any proposal made in competition with the merger, as well as certain other customary restrictions with respect to the voting and transfer of his or her shares of Surrey common stock and Class A common stock.

 

The foregoing description of the Surrey voting agreements does not purport to be complete and is qualified in its entirety by reference to the full text of the Surrey voting agreements, a form of which is included as Exhibit A to the merger agreement attached to this proxy statement/prospectus as Appendix A.

 

ACCOUNTING TREATMENT

 

The accounting principles applicable to this transaction as described in FASB ASC 805-10-05-01 provide transactions that represent business combinations are to be accounted for under the acquisition method. The acquisition method requires all of the following steps: (1) identifying the acquiror; (2) determining the acquisition date; (3) recognizing and measuring the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; and (4) recognizing and measuring goodwill or a gain from a bargain purchase.

 

 

The appropriate accounting treatment for this transaction is as a business combination under the acquisition method. On the acquisition date, as defined by ASC 805, First Community (the acquiror) will record at fair value the identifiable assets acquired and liabilities assumed, any noncontrolling interest, and goodwill (or a gain from a bargain purchase). The results of operations for the combined company will be reported prospectively after the acquisition date.

 

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

 

Subject to the limitations, assumptions and qualifications described herein, the following discussion and legal conclusions contained herein constitute and represent the opinion of Bowles Rice LLP, counsel to First Community, as to the anticipated material U.S. federal income tax consequences of the merger to “U.S. holders” (as defined below) of Surrey common stock and of Surrey Class A common stock that exchange their respective shares of Surrey stock for the merger consideration in the merger. The following discussion is based upon the Code, the U.S. Treasury regulations promulgated thereunder and judicial authorities, rulings and decisions, all as in effect as of the date of this proxy statement/prospectus. These authorities may change, possibly with retroactive effect, and any such change could affect the accuracy of the statements and conclusions set forth in this discussion. This discussion does not address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, any withholding considerations under the Foreign Account Tax Compliance Act of 2010 (including the U.S. Treasury Regulations issued thereunder and intergovernmental agreements entered into pursuant thereto or in connection therewith) nor does it address any tax consequences arising under the laws of any state, local or foreign jurisdiction, or under any U.S. federal laws other than those pertaining to the income tax.

 

The following discussion applies only to U.S. holders of Surrey common stock and Surrey Class A common stock who hold such shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to U.S. holders in light of their particular circumstances and does not apply to holders subject to special treatment under the U.S. federal income tax laws (such as, without limitation, dealers or brokers in securities, commodities or foreign currencies; traders in securities that elect to apply a mark-to-market method of accounting; banks and certain other financial institutions; insurance companies; mutual funds; tax-exempt organizations; holders subject to the alternative minimum tax provisions of the Code; persons who are required to recognize income or gain with respect to the merger no later than such income or gain is required to be reported on an applicable financial statement under Section 451(b) of the Code; partnerships, S corporations or other pass-through entities (or investors therein); regulated investment companies; real estate investment trusts; controlled foreign corporations or passive foreign investment companies; former citizens or residents of the United States; U.S. expatriates; U.S. holders whose functional currency is not the U.S. dollar; holders who hold shares of Surrey common stock or Surrey Class A common stock as part of a hedge, straddle, constructive sale or conversion transaction or other integrated investment; holders who acquired Surrey common stock or Surrey Class A common stock through a tax qualified retirement plan or otherwise as compensation; holders who exercise appraisal rights; or holders who actually or constructively own more than 5% of Surrey’s voting stock).

 

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of Surrey common stock or Surrey Class A common stock that is, for U.S. federal income tax purposes, (1) an individual citizen or resident of the United States, (2) a corporation, or entity treated as a corporation for U.S. federal income tax purposes, organized in or under the laws of the United States, any state thereof or the District of Columbia, (3) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) such trust has made a valid election to be treated as a U.S. person for U.S. federal income tax purposes or (4) an estate, the income of which is includible in gross income for U.S. federal income tax purposes, regardless of its source.

 

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes is a holder of Surrey common stock or Surrey Class A common stock, the tax treatment of a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Any entity treated as a partnership for U.S. federal income tax purposes that is a holder of Surrey common stock or Surrey Class A common stock, and any partners in such partnership, should consult their tax advisors regarding the tax consequences of the merger to their specific circumstances.

 

 

Determining the actual tax consequences of the merger to you may be complex and will depend on your specific situation and on factors that are not within our control. All holders of Surrey common stock or Surrey Class A common stock should consult their tax advisors regarding the specific tax consequences to them of the merger in light of their particular facts and circumstances, including the applicability and effect of the alternative minimum tax and any state, local, foreign and other tax laws and of changes in those laws.

 

Tax Consequences of the Merger Generally

 

The merger will qualify as a “reorganization” under Section 368(a) of the Code for U.S. federal income tax purposes. It is a condition to the obligation of First Community to complete the merger that First Community receive an opinion from Bowles Rice LLP, counsel to First Community, in form reasonably satisfactory to such recipient, dated as of the closing date, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to the obligation of Surrey to complete the merger that Surrey receive an opinion from Brooks, Pierce, McLendon, Humphrey & Leonard LLP, counsel to Surrey, in form reasonably satisfactory to such recipient, dated as of the closing date, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Neither First Community nor Surrey currently intends to waive this opinion condition to its obligation to consummate the merger. If either First Community or Surrey waives this opinion condition after this registration statement is declared effective by the SEC, and if the tax consequences of the merger to Surrey shareholders have materially changed, First Community and Surrey will recirculate appropriate soliciting materials to resolicit the votes of Surrey shareholders. These opinions will be based on representation letters provided by First Community and Surrey, and on customary factual assumptions, including, but not limited to, the assumption that the merger will be consummated in accordance with the terms of the merger agreement. If any of the representations, assumptions, covenants or undertakings upon which those opinions are based is incorrect, incomplete, inaccurate or violated, the validity of the opinions may be affected and the tax consequences of the merger could differ from those described in this proxy statement/prospectus.

 

Neither of the opinions described above will be binding on the IRS or any court. First Community and Surrey have not sought and will not seek any ruling from the IRS regarding any matters relating to the merger, and as a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below. The following is based on the receipt and accuracy of the above described opinions.

 

U.S. Federal Income Tax Consequences of the Merger to U.S. Holders of Surrey Common Stock and Surrey Class A Common Stock

 

The U.S. federal income tax consequences of the merger to U.S. holders of Surrey common stock or Surrey Class A common stock generally will be as follows:

 

 

a U.S. holder of Surrey common stock or Surrey Class A common stock generally will not recognize gain or loss upon the exchange of shares of Surrey common stock or Surrey Class A common stock for shares of First Community common stock pursuant to the merger, except with respect to cash received instead of fractional shares of First Community common stock that such holder of Surrey common stock or Surrey Class A common stock would otherwise be entitled to receive (as discussed below);

 

 

a U.S. holder of Surrey common stock or Surrey Class A common stock will have an aggregate tax basis in the First Community common stock received in the merger (including any fractional shares deemed received and redeemed for cash as described below) equal to the aggregate adjusted tax basis in the shares of Surrey common stock or Surrey Class A common stock surrendered in the merger; and

 

 

a U.S. holder of Surrey common stock or Surrey Class A common stock will have a holding period for the shares of First Community common stock received in the merger (including any fractional share deemed received and redeemed for cash as described below) that includes the holding period of the shares of Surrey common stock or Surrey Class A common stock surrendered in the merger.

 

 

If a U.S. holder of Surrey common stock or Surrey Class A common stock acquired different blocks of Surrey common stock or Surrey Class A common stock at different times or at different prices, the First Community common stock such holder receives will be allocated pro rata to each block of Surrey common stock or Surrey Class A common stock, and the basis and holding period of each block of First Community common stock received will be determined on a block-for-block basis depending on the basis and holding period of the blocks of Surrey common stock or Surrey Class A common stock exchanged for such First Community common stock.

 

Cash Instead of Fractional Shares

 

A U.S. holder of Surrey common stock or Surrey Class A common stock who receives cash instead of a fractional share of First Community common stock, generally will be treated as having received such fractional share of First Community common stock pursuant to the merger and then as having received cash in redemption of such fractional share of First Community common stock. Any such holder generally will recognize gain or loss equal to the difference between the amount of cash received and the tax basis in the fractional share of First Community common stock (as set forth above). Such gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the merger, the holding period for such fractional share (including the holding period of shares of Surrey common stock or Surrey Class A common stock surrendered therefor) exceeds one year. Long-term capital gains of certain non-corporate holders of Surrey common stock or Surrey Class A common stock, including individuals, are generally taxed at preferential rates. The deductibility of capital losses is subject to limitations.

 

Cash Received on Exercise of Dissenters Appraisal Rights

 

A U.S. holder of Surrey common stock or Surrey Class A common stock who receives cash in exchange for such holder’s Surrey common stock or Surrey Class A common stock upon exercise of dissenters’ appraisal rights will generally recognize gain or loss equal to the difference between the amount of cash received and the holder’s adjusted tax basis in the Surrey common stock or Surrey Class A common stock exchanged therefor. Each holder of Surrey common stock or Surrey Class A common stock is urged to consult such holder’s tax advisor regarding the manner in which gain or loss should be calculated among different blocks of Surrey common stock or Surrey Class A common stock exchanged in the merger. Such gain or loss will generally be long-term or short-term capital gain or loss, depending on the holder’s holding period in the Surrey common stock or Surrey Class A common stock exchanged. The tax consequences of cash received may vary depending upon a holder’s individual circumstances. Each holder of Surrey common stock or Surrey Class A common stock who contemplates exercising statutory dissenters’ appraisal rights should consult its tax adviser as to the possibility that all or a portion of the payment received pursuant to the exercise of such rights will be treated as dividend income.

 

Information Reporting and Withholding

 

Surrey shareholders who receive First Community common stock as a result of the merger are required to retain permanent records and make such records available to any authorized IRS officers and employees. The records should include the number of shares of Surrey common stock or Surrey Class A common stock exchanged, the number of shares of First Community common stock received, the fair market value of the Surrey common stock or Surrey Class A common stock exchanged, and the holder’s adjusted basis in the First Community common stock received.

 

If a U.S. holder that receives First Community common stock in the merger is considered a “significant holder” and is required to file a U. S. income tax return, such U.S. holder will be required (1) to file a statement with its U.S. federal income tax return in accordance with Treasury Regulation Section 1.368-3 providing certain facts pertinent to the merger, including such U.S. holder’s tax basis in, and the fair market value of, the Surrey common stock or Surrey Class A common stock surrendered by such U.S. holder in the merger, and (2) to retain permanent records of these facts relating to the merger. A “significant holder” is any Surrey shareholder that, immediately before the merger, (a) owned at least 5% (by vote or value) of the outstanding stock of Surrey, or (b) owned Surrey securities with a tax basis of $1.0 million or more.

 

Payments of cash made pursuant to the merger to a non-corporate U.S. holder of Surrey common stock or Surrey Class A common stock will generally be subject to U.S. federal backup withholding (currently, at a rate of 24%).

 

 

To prevent backup withholding, non-corporate U.S. holders of Surrey common stock or Surrey Class A common stock should provide the Exchange Agent with a properly completed IRS Form W-9 (or substantially similar form) and otherwise comply with all applicable requirements of the backup withholding rules. Backup withholding is not an additional tax. Any amount withheld under the backup withholding rules may be refunded or credited against a U.S. holder’s U. S. federal income tax liability if the required information is supplied to the IRS in a timely manner.

 

This discussion of certain material U.S. federal income tax consequences is for general information purposes only and is not intended to be, and should not be construed as, tax advice. All holders of Surrey common stock and Surrey Class A common stock are urged consult their tax advisors with respect to the application of U.S. federal income tax laws to their particular situations as well as any tax consequences arising under the U.S. federal estate or gift tax rules, or under the laws of any state, local, foreign or other taxing jurisdiction or under any applicable tax treaty. Holders of Surrey common stock and Surrey Class A common stock are also urged to consult their tax advisors with respect to the effect of possible changes in any of those laws after the date of this proxy statement/prospectus.

 

THE COMPANIES

 

First Community

 

First Community, a financial holding company, was founded in 1989 and incorporated under the laws of the Commonwealth of Virginia in 2018. The Company is the successor to First Community Bancshares, Inc., a Nevada corporation, pursuant to an Agreement and Plan of Reincorporation and Merger, the sole purpose of which was to change the Company’s state of incorporation from Nevada to Virginia. The reincorporation was completed on October 2, 2018. The Company’s principal executive office is located at One Community Place, Bluefield, Virginia. The Company provides banking products and services to individual and commercial customers through its wholly-owned subsidiary First Community Bank, a Virginia-chartered banking institution founded in 1874. First Community Bank has branch offices in Virginia, West Virginia, North Carolina and Tennessee. First Community Bank offers wealth management and investment advice through its Trust Division and wholly-owned subsidiary First Community Wealth Management.

 

First Community focuses on building financial partnerships and creating enduring and complete relationships with businesses and individuals through a personal and local approach to banking and financial services. First Community strives to be the bank of choice in the markets we serve by offering impeccable service and a complete line of competitive products that include:

 

 

demand deposit accounts, savings and money market accounts, certificates of deposit, and individual retirement arrangements;

 

 

commercial, consumer, and real estate mortgage loans and lines of credit;

 

 

various credit card, debit card, and automated teller machine card services;

 

 

corporate and personal trust services; and

 

 

investment management services.

 

As of September 30, 2022, on a consolidated basis, First Community had total assets of $3.16 billion, total deposits of $2.71 billion, total net loans of $2.33 billion, and shareholders’ equity of $412 million.

 

First Community’s executive offices are located at 29 College Drive, Bluefield, Virginia 24605-0989. First Community’s telephone number is (276) 326-4000 and its website is: www.ir.fcbresource.com.

 

The information on First Community’s website is not part of this proxy statement/prospectus, and the reference to First Community’s website address does not constitute incorporation by reference of any information on that website into this proxy statement/prospectus.

 

 

Additional information about First Community is included in documents attached as appendices to this proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page [●].

 

Surrey

 

General

 

Surrey is a bank holding company organized under the laws of North Carolina in 2003 and registered as a bank holding company under the BHCA. Surrey conducts the majority of its business operations through its wholly-owned bank subsidiary, Surrey Bank & Trust. Surrey’s single direct subsidiary is Surrey Bank & Trust, which is a North Carolina state-chartered bank that was incorporated in 1996. Surrey Bank & Trust provide comprehensive individual and corporate financial services through its main and branch offices in Mount Airy, North Carolina and branch offices in Stuart, Virginia, and Pilot Mountain, North Wilkesboro and Elkin, North Carolina.  These services include demand and time deposits as well as commercial, installment, mortgage and other consumer lending services, insurance and investment services. Surrey Bank & Trust offers retail and commercial banking products and services to individuals, businesses and local government customers.

 

Banking Services

 

At September 30, 2022, Surrey had total consolidated assets of $500 million, net loans of $244 million, deposits of $436 million and stockholders’ equity of $57 million. Approximately 66.7% of Surrey Bank & Trust’s total loans were real estate loans and approximately 32.2% of Surrey Bank & Trust’s loans were classified as commercial and industrial loans, followed by 1.1% in other loans (which includes individuals and obligations of states and political subdivisions in the U.S. and loans to nondepository financial institutions). Surrey Bank & Trust’s yield on loans was 5.32% for the nine-month period ending September 30, 2022. Approximately 60.9% of Surrey Bank & Trust’s total deposits were transaction deposits, approximately 26.4% were comprised of money market and savings accounts, and approximately 12.7% consisted of time deposits. Surrey Bank & Trust’s cost of interest bearing deposits was 0.14% for the nine-month period ending September 30, 2022.

 

Properties

 

Surrey’s permanent headquarters is a two-story brick building, with approximately 8,500 square feet of space located at 145 North Renfro Street, Mount Airy, North Carolina, which is also the headquarters of Surrey Bank & Trust. The building has drive-up facilities. Surrey Bank & Trust’s finance, operations and mortgage lending are housed in a one-story brick building with approximately 7,500 square feet of space located at 199 North Renfro Street in Mount Airy, North Carolina.

 

Surrey has a modular training facility located at 143 North Renfro Street, Mount Airy, North Carolina. The modular unit has approximately 1,600 square feet of floor space.

 

Surrey Bank & Trust owns a one-story brick building at 165 North Renfro Street that serves as its boardroom. The building has approximately 1,600 square feet of floor space.

 

Surrey Bank & Trust has two branch locations in Mount Airy, North Carolina. The 1280 West Pine Street branch is a limited service branch, located in a two-story brick building with approximately 4,500 square feet of floor space.  The branch has drive-up facilities and is leased under an agreement which expires in April 2025, subject to Surrey’s right to extend the lease for two additional five-year terms. The 2050 Rockford Street branch is a one-story brick building with approximately 2,400 square feet of floor space with drive-up facilities.

 

Surrey Bank & Trust has a branch location in Stuart, Virginia located at 940 Woodland Drive. The branch is a one-story brick building with approximately 2,800 square feet of floor space. The building has drive-up facilities.

 

Surrey Bank & Trust has a branch location in Pilot Mountain, North Carolina at 653 South Key Street. The branch is a one-story brick building with approximately 2,800 square feet of floor space. The building has drive-up facilities.

 

 

Surrey Bank & Trust has a branch location in Elkin, North Carolina located at 393 CC Camp Road. The branch is a one-story brick building with approximately 2,400 square feet of floor space. The building has drive-up facilities.

 

Surrey Bank & Trust has a branch location in North Wilkesboro, North Carolina at 1096 Main Street. The branch is a one-story brick building with approximately 2,400 square feet of floor space. The building has drive-up facilities.

 

Surrey Bank & Trust owns all of its facilities except for the West Pine Street branch, which is leased, as described above.

 

Employees

 

As of September 30, 2022, Surrey Bank & Trust had 52 full-time employees, none of whom is covered by a collective bargaining agreement.

 

Legal Proceedings

 

There are no threatened or pending legal proceedings against Surrey or Surrey Bank & Trust that, if determined adversely, would, in the opinion of management, have a material adverse effect on Surrey’s business, financial condition, results of operations or cash flows.

 

Seasonality

 

Surrey does not believe its business to be seasonal in nature.

 

Competition

 

Surrey Bank & Trust operates an aggregate of seven banking offices within the following banking markets: (1) Surry County, North Carolina, (2) Wilkes County, North Carolina, and (3) Patrick County, Virginia. Each of these banking markets is a highly competitive environment for commercial banking. The following table lists Surrey Bank & Trust’s deposit market share, as reported by the Federal Reserve Bank of St. Louis for each banking market in which Surrey Bank & Trust has a branch, as of June 30, 2022, the most recent date for which such data is available.

 

Market Area

 

Market
Rank

   

No. of
Institutions in
Market

   

Total
Deposits In
Market
(in 000s)

   

Surrey Bank & Trust
Market
Share

 

Mount Airy, NC

  1     8     $969,386       28.84 %

Pilot Mountain, NC

  2     4       199,142       26.94 %

Stuart, VA

  4