Pinnacle Bankshares Corporation (OTCPK:PPBN) signed a non-binding letter of intent to acquire Virginia Bank Bankshares Inc. (OTCPK:VABB) from a group of shareholders $31.2 million on August 26, 2019. As part of the letter of intent, each outstanding share of Virginia Bank will be converted into 0.54135 newly issued shares of Pinnacle common stock, representing approximately 39% ownership of the combined company by current shareholders of Virginia Bank. On October 8, 2019, the Pinnacle Board and Virginia Bank Board each approved the amendment to the letter of intent. The amendment to the letter of intent was executed on October 10, 2019. Pinnacle Bankshares Corporation (OTCPK:PPBN) signed a definitive agreement to acquire Virginia Bank Bankshares Inc. (OTCPK:VABB) from a group of shareholders for $29 million on January 21, 2020. Under the terms of the agreement, the shareholders of Virginia Bank Bankshares Inc. will have the opportunity to elect to receive either $16 in cash or 0.5 shares of Pinnacle Bankshares Corporation for each share of Virginia Bank common stock held, subject to the limitation that 70% of the shares will be exchanged for the stock consideration and 30% of the shares will be exchanged for the cash consideration. After completion, shareholders of Pinnacle Bankshares Corporation will own 71% of the combined company, and shareholders of Virginia Bank Bankshares Inc. will own approximately 29%. Pinnacle Bankshares and Virginia Bank Bankshares entered into an amendment to the initial agreement and plan of reorganization on June 9, 2020. Under the terms of the amended agreement, Virginia Bank Bankshares shareholders will have the opportunity to elect to receive either $16 in cash, or 0.54 shares per share of Pinnacle Bankshares common stock for each share of Virginia Bank Bankshares common stock held, subject to allocation and proration such that 60% of the Virginia Bank Bankshares common shares will be exchanged for the stock consideration and 40% of the shares will be exchanged for the cash consideration. After completion, shareholders of Pinnacle Bankshares will own approximately 72.4% of Pinnacle common stock after the merger, and current Virginia Bank shareholders will own approximately 27.6% of Pinnacle common stock after the merger.

Upon consummation of the transaction, Virginia Bank Bankshares Inc. will merge into Pinnacle Bankshares Corporation and Pinnacle Bankshares Corporation will be the surviving holding company. Following the holding company merger, Virginia Bank and Trust Company, subsidiary of Virginia Bank Bankshares Inc., will merge into First National Bank, subsidiary of Pinnacle Bankshares Corporation, and First National Bank will be the surviving bank. The offices of Virginia Bank and Trust Company will be rebranded as First National Bank offices as systems are integrated. No office closures are expected as a result of the merger. Under the merger agreement, Virginia Bank must pay Pinnacle a termination fee of $1.35 million if the merger agreement is terminated by either party under certain specified, limited circumstances, and Pinnacle must pay Virginia Bank a termination fee of $1.35 million if the merger agreement is terminated by either party.

The letter of intent provided that four members of the Virginia Bank board would join the Pinnacle board following the transaction. The Boards of Directors of Pinnacle Bankshares Corporation and First National Bank will include the current 13 members of Pinnacle Bankshares Corporation and First National Bank boards and 5 directors from Virginia Bank Bankshares Inc. Pinnacle Bankshares Corporation's Chairman Jeb Burton will continue to serve as the Chairman of the Boards of Directors of Pinnacle Bankshares Corporation and First National Bank, and Virginia Bank Bankshares Inc.'s Chairman and Chief Executive Officer Donald W. Merricks will serve as Vice Chairman of the Boards of Directors of Pinnacle Bankshares Corporation and First National Bank. Todd Hall, President and Chief Executive Officer of Pinnacle Bankshares Corporation, will continue to serve as President and Chief Executive Officer of Pinnacle Bankshares Corporation and First National Bank, while Jerry Oakes, President of Virginia Bank and Trust Company, will become the Danville market president for First National Bank.

The transaction is subject to approval of shareholders of Pinnacle Bankshares Corporation and Virginia Bank Bankshares Inc., approval of the merger by the necessary federal and state regulatory authorities which include Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Virginia State Corporation Commission, effectiveness of Pinnacle's registration statement on Form S-4, receipt by each of Pinnacle and Virginia Bank from its respective outside legal counsel of a written legal opinion to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the code, aggregate number of dissenting shares not representing 15% or more of the outstanding shares of Virginia unless waived in the sole discretion of Pinnacle and other customary closing conditions. The merger agreement was unanimously approved by the Boards of Directors of both Pinnacle Bankshares Corporation and Virginia Bank Bankshares Inc. The amendment to the agreement was unanimously approved by the Boards of Directors of Pinnacle Bankshares and Virginia Bank Bankshares.

The transaction is expected to be completed in the third quarter of 2020. As of April 8, 2020, the transaction has been postponed due to near-term operational challenges as both the companies respond to the COVID-19 outbreak and the resulting volatility in U.S. financial markets as well as the impact on their local communities and economies. As part of the delay, filings with federal, state banking regulators, the Securities and Exchange Commission, Pinnacle's and Virginia Bank's respective shareholder meetings will be delayed. As of June 9, 2020, the transaction is expected to close at the end of the third quarter or early in the fourth quarter of 2020. As of September 3, 2020, Pinnacle and Virginia Bank expect to complete the merger and the bank merger during the fourth quarter of 2020. The transaction is expected to be 37.7% accretive to Pinnacle Bankshares's updated 2021 financial projections.

Bank Street Partners acted as financial advisor and Susan S. Ancarrow, Lynda Crouse, Robert Friedman and Seth A. Winter of Troutman Sanders LLP acted as legal advisors for Pinnacle Bankshares. Performance Trust Capital Partners, LLC acted as the financial advisor and rendered its opinion to Pinnacle Bankshares' Board. John Schramm and Nick Bach of Janney Montgomery Scott LLC acted as financial advisor and rendered fairness opinion to the Board of Virginia and Lee G. Lester of Williams Mullen acted as legal advisor for Virginia Bank Bankshares Inc. Virginia Bank has also retained Regan & Associates, Inc. to assist in soliciting proxies for a fee of approximately $9,000. Performance Trust will receive a customary investment banking fee for its services, a significant portion of which is contingent upon consummation of the transaction. Pinnacle has previously paid Performance Trust a fee of $0.09 million upon delivery of its fairness opinion, which, if the merger is completed, will not be credited against Performance Trust's investment banking fee. Pinnacle has agreed to pay Performance Trust an additional fee of $0.14 million which is contingent upon and will become payable upon consummation of the merger. As compensation for Janney's services, Virginia Bank has agreed to pay Janney 1.25% of the value of the merger consideration to be received by Virginia Bank's shareholders in the merger. The fee to be received by Janney is capped at $0.33 million excluding the $0.02 million retainer paid to Janney.