<PAGE> 1
As filed with the Securities and Exchange Commission on October 30, 1997
Registration Statement No. 333-32151
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
REPUBLIC BANCSHARES, INC.
(Exact name of registrant and co-registrant as specified in its charter)
FLORIDA 59-3347653
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
111 SECOND AVENUE N.E.
ST. PETERSBURG, FLORIDA 33701
(813) 823-7300
(Address, including zip code, and telephone number,
including area code, of registrant's and co-registrant's
principal executive offices)
CHRISTOPHER M. HUNTER, ESQ.
CORPORATE COUNSEL AND CORPORATE SECRETARY
REPUBLIC BANCSHARES, INC.
111 SECOND AVENUE N.E.
ST. PETERSBURG, FLORIDA 33701
(813) 823-7300
(Name, address, including zip code, and telephone
number, including area code, of registrant's and
co-registrant's agent for service)
Copies of communications to:
CHESTER E. BACHELLER, ESQ.
HOLLAND & KNIGHT LLP
200 CENTRAL AVENUE
ONE PROGRESS PLAZA
ST. PETERSBURG, FLORIDA 33701
(813) 227-8500
---------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, 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 earlier effective
registration statements for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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 delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
PROSPECTUS
[LOGO]
$6,000,000
REPUBLIC BANCSHARES, INC.
6% CONVERTIBLE SUBORDINATED DEBENTURES DUE DECEMBER 1, 2011
-----------------
This prospectus relates to (i) $6,000,000 aggregate principal amount of 6%
Convertible Subordinated Debentures due December 1, 2011 (the "Debentures") of
Republic Bancshares, Inc. (the "Company"), and (ii) 336,000 shares of common
stock, par value $2.00 per share (the "Common Stock"), of the Company which are
initially issuable upon conversion of the Debentures, plus such additional
indeterminate number of shares of Common Stock as may become issuable upon
conversion of the Debentures as a result of adjustments to the conversion price
(the "Shares"). The Debentures and the Shares (collectively, the "Selling
Securityholder Securities") that are being registered hereby are to be offered
solely for the account of the holders thereof (the "Selling Securityholders").
The Debentures were issued in December 1996 in connection with a private
placement offering. See "Description of the Debentures."
The Debentures are convertible at any time prior to maturity, unless
previously redeemed or repurchased, into shares of Common Stock at a conversion
rate of 56 shares per each $1,000 principal amount of Debentures (equivalent to
a conversion price of approximately $17.85714 per share), subject to adjustment
in certain circumstances (the "Conversion Price"). On October 23, 1997, the last
reported bid price of the Common Stock, which is traded under the symbol "REPB"
on The Nasdaq Stock Market's ("Nasdaq") National Market, was $26.25 per share.
Interest on the Debentures is payable semiannually in arrears on June 1 and
December 1 of each year, commencing June 1, 1997. The Debentures are redeemable
in whole or in part at the Company's option at any time on or after December 1,
2001, at the redemption prices set forth herein, plus accrued interest to the
date of redemption. See "Description of the Debentures - Optional Redemption."
The Debentures are not entitled to any sinking fund. The Debentures will mature
on December 1, 2011.
The Debentures are unsecured, general obligations subordinated in right of
payment to all existing and future Senior Indebtedness (as defined herein) of
the Company and effectively subordinated in right of payment to all indebtedness
and other liabilities of the Company's subsidiaries. The Company does not
currently have any Senior Indebtedness outstanding. The Indenture will not
restrict the Company or its subsidiaries from incurring additional Senior
Indebtedness or other indebtedness. See "Description of the Debentures -
Subordination."
--------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR
A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
--------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A
BANK AND ARE NOT INSURED BY THE BANK INSURANCE FUND, THE SAVINGS
ASSOCIATION INSURANCE FUND OR THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER 29, 1997.
<PAGE> 3
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
THE COMPANY AND THE BANK
Republic Bancshares, Inc. (the "Company") is a registered bank holding
company formed in February 1996 for the primary purpose of becoming the holding
company parent of Republic Bank (the "Bank"), a Florida-chartered commercial
bank organized on December 13, 1973. The Bank provides a broad range of
traditional banking services with a particular emphasis on residential and
commercial real estate lending. Currently, the Bank's branch network consists of
35 branches in Pasco, Pinellas, Orange, Manatee, Hernando, Sarasota and
Seminole Counties. At June 30, 1997, the Company's consolidated assets totaled
$1.0 billion, loans totaled $839.0 million, deposits totaled $877.9 million
and stockholders' equity was $56.4 million. The Company is regulated by the
Federal Reserve, and the Bank is regulated by the Florida Department of Banking
and Finance ("Department") and the Federal Deposit Insurance Corporation
("FDIC"). The Bank's deposits are insured by the FDIC, and the Bank is a member
of the Federal Home Loan Bank of Atlanta ("FHLB").
On May 28, 1993, William R. Hough and John W. Sapanski (together, the
"Controlling Stockholders") acquired from the prior controlling stockholder over
99% of the outstanding common stock of the Bank (the "Change in Control").
Currently, Messrs. Hough and Sapanski (and their respective affiliates and
immediate family members) own shares of the Company's capital stock representing
approximately 50.6% and 9.0%, respectively, of the total voting rights of the
Company. Mr. Hough is a member of the Company's Board of Directors and Mr.
Sapanski serves as the Company's Chairman of the Board, Chief Executive Officer
and President.
After the Change in Control, the Bank began to implement a program of
expanding its branches and lines of business. On December 17, 1993, the Bank
acquired 12 branches from CrossLand Savings FSB, a federal stock savings bank
("CrossLand"), assumed deposits of $327.7 million at the acquired branches and
purchased from CrossLand loans secured by real estate and other real estate
("ORE") amounting to $201.6 million (the "CrossLand Purchase and Assumption").
The CrossLand Purchase and Assumption more than doubled the Bank's size,
increasing total assets to $531.3 million and total deposits to $494.3 million
at December 31, 1993. Additionally, the new branches expanded the Bank's market
area to include Manatee and Sarasota counties and more than doubled the branch
network to a total of 19 branches.
During the latter part of 1994 and throughout 1995, the Bank continued to
pursue a strategy of increasing its retail banking presence on the west coast of
Florida. The Bank opened thirteen de novo branches, increasing market presence
in existing counties and providing entry into Pasco County.
During 1996, the Company focused on increasing its residential lending
capabilities. Through internal growth and the addition of the Bank's new
mortgage banking division, the Company added six loan production offices in
Florida and one loan production office in Boston, Massachusetts. These offices
expanded the Company's product line to include government-insured first mortgage
loans, "Title I" home improvement loans and high loan-to-value debt
consolidation loans. In the fourth quarter of 1996, the Bank also added a
wholesale lending operation that purchases loans from third-party originators
for resale. The Company sells substantially all the loan production from its
mortgage banking division as whole loans or loans posted as securities. See
"Risk Factors-Change in Loan Sales Strategy."
2
<PAGE> 4
In 1997, the Company again pursued external expansion. In January, the
Company expanded into Hernando County by opening a de novo branch. In April, the
Company acquired Firstate Financial, F.A. ("Firstate"), a thrift institution
headquartered in Orlando, Florida, for a cash purchase price of $5.5 million
(the "Firstate Acquisition"). At March 31, 1997, Firstate had total assets of
$72.0 million, total deposits of $68.1 million and operated a branch in each of
Orange and Seminole Counties. The Firstate acquisition increased the Company's
presence in central Florida, where the Company previously operated a loan
production facility but had no branches. See "Pro Forma Financial Data."
Also in April 1997, the Company and F.F.O. Financial Group, Inc. ("FFO"),
St. Cloud, Florida, the holding company parent of First Federal Savings and Loan
Association of Osceola County, entered into an Agreement and Plan of Merger (the
"FFO Agreement") pursuant to which FFO was merged into the Company in a
stock transaction (the "FFO Merger"). FFO had 11 branches in Osceola, Orange and
Brevard counties and, at March 31, 1997, had total assets of $320.0 million,
total loans of $226.1 million and total deposits of $285.7 million. This
acquisition expanded its network of branches from 35 to 46, and increased the
number of counties served by the Company's branches from seven to nine. See "Pro
Forma Financial Data." William R. Hough, one of the Company's Controlling
Stockholders, also owns a majority interest in FFO. The merger was consummated
on September 19, 1997.
In May 1997, the Company and RBI Capital Trust I, a statutory business
trust created under the laws of the State of Delaware ("RBI Capital"), filed a
registration statement on Form S-2 (Registration Nos. 333-28213 and 333-28213-01
with the Securities and Exchange Commission (the "Commission") relating to the
offering by RBI Capital (the "Preferred Offering") of 2,875,000 shares of
Cumulative Trust Preferred Securities (the "Preferred Securities"). The proceeds
from the Preferred Offering were used to purchase an equivalent amount of Junior
Subordinated Debentures of the Company ("Junior Subordinated Debentures"). The
net proceeds from the sale of the Junior Subordinated Debentures were
contributed by the Company to the capital of the Bank. The Preferred Offering
was completed on July 31, 1997.
The principal executive offices of the Company are located at 111 Second
Avenue N.E., Suite 300, St. Petersburg, Florida, 33701, and its telephone number
is (813) 823-7300.
BUSINESS STRATEGY
The Company's business strategy entails (i) originating and purchasing
real estate secured loans for portfolio and sale and originating business and
consumer loans for portfolio; (ii) improving market share and expanding its
market area through acquisitions of financial institutions and de novo
branching; (iii) increasing non-interest income through expanded mortgage
banking activities and emphasizing commercial and retail checking relationships;
and (iv) increasing its range of products and services. While pursuing this
strategy, management remains committed to improving asset quality, managing
interest rate risk and enhancing profitability.
The Company's business strategy has resulted in:
- Expanded Branch Network - Since the Change in Control in May 1993,
the Company has expanded its retail banking presence from seven
branches in northern Pinellas County to its current 37 branches in
Hernando, Pasco, Pinellas, Manatee, Sarasota, Seminole and Orange
Counties. Further market expansion will occur upon consummation of
the FFO Merger later this year which will add 11 branches in the
central Florida market, including five in Osceola County, five in
Brevard County, and one in Orange County, bringing the total number
of branches to 46.
- Increased Levels and Sources of Noninterest Income - The Company has
expanded its sources and amounts of fee income by emphasizing
mortgage banking activities and new products, including a program
that generates fee income for the Company when the Company's checking
account customers utilize the travel and other services of certain
third-party providers.
3
<PAGE> 5
- Improved Asset Quality Ratios - The assets acquired in the Change in
Control and from CrossLand included significant levels of
nonperforming assets. As a result, the Company's nonperforming
assets-to-total assets ratio was 4.95% at year-end 1993. This ratio
was reduced to 2.16% at June 30, 1997. This reduction was achieved
primarily through the implementation of consistent loan underwriting
policies and procedures, centralization of all credit decision
functions and growth in the loan portfolio. Nonperforming assets at
June 30, 1997, included $14.5 million of loans and ORE primarily
originated prior to the Change in Control, $1.4 million from assets
acquired in the CrossLand Purchase and Assumption and $5.7 million
from assets originated or purchased after December 31, 1993.
However, the level of the Company's nonperforming assets continues
to be higher than that of peer group institutions. See "Risk
Factors-Nonperforming Assets."
- Management of Interest Rate Risk - One of the Company's primary
objectives is to reduce fluctuations in net interest income caused
by changes in market interest rates. To manage interest rate risk,
the Company generally limits holding loans in its portfolio to those
that have variable interest rates tied to interest-sensitive indices
and management of the maturities within the investment portfolio.
The Company believes, based on its experience, that, as of June 30,
1997, the anticipated dollar amounts of assets and liabilities which
reprice or mature within a one-year time horizon are closely
matched.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
The Selling Securityholder Securities........$6,000,000 aggregate principal
Offered Hereby amount of 6% Convertible Debentures
Due 2011, together with 336,000
Shares initially issuable upon
conversion of the Debentures, plus
such additional indeterminate
number of Shares as may become
issuable upon conversion of the
Debentures as a result of
adjustments to the Conversion
Price.
Selling Securityholders......................The Debentures were originally
issued by the Company and sold to
the Selling Securityholders in
transactions exempt from
registration under the Securities
Act. These Selling Securityholders
or their transferees, pledgees,
donees or successors may from time
to time offer and sell the Selling
Securityholder Securities pursuant
to this Prospectus.
Maturity Date................................December 1, 2011.
Interest.....................................Interest on the Debentures
commenced on June 1, 1997 and is
payable semi-annually on each June
1 and December 1.
Optional Redemption..........................The Debentures are redeemable at
any time after December 1, 2001, in
whole or in part, at the option of
the Company on not less than 30
days notice, at a redemption price
of 106%, with the premium declining
1% each year thereafter, together
with accrued interest to the date
fixed for redemption. The
Debentures may also be redeemed, in
whole or in part, at the option of
the Company on not less than 30
days notice, without the payment of
any premium, at any time after the
closing price of the Common Stock
for not less than 20 consecutive
trading days equals or exceeds 130%
of the Conversion Price then in
effect, together with accrued
interest to the date fixed for
redemption.
Subordination................................The payment of principal and
premium, if any, and interest on
the Debentures is subordinated to
all existing and future Senior
Indebtedness. Senior Indebtedness
is defined as any indebtedness or
liability of the Company (including
that owed to general creditors),
whether existing on or created or
incurred after issuance of the
Debentures, that is not by its
terms subordinated to or on a par
with the Debentures. The Company
does not currently have any Senior
Indebtedness outstanding. The
Indenture (as defined herein) does
not limit future incurrence of any
indebtedness by the Company or its
subsidiaries.
</TABLE>
5
<PAGE> 7
<TABLE>
<S> <C>
Certain Covenants............................The Indenture contains certain
customary covenants found in
Indentures under the Trust
Indenture Act of 1939, as amended
(the "Trust Indenture Act"),
including covenants with respect to
the payment of principal and
interest, maintenance of an office
or agency for administering the
Debentures, holding of funds for
payments on the Debentures in
trust, payment by the Company of
taxes and other claims, maintenance
by the Company of its properties
and its corporate existence, and
delivery of annual certifications
to the Trustee.
Conversion...................................The Debentures are Convertible into
56 shares of Common Stock for each
$1,000 principal amount of
Debentures, representing a
Conversion Price at issue of
$17.85714 per share, subject to
adjustment in certain events.
Trading......................................The Company does not intend to list
the Debentures resold pursuant to
this Prospectus on any securities
exchange or to seek approval for
quotation through any automated
quotation system. There can be no
assurance as to the development or
liquidity of any market for the
Debentures resold under this
Prospectus.
Use of Proceeds..............................The Selling Securityholders will
receive all of the proceeds from
the sale of the Selling
Securityholder Securities. The
Company will not receive any
proceeds from the sale of the
Selling Securityholder Securities
offered hereby. See "Use of
Proceeds."
</TABLE>
RISK FACTORS
Before making an investment decision, prospective investors should
consider all of the information contained in this Prospectus. In particular,
prospective investors should evaluate the factors discussed under "Risk
Factors."
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The Summary Consolidated Financial Data presented below has been derived
from the audited Consolidated Financial Statements of the Company and, prior to
1996, the Bank and are qualified in their entirety by reference to the more
detailed Consolidated Financial Statements and notes thereto, included elsewhere
within.
<TABLE>
<CAPTION>
Six Months Ended Seven Months Ended
June 30, Years Ended December 31, December 31,
---------------------- ---------------------------------- ----------------------
1997 1996 1996 1995 1994 1994 1993
----------- ---------- ---------- ---------- ----------- ---------- -----------
(unaudited) (unaudited)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income........................... $ 37,407 $ 31,799 $ 66,947 $ 57,863 $ 37,115 $ 23,684 $ 7,331
Interest expense.......................... 18,608 15,749 32,926 30,001 16,871 10,711 3,110
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income....................... 18,799 16,050 34,021 27,862 20,244 12,973 4,221
Loan loss provision....................... 1,639 900 1,800 1,685 1,575 1,263 709
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after loan loss
provision................................. 17,160 15,150 32,221 26,177 18,669 11,710 3,512
Other noninterest income.................. 5,064 1,639 4,409 2,751 2,612 1,758 1,411
Gain on sale of ORE held for investment... -- -- 1,207 - - - -
General and administrative ("G&A")
expenses.................................. 18,065 12,271 27,352 22,119 14,916 9,308 3,700
SAIF special assessment................... -- -- 2,539 - - - -
Provision for losses on ORE............... 290 450 1,611 - 10 10 20
Other noninterest expense................. 274 102 319 739 1,691 1,417 600
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net income before income taxes &
goodwill accretion........................ 3,595 3,966 6,016 6,070 4,664 2,733 603
Accretion of negative goodwill............ -- -- - 1,578 2,705 1,578 1,579
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net income before income taxes............ 3,595 3,966 6,016 7,648 7,369 4,311 2,182
Income tax provision...................... 1,363 1,493 2,232 1,875 468 268 -
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net income ............................... $ 2,232 $ 2,473 $ 3,784 $ 5,773 $ 6,901 $ 4,043 $ 2,182
=========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA:
Earnings per share........................ $ .44 $ .50 $ .76 $ 1.26 $ 1.67 $ 0.98 $ 1.12
=========== ========== ========== ========== ========== ========== ==========
Weighted average shares outstanding....... 5,025,885 4,953,674 4,952,937 4,562,642 4,136,790 4,141,322 1,951,231
BALANCE SHEET DATA:
Total assets.............................. $ 1,000,671 $ 835,005 $ 907,868 $ 801,995 $ 626,445 $ 626,445 $ 531,312
Investment & mortgage backed securities... 71,006 44,104 94,989 64,801 40,271 40,271 37,382
Loans, net of unearned income............. 838,957 698,240 742,994 669,416 516,335 516,335 316,483
Allowance for loan losses ................ 13,755 14,608 13,134 14,910 7,065 7,065 6,539
Deposits.................................. 877,881 765,936 827,980 743,105 583,885 583,885 494,316
Negative goodwill......................... -- -- - - 1,578 1,578 4,283
Stockholders' equity...................... 56,410 53,214 54,319 50,903 36,165 36,165 29,454
SELECTED FINANCIAL RATIOS(1):
Return on average assets.................. .48% .63% .45% .77% 1.25% 1.20% 1.99%
Return on average equity.................. 8.27 9.93 7.31 13.47 21.34 20.68 39.17
Net interest spread....................... 3.90 3.92 3.96 3.67 3.78 4.06 3.45
Net interest margin....................... 4.19 4.21 4.28 3.95 3.96 4.25 4.22
G&A expense to average assets............. 3.88 2.98 3.28 2.96 2.74 2.79 3.94
G&A efficiency ratio...................... 75.70 69.68 68.98 72.25 65.26 62.02 65.70
Non-accrual loans to loans................ 1.76 2.24 2.15 2.04 2.51 2.51 5.05
Nonperforming assets to total assets...... 2.16 3.13 2.51 2.93 3.59 3.59 4.95
Loan loss allowance to loans.............. 1.79 2.09 1.86 2.24 1.37 1.37 2.07
Loan loss allowance to nonperforming
loans..................................... 87.32 85.06 84.93 90.47 53.36 53.36 39.12
Originated portfolio.................... 73.16 62.95 50.73 71.43 110.61 110.61 37.95
March 1995 purchase..................... 441.82 552.18 488.78 236.85 -- -- --
CrossLand portfolio..................... 106.60 53.22 126.12 41.77 23.73 23.73 39.88
Other purchased portfolios.............. 46.67 39.79 89.80 41.84 82.99 82.99 -
RATIO OF EARNINGS TO FIXED CHARGES (2):
Including interest on deposits............ 1.11 1.10 1.19 1.26 1.45 1.42 1.70
Excluding interest on deposits............ 26.34 76.63 78.41 298.53 235.62 156.92 756.00
OTHER DATA (AT PERIOD-END):
Number of branches........................ 35 32 32 32 21 21 19
Number of full-time equivalent
employees................................. 706 534 637 421 300 300 179
</TABLE>
(1) Annualized.
(2) Represents earnings before fixed charges, income taxes and extraordinary
items and non-cumulative preferred dividends and redemption. Fixed charges
include interest expense (inclusive or exclusive of interest on deposits as
indicated).
7
<PAGE> 9
<TABLE>
<CAPTION>
Five Months Ended Year Ended
May 31, December 31,
-------------------------------- ---------------
1994 1993 1992
---------------- -------------- ---------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
OPERATING DATA:
Interest income........................................ $ 13,431 $ 4,848 $ 11,845
Interest expense....................................... 6,160 1,970 6,054
---------------- -------------- ---------------
Net interest income.................................... 7,271 2,878 5,791
Loan loss provision ................................... 312 379 520
---------------- -------------- ---------------
Net interest income after loan loss provision.......... 6,959 2,499 5,271
Other noninterest income............................... 854 743 1,679
G&A expenses........................................... 5,608 2,699 5,748
Provision for losses on ORE............................ - 1,214 230
Other noninterest expense.............................. 274 443 715
---------------- -------------- ---------------
Net income (loss) before income taxes and goodwill
accretion.............................................. 1,931 (1,114) 257
Accretion of negative goodwill......................... 1,127 - -
---------------- ------------- ---------------
Net income (loss) before income taxes.................. 3,058 (1,114) 257
Income tax provision (benefit)......................... 200 0 0
---------------- -------------- ---------------
Net income (loss)...................................... $ 2,858 $ (1,114) $ 257
================ ============== ===============
PER SHARE DATA:
Earnings (loss) per share.............................. $ .69 $ (1.00) $ 0.23
================ ============== ===============
Weighted average shares outstanding.................... 4,134,420 1,117,192 1,106,459
BALANCE SHEET DATA:
Total assets .......................................... $ 508,642 $ 168,741 $ 168,810
Investment securities.................................. 52,571 27,433 24,276
Loans net of unearned income........................... 396,144 111,292 110,715
Allowance for loan losses.............................. 6,828 1,866 1,958
Negative goodwill...................................... 3,156 5,861 -
Deposits............................................... 469,461 153,660 154,984
Stockholder's Equity................................... 32,234 8,058 12,215
SELECTED FINANCIAL RATIOS(1):
Return on average assets............................... 1.33% (1.61)% 0.15%
Return on average equity............................... 22.34 (21.75) 2.12
Net interest spread.................................... 3.48 4.21 3.51
Net interest margin.................................... 3.67 4.66 3.95
G&A expense to average assets.......................... 2.40 6.28 4.01
G&A efficiency ratio................................... 67.32 74.54 76.95
Non-accrual loans to loans............................. 4.36 2.27 3.20
Nonperforming assets to total assets................... 5.64 5.89 7.55
Loan loss allowance to loans........................... 1.72 1.68 1.77
Loan loss allowance to nonperforming loans............. 23.58 73.03 54.98
Originated portfolio................................. N/A N/A 54.98
March 1995 purchase.................................. N/A N/A -
CrossLand portfolio.................................. N/A N/A -
Other purchased portfolios........................... N/A N/A -
---------------- -------------- ---------------
Total............................................. 23.58 73.03 54.98%
RATIO OF EARNINGS TO FIXED CHARGES(2):
Including interest on deposits......................... 1.51 0.43 1.04
Excluding interest on deposits......................... 928.40 171.20 332.16
OTHER DATA (AT PERIOD-END):
Number of branches..................................... 19 7 7
Number of full-time equivalent employees .............. 223 96 90
</TABLE>
(1) Annualized.
(2) Represents earnings before fixed charges, income taxes and extraordinary
items and non-cumulative preferred dividends and redemption. Fixed
charges include interest expense (inclusive or exclusive of interest on
deposits as indicated).
N/A Data not available.
8
<PAGE> 10
RISK FACTORS
An investment in the Selling Securityholder Securities involves a high
degree of risk. Prospective investors should carefully consider, together with
the other information contained and incorporated by reference in this
Prospectus, the following factors in evaluating the Company before purchasing
the Selling Securityholder Securities offered hereby. Prospective investors
should note, in particular, that this Prospectus contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), that involve substantial risks and
uncertainties. When used in this Prospectus, or in the documents incorporated by
reference herein, the words "anticipate," "believe," "estimate," "may," "intend"
and "expect" and similar expressions identify certain of such forward-looking
statements. Actual results, performance or achievements could differ materially
from those contemplated, expressed or implied by the forward-looking statements
contained herein. The considerations listed below represent certain important
factors the Company believes could cause such results to differ. These
considerations are not intended to represent a complete list of the general or
specific risks that may affect the Company. It should be recognized that other
risks, including general economic factors and business strategies, may be
significant, presently or in the future, and the risks set forth below may
affect the Company to a greater extent than indicated.
CHANGE IN LOAN SALES STRATEGY
On June 27, 1997, the Company announced a change in its sales strategy for
high loan-to-value home equity loans from originating and immediately selling
such loans to temporary retention in portfolio for securitization, and/or
secondary market bulk or individual sales, or some combination of the foregoing.
This new strategy was undertaken with the objective of increasing long-term
earnings, as the terms available through securitizations and bulk sales are
generally more attractive than those available in connection with individual
sales. However, the Company's retention of a portion of its originations of high
loan-to-value home equity loans in portfolio had the effect of negatively
impacting the Company's earnings during the second quarter of 1997 due to
recognizing the relatively high costs of originating these loans and the absence
of income resulting from the decision to defer the sale of a portion of the
originated loans.
There is no assurance that the Company will be able to sell and/or
securitize these home equity loans at the times, for the prices and in the
manner(s) that it desires to do so. Should the Company be unable for any reason
to sell these loans on acceptable terms either through individual or bulk sales,
securitizations or a combination thereof, and consequently be forced to retain
these loans in portfolio for a longer-than- anticipated period of time, the
Company would be faced with the prospect of either significantly reducing its
originations of these types of loans or incurring substantial losses in
subsequent periods. Such losses, in turn, could either (i) deplete the amount of
retained earnings of the Bank available for payment of dividends to the Company,
(ii) cause the Bank to become "undercapitalized" for regulatory capital
purposes, or (iii) limit the extent to which the Bank could pay dividends to the
Company without becoming undercapitalized.
ABILITY TO MANAGE GROWTH AND INTEGRATE OPERATIONS
Since the Change in Control, the Company has experienced rapid growth
through acquisitions, the opening of loan production offices and de novo
branches, the creation of the Bank's mortgage banking division and asset
purchases. There is no assurance that the Company will not encounter unforeseen
expenses, as well as difficulties and complications in integrating expanded
operations and new employees without disruption to overall operations. In
addition, such rapid growth may adversely affect the Company's operating results
because of many factors, including start-up costs, diversion of management
resources, asset quality and required operating adjustments. There can be no
assurance that the Company will successfully integrate or achieve the
anticipated benefits of its growth or expanded operations.
9
<PAGE> 11
In addition, achieving the anticipated benefits of the FFO Merger will
depend in part upon whether the operations and organizations of the Company and
FFO can be integrated in an efficient, effective, and timely manner. There can
be no assurance that this integration will occur and that cost savings in
operations will be achieved. After the FFO Merger, the Company may also
encounter unanticipated operational or organizational difficulties. The
successful combination of the two companies will require, among other things,
consolidation of certain operations, elimination of duplicative corporate and
administrative expense and elimination of certain positions. The integration of
certain operations following the FFO Merger will require the dedication of
management resources which may temporarily distract attention from the
day-to-day business of the Company. There can be no assurance that integration
will be accomplished smoothly or successfully. Failure to accomplish effectively
the integration of operations could have a material adverse effect on the
Company's results of operations and financial condition following the FFO
Merger.
NONPERFORMING ASSETS
At the time of the Change in Control, the Bank had a relatively high ratio
of nonperforming assets to total assets. In addition, subsequent purchases of
loans, acquired at a discount, included loans that subsequently were placed in
nonperforming status. Although the Company has reduced its nonperforming assets
ratio from 4.95% at year-end 1993 to 2.16% at June 30, 1997, its current level
of nonperforming assets is still significantly above .53%, which is the average
level for all commercial banks with assets between $500.0 million and $1.0
billion at June 30, 1997, according to the Uniform Performance Banking Report
issued by federal bank regulators. The nonperforming assets ratio for the
Company and FFO combined on pro forma basis would have been 2.45% at June 30,
1997. Moreover, there is no assurance that this ratio will continue to decline,
particularly if general economic conditions or Florida real estate values
deteriorate.
ADEQUACY OF LOAN RESERVES
Industry experience indicates that a portion of the Company's loans will
become delinquent and a portion of the loans will require partial or entire
charge-off. Regardless of the underwriting criteria utilized by the Company,
losses may be experienced as a result of various factors beyond the Company's
control, including, among other things, changes in market conditions affecting
the value of properties and problems affecting the credit of the borrower. The
Company's determination of the adequacy of its allowance for loan losses is
based on various considerations, including an analysis of the risk
characteristics of various classifications of loans, previous loan loss
experience, specific loans which would have loan loss potential, delinquency
trends, estimated fair value of the underlying collateral, current economic
conditions, the view of the Company's regulators, and geographic and industry
loan concentration. However, if delinquency levels were to increase as a result
of adverse general economic conditions, especially in Florida where the
Company's exposure is greatest, the loan loss reserve so determined by the
Company may not be adequate. A substantial portion of the Company's loan loss
reserves are allocated to specific portfolios of loans purchased by the Company.
Such allocated reserves are not available to cover losses in other portfolios.
To the extent that losses in certain pools or portfolios exceed the loan loss
reserves and unamortized loan discount allocated to such pool or portfolio, or
available as a general reserve, the Company's results of operations would be
adversely affected. There can be no assurance that the Company's allowance for
loan losses will be adequate to cover its loan losses or that the Company will
not experience significant losses in its loan portfolios which may require
significant increases to the allowance for loan losses in the future.
IMPACT OF CHANGES IN REAL ESTATE VALUES
A significant portion of the Company's loan portfolio consists of
residential mortgage loans and commercial real estate loans. At June 30, 1997,
56.3% of the Company's loans were secured by one-to-four family residential real
estate, 33.7% were secured by commercial real estate and multifamily
residential, 4.3% were construction loans and the Company had ORE acquired
through foreclosure with a book value of $5.8 million. Further, the properties
securing these loans are concentrated in Florida. Real estate values and real
estate markets generally are affected by, among other things, changes in
national, regional or local economic conditions, fluctuations in interest rates
and
10
<PAGE> 12
the availability of loans to potential purchasers, changes in the tax laws
and other governmental statutes, regulations and policies and acts of nature.
Any decline in real estate prices, particularly in Florida, could significantly
reduce the value of the real estate collateral securing the Company's loans,
increase the level of the Company's nonperforming loans, require write-downs in
the book value of its ORE, and have a material negative impact on the Company's
financial performance.
The Company has increased its level of commercial real estate loans which
are generally considered to involve a higher degree of credit risk than that for
one-to-four family residential lending. Further, the Company's retention of high
loan-to-value home mortgage loans for longer periods will increase its credit
risk and vulnerability to changes in real estate values.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Company's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on
interest-earning assets and its interest expense on interest-bearing
liabilities. The Company, like most financial institutions, is affected by
changes in general interest rate levels, which are currently at relatively low
levels, and by other economic factors beyond its control. Interest rate risk
arises from mismatches (i.e., the interest sensitivity gap) between the dollar
amount of repricing or maturing assets and liabilities, and is measured in terms
of the ratio of the interest rate sensitivity gap to total assets. More assets
repricing or maturing than liabilities over a given time frame is considered
asset-sensitive and is reflected as a positive gap, and more liabilities
repricing or maturing than assets over a given time frame is considered
liability-sensitive and is reflected as a negative gap. An asset-sensitive
position (i.e., a positive gap) will generally enhance earnings in a rising
interest rate environment and will negatively impact earnings in a falling
interest rate environment, while a liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and negatively impact earnings in a rising interest rate
environment. Fluctuations in interest rates are not predictable or controllable.
The Company has attempted to structure its asset and liability management
strategies to mitigate the impact on net interest income of changes in market
interest rates. At June 30, 1997, the Company had a one year cumulative negative
gap of 5.43%. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Asset/Liability Management."
REGULATORY OVERSIGHT
The Bank is subject to extensive regulation, supervision and examination
by the Department as its chartering authority and primary regulator, and by the
FDIC as its federal regulator and administrator of the insurance fund that
insures the Bank's deposits up to applicable limits. The Bank is a member of the
FHLB and is subject to certain limited regulation by the Federal Reserve. As the
holding company of the Bank, the Company is also subject to regulation and
oversight by the Federal Reserve. See "Business - Supervision and Regulation."
Such regulation and supervision governs the activities in which an institution
may engage and is intended primarily for the protection of the FDIC insurance
funds and depositors. Regulatory authorities have been granted extensive
discretion in connection with their supervisory and enforcement activities and
regulations have been implemented which have increased capital requirements,
increased insurance premiums and have resulted in increased administrative,
professional and compensation expenses. Any change in the regulatory structure
or the applicable statutes or regulations could have a material impact on the
Company and the Bank and their operations. Additional legislation and
regulations may be enacted or adopted in the future which could significantly
affect the powers, authority and operations of the Bank and the Bank's
competitors which in turn could have a material adverse affect on the Bank and
its operations.
In the course of a recent review of the Bank's operations by the FDIC,
issues arose as to the software and procedures used by the Bank to record and
calculate the charges and other information for certain types of mortgage loans,
and the amounts of interest due on one class of deposit accounts. The Bank is in
the process of taking the necessary actions to address these issues, including
the payment of refunds or additional interest as appropriate, and
11
<PAGE> 13
the Company does not expect that any costs that it may incur to resolve these
issues will have a material adverse impact on either its operations or financial
condition.
DEPENDENCE ON EXISTING MANAGEMENT
The Company's ability to operate as a profitable enterprise has depended,
and will continue to depend in large part, upon the management and banking
abilities of the Company's senior management, including John W. Sapanski, the
Chairman, Chief Executive Officer and President of the Company and the Bank. If,
for any reason, the services of Mr. Sapanski were to become unavailable to the
Company, such event would likely have an adverse impact upon the future results
of operations of the Company in light of Mr. Sapanski's experience and
reputation in the banking industry, his stature within the Company, his
extensive knowledge of and familiarity with the Company's operations, and the
critical role played by Mr. Sapanski within the Company. Mr. Sapanski is 67
years old. Neither the Company, nor the Bank, maintains a key man life insurance
policy for Mr. Sapanski.
CONTROL BY THE CONTROLLING STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
The Company's Controlling Stockholders, William R. Hough and John W.
Sapanski (and their respective affiliates and immediate family members)
currently own shares of the Company's capital stock representing approximately
50.6% and 9.0%, respectively, of the total voting rights of the Company.
Following consummation of the FFO Merger, it is anticipated that these voting
percentages will be approximately 56.8% and 6.0%, respectively. On the basis of
such ownership, the Controlling Stockholders will be able to elect the Company's
Board of Directors and, through their control of the Company's Board, will be
able to continue to direct the affairs of the Company and the Bank. The Company
and the Bank have engaged in numerous transactions with affiliates of Mr. Hough,
and it is likely that the Company and the Bank will in the future continue to
engage in such transactions. Generally, transactions with affiliates can involve
conflicts of interests. However, the Company believes that its transactions with
its affiliates were on terms as favorable as those that could have been obtained
in arm's-length transactions.
CAPITAL LIMITATIONS ON FUTURE GROWTH
Since the Change in Control, one of the Company's primary business
objectives has been to increase its total asset size, expand into new market
areas, and increase market share in its existing markets. The Company has sought
to accomplish this goal through a combination of internal growth, loan and other
asset purchases, deposit assumptions, the opening of new branches and
acquisitions of other financial institutions. Most recently, in April 1997, the
Company acquired Firstate, an Orlando-based federal savings association having
total assets of $71.1 million. In addition, the Company has recently completed
an acquisition of FFO, a thrift holding company headquartered in St. Cloud,
Florida, with total assets of $323.0 million as of June 30, 1997. The Company
intends to pursue its current growth strategy for the foreseeable future as a
means of increasing overall profitability. There can be no assurance that the
Company will in the future have sufficient capital to continue to pursue its
growth strategy.
COMPETITION
The Company competes with various types of financial institutions,
including other commercial banks, savings institutions, finance companies,
mortgage banking companies, money market funds and credit unions, many of which
have substantially greater financial resources than the Company and, in some
cases, operate under fewer regulatory constraints. The Company not only competes
with financial institutions headquartered in the State of Florida but also
competes with a number of financial institutions headquartered outside of
Florida who are active in the state.
12
<PAGE> 14
SUBORDINATION OF THE DEBENTURES
The Debentures are unsecured and subordinated in right of payment in full
to all existing and future Senior Indebtedness of the Company. As a result of
such subordination, in the event of bankruptcy, liquidation or reorganization of
the Company or upon acceleration of the Debentures due to an event of default,
the assets of the Company would be available to pay obligations on the
Debentures only after all Senior Indebtedness had been paid in full, and there
may not be sufficient assets remaining to pay amounts due on any or all of the
Debentures then outstanding. The Company may from time to time incur
indebtedness constituting Senior Indebtedness. The Debentures are also
effectively subordinated in right of payment to all indebtedness and other
liabilities, including trade payables, of the Company's subsidiaries. The
Indenture does not prohibit or limit the incurrence of Senior Indebtedness or
other indebtedness and other liabilities by the Company or its subsidiaries. The
incurrence of additional indebtedness and other liabilities by the Company or
its subsidiaries could adversely affect the Company's ability to pay its
obligations on the Debentures. In addition, the cash flow and ability of the
Company to service debt, including the Debentures, may in the future become
dependent in part upon the earnings from the business conducted by the Company
through subsidiaries and distribution of those earnings, or upon loans or other
payments of funds by those subsidiaries to the Company. See "Description of the
Debentures - Subordination."
ABSENCE OF PUBLIC MARKET FOR THE DEBENTURES; RESTRICTIONS ON RESALE
There can be no assurance regarding the future development of a market for
the Debentures or the ability of holders of the Debentures to sell their
Debentures or the price at which such holders may be able to sell their
Debentures. If such a market were to develop, the Debentures could trade at
prices that may be lower than the initial offering price depending on many
factors, including prevailing interest rates, the Company's operating results
and the market for similar securities. Therefore, there can be no assurance as
to the liquidity of any trading market for the Debentures, or that an active
public market for the Debentures will develop.
USE OF PROCEEDS
The Selling Securityholder Securities being offered hereby are for the
account of the Selling Securityholders. Accordingly, the Company will not
receive any of the proceeds from the sale of the Selling Securityholder
Securities.
PLAN OF DISTRIBUTION
The Selling Securityholder Securities may be sold from time to time to
purchasers directly by the Selling Securityholders. Alternatively, the Selling
Securityholders may from time to time offer the Selling Securityholder
Securities to or through underwriters, broker/dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Securityholders, as the case may be, or the purchasers of such
Selling Securityholder Securities for whom they may act as agents. The Selling
Securityholders and any underwriters, broker/dealers or agents that participate
in the distribution of the Selling Securityholder Securities may be deemed to be
"underwriters" within the meaning of the Securities Act and may profit on the
sale of such Selling Securityholder Securities and any discounts, commissions,
concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Company has advised the Selling Securityholders that during such time
as they may be engaged in a distribution of the Selling Securityholder
Securities included herein they may be required to comply with Regulation M
promulgated under the Exchange Act. In general, Regulation M precludes any
Selling Securityholder, any affiliated purchasers and any broker-dealer or other
person who participates in such distribution from bidding for or purchasing, or
attempting to induce any person to bid for or purchase any security which is the
subject of the
13
<PAGE> 15
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security.
Because it is possible that a significant number of shares of Common Stock
could be sold at the same time hereunder, such sales, or the possibility
thereof, may have a depressive effect on the market price of the Common Stock.
The Selling Securityholder Securities may be sold from time to time in one
or more transactions at fixed prices, at the prevailing market prices at the
time of sale, at varying prices determined at the time of sale or at negotiated
prices. This sale of the Selling Securityholder Securities may be effectuated in
transactions (which may involve crosses or block transactions) (i) on any
national securities exchange or quotation service which the Selling
Securityholder Securities may be listed or quoted at the time of sale, (ii) in
the over-the-counter market, and (iii) in transactions otherwise than on such
exchanges or in the over-the-counter markets. At the time a particular offering
of the Selling Securityholder Securities is made, a Prospectus Supplement, if
required, will be distributed which will set forth the aggregate amount of the
type of Selling Securityholder Securities being offered and the terms of the
offering, including the name or names of any underwriters, broker/dealers or
agents, any discounts, commissions and other terms constituting compensation
from the Selling Securityholders, as the case may be, and any discounts,
commissions or concessions allowed or reallowed to be paid to broker/dealers. To
comply with the securities laws of certain jurisdictions, if applicable, the
Selling Securityholder Securities will be offered or sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Selling Securityholder Securities may not be offered or sold
unless they have been registered or qualified for sale in such jurisdictions or
an exemption from registration or qualification is available and is complied
with.
The Company has agreed to pay all expenses of registration of the Selling
Securityholder Securities with certain exceptions. The Selling Securityholders
will be indemnified by the Company against certain civil liabilities, including
certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith. The Company will be indemnified by such
persons severally against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is currently traded on Nasdaq's National Market
under the symbol "REPB." The table below sets forth the high and low closing
sale price for the Common Stock on Nasdaq's National Market for the periods
indicated. All price quotations represent prices between dealers, without retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
See "Risk Factors -Absence of a Public Market for the Debentures."
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995:
First Quarter.................................... $ 13.00 $ 11.00
Second Quarter................................... 13.75 11.75
Third Quarter.................................... 15.75 13.1875
Fourth Quarter................................... 15.25 13.75
1996:
First Quarter.................................... 14.25 13.25
Second Quarter................................... 15.00 12.25
Third Quarter.................................... 12.875 11.75
Fourth Quarter................................... 15.50 12.625
1997:
First Quarter.................................... 16.00 14.00
Second Quarter................................... 18.50 17.25
Third Quarter.................................... 27.63 21.50
Fourth Quarter (through October 29, 1997)........ 27.88 23.75
</TABLE>
14
<PAGE> 16
SELLING SECURITYHOLDERS
The following table sets forth the number of Debentures and underlying
Shares beneficially owned by each of the Selling Securityholders included
herein, and the nature of any relationship which the Selling Securityholders
have had within the past three years with the Company. Because the Selling
Securityholders may offer all or some of the Selling Securityholder Securities
which they own pursuant to the offering contemplated by this Prospectus, and
because there are currently no agreements, arrangements or understandings with
respect to the sale of any of the Selling Securityholder Securities, no estimate
can be given as to the amount of Selling Securityholder Securities that will be
held by the Selling Securityholders after completion of this offering. The
Selling Securityholder Securities offered by this Prospectus may be offered from
time to time by the Selling Securityholders named below.
<TABLE>
<CAPTION>
NUMBER OF
DEBENTURES SHARES
BENEFICIALLY HELD BENEFICIALLY
SELLING AND MAXIMUM HELD AND MAXIMUM
SECURITYHOLDER AMOUNT TO BE SOLD AMOUNT TO BE SOLD(1)
- -------------- ----------------- --------------------
<S> <C> <C>
Hazel C. Hough 10 560
William R. Hough(2) 10 560
Victoria E. Rahall 10 560
Public Profit Sharing Plan & Trust
Mr. Hoyt Barnett, Trustee 50 2800
Royal Palm Centre II, Inc. c/o ACMC 10 560
Julian D. Clarkson 10 560
Anne M. Fassett, Trust
Gloria A. Fassett, Trustee 10 560
Alfred T. May Trust
Alfred T. May Trustee 10 560
Carol Ann Upham 10 560
Dr. Susan L. Hough 30 1680
Marilyn H. Adkins and Robert C. Adkins 10 560
David D. Hill, M.D., IRA
William R. Hough & Co., Custodian 10 560
Sharyn R. Jacobson 20 1120
Geoffrey W. Hill 50 2800
Mary H. Cordrey Revocable Trust
Mary H. Cordrey, Trustee 10 560
John W. Sapanski & Elizabeth Sapanski(3) 40 2240
John W. Sapanski, IRA Rollover
William R. Hough & Co., Custodian(3) 10 560
George K. Rahdert ISERP 10 560
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
NUMBER OF
DEBENTURES SHARES
BENEFICIALLY HELD BENEFICIALLY
SELLING AND MAXIMUM HELD AND MAXIMUM
SECURITYHOLDER AMOUNT TO BE SOLD AMOUNT TO BE SOLD(1)
- -------------- ----------------- --------------------
<S> <C> <C>
Caroline Corp. 10 560
Frank I. Mendelblatt 10 560
Cutler Associates, Inc. Profit Sharing Plan 10 560
Cutler Associates Investment, Inc. 10 560
Melvin S. Cutler 10 560
Helen Hough Feinberg 10 560
Edward Hang & Patty Hang JTWROS 10 560
M.A. Schapiro & Co., Inc. 25 1400
S.D. Securities, Inc. 25 1400
Vincent Santamaria 20 1120
Gale J. Apple 10 560
Timothy L. Landt, Trust
Timothy L. Landt Trustee 10 560
Charles W. Haines, Sr. and Charles W. Haines
Jr. JTWROS 10 560
Bankers Insurance Co. 40 2240
John A. Ruvane, IRA
William R. Hough & Co., Custodian 10 560
Spring Haven II, Inc. 10 560
Virginia S. Morrison 20 1120
Morrison & Company, P.A. Profit Sharing Trust 20 1120
Neil W. Savage 10 560
</TABLE>
(1) Represents Shares to be issued upon conversion of the Debentures.
(2) Mr. William R. Hough, a director and a Controlling Stockholder of the
Company, is the President and controlling stockholder of William R. Hough
& Co., an NASD-member investment banking firm that has been involved in
several transactions with the Company. For a description of certain
relationships between the Company and Mr. Hough and certain affiliates,
see Note 16 to the Company's Consolidated Financial Statements included
herein.
(3) Mr. John W. Sapanski is Chairman of the Board, Chief Executive Officer
and President of the Company and the Bank and is a Controlling Stock,
holder of the Company.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the actual and pro forma, as adjusted,
consolidated capitalization of the Company at June 30, 1997. Pro forma
capitalization gives effect to (i) the FFO Merger and (ii) the proceeds from the
Preferred Offering. The information set forth below should be read in
conjunction with the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus. See "Pro Forma Financial Data."
<TABLE>
<CAPTION>
Pro Forma
Company As
Actual Adjusted
--------- --------
(dollars in thousands)
<S> <C> <C>
Subordinated debentures..................................... $ 6,000 $ 6,000
Guaranteed preferred beneficial interests in Company's
junior subordinated debentures(1)....................... 0 28,750
Stockholders' Equity:
Perpetual Preferred Convertible Stock, 100,000 shares
authorized, 75,000 shares issued and outstanding........ 1,500 1,500
Common Stock, 20,000,000 shares authorized,
4,185,667 shares issued and outstanding................. 8,371 13,270
Capital surplus........................................... 26,723 46,515
Retained earnings......................................... 19,949 22,088
Net unrealized losses on debt securities available for
sale-net of deferred income taxes...................... (133) (13)
-------- --------
Total stockholders' equity................................ $ 56,410 $ 83,360
======== ========
Company Capital Ratios(2):
Equity to total assets.................................... 5.64% 6.27%
Tier 1 risk-based capital ratio........................... 7.88 11.36
Total risk-based capital ratio............................ 10.06 13.34
Leverage ratio(3)......................................... 5.72 7.46
</TABLE>
(1) Preferred Securities representing beneficial interests in an aggregate
amount of $28.7 million of the Junior Subordinated Debentures of the
Company.
(2) The pro forma capital ratios, as adjusted, are computed including proceeds
from the sale of the Preferred Securities, in a manner consistent with
Federal Reserve guidelines and policies. Under the Federal Reserve's
guidelines, the amount of cumulative preferred stock that can be included
in Tier 1 capital is limited to 25% of total Tier 1 capital. In view of
this limitation on a pro forma basis, $24.0 million of the proceeds is
included in the Company's Tier 1 Capital and all $28.7 million is included
in the Company's total risk-based capital.
(3) The leverage ratio is Tier 1 capital divided by the average total assets
less intangibles.
17
<PAGE> 19
PRO FORMA FINANCIAL DATA
The pro forma balance sheet as of June 30, 1997 and statement of
operations and other data for the year ended December 31, 1996 and for the six
months ended June 30, 1997 give effect to the FFO Merger as if it had occurred
at the beginning of the respective periods. See "Business-Recent and Pending
Acquisitions" for a description of the FFO Merger.
The FFO Merger will be accounted for as a corporate reorganization in
which the majority stockholders' interest in FFO will be combined at historical
cost in a manner similar to a pooling of interests, while the minority interests
in FFO will be combined using purchase accounting rules.
The pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable under the
circumstances. The pro forma and projected financial data should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto appearing elsewhere in this Prospectus. The pro forma and projected
financial data are not necessarily indicative of the results that would have
occurred had the FFO Merger actually occurred on the dates indicated, nor are
they indicative of the Company's future results of operations.
The pro forma adjustments to the Combined Condensed Statements of
Operations are limited to amortization of goodwill from the transaction and do
not include the effect of operating cost savings or revenue enhancements that
may be realized after the FFO Merger is completed.
18
<PAGE> 20
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of June 30, 1997
<TABLE>
<CAPTION>
FFO
Adjustments Combined
Company FFO (a) Company
------------ --------- ------------- -------
(In thousands)
ASSETS
<S> <C> <C> <C> <C>
Cash and due from banks.... $ 27,049 $ 6,536 $ -- $ 33,585
Interest bearing
deposits................... 91 5,503 -- 5,594
Investment securities and
mortgage-backed
securities................ 71,006 69,894 19 140,919
FHLB stock................. 5,888 2,378 -- 6
Federal funds sold......... 14,000 1,420 -- 15,420
Loans held for sale........ 69,590 2,897 -- 72,487
Loans receivable, net...... 755,612 223,401 612 979,625
Premises and equipment..... 22,704 5,231 316 28,251
Real estate owned.......... 5,814 1,651 -- 7,465
Goodwill................... 121 -- 4,889 5,010
Other assets............... 28,796 4,109 577 33,482
------------ --------- ------------ -----------
Total assets......... $ 1,000,671 $ 323,020 $ 6,413 $ 1,330,104
============ ========= ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits-
Noninterest-bearing
checking................ $ 57,269 $ 17,089 $ -- $ 74,358
Interest-bearing
checking................ 86,833 -- -- 86,833
Savings and money
market.................. 282,734 54,269 -- 337,003
Time deposits............ 451,045 209,991 1,201 662,237
------------ --------- ------------ ----------
Total deposits........ 877,881 281,349 -- 1,160,431
Securities sold under
agreement to repurchase.. 20,002 -- -- 20,002
Other borrowings........... 41,000 13,000 -- 54,000
Other liabilities.......... 5,378 6,933 -- 12,311
------------ --------- ------------ ----------
Total liabilities.... 944,261 301,282 1,201 1,246,744
------------ --------- ------------ ----------
Stockholders' equity:
Perpetual preferred
convertible stock..... 1,500 -- -- 1,500
Common Stock........... 8,371 845 4,054 13,270
Capital surplus........ 26,723 17,633 2,159 46,515
Retained earnings...... 19,949 3,140 (1,001) 22,088
Net unrealizable loss
on AFS securities..... (133) 120 -- (13)
------------ --------- ------------ ----------
Total stockholders'
equity................... 56,410 21,738 5,212 83,360
------------ --------- ------------ ----------
Total liabilities and
stockholders' equity..... $ 1,000,671 $ 323,020 $ 6,413 $1,330,104
============ ========= ============ ==========
</TABLE>
19
<PAGE> 21
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FFO
Adjustments Combined
Company FFO (b) Company
----------- ---------- --------------- ----------
SIX MONTHS ENDED
JUNE 30, 1997 (In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income................ $ 37,407 $ 11,815 $ - $ 49,222
Interest expense............... 18,608 6,355 - 24,963
----------- --------- -------------- --------------
Net interest income............ 18,799 5,460 - 24,259
Loan loss provision............ 1,639 - - 1,639
----------- --------- -------------- --------------
Net interest income after
loan loss provisions........... 17,160 5,460 - 22,620
Noninterest income............. 5,064 1,390 - 6,454
General & administrative
(G&A expenses)............... 18,065 4,686 - 22,751
Other noninterest expenses..... 562 53 - 615
----------- --------- -------------- --------------
Net income before taxes and
goodwill..................... 3,597 2,111 - 5,708
Income tax expense............. 1,363 815 - 2,178
----------- --------- -------------- -------------
Net income before goodwill
amortization................. 2,234 1,296 - 3,530
Goodwill amortization from the
FFO merger and Firstate
acquisition(a)............... 2 - 245 247
----------- --------- -------------- -------------
Net income............... $ 2,232 $ 1,296 $ (245) $ 3,283
=========== ========= ============== =============
Earnings per share............. $ 0.44 $ 0.44
=========== =============
Weighted average shares
outstanding.................. 5,025,885 7,475,302
</TABLE>
<TABLE>
<CAPTION>
FFO
Adjustments Combined
Company FFO (b) Company
----------- ---------- ------------- ------------
TWELVE MONTHS ENDED
DECEMBER 31, 1996 (In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income................ $ 66,947 $ 21,997 $ - $ 88,944
Interest expense............... 32,926 12,023 - 44,949
---------- --------- ------------- -----------
Net interest income............ 34,021 9,974 - 43,995
Loan loss provision............ 1,800 782 - 2,582
---------- --------- ------------- -----------
Net interest income after
loan loss provisions........... 32,221 9,192 - 41,413
Noninterest income............. 5,616 2,387 - 8,003
General & administrative
(G&A expenses)............... 27,352 9,528 - 36,880
Other noninterest expenses..... 4,469 (352) - 4,117
---------- --------- ------------- -----------
Net income before taxes and
goodwill..................... 6,016 2,403 - 8,419
Income tax expense............. 2,232 803 - 3,035
---------- --------- ------------- -----------
Net income before goodwill
amortization................. 3,784 1,600 - 5,384
Goodwill amortization from the
FFO merger (a)............... - - 489 489
---------- --------- ------------- -----------
Net income............... $ 3,784 $ 1,600 $ (489) $ 4,895
========== ========= ============= ===========
Earnings per share............. $ 0.76 $ 0.66
========== ===========
Weighted Average shares
outstanding................... 4,952,937 7,402,354
</TABLE>
20
<PAGE> 22
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Adjustments Combined
Company FFO Inc/(Dec) Company
TWELVE MONTHS ENDED ---------- ---------- ----------- ----------
DECEMBER 31, 1995 (In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income.......................... $ 57,863 $ 19,730 $ - $ 77,593
Interest expense......................... 30,001 10,111 - 40,112
---------- ---------- ------- ----------
Net interest income...................... 27,862 9,619 - 37,481
Loan loss provision...................... 1,685 477 - 2,162
---------- ---------- ------- ----------
Net interest income after loan loss
provisions............................. 26,177 9,142 - 35,319
Noninterest income....................... 2,751 2,602 - 5,353
General & administrative
(G&A expenses)......................... 22,119 8,844 - 30,963
Other noninterest expenses............... 739 613 - 1,352
---------- ---------- ------- ----------
Net income before taxes and goodwill..... 6,070 2,287 -- 8,357
Income tax expense....................... 1,875 641 -- 2,516
Net income before goodwill
amortization........................... 4,195 1,646 - 5,841
Goodwill amortization from the
FFO merger (a)......................... (1,578) - 489 (1,089)
---------- ---------- ------- ----------
Net income......................... $ 5,773 $ 1,646 $ (489) $ 6,930
========== ========== ======= ==========
Earnings per share(e).................... $ 1.27 $ 0.23 $ 0.99
Weighted Average shares
outstanding(e).......................... 4,562,642 7,007,342 $7,007,342
</TABLE>
<TABLE>
<CAPTION>
Adjustments Combined
Company FFO Inc/(Dec) Company
TWELVE MONTHS ENDED ---------- ---------- ----------- -----------
DECEMBER 31, 1994 (In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income.......................... $ 37,115 $ 16,882 $ - $ 53,997
Interest expense......................... 16,871 7,553 - 24,424
---------- ---------- ------- ----------
Net interest income...................... 20,244 9,329 - 29,573
Loan loss provision...................... 1,575 (1,403) - 172
---------- ---------- ------- ----------
Net interest income after loan loss
provisions............................. 18,669 10,732 - 29,401
Noninterest income....................... 2,612 2,487 - 5,099
General & administrative
(G&A expenses)......................... 14,916 8,761 - 23,677
Other noninterest expenses............... 1,701 3,784 - 5,485
---------- ---------- ------- ----------
Net income before taxes and goodwill..... 4,664 674 - 5,338
Income tax expense....................... 468 234 - 702
---------- ---------- ------- ----------
Net income before goodwill
amortization........................... 4,196 440 - 4,636
Goodwill amortization from the
FFO merger (a)......................... (2,705) - 489 (2,216)
---------- ---------- ------- ----------
Net income......................... $ 6,901 $ 440 $ (489) $ 6,852
========== ========== ======= ==========
Earnings per share(e).................... $ 1.67 $ 0.06 0.97
Weighted Average shares
outstanding(e).......................... 4,136,790 7,085,788 7,085,788
</TABLE>
21
<PAGE> 23
NOTES TO PRO FORMA DATA
(a) The FFO Merger will be accounted for as a corporate reorganization in
which the majority stockholder's interest in FFO will be combined at
historical cost in a manner similar to a pooling of interests while the
minority interest in FFO will be combined using purchase accounting rules.
The excess of the purchase price of the minority interest are the market
value as first assigned to individual assets and liabilities with the
remainder considered unidentifiable goodwill. The pro forma valuation of
the minority interest, book value and estimated amount of goodwill and
market value adjustments is as follows:
<TABLE>
<S> <C>
Exchange ratio: 0.29 shares of the Company's stock for
each share of FFO's stock
Number of shares to be issued - total..................... 2,449,417
Minority interest in FFO.................................. 31.9%
Number of shares to be issued to minority interest........ 781,364
Fair value per share of the Company's common stock........$ 15.50(1)
Fair value of minority interest of FFO common stock.......$ 12,111(2)
Fair value of FFO common stock options over the
exercise price.......................................... 139(3)
--------------
Fair value of minority interest........................... 12,250
--------------
Book value of minority interest........................... 6,896(4)
--------------
Goodwill and market value adjustments.....................$ 5,354
==============
Amount allocated to goodwill........................... 4,889
Amount allocated to market value adjustments........... 465
</TABLE>
(1) The fair value of the Company's common stock is based on the average
of the closing bid price on The Nasdaq National Market two days
before, two days after, and on March 31, 1997, the date the Company
and FFO announced that they had signed a letter of intent to combine
the two companies.
(2) The fair value per share of the Company's common stock multiplied by
the number of shares to be issued to the minority interest.
(3) The number of FFO options outstanding multiplied by the fair value of
the Company's common stock adjusted for the Exchange Ratio of 0.29,
less the aggregate exercise price of the FFO's common stock options,
all multiplied by the 31.9% minority interest.
(4) FFO's book value times the 31.9% minority interest.
(b) Amortization of goodwill on the FFO Merger is as follows:
<TABLE>
<S> <C>
Goodwill recorded......................................... $4,889
Annual amortization based on 10-year period............... 489
Amortization for 6 months................................. 245
</TABLE>
(c) The difference between earnings per common and common equivalent shares
outstanding on a primary and fully diluted basis is not material. The
number of shares of FFO common stock used in the earnings per share
calculation assumes that all shares of FFO were exchanged at the beginning
of the period presented and that all FFO common stock options outstanding
were converted into shares of FFO common stock. The following table
reflects the calculation used in determining the weighted average shares
outstanding.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
Number of FFO shares outstanding......................... 8,446,266 8,446,266
Exchange ratio........................................... 0.29 0.29
FFO pro forma shares outstanding......................... 2,449,417 2,449,417
Company weighted average shares.......................... 5,025,885 4,952,937
--------- ---------
Pro forma weighted average shares........................ 7,475,302 7,402,354
</TABLE>
(d) The goodwill from the FFO Merger is not expected to be tax deductible and
therefore, no tax effect is included. The Company's statutory tax rate in
effect for the periods presented was 37.6%.
22
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data presented below has been derived
from the audited Consolidated Financial Statements of the Company and, prior to
1996, the Bank and are qualified in their entirety by reference to the more
detailed Consolidated Financial Statements and notes thereto, included elsewhere
herein. Financial data for interim periods include all adjustments, consisting
of normal accruals, that management considers necessary for a fair presentation
of the financial conditions and results of operations for such interim periods.
In light of the significant mark-to market adjustments and other adjusting
entries to its financial statements that were made following the Change in
Control on May 28, 1993, management believes that the usefulness of comparisons
between (i) the financial statements and the financial data derived therefrom as
of the dates and for the period prior to June 1, 1993, and (ii) the financial
statements and the financial data derived therefrom as of the dates and for the
periods since June 1, 1993, may be limited. In addition, subsequent to
consummation of the initial public offering in December 1993 and the CrossLand
Purchase and Assumption in that month, the Company has operated in a
significantly different manner from that which it had previously operated.
Accordingly, the financial results for periods prior to the CrossLand Purchase
and Assumption differ significantly from periods since then.
<TABLE>
<CAPTION>
Six Months Ended Seven Months Ended
June 30, Years Ended December 31, December 31,
----------------------- ------------------------------------ -----------------------
1997 1996 1996 1995 1994 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(unaudited) (unaudited)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income ....................... $ 37,407 $ 31,799 $ 66,947 $ 57,863 $ 37,115 $ 23,684 $ 7,331
Interest expense ...................... 18,608 15,749 32,926 30,001 16,871 10,711 3,110
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income ................... 18,799 16,050 34,021 27,862 20,244 12,973 4,221
Loan loss provision ................... 1,639 900 1,800 1,685 1,575 1,263 709
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after loan loss
provision ............................. 17,160 15,150 32,221 26,177 18,669 11,710 3,512
Other noninterest income .............. 5,064 1,639 4,409 2,751 2,612 1,758 1,411
Gain on sale of ORE held for investment -- -- 1,207 -- -- -- --
General and administrative ("G&A")
expenses .............................. 18,065 12,271 27,352 22,119 14,916 9,308 3,700
SAIF special assessment ............... -- -- 2,539 -- -- -- --
Provision for losses on ORE ........... 290 450 1,611 -- 10 10 20
Other noninterest expense ............. 274 102 319 739 1,691 1,417 600
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income before income taxes &
goodwill accretion .................... 3,595 3,966 6,016 6,070 4,664 2,733 603
Accretion of negative goodwill ........ -- -- -- 1,578 2,705 1,578 1,579
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income before income taxes ........ 3,595 3,966 6,016 7,648 7,369 4,311 2,182
Income tax provision .................. 1,363 1,493 2,232 1,875 468 268 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income ............................ $ 2,232 $ 2,473 $ 3,784 $ 5,773 $ 6,901 $ 4,043 $ 2,182
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA:
Earnings per share .................... $ .44 $ .50 $ .76 $ 1.26 $ 1.67 $ 0.98 $ 1.12
========== ========== ========== ========== ========== ========== ==========
Weighted average shares outstanding ... 5,025,885 4,953,674 4,952,937 4,562,642 4,136,790 4,141,322 1,951,231
BALANCE SHEET DATA:
Total assets .......................... $1,000,671 $ 835,005 $ 907,868 $ 801,995 $ 626,445 $ 626,445 $ 531,312
Investment & mortgage backed securities 71,006 44,104 94,989 64,801 40,271 40,271 37,382
Loans, net of unearned income ......... 838,957 698,240 742,994 669,416 516,335 516,335 316,483
Allowance for loan losses ............. 13,755 14,608 13,134 14,910 7,065 7,065 6,539
Deposits .............................. 877,881 765,936 827,980 743,105 583,885 583,885 494,316
Negative goodwill ..................... -- -- -- -- 1,578 1,578 4,283
Stockholders' equity .................. 56,410 53,214 54,319 50,903 36,165 36,165 29,454
SELECTED FINANCIAL RATIOS(1):
Return on average assets .............. .48% .63% .45% .77% 1.25% 1.20% 1.99%
Return on average equity .............. 8.27 9.93 7.31 13.47 21.34 20.68 39.17
Net interest spread ................... 3.90 3.92 3.96 3.67 3.78 4.06 3.45
Net interest margin ................... 4.19 4.21 4.28 3.95 3.96 4.25 4.22
G&A expense to average assets ......... 3.88 2.98 3.28 2.96 2.74 2.79 3.94
G&A efficiency ratio .................. 75.70 69.68 68.98 72.25 65.26 62.02 65.70
Non-accrual loans to loans(3) ......... 1.76 2.24 2.15 2.04 2.51 2.51 5.05
Nonperforming assets to total assets(3) 2.16 3.13 2.51 2.93 3.59 3.59 4.95
Loan loss allowance to loans(3) ....... 1.79 2.09 1.86 2.24 1.37 1.37 2.07
Loan loss allowance to nonperforming
loans(3):
Originated portfolio ................ 73.16 62.95 50.73 71.43 110.61 110.61 37.95
March 1995 purchase ................. 441.82 552.18 488.78 236.85 -- -- --
CrossLand portfolio ................. 106.60 53.22 126.12 41.77 23.73 23.73 39.88
Other purchased portfolios .......... 46.67 39.79 89.80 41.84 82.99 82.99 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total ............................ 87.32% 85.06% 84.93% 90.47% 53.36% 53.36% 39.12%
RATIO OF EARNINGS TO FIXED CHARGES(2):
Including interest on deposits ........ 1.11 1.10 1.19 1.26 1.45 1.42 1.70
Excluding interest on deposits ........ 26.34 76.63 78.41 298.53 235.62 156.91 756.00
OTHER DATA(3):
Number of branches .................... 35 32 32 32 21 21 19
Number of full-time equivalent
employees ............................. 706 534 637 421 300 300 179
</TABLE>
23
<PAGE> 25
(1) Annualized.
(2) Represents earnings before fixed charges, income taxes and extraordinary
items and non-cumulative preferred dividends and redemption. Fixed charges
include interest expense (inclusive or exclusive of interest on deposits
as indicated).
(3) At period-end.
24
<PAGE> 26
<TABLE>
<CAPTION>
Five Months Ended Year Ended
May 31, December 31,
-------------------------------- ---------------
1994 1993 1992
--------------- -------------- ---------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
OPERATING DATA:
Interest income........................................ $ 13,431 $ 4,848 $ 11,845
Interest expense....................................... 6,160 1,970 6,054
---------------- -------------- ---------------
Net interest income.................................... 7,271 2,878 5,791
Loan loss provision ................................... 312 379 520
---------------- -------------- ---------------
Net interest income after loan loss provision.......... 6,959 2,499 5,271
Other noninterest income............................... 854 743 1,679
G&A expenses........................................... 5,608 2,699 5,748
Provision for losses on ORE............................ - 1,214 230
Other noninterest expense.............................. 274 443 715
---------------- -------------- ---------------
Net income (loss) before income taxes and goodwill
accretion.............................................. 1,931 (1,114) 257
Accretion of negative goodwill......................... 1,127 - -
---------------- ------------- ---------------
Net income (loss) before income taxes.................. 3,058 (1,114) 257
Income tax provision (benefit)......................... 200 - -
---------------- -------------- ---------------
Net income (loss)...................................... $ 2,858 $ (1,114) $ 257
================ ============== ===============
PER SHARE DATA:
Earnings (loss) per share.............................. $ .69 $ (1.00) $ 0.23
================ ============== ===============
Weighted average shares outstanding.................... 4,134,420 1,117,192 1,106,459
BALANCE SHEET DATA:
Total assets .......................................... $ 508,642 $ 168,741 $ 168,810
Investment securities.................................. 52,571 27,433 24,276
Loans net of unearned income........................... 396,144 111,292 110,715
Allowance for loan losses.............................. 6,828 1,866 1,958
Negative goodwill...................................... 3,156 5,861 -
Deposits............................................... 469,461 153,660 154,984
Stockholder's Equity................................... 32,234 8,058 12,215
SELECTED FINANCIAL RATIOS(1):
Return on average assets............................... 1.33% (1.61)% 0.15%
Return on average equity............................... 22.34 (21.75) 2.12
Net interest spread.................................... 3.48 4.21 3.51
Net interest margin.................................... 3.67 4.66 3.95
G&A expense to average assets.......................... 2.40 6.28 4.01
G&A efficiency ratio................................... 67.32 74.54 76.95
Non-accrual loans to loans(3).......................... 4.36 2.27 3.20
Nonperforming assets to total assets(3)................ 5.64 5.89 7.55
Loan loss allowance to loans(3)........................ 1.72 1.68 1.77
Loan loss allowance to nonperforming loans(3).......... 23.58 73.03 54.98
RATIO OF EARNINGS TO FIXED CHARGES(2):
Including interest on deposits......................... 1.51 0.43 1.04
Excluding interest on deposits......................... 928.40 171.20 332.16
OTHER DATA(3):
Number of branches..................................... 19 7 7
Number of full-time equivalent employees .............. 223 96 90
</TABLE>
(1) Annualized.
(2) Represents earnings before fixed charges, income taxes and extraordinary
items and non-cumulative preferred dividends and redemption. Fixed
charges include interest expense (inclusive or exclusive of interest on
deposits as indicated).
(3) At period-end.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of the Company's balance sheets and
statements of operations should be read in conjunction with "Selected
Consolidated Financial Data" and the Consolidated Financial Statements and the
related notes included therein.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Comparison of Balance Sheets at June 30, 1997 and December 31, 1996
Overview
Total assets were $1.0 billion at June 30, 1997, and $907.9 million at December
31, 1996, an increase of $92.8 million or 10.22%. During April 1997, the Company
consummated its acquisition of Firstate Financial, F.A., which accounted for a
$69.5 million or 7.66% increase. Principally as a result of the Firstate
acquisition, total deposits increased by $49.9 million from $828.0 million at
year-end 1996 to $877.9 million. Total loans increased by $96.0 million from
$743.0 million at the end of the prior year to $839.0 million at the end of the
second quarter.
Investment and Mortgage-Backed Securities
Investment and mortgage-backed securities, consisting of U.S. Treasury and
federal agency securities, were $71.0 million at June 30, 1997, compared to
$95.0 million at December 31, 1996, a decrease of $24.0 million. The Company has
recorded its investment and mortgage-backed securities categorized as "available
for sale" at their period-end market value. The Company did not have any
investment and mortgage-backed securities which were categorized as "held to
maturity" as of June 30, 1997. During the first six months of 1997 management
permitted the amount in this category to decline by allowing maturities and
sales to exceed purchases. The Company recorded $213,000 in net gains on the
sales of $48.3 million in investments and mortgage-backed securities of which
$26.4 million were obtained through the Firstate acquisition. Federal funds
sold, all on an overnight basis, increased by $6.0 million from $8.0 million at
the prior year-end to $14.0 million at June 30, 1997.
Loans
Total loans held for portfolio increased $63.0 million (of which $56.8 million
was from the Firstate acquisition) from $706.4 million at the prior year-end to
$769.4 million at June 30, 1997. One-to-four family residential loans increased
by $20.0 million primarily as a result of the Firstate acquisition. Commercial
real estate and multifamily residential loans increased $32.3 million to $283.0
million. Consumer loans increased $3.8 million while commercial (business) and
other loans declined slightly.
Allowance for Loan Losses
The allowance for loan losses amounted to $13.8 million at June 30, 1997 (1.79%
of portfolio loans) compared to $13.1 million at December 31, 1996. At June 30,
1997, the allowance for loan losses included $7.5 million allocated to loans
originated by the Company, $3.5 million allocated to the largest loan purchase
made in March 1995 (the "March 1995 Purchase"), $1.0 million allocated to loans
purchased from CrossLand, and $1.7 million allocated to other loan purchases.
For a discussion of discounts on purchased loans and the use of amounts
allocated to the allowance for loan losses, see the notes to the consolidated
financial statements. Other activity to the allowance in 1997 included
provisions for loan losses of $1.6 million (based generally on the growth in the
loan portfolio), loan charge-offs (net of recoveries) of $377,000, $773,000
re-allocated from the allowance to loan discounts and $132,000 in allowances
obtained through the Firstate acquisition. The net charge-off amount for the
period included $120,000 assessed against the allowance for loan losses on loans
allocated to the March 1995 Purchase as properties securing certain
nonperforming loans in that purchase were acquired through foreclosure and
recorded at their fair value.
26
<PAGE> 28
Nonperforming Assets
Nonperforming assets amounted to $21.6 million or 2.16% of total assets at June
30, 1997, as compared to $22.6 million or 2.51% of total assets at December 31,
1996. Nonperforming loans totaled $15.8 million at the end of the second
quarter, an increase of $500,000 from the prior year-end total of $15.3 million.
This increase was primarily the result of a $1.7 million increase in 1-4
residential nonperforming loans which was partially offset by a $1.2 million
reduction in commercial real estate and commercial business loans. Other real
estate decreased by $1.5 million from $7.3 million at the end of the prior year
to $5.8 million at the end of the second quarter. This improvement was primarily
the result of the sale of $3.0 million of ORE properties, at an aggregate net
gain of $122,000, which exceeded foreclosures on properties, the majority of
which were securing residential loans which had been purchased at substantial
discounts from their face value.
Deposits
Total deposits were $877.9 million at June 30, 1997, compared to $828.0 million
at the prior year-end, an increase of $49.9 million. Excluding the Firstate
acquisition which comprised $68.4 million in deposits, total deposits would have
declined by $18.5 million, which included a $22.0 million decline in
certificates of deposit as the Company adopted a less competitive rate strategy
during the first six months of the year. Regular savings accounts increased by
$2.0 million and passbook savings accounts offered to higher-balance customers
at a premium rate of 5.00% increased by $1.7 million while retail checking
balances declined by $2.9 million.
Stockholders' Equity
Stockholders' equity was $56.4 million at June 30, 1997, or 5.64% of total
assets compared to $54.3 million or 5.98% of total assets at December 31, 1996.
At June 30, 1997, the Bank's Tier 1 ("Leverage") Capital ratio was 6.03%, its
Tier 1 Risk-Based Capital ratio was 8.78%, and its Total Risk-Based Capital
ratio was 10.04%, all in excess of minimum FDIC guidelines for an institution to
be considered a "well-capitalized" bank. The Company's Tier 1 ("Leverage")
ratio, Tier 1 Risk-Based Capital ratio and total Risk-Based Capital ratio was
5.42%, 7.88% and 10.06%, respectively.
Comparison of Results of Operations for the Three Months Ended June 30, 1997
and 1996
Overview
Net income for the three months ended June 30, 1997, was $629,000 or $.13 per
share, compared with net income of $1.3 million, or $.26 per share, for the
second quarter of 1996. Return on average assets for the second quarter of 1997
was .26% compared with .63% for the second quarter of 1996, while return on
average equity was 4.57% compared with 9.93%. Previously, the Company had
announced that net income was expected to decline from the comparable period due
to a change in its strategy regarding high loan-to-value home equity loans.
Since it began originating that type of loan in the fourth quarter of 1996, the
Company had been immediately selling those loans following origination. The
Company changed that strategy in the second quarter of 1997, retaining a
significant portion of those loans with the intent to securitize or sell these
loans in bulk at a future date. Primarily as a result of this change, net income
in the second quarter was reduced due to recognizing the relatively high costs
of originating these loans and the absence of revenues resulting from loan
sales. In the second quarter of 1997, the Company recognized, as part of its
noninterest income, $660,000 of pre-tax income from mortgage banking activities.
The Company estimates that, based on published purchase prices from established
firms that participate in the home equity loan secondary markets, its pre-tax
income from mortgage banking activities in the second quarter of 1997 would have
increased by approximately $2.6 million if the Company had followed its former
policy of immediately selling these loans.
27
<PAGE> 29
Analysis of Net Interest Income
Net interest income for the second quarter of 1997 was $9.7 million compared
with $8.1 million for the same period last year. This $1.6 million or 19.49%
increase was the result of $646,000 from an improved net interest spread and
$936,000 in additional income from balance sheet growth. Interest income was
$19.3 million for 1997, an increase of $5.9 million over 1996 while interest
expense increased by $1.8 million. Average asset yield increased 19 basis points
from 8.35% for the second quarter of 1996 to 8.54% for 1997. The average cost of
interest-bearing liabilities increased 13 basis points from 4.44% to 4.57%. As a
result, net interest spread increased six basis points from 3.91% for 1996 to
3.97% for 1997 and net interest margin, which includes the benefit of
noninterest bearing funds, increased four basis points from 4.21% for 1996 to
4.25% for 1997.
Noninterest Income
Noninterest income for the second quarter of 1997 was $1.9 million compared with
$961,000 for the same period of 1996, an increase of $980,000. This increase was
primarily the result of net gains on mortgage banking activities, consisting of
gains on sale of loans and recognition of the value of originated mortgage
servicing rights ("OMSR's"), which increased $409,000. Service fees on deposit
accounts increased $104,000 and loan service fees increased $90,000.
Additionally, fee income from the Company's new Generations Gold program
increased by $56,000, a 124% increase compared with the same period last year.
The following table reflects the components of noninterest income for the three
months ended June 30, 1997, and 1996 (in thousands):
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
-------------------------------
Increase
1997 1996 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Income from mortgage banking operations $ 660 $ 251 $ 409
Service charges on deposit accounts 482 378 104
Loan fee income 229 139 90
Merchant charge card processing fees 52 36 16
Gains on sales of loans, net 113 - 113
Gain on sale of securities, net 171 - 171
Generations Gold fee income 101 45 56
Other income 133 112 21
------ ----- -----
Total noninterest income $1,941 $ 961 $ 980
====== ===== =====
</TABLE>
28
<PAGE> 30
The following table summarizes the average yields earned on interest-earning
assets and the average rates paid on interest-bearing liabilities for the three
months ended June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------------------------------
1997 1996
------------------------------ ----------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Summary of Average Rates
- ------------------------
Interest earning assets:
Loans, net $790,039 $ 17,638 8.90% $691,998 $14,949 8.60%
Investment securities 41,603 615 5.92 23,477 312 5.34
Mortgage backed securities 34,379 549 6.39 20,198 333 6.59
Interest bearing deposits in banks 81 1 6.00 143 -- .42
FHLB stock 5,729 104 7.25 4,830 87 7.25
Federal funds sold 31,037 430 5.48 19,090 256 5.31
-------- -------- ------- -------
Total interest-earning assets 902,868 19,337 8.54 759,736 15,937 8.36
Non interest-earning assets 54,314 46,012
-------- -------
Total assets $957,182 $805,748
======== ========
Interest-bearing liabilities:
Interest checking $ 88,795 $ 236 1.07 $ 80,693 230 1.15
Savings 251,198 2,866 4.58 135,513 1,349 4.01
Money market 33,928 166 1.97 38,545 208 2.17
Time deposits 444,048 5,967 5.39 443,322 5,906 5.36
FHLB advances 2,198 32 5.90 3,846 52 5.39
Other borrowings 26,057 373 5.73 6,494 77 4.79
-------- -------- -------- -------
Total interest-bearing liabilities 846,224 9,640 4.57 708,413 7,822 4.44
-------- -------
Non interest-bearing liabilities 55,783 46,088
Stockholders' equity 55,175 51,247
-------- --------
Total liabilities and equity $957,182 $805,748
======== ========
Net interest income/net interest spread $ 9,697 3.97% $ 8,115 3.91%
======== ==== ======= ====
Net interest margin 4.25% 4.21%
==== ====
<CAPTION>
Increase (Decrease) Due to (1)
-------------------------------
Changes in Net Interest Income Volume Rate Total
- ------------------------------ ------ ---- -----
<S> <C> <C> <C>
Interest earning assets:
Loans, net $ 2,001 $ 688 $ 2,689
Investment securities 273 30 303
Mortgage backed securities 226 (10) 216
Interest bearing deposits in banks -- 1 1
FHLB stock 16 1 17
Federal funds sold 165 9 174
------- ----- -------
Total change in interest income 2,681 719 3,400
Interest-bearing liabilities:
Interest checking 23 (17) 6
Savings 1,407 110 1,517
Money market (24) (18) (42)
Time deposits 82 (21) 61
FHLB advances (26) 6 (20)
Other borrowings 283 13 296
------- ----- -------
Total change in interest expense 1,745 73 1,818
------- ----- -------
Increase (decrease) in net interest income $ 936 $ 646 $ 1,582
======= ===== =======
</TABLE>
(1) Changes in net interest income due to changes in volume and rate are based
on absolute values.
29
<PAGE> 31
Noninterest Expense
General and administrative ("G & A") expenses for 1997 were $9.8 million
compared with $6.3 million, an increase of $3.5 million. Total noninterest
expenses, which include G & A expense, were $10.1 million for the second quarter
of 1997 compared with $6.6 million for the same period last year, an increase of
$3.5 million. Increases occurred in substantially all areas of expense primarily
as a result of the costs associated with increased loan production capabilities,
and to a lesser degree, the Firstate acquisition.
The following table reflects the components of noninterest expense for the three
months ended June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
--------------------------------
Increase
1997 1996 (Decrease)
------- ------- -------
<S> <C> <C> <C>
Salaries and benefits $ 4,685 $ 3,374 $ 1,311
Net occupancy expense 1,549 1,025 524
Advertising 481 123 358
Data processing fees 403 313 90
FDIC and state assessments 176 264 (88)
Telephone expense 284 131 153
Legal & professional 299 150 149
Postage and supplies 846 232 614
Other operating expense 1,101 703 398
------- ------- -------
Total G & A expenses 9,824 6,315 3,509
Provision for losses on ORE 120 270 (150)
ORE expense, net of ORE income 40 (145) 185
Amortization of premium on deposits 125 123 2
------- ------- -------
Total noninterest expense $10,109 $ 6,563 $ 3,546
======= ======= =======
</TABLE>
Comparison of Results of Operations for the Six Months Ended June 30, 1997 and
1996
Overview
Net income for the six months ended June 30, 1997, was $2.2 million, or $.44 per
share, compared with $2.5 million, or $.50 per share, for the same period in
1996. Return on average assets for the first six months of 1997 was .48%
compared with .62% for the same period of 1996, while return on average equity
was 8.27% compared with 9.76%.
Analysis of Net Interest Income
Net interest income for the first six months of 1997 was $18.8 million compared
with $16.1 million for 1996. This $2.7 million or 17.13% increase was the result
of $1.5 million in additional income from balance sheet growth and $1.2 million
from an increased net interest spread. Interest income was $37.4 million for
1997, an increase of $5.6 million over 1996. During the same period interest
expense increased by $2.9 million from $15.7 million for 1996 to $18.6 million
for 1997. Average asset yield increased nine basis points from 8.36% for 1996 to
8.45% for 1997 and average earning assets increased $122.3 million. During this
same period the average cost of interest-bearing liabilities increased six basis
points from 4.49% to 4.55%. Net interest spread increased three basis points
from 3.87% for 1996 to 3.90% for 1997 and net interest margin, which includes
the benefit of noninterest bearing funds, increased slightly from 4.18% for 1996
to 4.19% for 1997.
30
<PAGE> 32
The following table summarizes the average yields earned on interest-earning
assets and the average rates paid on interest-bearing liabilities for the six
months ended June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------------------------
1997 1996
----------------------------- ---------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
-------- -------- ---- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Summary of Average Rates
- ------------------------
Interest earning assets:
Loans, net $768,024 $ 34,144 8.84% $684,709 $29,727 8.64%
Investment securities 37,974 1,100 5.84 27,876 740 5.34
Mortgage backed securities 27,170 855 6.29 20,300 624 6.15
Interest bearing deposits in banks 99 3 5.70 93 1 1.17
FHLB stock 5,301 191 7.25 4,263 154 7.26
Federal funds sold 41,419 1,114 5.35 20,416 553 5.36
-------- -------- -------- -------
Total interest-earning assets 879,987 37,407 8.45 757,657 31,799 8.36
Non interest-earning assets 52,075 46,154
-------- --------
Total assets $932,062 $803,811
======== ========
Interest-bearing liabilities:
Interest checking $ 88,629 $ 476 1.08 $ 79,122 484 1.23
Savings 249,641 5,652 4.57 117,786 2,274 3.88
Money market 33,474 332 2.00 39,127 428 2.19
Time deposits 427,411 11,437 5.40 462,723 12,387 5.38
FHLB advances 1,105 32 5.90 1,923 52 5.39
Other borrowings 24,120 679 5.67 5,426 124 4.63
-------- -------- -------- -------
Total interest-bearing liabilities 824,380 18,608 4.55 706,107 154,749
Non interest-bearing liabilities 53,227 46,865
Stockholders' equity 54,455 50,839
-------- --------
Total liabilities and equity $932,062 $803,811
======== ========
Net interest income/net interest spread $ 18,799 3.90% $ 16,050 3.87%
======== ==== ======== ====
Net interest margin 4.19% 4.18%
==== ====
<CAPTION>
Increase (Decrease) Due to (1)
-------------------------------
Changes in Net Interest Income Volume Rate Total
- ------------------------------ ------- ------- -------
<S> <C> <C> <C>
Interest earning assets:
Loans, net $ 3,332 $ 1,085 $ 4,417
Investment securities 303 57 360
Mortgage backed securities 216 15 231
Interest bearing deposits in banks -- 2 2
FHLB stock 37 -- 37
Federal funds sold 562 (1) 561
------- ------- -------
Total change in interest income 4,450 1,158 5,608
Interest-bearing liabilities:
Interest checking 53 (61) (8)
Savings 3,180 198 3,378
Money market (60) (36) (96)
Time deposits (762) (188) (950)
FHLB advances (26) 6 (20)
Other borrowings 531 24 555
------- ------- -------
Total change in interest expense 2,916 (57) 2,859
------- ------- -------
Increase (decrease) in net interest income $ 1,534 $ 1,215 $ 2,749
======= ======= =======
</TABLE>
(1) Changes in net interest income due to changes in volume and rate are based
on absolute values.
31
<PAGE> 33
Noninterest Income
Noninterest income for the first six months of 1997 was $5.1 million compared to
$1.6 million for the same period of 1996, an increase of $3.5 million. This
increase is primarily the result of higher income from mortgage banking
activities which increased $1.3 million and gains on the sale of portfolio loans
of $1.3 million. Additional increases were in service fees on deposit accounts
of $166,000, loan service fees of $90,000, gains on sale of securities of
$209,000, and Generations Gold fee income of $149,000.
The following table reflects the components of noninterest income for the six
months ended June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
---------------------------------------------
Increase
1997 1996 (Decrease)
-------- ------- ---------
<S> <C> <C> <C>
Income from mortgage banking operations $ 1,558 $ 240 $ 1,318
Service charges on deposit accounts 920 754 166
Loan fee income 354 264 90
Merchant charge card processing fees 101 59 42
Gains on sales of loans, net 1,301 -- 1,301
Gain on sale of securities, net 213 4 209
Generations Gold fee income 201 52 149
Other income 416 266 150
Total noninterest income ------- ------- -------
$ 5,064 $ 1,639 $ 3,425
======= ======= =======
</TABLE>
Noninterest Expense
Total noninterest expenses for the first six months of 1997 were $18.6 million
compared to $12.8 million for the same period last year, an increase of $5.8
million. G & A expenses for 1997, included in the noninterest expense total,
were $18.1 million compared to $12.3 million, an increase of $5.8 million. The
increase was the result of increased costs from an overall expansion of the
Company's loan production capabilities and the Firstate acquisition.
The following table reflects the components of noninterest expense for the six
months ended June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
------------------------------------------
Increase
1997 1996 (Decrease)
------- ------- ----------
<S> <C> <C> <C>
Salaries and benefits $ 9,051 $ 6,626 $ 2,425
Net occupancy expense 2,832 2,050 782
Advertising 691 203 488
Data processing fees 793 631 162
Telephone expense 535 256 279
Legal and professional 547 256 291
Postage and supplies 1,182 461 721
FDIC and state assessments 303 534 (231)
Other operating expense 2,131 1,254 877
------- ------- -------
Total G & A expenses 18,065 12,271 5,794
Provision for losses on ORE 290 450 (160)
ORE expense, net of ORE income 27 (143) 170
Amortization of premium on deposits 247 245 2
------- ------- -------
Total noninterest expense $18,629 $12,823 $ 5,806
======= ======= =======
</TABLE>
32
<PAGE> 34
YEARS ENDED DECEMBER 31, 1996 AND 1995
Comparison of Balance Sheets at December 31, 1996 and 1995
Overview
Total assets of the Company were $907.9 million at December 31, 1996 and
$802.0 million at December 31, 1995, an increase of $105.9 million. This growth
was primarily the result of the expansion of the Company's residential loan
production capabilities. Total loans increased by $73.6 million from $669.4
million at the end of 1995 to $743.0 million at the end of 1996. Total deposits
increased by $84.9 million from $743.1 million at year-end 1995 to $828.0
million at year-end 1996.
Investment and Mortgage-Backed Securities
The Company's investment securities consisted of U.S. Treasury Bills and Notes
and a $1.5 million revenue bond with the Northern Palm Beach County Improvement
District (the "Revenue Bond"). The Revenue Bond is not an obligation of Palm
Beach County, the State of Florida, or any political subdivision, municipality
or agency thereof. The principal and interest are payable solely from and are
secured equally and ratably by a lien upon and pledge of the proceeds of special
assessments levied by the district. This investment is taxable for United States
federal income tax purposes.
Loans and Loans Held for Sale
Total loans at December 31, 1996 included $706.4 million of loans held for
portfolio and $36.6 million held for sale, a total of $743.0 million. At
December 31, 1995, these amounts were $664.7 million and $4.7 million,
respectively. The $73.6 million increase in total loans was primarily comprised
of a $25.5 million increase in residential loans to $405.9 million (54.6% of
total loans), and a $41.3 million increase in other real estate-secured loans.
At December 31, 1996, loans secured by first liens on real estate constituted
92.0% of the total loan portfolio. Commercial (business) loans not secured by
real estate increased $4.7 million while consumer loans increased $3.1 million.
Residential loan sales for 1996 amounted to $106.1 million and totalled $41.5
million for 1995.
Allowance for Loan Losses
The allowance for loan losses amounted to $13.1 million at December 31, 1996,
compared to $14.9 million at December 31, 1995. The total amount of loans for
determining the adequacy of the allowance includes $467.5 million of loans
originated by the Company and purchased loans amounting to $275.5 million.
The Company made various loan purchases totaling $157.4 million during 1994,
$102.3 million during 1995 and $8.2 million in 1996. The Company allocated a
portion of the discount on its purchased loans to the allowance in amounts
consistent with loan loss allowance policy guidelines and recorded the remainder
as an unearned discount to be accredited to income as a yield adjustment. In
1995 such allocation included $7.2 million related solely to the March 1995
Purchase. Subsequently, the principal balance of the March 1995 Purchase had
declined to $39.9 million and losses on certain nonperforming loans in this pool
had reduced the allowance allocated to this purchase to $5.9 million. The
Company's history of administering this loan purchase indicates that the
expected loss rate on the remaining loans in this portfolio will be less than
the amount remaining in the allowance. Consequently, the Company reallocated
$1.5 million from the allowance to unearned discount in the fourth quarter of
1996, reducing the December 31, 1996 allowance allocated to the March 1995
Purchase to $4.4 million. The overall allowance at year-end 1996 of $13.1
million also included $1.0 million allocated to loans purchased from CrossLand,
$1.8 million allocated to other loan purchases and $6.0 million allocated to
originated loans.
33
<PAGE> 35
Activity to the allowance during 1996 included a $1.8 million provision for
loan losses, loan charge-offs (net of recoveries) of $1.8 million, and $1.7
million allocated from the allowance to unearned discount. The net charge-off
amount for 1996 included $1.0 million assessed against the allowance for loans
acquired in the March 1995 Purchase as properties securing certain nonperforming
loans which were purchased at a substantial discount, were acquired through
foreclosure and recorded at their fair value. At December 31, 1996 the amount of
unearned discount on purchased loans not allocated to allowance totaled $4.7
million.
Nonperforming Assets
Nonperforming assets amounted to $22.8 million or 2.51% of total assets at
December 31, 1996, as compared to $23.5 million or 2.93% of total assets at
December 31, 1995. Nonperforming loans totaled $15.4 million at the end of 1996,
an increase of $34,000 from the prior year-end total of $15.4 million. The ratio
of nonperforming loans to total loans declined from 2.3% at the end of 1995 to
2.19% at year-end 1996. Nonperforming loans at December 31, 1996 and 1995
included troubled debt restructurings of $1.0 million and $.4 million,
respectively. ORE acquired through foreclosure decreased by $701,000 from $8.1
million at the end of 1995 to $7.4 million at year-end 1996.
Deposits
Total deposits were $828.0 million at December 31, 1996, compared to $743.1
million at the prior year-end, an increase of $84.9 million. Passbook savings
accounts offered to higher-balance customers at a premium rate of 5.00%
increased by $156.5 million and retail checking and noninterest-bearing account
balances increased $20.5 million or 19.18%. The Company reduced its reliance on
time deposits through a less aggressive pricing strategy which resulted in an
$83.7 million decline in certificates of deposits and a decline in other
interest-bearing balances of $9.9 million. At December 31, 1996, jumbo ($100,000
and over) deposits totaled $49.3 million or 5.96% of total deposits. There were
no brokered deposits.
Convertible Subordinated Debt
In December 1996, the Company completed a private offering of $6.0 million in
the Debentures. The proceeds were used to increase the capital of the Bank. The
Debentures are convertible by the holder at any time prior to maturity into the
Shares at a conversion price of $17.85714 per share (equivalent to a conversion
rate of 56 shares per $1,000 principal amount of Debentures). See "Description
of the Debentures - Conversion of Debentures." The Debentures were sold at par
and the Company incurred $213,000 in expenses associated with the offering. The
Company has the right to redeem the Debentures beginning in 2001 at 106% of face
value, with the premium declining 1% per year thereafter and without any premium
if the price of the Company Common Stock equals or exceed 130% of the conversion
price for not less than 20 consecutive trading days. See "Description of the
Debentures - Optional Redemption."
Stockholders' Equity
Stockholders' equity of the Company was $54.3 million at December 31, 1996, or
6.0% of total assets compared to $50.9 million or 6.3% of total assets at
December 31, 1995. At December 31, 1996, the Company's and the Bank's capital
ratios were all in excess of minimum regulatory guidelines for an institution to
be considered "well-capitalized."
34
<PAGE> 36
Comparison of Results of Operations for the Year Ended December 31, 1996 and
1995
Overview
Consolidated net income for 1996 was $3.8 million or $.76 per share, compared
to $5.8 million or $1.26 per share for 1995. Consolidated net income excluding
the SAIF special assessment would have been $5.3 million or $1.08 per share for
1996 as compared to $4.2 million or $.92 per share for 1995, excluding negative
goodwill accretion.
Analysis of Net Interest Income
Net interest income for 1996 was $34.0 million compared to $27.9 million for
1995. This $6.2 million or 22.1% increase was primarily the result of $3.9
million in additional income from balance sheet growth and a more favorable mix
of earning assets. An increase in net interest spread also improved net interest
income by $2.2 million. Interest income was $66.9 million for 1996, an increase
of $9.1 million over 1995. During the same period, interest expense increased by
$2.9 million from $30.0 million for 1995 to $32.9 million for 1996. Asset yield
increased 25 basis points from 8.21% for 1995 to 8.46% for 1996 and average
earning assets increased $83.6 million. The average cost of interest-bearing
liabilities decreased 5 basis points from 4.55% to 4.50%. Net interest spread
increased 30 basis points from 3.66% for 1995 to 3.96% for 1996 and net interest
margin, which includes the benefit of noninterest bearing funds, increased from
3.94% for 1995 to 4.28% for 1996.
35
<PAGE> 37
The following table summarizes the average yields earned on interest-earning
assets and the average rates paid on interest-bearing liabilities for the years
ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1996 1995
------------------------------ ----------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate
-------- --------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, net ........................... $704,919 $ 62,244 8.78% $604,535 $52,389 8.65%
Investment securities ................ 25,905 1,413 5.46 31,042 1,431 4.60
Mortgage backed securities 20,494 1,325 6.46 13,515 827 6.12
Interest bearing deposits in banks 79 2 2.91 290 17 5.82
FHLB stock ........................... 4,548 330 7.26 3,126 231 7.40
Federal funds sold ................... 30,188 1,633 5.32 49,978 2,968 5.86
-------- -------- -------- -------
Total interest-earning assets 786,133 66,947 8.46 702,486 57,863 8.21
Non interest-earning assets 46,343 45,556
-------- --------
Total assets ......................... $832,476 $748,042
======== ========
Interest-bearing liabilities:
Interest checking .................... 80,442 944 1.17 $ 67,005 1,081 1.61
Savings .............................. 170,100 7,281 4.28 90,904 3,281 5.57
Money market ......................... 37,778 809 2.14 58,862 1,735 2.94
Time deposits ........................ 433,860 23,392 5.39 439,824 23,777 5.41
FHLB advances ........................ 956 52 5.21 -- -- --
Other borrowings ..................... 8,884 448 4.95 3,304 127 3.85
-------- -------- -------- -------
Total interest-bearing
liabilities ......................... 732,020 32,926 4.50 659,899 30,001 4.55
Non interest-bearing liabilities ..... 48,821 45,285
Stockholders' equity ................. 51,635 42,858
-------- --------
Total liabilities and equity ......... $832,476 $748,042
======== ========
Net interest income/net spread ....... $ 34,021 3.96% $27,862 3.66%
======== ==== ======= ====
Net interest margin .................. 4.28% 3.94%
==== =====
<CAPTION>
Increase
(Decrease) Due to (1)
---------------------
Changes in Net Interest Income Volume Rate Total
- ------------------------------ ------- ---- --------
<S> <C> <C> <C>
Interest earning assets:
Loans, net ........................... $ 8,108 $ 1,747 $ 9,855
Investment securities ................ (91) 73 (18)
Mortgage backed securities ........... 449 49 498
Interest bearing deposits in banks ... (9) (6) (15)
FHLB stock ........................... 103 (4) 99
Federal funds sold ................... (1,091) (244) (1,335)
------- ------- -------
Total change in interest income ...... 7,469 1,615 9,084
Interest-bearing liabilities:
Interest checking .................... 191 (328) (137)
Savings .............................. 3,738 262 4,000
Money market ......................... (530) (396) (926)
Time deposits ........................ (173) (212) (385)
FHLB advances ........................ 52 -- 52
Other borrowings ..................... 248 73 321
------- ------- -------
Total change in interest expense...... 3,526 (601) 2,925
------- ------- -------
Increase (decrease) in net interest
income ............................. $ 3,943 $ 2,216 $ 6,159
======= ======= =======
</TABLE>
(1) Changes in net interest income due to changes in volume and rate are based
on absolute values.
36
<PAGE> 38
Noninterest Income
Noninterest income for 1996 was $5.6 million compared to $2.8 million for
1995, an increase of $2.9 million. The gain on sale of the former headquarters
building accounted for $1.2 million of the increase. Income from the Company's
expanded mortgage banking activities increased $878,000, service fees on deposit
accounts increased $211,000, loan service and other ancillary fees increased
$327,000, and net gains on sale of investments increased $343,000. Other sources
of income increased $148,000 and merchant charge card processing fees, a program
which has been discontinued, declined $249,000.
The following table reflects the components of noninterest income for the
years ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
Increase
---------
1996 1995 (Decrease)
------- ------- ---------
<S> <C> <C> <C>
Service charges on deposit accounts $ 1,606 $ 1,395 $ 211
Loan fee income 604 277 327
Income from mortgage banking activities 1,002 124 878
Gain on sale of ORE held for investment 1,207 -- 1,207
Net gains on sale of investments 370 27 343
Merchant charge card processing fees 1 250 (249)
Other income 826 678 148
------- ------- -------
Total noninterest income $ 5,616 $ 2,751 $ 2,865
======= ======= =======
</TABLE>
Noninterest Expense
Total noninterest expenses for 1996 were $31.8 million compared to $22.9
million for the same period in 1995, an increase of $9.0 million. Noninterest
expenses for 1996 include a $2.5 million charge for the one-time SAIF Special
Assessment and a $1.6 million provision for losses on ORE, primarily related to
two ORE properties. See "Other Real Estate Acquired Through Foreclosure." G&A
expenses for 1996, included in the noninterest expense total, were $27.4 million
compared to $22.1 million, an increase of $5.2 million. The increase was
primarily the result of expanding the Company's mortgage banking activities and
related administrative support units.
The following table reflects the components of noninterest expense for the
years ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
Increase
--------
1996 1995 (Decrease)
------ -------- ---------
<S> <C> <C> <C>
Salaries and benefits ....................... $14,309 $ 11,251 $3,058
Net occupancy expense ....................... 4,507 3,211 1,296
Advertising ................................. 519 439 80
Data processing fees and services ........... 1,451 1,152 299
FDIC and state assessments .................. 949 1,566 (617)
Other operating expense ..................... 5,617 4,500 1,117
------ -------- ------
G & A expenses .............................. 27,352 22,119 5,233
SAIF Special Assessment ..................... 2,539 -- 2,539
Provision for losses on ORE ................. 1,611 -- 1,611
Other ORE expense (income) .................. (172) (289) (461)
Amortization of premium on deposits ......... 491 450 41
------ -------- ------
Total noninterest expense ................... $31,821 $ 22,858 $8,963
======= ======== ======
</TABLE>
37
<PAGE> 39
YEARS ENDED DECEMBER 31, 1995 AND 1994
Comparison of Balance Sheets at December 31, 1995 and 1994
Overview
Total assets were $802.0 million at December 31, 1995 compared to $626.4
million at year-end 1994, an increase of $175.6 million or 28.0%. The source of
funds for this growth included $126.6 million in deposits from the thirteen
branches opened in the latter part of 1994 and throughout 1995. These additional
funds were primarily invested in residential and commercial real estate-secured
loans. Total stockholders' equity increased by $14.7 million to $50.9 million at
year-end 1995 as a result of the 1995 stock offerings and earnings retention.
Investment and Mortgage-Backed Securities
Investment securities, consisting of U.S. Treasury and federal agency
securities, were $64.8 million at December 31, 1995 compared to $40.2 million at
December 31, 1994, an increase of $24.5 million. This increase included $19.7
million from securitizing a portion of the Company's residential loan
originations into mortgage backed securities to improve liquidity and risk based
capital ratios.
Loans and Loans Held for Sale
Total loans were $669.4 million at December 31, 1995, an increase of
$153.1 million or 29.6% over the $516.3 million total at year-end 1994.
One-to-four family residential mortgages amounted to $388.2 million at year-end
1995 compared to $293.1 million at year-end 1994, an increase of $95.1 million.
Fundings of residential loans through direct lending activities and a
correspondent/broker network amounted to $119.7 million and there were $100.3
million in residential loan purchases. The next largest loan category,
commercial real estate, amounted to $153.2 million at December 31, 1995 compared
to $112.1 million at year-end 1994, an increase of $41.1 million. Multi-family
residential loans amounted to $75.1 million at year-end 1995 compared to $60.8
million at December 31, 1994. Substantially all fundings of commercial real
estate and multi-family residential loans were through direct lending
activities.
Commercial (business) loans amounted to $29.7 million at December 31, 1995
compared to $24.6 million at year-end 1994, an increase of $5.1 million.
Consumer loans, consisting primarily of loans secured by second liens on
residential real estate, amounted to $6.8 million at year-end 1995 compared to
$6.4 million at end of the prior year, an increase of $421,000.
Allowance for Loan Losses
The allowance for loan losses amounted to $14.9 million at December 31,
1995, an increase of $7.8 million from the $7.1 million allowance at December
31, 1994. This increase primarily resulted from the transfer of $7.7 million of
discounts from purchases of various loan pools into an allowance established for
those loans. During March 1995 the Company made the March 1995 Purchase for a
cash payment of $39.9 million with a resulting discount of $8.2 million. The
March 1995 Purchase included 941 loans amounting to $46.3 million, which were
current as to their scheduled principal and interest payments, and 34 loans
amounting to $1.8 million which were delinquent 90 days or more. Of this
discount, $7.2 million was allocated to the allowance for those loans, based
primarily on management's evaluation of collateral values, with the $982,000
remainder recorded as unearned income. At December 31, 1995, the amount included
in the allowance allocated to the March 1995 Purchase was $6.9 million and such
portion allocated to the allowance is available only to absorb losses in such
portfolio. For a discussion of the use of allocated loan loss reserves, see.
Management continually monitors the status of its purchased loans and may, at a
later date, adjust the amounts allocated between loan discount and the loan loss
reserve. Other activity to the allowance included provisions for loan losses of
$1.7 million (based generally on the growth in the loan portfolio), loan
charge-offs (net of recoveries) of $1.5 million, and $503,000 in discounts
allocated to allowance from other loan purchases.
38
<PAGE> 40
Nonperforming Assets
Nonperforming assets amounted to $23.5 million or 2.93% of total assets at
December 31, 1995, as compared to $22.5 million or 3.58% of total assets at
December 31, 1994. Nonperforming assets consisted of $15.4 million of
nonperforming loans and $8.1 million of ORE. Nonperforming loans at December 31,
1995 included troubled debt restructurings of $.4 million. The $1.0 million
increase in nonperforming assets during 1995 consisted primarily of the addition
of nonperforming commercial (business) and commercial real estate loans totaling
$4.0 million, partially offset by the removal from nonperforming status, through
repayment and/or return to performing status, of commercial (business) loans and
commercial real estate loans totaling $2.3 million. Other reductions to
nonperforming assets were in commercial (business) loans ($115,000), consumer
loans ($300,000) and ORE ($1.2 million).
Deposits
Total deposits were $743.1 million at December 31, 1995, compared to
$583.9 million at December 31, 1994, an increase of $159.2 million or 27.3%.
Time deposits increased $186.0 million which was partially offset by reductions
of $21.2 million in savings accounts and $8.1 million in money market accounts.
Of the total increase in deposits, $126.6 million is attributable to deposit
growth at 13 new branch locations opened in 1994 and 1995.
Stockholders' Equity
Stockholders' equity was $50.9 million at December 31, 1995, or 6.3% of
total assets compared to $36.2 million or 5.8% of total assets at December 31,
1994. At December 31, 1995, the Tier 1 Capital ratio was 6.00%, the Tier 1
Risk-Based Capital ratio was 9.17%, and the Total Risk-Based Capital ratio was
10.30%, all in excess of minimum regulatory guidelines for an institution to be
considered "well-capitalized". On June 27, 1995, an offering of 800,000 shares
of common stock by the Bank was completed to the public and the stockholders.
The shares of common stock were offered through a combined subscription rights
offering and an underwritten public offering resulting in net proceeds of $9.1
million.
Comparison of Results of Operations for Years Ended December 31, 1995 and
1994
Overview
Net income for the year ended December 31, 1995 was $5.8 million compared
to $6.9 million for the previous year which included the non-recurring benefit
from certain income tax items and a full year's accretion of negative goodwill.
Income tax expense was $1.9 million for 1995 compared to $468,000 in 1994, an
increase of $1.4 million. This was primarily due to a $1.3 million decrease in
the deferred income tax valuation allowance in 1994 which reduced income tax
expense by that amount. Earnings per share were $1.26 for 1995 compared to $1.67
for 1994. Return on average assets for 1995 was .77% compared to 1.25% in 1994,
while return on average equity was 13.47% compared to 21.34% in 1994.
Analysis of Net Interest Income
Net interest income for 1995 was $27.9 million compared to $20.2 million
for 1994. This $7.6 million or 37.6% increase was primarily the result of
additional income from balance sheet growth throughout 1994 and 1995 and a more
favorable asset mix as liquid assets were redeployed into higher-yielding loans.
Interest income was $57.9 million for 1995, an increase of $20.7 million over
1994. Interest expense increased by $13.1 million from $16.9 million for 1994 to
$30.0 million for 1995. Average asset yield increased 95 basis points and
average earning assets increased $192.7 million, while the average cost of
interest-bearing liabilities increased 106 basis points as a result of a more
competitive market for customer deposits during 1995. Net interest spread
decreased 11 basis points from 3.77% for 1994 to 3.66% for 1995 while net
interest margin, which includes the benefit of noninterest bearing funds, was
generally unchanged at 3.94% for 1995 compared to 3.96% for 1994.
39
<PAGE> 41
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities for the years ended December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1995 1994
------------------------------ ----------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net ............................... $604,535 $ 52,389 8.65% $396,238 $32,699 8.24%
Investment securities .................... 31,042 1,431 4.60 47,631 1,939 4.06
Mortgage backed securities ............... 13,515 827 6.12 -- -- --
Interest bearing deposits in banks ....... 290 17 5.82 549 16 2.98
FHLB stock ............................... 3,126 231 7.40 255 13 5.00
Federal funds sold ....................... 49,978 2,968 5.86 65,080 2,448 3.71
-------- -------- -------- -------
Total interest-earning assets ............ 702,486 57,863 8.21 509,753 37,115 7.26
Non interest-earning assets .............. 45,556 40,499
-------- --------
Total assets ............................. $748,042 $550,252
======== ========
Interest-bearing liabilities:
Interest checking ........................ $ 67,005 1,081 1.61 $ 63,390 1,086 1.71
Savings .................................. 90,904 3,281 5.57 66,049 2,136 3.24
Money market ............................. 58,862 1,735 2.94 72,211 1,587 2.20
Time deposits ............................ 439,824 23,777 5.41 279,058 11,958 3.49
FHLB advances ............................ -- -- -- 658 36 5.52
Other borrowings ......................... 3,304 127 3.85 2,259 68 2.97
-------- -------- -------- -------
Total interest-bearing liabilities ....... 659,899 30,001 4.55 483,625 16,871 3.49
Non interest-bearing liabilities.......... 45,285 34,411
Stockholders' equity ..................... 42,858 32,216
-------- --------
Total liabilities and equity.............. $748,042 $550,252
======== ========
Net interest income/net interest
spread .............................. $ 27,862 3.66% $20,244 3.77%
======== ==== ======= =====
Net interest margin ...................... 3.94% 3.96%
==== =====
</TABLE>
<TABLE>
<CAPTION>
Increase
(Decrease) Due to (1)
-----------------------
Changes in Net Interest Income Volume Rate Total
- ------------------------------ ---------- ------- --------
<S> <C> <C> <C>
Interest-earning assets:
Loans, net ........................ $ 18,651 $ 1,038 $ 19,689
Investment securities ............. (741) 233 (508)
Mortgage backed securities ........ 827 -- 827
Interest bearing deposits in banks (10) 11 1
FHLB stock ........................ 210 9 219
Federal funds sold ................ (662) 1,182 520
-------- ------- --------
Total change in interest income ... 18,275 2,473 20,748
Interest-bearing liabilities:
Interest checking ................. 60 (65) (5)
Savings ........................... 1,451 (306) 1,145
Money market ...................... (329) 477 148
Time deposits ..................... 9,533 2,286 11,819
FHLB advances ..................... (18) (18) (36)
Other borrowings .................. 64 (5) 59
-------- ------- --------
Total change in interest expense .. 10,761 2,369 13,130
-------- ------- --------
Increase in net interest
income ....................... $ 7,514 $ 104 $ 7,618
======== ======= ========
</TABLE>
(1) Changes in net interest income due to changes in volume and rate are based
on absolute values.
40
<PAGE> 42
Noninterest Income
Noninterest income for 1995 was $2.8 million compared to $2.6 million for
1994, an increase of $139,000. The prior year had included $315,000 from
settlement of a claim against a borrower released from bankruptcy. Included in
1995 was a $57,000 lease termination settlement from a lessee who had sublet
space in a building leased by the Company. Other improvements were due to a
$148,000 increase in service charge and fee income from higher deposit levels
and gains on sale of loans of $124,000. Income from processing charge card
deposits for merchants was $250,000 in 1995 compared to $204,000 in 1994. This
program was discontinued in August 1995.
The following table reflects the components of noninterest income for the
years ended December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
For the Years
Ended December 31,
-------------------------
Increase
1995 1994 (Decrease)
------ ------ --------
<S> <C> <C> <C>
Service charges on deposit
accounts $1,395 $1,247 $ 148
Loan fee income 277 368 (91)
Merchant charge card
processing fees 250 204 46
Gains on sales of loans 124 -- 124
Other income 705 793 (88)
------ ------ -----
Total noninterest income $2,751 $2,612 $ 139
====== ====== =====
</TABLE>
Noninterest Expense
Total noninterest expenses for 1995 were $22.9 million compared to $16.6
million for 1994, an increase of $6.3 million. G & A expenses for 1995 were
$22.1 million compared to $14.9 million, an increase of $7.2 million. The
primary reasons for these increases were the additional personnel and other
operating costs related to the thirteen new branches which accounted for $2.9
million of the increase in G & A expense, an overall expansion of the lending
and administrative functions, and a $252,000 expense to record a loss on
reimbursing credit cardholders for chargebacks.
41
<PAGE> 43
The following table reflects the components of noninterest expense for the
years ended December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
For the Years
Ended December 31,
----------------------------
Increase
1995 1994 (Decrease)
------- ------- --------
<S> <C> <C> <C>
Salaries and benefits $11,251 $ 7,339 $ 3,912
Net occupancy expense 3,211 1,308 1,903
Advertising 439 349 90
Data processing fees 1,152 1,472 (320)
FDIC and state assessments 1,566 1,188 378
Loan collection and
repossession expense 128 206 (78)
Other operating expense 4,372 3,054 1,318
------- ------- -------
G & A expenses 22,119 14,916 7,203
ORE expense (net) 289 432 (143)
Amortization of premium on
deposits 450 1,269 (819)
------- ------- -------
Total noninterest expense $22,858 $16,617 $ 6,241
======= ======= =======
</TABLE>
Income Taxes
Income tax expense for 1995 was $1.9 million, which was net of a $177,000
reduction in the estimated amount of the valuation allowance for the deferred
tax asset and a $122,000 tax credit related to the prior year's income tax
return. The income tax provision for the same period in 1994 was $468,000 which
was net of a $1.3 million decrease in the valuation allowance.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Liquidity
The Asset/Liability Management Committee ("ALCO") reviews the Company's
liquidity, which is its ability to generate sufficient cash to meet the funding
needs of current loan demand, deposit withdrawals, and other cash demands. The
primary sources of funds consist of deposits, amortization and prepayments of
loans, sales of investments, other funds from operations and the Company's
capital. The Bank is a member of the FHLB and has the ability to borrow to
supplement its liquidity needs.
When the Company's primary sources of funds are not sufficient to meet
deposit outflows, loan originations and purchases and other cash requirements,
the Company may supplementally borrow funds from the FHLB and from other
sources. The FHLB system acts as an additional source of funding for banks and
thrift institutions that make residential mortgage loans.
FHLB borrowings, known as "advances," are secured by the Bank's mortgage
loan portfolio, and the terms and rates charged for FHLB advances vary in loan
portfolio, and the terms and rates charged for FHLB advances vary in response to
general economic conditions. As a shareholder of the FHLB, the Bank is
authorized to apply for advances from this bank. A wide variety of borrowing
plans are offered by the FHLB, each with its own maturity and interest rate. The
FHLB will consider various factors, including an institution's regulatory
capital position, net income, quality and composition of assets, lending
policies and practices, and level of current borrowings from all sources, in
determining the amount of credit to extend to an institution. As of June 30,
1997, the Bank had $35.0
42
<PAGE> 44
million of outstanding advances from the FHLB. The Bank expects to obtain
additional advances from the FHLB to fund all or a portion of the purchase
price for a pool of residential mortgage loans with an aggregate principal
amount outstanding of approximately $76.5 million (the "1997 Loan Purchase").
The loans will be purchased at a nominal discount.
At June 30, 1997, the liquidity ratio, consisting of net cash and
investments of $86.8 million divided by net deposits and short-term liabilities
of $876.4 million, was 9.90% as compared to 13.42% at December 31, 1996. Net
liquid assets were $6.6 million, in excess of the amount required by Florida
banking regulations.
Asset/Liability Management
One of the primary objectives of the Company is to reduce fluctuations in
net interest income caused by changes in interest rates. To manage interest rate
risk, the Board of Directors has established interest-rate risk policies and
procedures which delegate to ALCO the responsibility to monitor and report on
interest-rate risk, devise strategies to manage interest-rate risk, monitor loan
originations and deposit activity, and approve all pricing strategies.
The management of interest rate risk is one of the most significant
factors affecting the ability to achieve future earnings. The measure of the
mismatch of assets maturing or repricing within certain periods, and liabilities
maturing or repricing within the same period, is commonly referred to as the
"gap" for such period. Controlling the maturity or repricing of an institution's
assets and liabilities in order to minimize interest rate risk is commonly
referred to as gap management. "Negative gap" occurs when, during a specific
time period, an institution's liabilities are scheduled to reprice more rapidly
than its assets, so that, barring other factors affecting interest income and
expense, in periods of rising interest rates the institution's interest expense
would increase more rapidly than its interest income, and in periods of falling
interest rates the institution's interest expense would decrease more rapidly
than its interest income. "Positive gap" occurs when an institution's assets are
scheduled to reprice more rapidly than its liabilities, so that, barring other
factors affecting interest income and expense, in periods of falling interest
rates the institution's interest income would decrease more rapidly than its
interest expense, and in periods of rising interest rates the institution's
interest income would increase more rapidly than its interest expense. It is
common to focus on the one-year gap, which is the difference between the dollar
amount of assets and the dollar amount of liabilities maturing or repricing
within the next twelve months.
ALCO uses an industry standard computer modeling system to analyze the
impact of financial strategies prior to their implementation. The system
attempts to simulate the asset and liability base and project future operating
results under a variety of interest rate and spread assumptions. Through this
management tool, management can also, among other things, project the effects of
changing its asset and liability mix and modifying its balance sheet, and
identify appropriate investment opportunities. The results of these simulations
are evaluated within the context of the interest-rate risk policy, which sets
out target levels for the appropriate level of interest-rate risk.
The policy is to maintain a cumulative one-year gap of no more than 15% of
total assets. Management attempts to conform to this policy primarily by
managing the maturity distribution of the investment portfolio and emphasizing
loan originations and loan purchases carrying variable interest rates tied to
interest-sensitive indices. Additionally, the Bank has joined the FHLB to
enhance its liquidity position and to provide it with the ability to utilize
long-term fixed-rate advances to improve the match between interest-earning
assets and interest-bearing liabilities in certain periods. Currently,
off-balance-sheet hedging instruments are not used to manage overall interest
rate risk but such instruments are used to limit the exposure to changes in the
value of residential loans held for resale and estimated loan commitments to
originate and close fixed rate residential and mortgage loans. However, there
continues to be a risk that such loan commitments do not close or are
renegotiated in a declining interest rate environment. Management may expand its
use of off-balance sheet hedging instruments to manage exposure to overall
interest rate risk in the future, subject to Board approval.
The cumulative one year gap at June 30, 1997 was $(54.3) million or a
negative 5.43% (expressed as a percentage of total assets). Management will
attempt to moderate any lengthening of the repricing structure of
43
<PAGE> 45
earning assets by emphasizing variable-rate assets and, where appropriate,
match-funding longer-term fixed rate loans with FHLB advances.
The following table presents the maturities or repricing of
interest-earning assets and interest-bearing liabilities at June 30, 1997. The
balances shown have been derived based on the financial characteristics of the
various assets and liabilities. Adjustable and floating-rate assets are included
in the period in which interest rates are next scheduled to adjust rather than
their scheduled maturity dates. Fixed rate loans are shown in the periods in
which they are scheduled to be repaid according to contractual amortization and,
where appropriate, prepayment assumptions based on the coupon rates in the
portfolio have been used to adjust the repayment amounts. Repricing of time
deposits is based on their scheduled maturities. Based on management's
experience in the markets in which the Company operates, statement savings
deposits are assumed to reprice at 8.3% of the total balance in the first three
months, 25.0% in the four-to-twelve months category and the remaining 66.7% from
one to five years. Passbook savings deposits are assumed to reprice equally over
a 24 month period. Repricing of interest checking and money market accounts is
assumed to occur at 10% of the total balance for every three month interval.
44
<PAGE> 46
INTEREST SENSITIVITY ANALYSIS
JUNE 30, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
0-3 Months 4-12 Months 1-5 Years Over 5 Years
---------------------- ---------------------- ---------------------- -------------------
Yield/ Yield/ Yield/ Yield/
Amount Rate Amount Rate Amount Rate Amount Rate
--------- --------- --------- ---------- -------- -------- -------- ---------
<S> <S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
U.S. Treasury securities
and government agencies ... $ 989 5.45% $ 5,253 5.78% 5.96% $-- -%
Revenue bonds ............... -- -- -- -- 1,545 8.60 -- --
Mortgage backed securities .. 2,016 6.23 32,022 5.79 -- -- -- --
Federal funds sold .......... 14,000 5.60 -- -- -- -- -- --
Interest bearing deposits in
banks ..................... 91 5.45 -- -- -- -- -- --
FHLB stock .................. -- -- -- -- -- -- 5,888 7.25
Loans ....................... 188,579 9.09 215,358 8.24 263,954 8.67 171,066 8.59
-------- --------- --------- --------
Total interest-earning
assets .................... $205,675 8.80 $ 252,633 7.88 $ 294,684 8.40 $176,954 8.30
Interest-bearing liabilities:
Deposits
Interest checking ......... $ 8,685 1.09% $ 26,055 1.09% $ 52,093 1.09% $--
Money market .............. 2,757 2.08 8,271 2.08 22,046 2.08 -- --
Savings ................... 2,361 1.98 7,083 1.98 18,875 1.98 -- --
Passbook Gold ............. 27,669 4.90 83,007 4.90 110,665 4.90 -- --
Time deposits ............. 87,018 5.15 204,56 5.25 159,444 5.8 22 5.76
FHLB Advances - Variable .... 35,000 5.90 -- -- -- -- -- --
Subordinated debt ........... -- -- -- -- -- -- 6,000 7.19
Obligations under capital
leases .................... 39 7.49 117 7.49 241 7.49 -- --
Repurchase Agreements ....... 20,002 4.99 -- -- -- -- -- --
-------- --------- --------- --------
Total interest-bearing
liabilities ............... $183,531 3.88 $ 329,094 4.69 $ 33,364 4.45 $ 6,022 7.18
-------- --------- --------- --------
Excess (deficiency) of
interest-earning assets
over interest-bearing
liabilities ............... $ 22,144 4.92% $ (76,461) 3.19% $ (68,684) 3.95% $170,932 1.12%
======== ==== ========= ==== ========= ==== ======== ====
Cumulative excess
(deficiency) of interest-
earning assets over
interest-bearing
liabilities ............... $ 22,144 4.92% $ (91,800) 3.90% $(123.001) 3.92% 47,931 3.89%
======== ==== ========== ==== ========= ===== ====== ====
Cumulative excess
(deficiency) of interest-
earning assets over
interest-bearing
liabilities as a percent of
total assets .............. 2.21% (5.43)% (12.29)% 4.79%
==== ==== ====== ====
</TABLE>
EFFECTS OF INFLATION
As a financial institution, the majority of the Company's assets are
monetary in nature and, therefore, differ greatly from those of most industrial
or commercial companies that have significant investments in fixed assets. The
effects of inflation on the financial condition and results of operations,
therefore, are less significant than the effects of changes in interest rates.
The most significant effect of inflation is on noninterest expense, which tends
to rise during periods of general inflation.
44
<PAGE> 47
BUSINESS
The Company is a bank holding company organized in March 1996 under
the laws of the State of Florida and is the parent of the Bank, a
Florida-chartered, federally-insured commercial bank. At June 30, 1997, the
Company's total assets were $1.0 billion, total loans were $839.0 million,
total deposits were $877.9 million and total stockholders' equity was $56.4
million. The Company is regulated by the Federal Reserve and the Bank is
regulated by the Department and the FDIC. The Bank's deposits are insured by
the FDIC up to applicable limits. The Bank is a member of the FHLB.
BACKGROUND AND PRIOR OPERATING HISTORY
In May 1993, the Controlling Stockholders, William R. Hough and John
W. Sapanski, acquired from the prior controlling stockholder over 99% of the
Bank's outstanding common stock for $4.5 million and made an additional capital
infusion of $3.5 million to meet regulatory capital requirements. The
transaction was accounted for using purchase or push-down accounting treatment,
which established a new accounting basis. The assets and liabilities were
restated from historical cost to their fair market values as of May 28, 1993,
premises and equipment totaling $1.4 million were written off, and the
historical equity capital balances were not carried forward. The excess of fair
market value of assets acquired and liabilities assumed exceeded the cost of
acquisition by $5.9 million which resulted in the creation of "negative
goodwill" in that amount. That negative goodwill was accredited to income over
a 26 month period from May 28, 1993 through July 31, 1995, the weighted average
life of the earning assets at the Change in Control.
Pursuant to the CrossLand Purchase and Assumption, the Bank purchased
12 branches in Pinellas, Manatee and Sarasota counties from CrossLand, a
federal stock savings bank, and assumed deposit liabilities of $327.7 million.
The Bank paid CrossLand $11.5 million for the branches and related furniture,
fixtures, equipment and other assets, plus a $1.9 million (sixty basis points)
premium on the dollar amount of the deposits assumed. Concurrently, the Bank
purchased performing and non-performing loans secured by real estate and ORE
amounting to $201.6 million from CrossLand. The CrossLand Purchase and
Assumption increased total assets to $531.3 million and total deposits to
$494.3 million at December 31, 1993.
In December 1993, the Bank sold 1,398,200 shares of its common stock
in an initial public offering at a price of $8.00 per share. The net proceeds
of the offering totaled $10.3 million. In addition, the Bank sold 75,000 shares
of Series A non-cumulative convertible perpetual preferred stock for a purchase
price of $6.6 million (or $88.00 per share). In June 1995, the Bank sold
800,000 shares of its common stock in a combined subscription rights and public
offering at $12.50 per share, with net proceeds totaling $9.1 million.
In February 1996, the Bank's shareholders approved a reorganization
under which the Bank became a wholly-owned subsidiary of the Company. All
holders of shares of the Bank's common and preferred stock received one share
of the Company's Common Stock for each share of the Bank's common stock held of
record and one share of the Company's $20.00 par value noncumulative
convertible perpetual preferred stock for each share of the Bank's preferred
stock held of record. Holders of outstanding options to purchase or acquire the
Bank's common stock received options to purchase an equal number of shares of
Company Common Stock.
In December 1996, the Company completed a private offering of $6.0
million of the Debentures.
In May 1997, the Company and RBI Capital filed a registration
statement with the Commission relating to the Preferred Offering by RBI Capital
of 2,875,000 shares of the Preferred Securities. The proceeds from the
Preferred Offering were used to purchase an equivalent amount of Junior
Subordinated Debentures. The net proceeds from the sale of the Junior
Subordinated Debentures were contributed by the Company to the capital of the
Bank. The Preferred Offering was completed on July 31, 1997.
BUSINESS STRATEGY
The Company's business strategy entails (i) originating and purchasing
real estate secured loans for portfolio and sale and originating business and
consumer loans for portfolio; (ii) improving market share and expanding its
market area through acquisitions of financial institutions and de novo
branching; (iii) increasing non-interest income through expanded mortgage
banking activities and emphasizing commercial and retail checking
relationships; and (iv) increasing its range of products and services. While
pursuing this strategy, management remains committed to improving asset
quality, managing interest rate risk and enhancing profitability.
46
<PAGE> 48
The Company's business strategy has resulted in:
- Expanded Branch Network - Since the Change in Control in May
1993, the Company has expanded its branch network from seven
branches in northern Pinellas County to its current 35
branches in Hernando, Pasco, Pinellas, Manatee, Sarasota and
Orange Counties. Further market expansion will occur upon
consummation of the FFO Merger later this year which will add
eleven branches in the central Florida market, including five
in Osceola County, five in Brevard County, and one in Orange
County, bringing the total number of branches to 46.
- Increased Levels and Sources of Noninterest Income - The
Company has expanded its sources and amounts of fee income by
emphasizing mortgage banking activities and new products,
including a program that generates fee income for the Company
when the Company's checking account customers utilize the
travel and other services of certain third-party providers.
- Improved Asset Quality Ratios - The assets acquired in the
Change in Control and the CrossLand Purchase and Assumption
included significant levels of nonperforming assets. As a
result, the Company's nonperforming assets-to-total assets
ratio was 4.95% at year-end 1993. This ratio had been
reduced to 2.16% at June 30, 1997. This reduction was
achieved primarily through the implementation of consistent
loan underwriting policies and procedures, centralization
of all credit decision functions and growth in the loan
portfolio. Nonperforming assets at June 30, 1997, included
$14.5 million of loans and ORE, primarily originated prior
to the Change in Control, $1.4 million from assets acquired
in the CrossLand Purchase and Assumption and $5.7 million
from assets originated or purchased after December 31, 1993.
- Management of Interest Rate Risk - One of the Company's
primary objectives is to reduce fluctuations in net interest
income caused by changes in market interest rates. To manage
interest rate risk, the Company generally limits holding
loans in its portfolio to those that have variable interest
rates tied to interest-sensitive indices and actively manages
the maturities within the investment portfolio. The Company
believes, based on its experience, that, as of June 30, 1997,
the anticipated dollar amounts of assets and liabilities
which reprice or mature within a one-year time horizon are
closely matched.
RECENT AND PENDING ACQUISITIONS
Management believes that acquisitions of financial institutions
provide the Company with an opportunity to enhance its market presence and size
in a manner which is generally quicker and more cost effective than de novo
branching. Management believes that its banking products and customer services
will enable it to preserve its relationships with the customers of acquired
financial institutions.
On April 18, 1997, the Company acquired Firstate, a thrift institution
headquartered in Orlando, Florida, with branches in downtown Orlando and Winter
Park, for a cash purchase price of $5.5 million. Firstate was not publicly
traded. At April 18, 1997, Firstate had total assets of $71.1 million and total
deposits of $67.9 million. The acquisition was accounted for as a purchase, and
the amount of goodwill recorded was $130,000. Because it qualified as a "weak
institution" under the SAIF recapitalization legislation enacted in September
1996, Firstate was not required to pay a $519,063 special assessment to the
SAIF that otherwise would have been due and payable. The Company recorded an
accrual for the special assessment at acquisition and has elected to pay a pro
rata portion of the special assessment ($346,734 from July 1 to December 31,
1997) and pay quarterly assessments on the deposits assumed from Firstate at
the Company's SAIF assessment rate currently in effect. See "Pro Forma
Financial Data."
On April 14, 1997, the Company and FFO entered into the FFO Agreement
providing for the acquisition of FFO by the Company, pursuant to the FFO
Merger. FFO has 11 branches in Osceola, Orange and Brevard counties. At March
31, 1997, FFO had total assets of $320.0 million and total deposits of $285.7
million. Mr. Hough, one of the Company's Controlling Stockholders, also owns a
majority interest in FFO. Under the terms of the FFO Agreement, the Company
exchanged 0.29 of a share of the Company's Common Stock for each of the 8.4
million outstanding shares of FFO Common Stock. If the product of (i) the
exchange ratio and (ii) the average market price of the Company's Common Stock
for a period ending shortly prior to closing was below $4.10, the exchange
ratio would have been adjusted for decreases in the price of Company Common
Stock; however, in no event would the exchange ratio have exceeded 0.30.
Outstanding options for FFO Common Stock were converted into options for Company
Common Stock on the same basis. FFO had the right not to consummate the FFO
Agreement if the above average market price of Company Common Stock was less
than $13.50.
47
<PAGE> 49
]
The FFO Merger was consummated on September 19, 1997. The FFO Merger
was accounted for as a corporate reorganization under which Mr. Hough's interest
in FFO was carried forward at its historical cost in a manner similar to that of
a pooling of interest accounting, while the minority interest in FFO was
recorded using purchase accounting rules.
Management of the Company believes that the composition of FFO's
assets and liabilities is substantially similar to that of the Company. At
December 31, 1996, the Company's loan portfolio included 56.4% in one-to-four
family first residential mortgages; 9.2% in other residential first mortgage
loans (primarily secured by multi-family properties); 32.9% in commercial real
estate, construction/land development, and other business loans; and 3.3% in
consumer loans, consisting of home equity loans as well as extensions of credit
for other household purposes such as automobile loans and secured personal
loans. The corresponding percentages for FFO were 60.8%, 8.8%, 20.6% and 9.8%,
respectively. In addition, both residential mortgage portfolios consist
primarily of adjustable-rate loans. The Company's ratio of nonperforming assets
to assets at June 30, 1997, was 2.16%, compared to 3.36% for FFO. On a pro
forma basis, the ratio for the Company and FFO combined would have been 2.45%.
For the Company, real estate-secured loans and ORE comprised 92.4% of total
nonperforming assets and FFO's nonperforming assets were virtually all real
estate-secured. Also at December 31, 1996, the Company's deposit base included
6.1% in demand deposits, 44.2% in savings and interest-bearing transactions
accounts, and 49.7% in time deposits. The corresponding percentages for FFO
were 5.0%, 20.2%, and 74.8%, respectively.
CHANGES IN ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") recently adopted or
issued proposals and guidelines that may have a significant impact on the
accounting practices of commercial enterprises in general and financial
institutions in particular.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights," which requires that a mortgage banking enterprise recognize
as a separate asset the right to service mortgage loans for others, regardless
of the manner in which such servicing rights are acquired. Moreover, this
statement requires that the total cost of acquiring mortgage loans be allocated
to the servicing rights and the loans based on their relative fair values, if
practicable. This standard is effective for fiscal years beginning after
December 15, 1995 but earlier implementation is encouraged. Management
implemented SFAS No. 122 beginning July 1, 1995. The impact upon the results of
operations of the Bank was not material.
During 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities," which is
effective for the Company's fiscal year beginning January 1, 1997. SFAS 125
provides standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The impact of the adoption of
SFAS 125 upon the results of operations of the Company was not material.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share,"
which is effective for the Company's fourth quarter and year ended December 31,
1997. Early application is not permitted and after the effective date, prior
period earnings per share presented must be restated. SFAS No. 128 establishes
new standards for computing and presenting EPS. Specifically, SFAS No. 128
replaces the presentation of primary earnings per share with basic earnings per
share, requires dual presentation for companies with complex capital structures
of basic and diluted earnings per share and requires a conciliation of the
numerator and denominator of the basic earnings per share computation to those
of the diluted earnings per share computation. Management has not determined
the effect of the adoption of SFAS No. 128 on the Company's financial
statements, but does not expect it to be material.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income", was
adopted. SFAS No. 130 establishes standards for reporting and display of
comprehensive income which includes those revenues, expenses, gains, and losses
of a normal, recurring nature as well as items which are non-recurring, unusual
and infrequent. A specific reporting format is not required, provided the
financial statements show the amount of total comprehensive income for the
period. Those items which are non-recurring in nature are required to be shown
in the financial statements with appropriate footnote disclosure and the
aggregate balance of such items must be shown separately from retained earnings
and additional paid-in-capital in the equity section of the balance sheet. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods is required.
In June 1997, the FASB adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the way the Company reports information about operating segments
in annual financial statements and requires reporting of selected information
about operating segments in interim financial reports. SFAS No. 131 is
effective for periods beginning after December 15, 1997. Management believes
its commercial banking and mortgage banking
48
<PAGE> 50
activities constitute operating segments which will require disclosure about
their respective assets, revenues, profit or loss and other operating data.
DESCRIPTION OF THE DEBENTURES
The Debentures are a series of debt securities issued under an
Indenture, dated as of December 18, 1996 (the "Indenture"), between the Company
and SouthTrust Bank/Reliance Trust Company, as trustee (the "Trustee"), a copy
of which is filed as an exhibit to the Registration Statement (as defined).
Wherever particular defined terms of the Indenture (including the Debentures)
are referred to, such defined terms are incorporated herein by reference.
References in this section to the "Company" are solely to Republic Bancshares,
Inc. and not to its subsidiaries. The following summaries of certain provisions
of the Indenture do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the detailed provisions of the
Debentures and the Indenture, including the definitions therein of certain
terms. Section references below are references to sections of the Indenture.
GENERAL
The Debentures are general unsecured obligations of the Company,
limited to $6,000,000 in aggregate principal amount. The Debentures will mature
on December 1, 2011, unless redeemed earlier at the option of the Company. The
Debentures bear interest at 6% per annum commencing on December 28, 1996 (the
day after the expected date of delivery) or from the most recent Interest
Payment Date to which interest has been paid or provided for, payable
semi-annually on June 1 and December 1 of each year, commencing June 1, 1997,
to the person in whose name the Debenture (or any predecessor Debenture) is
registered at the close of business on the preceding November 15 or May 15, as
the case may be. Interest on the Debentures is computed on the basis of a
360-day year, or twelve 30-day months.
The Company's primary source of funds for the payment of principal and
interest on the Debentures is dividends from the Bank. From time to time while
the Debentures are outstanding, the Bank may be subject to regulatory or
contractual constraints that restrict its ability to pay dividends to the
Company. No such present regulatory or contractual constraints preclude the
payment of dividends by the Bank.
OPTIONAL REDEMPTION
The Debentures are redeemable at the option of the Company, in whole
or in part, on not less than 30 days notice, but not more than 60 days prior to
the redemption date, principally under two different circumstances. Under
either of these circumstances, amounts required to be paid on redemption
include accrued interest, if any, to the redemption date.
First, the Debentures are redeemable at any time after December 1,
2001, at the following redemption prices (expressed as percentages of principal
amount), when redeemed during the twelve month periods indicated below:
<TABLE>
<CAPTION>
December 1 through November 30
---------- -----------
<S> <C>
2001 2002........................ 106%
2002 2003........................ 105%
2003 2004........................ 104%
2004 2005........................ 103%
2005 2006........................ 102%
2006 2007........................ 101%
2007 and thereafter ..................................... 100%
</TABLE>
Second, the Debentures may also be redeemed without any payment of
premium at any time after the Closing Price of the Common Stock for not less 20
consecutive trading days equals or exceeds 130% of the Conversion Price then in
effect. "Closing Price" means the closing price per share of Common Stock on
the Nasdaq National Market or, if then traded on a national securities
exchange, the closing price on that exchange or the highest bid quotation on an
automated quotation system, or if the Common Stock shall not then be listed on
the Nasdaq National Market or on an exchange or included on an automated
quotation system, as reported by the National Quotation Bureau, Inc. or similar
reporting service.
No sinking fund is provided for the Debentures.
49
<PAGE> 51
CONVERSION OF DEBENTURES
The holder of any Debenture has the right, at its option, to convert
each $1,000 principal amount of a Debenture that is an integral multiple of
$1,000 into 56 shares of the Company's Common Stock (a Conversion Price of
$17.85714 per share), subject to adjustment as described below, at any time
prior to maturity, unless previously redeemed, or in case a Debenture has been
called for redemption, then with respect to such called Debenture, until and
including the close of business on the third business day preceding the
redemption date. Debentures converted in the absence of a call for the
redemption of such Debentures shall not be entitled to payment of accrued
interest. Debentures converted following a call for redemption of such
Debentures shall be entitled to the payment of accrued interest. If a Debenture
that has not been called for redemption is surrendered by a Holder for
conversion between the record date for the payment of an installment of
interest and the next Interest Payment Date (as defined in the Indenture), the
Debenture, when surrendered for conversion, must be accompanied by payment of
an amount equal to the interest thereon which the Holder on such record date is
entitled to receive on the next Interest Payment Date since the Holder is not
entitled to the payment of accrued interest in connection with the conversion
of a Debenture that has not been called for redemption. No fractional shares
will be issued upon conversion, and in lieu thereof an appropriate amount based
upon market prices of the Common Shares will be paid in cash by the Company.
In case of any consolidation or merger of the Company with or into
another Person or any merger of another Person into the Company (other than a
merger which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any sale or transfer of all or
substantially all of the assets of the Company, each Debenture then outstanding
will, without the consent of the Holder of any Debenture, become convertible
only into the kind and amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer by a holder of the number of
shares of Common Stock into which such Debenture was convertible immediately
prior thereto (assuming such holder of Common Stock failed to exercise any
rights of election and that such Debenture was then convertible).
ANTI-DILUTION PROVISIONS
The conversion price of the Debentures is subject to adjustment upon
the occurrence of certain events, including (i) the payment of a dividend in
shares of Common Stock to holders of Common Stock or a dividend to holders of
Common Stock payable in shares of some class of the Company's capital stock
other than Common Stock; (ii) the subdivision, combination or reclassification
of outstanding Common Stock; (iii) the distribution to all holders of Common
Stock of evidences of indebtedness or assets (excluding cash dividends or cash
distributions payable out of retained earnings, or stock dividends) or
subscription rights or warrants (other than those referred to above); or (iv)
the issuance of rights or warrants entitling anyone to subscribe for or to
purchase Common Stock or securities or instruments convertible into Common
Stock, in each case at less than current market price (as defined in the
Indenture) for the Common Stock. The Company will not be required to make any
adjustments in the Conversion Price of less than one percent of the conversion
price, but the same will be carried forward and taken into account in the
computation of any subsequent adjustment.
In case of any reclassification or change of outstanding Common Stock
(with certain exceptions), or in case of any consolidation or merger of the
Company with or into another person (with certain exceptions), or in case of
any transfer or conveyance of the property of the Company substantially as an
entirety, then the surviving entity will be required to execute and deliver a
supplemental indenture providing that the Holder of each Debenture then
outstanding would have the right thereafter to convert that Debenture into the
kind and amount of securities or property receivable upon the reclassification,
change, consolidation, merger, transfer or conveyance by the holder of the
number of Common Stock into which the Debenture could have been converted
immediately prior thereto.
SUBORDINATION
The principal and premium, if any, and interest on the Debentures will
be subordinated and junior in right of payment to the prior payment in full of
all Senior Indebtedness of the Company. As of June 30, 1997, the Company had no
Senior Indebtedness outstanding. The Debentures will rank on a par with any
subsequently issued subordinated indebtedness of the Company. The Indenture
does not limit the amount of Senior Indebtedness or other indebtedness, secured
or unsecured, that the Company or any of its subsidiaries may incur. If
payments on any Senior Indebtedness have been accelerated, the Company shall be
prohibited from making any payment of principal, premium, if any, or interest
on the Debentures until payments of the Senior Indebtedness are made or
provided for. Upon any distribution of assets of the Company in connection with
any dissolution, winding up, liquidation or reorganization of the Company,
payment of principal, premium, if any, or interest in the Debentures will be
subordinated, to the extent and in the manner set forth in the Indenture, to
the prior payment in full of Senior
50
<PAGE> 52
Indebtedness. By reason of such subordination, in the event of a distribution
of assets in any such proceeding, certain general creditors of the Company may
recover more, ratably, than holders of the Debentures.
"Senior Indebtedness" means all indebtedness, including obligations to
general creditors, of the Company, except any particular indebtedness, the
instrument creating or evidencing which, or pursuant to which the same is
outstanding, expressly provides that such indebtedness shall be subordinate or
shall rank pari passu in right of payment to the Debentures.
COVENANTS
The Indenture contains certain customary covenants found in Indentures
under the Trust Indenture Act of 1939, as amended, including covenants with
respect to the payment of principal and interest, maintenance of an office or
agency for administering the Debentures, holding of funds for payments on the
Debentures in trust, payment by the Company of taxes and other claims,
maintenance by the Company of its properties and its corporate existence, and
delivery of annual certifications to the Trustee.
RESTRICTIONS ON DIVIDENDS, REDEMPTIONS AND OTHER DISTRIBUTIONS
The Indenture provides that the Company cannot declare or pay
dividends on, or purchase, redeem or acquire for value its capital stock,
return any capital to holders of capital stock as such, or make any
distribution of assets to holders of capital stock as such, unless, from and
after the date of any such dividend declaration (a "Declaration Date") or the
date of any such purchase, redemption, payment or distribution specified above
(a "Redemption Date"), the Company retains cash, cash equivalents (as
determined in accordance with generally accepted accounting principles) or
marketable securities (with a market value as measured on the applicable
Declaration Date or Redemption Date) in an amount sufficient to cover the two
consecutive semi-annual interest payments that will be due and payable on the
Debentures following such Declaration Date or Redemption Date, as the case may
be. The Indenture further provides that the amount of any interest payment made
by the Company with respect to the Debentures after any applicable Declaration
Date or Redemption Date shall be deducted from the aggregate amount of cash or
cash equivalents which the Company shall be required to retain pursuant to the
foregoing provision.
The Indenture does not restrict the Company's sale of additional
shares of capital stock or other debt securities, or its pledge of the capital
stock of the Bank. Further, the Bank is not restricted by the Indenture from
issuing any shares of capital stock or debt securities of the Bank.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture: (i) the
failure by the Company to pay principal of or premium, if any, on the
Debentures at maturity or upon redemption (whether or not such payment is
prohibited by the subordination provisions); (ii) the failure by the Company to
pay interest on any of the Debentures on any Interest Payment Date and such
failure continues for a period of 30 days (whether or not such payment is
prohibited by the subordination provisions); (iii) the failure by the Company
to comply with any of its other agreements or covenants in, or provisions of,
the Indenture and such default continues for the period and after the notice
specified below; and (iv) certain events of bankruptcy of the Company.
A default under clause (iii) above is not an Event of Default until
the Trustee notifies the Company in writing, or the Holders of at least 25% in
principal amount of the Debentures then outstanding notify the Company and the
Trustee in writing, of the default, and the Company does not cure the default
within 60 days after receipt of the notice. The notice must specify the
default, demand that it be remedied and state that the notice is a "Notice of
Default." Such notice shall be given by the Trustee if so requested in writing
by the Holders of at least 25% in principal amount of the Debentures then
outstanding. Any notice required to be delivered by the Trustee to the Company
shall be given promptly after the Trustee becomes aware of such default or is
requested by such Holders to deliver such notice.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of any default known to it, mail to the Holders notice of such
default, provided that, except in the case of default in the payment of
principal of or interest on any of the Debentures, the Trustee shall be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of the Holders.
The Indenture only permits acceleration of payment of principal of the
Debentures upon an Event of Default resulting from certain events of bankruptcy
(liquidation or reorganization). If an Event of Default resulting from certain
events of bankruptcy shall have occurred and be continuing, the Trustee or the
Holders of not less than 30% in aggregate principal amount of the
51
<PAGE> 53
Debentures then outstanding, by notice in writing to the Company (and to the
Trustee if given by the Holders), may declare to be immediately due and payable
all unpaid principal of all the Debentures. An acceleration and its
consequences may be rescinded and past defaults waived by Holders of a majority
in principal amount of the Debentures then outstanding upon conditions provided
in the Indenture. If other Events of Default under the Indenture, including any
resulting from the failure of the Company to pay principal or interest on the
Debentures, shall have occurred and be continuing, the Trustee may, in its
discretion, proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual under the circumstances.
No Holder may pursue any remedy under the Indenture unless such Holder
has previously given to the Company and the Trustee written notice of a
continuing Event of Default and unless the Holders of at least 30% in principal
amount of the Debentures then outstanding have requested the Trustee in writing
to pursue the remedy and offered the Trustee indemnity satisfactory to the
Trustee against loss, liability and expense to be thereby incurred and the
Trustee has failed so to act within 60 days after receipt of the same.
The Indenture requires the Company to file periodic reports no less
than annually with the Trustee as to the absence of defaults.
SATISFACTION, DISCHARGE AND DEFEASANCE OF DEBENTURES
The Indenture provides that the Company will at its option either (a)
be deemed to have paid and discharged the entire indebtedness represented by
and its obligations under the Debentures (except for the obligation to pay the
principal of, premium, if any, and interest on, the Debentures and certain
obligations to register the transfer or exchange of the Debentures, to replace
temporary or mutilated, destroyed, lost or stolen Debentures, to maintain an
office or agency in respect to the Debentures and to hold moneys for payment in
trust ("legal defeasance")), or (b) cease to be under any obligation to comply
with certain terms, provisions or conditions of the Indenture (those terms,
provisions or conditions described in the Indenture under "Consolidation,
Merger or Sale") or the terms, provisions or conditions of the Debentures
("covenant defeasance"), in either case, on the 91st day after: (i) the Company
has paid to caused to be paid all other sums payable with respect to the
outstanding Debentures and the Company has delivered to the Trustee a
certificate from an authorized officer and an opinion of legal counsel, each
stating that all conditions precedent relating to the satisfaction and
discharge of the entire indebtedness on all of the outstanding Debentures have
been complied with; (ii) the Company has deposited or cause to be deposited
irrevocably with the Trustee as a trust fund specifically pledged as security
for the benefit of the holders of the Debentures, (x) dollars in an amount, or
(y) U.S. Government Obligations (as defined in the Indenture) (which through
the payment of interest and principal in respect thereof in accordance with
their terms will provide, not later than the due date of any payment of
principal, premium, if any, and interest on the outstanding Debentures) in an
amount, or (z) a combination of (x) and (y), sufficient to pay and discharge
each installment of principal of an interest or premium, if any, on the
outstanding Debentures on the dates such installments of interest or principal
or premium, if any, are due; and (iii) no Event of Default has occurred and is
continuing on the date of such deposit. Among the conditions of the Company's
exercising any such option, the Company is required to deliver to the Trustee
an opinion of independent counsel of recognized standing to the effect that the
deposit and related defeasance would not cause the Holders of the Debentures to
recognize income, gain or loss for federal income tax purposes and that the
Holders will be subject to federal income tax in the same amounts, in the same
manner and at the same times as would have been the case if such deposit and
related defeasance had not occurred.
CONSOLIDATION, MERGER OR SALE OF ASSETS
The Indenture provides that the Company will not merger or consolidate
with or sell all or substantially all of its assets to, any entity unless it is
the surviving or successor entity in such transaction and, immediately
thereafter, is not in default under the Indenture or, if it is not the
surviving or successor entity, the successor entity expressly assumes the
Company's obligations under the Indenture and, immediately after such
transaction, the successor entity is not in default under the Indenture. Any
successor entity shall assume by supplemental indenture all of the obligations
of the Company under the Debentures and the Indenture and the entity formed by
such consolidation or into which the Company is merged shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture, and thereafter the predecessor entity shall be relieved of all
obligations and covenants under the Indenture and the Debentures issued
thereunder and may thereafter be liquidated and dissolved.
52
<PAGE> 54
SUPPLEMENTAL INDENTURE WITHOUT CONSENT OF DEBENTUREHOLDERS
The Indenture provides that the Company and the Trustee may, without
the consent of any holders of Debentures, enter into supplemental indentures
for purposes, among other things, of: (a) evidencing the succession of another
entity to the Company and the assumption by any such successor of the covenants
of the Company; (b) making any change that does not adversely affect the rights
of any Holders; or (c) curing any ambiguity, defect or inconsistency; provided,
however, that such action shall not adversely affect the interest of the
Holders in any material respect.
Most of the terms of the Indenture and the Debentures may be modified
with the consent of the Holders of not less than two-thirds of the principal
amount of Debentures then outstanding. However, each Holder must agree to: (i)
an extension of maturity; (ii) a reduction in principal amount of or the rate
of interest on the Debentures; (iii) an increase in the Conversion Price of the
Debentures; (iv) a reduction in the premium, if any, payable upon redemption;
or (v) a reduction in the aforesaid percentages required for modification.
The Company may omit in any particular instance to comply with any
covenant or condition as set forth in the Indenture if before the time for such
compliance the Holders of not less than two-thirds of the principal amount of
Debentures then outstanding shall either waive such compliance in such instance
or generally waive compliance with such covenant or condition. No such waiver,
however, may extend to or affect such covenant or condition except to the
extent so expressly waived, and until such waiver has become effective, the
obligation of the Company and the duties of the Trustee in respect of any such
covenant will remain in full force and effect. No supplemental indenture will
affect the seniority rights of the holders of Senior Indebtedness without the
consent of such holders.
REGARDING THE TRUSTEE
The Company and its subsidiaries may maintain deposit accounts and
conduct other banking transactions with the Trustee in the ordinary course of
their businesses.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 20,000,000 shares of Common
Stock and 100,000 shares of Series A Preferred Stock, $20,000 par value (the
"Preferred Stock") of which 4,185,667 and 75,000 shares, respectively, were
issued and outstanding as of June 30, 1997. Each share of Preferred Stock is
convertible at any time into ten shares of Common Stock and is redeemable at
any time by the Company upon 30 days prior written notice at a price of $96.80
per share.
Unless otherwise required by law or the Company's Articles of
Incorporation (the "Articles"), holders of Common and Preferred Stock vote
together as a single class on all matters presented to the Company's
stockholders. Each share of Preferred Stock is entitled to 10 votes for all
purposes, and each share of Common Stock is entitled to one vote. No cash
dividend may be declared or paid on shares of Common Stock unless,
simultaneously therewith or prior thereto, there is or has been declared or
paid the quarterly dividend payable on Preferred Stock.
In any liquidation or dissolution of the corporation, the holders of
Preferred Stock will be entitled to receive, out of the assets available for
distribution to stockholders, an amount equal to $88.00 per share before any
amount is paid to holders of Common Stock. After the above preference amount
has been paid to the holders of Preferred Stock, such holders will not be
entitled to any further distributions. The holders of Common Stock will then be
entitled to participate, pro rata in accordance with the number of shares owned
by them, in the distribution of the Company's remaining assets.
The Company's Board of Directors may authorize the issuance of
additional authorized but unissued shares of the Company's Common and Preferred
Stock without further action by the Company's stockholders, unless such action
is required in a particular case by applicable laws or regulations or by any
stock exchange upon which the Company's capital stock may be listed. The
Company's Articles do not provide any preemptive rights to the Company's
stockholders.
The authority to issue additional shares of the Company's Common Stock
provides the Company with the flexibility necessary to meet its future needs
without the delay resulting from seeking stockholder approval. The authorized
but unissued shares of Common and Preferred Stock will be issuable from time to
time for any corporate purpose, including, without limitation, stock splits,
stock dividends, employee benefit and compensation plans, acquisitions, and
public or private sales for cash as a means of raising capital.
53
<PAGE> 55
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the
Selling Securityholder Securities, but does not purport to be a complete
analysis of all the potential tax considerations relating thereto. This summary
is based on the Internal Revenue Code of 1986, as amended (the "Code"),
existing, temporary and proposed Treasury Regulations, laws, rulings and
decisions now in effect, all of which are subject to change. This summary deals
only with Holders that will hold the Selling Securityholder Securities as
"capital assets" (within the meaning of Section 1221 of the Code) and that are
(i) citizens or residents of the United States, (ii) domestic corporations, or
(iii) otherwise subject to United States Federal income taxation on a net
income basis in respect of any Selling Securityholder Securities. This summary
does not address tax considerations applicable to investors that may be subject
to special tax rules, such as banks, tax-exempt organizations, insurance
companies, dealers in securities or currencies, or persons that will hold
Debentures as a position in a hedging transaction, "straddle" or "conversion
transaction" for tax purposes. This summary discusses the tax considerations
applicable to the initial purchasers of the Debentures who purchase the
Debentures at their "issue price" as defined in Section 1273 of the Code and
does not discuss the tax considerations applicable to subsequent purchasers of
the Debentures. The Company has not sought any ruling from the Internal Revenue
Services ("IRS") with respect to the statements made and the conclusions
reached in the following summary, and there can be no assurance that the IRS
will agree with such statements and conclusions.
INVESTORS CONSIDERING THE PURCHASE OF DEBENTURES SHOULD CONSULT THEIR
OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL
INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
PAYMENT OF INTEREST
Interest on a Debenture generally will be includable in the income of
a Holder as ordinary income at the time such interest is received or accrued,
in accordance with such Holder's method of accounting for United States federal
income tax purposes.
SALE, EXCHANGE OR REDEMPTION OF THE DEBENTURES
Upon the sale, exchange or redemption of a Debenture, a Holder
generally will recognize capital gain or loss equal to the difference between
(i) the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption (except to the extent such amount
is attributable to accrued interest income not previously included in income
which is taxable as ordinary income) and (ii) such Holder's adjusted tax basis
in the Debenture. A Holder's adjusted tax basis in a Debenture generally will
equal the cost of the Debenture to such Holder. Such capital gain or loss will
be long-term capital gain or loss if the Holder's holding period in the
Debenture is more than one year at the time of sale, exchange or redemption.
CONSTRUCTIVE DISTRIBUTION
If at any time (i) the Company makes a distribution of cash or
property to its shareholders or purchases the Common Stock and such
distribution or purchase would be a taxable distribution to such shareholders
for United States federal income tax purposes (e.g., distributions of evidences
of indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe for the Common Stock) and, pursuant to the anti-dilution
provision of the Indenture, the conversion rate of the Debentures is increased,
or (ii), the conversion rate of the Debentures is increased at the discretion
of the Company, such increase in conversion rate may be deemed to be a taxable
distribution to Holders of Debentures (pursuant to Section 305 of the Code).
Such a deemed distribution will be taxable as a dividend, return of capital or
capital gain in accordance with the earnings and profits rules discussed under
"- Dividends." Holders of Debentures could therefore have taxable income as a
result of an event pursuant to which they received no cash or property.
CONVERSION OF THE DEBENTURES
A Holder of a Debenture generally will not recognize any income, gain
or loss upon conversion of a Debenture into Shares except with respect to cash
received either in lieu of a fractional Share or attributable to accrued
interest on the converted Debentures. A Holder's tax basis in the Shares
received on conversion of a Debenture will be the same as such Holder's
adjusted
54
<PAGE> 56
tax basis in the Debenture at the time of conversion (reduced by any basis
allocable to a fractional share interest). The holding period for the Shares
received on conversion will generally include the holding period of the
Debenture converted.
Cash received in lieu of a fractional Share upon conversion will be
treated as a payment in exchange for the fractional Share. Accordingly, the
receipt of cash in lieu of a fractional Share generally will result in capital
gain or loss (measured by the difference between the cash received for the
fractional Share and the Holder's adjusted tax basis in the fractional Share).
DIVIDENDS
Distributions paid the Shares will constitute dividends for United
States Federal income tax purposes to the extent of the Company's current or
accumulated earnings and profits and will be includable in the income of a
Holder as ordinary income. Dividends paid to Holders that are United States
corporations may qualify for a dividends-received deduction.
To the extent, if any, that a Holder receives a distribution on the
Shares that would otherwise constitute a dividend for United States federal
income tax purposes but that exceeds current and accumulated earnings and
profits of the Company, such distribution will be treated first as a
non-taxable return of capital reducing the Holder's basis in the Shares. Any
such distribution in excess of the Holder's basis in the Shares will be treated
as capital gain.
SALE OF THE SHARES
Upon the sale or exchange of the Shares, a Holder generally will
recognize capital gain or loss equal to the difference between (i) the amount
of cash and the fair market value of any property received upon the sale or
exchange and (ii) such Holder's adjusted tax basis in the Shares. Such capital
gain or loss will be long-term if the Holder's holding period in the Shares is
more than one year at the time of the sale or exchange. A Holder's basis and
holding period in the Shares received upon conversion of a Debenture are
determined as discussed above under "- Conversion of the Debentures."
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments
of principal, premium, if any, and interest on a Debenture, payments of
dividends on the Shares, payments of the proceeds of the sale of a Debenture
and payments of the proceeds of the sale of the Shares to certain noncorporate
Holders, and a 31% backup withholding tax may apply to such payments if the
Holder (i) fails to furnish or certify his correct taxpayer identification
number to the payor in the manner required, (ii) is notified by the IRS that he
has failed to report payments of interest and dividends properly, or (iii)
under certain circumstances, fails to certify that he has not been notified by
the IRS that he is subject to backup withholding for failure to report interest
and dividend payments. Any amounts withheld under the backup withholding rules
from a payment to a Holder will be allowed as a credit against such Holder's
United States federal income tax and may entitle the Holder to a refund,
provided that the required minimum information is furnished to the IRS.
LEGAL MATTERS
The validity of the Selling Securityholder Securities offered hereby
will be passed upon for the Company by Holland & Knight LLP.
EXPERTS
The consolidated financial statements of the Company as of December
31, 1996 and 1995, and for each of the years in the three-year period ended
December 31, 1996, included herein and in the Registration Statement have been
audited by Arthur Andersen, LLP, independent certified public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of F.F.O. Financial Group, Inc.
as of December 31, 1996 and 1995, and for each of the years in the three-year
period ended December 31, 1996, included herein and in the Registration
Statement have been audited by Hacker, Johnson, Cohen & Grieb PA, independent
certified public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance and upon the authority of said
firm as experts in accounting and auditing.
55
<PAGE> 57
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549;
and at the Commission's regional offices at Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission maintains an Internet web site that
contains reports, proxy and information statements and other information
regarding issuers who file electronically with the Commission. The address of
that site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form S-2 (together with all amendments thereto, (the "Registration Statement"),
of which this Prospectus is a part, under the Securities Act, with respect to
the Selling Securityholder Securities. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. In addition, certain documents filed by the Company with the
Commission have been incorporated in this Prospectus by reference. See
"Incorporation of Certain Documents by Reference." For further information with
respect to the Company, reference is made to the Registration Statement,
including the exhibits thereto and the documents incorporated herein by
reference. Any statements contained herein concerning the provisions of any
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission or incorporated by reference herein are not necessarily
complete, and, in each instance, reference is made to the copy of such document
so filed for a more complete description of the matter involved. Each such
statement is qualified in its entirety by such reference. The Registration
Statement may be inspected without charge at the principal office of the
Commission in Washington, D.C., and copies of all or part of it may be obtained
from the Commission upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are
hereby incorporated in this Prospectus by reference and made a part hereof:
(1) The Company's Annual Report on Form 10-K and 10-KA for the year
ended December 31, 1996, filed with the Commission on March 31, 1997
and July 23, 1997, respectively.
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, filed with the Commission on August 15, 1997.
Any statement contained in a document incorporated by reference
herein, shall be deemed to be modified or superseded for purposes of the
Registration Statement and this Prospectus to the extent that a statement
contained herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of the Registration Statement or this
Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference, other than
certain exhibits to such documents. Written requests should be directed to
Republic Bancshares, Inc., 111 Second Avenue N.E., St. Petersburg, Florida
33701, Attention: Secretary, telephone: (813) 823-7300.
56
<PAGE> 58
REPUBLIC BANCSHARES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPUBLIC BANCSHARES, INC.
Report of Independent Certified Public Accountants..............................................................F-2
Consolidated Balance Sheets at December 31, 1996 and 1995.......................................................F-3
Consolidated Statements of Operations for the three years ended December 31, 1996,
1995 and 1994...............................................................................................F-4
Consolidated Statements of Stockholders' Equity for the three years ended
December 31, 1994, 1995 and 1996............................................................................F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994...............................................................................................F-6
Notes to Consolidated Financial Statements......................................................................F-7
REPUBLIC BANCSHARES, INC.
Consolidated Balance sheets at June 30, 1997 (unaudited) and December 31, 1996.................................F-30
Consolidated Statements of Operations for the three and six months ended
June 30, 1997 and 1996 (unaudited).........................................................................F-31
Consolidated Statements of Stockholders' Equity for the Six months ended
June 30, 1997 (unaudited) and the year ended December 31, 1996.............................................F-32
Consolidated Statements of Cash Flows for the three and six months ended
June 30, 1997 and 1996 (unaudited).........................................................................F-33
Notes to Consolidated Financial Statements.....................................................................F-34
F.F.O. FINANCIAL GROUP, INC.
Independent Auditors' Report...................................................................................F-39
Consolidated Balance Sheets at December 31, 1996 and 1995......................................................F-40
Consolidated Statements of Income for the three years ended December 31, 1996,
1995 and 1994..............................................................................................F-41
Consolidated Statements of Stockholders' Equity for the three years ended
December 31, 1996, 1995 and 1994...........................................................................F-42
Consolidated Statements of Cash Flows for the three years ended December 31, 1996,
1995 and 1994..................................................................................................F-43
Notes to Consolidated Financial Statements.....................................................................F-45
F.F.O. FINANCIAL GROUP, INC.
Condensed Consolidated Balance Sheets at June 30, 1997 (unaudited)
and December 31, 1996......................................................................................F-65
Condensed Consolidated Statements of Income for the three and six months ended
June 30, 1997 and 1996 (unaudited).........................................................................F-66
Condensed Consolidated Statements of Stockholders' Equity for the three and six
months ended June 30, 1997(unaudited)......................................................................F-67
Condensed Consolidated Statements of Cash Flows for the three and six months
ended June 30, 1997 and 1996 (unaudited)...................................................................F-68
Notes to Condensed Consolidated Financial Statements (unaudited)...............................................F-70
Review by Independent Certified Public Accountants.............................................................F-73
Report on Review by Independent Certified Public Accountants...................................................F-74
</TABLE>
F-1
<PAGE> 59
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of Republic Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of Republic
Bancshares, Inc. (a Florida corporation) and subsidiary as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Republic Bancshares, Inc.
and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida
February 7, 1997 (except with
respect to the matter discussed
in Note 18, as to which the
date is March 10, 1997)
F-2
<PAGE> 60
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1996 AND 1995
(Dollars in thousands, except par values)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 27,810 $ 19,806
Interest bearing deposits in banks 118 2
Investment securities:
Held to maturity (Note 2) -- 7,015
Available for sale 74,397 38,147
Mortgage backed securities (Note 3):
Held to maturity -- 17,112
Available for sale 20,004 2,527
FHLB stock 4,830 3,540
Federal funds sold 8,000 14,621
Loans held for sale (Note 4) 36,590 4,711
Loans, net (Notes 4 and 5) 693,270 649,795
Premises and equipment, net (Note 6) 19,715 18,991
Other real estate owned (Note 7):
Acquired through foreclosure, net 7,363 8,064
Held for investment -- 2,498
Other assets (Note 8) 15,771 15,166
-------- --------
Total assets $907,868 $801,995
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing checking $ 50,060 $ 45,641
Interest checking 87,639 71,592
Money market 32,665 38,535
Savings 245,951 91,935
Time deposits (includes $49,323 and $57,213,
respectively of time deposits of $100,000 or more) 411,665 495,402
--------- --------
Total deposits 827,980 743,105
Securities sold under agreements to repurchase 15,372 3,072
Subordinated debt, 6% rate, matures December 1, 2011, (Note 9) 6,000 --
Other liabilities 4,197 4,915
--------- --------
Total liabilities 853,549 751,092
Off-balance-sheet risk, commitments and contingencies (Note 10)
Stockholders' equity (Note 13):
Perpetual preferred convertible stock ($20.00 par, 100,000 shares
authorized, 75,000 shares issued and outstanding. Liquidation preference
$6,600 at December 31, 1996 and 1995.) 1,500 1,500
Common stock ($2.00 par, 20,000,000 shares authorized and 4,183,507
shares issued and outstanding at December 31, 1996 and 1995) 8,367 8,367
Capital surplus 26,699 26,699
Retained earnings 17,849 14,329
Net unrealized gains (losses) on available-for-sale securities, net of
tax effect (96) 8
--------- --------
Total stockholders' equity 54,319 50,903
--------- --------
Total liabilities and stockholders' equity $ 907,868 $ 801,995
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 61
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 62,244 $ 52,389 $ 32,699
Interest on investment securities 1,413 1,431 1,939
Interest on mortgage-backed securities 1,325 827 --
Interest on federal funds sold 1,633 2,968 2,448
Interest on other investments 332 248 29
----------- ----------- -----------
Total interest income 66,947 57,863 37,115
----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits 32,426 29,874 16,767
Interest on FHLB advances 52 -- 36
Interest on other borrowings 448 127 68
----------- ----------- -----------
Total interest expense 32,926 30,001 16,871
----------- ----------- -----------
Net interest income 34,021 27,862 20,244
PROVISION FOR LOAN LOSSES (Note 5) 1,800 1,685 1,575
----------- ----------- -----------
Net interest income after provision for possible
loan losses 32,221 26,177 18,669
----------- ----------- -----------
NONINTEREST INCOME:
Service charges and fees on deposits 1,606 1,395 1,247
Income from mortgage banking activities 1,002 124 --
Gain on sale of ORE -- held for investment 1,207 -- --
Securities gains, net 370 27 1
Other operating income 1,431 1,205 1,364
----------- ----------- -----------
Total noninterest income 5,616 2,751 2,612
NONINTEREST EXPENSES:
Salaries and employee benefits 14,309 11,251 7,339
Net occupancy expense 4,507 3,211 1,308
Data processing fees 1,451 1,152 1,472
FDIC and state assessments 949 1,566 1,187
Other operating expense 6,136 4,939 3,610
----------- ----------- -----------
Total general and administrative expenses 27,352 22,119 14,916
SAIF special assessment 2,539 -- --
Provisions for losses on ORE 1,611 -- 10
ORE expense, net of ORE income (172) 289 422
Amortization of premium on deposits 491 450 1,269
----------- ----------- -----------
Total noninterest expenses 31,821 22,858 16,617
----------- ----------- -----------
Income before negative goodwill accretion and income taxes 6,016 6,070 4,664
Negative goodwill accretion (Note 1) -- 1,578 2,705
----------- ----------- -----------
Income before income taxes 6,016 7,648 7,369
Income tax provision (Note 8) 2,232 1,875 468
----------- ----------- -----------
NET INCOME $ 3,784 $ 5,773 $ 6,901
=========== =========== ===========
PER SHARE DATA:
Net income per common and common equivalent share
(Note 14) $ .76 $ 1.26 $ 1.67
=========== =========== ===========
Weighted average common and common equivalent shares
outstanding (Note 14) 4,952,937 4,562,642 4,136,790
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 62
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
($ in thousands)
<TABLE>
<CAPTION>
PERPETUAL PREFERRED NET UNREALIZED
CONVERTIBLE STOCK COMMON STOCK GAINS (LOSSES)
------------------- ------------------ ON AVAILABLE
SHARES SHARES CAPITAL RETAINED FOR SALE
ISSUED AMOUNT ISSUED AMOUNT SURPLUS EARNINGS SECURITIES TOTAL
-------- ------ ------ ------ ------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 75,000 $ 1,500 3,365,387 $ 6,731 $ 19,041 $ 2,182 $ -- $ 29,454
Net income -- -- -- -- -- 6,901 -- 6,901
Net unrealized losses
on available-for-sale
securities, net of tax effect -- -- -- -- -- -- (54) (54)
Proceeds from exercise of
stock options -- -- 14,950 30 98 -- -- 128
Dividends on preferred
stock -- -- -- -- -- (264) -- (264)
--------- --------- --------- --------- --------- --------- --------- --------
BALANCE, DECEMBER 31, 1994 75,000 1,500 3,380,337 6,761 19,139 8,819 (54) 36,165
Net income -- -- -- -- -- 5,773 -- 5,773
Net unrealized gains on
available-for-sale
securities, net of tax
effect -- -- -- -- -- -- 62 62
Issuance of common stock -- -- 800,000 1,600 7,537 -- -- 9,137
Proceeds from exercise of
stock options -- -- 3,170 6 23 -- -- 29
Dividends on preferred
stock -- -- -- -- -- (263) -- (263)
--------- --------- --------- --------- --------- --------- --------- --------
BALANCE, DECEMBER 31, 1995 75,000 1,500 4,183,507 8,367 26,699 14,329 8 50,903
Net income -- -- -- -- -- 3,784 -- 3,784
Net unrealized loss on
available-for-sale
securities,
net of tax effect -- -- -- -- -- -- (104) (104)
Dividends on preferred
stock -- -- -- -- -- (264) -- (264)
--------- --------- --------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1996 75,000 $ 1,500 4,183,507 $ 8,367 $ 26,699 $ 17,849 $ (96) $ 54,319
========= ========= ========= ========= ========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-5
<PAGE> 63
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,784 $ 5,773 $ 6,901
Reconciliation of net income to net cash provided:
Provision for loan and ORE losses 3,411 1,685 1,585
Depreciation and amortization, net (1,539) (26) 129
Amortization of premium and (accretion) of fair value, net 553 (901) (1,162)
Gain on sale of loans (1,002) (124) --
Gain on sale of investment securities (370) (27) --
Gain on sale of other real estate owned (1,442) (4) (89)
Capitalization of mortgage servicing (1,741) -- --
Gain on disposal of premises and equipment (2) -- 75
Net increase in deferred tax benefit (1,574) (1,024) --
Net (increase) decrease in other assets 2,222 (3,455) (1,887)
Net increase (decrease) in other liabilities (719) 2,179 (339)
--------- --------- ---------
Net cash provided by operating activities 1,581 4,076 5,213
--------- --------- ---------
INVESTING ACTIVITIES:
Net (increase) decrease in interest bearing deposits in banks (116) 148 550
Proceeds from sale of premises and equipment -- -- 13
Proceeds from sales & maturities of:
Investment securities held to maturity 7,000 24,000 18,900
Investment securities available for sale 72,545 3,972 6,991
Mortgage backed securities held to maturity 15,455 -- --
Mortgage backed securities available for sale 6,393 9,732 --
Purchase of investment securities held to maturity -- -- (19,669)
Purchase of investment securities available for sale (108,636) (33,083) 10,989)
Purchase of mortgage backed securities (20,105) -- --
Principal repayment on mortgage backed securities 4,431 714 --
Purchase of FHLB stock (1,291) (2,248) (1,292)
Net increase in loans (85,087) (178,001) (197,859)
Purchase of premises and equipment (2,201) (6,282) (3,088)
Proceeds from sale of other real estate owned 8,270 3,234 5,260
Investments in other real estate owned (net) 232 358 (7,246)
--------- --------- ---------
Net cash used in investing activities (103,110) (177,456) (208,429)
--------- --------- ---------
FINANCING ACTIVITIES:
Net increase in deposits 84,875 159,212 89,551
Net increase in repurchase agreements 12,301 991 916
Proceeds from issuance of subordinated debt 6,000 -- --
Proceeds from issuance of common stock -- 9,166 128
Dividends on perpetual preferred stock (264) (263) (264)
--------- --------- ---------
Net cash provided by financing activities 102,912 169,106 90,331
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,383 (4,274) (112,885)
CASH AND CASH EQUIVALENTS, beginning of period 34,427 38,701 151,586
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 35,810 $ 34,427 $ 38,701
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for-
Interest $ 33,031 $ 29,419 $ 16,448
Income taxes 4,144 1,516 2,222
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-6
<PAGE> 64
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND ORGANIZATION
The consolidated financial statements of Republic Bancshares, Inc. (the
Company) include the accounts of the Company, and Republic Bank (the "Bank")
and the Bank's wholly-owned subsidiaries, RBREO, Inc., Tampa Bay Equities,
Inc., VQH Development, Inc., and Republic Insurance Agency, Inc. All
significant intercompany accounts and transactions have been eliminated. On
November 21, 1995, the Bank's Board of Directors approved for shareholder
consideration an Amended and Restated Plan of Share Exchange and Reorganization
(the "Reorganization") under which the Bank became a wholly-owned subsidiary of
Company. On the effective date and time of the Reorganization, all holders of
shares of the Bank's Common and Preferred Stock at the November 30, 1995 record
date received one share of Company Common Stock for each share of the Bank's
Common Stock held of record and one share of Company Preferred Stock for each
share of the Bank's Preferred Stock held of record. Holders of outstanding
options to purchase or acquire the Bank's Common Stock received options to
purchase an equal number of shares of Company Common Stock. All necessary
governmental and shareholder approvals for the Reorganization were received.
The Company's primary source of income is from its banking subsidiary which
operates 32 branches throughout west central Florida. The Bank's primary source
of revenue is derived from net interest income on loans and investments and
income from mortgage banking activities.
NEGATIVE GOODWILL
On May 28, 1993 (the "Purchase Date") over 99 percent of the Company's
outstanding common stock was acquired for $4,450,000 (the "Purchase Price").
Also, on May 28, 1993, 583,334 additional shares of common stock were issued
for $3,500,000. The acquisition was accounted for by the purchase method of
accounting. Assets and liabilities were restated based upon their fair value as
of the Purchase Date. The excess of the restated net book value over the
Purchase Price was recorded as a reduction of the non current assets, to the
extent available. The remaining difference was recorded as excess of fair value
over purchase price ("negative goodwill"), as follows (in thousands):
<TABLE>
<S> <C>
Adjustments to fair market value:
Loans $ 596
Investment securities 161
Time deposits 36
Write-off of noncurrent assets:
Premises and equipment (1,432)
Other assets (43)
Adjustments to equity accounts:
Retained earnings 1,320
Capital surplus 5,224
-------
Excess of fair value over purchase price $ 5,862
=======
</TABLE>
The negative goodwill was accreted into income on a straight-line basis
over 26 months beginning May 28, 1993 and ending July 31, 1995, which was based
on the estimated life of the loans, investments and deposits acquired. The
premiums on loans and investment securities and the discount on demand and
other time deposits were amortized into income on a straight-line basis over
periods based on the estimated life of the related loans, securities or
deposits ranging from 12 to 30 months.
F-7
<PAGE> 65
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEPENDENCE ON ESTIMATES, APPRAISALS AND EVALUATIONS
The financial statements, in conformity with generally accepted accounting
principles, are dependent upon estimates, appraisals and evaluations of loans,
other real estate owned and other assets and liabilities, and disclosure of
contingent assets and liabilities. Changes in such estimates, appraisals and
evaluations might be required because of rapidly changing economic conditions,
changing economic prospects of borrowers and other factors. Actual results may
differ from those estimates.
INVESTMENT SECURITIES
Securities that the Company has both the positive intent and ability to
hold to maturity are classified as Held to Maturity and are carried at
historical cost, adjusted for amortization of premiums and accretion of
discounts. Securities Available for Sale, which are those securities that may
be sold prior to maturity as part of asset/liability management or in response
to other factors, are carried at fair value with any valuation adjustment
reported in a separate component of stockholders' equity, net of tax effect.
Interest and dividends on investment securities and amortization of
premiums and accretion of discounts are reported in interest on investment
securities. Gains (losses) realized on sales of investment securities are
generally determined on the specific identification method and are reported
under non-interest income.
LOANS
Interest on commercial and real estate loans and substantially all
installment loans is recognized monthly on the loan balance outstanding. The
Company's policy is to discontinue accruing interest on loans 90 days or more
delinquent and restructured loans that have not yet demonstrated a sufficient
payment history, which, in the opinion of management, may be doubtful as to the
collection of interest or principal. These loans are designated as
"non-accrual" and any accrued but unpaid interest previously recorded is
reversed against current period interest revenue.
Loan origination and commitment fees net of certain costs are deferred,
and the amount is amortized as an adjustment to the related loan's yield,
generally over the contractual life of the loan. Unearned discounts and
premiums on loans purchased are deferred and amortized as an adjustment to
interest income on a basis that approximates level rates of return over the
term of the loan.
HEDGING CONTRACTS AND LOANS HELD FOR SALE
The Company manages its interest rate market risk on the loans held for
sale and its estimated future commitments to originate and close mortgage loans
for borrowers at fixed prices ("Locked Loans") through hedging techniques which
include derivative contracts and fixed price forward delivery commitments
("Forward Commitments") to sell mortgage- backed securities or specific whole
loans to investors on a mandatory or best efforts basis. The Company records
the inventory of loans held for sale at the lower of cost or market on an
aggregate basis after considering any market value changes in the loans held
for sale, Locked Loans, and Forward Commitments.
F-8
<PAGE> 66
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MORTGAGE SERVICING RIGHTS
On July 1, 1995, SFAS No. 122, "Accounting for Mortgage Servicing Rights,
an amendment of FASB Statement No. 65", was adopted. SFAS No. 122 permits an
allocation of a portion of the cost of loan origination to the rights to
service mortgage loans. Approximately $1,188,000 and $117,000 was capitalized
relating to originated mortgage servicing rights ("OMSRs") during 1996 and
1995, respectively. As of December 31, 1996 and 1995, the unamortized portion
of these OMSRs were $1,271,000 and $113,000, respectively. For purposes of
measuring impairment, OMSRs are stratified based on the loan type, interest
rate and maturity of the underlying loans.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT
OF LIABILITIES
The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities", which is effective for
the Company's fiscal year beginning January 1, 1997. SFAS 125 provides
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The impact of the adoption of SFAS 125
upon the results of operations of the Company is not expected to be material.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses provides for risks of losses inherent in the
credit extension process. Losses and recoveries are either charged or credited
to the allowance. The Company's allowance is an amount that management believes
will be adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. The evaluations are periodically
reviewed and adjustments are recorded in the period in which changes become
known.
ACCOUNTING FOR IMPAIRMENT OF LOANS
The Company's measurement of impaired loans includes those loans which are
nonperforming and have been placed on non-accrual status and those loans which
are performing according to all contractual terms of the loan agreement but may
have substantive indication of potential credit weakness. As of December 31,
1996, $19.3 million of loans were considered impaired by the Company. Of this
amount, $15.4 million were carried on a non-accrual basis. Approximately 17.68%
of these loans were measured for impairment using the fair value of collateral,
while the remaining 82.32% were measured using the present value of the
expected future cash flows discounted at the loan's effective rate. As a result
of these measurements, approximately $17.0 million of these loans required
valuation allowances, totaling $2.2 million, which are included within the
overall allowance for loan losses at December 31, 1996. Residential mortgages
and consumer loans and leases outside the scope of SFAS 114 are collectively
evaluated for impairment. Average impaired loans during 1996 were approximately
$19.8 million and the amount of cash basis interest income recognized on these
loans was $.7 million.
As of December 31, 1995, $20.2 million of loans were considered impaired
by the Company. Of this amount, $14.8 million were carried on a non-accrual
basis. Approximately 7.84% of these loans were measured for impairment using
the fair value of collateral, while the remaining 92.16% were measured using
the present value of the expected future cash flows discounted at the loan's
effective rate. As a result of these measurements, approximately $18.7 million
of these loans required valuation allowances, totaling $2.1 million, which were
included within the overall allowance for loan losses at December 31, 1995.
Average impaired loans during 1995 were approximately $20.7 million, and the
amount of cash basis interest income recognized on these loans was $.6 million.
F-9
<PAGE> 67
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the related assets,
except for leasehold improvements for which the lesser of the estimated useful
life of the asset or the term of the lease is used. The useful lives used in
computing depreciation and amortization are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements 39
Furniture and equipment 7
Leasehold improvements 5 - 15
</TABLE>
Gains and losses on routine dispositions are reflected in current
operations. Maintenance, repairs and minor improvements are charged to
operating expenses, and major replacements and improvements are capitalized.
OTHER REAL ESTATE
Other real estate owned ("ORE") represents property acquired through
foreclosure proceedings held for sale and real estate held for investment. ORE
is carried at its fair value, net of a valuation allowance established to
reduce cost to fair value. Losses are charged to the valuation allowance and
recoveries are credited to the allowance. Declines in market value and gains
and losses on disposal are reflected in current operations in ORE expense.
Recoverable costs relating to the development and improvement of ORE are
capitalized whereas routine holding costs are charged to expense. The sales of
these properties are dependent upon various market conditions. Management is of
the opinion that such sales will result in net proceeds at least equal to
present carrying values.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
The FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of," which was effective for
the Company's fiscal year beginning January 1, 1996. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and used be
reviewed for impairment whenever events or changes in circumstances indicate
the carrying amount of an asset may not be recoverable. If the sum of the
expected future cash flows from the use of the asset and its eventual
disposition is less than the carrying amount of the asset, an impairment loss
is recognized. SFAS No. 121 also requires that certain assets to be disposed of
be measured at the lower of carrying amount or the net realizable value. The
impact of adopting SFAS 121 upon the results of operations of the Company was
not material.
INCOME TAXES
The Company follows the liability method which establishes deferred tax
assets and liabilities for the temporary differences between the financial
reporting bases and the tax bases of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. Net deferred tax assets, whose realization is dependent on taxable
earnings of future years, are recognized when a more-likely-than-not criterion
is met, that is, unless a greater than 50% probability exists that the tax
benefits will not actually be realized sometime in the future.
Effective April 1, 1995, federal regulations restricted the amount of
deferred tax assets that can be used to meet regulatory capital requirements to
an amount that the institution expects to realize within one year, or 10% of
Tier 1 capital, whichever is less.
F-10
<PAGE> 68
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company and its subsidiary file consolidated tax returns with the
federal and state taxing authorities. A tax sharing agreement exists between
the Company and the Bank whereby taxes for the Bank are computed as if the Bank
were a separate entity. Amounts to be paid or credited with respect to current
taxes are paid to or received from the Company.
PREMIUM ON DEPOSITS
A premium on deposits is recorded for the difference between cash received
and the carrying value of deposits acquired in purchase transactions. This
premium is being amortized on a straight-line basis over 3 to 4 years.
Approximately $527,000 and $1,017,000 was included in other assets in the
accompanying financial statements, as of December 31, 1996 and 1995.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Effective in 1996, the Company adopted the disclosure
option of SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
which requires that companies not electing to account for stock-based
compensation as prescribed by the statement, disclose the pro forma effects on
earnings and earnings per share as if SFAS 123 had been adopted. Additionally,
certain other disclosures are required with respect to stock compensation and
the assumptions used are to determine the pro forma effects of SFAS 123.
CASH EQUIVALENTS
For purposes of preparing the Consolidated Statements of Cash Flows, cash
equivalents are defined to include cash and due from banks and federal funds
sold.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period financial
statements to conform with the 1996 financial statement presentation.
F-11
<PAGE> 69
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVESTMENT SECURITIES:
The Company's investment securities consisted primarily of U.S. Treasury
Bills and Notes. The investment securities of the Company at December 31, 1996
and 1995 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1996:
Securities available-for-sale:
U.S. Government Treasuries $ 72,905 $ - $ (53) $ 72,852
Revenue bond 1,545 - - 1,545
--------- --------- -------- --------
Securities available-for-sale $ 74,450 $ - $ (53) $ 74,397
========= ========= ======== ========
AT DECEMBER 31, 1995:
U.S. Government Treasuries held to maturity $ 7,015 $ - $ (6) $ 7,009
U.S. Government Treasuries available for sale 38,121 27 (1) 38,147
--------- --------- --------- --------
Total U.S. Treasuries & Federal Agency Notes $ 45,136 $ 27 $ (7) $ 45,156
======== ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
BOOK VALUE AT DECEMBER 31: 1996 1995
---- ----
<S> <C> <C>
Securities held to maturity $ - $ 7,015
Securities available-for-sale 74,397 38,147
-------- --------
Total U.S. Treasuries $ 74,397 $ 45,162
======== ========
</TABLE>
The amortized cost and estimated market value of investment securities at
December 31, 1996, by contractual maturity are shown below (in thousands):
<TABLE>
<CAPTION>
Available-for-Sale
--------------------------------------------
Estimated Weighted
Amortized Market Average
Cost Value Yield
--------- --------- ---------
<S> <C> <C> <C>
Due in 1 year or less $ 61,367 $ 61,358 4.84%
Due after 1 year through 5 years 13,083 13,039 6.02
-------- --------
Total $ 74,450 $ 74,397 5.05%
======== ========
</TABLE>
Proceeds from sales of U.S. Treasury and Federal Agency Notes during the
years ended 1996, 1995 and 1994, were $7,545,000, $2,972,000, and $6,991,000,
respectively. Gross losses of $0, $27,891 and $0 were realized for the years
ended December 31, 1996, 1995 and 1994. Gross gains of $45,404, $0, and $1,094,
were realized during the years ended December 31, 1996, 1995 and 1994,
respectively. U.S. Treasuries and Federal Agency Notes with a par value of
$19,000,000 and $8,000,000 at December 31, 1996 and 1995, respectively, were
pledged to secure public deposits and for other purposes.
F-12
<PAGE> 70
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. MORTGAGE BACKED SECURITIES:
Mortgage-backed securities ("MBS"), sometimes referred to as pass-through
certificates, represent an interest in a pool of loans. The securities are
issued by three government agencies or corporations: (i) the Government National
Mortgage Association ("GNMA"), (ii) the Federal Home Loan Mortgage Corporation
("FHLMC") and (iii) the Federal National Mortgage Association ("FNMA"). During
1996 and 1995 the Company securitized loans with a carrying value of $6,282,000
and $30,048,000, respectively, through FHLMC. The Company's MBS portfolio at
December 31, 1996 consisted solely of variable rate securities issued by GNMA,
and payments on those securities are backed by that government agency. MBS
securities held to maturity are recorded at amortized cost, while securities
available-for-sale are recorded at estimated market value. Mortgage backed
securities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1996:
GNMA held to maturity $ -- $ -- $ -- $ --
GNMA available for sale 20,105 -- (101) 20,004
------- ---- ----- -------
Total mortgage backed securities $20,105 $ -- $(101) $20,004
======= ==== ===== =======
AT DECEMBER 31, 1995:
FHLMC held to maturity $17,112 $114 $ (20) $17,206
FHLMC available for sale 2,540 -- (13) 2,527
------- ---- ----- -------
Total mortgage backed securities $19,652 $114 $ (33) $19,733
======= ==== ===== =======
</TABLE>
<TABLE>
<CAPTION>
BOOK VALUE AT DECEMBER 31: 1996 1995
------- --------
<S> <C> <C>
Securities held to maturity $ -- $17,112
Securities available-for-sale 20,004 2,527
------- -------
Total MBS $20,004 $19,639
======= =======
</TABLE>
At December 31, 1996 all MBS securities available for sale were scheduled to
reprice in one year or less.
The amortized cost and estimated market value of the MBS portfolio at
December 31, 1996, by contractual maturity are shown below (in thousands).
Actual maturities may differ from contractual maturities as a result of
prepayments of the underlying mortgages:
<TABLE>
<CAPTION>
Available-for-Sale
--------------------------------------
Estimated Weighted
Amortized Market Average
Cost Value Yield
--------- --------- -------
<S> <C> <C> <C>
Due after 10 years $ 20,105 $ 20,004 5.53%
-------- --------
Total $ 20,105 $ 20,004 5.53%
======== ========
</TABLE>
During 1996, the Company sold FHLMC classified as "Held-to-Maturity",
recording net gains of $300,201, and purchased GNMA securities. The purpose of
this transaction was to reduce the Company's capital requirements. As a result,
and in compliance with SFAS 115 "Accounting for Certain Investments in Debt and
Equity Securities", all investment securities are classified as
"available-for-sale" as of December 31, 1996.
Proceeds from sales of MBS securities during the years ended December 31, 1996
and 1995 were $21,077,000 and $9,732,000, respectively. Gross gains of $354,837
and $55,038 and gross losses of $31,845 and $0, respectively, were realized on
these sales. None of the MBS securities were pledged to secure public deposits
or for other purposes at December 31, 1996.
F-13
<PAGE> 71
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LOANS AND LOANS HELD FOR SALE:
Loans at December 31, 1996 and 1995, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Real estate mortgage loans:
One-to-four family residential $ 385,701 $ 386,524
Multi-family residential 70,967 77,802
Commercial real estate 182,298 153,193
Construction/land development 27,050 13,974
Commercial loans 34,617 29,898
Consumer loans 9,860 6,798
Other loans 1,294 2,367
--------- ---------
Total gross portfolio loans 711,787 670,556
Less-allowance for loan losses (Note 5) (13,134) (14,910)
Less-premiums and unearned discounts on loans purchased (4,731) (4,561)
Less-unamortized loan fees (652) (1,290)
--------- ---------
Total loans held for portfolio 693,270 649,795
Residential loans held for sale 36,590 4,711
--------- ---------
Total loans $ 729,860 $ 654,506
========= =========
</TABLE>
As of December 31, 1996, the Company had $36,590,000 of 1-4 residential
mortgage loans available for sale with a weighted average interest rate of
8.72%. As of December 31, 1995 loans available for sale were approximately
$4,711,000, which approximated market value, with a weighted average interest
rate of 7.47%. Mortgage loans serviced for others as of December 31, 1996 and
1995 were $120,711,000 and $39,951,000, respectively.
Loans on which interest was not being accrued totaled approximately
$15,351,000, $14,813,000, and $12,948,000 at December 31, 1996, 1995 and 1994,
respectively. Had interest been accrued on these loans at their originally
contracted rates, interest income would have been increased by approximately
$1,138,000, $1,329,000, and $647,000 in the years ended December 31, 1996, 1995
and 1994, respectively. Loans past due 90 days or more and still accruing
interest at December 31, 1996 and 1995, totaled approximately $113,000 and
$1,876,000, respectively. The Company restructured loans totaling $2,516,000 and
$145,000 during 1996 and 1995, respectively.
5. ALLOWANCE FOR LOAN LOSSES:
Changes in the allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
BALANCE, beginning of period $ 14,910 $ 7,065 $ 6,539
Provision for possible loan losses 1,800 1,685 1,575
Discount on purchased loans allocated
to (from) loan loss reserve (1,732) 7,658 643
Loans charged off (2,110) (1,947) (1,870)
Recoveries of loans charged off 266 449 178
-------- -------- -------
BALANCE, end of period $ 13,134 $ 14,910 $ 7,065
======== ======== =======
</TABLE>
F-14
<PAGE> 72
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
While management believes that the allowance for loan losses is adequate at
December 31, 1996, based on currently available information, future additions to
the allowance may be necessary due to changes in economic conditions,
deterioration of creditworthiness of the borrower, the value of underlying
collateral or other factors. Additionally, the Florida Department of Banking and
Finance, the FDIC, and the Federal Reserve, as an integral part of their regular
examination process, periodically review the allowance for loan losses. These
agencies may require additions to the allowance based on their judgments about
information available to them at the time of examination.
The portion of the allowance for loan losses which arose due to the
allocation of discounts on purchased loans may only be used to absorb losses on
the related acquired loans. As of December 31, 1996 and 1995, approximately
$7,150,000 and $10,249,000 of the reserve had arisen through an allocation of
discounts on purchased loans.
6. PREMISES AND EQUIPMENT:
Premises and equipment at December 31, 1996 and 1995, included (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Land $ 4,951 $ 4,951
Buildings and improvements 9,216 8,671
Furniture and equipment 7,371 6,120
Leasehold improvements 1,051 903
Construction in progress 268 11
------- -------
Total premises and equipment 22,857 20,656
Less-accumulated depreciation and amortization (3,142) (1,665)
------- -------
Premises and equipment, net $19,715 $18,991
======= =======
</TABLE>
7. OTHER REAL ESTATE (ORE):
State banking regulations require the Company to dispose of all ORE acquired
through foreclosure within five years of acquisition, with a possibility for
additional extensions, each of up to five years. Failure to receive additional
extensions could result in losses on ORE. There were two ORE properties totaling
$4,477,000 at December 31, 1996, which were required to be disposed of by
year-end. The Company has been granted an extension on these properties by the
State. As of December 31, 1996, a third property, in the amount of approximately
$254,000, is required to be disposed of no later than December 31, 1997.
Management expects an extension will also be granted by the State on this
property if not sold. In addition, federal banking regulations had required the
Bank to dispose of one of these properties amounting to $3,200,000 by December
31, 1996 but the FDIC has granted an extension of the holding period to December
19, 1997. While the current appraisal on this property indicates that the market
value of the tract exceeds its book value, a sale to a party other than an
end-user could result in proceeds below the current book value.
During 1995, the former headquarter building was vacated and that space was
leased to a third party. Since that building was no longer used for banking
purposes, approximately $2,498,000 was transferred from premises and equipment
to ORE held for investment. During 1996, this building was sold and a gain of
$1,207,000 was recorded.
Loans converted to ORE through foreclosure proceedings totaled $6,910,000,
and $2,639,000, for the years ended December 31, 1996 and 1995, respectively.
Sales of ORE that were financed by the Company totaled $3,676,000 and $1,358,000
for the years ended December 31, 1996 and 1995, respectively.
F-15
<PAGE> 73
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the valuation allowance for ORE were as follows (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
BALANCE, beginning of period $ 966 $ 1,170 $ 1,718
Provision 1,611 -- 10
Charge-offs (63) (204) (558)
-------- -------- -------
BALANCE, end of period $ 2,514 $ 966 $ 1,170
======== ======== =======
</TABLE>
8. INCOME TAXES:
Income taxes are comprised of the following (in thousands):
<TABLE>
<CAPTION>
For the
Years Ended
December 31,
--------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current provision $ 3,744 $ 2,899 $ 2,612
Deferred benefit (1,512) (1,024) (2,144)
------- ------- -------
$ 2,232 $ 1,875 $ 468
======= ======= =======
</TABLE>
At December 31, 1996, the Company had approximately $670,000 of remaining
federal and $2,393,000 of state net operating loss carryforwards. These
carryforwards expire in the years 2006 through 2008.
Following the change of ownership in 1993, recognition of net operating loss
carryforwards were limited to approximately $259,000 each year. If the full
amount of the limitation is not used in any years, the amount not used increases
the allowable limit in the subsequent year.
Deferred tax assets and liabilities were comprised of the following at
December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Gross deferred tax assets:
Tax bases over financial bases for loans
(loan loss reserve & discounts) $ 2,329 $ 1,230
Financial amortization of premium over tax amortization 646 533
Interest on non-accrual loans 315 250
Tax bases over financial bases for ORE 1,286 634
Net operating losses and tax credit carryforward 314 411
Mark-to-market-loans held for sale 232 --
Other 145 160
------- -------
Gross deferred tax asset 5,267 3,218
Gross deferred tax liabilities 567 93
------- -------
Net deferred tax asset $ 4,700 $ 3,125
======= =======
</TABLE>
The valuation allowance for the deferred tax asset was $1,604,000 at
December 31, 1993. The valuation allowance was subsequently eliminated during
the years ended December 31, 1995 and 1994 by decreases to tax expense of
$177,000 and $1,427,000, respectively. There were no valuation allowances
against the deferred tax asset for the years ended December 31, 1996 and 1995 as
management has determined that it is more likely than not that all of the
deferred tax asset recorded will be realized. The net deferred tax asset
increased during 1996 and 1995 by approximately $63,000 and $38,000,
respectively, relating to the unrealized gain on available for sale securities
which is recorded directly to stockholders' equity.
F-16
<PAGE> 74
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's effective tax rate varies from the statutory rate of 34
percent. The reasons for this difference are as follows (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax provision $ 2,045 $ 2,600 $ 2,505
Increase (reduction) of taxes:
Tax-exempt interest income (22) (27) (29)
Valuation allowance -- (177) (1,427)
Amortization of excess of fair
value over purchase price -- (536) (1,017)
State taxes 217 216 265
Other (8) (201) 171
-------- -------- -------
Total $ 2,232 $ 1,875 $ 468
======== ======== =======
</TABLE>
9. SUBORDINATED DEBT:
On December 27, 1996, the Company issued $6,000,000 in convertible
subordinated debentures at a fixed interest rate of 6.00%, interest payable
semi-annually, with a maturity of December 1, 2011. The Company has the right to
redeem the debentures beginning in 2001 at 106% of face value, with the premium
declining 1% per year thereafter and without any premium if the price of the
Company's common stock equals or exceeds 130% of the conversion price for not
less than 20 consecutive trading days. The debentures are convertible by the
holder at any time prior to maturity into the Company's $2.00 par value common
stock at a conversion price of $17.85714 per share (equivalent to a conversion
rate of 56 common shares per $1,000 principal amount of debentures). The Company
incurred $213,000 in issuance costs which will be amortized over 36 months.
10. OFF-BALANCE-SHEET RISK, COMMITMENTS AND CONTINGENCIES:
CONCENTRATION OF CREDIT RISK
The Company's core customer loan origination base is located along the west
coast and in central Florida. The majority of the Company's purchased loan
portfolio is concentrated in the states of Florida, California, Texas, and in
the northeastern United States. At December 31, 1996 and 1995, approximately 94
percent of the Company's loan portfolio was secured by real estate. Mortgage
loans secured by 1-4 family properties comprised approximately 60 and 61
percent, respectively, of total mortgage loans at December 31, 1996 and 1995.
OFF-BALANCE-SHEET ITEMS
The Company enters into financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to limit exposure to changes in the value of loans held for sale. These
financial instruments include commitments to extend credit, commercial and
standby letters of credit, and forward contracts for the delivery of loans.
These instruments involve, to varying degrees, elements of credit and
interest-rate risk that are not recognized in the accompanying consolidated
balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments discussed above is represented by the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
F-17
<PAGE> 75
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of financial instruments with off-balance-sheet risk at December
31, 1996, is as follows (in thousands):
<TABLE>
<CAPTION>
Contractual
Amount
-----------
<S> <C>
Commitments to extend credit $ 51,754
Unfunded lines of credit 64,604
Commercial and standby letters of credit 7,415
--------
Total $123,773
========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the agreement. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary upon extension of credit is based on management's credit
evaluation of the counterparty. Collateral held varies but may include premises
and equipment, inventory and accounts receivable. Unfunded lines of credit
represent the undisbursed portion of lines of credit which have been extended to
customers.
Commercial and standby letters of credit are conditional commitments issued
by the Company to guarantee the performance of a customer to a third party which
typically do not extend beyond one year. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Company typically holds certificates of deposit as
collateral supporting those commitments, depending on the strength of the
borrower. Outstanding unsecured standby letters of credit at December 31, 1996,
totaled approximately $1,376,000.
At December 31, 1996, in connection with managing the interest rate market
risk on its loans held for sale and Locked Loans totaling $37,416,000, the
Company had outstanding $15,000,000 (estimated fair value of $15,165,000) of
Forward Commitments which expire over the next two months, the period when the
loans are expected to be sold and Locked Loans are expected to close.
The Company reduces its risk of nonperformance under the hedging contracts
by entering into those contracts with reputable security dealers and investors
and evaluating their financial condition. However, there is a risk that certain
of the Locked Loans do not close or are renegotiated in a declining interest
rate market and close at lower prices. The Company reduces this risk by
collecting nonrefundable commitment fees on certain of the Locked Loans and
enters into Forward Commitments to deliver loans to investors primarily on a
best efforts basis.
COMMITMENTS
The Company has entered into a number of noncancelable operating leases
primarily for branch banking locations. At December 31, 1996, minimum rental
commitments based on the remaining noncancelable lease terms were as follows (in
thousands):
<TABLE>
<S> <C>
1997 $ 2,008
1998 1,809
1999 1,432
2000 1,186
2001 1,123
Thereafter 3,839
--------
11,397
Less-sublease rentals (1,063)
--------
$ 10,334
========
</TABLE>
F-18
<PAGE> 76
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense for the years ended December 31, 1996, 1995 and 1994 was
$1,653,000, $1,009,000, and $435,000, respectively. Total rental income from
subleases for the years ended December 31, 1996, 1995 and 1994 was $971,000,
$1,113,000, and $1,132,000, respectively.
During 1994 a capital lease obligation of approximately $981,000 was
incurred related to the leasing of data processing equipment with an implicit
rate of 7.49%. Minimum lease payments under this capital lease are approximately
$214,000 in each of the years 1997, 1998 and $107,000 in 1999. In addition, the
Company is obligated to make processing payments in relation to its computer
facilities of approximately $966,000 in each of the years 1997 and 1998,
$1,073,000 in 1999, $1,181,000 in 2000, and $197,000 in 2001.
Contingencies
The Company is subject to various other legal proceedings and claims which
arise in the normal course of business. In the opinion of management, the amount
of liability with respect to these other proceedings would not have a material
effect on the financial statements.
11. EMPLOYEE BENEFIT PLANS
On January 1, 1987, a retirement plan was adopted, covering substantially
all employees, which includes a 401(k) arrangement. Each employee of the Company
automatically becomes eligible to participate in the savings plan on the January
1 immediately following the date on which such employee attains the age of 18
and completes six months of service. An employee must complete 1,000 hours of
service during each subsequent plan year, and failure to complete 1,000 hours of
service in a subsequent plan year will constitute a "one year break in service"
and a forfeiture of eligibility to participate in the plan.
Employees' before-tax contributions are limited based on restrictions
established by the Internal Revenue Service. Employees also may elect to make
after-tax contributions to their account. In each plan year, the Company will
make matching contributions to each account equal to 25% of the employees
elective contributions, but only up to the amount that does not exceed 6% of
compensation. Beginning January 1, 1997, if the Company attains a return on
equity in excess of 10.0% for a quarterly period, the matching contribution will
be increased to 50% for that period, concurrently. Employees are 100% vested at
all times in their contributions and regular matching contributions. In
addition, the 401(k) arrangement plan permits the Company to contribute a
discretionary amount to all of the participants for any plan year, and that
contribution will be allocated among the participants based upon their
respective shares of the total compensation paid during the plan year to all
participants eligible. The Company's contributions were $108,900, $58,200, and
$38,500 in the years ended December 31, 1996, 1995 and 1994, respectively.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Generally, the Company's practice and intent is to hold its financial
instruments to maturity, unless otherwise designated. Where available, quoted
market prices are used to determine fair value. However, many of the Company's
financial instruments lack quoted market prices. Although the Company has
incorporated what it considers to be appropriate estimation methodologies for
those financial instruments which lack quoted market prices, a significant
number of assumptions must be used in determining such estimated fair values.
Such assumptions include subjective assessments of current market conditions,
perceived risks associated with these financial instruments and other factors.
Different assumptions might be considered by the user of the financial
statements to be more appropriate, and the use of alternative assumptions or
estimation methodologies could have
F-19
<PAGE> 77
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a significant effect on the resulting estimated fair values. The estimated fair
values presented neither include nor give effect to the values associated with
the Company's business, existing customer relationships, and branch banking
network, amoung other things.
The following estimates of the fair value of certain financial instruments
held by the Company include only instruments that could reasonably be evaluated.
The investment securities portfolio was evaluated using market quotes as of
December 31, 1996 and 1995. The fair value of the loan portfolio was evaluated
using market quotes for similar financial instruments, where available.
Otherwise, discounted cash flows, after adjusting for credit deterioration, were
used based upon current rates the Company would use in extending credit with
similar characteristics. These rates may not necessarily be the same as those
which might be used by other financial institutions for similar loans. Cash and
due from banks and federal funds sold were valued at cost. The fair values
disclosed for checking accounts, savings accounts, securities sold under
agreements to repurchase, and certain money market accounts are, by definition,
equal to the amount payable on demand at the reporting date, i.e., their
carrying amounts. Fair values for time deposits are estimated using a discounted
cash flow calculation that applies current interest rates to aggregated expected
maturities. Standby letters of credit and commitments to extend credit were
valued at book value as the majority of these instruments are based on variable
rates.
These evaluations may incorporate specific value to the Company in
accordance with its asset/liability strategies, interest rate projections and
business plans at a specific point in time and therefore, should not necessarily
be viewed as liquidation value. They should also not be used in determining
overall value of the Company due to undisclosed and intangible aspects such as
business and franchise value, and due to changes to assumptions of interest
rates and expected cash flows which might need to be made to reflect
expectations of returns to be earned on instruments with higher credit risks.
The table below illustrates the estimated fair value of the Company's
financial instruments as of December 31 using the assumptions described above
(in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash and due from banks $27,810 $19,806
======= =======
Interest bearing deposits in banks 118 2
======= =======
Investment securities 94,401 68,429
======= =======
Federal funds sold 8,000 14,621
======= =======
Loans 754,445 681,163
======= =======
Mortgage servicing rights 1,690 113
======= =======
Deposits 830,562 746,904
======= =======
Securities sold under agreements to repurchase 15,372 3,072
======= =======
Subordinated debt 6,000 --
======= =======
Standby letters of credit 7,415 6,178
======= =======
Commitments to extend credit and unfunded lines of credit 116,358 103,076
======= =======
</TABLE>
13. STOCKHOLDERS' EQUITY:
PERPETUAL PREFERRED CONVERTIBLE STOCK
The Company has 75,000 outstanding shares of perpetual preferred convertible
stock. The preferred stock has a liquidation preference of $88 per share and
carries a noncumulative dividend of $3.52 per year, payable quarterly. Dividends
on the preferred stock must be paid before any dividends on common stock can be
paid. Beginning December 16, 1994 and thereafter, the preferred stock can be
converted by the holders into 10 shares of common stock for each share of
preferred stock. The preferred stock was redeemable at the option of the Company
through December 16, 1996, at a price of $96.80 per share. The holders of the
preferred stock vote with the holders of the common stock and are entitled to 10
votes per share of preferred stock.
F-20
<PAGE> 78
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DIVIDENDS
Florida Statutes limit the amount of dividends the Bank can pay in any given
year to that year's net income plus retained net income from the two preceding
years. Additionally, the Bank and the Company cannot pay dividends which would
cause either to be undercapitalized as defined by federal regulations.
1995 RIGHTS AND PUBLIC STOCK OFFERINGS
On June 27, 1995, an offering was completed to the public and to the
stockholders of 800,000 shares of the $2.00 par value Common Stock. The Common
Stock was offered through a combined subscription Rights Offering and an
underwritten Public Offering (the "Offerings"). The number of shares subscribed
for in the Rights Offering totaled 287,049 with 512,951 shares sold in the
Public Offering. The price per share was $12.50 for the Offerings and net
proceeds amounted to $9,137,000.
1993 NON-QUALIFIED STOCK OPTION PLAN
On May 28, 1993, the Company adopted a non-qualified stock option plan (the
Option Plan) which reserved 80,000 shares of common stock for future issuance
under the Option Plan to eligible employees of the Company. As of December 31,
1996, 60,000 options were granted under the Option Plan and 35,000 were
outstanding. The per share exercise price of each stock option is determined by
the Board of Directors at the date of grant.
The plan terminates in 2003 or at the discretion of the Board of Directors.
1995 INCENTIVE STOCK OPTION PLAN
On April 29, 1994, the shareholders approved a qualified incentive stock
option plan to certain key employees. In connection with the Company's holding
company reorganization and share exchange in which all of the Company's
stockholders became stockholders of the Company, the Company adopted the
Republic Bancshares, Inc. 1995 Stock Option Plan (the "Plan") as a replacement
for the Company's 1994 Stock Option Plan. The Plan was approved by the
stockholders of the Bank at the Bank's Special Meeting held on February 27,
1996. On April 23, 1996, the shareholders approved certain amendments to the
Plan (the "Amendment"). Under the Amendment, the total number of shares that may
be purchased pursuant to the plan cannot exceed 525,000 over the life of the
plan and provides that the maximum number of options granted to any one
individual in any fiscal year under the plan cannot exceed 62,000. There is no
limitation on the annual aggregate number of options to be granted in any fiscal
year. Each option granted under the plan will be exercisable by the grantee
during a term, not to exceed ten years, fixed by the compensation committee of
the Board of Directors ("the Committee"). However, no more than 20% of the
shares subject to such options shall vest annually beginning at date of grant.
However, in the event of a change in control, or termination of employment
without cause, all options granted become exercisable immediately. Options under
the plan, which have been granted to the employees of the Flagship/Capital
mortgage banking division of the Company, vest at the rate of 20% at the end of
each 12 month period over five years, contingent upon that division meeting
specified net income performance goals as set by the Board of Directors. If the
performance goal for each year is not met, then the options that would have
become exercisable at the end of the 12 month period shall expire and be null
and void. In addition, options granted to employees of this division shall not
vest and become exercisable if there is a change in control or a termination of
employment without cause, until the performance goal for at least one year has
been met.
Upon the grant of an option to a key employee, the Committee will fix the
number of shares of common stock that the grantee may purchase upon exercise of
the option, and the price at which the shares may be purchased. The exercise
price for all options shall not be less than the fair market value. During 1996,
1995 and 1994, options to purchase 270,900, 59,700 and 46,450 shares,
respectively, under the incentive stock option plan were
F-21
<PAGE> 79
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
granted. Of the options previously granted, 12,460 shares have expired through
the termination of key employees without having exercised their options,
thereby making these options available for future grants. As of December 31,
1996, 361,470 options remained outstanding.
AGGREGATE STOCK OPTION ACTIVITY
The Company adopted SFAS 123 for disclosure purposes in 1996. For SFAS 123
purposes, the fair value of each option granted has been estimated as of the
date of grant using the Black-Scholes option pricing model with the following
assumptions (weighted averages): risk-free interest rate of 6.42 percent,
expected life of 7 years, dividend rate of zero percent, and expected
volatility of 23 percent. Using these assumptions, the fair value of the stock
options granted in 1996 and 1995 is $1,583,000 and $346,900, respectively,
which would be amortized as compensation expense over the vesting period of the
options. Options vest equally over five years. Had compensation cost been
determined consistent with SFAS 123, utilizing the assumptions detailed above,
the Company's net income and earnings per share as reported would have been the
following pro forma amounts (in thousands except share data):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net Income
As reported $3,784 $5,773
Pro forma 3,588 5,730
Earnings per share
As reported 0.76 1.26
Pro forma 0.72 1.26
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that expected in future years. A summary of the status
of the Company's stock option plans at December 31, 1996, 1995 and 1994 and for
the years then ended is presented in the table and narrative below:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------------------------------------------------------
Wtd Avg Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price Shares Ex Price
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIXED OPTIONS
Outstanding - beg. of year 50,000 $ 6.44 81,500 $ 8.75 131,810 $11.00
Granted 46,450 10.50 59,700 14.00 70,900 13.63
Exercised (14,950) 6.46 (3,170) 9.58 - -
Forfeited - - (6,220) 11.06 (6,240) 13.42
Expired - - - - - -
------- ------- -------
Outstanding - end of year 81,500 8.75 131,810 11.00 196,470 11.87
======= ======= =======
Exercisable - end of year 14,340 9.41 45,112 9.07 92,530 10.29
Wtd. avg. fair value
of options granted 5.81 5.84
PERFORMANCE OPTIONS
Outstanding - beg. of year - - - - - $ -
Granted - - - - 200,000 13.63
Exercised - - - - - -
Forfeited - - - - - -
Expired - - - - - -
------- ------- -------
Outstanding - end of year - - - 200,000 13.63
======= ======= =======
Exercisable - end of year - - - - - -
Wtd. avg. fair value
of options granted 5.84
</TABLE>
F-22
<PAGE> 80
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------ ---------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
--------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
5.40-10.50 72,370 6.89 years $ 8.57 56,630 $ 8.04
13.63-14.00 324,100 9.21 years 13.69 35,900 13.86
</TABLE>
14. EARNINGS PER SHARE:
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share has been computed by
dividing net income by the weighted average common and common equivalent shares
outstanding during the periods. The weighted average common and common
equivalent shares outstanding has been adjusted to include the number of shares
that would have been outstanding if the stock options granted had been
exercised, with the proceeds being used to buy shares from the market (i.e., the
treasury stock method) and the perpetual preferred convertible stock had been
converted to common stock at the earlier of the beginning of the year or the
issue date (i.e., the if-converted method). Net income per common and common
equivalent shares represents both primary and fully diluted per share
information.
15. REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve (for the Company) and the FDIC (for
the Bank). There are three basic measures of capital adequacy for banks that
have been promulgated by the Federal Reserve; two risk-based measures and a
leverage measure. All applicable capital standards must be satisfied for a bank
holding company to be considered in compliance.
The minimum guidelines for the ratio ("Risk-Based Capital Ratio") of total
capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8.0%. At least
half of Total Capital (i.e., 4.0% of risk-weighted assets) must comprise common
stock, minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less goodwill and certain other intangible assets
("Tier 1 Capital"). The remainder may consist of subordinated debt, other
preferred stock, and a limited amount of loan loss reserves ("Tier 2 Capital").
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3.0% for banks that meet certain
specified criteria, including having the highest regulatory rating. All other
bank holding companies generally are required to maintain a Leverage Ratio of at
least 3.0%, plus an additional cushion of 100 to 200 basis points. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a "tangible Tier I Capital leverage ratio" (deducting all
intangibles) and other indicators of capital strength in evaluating proposals
for expansion or new activities.
F-23
<PAGE> 81
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Bank had previously undertaken in writing to the FDIC to achieve a
Leverage Ratio of at least 5.50% by September 30, 1995, which it did, and will
consider raising additional capital or reducing internal growth should the ratio
fall below that level in the future. The Company's leverage ratio requirement
remains at 5.00%. Other than the foregoing commitment, the Bank has not been
advised by the FDIC of any specific minimum capital ratio requirement applicable
to it.
Failure to meet capital guidelines could subject a bank or a bank holding
company to a variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a prohibition on
the taking of brokered deposits, and certain other restrictions on its business.
Substantial additional restrictions can be imposed upon FDIC-insured depository
institutions that fail to meet applicable capital requirements under the federal
prompt corrective action regulations.
As of December 31, 1996 and 1995, the Company and the Bank were considered
"well capitalized" under the federal banking agencies for prompt corrective
action regulations. The table which follows sets forth the amounts of capital
and capital ratios of the Company and the Bank as of December 31, 1996 and 1995,
and the applicable regulatory minimums (in thousands):
F-24
<PAGE> 82
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
COMPANY BANK
------------------- -------------------
AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C>
As of December 31, 1996:
RISK-BASED CAPITAL:
Tier 1 Capital
Actual $51,325 8.82% $57,113 9.82%
Minimum required to be "Adequately Capitalized" 23,268 4.00 23,260 4.00
Excess over minimum to be "Adequately Capitalized" 28,057 4.82 33,853 5.82
To be "Well Capitalized" 34,902 6.00 34,890 6.00
Excess over "Well Capitalized" requirements 16,423 2.82 22,223 3.82
Total Capital
Actual 64,630 11.11 64,418 11.08
Minimum required to be "Adequately Capitalized" 46,536 8.00 46,519 8.00
Excess over minimum to be "Adequately Capitalized" 18,094 3.11 17,899 3.08
To be "Well Capitalized" 58,170 10.00 58,149 10.00
Excess over "Well Capitalized" requirements 6,460 1.11 6,269 1.08
TIER 1 CAPITAL TO TOTAL ASSETS (LEVERAGE):
Actual 51,325 5.90 57,113 6.57
Minimum required to be "Adequately Capitalized" 34,807 4.00 34,798 4.00
Excess over minimum to be "Adequately Capitalized" 16,518 1.90 22,315 2.57
To be "Well Capitalized" 43,509 5.00 47,848 5.50
Excess over "Well Capitalized" requirements 7,816 0.90% 9,265 1.07
As of December 31, 1995:
RISK-BASED CAPITAL:
Tier 1 Capital
Actual N/A N/A 47,940 9.17
Minimum required to be "Adequately Capitalized" N/A N/A 20,904 4.00
Excess over minimum to be "Adequately Capitalized" N/A N/A 27,036 5.17
To be "Well Capitalized" N/A N/A 31,356 6.00
Excess over "Well Capitalized" requirements N/A N/A 16,584 3.17
Total Capital
Actual N/A N/A 53,833 10.30
Minimum required to be "Adequately Capitalized" N/A N/A 41,809 8.00
Excess over minimum to be "Adequately Capitalized" N/A N/A 12,024 2.30
To be "Well Capitalized" N/A N/A 52,260 10.00
Excess over "Well Capitalized" requirements N/A N/A 1,573 0.30
TIER 1 CAPITAL TO TOTAL ASSETS (LEVERAGE):
Actual N/A N/A 47,940 6.00
Minimum required to be "Adequately Capitalized" N/A N/A 31,962 4.00
Excess over minimum to be "Adequately Capitalized" N/A N/A 15,978 2.00
To be "Well Capitalized" N/A N/A 43,948 5.50
Excess over "Well Capitalized" requirements N/A N/A 3,992 0.50%
</TABLE>
F-25
<PAGE> 83
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. RELATED PARTY TRANSACTIONS
William R. Hough, a director and one of the two controlling shareholders,
is President and the controlling shareholder of William R. Hough & Co., an
NASD-member investment banking firm. In December 1996, the Company offered
$6,000,000 of convertible subordinated debentures through a private placement on
a "best efforts" basis exclusively through William R. Hough & Co. as "Sales
Agent" for the Company. The sales agent agreement provided for the payment to
William R. Hough & Co. of a fee of 1.50% for each $1,000 principal amount of
debentures sold to directors of the Company or their spouses and 3% for each
$1,000 of debentures sold to all others. The total amount of fees paid to
William R. Hough & Company for the sale of the debentures was $162,000. In
addition, the Company agreed to indemnify the sales agent against and contribute
toward certain liabilities, including liabilities under the Securities Act, and
to reimburse William R. Hough & Co. for certain expenses and legal fees related
to the sale of the debentures of approximately $51,000.
In July 1996, William R. Hough & Co. began offering sales of insurance and
mutual fund products and investment advisory services on the premises of the
Company. The Company was paid a monthly fee of $300 for each banking office
participating in the program plus a fee of 15% of the gross commissions earned
from sales of non-insurance products. On January 1, 1997, this agreement was
terminated and replaced with a new agreement where the Company will be paid 50%
of the net profits earned from sales of investment products on the Company's
premises.
In June 1995, in connection with a rights offering of the Company Common
Stock conducted by the Company, William R. Hough & Co. participated as a
soliciting dealer, and as such was entitled to receive solicitation fees in an
amount equal to approximately $11,900. William R. Hough & Co. also participated
in the selling group for the public offering of the Company Common Stock that
took place in conjunction with the rights offering. In connection with the
public offering, William R. Hough & Co. received approximately $18,000 in
discounts and other fees.
In addition, WRH Mortgage, Inc., a related interest of William R. Hough,
acted as the Company's agent in the purchase of two loan pools from the
Resolution Trust Corporation on May 23, 1995 and was paid due diligence fees
totaling $39,997. The Company also entered into an agreement with William R.
Hough & Co. on August 15, 1995 to periodically purchase securities under
agreement to repurchase at a rate based on the prevailing federal funds rate
plus 1/8 of 1%.
Certain directors and executive officers of the Company and Bank, members
of their immediate families, and entities with which such persons are associated
are customers of the Bank. As such, they had transactions in the ordinary course
of business with the Bank during 1996 and will have additional transactions in
the future. All loans and commitments to lend included in those transactions
were made in the ordinary course of business, upon substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and, in the opinion of management,
have not involved more than the normal risk of collectibility or presented other
unfavorable features.
F-26
<PAGE> 84
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. BANK HOLDING COMPANY FINANCIAL STATEMENTS:
Condensed financial statements of the Company (Republic Bancshares, Inc.)
at December 31 are presented below. Amounts shown as investment in the
wholly-owned subsidiary and equity in earnings of the subsidiary are eliminated
in consolidation.
REPUBLIC BANCSHARES, INC.
PARENT-ONLY CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996
----
<S> <C>
ASSETS
Cash $ 0
Investment in wholly-owned subsidiary 60,111
Prepaid issuance costs-subordinated debt 212
--------
Total $ 60,323
========
LIABILITIES
Subordinated debt $ 6,000
Accrued interest on subordinated debt 4
--------
Total liabilities 6,004
--------
STOCKHOLDERS' EQUITY
Perpetual preferred convertible stock 1,500
Common stock 8,367
Capital surplus 26,699
Retained earnings 17,849
Unrealized losses on available-for-sale securities (96)
--------
Total stockholders' equity 54,319
--------
Total $ 60,323
========
</TABLE>
<TABLE>
<CAPTION>
PARENT-ONLY CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
1996
----
<S> <C>
INCOME
Dividends from bank $ 264
Interest expense on subordinated debt (5)
Equity in undistributed net income
of subsidiary 3,525
--------
Net Income $ 3,784
========
</TABLE>
F-27
<PAGE> 85
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REPUBLIC BANCSHARES, INC.
PARENT-ONLY CONDENSED CASH FLOW SATEMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
OPERATING ACTIVITIES:
Net Income $ 3,784
Reconciliation of net income to net cash provided:
Interest expense on subordinated debt 5
Equity in undistributed net income of subsidiary (3,525)
--------
Net cash provided by operating activities 264
--------
INVESTMENT ACTIVITIES:
Equity investment in banking subsidiary (56,648)
--------
Net cash used in investing activities (56,648)
--------
FINANCING ACTIVITIES:
Issuance of stock and reorganization 50,860
Proceeds from issuance of subordinated debt 5,788
Dividend payments on perpetual preferred stock (264)
--------
Net cash provided by financing activities 56,384
--------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ -
========
Cash Balance Beginning $ -
========
Cash Balance Ending $ -
========
</TABLE>
F-28
<PAGE> 86
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. MERGERS AND ACQUISITIONS
On December 19, 1996, the Company announced that an agreement had been
reached for the acquisition of Firstate Financial, F.A. ("Firstate"), a thrift
institution headquartered in Orlando, Florida, for a cash purchase price of
$5,501,000. Firstate is not publicly traded. The agreement is subject to final
approval by the Department, FDIC and FRB. At December 31, 1996, Firstate had
total assets of $103,624,000 (unaudited) and total deposits of $84,842,000
(unaudited). Firstate currently maintains a branch office in downtown Orlando
and an office in Winter Park, Florida. The acquisition will be accounted for
using purchase accounting rules.
On March 10, 1997, the Company and F.F.O. Financial Group, Inc., St. Cloud,
Florida ("FFO") announced their board of directors had executed a letter of
intent for the combination of the two companies. FFO has 11 branch offices in
Osceola, Orange and Brevard counties with total assets of $316,949,000 and total
deposits of $286,927,000. Mr. William R. Hough, president of an investment
banking firm in St. Petersburg, Florida, owns a controlling interest in both
companies. Under the terms of the letter of intent, the Company will exchange
shares of Company Common Stock for all of the 8,430,000 outstanding shares of
FFO common stock at a ratio of 0.29 share of the Company for each share of FFO.
In the event that the product of the exchange ratio and the average closing
price of the Company Common Stock on each of the twenty consecutive trading days
ending on the third business day preceding the effective date of the transaction
is below $4.10, the exchange ratio will be adjusted for decreases in the price
of the Company Common Stock price; however, in no event will the exchange ratio
exceed 0.30. FFO has the right to terminate the agreement if the average of the
Company's stock price is less than $13.50. Either party has the right to
terminate the agreement if the merger does not occur by November 1, 1997.
Outstanding options for FFO common stock will be converted into options for
Company Common Stock on the same basis. The transaction will be accounted for as
a corporate reorganization under which the controlling shareholder's interest in
FFO will be carried forward at its historical cost while the minority interest
in FFO will be recorded at fair value. The transaction is subject to completion
of a definitive agreement, shareholder approval by the parties, approval by
various regulatory authorities, receipt of opinion that the transaction
qualifies as a tax-free reorganization, and receipt of fairness opinions by each
companies' financial advisor.
The above financial information regarding Firstate and FFO was derived from
unaudited financial statements at December 31, 1996.
F-29
<PAGE> 87
REPUBLIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1997 AND DECEMBER 31, 1996
($ IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
JUNE 30, December 31,
ASSETS 1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Cash and due from banks $ 27,049 $ 27,810
Interest bearing deposits in banks 91 118
Investment securities:
Available for sale 36,968 74,397
Mortgage-backed securities:
Available for sale 34,038 20,592
FHLB stock 5,888 4,830
Federal funds sold 14,000 8,000
Loans held for sale 69,590 36,590
Loans, net of allowance for loan losses (Notes 4 and 5) 755,612 693,270
Premises and equipment, net 22,704 19,715
Other real estate owned acquired through foreclosure, net 5,814 7,363
Other assets 28,917 15,183
----------- ---------
Total assets $ 1,000,671 $ 907,868
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits-
Noninterest-bearing checking $ 57,269 $ 50,060
Interest checking 86,833 87,639
Money market 33,074 32,665
Savings 249,660 245,951
Time deposits 451,045 411,665
----------- ---------
Total deposits 877,881 827,980
Securities sold under agreements to repurchase 20,002 15,372
FHLB advances 35,000 --
Subordinated debt (6% rate, matures December 1, 2011) 6,000 6,000
Other liabilities 5,378 4,197
----------- ---------
Total liabilities 944,261 853,549
----------- ---------
Stockholders' equity:
Perpetual preferred convertible stock ($20.00 par, 100,000 shares authorized,
75,000 shares issued and outstanding. Liquidation preference $6,600
at June 30, 1997 and December 31, 1996.) 1,500 1,500
Common stock ($2.00 par, 20,000,000 shares authorized and 4,185,667 and
4,183,507 shares issued and outstanding at June 30, 1997 and December 31,
1996, respectively) 8,371 8,367
Capital surplus 26,723 26,699
Retained earnings 19,949 17,849
Net unrealized losses on available-for-sale securities, net of tax effect (133) (96)
----------- ---------
Total stockholders' equity 56,410 54,319
----------- ---------
Total liabilities and stockholders' equity $ 1,000,671 $ 907,868
=========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-30
<PAGE> 88
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months Ended June 30, For the Six Months Ended June 30,
----------------------------------- ---------------------------------
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 17,638 $ 14,949 $ 34,144 $ 29,727
Interest on investment securities 615 312 1,100 740
Interest on mortgage-backed securities 549 333 855 624
Interest on federal funds sold 430 256 1,114 553
Interest on other investments 105 87 194 155
--------- --------- --------- ---------
Total interest income 19,337 15,937 37,407 31,799
--------- --------- --------- ---------
INTEREST EXPENSE:
Interest on deposits 9,235 7,693 17,897 15,573
Interest on FHLB advances 32 52 32 52
Interest on subordinated debt 108 -- 215 --
Interest on other borrowings 265 77 464 124
--------- --------- --------- ---------
Total interest expense 9,640 7,822 18,608 15,749
--------- --------- --------- ---------
Net interest income 9,697 8,115 18,799 16,050
PROVISION FOR LOAN LOSSES 501 450 1,639 900
--------- --------- --------- ---------
Net interest income after
provision for loan losses 9,196 7,665 17,160 15,150
--------- --------- --------- ---------
NONINTEREST INCOME:
Income from mortgage banking activities 660 251 1,558 240
Service charges on deposit accounts 482 378 920 754
Loan fee income 229 139 354 264
Gains on sale of loans, net 113 -- 1,301 --
Gains on sale of securities, net 171 -- 213 4
Other operating income 286 193 718 377
--------- --------- --------- ---------
Total noninterest income 1,941 961 5,064 1,639
--------- --------- --------- ---------
NONINTEREST EXPENSES:
General and administrative ("G&A") expenses:
Salaries and employee benefits 4,685 3,374 9,051 6,626
Net occupancy expense 1,549 1,025 2,832 2,050
Data processing fees & services 403 313 793 631
FDIC and state assessments 176 264 303 534
Advertising 481 123 691 203
Other operating expense 2,530 1,216 4,395 2,227
--------- --------- --------- ---------
Total G & A expenses 9,824 6,315 18,065 12,271
Provision for losses on ORE 120 270 290 450
ORE expense, other 40 (145) 27 (143
Amortization of goodwill & deposit premium 125 123 247 245
--------- --------- --------- ---------
Total noninterest expenses 10,109 6,563 18,629 12,823
--------- --------- --------- ---------
Income before income taxes 1,028 2,063 3,595 3,966
Income tax provision 399 794 1,363 1,493
--------- --------- --------- ---------
NET INCOME $ 629 $ 1,269 $ 2,232 $ 2,473
========= ========= ========= =========
PER SHARE DATA:
Net income per common and
common equivalent share $ .13 $ .26 $ .44 $ .50
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding 5,026,102 4,953,790 5,025,885 4,953,674
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-31
<PAGE> 89
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Perpetual Preferred Net Unrealized
Convertible Stock Common Stock Gains (Losses)
------------------- ------------------- on Available
Shares Shares Capital Retained for Sale
Issued Amount Issued Amount Surplus Earnings Securities Total
------ ------ ------- ------ ------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 75,000 $1,500 4,183,507 $8,367 $ 26,699 $ 14,329 $ 8 $ 0,903
Net income for the twelve
months ended December 31,
1996 -- -- -- -- -- 3,784 -- 3,784
Net unrealized losses on
available-for-sale securities -- -- -- -- -- -- (104) (104)
Dividends on preferred
stock -- -- -- -- -- (264) -- (264)
------ ------ --------- ------ -------- -------- ------ -------
BALANCE, DECEMBER 31, 1996 75,000 1,500 4,183,507 8,367 26,699 17,849 (96) 54,319
Net income for the six
months ended June 30,
1997 (unaudited) -- -- -- -- -- 2,232 -- 2,232
Net unrealized losses on
available-for-sale securities -- -- -- -- -- -- (37) (37)
(unaudited)
Issuance of common stock -- -- 2,160 4 24 -- -- 28
(unaudited)
Dividends on preferred
stock (unaudited) -- -- -- -- -- (132) -- (132)
------ ------ --------- ------ -------- -------- ------ --------
BALANCE, JUNE 30, 1997 75,000 1,500 4,185,667 $ 8,371 $ 26,723 $ 19,949 $ (133) $ 56,410
(unaudited) ====== ====== ========= ======= ======== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-32
<PAGE> 90
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
---------------------------- -------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
OPERATING ACTIVITIES: (unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 629 $ 1,269 $ 2,232 $ 2,473
Reconciliation of net income to net cash
provided by (used in):
Provision for losses on loans and ORE 621 720 1,929 1,350
Depreciation and amortization, net 811 (37) 552 (103)
Amortization of premium and accretion
of fair value (70) 167 219 298
(Gain) on sale of investment securities (171) -- (213) (4)
(Gain) on sale of loans (773) (192) (2,859) (192)
(Gain) loss on sale of ORE (14) (129) (122) (119)
Capitalization of mortgage servicing (645) 405 (1,484) 420
Net increase in deferred tax benefit (2,528) (397) (3,425) (427)
Gain on disposal of premises & equipment 2 -- 1 --
Net (increase) decrease in other assets (6,200) 5,569 (6,405) 522
Net increase (decrease) in other liabilities 34,159 (115) 35,257 (764)
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities 25,821 7,260 25,682 3,454
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Proceeds from excess of deposit liabilities
assumed over assets acquired, net of cash acquired 7,223 -- 7,223 --
Net (increase) decrease in interest bearing
deposits in banks (91) (6) 27 (15)
Proceeds from sales & maturities of:
Investment securities held to maturity -- -- -- 7,000
Investment securities available for sale 41,475 22,000 109,922 47,006
Purchase of securities available for sale (16,973) (13,727) (53,788) (31,757)
Purchase of securities held to maturity -- -- -- --
Principal repayment on mtg. backed securities 1,811 710 1,904 1,459
Purchase of FHLB stock -- -- (251) (1,290)
Net increase in loans (65,851) (25,386) (70,282) (35,535)
Purchase of premises and equipment (3,589) (406) (4,285) (612)
Proceeds from sale of ORE 2,234 1,415 3,078 1,674
(Investments) disposals in other real estate
owned (net) 117 -- 138 --
--------- --------- --------- ---------
Net cash provided by (used in) investing
activities (33,644) (15,400) (6,314) (12,070)
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (19,735) 23,854 (18,654) 22,832
Net increase (decrease) in repurchase
agreements 3,843 7,737 4,630 9,081
Proceeds from issuance of common stock 27 -- 27 --
Dividends on perpetual preferred stock (66) (66) (132) (132)
--------- --------- --------- ---------
Net cash provided by
(used in) financing activities (15,931) 31,525 (14,129) 31,781
--------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents (23,754) 23,385 5,239 23,165
Cash and cash equivalents, beginning
of period 64,803 34,207 35,810 34,427
--------- --------- --------- ---------
Cash and cash equivalents, end of period $ 41,049 $ 57,592 $ 41,04 $ 57,592
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for-
Interest $ 10,015 $ 9,180 $ 18,622 $ 16,048
Income taxes 3,108 1,373 3,639 2,238
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-33
<PAGE> 91
REPUBLIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND ORGANIZATION
Republic Bancshares, Inc. (the "Company") is a bank holding company organized
in March 1996 under the laws of the State of Florida and is the holding company
for Republic Bank (the "Bank"). The Bank is a state-chartered, federally-insured
commercial bank organized in 1972 and provides a full range of retail and
commercial banking products and related financial services. The Company and the
Bank are headquartered in St. Petersburg, Florida. Commercial banking activities
of the Bank include attracting checking, savings and time deposits from the
public and general business customers and using these deposits to originate
loans. The Bank also operates a mortgage banking division which originates
residential mortgage loans for sale in the secondary market.
The accounting and reporting policies of the Company and the Bank are in
conformity with generally accepted accounting principles and prevailing
practices with the financial services industry. The preparation of financial
statements in conformity with generally accepted accounting principles requires
that management make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Such estimates are subject to change in
the future as additional information becomes available or previously existing
circumstances are modified.
These consolidated financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Company's Annual
Report for the year ended December 31, 1996, filed with the Securities and
Exchange Commission ("SEC") on Form 10-K. The results of the three months and
six months ended June 30, 1997, are not necessarily indicative of the results to
be expected for the fiscal year ending December 31, 1997.
RECENT ACCOUNTING DEVELOPMENTS
Sales of Financial Assets
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standard ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," which was
effective for the fiscal year beginning January 1, 1997. SFAS No. 125 provides
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The impact of the adoption of SFAS No.
125 upon the results of operations of the Company was not material.
Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". SFAS
No. 128 simplifies the standards for computing and presenting earnings per share
("EPS") previously found in APB Opinion No. 15, Earnings Per Share, and makes
them comparable to international EPS standards. SFAS No. 128 is effective for
periods ending after December 15, 1997, and requires restatement of all prior
period EPS data. It replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
F-34
<PAGE> 92
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to APB Opinion 15. Management is currently assessing the
financial implications of implementing SFAS No. 128 and believes the adoption
will not have a material effect on reported earnings per share.
Reporting Comprehensive Income
In June 1997, SFAS No. 130, "Reporting Comprehensive Income", was adopted.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income which includes those revenues, expenses, gains, and losses of a normal,
recurring nature as-well-as items which are non-recurring, unusual and
infrequent. A specific reporting format is not required, provided the financial
statements show the amount of total comprehensive income for the period. Those
items which are non-recurring in nature are required to be shown in the
financial statements with appropriate footnote disclosure and the aggregate
balance of such items must be shown separately from retained earnings and
additional paid-in-capital in the equity section of the balance sheet. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods is required.
Disclosures About Business Segments
In June 1997, the FASB adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way the Company reports information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial reports. SFAS No. 131 is effective for
periods beginning after December 15, 1997. Management believes its commercial
banking and mortgage banking activities constitute operating segments which will
require disclosure about their respective assets, revenues, profit or loss and
other operating data.
2. BUSINESS COMBINATIONS
FIRSTATE FINANCIAL, F.A.
On April 18, 1997, the Company acquired Firstate Financial, F.A.
("Firstate"), a thrift institution headquartered in Orlando, Florida, for a cash
purchase of $5.5 million. At April 18, 1997, Firstate had total assets of $72.1
million, total deposits of $68.1 million and operated a branch in each of Orange
and Seminole Counties. The acquisition was accounted for using purchase
accounting rules and the amount of goodwill recorded was $130,000.
F.F.O. FINANCIAL GROUP, INC.
Also in April 1997, the Company and F.F.O. Financial Group, Inc. ("FFO"), St.
Cloud, Florida, the holding company for First Federal Savings and Loan
Association of Osceola County ("First Federal"), entered into an Agreement and
Plan of Merger (the "FFO Agreement") pursuant to which FFO will be merged into
the Company in a stock transaction (the "FFO Merger"). FFO has 11 branches in
Osceola, Orange and Brevard counties and, at March 31, 1997, had total assets of
$320.0 million, total loans of $226.1 million and total deposits of $285.7
million. If consummated, the FFO Merger would increase the total assets of the
Company to approximately $1.3 billion, expand its network of branches from 35 to
46, and increase the number of counties served by the Company's branches from
seven to nine. William R. Hough, one of the Company's Controlling Stockholders,
also owns a majority interest in FFO. Regulatory approval of the transaction has
been granted and special meetings of the Company's and FFO's stockholders have
been scheduled on August 29, 1997, to consider the transaction. Either party has
the right to terminate the FFO Agreement if the FFO Merger does not occur by
November 1, 1997.
F-35
<PAGE> 93
The FFO Merger will be accounted for as a corporate reorganization in
which the majority stockholder's interest in FFO will be combined at historical
cost in a manner similar to a pooling of interests while the minority interest
in FFO will be combined using purchase accounting rules. The excess of the
purchase price of the minority interest over the market value is first assigned
to individual assets and liabilities with the remainder considered
unidentifiable goodwill. The pro forma valuation of the minority interest, book
value and estimated amount of goodwill and market value adjustments using data
as of June 30, 1997, is as follows:
Exchange ratio: 0.29 shares of the Company's stock for each share of
FFO's stock
<TABLE>
<S> <C>
Number of Company shares to be issued -- total 2,449,417
Minority interest in FFO 31.9 %
Number of shares to be issued to minority interest 781,364
Fair value per share of the Company's common stock $ 15.50 (1)
Fair value of minority interest of FFO common stock 12,111 (2)
Fair value of FFO common stock options over the exercise price 139 (3)
----------
Fair value of minority interest 12,250
----------
Book value of minority interest 6,896 (4)
----------
Goodwill and market value adjustments $ 5,354
==========
Amount allocated to goodwill 4,889
Amount allocated to market value adjustments 465
</TABLE>
- ----------------
(1) The fair value of the Company's common stock is based on the average of
the closing bid price of the stock on Nasdaq's National Market two days
before, two days after, and on March 11, 1997, the date that the Company
and FFO announced that they had signed a letter of intent to combine the
two companies.
(2) The fair value per share of the Company's common stock times the number
of shares to be issued to the minority interest.
(3) The number of FFO options outstanding multiplied by the fair value of the
Company's common stock adjusted for the exchange ratio of 0.29 less the
aggregate exercise price of the FFO's common stock options, all
multiplied by the 31.9% minority interest.
(4) FFO's book value times the 31.9% minority interest.
3. RECENT DEVELOPMENTS
RBI CAPITAL TRUST I ("RBI CAPITAL")
RBI Capital is a wholly-owned subsidiary of the Company which was formed
on May 29, 1997, to issue Cumulative Trust Preferred Securities (the "Preferred
Securities") to the public. The Preferred Securities, issued through an
underwritten public offering on July 31, 1997, were sold at their $10 par
value. RBI Capital issued 2,875,000 shares of the Preferred Securities bearing
an interest rate of 9.10% for net proceeds of $27.4 million, after deducting
underwriting commissions and other costs. RBI Capital invested the proceeds in
junior subordinated debt of the Company which also had an interest rate of
9.10%. The Company used the proceeds from the junior subordinated debt to
increase the equity capital of the Bank.
F-36
<PAGE> 94
4. LOANS AND LOANS HELD FOR SALE:
Loans at June 30, 1997, and December 31, 1996, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Real estate mortgage loans:
One-to-four family residential $ 402,999 $ 383,015
Multifamily residential 69,253 68,337
Commercial real estate 213,704 182,298
Construction/land development 35,765 27,050
Commercial loans 33,013 34,427
Consumer loans 13,789 9,983
Other loans 844 1,294
--------- ---------
Total gross portfolio loans 769,367 706,404
Less-allowance for loan losses 13,755 13,134
--------- ---------
Total loans held for portfolio 755,612 693,270
Loans held for sale 69,590 36,590
--------- ---------
Total loans $ 825,202 $ 729,860
========= =========
</TABLE>
As of June 30, 1997, loans available for sale were comprised of $41.3
million of one-to-four family residential mortgages and $28.3 million of high
loan-to-value mortgages secured by junior liens on residential properties. The
weighted average interest rate was 9.85%. At December 31, 1996, loans available
for sale were comprised of $32.0 million of one-to-four family residential
mortgages and $4.6 million of high loan-to-value mortgages secured by junior
loans on residential properties. The weighted average interest rate was 8.72%.
Mortgage loans serviced for others as of June 30, 1997, and December 31, 1996,
amounted to $186.0 million and $120.7 million, respectively.
5. ALLOWANCES FOR LOSSES:
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses provides for risks of losses inherent in
the credit extension process. Losses are charged to the allowance for loan
losses and recoveries are credited to the allowance. The Company's allowance is
an amount that management believes will be adequate to absorb possible losses
on existing loans that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrower's ability to pay. The
evaluations are periodically reviewed and adjustments are recorded in the
period in which changes become known.
As part of the risk assessment for purchased loans, management has
allocated a portion of the discount on such loan purchases to the allowance for
loan losses in amounts consistent with the Company's loan loss policy
guidelines. Amounts added to the allowance for loan losses resulting from
discount allocation are available to absorb potential losses only for those
purchased loans and are not available for losses from other loan portfolios. To
the extent that losses in certain pools or portfolios of loans exceed the
allowance for loan losses and any remaining unamortized loan discount allocated
to such pool or portfolio, or available as a general allowance, the Company
would have to recognize a loss to the extent of such shortfall in the then
current period. During the first half of 1997, management sold $7.2 million of
loans previously purchased and transferred $773,000 of the amount originally
allocated to the allowance for purchased loans into the allocation for
originated loans. After this transfer was completed and, taking into
consideration loan loss provisions, charge-offs and recoveries for the first
half of 1997, the allowance for loan losses was comprised of (i) $7.7 million
allocated to originated loans (including loans acquired through the Firstate
acquisition), (ii) $1.0 million allocated to loans acquired from CrossLand
Savings, FSB in December 1993, (iii) $3.4 million allocated to a pool of loans
purchased in March
F-37
<PAGE> 95
1995 (the "March 1995 Purchase") and, (iv) $1.7 million allocated to the other
pools of purchased loans. Additionally, as of June 30, 1997, the balance of
unaccreted loan discount available to absorb losses on pools or portfolios of
purchased loans exceeding amounts transferred to the allowance amounted to $4.4
million. Loans on which interest was not being accrued totaled $14.8 million
and $15.4 million at June 30, 1997, and December 31, 1996, respectively. Loans
past due 90 days or more and still accruing interest at June 30, 1997, and
December 31, 1996, totaled $1.1 million and $113,000, respectively. Changes in
the allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
1997 1996
---- ----
<S> <C> <C>
Balance, beginning of period $ 13,134 $ 14,910
Provision for loan losses 1,639 900
Allowance for loan losses on purchased loans transferred
to discount (includes amounts taken to income on loans sold) (773) (29)
Allowances from acquisitions 132 -
Loans charged off (532) (1,296)
Recoveries of loans charged off 155 123
-------- --------
Balance, end of period $ 13,755 $ 14,608
======== ========
</TABLE>
ALLOWANCE FOR LOSSES ON OTHER REAL ESTATE ("ORE"):
The Company recognizes any estimated potential decline in the value of
ORE between appraisal dates through periodic additions to the allowance for
losses on ORE. Writedowns charged against this allowance are taken if the
related real estate is sold at a loss. For the six months ended June 30, 1997,
the Company recorded a provision expense for losses on ORE of $290,000.
The largest piece included in the ORE balance is a tract of land carried
at $2.8 million acquired through foreclosure in 1988 that has partially been
developed as a shopping center site. Federal law and regulations require the
Company to dispose of this tract by December 31, 1997. In the second quarter of
1997, the Company sold approximately two-thirds of its second-largest ORE
property, a parcel of undeveloped land in Pasco County. As a result, the
balance of this property carried on the Company's books has declined from $1.1
million at December 31, 1996, to $597,000 as of June 30, 1997. Management
believes the carrying value of the unsold remainder of the parcel approximates
the amount which could be realized upon final sale.
F-38
<PAGE> 96
INDEPENDENT AUDITORS' REPORT
The Board of Directors
F.F.O. Financial Group, Inc.
St. Cloud, Florida:
We have audited the accompanying consolidated balance sheets of F.F.O.
Financial Group, Inc. and Subsidiaries (the "Company") as of December 31, 1996
and 1995 and the related consolidated statements of income, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996 and 1995 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
HACKER, JOHNSON, COHEN & GRIEB
Orlando, Florida
February 11, 1997, except for Note 21,
as to which the date is March 11, 1997
F-39
<PAGE> 97
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 1995
------ -----
ASSETS
<S> <C> <C>
Cash and due from banks $ 6,300 $ 6,989
Interest-bearing deposits in banks 11,665 2,768
Federal funds sold - 669
---------- --------
Cash and cash equivalents 17,965 10,426
Trading securities 9,580 23,076
Securities available for sale 41,445 49,832
Securities held to maturity, at cost 15,343 17,636
Loans held for sale, net of unrealized losses of $150 in 1996 10,462 22,765
Loans receivable, net of allowances for loan losses of $5,613 in 1996
and $5,138 in 1995 209,005 161,190
Accrued interest receivable 1,710 1,821
Premises and equipment 5,324 5,700
Restricted securities -- Federal Home Loan Bank stock, at cost 2,378 2,514
Foreclosed real estate, net of allowances of $158 in 1996 and
$1,124 in 1995 799 3,358
Deferred tax asset 1,490 2,249
Other assets 1,448 918
---------- --------
Total assets $ 316,949 $301,485
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits 14,303 13,107
Savings and NOW deposits 57,981 63,682
Time deposits 214,643 172,147
---------- --------
Total deposits 286,927 248,936
Accrued interest on deposits 256 282
Due to bank 424 1,120
Advances from Federal Home Loan Bank 7,000 30,000
Advance payments by borrowers for taxes and insurance 608 819
Other liabilities 1,454 1,548
---------- --------
Total liabilities 296,669 282,705
---------- --------
Commitments and Contingencies (Notes 6, 12, 13, 15 and 21) Stockholders'
Equity:
Preferred stock, $.10 par value, 2,500,000 shares
authorized, none outstanding - -
Common stock, $.10 par value, 20,000,000 shares
authorized, 8,430,000 shares issued and outstanding 843 843
Additional paid-in capital 17,599 17,599
Retained earnings 1,844 244
Net unrealized (depreciation) appreciation on securities
available for sale, net of tax of $4 in 1996 and $(56)
in 1995 (6) 94
-------- --------
Total stockholders' equity 20,280 18,780
-------- --------
Total liabilities and stockholders' equity $316,949 $301,485
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-40
<PAGE> 98
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income:
Loans receivable $ 16,712 $ 15,357 $ 13,752
Securities available for sale 2,524 1,218 1,963
Securities held to maturity 1,179 1,297 684
Trading securities 1,214 1,267 --
Federal funds sold 80 150 125
Deposits with banks 288 441 358
---------- ---------- ----------
Total interest income 21,997 19,730 16,882
---------- ---------- ----------
Interest expense:
Deposits 11,710 9,948 7,142
Other borrowed funds 313 163 411
---------- ---------- ----------
Total interest expense 12,023 10,111 7,553
---------- ---------- ----------
Net interest income 9,974 9,619 9,329
Provision (credit) for loan losses 782 477 (1,403)
---------- ---------- ----------
Net interest income after provision (credit) for
loan losses 9,192 9,142 10,732
---------- ---------- ----------
Noninterest income:
Service charges on deposits 1,306 1,269 1,297
Loan related fees and service charges 443 375 246
Loan servicing fees 279 367 409
Net trading account (losses) profit (196) 229 (76)
Net realized gain on sales of available-for-sale
securities 87 66 --
Net gain on sale of loans 144 86 131
Unrealized loss on loans held for sale (150) -- --
Net gain on sale of premises and equipment -- -- 277
Other income 474 210 203
---------- ---------- ----------
Total noninterest income 2,387 2,602 2,487
---------- ---------- ----------
Noninterest expenses:
Salaries and employee benefits 4,192 4,043 3,802
Occupancy expense 1,925 1,814 1,755
(Gain) loss on foreclosed real estate (1,818) 613 3,784
Deposit insurance premium 657 646 645
SAIF recapitalization assessment 1,466 -- --
Marketing and advertising 381 299 298
Data processing 668 564 563
Printing and office supplies 280 284 279
Telephone expense 255 271 272
Other expense 1,170 923 1,147
---------- ---------- ----------
Total noninterest expenses 9,176 9,457 12,545
---------- ---------- ----------
Income before income taxes 2,403 2,287 674
Income tax expense 803 641 234
---------- ---------- ----------
Net income $ 1,600 $ 1,646 $ 440
========== ========== ==========
Net income per share of common stock $ .19 $ .20 $ .06
========== ========== ===========
Weighted average number of shares outstanding 8,430,000 8,430,000 7,354,658
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-41
<PAGE> 99
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATION
RETAINED (DEPRECIATION)
ADDITIONAL EARNINGS ON SECURITIES TOTAL
COMMON PAID-IN (ACCUMLATED) AVAILABLE STOCKHOLDERS'
STOCK CAPITAL DEFICIT) FOR SALE EQUITY
----- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 718 $ 15,324 $ (1,842) $ 327 $ 14,527
Proceeds from issuance of 1,250,000
shares of common stock 125 2,275 -- -- 2,400
Net income for 1994 -- -- 440 -- 440
Net change in unrealized (depreciation)
appreciation on securities available
for sale -- -- -- (822) (822)
--------- --------- --------- ---------- ----------
Balance at December 31, 1994 843 17,599 (1,402) (495) 16,545
Net income for 1995 -- -- 1,646 -- 1,646
Net change in unrealized (depreciation)
appreciation on securities available
for sale -- -- -- 589 589
--------- --------- --------- ---------- ----------
Balance at December 31, 1995 843 17,599 244 94 18,780
Net income for 1996 -- -- 1,600 -- 1,600
Net change in unrealized (depreciation)
appreciation on securities available
for sale -- -- -- (100) (100)
---------- --------- --------- ---------- ----------
Balance at December 31, 1996 $ 843 $ 17,599 $ 1,844 $ (6) $ 20,280
========== ========= ========= ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-42
<PAGE> 100
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,600 $ 1,646 $ 440
Adjustments to reconcile net income to net cash provided
by (used in) operations:
Provision (credit) for loan losses 782 477 (1,403)
(Credit) provision for losses on foreclosed real
estate (1,500) 240 3,410
Net amortization of premiums and discounts 159 (210) (115)
Net gain on sale of premises and equipment -- -- (277)
Net amortization of deferred loan fees (180) 52 (168)
Depreciation of premises and equipment 554 566 597
Net gain on sale of foreclosed real estate (368) (35) (175)
Net realized gain on sales of available-for-sale
securities (87) (66) --
Net decrease (increase) in trading account securities 13,496 (16,106) (6,970)
Provision (benefit) for deferred income taxes 819 1,012 (276)
Proceeds from sales of loans held for sale 25,745 8,924 9,858
Originations of loans held for sale (13,448) (23,673) (6,311)
Decrease (increase) in accrued interest receivable 111 (356) (143)
Increase in other assets (530) (216) (157)
Gain on sale of loans (144) (86) (131)
Unrealized loss on loans held for sale 150 -- --
(Decrease) increase in accrued interest payable (26) 123 9
(Decrease) increase in other liabilities and due to
bank (790) (1,131) 997
--------- --------- ---------
Net cash provided by (used in) operating
activities 26,343 (28,839) (815)
--------- --------- ---------
Cash flows from investing activities:
Purchase of available-for-sale securities (47,400) (35,104) (19,868)
Purchase of held-to-maturity securities -- -- (47,504)
Proceeds from maturities of held-to-maturity securities -- 12,526 47,129
Proceeds from sale of available-for-sale securities 26,673 7,755 --
Proceeds from maturities of available-for-sale
securities 10,000 -- --
Principal repayments on available-for-sale securities 18,832 746 1,916
Principal repayments on held-to-maturity securities 2,343 1,613 --
Net (increase) decrease in loans receivable (45,860) (10,512) 1,110
Proceeds from sale of premises and equipment -- -- 524
Net purchases of premises and equipment (178) (501) (365)
Proceeds from sale of foreclosed real estate 2,001 7,389 4,123
Payments capitalized to foreclosed real estate (131) (43) (7)
Redemption (purchase) of Federal Home Loan Bank stock 136 -- (31)
--------- --------- ---------
Net cash used in investing activities (33,584) (16,131) (12,973)
--------- --------- ---------
</TABLE>
F-43
<PAGE> 101
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CON'T)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net decrease in demand, savings and NOW deposits (4,505) (6,180) (5,979)
Net increase in time deposits 42,496 44,284 5,693
(Repayments of) proceeds from Federal Home Loan Bank
advances (23,000) 8,600 1,400
Net proceeds from issuance of common stock -- -- 2,400
Net (decrease) increase in advances by borrowers for taxes
and insurance (211) 126 (109)
--------- --------- ---------
Net cash provided by financing activities 14,780 46,830 3,405
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 7,539 1,860 (10,383)
Cash and cash equivalents at beginning of year 10,426 8,566 18,949
--------- --------- ---------
Cash and cash equivalents at end of year $ 17,965 $ 10,426 $ 8,566
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
(Refunds received) income tax paid $ (134) $ 550 $ 311
========= ========= =========
Interest $ 12,049 $ 9,957 $ 7,544
========= ========= =========
Noncash investing and financing activities:
Transfers of loans to foreclosed real estate $ 339 $ 6,382 $ 1,447
========= ========= =========
Loans originated for the sale of foreclosed real
estate $ 2,896 $ 1,527 $ 1,346
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-44
<PAGE> 102
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
F.F.O. Financial Group, Inc. (the "Holding Company" or "F.F.O.") is the
holding company for First Federal Savings and Loan Association of Osceola
County (the "Association"). The Holding Company's operations are limited to
ownership of the Association. The Association is a federally chartered savings
and loan association which conducts business from its headquarters and main
office in Kissimmee, Florida and ten branch offices located in Central Florida.
The Association's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to applicable limits through the Savings Association
Insurance Fund ("SAIF").
Principles of Consolidation. The consolidated financial statements
include the accounts of the Holding Company and its wholly-owned subsidiary,
First Federal Savings and Loan Association of Osceola County, and the
Association's wholly-owned subsidiary, Gulf American Financial Corporation.
Gulf American Financial Corporation is currently inactive. All significant
intercompany transactions and balances have been eliminated in consolidation.
General. The accounting and reporting policies of F.F.O. Financial Group,
Inc. and Subsidiaries (together, the "Company") conform to generally accepted
accounting principles and to general practices within the thrift industry. The
following summarizes the significant accounting policies of the Company:
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Trading Securities. Securities held principally for resale in the near
term are classified as trading account securities and recorded at their fair
values. Unrealized gains and losses on trading account securities are included
immediately in noninterest income.
Securities Held to Maturity. Securities for which the Company has the
positive intent and ability to hold to maturity are reported at cost, adjusted
for premiums and discounts that are recognized in interest income using the
interest method over the period to maturity.
Securities Available for Sale. Available-for-sale securities consist of
securities not classified as trading securities nor as held-to-maturity
securities. Unrealized holding gains and losses, net of tax, on
available-for-sale securities are reported as a separate component of
stockholders' equity until realized.
Gains and losses on the sale of available-for-sale securities are
determined using the specific identification method.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
Loans Held For Sale. Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of cost or estimated market value
in the aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to income.
Loans Receivable. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal balance adjusted for any charge-offs,
the allowance for loan losses, and any deferred fees or costs on originated
loans and unamortized premiums or discounts on purchased loans.
F-45
<PAGE> 103
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Discounts and premiums on purchased real estate loans are amortized to
income using the interest method over the remaining period to contractual
maturity, adjusted for anticipated prepayments.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued interest
is reversed. Interest income is subsequently recognized only to the extent cash
payments are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on the Company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral and current economic conditions.
Foreclosed Real Estate. Real estate properties acquired through, or in
lieu of, loan foreclosure are to be sold and are initially recorded at fair
value at the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the real
estate is carried at the lower of carrying amount or fair value less costs to
sell. Revenue and expenses from operations and changes in the valuation
allowance are included in the consolidated statements of income.
Income Taxes. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
Premises and Equipment. Land is carried at cost. The Company's premises,
furniture and equipment and leasehold improvements are carried at cost, less
accumulated depreciation and amortization computed principally by the
straight-line method.
Off-Balance Sheet Instruments. In the ordinary course of business the
Company has entered into off-balance-sheet financial instruments consisting of
commitments to extend credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are incurred or
received.
Fair Values of Financial Instruments. The following methods and
assumptions were used by the Company in estimating fair values of financial
instruments:
Cash and Cash Equivalents. The carrying amounts of cash and short-term
instruments approximate their fair value.
Trading Securities. Fair values for trading account securities, which
also are the amounts recognized in the consolidated balance sheets, are based
on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Available-for-Sale and Held-to-Maturity Securities. Fair values for
available-for-sale and held-to-maturity securities, excluding restricted equity
securities, are based on quoted market prices.
Loans Receivable. For variable rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on carrying
values. Fair values for certain fixed-rate mortgage (e.g. one-to-four family
residential), commercial real estate and commercial loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality.
F-46
<PAGE> 104
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Federal Home Loan Bank Stock. Fair value of the Company's investment in
FHLB stock is based on its redemption value, which is its cost of $100 per
share.
Deposits. The fair values disclosed for demand, NOW, money market and
savings deposits are, by definition, equal to the amount payable on demand at
the reporting date (that is, their carrying amounts). Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on time deposits.
Short-Term Borrowings. The carrying amounts of borrowings maturing within
90 days approximate their fair values. Fair values of other borrowings are
estimated using discounted cash flow analysis based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
Accrued Interest Receivable. The carrying amounts of accrued interest
receivable approximate their fair values.
Off-Balance-Sheet Instruments. Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing.
Net Income Per Share. Net income per share of common stock has been
computed on the basis of the weighted average number of shares of common stock
outstanding.
Reclassifications. Certain reclassifications have been made to the
financial statements for 1994 and 1995 to conform to the presentations used in
the financial statements for 1996.
Future Accounting Requirements. The Financial Accounting Standards Board
(the "FASB") has issued Statement of Financial Accounting Standards No. 125
("SFAS 125"). This Statement provides accounting and reporting standards for
transfers and servicing of financial assets as well as extinguishments of
liabilities. This Statement also provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS 125 is effective for transfers and servicing of
financial assets as well as extinguishments of liabilities occurring after
December 31, 1996. Management does not anticipate SFAS 125 will have a material
impact on the Company.
F-47
<PAGE> 105
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SECURITIES
Securities have been classified in the consolidated balance sheets
according to management's intent. The carrying amounts of securities and their
approximate fair values at December 31, were as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
TRADING SECURITIES:
December 31, 1996:
Agency notes and debentures $ 4,000 $ 32 $ -- $ 4,032
Collateralized mortgage-backed obligations 5,554 -- (6) 5,548
------- ---- ----- -------
$ 9,554 $ 32 $ (6) $ 9,580
======= ==== ===== =======
December 31, 1995:
Agency notes and debentures $ 9,359 $ 42 $ -- $ 9,401
Collateralized mortgage-backed obligations 13,616 59 -- 13,675
------- ---- ----- -------
$22,975 $101 $ -- $23,076
======= ==== ===== =======
SECURITIES AVAILABLE FOR SALE:
December 31, 1996:
Mortgage-backed securities $41,455 $108 $(118) $41,445
======= ==== ===== =======
December 31, 1995:
U.S. Treasury notes $ 9,996 $ 23 $ -- $10,019
Mortgage-backed securities 39,686 127 -- 39,813
------- ---- ----- -------
$49,682 $150 $ -- $49,832
======= ==== ===== =======
SECURITIES HELD TO MATURITY:
December 31, 1996:
Mortgage-backed securities $15,343 $218 $ (47) $15,514
======= ==== ===== =======
December 31, 1995:
Mortgage-backed securities $17,636 $204 $ -- $17,840
======= ==== ===== =======
</TABLE>
Gross realized gains and gross realized losses on sales of
available-for-sale securities were $141,000 and $54,000, respectively in 1996
and $75,000 and $9,000, respectively in 1995. There were no sales of
available-for-sale securities during the year ended December 31, 1994.
Net unrealized holding gains on trading securities of $26,000, $101,000
and $76,000 were included in income during 1996, 1995 and 1994, respectively.
The Board of Directors has authorized the Company to purchase and sell,
from time to time, securities through third parties including through William
R. Hough & Co. ("WRHC"), an investment banking firm headquartered in St.
Petersburg, Florida. Mr. Hough (a director and principal shareholder of the
Company) is Chairman and principal shareholder of WRHC. During the years ended
December 31, 1996, 1995 and 1994, the Company purchased approximately $53.3
million, $69.5 million and $30.5 million of securities through WRHC,
respectively. During the years ended December 31, 1996 and 1995, the Company
sold approximately $46.0 million and $19.7 million of securities through WRHC,
respectively. No securities were sold through WRHC in 1994. In connection with
such transactions, the Company paid WRHC an aggregate of $118,000, $92,000 and
$20,000 in commissions during the years ended December 31, 1996, 1995 and 1994,
respectively.
F-48
<PAGE> 106
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) LOANS RECEIVABLE
The components of loans in the consolidated balance sheets were as
follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 1995
------ -----
<S> <C> <C>
Mortgage Loans:
Conventional 1-4 family residential $112,827 $ 78,680
FHA and VA single family residential 10,131 11,529
Multifamily residential 19,778 18,576
Land 8,279 6,476
Other nonresidential real estate 34,138 26,927
Construction residential 14,166 10,288
Construction nonresidential 990 --
-------- --------
Total mortgage loans 200,309 152,476
-------- --------
Other Loans:
Deposit account loans 957 868
Credit card loans 594 2,637
Consumer loans 20,537 13,717
SBA loans 3,009 3,633
Home improvement loans 55 76
-------- --------
Total other loans 25,152 20,931
-------- --------
Total loans 225,461 173,407
-------- --------
Deduct:
Undisbursed portion of loans in process (10,824) (6,880)
Deferred net loan origination fees and discounts (19) (199)
Allowance for loan losses (5,613) (5,138)
-------- --------
Total deductions (16,456) (12,217)
-------- --------
Loans receivable, net $209,005 $161,190
======== ========
</TABLE>
F-49
<PAGE> 107
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
An analysis of the change in allowance for loan losses was as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 $ 5,138 $ 8,207 $ 9,333
Loans charged-off, net of recoveries (307) (3,546) (260)
Provision (credit) for loan losses 782 477 (1,403)
Reclassification due to adoption of SFAS 114 and 118 -- -- 537
------- ------- -------
Balance at December 31 $ 5,613 $ 5,138 $ 8,207
======= ======= =======
</TABLE>
The amounts of impaired loans, all of which were collateral-dependent, were as
follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Loans identified as impaired:
Gross loans with related allowances for losses recorded $ 8,256 $ 6,380
Less: Allowances on these loans (1,766) (1,537)
------- -------
Net investment in impaired loans $ 6,490 $ 4,843
======= =======
</TABLE>
The average net investment in impaired loans and interest income
recognized and received on impaired loans were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Average investment in impaired loans $ 6,175 $ 5,037 $ 7,259
======= ======= =======
Interest income recognized on impaired loans $ 521 $ 337 $ 307
======= ======= =======
Interest income received on impaired loans $ 521 $ 337 $ 307
======= ======= =======
</TABLE>
F-50
<PAGE> 108
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Nonaccrual and renegotiated loans for which interest has been reduced
totalled approximately $8.9 million, $7.6 million and $13.8 million at December
31, 1996, 1995 and 1994, respectively. Interest income that would have been
recorded under the original terms of such loans and the interest income
actually recognized are summarized below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income that would have been recorded $ 863 $ 742 $ 971
Interest income recognized (340) (342) (383)
------ ------ ------
Interest income foregone $ 523 $ 400 $ 588
====== ====== ======
</TABLE>
The Company is not committed to lend additional funds to debtors whose
loans have been modified.
(4) LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans
serviced for others was $103.6 million, $89.6 million and $101.2 million at
December 31, 1996, 1995 and 1994, respectively.
Custodial escrow balances maintained in connection with the foregoing
loan servicing are included in advance payments by borrowers for taxes and
insurance, and were approximately $494,000 and $498,000 at December 31, 1996
and 1995, respectively.
(5) FORECLOSED REAL ESTATE
Activity in the allowance for losses on foreclosed real estate was as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 $ 1,124 $ 2,873 $ 62
(Credit) provision charged to operations (1,500) 240 3,410
Recoveries (charge-offs), net 534 (1,989) (62)
------- ------- ------
158 1,124 3,410
Reclassification due to adoption of SFAS 114 and 118 -- -- (537)
------- ------- ------
Balance at December 31 $ 158 $ 1,124 $ 2,873
======= ======= =======
</TABLE>
Gain or loss on foreclosed real estate for the years ended December 31,
1996, 1995 and 1994 includes net expense of $50,000, $408,000 and $549,000,
respectively, from operation of foreclosed real estate.
F-51
<PAGE> 109
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) PREMISES AND EQUIPMENT
Components of premises and equipment were as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 1995
------ -----
<S> <C> <C>
Cost:
Land $ 1,298 $ 1,298
Premises and leasehold improvements 5,154 5,207
Furniture and equipment 5,263 5,772
-------- --------
Total cost $ 11,715 $ 12,277
Less accumulated depreciation (6,391) (6,577)
-------- --------
Total $ 5,324 $ 5,700
======== ========
</TABLE>
At December 31, 1996, the Company was obligated under noncancelable
operating leases for office space. Certain leases contain escalation clauses
providing for increased rentals based primarily on increases in real estate
taxes or in the average consumer price index. Net rent expense under operating
leases, included in occupancy expense, was approximately $378,000, $363,000 and
$341,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, future minimum rental commitments under
noncancellable leases were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1997 $ 364
1998 309
1999 229
2000 54
2001 54
Thereafter 126
------
Total $1,136
======
</TABLE>
(7) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 1995
------ -----
<S> <C> <C>
Loans $ 1,279 $ 1,164
Securities 431 657
------- -------
Total $ 1,710 $ 1,821
======= =======
</TABLE>
F-52
<PAGE> 110
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) DEPOSITS
The aggregate amount of short-term jumbo certificates of deposit, each
with a minimum denomination of $100,000, was approximately $13.2 million and
$14.2 million at December 31, 1996 and 1995, respectively.
At December 31, 1996, the scheduled maturities of certificates of deposit
were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1997 $132,990
1998 53,346
1999 13,834
2000 11,962
2001 and thereafter 2,511
--------
Total $214,643
========
</TABLE>
(9) ADVANCES FROM FEDERAL HOME LOAN BANK
Maturities and interest rates of advances from the Federal Home Loan Bank
of Atlanta ("FHLB") were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year Ending Interest At December 31,
December 31, Rate 1996 1995
------------ -------- ---- ----
<S> <C> <C> <C>
1996 5.85% $ -- $30,000
1997 6.95% 7,000 --
------ -------
Total $7,000 $30,000
====== =======
</TABLE>
At December 31, 1996, the Association was required by its collateral
agreement with the FHLB to maintain qualifying first mortgage loans in an
amount equal to at least 150% of the FHLB advances outstanding at December 31,
1996 as collateral. The Association's FHLB stock is also pledged as collateral
for such advances. The FHLB advances outstanding at December 31, 1995 were
collateralized by certain securities with a book value of $32.2 million and a
market value of $32.6 million as allowed by the Association's collateral
agreement with the FHLB. The Association's FHLB stock was also pledged as
collateral for those advances while outstanding.
F-53
<PAGE> 111
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) INCOME TAXES
The provision (credit) for income taxes is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Current Defered Total
------- ------- -----
<S> <C> <C> <C>
Year Ended December 31, 1996:
Federal $ (16) $ 695 $ 679
State -- 124 124
----- ------ ------
Total $ (16) $ 819 $ 803
===== ====== ======
Year Ended December 31, 1995:
Federal $(371) $ 864 $ 493
State -- 148 148
----- ------ ------
Total $(371) $1,012 $ 641
===== ====== ======
Year Ended December 31, 1994:
Federal $ 435 $ (236) $ 199
State 75 (40) 35
----- ------ ------
Total $ 510 $ (276) $ 234
===== ====== ======
</TABLE>
The effective tax rate on income before income taxes differs from the
U.S. statutory rate of 34%. The following summary reconciles taxes at the U.S.
statutory rate with the effective rates (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1996 1995 1994
------------------- ------------------ -- ----------------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Taxes on income at U.S. statutory rate $ 817 34.0% $ 777 34.0% $ 229 34.0%
State income taxes, net of federal tax
benefit 87 3.6 82 3.6 24 3.6
Recomputed bad-debt reserve -- -- (178) (7.8) -- --
Other -- net (101) (4.2) (40) (1.8) (19) (2.8)
------ ---- ------- ---- ------- ----
Taxes on income at effective rates $ 803 33.4% $ 641 28.0% $ 234 34.7%
====== ==== ======= ==== ======= ====
</TABLE>
F-54
<PAGE> 112
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities related to the following
(in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $1,454 $1,516
Allowance for losses on foreclosed real estate 59 423
Accrued pension expense -- 141
Charitable contributions 4 --
Net operating loss carryforwards 1,601 2,149
Alternative minimum tax credit carryforwards 121 122
Unrealized depreciation on securities available for
sale 4 --
------ ------
Total gross deferred tax assets 3,243 4,351
------ ------
Deferred tax liabilities:
Deferred loan fees 1,504 1,711
Federal Home Loan Bank stock 226 239
Accumulated depreciation on premises and equipment 23 66
Unrealized appreciation on securities available for
sale -- 56
Other -- 30
------ ------
Total gross deferred tax liabilities 1,753 2,102
------ ------
Deferred tax asset $1,490 $2,249
====== ======
</TABLE>
With respect to the net deferred tax asset of $1.5 million at December
31, 1996, management believes that it is more likely than not that the Company
will have sufficient future taxable income to recover this asset. However, for
purposes of calculating regulatory capital, Office of Thrift Supervision
("OTS") regulations limit the amount of deferred tax assets that can be
included in regulatory capital to the lesser of (i) 10% of Tier 1 capital or
(ii) the amount the Association expects to realize within the subsequent
twelve-month period. OTS guidelines require the Association to recalculate this
capital component on a quarterly basis.
F-55
<PAGE> 113
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, the Company's net operating loss carryforwards for
federal income tax purposes which are available to offset future federal
taxable income were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR OF
EXPIRATION AMOUNT
---------- ------
<S> <C>
2007 $ 1,324
2008 1,826
2010 980
-------
Total $ 4,130
=======
</TABLE>
Net operating loss carryforwards of $3,150,000 included above are subject
to an annual limitation of $268,000 due to section 382 of the Internal Revenue
Code. In addition, the Company has alternative minimum tax credit carryforwards
of approximately $121,000 which are available to reduce future federal regular
income taxes over an indefinite period.
(11) PENSION AND PROFIT SHARING PLANS
Prior to 1996, the Company had a noncontributory defined benefit pension
plan ("Plan") covering all employees who meet certain eligibility requirements.
It was the Company's policy to fund the maximum amount that could be deducted
for federal income tax purposes. Prior to 1992, the Company periodically made
contributions to a profit sharing plan covering all full-time employees in
amounts determined by the Board of Directors. No contributions were made to the
Plan during any of the years in the three-year period ended December 31, 1995.
During 1994, the Company decided to terminate the pension and profit sharing
plans effective December 31, 1994 and ceased accrual of benefits as of that
date. The Company submitted plan termination documents, which were subsequently
approved, to the Internal Revenue Service ("IRS") and the Pension Benefit
Guarantee Corporation for the Plan, and to the IRS for the profit sharing plan.
Distributions from the plans were made during January and February of 1996.
The following table sets forth the Plan's status as of December 31, 1995
(in thousands):
<TABLE>
<CAPTION>
At December 31,
1995
---------------
<S> <C>
Actuarial present value of accumulated benefit obligation,
including vested benefits of $1,626 $ 1,626
=======
Accrued pension liability:
Projected benefit obligation for service rendered to
date $(1,626)
Plan assets at fair value 1,264
-------
Plan assets less than projected benefit obligation (362)
Unrecognized net loss 450
Unrecognized net asset being amortized over 15 years (388)
-------
Accrued pension liability included in other liabilities $ (300)
=======
</TABLE>
F-56
<PAGE> 114
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension costs under the Plan prior to 1996 were as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
------ -----
<S> <C> <C>
Service cost-benefits earned during the year $ -- $ 150
Interest cost of projected benefit obligation 75 79
Actual return on plan assets 173 (82)
Net amortization and deferral adjustments (324) (96)
------ ------
Net periodic pension costs $ (76) $ 51
====== ======
</TABLE>
Disclosure assumptions used in accounting for the Plan as of December 31,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
------ -----
<S> <C> <C>
Weighted average discount rate 4.5% 5.0%
Rate of increase in compensation levels N/A 6.0
Expected long-term rate of return on assets 6.0 6.0
</TABLE>
In connection with the plan terminations, the Company adopted a new
defined contribution profit sharing 401(k) plan (the "401(k) Plan") effective
January 1, 1995. All employees who meet certain eligibility requirements are
covered under the 401(k) Plan. Under the 401(k) Plan, an employee may elect to
contribute up to 15% of their annual compensation. Employer contributions to
the 401(k) Plan are made at the discretion of the Board of Directors.
Contributions to the 401(k) Plan for the years ended December 31, 1996 and 1995
were $78,000 and $49,000, respectively.
(12) FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments are commitments to extend credit and may involve,
to varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the consolidated balance sheets. The contract amounts of
these instruments reflect the extent of involvement the Company has in these
financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses
the same credit policies in making commitments as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained by the Company upon extension of credit is based on management's
credit evaluation of the counterparty.
F-57
<PAGE> 115
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 17,965 $ 17,965 $ 10,426 $ 10,426
Trading securities 9,580 9,580 23,076 23,076
Securities available for sale 41,445 41,445 49,832 49,832
Securities held to maturity 15,343 15,514 17,636 17,840
Loans receivable 209,005 209,354 161,190 163,660
Loans held for sale 10,462 10,462 22,765 22,765
Accrued interest receivable 1,710 1,710 1,821 1,821
Federal Home Loan Bank stock 2,378 2,378 2,514 2,514
Financial Liabilities:
Deposits 286,927 289,326 248,936 251,116
Advances from Federal Home Loan Bank 7,000 7,000 30,000 30,000
</TABLE>
The notional amount, which approximates fair value, of the Company's
financial instruments with off-balance-sheet risk at December 31, 1996, was as
follows (in thousands):
<TABLE>
<CAPTION>
Notional
Amount
------
<S> <C>
Commitments to extend credit $ 5,062
=======
</TABLE>
(13) SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
The Company grants real estate, commercial and consumer loans to
customers primarily in the State of Florida with the majority of such loans in
the Central Florida area. Therefore, the Company's exposure to credit risk is
significantly affected by changes in the economy of the Central Florida area.
The contractual amounts of credit related financial instruments such as
commitments to extend credit represent the amounts of potential accounting loss
should the contract be fully drawn upon, the customer default and the value of
any existing collateral become worthless.
(14) RELATED PARTIES
Loans to directors and officers of the Company, which were made at market
rates, were made in the ordinary course of business and did not involve more
than normal risk of collectibility or present other unfavorable features.
Activity in loans to directors and officers were as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Beginning balance $ 793 $ 867
Amounts related to new officers and directors 15 7
Loans originated -- 7
Principal repayments (35) (88)
------ -----
Ending balance $ 773 $ 793
====== ======
</TABLE>
F-58
<PAGE> 116
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company is a
defendant in certain claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
adverse effect on the consolidated balance sheets of the Company.
(16) RESTRICTIONS ON RETAINED EARNINGS
The Association is subject to certain restrictions on the amount of
dividends that it may declare without prior regulatory approval. At December
31, 1996, the Association was a Tier 2 institution for purposes of the
regulations relating to capital distributions; as such, the Association may
make capital distributions of up to 75% of its net income over the most recent
four-quarter period (depending on its risk-based capital level) without prior
regulatory approval.
(17) REGULATORY MATTERS
The Association is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory-and possibly additional
discretionary-actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Association must meet specific capital guidelines that involve quantitative
measures of the Association's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Association's capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Association to maintain minimum amounts (set forth in the
following table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined). Management believes, as of December 31,
1996, that the Association meets all capital adequacy requirements to which it
is subject.
As of December 31, 1996, the most recent notification from the OTS
categorized the Association as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the
Association must maintain minimum Tier I (core), Tier I (risk-based) and total
risk-based capital ratios as set forth below. There are no conditions or events
since that notification that management believes have changed the Association's
category.
F-59
<PAGE> 117
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Association's actual capital amounts and ratios at December 31, 1996
were as follows (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well
Minimum Capitalized
For Capital For Prompt
Adequacy Corrective Action
Actual Purposes Provisions
------------ ------------ -----------------
Ratio Amount Ratio Amount Ratio Amount
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity, and ratio
to total assets 6.4% $ 20,167
Less -- nonincludable portion of
deferred tax asset and mortgage
servicing rights (1,401)
Add back -- unrealized
depreciation on
available-for-sale
securities 6
--------
Tangible capital, and ratio to
adjusted total assets 5.9% $ 18,772 1.5% $ 4,734
======== ========
Tier 1 (core) capital, and ratio
to adjusted total assets 5.9% $ 18,772 3.0% $ 9,469 5.0% $ 15,782
======== ======== ========
Tier 1 capital, and ratio to
risk-weighted assets 11.1% $ 18,772 4.0% $ 6,786 6.0% $ 10,179
======== ======== ========
Tier 2 capital (excess allowance
for loan losses) $ 2,154
--------
Total risk-based
capital, and ratio to
risk-weighted
assets 12.3% $ 20,926 8.0% $ 13,572 10.0% $ 16,965
======== ======== ========
Total assets $317,024
========
Adjusted total assets $315,630
========
Risk-weighted assets $169,647
========
</TABLE>
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on SAIF member institutions, including
the Association, to recapitalize the SAIF and spread the obligations for
payments of Financing Corporation ("FICO") bonds across all SAIF and Bank
Insurance Fund ("BIF") members. That legislation eliminated the substantial
disparity between the amount that BIF and SAIF members had been paying for
deposit insurance premiums. The FDIC special assessment levied amounted to 65.7
basis points on SAIF assessable deposits held as of March 31, 1995. The special
assessment was recognized in the third quarter and is tax deductible. The
Association recorded a charge of $1.5 million before taxes as a result of the
FDIC special assessment.
F-60
<PAGE> 118
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Beginning on January 1, 1997, BIF members will pay a portion of the FICO
payment equal to 1.3 basis points on BIF-insured deposits, compared to 6.48
basis points payable by SAIF members on SAIF-insured deposits, and will pay a
pro rata share of the FICO payment on the earlier of January 1, 2000 or the
date upon which the last savings association, such as the Association, ceases
to exist. The legislation also requires BIF and SAIF to be merged by January 1,
1999 provided that subsequent legislation is adopted to eliminate the savings
association charter and no savings associations remain as of that time.
The FDIC recently lowered SAIF assessments to a range comparable to those
of BIF members, however, SAIF members will continue to pay the higher FICO
payments described above. Management cannot predict the level of FDIC insurance
assessments on an ongoing basis or whether the BIF and SAIF will eventually be
merged.
(18) STOCK OPTION PLAN
In 1988, the Company adopted a stock option program (the "Program") for
the benefit of its directors, officers and other selected key employees of the
Company. Four kinds of rights are contained in the program and are available
for grant: incentive stock options (options to purchase common stock, granted
to officers and key employees), compensatory stock options (options to purchase
common stock, granted to directors), stock appreciation rights and performance
share awards. A total of 241,500 shares of common stock were reserved for
issuance pursuant to the exercise of stock options under the Program. As of
December 31, 1996, the Company had granted incentive stock options and
compensatory stock options as discussed in more detail below. No stock
appreciation rights or performance share awards have been issued to date. The
Program provides that incentive stock options and compensatory stock options
are granted to purchase stock at the market value of the stock at the date of
the grant; such grants are exercisable immediately for compensatory stock
options, and ratably over a three-year period for incentive stock options. All
stock options expire at the earlier of ten years from the date of the grant, or
three months after the director, officer or employee ceases employment with the
Company.
During 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 applies to stock-based compensation under the Company's
Program. As allowed by SFAS 123, the Company elected to continue to measure
compensation cost for the options or shares granted under the Program using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Under that accounting method, the
Company recorded no compensation expense related to the Program during the
years ended December 31, 1996, 1995 and 1994.
During the years ended December 31, 1996 and 1995, 47,000 and 52,100
options were granted under the Program. If compensation cost for the Program
had been determined based on the fair value of the awards at the grant date,
using the fair value method defined in SFAS 123, the Company's net income and
net income per share for 1996 and 1995 would not have been materially reduced.
The stock option transactions were as follows:
<TABLE>
<CAPTION>
Incentive Compensatory
Stock Options Stock Options
------------- ---------------------
Option Price Option Price
Shares Per Share Shares Per Share
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1993 133,125 $ 2.13 15,813 $ 2.13
Granted 10,000 2.13 -- --
------- ------
Outstanding, December 31, 1994 143,125 2.13 15,813 2.13
Granted 52,100 2.25 -- --
Cancelled or expired (10,000) 2.13 (2,875) 2.13
------- ------
Outstanding, December 31, 1995 185,225 2.13 - 2.25 12,938 2.13
Granted 47,000 2.75 -- --
Cancelled or expired (37,600) 2.13 - 2.25 (4,313) 2.13
------- ------
Outstanding, December 31, 1996 194,625 2.13 - 2.75 8,625 2.13
======= ======
</TABLE>
F-61
<PAGE> 119
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, the weighted-average option price per share for the
incentive stock options was $2.30 and for the compensatory stock options was
$2.13. The weighted-average option price per share of all options under the
Program at December 31, 1996 was $2.29. Of the total incentive stock options
outstanding at December 31, 1996, 1995 and 1994, 114,624, 82,083 and 44,375,
respectively, were exercisable.
(19) PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of the Holding Company are presented
below. Amounts shown as investment in wholly-owned subsidiaries and equity in
earnings of subsidiaries are eliminated in consolidation (in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 1995
------ -----
<S> <C> <C>
ASSETS
Cash, deposited with subsidiary $ 113 $ 117
Investment in wholly-owned subsidiaries 20,167 18,663
-------- --------
Total $ 20,280 $ 18,780
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ -- $ --
Stockholders' equity 20,280 18,780
-------- --------
Total $ 20,280 $ 18,780
======== ========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Equity in undistributed earnings of subsidiaries $ 1,604 $ 1,591 $ 379
Other income 120 120 120
Expense (124) (65) (59)
------- ------- ------
Net income $ 1,600 $ 1,646 $ 440
======= ======= ======
</TABLE>
F-62
<PAGE> 120
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 1,600 $ 1,646 $ 440
Adjustments to reconcile net earnings to net cash (used
in) provided by operations:
Equity in earnings of subsidiaries (1,604) (1,591) (379)
------- ------- -------
Net cash (used in) provided by operating
activities (4) 55 61
------- ------- -------
Cash Flows from Financing Activities:
Proceeds from sale of common stock -- -- 2,400
Investment in subsidiary -- -- (2,400)
------- ------- -------
Net cash provided by financing activities -- -- --
------- ------- -------
Net (decrease) increase in cash (4) 55 61
Cash at beginning of year 117 62 1
------- ------- -------
Cash at end of year $ 113 $ 117 $ 62
======= ======= =======
</TABLE>
(20) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present summarized quarterly data (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Interest income $ 5,466 $ 5,398 $ 5,340 $ 5,793 $ 21,997
Interest expense 3,140 2,942 2,824 3,117 12,023
-------- -------- -------- -------- ---------
Net interest income 2,326 2,456 2,516 2,676 9,974
Provision for loan losses 150 - 7 625 782
-------- -------- -------- -------- ---------
Net interest income after provision for
loan losses 2,176 2,456 2,509 2,051 9,192
Noninterest income 304 563 535 985 2,387
Noninterest expenses 2,391 2,187 3,771 827 9,176
-------- -------- -------- ------- -------
Income (loss) before income taxes 89 832 (727) 2,209 2,403
Provision (credit) for income taxes 33 310 (270) 730 803
-------- -------- -------- ------- -------
Net income (loss) $ 56 $ 522 $ (457) $ 1,479 $ 1,600
======== ======== ======== ======= =======
Income (loss) per share $ .01 $ .06 $ (.05) $ .17 $ .19
======== ======== ======== ======= =======
</TABLE>
F-63
<PAGE> 121
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
-------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Interest income $ 4,978 $ 4,780 $ 4,897 $ 5,075 $ 19,730
Interest expense 2,259 2,477 2,616 2,759 10,111
-------- -------- -------- -------- --------
Net interest income 2,719 2,303 2,281 2,316 9,619
Provision for loan losses 141 30 154 152 477
-------- -------- -------- -------- --------
Net interest income after provision for
loan losses 2,578 2,273 2,127 2,164 9,142
Noninterest income 663 665 604 670 2,602
Noninterest expenses 2,530 2,428 2,182 2,317 9,457
-------- -------- -------- -------- --------
Income before income taxes 711 510 549 517 2,287
Provision for income taxes 250 174 190 27 641
-------- -------- -------- -------- --------
Net income $ 461 $ 336 $ 359 $ 490 $ 1,646
======== ======== ======== ======== ========
Income per share $ .05 $ .04 $ .05 $ .06 $ .20
======== ======== ======== ======== ========
</TABLE>
(21) SUBSEQUENT EVENT -- PENDING MERGER
On March 10, 1997, the Holding Company executed a Letter of Intent to
merge with Republic Bancshares, Inc. ("Republic"). Under the terms of the
Letter of Intent, Republic will exchange shares of its common stock for all of
the outstanding shares of F.F.O.'s common stock at an exchange ratio of .29
share of Republic common stock for each share of F.F.O. common stock. The
exchange ratio may be adjusted for decreases in Republic's stock price, but in
no event will the exchange ratio exceed .30 share of Republic common stock for
each share of F.F.O. common stock. F.F.O. has the right to terminate the
transaction if Republic's stock price is less than $13.50 shortly before
closing. Outstanding options for F.F.O.'s common stock will be converted into
options for Republic common stock on the same terms. The transaction is
expected to be completed in 1997, and is to be accounted for as a corporate
reorganization under which the controlling shareholder's interest in F.F.O.
will be carried forward at its historical cost while the minority interest in
F.F.O. will be recorded at fair value. The proposed merger is subject to
completion of a definitive agreement, approval by the respective shareholders
of F.F.O. and Republic, and approval by applicable regulatory authorities. Upon
completion of the proposed merger, the then-outstanding options under the
Company's stock option program (see Note 18) will become immediately
exercisable.
F-64
<PAGE> 122
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT AT
JUNE 30, DECEMBER 31,
-------- ------------
1997 1996
---- ----
ASSETS (UNAUDITED)
<S> <C> <C>
Cash and due from banks $ 6,536 6,300
Interest-bearing deposits with banks 5,503 11,665
Federal funds sold 1,420 -
---------- ----------
Cash and cash equivalents 13,459 17,965
Trading securities 12,364 9,580
Securities available for sale 43,517 41,445
Securities held to maturity, at cost 14,013 15,343
Loans held for sale, at lower of cost or market value 2,897 10,462
Loans receivable, net 223,401 209,005
Accrued interest receivable 1,958 1,710
Premises and equipment 5,231 5,324
Restricted securities - Federal Home Loan Bank stock, at cost 2,378 2,378
Foreclosed real estate, net 1,651 799
Deferred tax asset 1,414 1,490
Other assets 737 1,448
---------- ----------
Total assets $ 323,020 316,949
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits 17,089 14,303
Savings and NOW deposits 54,269 57,981
Time deposits 209,991 214,643
---------- ----------
Total deposits 281,349 286,927
Accrued interest on deposits 180 256
Due to bank 1,174 424
Current income tax liability 815 -
Advances from Federal Home Loan Bank 13,000 7,000
Advance payments by borrowers for taxes and insurance 2,371 608
Other liabilities 2,393 1,454
---------- ----------
Total liabilities 301,282 296,669
---------- ----------
Stockholders' equity:
Preferred stock - -
Common stock 845 843
Additional paid-in capital 17,633 17,599
Retained earnings 3,140 1,844
Net unrealized appreciation (depreciation) on securities
available for sale 120 (6)
---------- ----------
Total stockholders' equity 21,738 20,280
---------- ----------
Total liabilities and stockholders' equity $ 323,020 316,949
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-65
<PAGE> 123
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 4,752 4,072 9,343 8,090
Securities available for sale 665 584 1,284 1,177
Securities held to maturity 225 243 462 494
Trading securities 277 420 546 930
Federal funds sold 28 -- 55 --
Deposits with banks 61 79 125 173
---------- ---------- ---------- ----------
Total interest income 6,008 5,398 11,815 10,864
---------- ---------- ---------- ----------
Interest expense:
Deposits 3,098 2,906 6,261 5,803
Other borrowed funds 84 36 94 279
---------- ---------- ---------- ----------
Total interest expense 3,182 2,942 6,355 6,082
---------- ---------- ---------- ----------
Net interest income 2,826 2,456 5,460 4,782
Provision for loan losses -- -- -- 150
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 2,826 2,456 5,460 4,632
---------- ---------- ---------- ----------
Noninterest income:
Service charges on deposits 332 317 660 640
Loan related fees and service charges 117 129 239 246
Loan servicing fees 97 73 180 141
Net trading account profit (losses) 73 (145) (65) (323)
Unrealized gain (loss) on loans held for sale 66 (165) 150 (276)
Net gain on sale of loans 58 -- 112 43
Other income 46 354 114 396
---------- ---------- ---------- ----------
Total noninterest income 789 563 1,390 867
---------- ---------- ---------- ----------
Noninterest expenses:
Salaries and employee benefits 1,035 1,034 2,056 2,050
Occupancy expense 464 489 942 956
Loss (gain) on foreclosed real estate 19 (243) 53 (210)
Deposit insurance premium 67 179 130 352
Marketing and advertising 107 102 218 234
Data processing 267 171 446 322
Printing and office supplies 67 69 140 147
Telephone expense 68 73 134 144
Other expense 348 313 620 583
---------- ---------- ---------- ----------
Total noninterest expenses 2,442 2,187 4,739 4,578
---------- ---------- ---------- ----------
Income before income taxes 1,173 832 2,111 921
Income tax expense 464 310 815 343
---------- ---------- ---------- ----------
Net income $ 709 522 1,296 578
========== ========== ========== ==========
Net income per share of common stock $ .08 .06 .15 .07
========== ========== ========== ==========
Dividends per share $ -- -- -- --
========== ========== ========== ==========
Weighted average number of shares outstanding 8,446,266 8,430,000 8,438,224 8,430,000
========== ========== ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-66
<PAGE> 124
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATION
(DEPRECIATION)
ADDITIONAL ON SECURITIES TOTAL
COMMON PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
STOCK CAPITAL EARNINGS FOR SALE EQUITY
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 843 17,599 1,844 (6) 20,280
Net proceeds from the issuance
of 16,266 shares of common
stock (unaudited) 2 34 - - 36
Net change in unrealized appreciation
on securities available for
sale net of income taxes
of $76 (unaudited) - - - 126 126
Net income for the six months
ended June 30, 1997
(unaudited) - - 1,296 - 1,296
-------- --------- -------- -------- ------
Balance at June 30, 1997
(unaudited) $ 845 17,633 3,140 120 21,738
======== ========= ======== ======== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-67
<PAGE> 125
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,296 578
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses - 150
Net amortization of deferred loan fees (49) 34
Depreciation of premises and equipment 277 273
Net (increase) decrease in trading securities (2,784) 5,168
Provision for deferred income taxes - 223
Proceeds from sale of loans held for sale 7,827 14,242
Gain on sale of foreclosed real estate (6) (233)
Gain on sale of loans (112) (43)
Unrealized (gain) loss on loans held for sale (150) 276
(Increase) decrease in accrued interest receivable (248) 80
Decrease (increase) in other assets 711 (233)
Decrease in accrued interest payable (76) (117)
Increase in current income tax liability 815 -
Increase in other liabilities and due to bank 1,689 127
-------- --------
Net cash provided by operating activities 9,190 20,525
-------- --------
Cash flows from investing activities:
Purchase of available-for-sale securities (2,988) -
Proceeds from maturities of available-for-sale securities - 10,019
Principal repayments on available-for-sale securities 1,118 1,137
Principal repayments on held-to-maturity securities 1,330 1,818
Net increase in loans receivable (15,331) (23,134)
Proceeds from sales of foreclosed real estate 138 970
Payments capitalized to foreclosed real estate - (78)
Net purchase of premises and equipment (184) (113)
-------- --------
Net cash used in investing activities (15,917) (9,381)
-------- -------
Cash flows from financing activities:
Net decrease in demand, savings and NOW deposits (926) (944)
Net (decrease) increase in time deposits (4,652) 14,763
Net proceeds from the sale of common stock 36 -
Net proceeds from (repayments of) Federal Home Loan
Bank advances 6,000 (10,000)
Net increase in advance payments by borrowers for taxes
and insurance 1,763 1,416
-------- --------
Net cash provided by financing activities 2,221 5,235
-------- --------
Net (decrease) increase in cash and cash equivalents (4,506) 16,379
Cash and cash equivalents at beginning of period 17,965 10,426
-------- --------
Cash and cash equivalents at end of period $ 13,459 26,805
======== ========
</TABLE>
(continued)
F-68
<PAGE> 126
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid (refunds received) during the period for:
Income taxes - (223)
======== =====
Interest $ 6,431 6,199
======== =====
Noncash investing and financing activities:
Transfers of loans to foreclosed real estate $ 984 292
======== =====
Loans originated on sales of foreclosed real estate $ - 2,350
======== =====
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-69
<PAGE> 127
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL. In the opinion of the management of F.F.O. Financial Group, Inc.
(the "Company"or "F.F.O."), the accompanying condensed consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position at
June 30, 1997, and the results of operations for the three-month and
six-month periods ended June 30, 1997 and 1996 and cash flows for the
six-month periods ended June 30, 1997 and 1996. These financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996. The results of operations for the six
months ended June 30, 1997, are not necessarily indicative of the
operating results to be anticipated for the full year.
F.F.O. Financial Group, Inc. is a Florida corporation organized in 1988 as
a unitary savings and loan holding company. The accompanying unaudited
condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, First Federal Savings and Loan
Association of Osceola County (the "Association"), and the Association's
wholly-owned subsidiary, Gulf American Financial Corporation, which is
currently inactive. All significant intercompany transactions and accounts
have been eliminated in consolidation.
2. NET INCOME PER SHARE. Net income per share has been computed by dividing
net income by the weighted average number of shares outstanding during the
period. No adjustment has been made to give effect to the shares that
would be outstanding, assuming the exercise of outstanding stock options,
since the impact is deemed immaterial.
3. LOAN IMPAIRMENT AND LOSSES. The following summarizes the amounts of
impaired loans, as defined by Statements of Financial Accounting Standards
No. 114 and 118 ("SFAS No. 114 and 118"), all of which were
collateral-dependent, at June 30, 1997 and December 31, 1996, and the
average net investment in impaired loans and interest income recognized
and received on impaired loans during the six-month periods ended June 30,
1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Loans identified as impaired:
Gross loans with related allowance for loan
losses recorded $ 7,680 8,256
Less: Allowances on these loans (1,694) (1,766)
------- ------
Net investment in impaired loans $ 5,986 6,490
======= ======
</TABLE>
F-70
(continued)
<PAGE> 128
F.F.O. FINANCIAL GROUP, INC.
3. LOAN IMPAIRMENT AND LOSSES, CONTINUED.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Average investment in impaired loans $ 6,063 6,407 6,238 5,552
======== ===== ===== =====
Interest income recognized on impaired loans $ 177 121 306 239
======== ===== ===== =====
Interest income received on impaired loans $ 177 121 306 239
======== ===== ===== =====
</TABLE>
An analysis of the change in the allowance for loan losses was as follows
(dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance $ 5,579 5,210 5,613 5,138
Provision for loan losses - - - 150
Loans charged-off, net of recoveries (6) (79) (40) (157)
-------- ----- ----- -----
Ending balance $ 5,573 5,131 5,573 5,131
======== ===== ===== =====
</TABLE>
4. FORECLOSED REAL ESTATE. Activity in the allowance for losses on foreclosed
real estate was as follows (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance $ 163 1,175 158 1,124
Net recoveries (charge-offs) 94 (7) 99 44
-------- ----- ---- -----
Ending balance $ 257 1,168 257 1,168
======== ===== ==== =====
</TABLE>
(continued)
F-71
<PAGE> 129
F.F.O. FINANCIAL GROUP, INC.
5. IMPACT OF NEW ACCOUNTING STANDARDS. In June 1996, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). That Statement provides
accounting and reporting standards for transfers and servicing of
financial assets as well as extinguishments of liabilities. The Statement
also provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after
December 31, 1996. The adoption of SFAS No. 125 had no significant effect
on the Company's financial position at June 30, 1997 or results of
operations for the six months then ended.
6. FUTURE ACCOUNTING REQUIREMENTS. The FASB has issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). This
Statement specifies the computation, presentation and disclosure
requirements for income per share for entities with publicly-held common
stock. SFAS 128 is effective for both interim and annual periods ending
after December 15, 1997 and upon adoption, all prior period income per
share data presented will be restated to conform with SFAS 128.
7. PENDING MERGER. On April 14, 1997, the Company executed a definitive
agreement to merge with Republic Bancshares, Inc. ("Republic"). Under the
terms of the definitive agreement, Republic will exchange shares of its
common stock for all of the outstanding shares of F.F.O.'s common stock at
an exchange ratio of .29 share of Republic common stock for each share of
F.F.O. common stock. The exchange ratio may be adjusted for decreases in
Republic's stock price, but in no event will the exchange ratio exceed .30
share of Republic common stock for each share of F.F.O. common stock.
F.F.O. has the right to terminate the transaction if Republic's stock
price is less than $13.50 shortly before closing. Outstanding options for
F.F.O.'s common stock will be converted into options for Republic common
stock on the same terms. The transaction is expected to be completed in
1997, and is to be accounted for as a corporate reorganization under which
the controlling shareholder's interest in F.F.O. will be carried forward
at its historical cost while the minority interest in F.F.O. will be
recorded at fair value. On July 3, 1997, Republic announced that it had
received all required regulatory approvals from the Federal Deposit
Insurance Corporation, the Florida Department of Banking and the Federal
Reserve to proceed with the proposed merger. The proposed merger remains
subject to the approval by the respective shareholders of both F.F.O. and
Republic.
F-72
<PAGE> 130
F.F.O. FINANCIAL GROUP, INC.
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Hacker, Johnson, Cohen & Grieb, the Company's independent certified public
accountants, have made a limited review of the financial data as of June 30,
1997, and for the three-month and six-month periods ended June 30, 1997 and
1996 presented in this document, in accordance with standards established by
the American Institute of Certified Public Accountants.
Their report, furnished pursuant to Article 10 of Regulation S-X, is included
herein.
F-73
<PAGE> 131
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors
F.F.O. Financial Group, Inc.
St. Cloud, Florida:
We have reviewed the condensed consolidated balance sheet of F.F.O.
Financial Group, Inc. and Subsidiaries (the "Company") as of June 30, 1997, and
the related condensed consolidated statements of income for the three-month and
six-month periods ended June 30, 1997 and 1996, the condensed consolidated
statements of cash flows for the six-month periods ended June 30, 1997 and
1996, and the condensed consolidated statement of stockholders' equity for the
six-month period ended June 30, 1997. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended (not presented herein), and in our report dated
February 11, 1997, except for Note 21, as to which the date was March 11, 1997,
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1996 is fairly stated in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
HACKER, JOHNSON, COHEN & GRIEB PA
Orlando, Florida
July 18, 1997
F-74
<PAGE> 132
===============================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than the
Debentures and Shares offered by this Prospectus, nor does it constitute an
offer to sell or a solicitation of an offer to buy the Debentures and Shares by
anyone in any jurisdiction in which such an offer or solicitation is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
-----------
TABLE OF CONTENTS
Page
----
Summary........................................ 2
The Company and the Bank....................... 2
Risk Factors................................... 9
Use of Proceeds............................... 13
Plan of Distribution.......................... 13
Price Range of Common Stock.................... 14
Selling Securityholders........................ 15
Capitalization................................. 17
Pro Forma Financial Data....................... 18
Selected Consolidated Financial Data........... 23
Management's Discussion and Analysis
of Financial Condition and
Results of Operations........................ 26
Business....................................... 46
Description of Debentures...................... 49
Description of Capital Stock................... 53
Certain Federal Income Tax
Consequences................................. 54
Legal Matters.................................. 55
Experts........................................ 55
Available Information.......................... 56
Incorporation of Certain Documents
By Reference................................. 56
Index to Consolidated Financial
Statements................................... F-1
===============================================================================
===============================================================================
$6,000,000
REPUBLIC BANCSHARES, INC.
6% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2011
----------------
PROSPECTUS
----------------
October 29, 1997
================================================================================
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. - Other Expenses of Issuance and Distribution.
The following table sets forth the fees and expenses in connection with
the issuance and distribution of the securities being registered hereunder.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................. $ 1,819
Nasdaq National Market additional listing fee................................... 6,720
Printing and engraving expenses................................................. 1,000
Accounting fees and expenses.................................................... 10,000
Legal fees and expenses......................................................... 45,000
Blue Sky fees and expenses...................................................... 2,000
Miscellaneous................................................................... 6,000
--------
Total..................................................................... 72,539
========
</TABLE>
ITEM 15. - Indemnification of Directors and Officers.
The Company is a Florida corporation. The Florida Business Corporation
Act ("FBCA") provides that, in general, a business corporation may indemnify
any person who is or was a party to any proceeding (other than an action by, or
in the right of, the corporation) by reason of the fact that he is or was a
director or officer of the corporation, against liability incurred in
connection with such proceeding, including any appeal thereof, provided certain
standards are met, including that such officer or director acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation, and provided further that, with respect to any
criminal action or proceeding, the officer or director had no reasonable cause
to believe his conduct was unlawful. In the case of proceedings by or in the
right of the corporation, the FBCA provides that, in general, a corporation may
indemnify any person who was or is a party to any such proceeding by reason of
the fact that he is or was a director or officer of the corporation against
expenses and amounts paid in settlement actually and reasonably incurred in
connection with the defense or settlement of such proceeding, including any
appeal thereof, provided that such person acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim as to which such person is adjudged liable unless a court of competent
jurisdiction determines upon application that such person is fairly and
reasonably entitled to indemnity. To the extent that any officers or directors
are successful on the merits or otherwise in the defense of any of the
proceedings described above, the FBCA provides that the corporation is required
to indemnify such officers or directors against expenses actually and
reasonably incurred in connection therewith. However, the FBCA further provides
that, in general, indemnification or advancement of expenses shall not be made
to or on behalf of any officer or director if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material
to the cause of action so adjudicated and constitute: (i) a violation of the
criminal law, unless the director or officer had reasonable cause to believe
his conduct was lawful or had no reasonable cause to believe it was unlawful;
(ii) a transaction from which the director or officer derived an improper
personal benefit; (iii) in the case of a director, a circumstance under which
the director has voted for or assented to a distribution made in violation of
the FBCA or the corporation's articles of incorporation; or (iv) willful
misconduct or a conscious disregard for the best interests of the corporation
in a proceeding by or in the right of the corporation to procure a judgment in
its favor or in a proceeding by or in the right of a shareholder. Article V of
the Company's Bylaws provides that the Company shall indemnify any director,
officer, employee or agent or any former director, officer, employee or agent
to the full extent permitted by Florida law.
<PAGE> 134
The Company has purchased insurance with respect to, among other things,
any liabilities that may arise under the statutory provisions referred to
above.
ITEM 16. - Exhibits
The following exhibits either are filed herewith or incorporated by
reference to documents previously filed or will be filed by amendment, as
indicated below:
<TABLE>
<CAPTION>
Exhibits Description
<S> <C>
4.1 Form of Indenture with respect to the Debentures.
4.2 Form of Specimen Debenture (included in Exhibit 4.1).
4.3 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference from Exhibit 3.1 of the Company's
Registration Statement on Form S-4, File No. 33-80895, dated
December 28, 1995).
4.4 By-laws of the Company (incorporated by reference from Exhibit
3.2 of the Company's Registration Statement on Form S-4, File
No. 33-80895, dated December 28, 1995).
5.1 Opinion of Holland & Knight LLP regarding the Debentures.
12.1 Statement regarding computation of earnings to fixed charges.
23.1 Consent of Holland & Knight LLP (included in Exhibit 5.1).
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Hacker, Johnson, Cohen & Grieb.
24 Power of Attorney (included with signature pages to this
Registration Statement).
25.1 Form T-1: Statement of Eligibility of SouthTrust Bank of Florida,
National Association to act as Trustee.
</TABLE>
ITEM 17. - Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effect amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement.
<PAGE> 135
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) For the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona vide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under section 305(b)(2) of
the Act.
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Tampa, State
of Florida, on October 28, 1997.
REPUBLIC BANCSHARES, INC.
By: /s/ John W. Sapanski
-----------------------------------------
John W. Sapanski, Chairman of the Board of
Directors, Chief Executive Officer, and
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John W. Sapanski Chairman, Chief Executive Officer October 28, 1997
----------------------------- and Director (Principal Executive
John W. Sapanski Officer)
/s/ William R. Falzone Treasurer (Principal Financial and October 28, 1997
----------------------------- Accounting Officer)
William R. Falzone
/s/ Fred Hemmer Director October 28, 1997
-----------------------------
Fred Hemmer
/s/ Marla Hough Director October 28, 1997
-----------------------------
Marla Hough
/s/ William R. Hough Director October 28, 1997
-----------------------------
William R. Hough
</TABLE>
<PAGE> 137
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Alfred T. May Director October 28, 1997
- --------------------------------------------------
Alfred T. May
/s/ William J. Morrison Director October 28, 1997
- --------------------------------------------------
William J. Morrison
</TABLE>
<PAGE> 138
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits Description
<S> <C>
4.1 Form of Indenture with respect to the Debentures.
4.2 Form of Specimen Debenture (included in Exhibit 4.1).
4.3 Amended and Restated Article of Incorporation of the Company
(incorporated by reference from Exhibit 3.1 of the Company's
Registration Statement on Form S-4, File No. 33-80895, dated
December 28, 1995).
4.4 By-laws of the Company (incorporated by reference from Exhibit
3.2 of the Company's Registration Statement on Form S-4, File
No. 33-80895, dated December 28, 1995).
5.1 Opinion of Holland & Knight LLP.
12.1 Statement regarding computation of earnings to fixed charges.
23.1 Consent of Holland & Knight LLP (included in Exhibit 5.1).
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Hacker, Johnson, Cohen & Grieb.
24 Power of Attorney (included with signature pages to this
Registration Statement).
25.1 Form T-1: Statement of Eligibility of SouthTrust Bank of Florida,
National Association to act as Trustee.
</TABLE>
<PAGE> 1
Exhibit 4.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPUBLIC BANCSHARES, INC.
AND
SOUTHTRUST BANK OF FLORIDA, NATIONAL ASSOCIATION,
TRUSTEE
-------------------------------
INDENTURE
DATED AS OF DECEMBER 18, 1996
-------------------------------
$6,000,000
6% CONVERTIBLE SUBORDINATED DEBENTURES
DUE 2011
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
Republic Bancshares, Inc.
Reconciliation and tie between Trust Indenture Act of
1939 and Indenture, dated as of December 18, 1996
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
<S> <C>
Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8, 7.9
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
Section 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.12
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.12
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
Section 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1, 5.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2
Section 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
Section 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
Section 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.14
Section 316(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.12
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.13
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
Section 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7
- --------------------------------
</TABLE>
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
RECITALS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
ARTICLE I Definitions and Other Provisions of General Application . . . . . . . . . . . . . . . . . . . . . . -1-
SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
SECTION 1.2. Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
SECTION 1.3. Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
SECTION 1.4. Action by Debentureholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
SECTION 1.5. Notices, etc., to Trustee and Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
SECTION 1.6. Notices to Debentureholders; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
SECTION 1.7. Conflict with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
SECTION 1.8. Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
SECTION 1.9. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
SECTION 1.10. Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
SECTION 1.11. Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
SECTION 1.12. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
SECTION 1.13. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
ARTICLE II Debenture Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
SECTION 2.1. Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
SECTION 2.2. Debentures in Global Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
SECTION 2.3. Form of Debenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
ARTICLE III The Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
SECTION 3.1. General Title; General Limitations; Terms of Debenture . . . . . . . . . . . . . . . . . . . . . . -17-
SECTION 3.2. Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
SECTION 3.3. Execution, Authentication and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
SECTION 3.4. Temporary Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
SECTION 3.5. Registration, Registration of Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . -18-
SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Debentures . . . . . . . . . . . . . . . . . . . . . . . . . -20-
SECTION 3.7. Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
SECTION 3.8. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
SECTION 3.9. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
SECTION 3.10. Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
ARTICLE IV Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
SECTION 4.1. Payment of Principal and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
SECTION 4.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
SECTION 4.3. Money for Debenture Payments to be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . -23-
SECTION 4.4. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
SECTION 4.5. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
SECTION 4.6. Statement as to Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
SECTION 4.7. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
SECTION 4.8. Restrictions on Dividends, Redemptions and Other Payments . . . . . . . . . . . . . . . . . . . . -24-
ARTICLE V Debentureholders' Lists and Reports by the Trustee and the Company . . . . . . . . . . . . . . . -25-
SECTION 5.1. Company to Furnish Trustee Names and Addresses of Debentureholders . . . . . . . . . . . . . . . -25-
</TABLE>
-i-
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 5.2. Preservation of Information; Communications to Debentureholders . . . . . . . . . . . . . . . . . -25-
SECTION 5.3. Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
SECTION 5.4. Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
ARTICLE VI Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
SECTION 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
SECTION 6.2. Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . . . . . . . . . . -27-
SECTION 6.3. Suits for Enforcement by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
SECTION 6.4. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
SECTION 6.5. Trustee May Enforce Claims Without Possession of Debentures . . . . . . . . . . . . . . . . . . . -28-
SECTION 6.6. Application of Money Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
SECTION 6.7. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
SECTION 6.8. Unconditional Right of Debentureholders to Receive Principal and Interest . . . . . . . . . . . . -29-
SECTION 6.9. Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
SECTION 6.10. Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
SECTION 6.11. Delay or Omission Not A Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
SECTION 6.12. Control by Debentureholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
SECTION 6.13. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
SECTION 6.14. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
SECTION 6.15. Waiver of Stay or Extension Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
ARTICLE VII The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
SECTION 7.1. Certain Duties and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
SECTION 7.2. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
SECTION 7.3. Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
SECTION 7.4. Not Responsible for Recitals or Issuance of Debentures . . . . . . . . . . . . . . . . . . . . . . -33-
SECTION 7.5. May Hold Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
SECTION 7.6. Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
SECTION 7.7. Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
SECTION 7.8. Corporate Trustee Required; Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . -34-
SECTION 7.9. Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . -35-
SECTION 7.10. Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
SECTION 7.11. Merger, Conversion, Consolidation or Succession to Business of Trustee . . . . . . . . . . . . . -36-
SECTION 7.12. Preferential Collection of Claims against Company . . . . . . . . . . . . . . . . . . . . . . . . -36-
ARTICLE VIII Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
SECTION 8.1. Supplemental Indentures Without Consent of Debentureholders . . . . . . . . . . . . . . . . . . . -36-
SECTION 8.2. Supplemental Indentures With Consent of Debentureholders . . . . . . . . . . . . . . . . . . . . . -37-
SECTION 8.3. Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
SECTION 8.4. Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
SECTION 8.5. Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
SECTION 8.6. Reference in Debentures to Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . -38-
SECTION 8.7. Subordination Unimpaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
ARTICLE IX Consolidation, Merger, Conveyance, Transfer or Lease . . . . . . . . . . . . . . . . . . . . . . . -39-
SECTION 9.1. Company May Consolidate, etc., Only on Certain Terms . . . . . . . . . . . . . . . . . . . . . . . -39-
SECTION 9.2. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
SECTION 9.3. Limitation on Lease of Properties as Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
</TABLE>
-ii-
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE X Satisfaction, Discharge and Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
SECTION 10.1. Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
SECTION 10.2. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40-
SECTION 10.3. Satisfaction, Discharge and Defeasance of Debentures . . . . . . . . . . . . . . . . . . . . . . -41-
ARTICLE XI Subordination of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
SECTION 11.1. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
SECTION 11.2. Distribution of Assets, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
SECTION 11.3. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
SECTION 11.4. Obligation of the Company Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
SECTION 11.5. Payments on Debentures Permitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
SECTION 11.6. Effectuation of Subordination by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
SECTION 11.7. Knowledge of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
SECTION 11.8. Trustee May Hold Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
SECTION 11.9. Rights of Holders of Senior Indebtedness Not Impaired . . . . . . . . . . . . . . . . . . . . . . -45-
SECTION 11.10. Alteration of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
SECTION 11.11. Article Applicable to Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
SECTION 11.12. Trustee Not Fiduciary for Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . -45-
ARTICLE XII Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
SECTION 12.1. Mandatory Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
SECTION 12.2. Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
SECTION 12.3. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -46-
SECTION 12.4. Selection of Debentures to be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -46-
SECTION 12.5. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -46-
SECTION 12.6. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47-
SECTION 12.7. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47-
SECTION 12.8. Debentures Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47-
SECTION 12.9. Repurchasing of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47-
ARTICLE XIII Conversion of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47-
SECTION 13.1. Conversion Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47-
SECTION 13.2. Manner of Exercise of Conversion Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . -48-
SECTION 13.3. Cash Adjustment Upon Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -48-
SECTION 13.4. Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -49-
SECTION 13.5. Adjustment of Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -49-
SECTION 13.6. Effect of Reclassifications, Consolidations, Mergers or Sales on Conversion Privileges . . . . . -51-
SECTION 13.7. Taxes on Conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51-
SECTION 13.8. Company to Reserve Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51-
SECTION 13.9. Disclaimer by Trustee of Responsibility for Certain Matters . . . . . . . . . . . . . . . . . . . -52-
SECTION 13.10. Company to Give Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . -52-
ARTICLE XIV Immunity of Directors, Officers, Employees and Stockholders . . . . . . . . . . . . . . . . . . . -53-
SECTION 14.1. Exemption from Individual Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
ARTICLE XV Registration Under Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
SECTION 15.1. Debentures Entitled to Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
SECTION 15.2. Debenture Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
</TABLE>
-iii-
<PAGE> 6
<TABLE>
<S> <C> <C>
SECTION 15.3. Timing of Filing Debenture Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . -53-
SECTION 15.4. Period of Effectiveness; State Law Requirements . . . . . . . . . . . . . . . . . . . . . . . . . -53-
SECTION 15.5. Debentureholder to Supply Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -54-
SECTION 15.6. Exception to Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -54-
</TABLE>
-iv-
<PAGE> 7
THIS INDENTURE, dated as of December 18, 1996, by and between REPUBLIC
BANCSHARES, INC., a corporation duly organized and existing under the laws of
the State of Florida ("the Company"), and SOUTHTRUST BANK OF FLORIDA, NATIONAL
ASSOCIATION (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation, execution and delivery of its
debentures, to be known as 6% Convertible Subordinated Debentures Due 2011 (the
"Debentures"), the amount and terms of which are as hereinafter provided; and,
to provide the terms and conditions upon which the Debentures are to be
authenticated, issued and delivered, the Company has duly authorized the
execution and delivery of this Indenture.
All acts and things necessary to make the Debentures, when executed by the
Company and authenticated and delivered by the Trustee as in this Indenture
provided, the valid, binding and legal obligations of the Company, and to
constitute these presents as a valid indenture and agreement according to its
terms, have been done and performed, and the execution of this Indenture and
the issue hereunder of the Debentures have in all respects been duly
authorized, and the Company, in the exercise of the legal right and power
vested in it, executes this Indenture and proposes to make, execute, and
deliver the Debentures.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
Each party agrees as follows for the benefit of the other party and for
the equal and proportionate benefit of the Debentureholders (as hereinafter
defined):
ARTICLE I
Definitions and Other Provisions of General Application
SECTION 1.1. Definitions.
For all purposes of this Indenture and of any indenture supplemental
hereto, except as otherwise expressly provided or unless the context otherwise
requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the singular;
(2) the term "this Indenture" means this instrument as originally
executed or as it may from time to time be supplemented or amended by one or
more indentures supplemental hereto entered into pursuant to the applicable
provisions hereof;
(3) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(4) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in effect on the date of execution of this Indenture; and
(5) all references in this instrument to "Articles", "Sections"
and other subdivisions are to the designated Articles, Sections and other
subdivisions of this instrument as originally executed; the words "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision;
Certain terms used principally in Article Seven are defined in that Article.
-1-
<PAGE> 8
"Act" when used with respect to any Debentureholder has the meaning specified
in Section 1.4.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authorized Newspaper" means a newspaper of general circulation in the
relevant area, printed in the English language and customarily published on
each Business Day, whether or not published on Saturdays, Sundays or holidays.
Whenever successive weekly publications in an Authorized Newspaper are required
hereunder they may be made (unless otherwise expressly provided herein) on the
same or different days of the week and in the same or different Authorized
Newspapers.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each day which is neither a Saturday, Sunday nor other
day on which banking institutions in the Place of Payment are authorized by law
or required by executive order to close.
"Capitalized Lease Obligation" means any lease obligation of a Person
incurred with respect to any property (whether real, personal or mixed)
acquired or leased by such Person and used in its business that is required to
be recorded as a capitalized lease in accordance with generally accepted
accounting principles.
"Capital Stock" means any and all shares, interests, participation rights or
other equivalents (however designated) of corporate stock.
"Closing Price" means the closing price per share of Common Stock on the
Nasdaq National Market or, if then traded on a national securities exchange,
the closing price on that exchange or the highest bid quotation on an automated
quotation system, or if the Common Stock shall not then be listed on the Nasdaq
National Market or on an exchange or included on an automated quotation system,
as reported by the National Quotation Bureau, Inc. or similar reporting
service.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties on such date.
"Common Stock" means the class of stock which, at the date of this
Indenture, is designated as Common Stock, par value $2.00 per share, of the
Company and the class or classes of stock, if any, into which such Common Stock
may thereafter be changed or reclassified.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "Company" shall
mean such successor corporation.
-2-
<PAGE> 9
"Company Request", "Company Order" and "Company Consent" mean, respectively,
a written request, order or consent signed in the name of the Company by its
Chairman of the Board of Directors, President or a Vice President, and
delivered to the Trustee.
"Conversion Price" means the price per share of Common Stock from time to
time in effect at which Debentures may be converted into Common Stock pursuant
to Article Thirteen.
"Debentures" means the debentures authenticated and delivered under this
Indenture.
"Debentureholder" or "Holder" means a Person in whose name a Debenture is
registered in the Debenture Register.
"Debenture Register" and "Debenture Registrar" have the respective meanings
specified in Section 3.5.
"Debenture Registration Statement" has the meaning specified in Section
15.2.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depositary" means, if any Depositary is designated by the Company, The
Depositary Trust Company or any other clearing agency registered under the
Exchange Act subsequently designated as Depositary by the Company.
"Event of Default" has the meaning specified in Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934 (15 U.S.C.
Sections 78a-78jj), as in force at the date as of which this instrument was
executed, or as hereafter amended.
"Indebtedness" means (i) all Obligations of the Company for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of the
Company or only to a portion thereof), (ii) all indebtedness of the Company
which is evidenced by a note, debenture, bond or other similar instrument,
including Capitalized Lease Obligations, (iii) all indebtedness of the Company
representing the unpaid balance of the purchase price of any goods or other
property or balance owed for any services rendered, (iv) all indebtedness of
the Company, including Capitalized Lease Obligations incurred, assumed or given
in an acquisition (whether by way of purchase, merger or otherwise) of any
business, real property or other assets, (v) any indebtedness of others
described in the preceding clauses (i), (ii), (iii) and (iv) that the Company
has guaranteed or for which it is otherwise liable and (vi) any amendment,
renewal, extension, deferral, modification, restructuring or refunding of any
such indebtedness, obligation or guarantee.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Debentures.
"Maturity" when used with respect to any Debenture means the date on which
the principal of and interest on such Debenture becomes due and payable as
therein or herein provided, whether at the Stated Maturity or by declaration of
acceleration or otherwise.
"Obligations" means, with respect to any Indebtedness, any principal,
premium, interest, penalties, fees and other liabilities payable from time to
time and obligations performable under the documentation governing such
Indebtedness.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors, the President or a Vice President, and by the Chief
Financial Officer, the Treasurer, an Assistant Treasurer, the Controller, an
Assistant Controller, the Secretary or an Assistant Secretary of the Company,
and delivered to the Trustee.
-3-
<PAGE> 10
"Opinion of Counsel" means a written opinion of counsel, who may, except as
otherwise expressly provided in this Indenture, be counsel for the Company.
"Outstanding" when used with respect to Debentures means, as of the date of
determination, all Debentures theretofore authenticated and delivered under
this Indenture, except:
(i) Debentures theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Debentures for whose payment money in the necessary amount has
been theretofore deposited with the Trustee or any Paying Agent in trust for
the Holders of such Debentures;
(iii) Debentures in exchange for or in lieu of which other Debentures
have been authenticated and delivered pursuant to this Indenture; and
(iv) Debentures which have been surrendered for conversion pursuant to
Article Thirteen;
provided, however, that in determining whether the Holders of the requisite
principal amount of Debentures Outstanding have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Debentures owned
by the Company or any other obligor upon the Debentures or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Debentures which the Trustee knows to be so owned shall
be so disregarded. Debentures so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction
of the Trustee the pledgee's right so to act with respect to such Debentures
and that the pledgee is not the Company or any other obligor upon the
Debentures or any Affiliate of the Company or such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Debentures on behalf of the Company. The
Company or any of its subsidiaries may act as Paying Agent.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment" means a city or political subdivision thereof designated
as such by the Company in accordance with the terms of this Indenture.
"Predecessor Debentures" of any particular Debenture means every previous
Debenture evidencing all or a portion of the same debt as that evidenced by
such particular Debenture; and, for the purposes of this definition, any
Debenture authenticated and delivered under Section 3.6 in lieu of a mutilated,
lost, destroyed or stolen Debenture shall be deemed to evidence the same debt
as the mutilated, lost, destroyed or stolen Debenture.
"Principal Corporate Trust Office" means the principal corporate trust
office of the Trustee at the location set forth in Section 1.5 or at such other
location as the Trustee may from time to time designate by written notice to
the Company.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the close of business on the 15th day of the calendar month immediately
preceding the calendar month in which such Interest Payment Date occurs,
whether or not a Business Day.
"Responsible Officer" when used with respect to the Trustee means the
chairman or the vice chairman of the board of directors, the chairman or vice
chairman of the executive committee of the board of directors, the president,
any vice-president, the secretary, any assistant secretary, the treasurer, any
assistant treasurer, the cashier, any assistant cashier, any trust officer or
assistant trust officer, the controller and any assistant controller or any
other
-4-
<PAGE> 11
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter
is referred because of his knowledge of and familiarity with the particular
subject.
"Responsible Officer of the Company" shall mean the Chairman or Vice
Chairman of the Board of Directors, the President, any Vice-President, the
Chief Financial Officer, the Treasurer, the Controller or the Secretary of the
Company.
"Securities Act" means the Securities Act of 1933 (15 U.S.C. Sections
77a-77aa), as in force at the date as of which this instrument was executed, or
as hereafter amended.
"Senior Indebtedness" means any and all Indebtedness of the Company, except
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall be subordinate or shall rank pari passu in right of payment
to the Debentures.
"Special Payment Date" has the meaning specified in Section 3.7.
"Special Record Date" for the payment of any Defaulted Interest means a date
fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity" when used with respect to any Debenture means the date
specified in such Debenture as the fixed date on which the principal of and the
interest on such Debenture is due and payable.
"Subsidiary" means, with respect to the Company, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of Capital Stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is at the time owned in the aggregate, directly or
indirectly, by the Company and its Subsidiaries.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall
mean such successor Trustee.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 (15
U.S.C. Sections 77aaa-77bbbb), as in force at the date as of which this
instrument was executed, except as provided in Section 8.5.
"Vice President" when used with respect to the Company or the Trustee means
any vice president, whether or not designated by a number or a word or words
added before or after the title "vice president".
"U.S. Government Obligations" means direct obligations of the United States
of America for the payment of which the full faith and credit of the United
States of America is pledged.
SECTION 1.2. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate
or opinion need be furnished.
-5-
<PAGE> 12
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained
in such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.3. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such counsel's certificate or opinion is
based are erroneous. Any such certificate or Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care
should know, that such certificate or opinion or representations are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4. Action by Debentureholders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by
Debentureholders may be embodied in and evidenced by (i) one or more
instruments of substantially similar tenor signed by such Debentureholders in
person or by agent or proxy duly appointed in writing. Except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee and, where it is hereby
expressly required, to the Company. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Debentureholders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and (subject to
Sections 7.1 and 7.3) conclusive in favor of the Trustee and the Company, if
made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer
authorized by law
-6-
<PAGE> 13
to take acknowledgments of deeds, certifying that the individual signing such
instrument or writing acknowledged to him the execution thereof. Where such
execution is by an officer of a corporation or association or a member of a
partnership or an employee of a public or governmental agency on behalf of such
corporation, association, partnership or agency, or by an agent or fiduciary,
such certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The ownership of Debentures shall be proved by the Debenture Register
or by a certificate of the Debenture Registrar thereof.
(d) At any time prior to the taking of any action by the Holders of the
percentage in aggregate principal amount of the Debentures specified in this
Indenture in connection with such action, any Holder which has consented to
such action may, by filing written notice with the Trustee at its Principal
Corporate Trust Office and upon proof of holding as provided in this Section
1.4, revoke such action so far as concerns such Debenture. Except as
aforesaid, any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Debenture shall be conclusive and
binding upon such Holder and upon all future Holders of such Debenture and of
every Debenture issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, omitted or suffered
to be done by the Trustee or the Company in reliance thereon, whether or not
notation of such action is made upon such Debenture. Any action taken by the
Holders of the percentage in aggregate principal amount of the Debentures
specified in the Indenture in connection with such action shall be conclusive
and binding upon the Company, the Trustee and the Holders of all of the
Debentures.
(e) If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other action, the Company
may, at its option, by or pursuant to a Board Resolution, fix in advance a
record date for the determination of Holders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other action, but
the Company shall have no obligation to do so. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, waiver or
other action may be given before or after such record date, but only Holders of
record at the close of business on such record date shall be deemed to be the
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Debentures have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or
other action, and for that purpose the Outstanding Debentures shall be computed
as of such record date; provided that no such authorization, agreement or
consent by the Holders on such record date shall be deemed effective unless it
shall become effective pursuant to the provisions of this Indenture not later
than six months after the record date.
SECTION 1.5. Notices, etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Debentureholders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Debentureholder or by the Company shall be
sufficient for every purpose hereunder if and only if made, given, furnished
or filed in writing to or with the Corporate Trust Department of the Trustee
at the Principal Corporate Trust Office which at the date of this Indenture
is 101 N.E. 3rd Avenue, Suite 100, Fort Lauderdale, Florida 33301, or
(2) the Company by the Trustee or by any Debentureholder shall be
sufficient for every purpose hereunder if in writing and mailed,
first-class, postage prepaid, to the Company addressed to it at 111 Second
Avenue N.E., Suite 300, St. Petersburg, Florida 33701, to the attention of
the Corporate Secretary, or at any other address furnished in writing to the
Trustee by the Company.
Notwithstanding the foregoing, the Debentures first presented to the Trustee
for authentication after the execution and delivery of this Indenture may be
delivered by the Company for authentication, together with a Company Order
-7-
<PAGE> 14
of the authentication and delivery of such Debentures, at Atlanta, Georgia, or
at such other place as may be determined by the Company and reasonably
acceptable to the Trustee. this Indenture provided and not otherwise.
SECTION 1.6. Notices to Debentureholders; Waiver.
Where this Indenture provides for notice to Debentureholders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first class, postage prepaid, to each
Debentureholder affected by such event, at his address as it appears on the
Debenture Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Debentureholders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular
Debentureholder shall affect the sufficiency of such notice with respect to
other Debentureholders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be
equivalent of such notice. Waivers of notice by Debentureholders shall be
filed with the Trustee, but such filing shall not be a condition precedent to
the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in regular mail
service, it shall be impractical to mail notice of any event to
Debentureholders when such notice is required to be given pursuant to any
provision of this Indenture, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice.
In case, by reason of the suspension of publication of any Authorized
Newspaper, or by reason of any other cause, it shall be impossible to make
publication of any notice in an Authorized Newspaper or Authorized Newspapers
as required by this Indenture, then such method of publication or notification
as shall be made with the approval of the Trustee shall constitute a sufficient
publication of such notice.
SECTION 1.7. Conflict with Trust Indenture Act.
This Indenture is prepared as if subject to the TIA, and if any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of TIA, such
required provision shall control.
SECTION 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind its
successors and assigns, whether so expressed or not.
SECTION 1.10. Separability Clause.
In case any provision in this Indenture or in the Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.11. Benefits of Indenture.
Nothing in this Indenture or in the Debentures, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness and the Debentureholders, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
-8-
<PAGE> 15
SECTION 1.12. Legal Holidays.
In any case where the date of an Interest Payment Date or the Stated
Maturity of any Debenture shall not be a Business Day, then (notwithstanding
any other provision of the Debentures or this Indenture) payment of the
principal of, or interest on, any Debentures need not be made on such date, but
may be made on the next succeeding Business Day with the same force and effect
as if made on the nominal date of any such Interest Payment Date or Stated
Maturity.
SECTION 1.13. Governing Law.
This Indenture and the Debentures issued hereunder shall be controlled,
construed and enforced in accordance with the laws of the State of Florida
applicable to contracts made and to be performed entirely in that State.
ARTICLE II
Debenture Forms
SECTION 2.1. Forms Generally.
The Debentures and the certificates of authentication thereon shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon, as may be
required to comply with the rules of any securities exchange, or as may,
consistent herewith, be determined by the officers executing such Debentures,
as evidenced by their execution of the Debentures. Any portion of the text of
any Debenture may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Debenture.
The definitive Debentures shall be printed, lithographed or engraved on
steel engaged borders or may be produced in any other manner, all as determined
by the officers executing such Debentures as evidenced by their execution of
such Debentures.
SECTION 2.2. Debentures in Global Form.
The Debentures may be issued in whole or in part in global form and any such
Debenture in global form may provide that it shall represent the aggregate or
specified amount of Outstanding Debentures from time to time endorsed thereon
and may also provide that the aggregate amount of Outstanding Debentures
represented thereby may from time to time be reduced to reflect exchanges. Any
endorsement of a Debenture in global form to reflect the amount, or any
increase or decrease in the amount or changes in the rights of Holders of
Outstanding Debentures represented thereby, shall be made in such manner and by
such Person or Persons as shall be specified therein. Any instructions by the
Company with respect to a Debenture in global form shall be in writing but, to
the extent not relevant, need not comply with Section 314(c) of the Trust
Indenture Act.
SECTION 2.3. Form of Debenture.
The Debentures shall include one or more legends required in the judgment of
the Company by applicable securities laws. Each Holder shall be deemed to have
agreed to the imposition of such legends by acceptance of a Debenture or shares
of Common Stock issued upon conversion thereof, and to have agreed that so long
as any of such legends remain on the certificates evidencing such securities,
prior to any transfer (including the sale, assignment, pledge, hypothecation,
gift or other transfer) of any of the same, to comply in all respects with such
legend requirements. Each certificate evidencing the Debentures and the shares
of Common Stock issued upon conversion of a Debenture shall, upon any such
transfer, bear such legends unless, immediately following such transfer, such
securities are no longer subject to restriction on transfer under any
applicable securities laws.
-9-
<PAGE> 16
[FORM OF FACE OF DEBENTURE]
REPUBLIC BANCSHARES, INC.
6% Convertible Subordinated Debentures
Due 2011
THIS IS NOT A DEPOSIT, SAVINGS ACCOUNT OR OTHER OBLIGATION OF ANY BANK OR
SAVINGS INSTITUTION, AND IS NOT INSURED BY THE BANK INSURANCE FUND OR THE
SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
No._______________ $______________
[insert any applicable securities law legend]
REPUBLIC BANCSHARES, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars on December 1, 2011.
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 15 (whether or not a
Business Day)
Dated: _________________, 1996
REPUBLIC BANCSHARES, INC.,
a Florida corporation
By:____________________________________
By:____________________________________
(SEAL)
This is one of the Debentures
referred to in the within-
mentioned Indenture:
SouthTrust Bank of Florida, National Association, as Trustee
By:_______________________________
Authorized Signatory
-10-
<PAGE> 17
REPUBLIC BANCSHARES, INC.
6% Convertible Subordinated Debentures
Due 2011
1. Interest. Republic Bancshares, Inc., a corporation duly organized and
existing under the laws of the State of Florida (the "Company"), promises to
pay simple interest on the principal amount of this Debenture at the rate per
annum shown above from the date of issuance until maturity. The Company will
pay interest semi-annually on each June 1 and December 1 of each year, or if
any such day is not a Business Day (as defined in the Indenture), on the next
succeeding Business Day (each an "Interest Payment Date").
Interest on the Debentures will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
issuance; provided, that if there is no existing Default in the payment of
interest, and if this Debenture is authenticated between a record date referred
to on the face hereof and the next succeeding Interest Payment Date, interest
shall accrue from such next succeeding Interest Payment Date; provided further,
that the first Interest Payment Date shall be June 1, 1997. The Company shall
pay interest on overdue principal at the then applicable interest rate on the
Debentures; it shall pay interest on overdue installments of interest (without
regard to any applicable grace periods) at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. Method of Payment. The Company will pay interest on the Debentures
(except defaulted interest) to the Persons who are registered Holders of
Debentures at the close of business on the record date next preceding the
Interest Payment Date, even if such Debentures are cancelled after such record
date and on or before such Interest Payment Date. The Holder must surrender
this Debenture to a Paying Agent to collect principal payments. The Company
will pay principal and interest in money of the United States that at the time
of payment is legal tender for payment of public and private debts. The
Company, however, may pay principal and interest by check payable in such
money. It may mail an interest check to a Holder's registered address.
3. Paying Agent and Registrar. Initially, the Trustee will act as Paying
Agent and Debenture Registrar. The Company may change any Paying Agent,
Debenture Registrar or co-registrar without notice to any Debentureholder. The
Company may act in any such capacity.
4. Indenture. This Debenture is one of a duly authorized issue of
Debentures of the Company issued under and pursuant to an Indenture dated as of
December 18, 1996 and all indentures supplemental thereto (herein referred to
as the "Indenture") between the Company and the Trustee. The terms of the
Debentures include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of the Indenture. The
Debentures are subject to all such terms, and Debentureholders are referred to
the Indenture and such Act for a statement of such terms. The Debentures are
limited to $6,000,000 in aggregate principal amount. Capitalized terms used in
this Debenture and not defined in this Debenture shall have the meanings set
forth in the Indenture.
5. Optional Redemption. The Debentures shall be redeemable at the option
of the Company, in whole or in part, on not less than thirty (30) days notice,
but not more than sixty (60) days prior to the date fixed for redemption, under
the circumstances described herein. Under each of these circumstances, amounts
required to be paid on redemption shall include accrued interest, if any, to
the redemption date.
-11-
<PAGE> 18
First, the Company may redeem all or any of the Debentures at any time, or
from time to time, after December 1, 2001, at the following redemption prices
(expressed as percentages of principal amount), when redeemed during the
12-month periods indicated below:
<TABLE>
<CAPTION>
<S> <C> <C>
December 1 through November 30
---------- -----------
2001 2002 . . . . . . . . . . . . . . . . . . . . 106%
2002 2003 . . . . . . . . . . . . . . . . . . . . 105%
2003 2004 . . . . . . . . . . . . . . . . . . . . 104%
2004 2005 . . . . . . . . . . . . . . . . . . . . 103%
2005 2006 . . . . . . . . . . . . . . . . . . . . 102%
2006 2007 . . . . . . . . . . . . . . . . . . . . 101%
2007 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . 100%
</TABLE>
Second, the Company may redeem all or any of the Debentures at any time, or
from time to time, without the payment of any premium, after the Closing Price
(as defined in the Indenture) of the Common Stock for not less than twenty (20)
consecutive trading days equals or exceeds 130% of the conversion price then in
effect.
If the redemption date is subsequent to a record date with respect to any
Interest Payment Date, and on or prior to such Interest Payment Date the Holder
of such Debenture transfers the Debenture, then such accrued interest, if any,
shall be paid to the person who surrenders the Debenture for redemption (and
not the Holder as of the record date with respect to such Interest Payment
Date), and no other interest shall be payable thereon.
6. Mandatory Redemption. The Company shall have no mandatory redemption
or sinking fund obligations with respect to the Debentures.
7. Notice of Redemption. Notice of redemption shall be mailed at least
thirty (30) days but not more than sixty (60) days before the redemption date,
to each Holder of Debentures to be redeemed at its registered address.
Debentures may be redeemed in part but only in whole multiples of $1,000,
unless all of the Debentures held by a Holder are to be redeemed. On and after
the redemption date, interest ceases to accrue on Debentures or portions of
them called for redemption.
8. Registration under Securities Act. At the expense of the Company, the
Debentures, and shares of Common Stock issued or issuable upon conversion
thereof, shall be entitled to registration under applicable securities laws to
the extent set forth in the Indenture.
9. Conversion of Debenture. Subject to the provisions of the Indenture,
the Holder of this Debenture is entitled, at his option, at any time prior to
maturity, to convert each $1,000 principal amount of this Debenture into 56
shares of Common Stock of the Company (a conversion price of $17.85714
principal amount of Debentures for each share of such Common Stock), as said
shares shall be constituted at the date of conversion, except that, in case
this Debenture or any portion thereof shall be called for redemption, such
conversion right shall terminate with respect to this Debenture or portion
thereof, as the case may be, so called for redemption at the close of business
on the third (3rd) business day next preceding the date fixed for redemption as
provided in the Indenture, or at the adjusted conversion price in effect at the
date of conversion determined as provided in the Indenture, upon surrender of
this Debenture to the Debenture Registrar accompanied by written notice of
election to convert, and (if new Debentures for the unconverted portion of any
Debenture shall be registered in a name other than that of the Holder) by
instruments of transfer, in form satisfactory to the Debenture Registrar, duly
executed by the registered Holder or by his duly
-12-
<PAGE> 19
authorized attorney. Such surrender shall, if made during the period from the
close of business on the record date preceding an Interest Payment Date to the
opening of business on such Interest Payment Date (unless this Debenture or the
portion being converted shall have been called for redemption), also be
accompanied by payment in funds acceptable to the Company of an amount equal to
the interest payable on such Interest Payment Date on the principal amount of
this Debenture then being converted. Subject to the foregoing, no adjustment
is to be made on conversion for interest accrued hereon (unless this Debenture
or the portion thereof being converted shall have been called for redemption)
or for dividends on Common Stock issued on conversion. The Company is not
required to issue fractional shares upon any such conversion, but shall make
adjustment therefor in cash on the basis of the current market value of such
fractional interest as provided in the Indenture.
10. Denominations, Transfer, Exchange. The Debentures are in registered
form without coupons and only in denominations of $1,000 and integral multiples
thereof. As provided in the Indenture, and subject to certain limitations
therein set forth, Debentures may be surrendered for exchange or transfer for a
like aggregate principal amount of Debentures of the same or different
authorized denominations, as requested by the Holder surrendering the same.
The Debenture Registrar and the Trustee may require the Holder to furnish
appropriate endorsements and transfer documents and to pay a sum sufficient to
cover any tax or other governmental charges that may be imposed in connection
with the requested exchange or transfer. The Debenture Registrar need not
exchange or register the transfer of any Debentures or portion of a Debenture
selected for redemption. Also, it need not exchange or register the transfer
of any Debentures for a period of fifteen (15) days before a selection of
Debentures to be redeemed or during the period between a record date and the
next succeeding Interest Payment Date.
11. Persons Deemed Owners. Prior to due presentment to the Trustee for
registration of the transfer of this Debenture, the Company, the Trustee and
their respective agents may deem and treat the person in whose name this
Debenture is registered as the absolute owner hereof, whether or not this
Debenture shall be overdue and notwithstanding any notation of ownership or
other writing hereon, for the purpose of receiving payment of or on account of
the principal hereof and interest hereon, and for all other purposes, and
neither the Company, the Trustee, nor their agents shall be affected by any
notice to the contrary. The registered Holder of a Debenture shall be treated
as its owner for all purposes.
12. Amendments and Waivers. Subject to certain exceptions, the Indenture
or the Debentures may be amended with the consent of the Holders of at least
66 2/3% in principal amount of the then outstanding Debentures, and any existing
default (except a payment default) may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Debentures.
Without the consent of any Debentureholder, the Indenture or the Debentures may
be amended to cure any ambiguity, defect or inconsistency, to provide for
assumption of Company obligations to Debentureholders, to provide for
uncertificated Debentures in addition to certificated Debentures, or to make
any change that does not adversely affect the rights of any Debentureholder.
13. Defaults and Remedies. Events of Default include: default in payment
of interest on the Debentures for thirty (30) days; default in payment of
principal on the Debentures at maturity, upon acceleration, redemption or
otherwise; failure by the Company for the period specified in the Indenture
after notice to it to perform certain covenants and to comply with any of its
other agreements in the Indenture or the Debentures; certain final judgments
which remain undischarged; and certain events of bankruptcy of the Company .
If an Event of Default resulting from such events of bankruptcy of the Company
occurs and is continuing, the Trustee or the Holders of at least 30% in
principal amount of the then outstanding Debentures may declare all the
Debentures to be due and payable immediately. If other Events of Default under
the Indenture shall have occurred and be continuing, the Trustee may, in its
discretion, proceed to protect and
-13-
<PAGE> 20
enforce its rights and the rights of the Holders by such appropriate judicial
proceedings as the Trustee shall deem most effectual under the circumstances.
Debentureholders may not enforce the Indenture or the Debentures except as
provided in the Indenture. The Trustee may require indemnity satisfactory to
it before it enforces the Indenture or the Debentures. Subject to certain
limitations (including the indemnity referenced in the foregoing sentence),
Holders of a majority in principal amount of the then outstanding Debentures
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Debentureholders notice of any continuing default (except a
default in payment of principal or interest) if it determines that withholding
notice is in their interests. The Company must furnish an annual compliance
certificate to the Trustee.
14. Trustee Dealings with the Company. The Trustee under the Indenture,
in its individual or any other capacity may make loans to, accept deposits
from, and perform services for the Company or its Affiliates, and may otherwise
deal with the Company or its Affiliates, as if it were not Trustee.
15. Subordination. The indebtedness evidenced by the Debentures is, to
the extent provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness (as defined in
the Indenture) of the Company whether outstanding on the date of the Indenture
or thereafter created, incurred, assumed or guaranteed, and is not secured by
any collateral, neither the assets of the Company nor any of its Affiliates or
Subsidiaries. Each Holder, by acceptance hereof, agrees to and shall be bound
by all provisions of the Indenture. Further, each Holder authorizes and
directs the Trustee to take such action on its behalf as may be necessary or
appropriate to acknowledge or effectuate, as between such Holder and the
holders of Senior Indebtedness, the subordination of this Debenture as provided
in the Indenture, and appoints the trustee its attorney-in-fact for any and all
such purposes.
16. No Recourse Against Others. No recourse shall be had for the payment
of the principal of or the interest on this Debenture, or for any claim based
hereon, or otherwise in respect hereof, or based on or in respect of the
Indenture against any stockholder, officer, director, or employee, as such,
past, present or future, of the Company, its Subsidiaries, or any predecessor
or successor corporations, or entities, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by the acceptance hereof and as part of
the consideration for the issue hereof, expressly waived and released.
17. Authentication. This Debenture shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
18. Abbreviations. Customary abbreviations may be used in the name of a
Debentureholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), U/G/M/A (=
Uniform Gifts to Minors Act) and U/T/M/A (= Uniform Transfers to Minors Act).
The Company will furnish to any Debentureholder upon written request and
without charge a copy of the Indenture. Request may be made to:
Republic Bancshares, Inc.
111 Second Avenue N.E., Suite 300
St. Petersburg, Florida 33701
Attention: Corporate Secretary
-14-
<PAGE> 21
ASSIGNMENT FORM
To assign this Debenture, fill in the form below: (I) or (we) assign and
transfer this Debenture to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
_____________________________________________________ agent to transfer this
Debenture on the books of the Company. The agent may substitute another to
act for him.
________________________________________________________________________________
Date: _______________________________
Your Signature: _________________________________________
(Sign exactly as your name appears on the face of this
Debenture)
Signature Guarantee:___________________________________________________________
-15-
<PAGE> 22
[FORM OF CONVERSION NOTICE]
REPUBLIC BANCSHARES, INC.
The undersigned owner of this Debenture hereby irrevocably exercises the
option to convert this Debenture, or the portion hereof (which is $1,000 or a
whole multiple thereof) below designated, into shares of Common Stock of
Republic Bancshares, Inc. in accordance with the terms of the Indenture
referred to in this Debenture, and directs that the shares issuable and
deliverable upon the conversion, together with any check in payment for
fractional shares and any Debentures representing any unconverted principal
amount hereof, be issuable and delivered to the registered holder hereof unless
a different name has been indicated below. If shares are to be issued in the
name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. Any amount required to be paid by
the undersigned on account of interest accompanies this Debenture.
$ ___________________________________
Principal Amount to be Converted
(in a whole multiple of $1,000
if less than all)
Fill in for registration of shares of Common Stock and Debentures if to be
issued otherwise than to the registered holder.
____________________________________ ______________________________________
Name Other person's Social Security or other
taxpayer identifying number
____________________________________
Address
Please print your name and address including zip code:
________________________________________________________________________________
________________________________________________________________________________
___________________________________ Date:_____________________________________
Signature
Signature Guaranteed: _________________________________________________________
-16-
<PAGE> 23
ARTICLE III
The Debentures
SECTION 3.1. General Title; General Limitations; Terms of Debenture.
The Debentures shall be known and designated as the "6% Convertible
Subordinated Debentures Due 2011" of the Company. Their Stated Maturity shall
be December 1, 2011, and they shall bear simple interest at the rate of 6% per
annum commencing upon the date of issuance until Maturity. Interest on each
Debenture shall be payable on the dates specified in the form of Debenture set
forth in Section 2.3. The aggregate principal amount of Debentures which may
be authenticated and delivered under this Indenture is limited to $6,000,000,
except for Debentures authenticated and delivered upon registration for
transfer of or in exchange for or in lieu of other Debentures, as provided
herein.
The Person in whose name any Debenture is registered on the Regular Record
Date with respect to an Interest Payment Date will be entitled to receive the
interest payable on such Interest Payment Date, notwithstanding the
cancellation of such Debenture upon any registration of transfer or exchange or
conversion thereof subsequent to such Regular Record Date and prior to such
Interest Payment Date.
The principal of and interest on the Debentures shall be payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for public and private debts. Unless other arrangements are made
with the Debentureholders of record, interest payments shall be made by check
mailed to the Persons entitled thereto at their addresses last appearing on the
Debenture Register. Holders of Debentures must surrender Debentures at the
office or agency of the Company in the Place of Payment to collect the
principal payment on the Debentures.
The Debentures shall be subordinated in right of payment to Senior
Indebtedness of the Company as provided in Article Eleven.
SECTION 3.2. Denominations.
The Debentures shall be issuable only in fully registered form and without
coupons in denominations of $1,000 and any integral multiples thereof.
SECTION 3.3. Execution, Authentication and Delivery.
The Debentures shall be executed on behalf of the Company by its Chairman of
the Board of Directors, its President or one of its Vice Presidents under its
corporate seal, which may be in facsimile form and may be imprinted or
otherwise reproduced thereon and attested by its Secretary or its Assistant
Secretary. The signature of any of these officers on the Debentures may be
manual or facsimile.
Debentures bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Debentures or did not
hold such offices at the date of such Debentures.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Debentures executed by the Company to the
Trustee for authentication, together with a Company Order of the authentication
and delivery of such Debentures; and the Trustee shall authenticate and deliver
such Debentures as in this Indenture provided and not otherwise. All
Debentures shall be dated the date of their authentication.
-17-
<PAGE> 24
Notwithstanding the foregoing, if the Debentures are to be issued in whole
or in part in global form, then the Company shall execute and the Trustee
shall, in accordance with this Section and the Company Order with respect to
such Debentures, authenticate and make available for delivery one or more
Debentures in global form that (i) shall represent and shall be denominated in
an amount equal to the aggregate principal amount of the Outstanding
Debentures, (ii) shall be registered in the name of the Depositary, if any, for
such Debentures or the nominee of such Depositary, (iii) shall be delivered by
the Trustee to such Depositary, if any, or pursuant to such Depositary's
instruction and (iv) shall bear a legend substantially to the following effect:
"Unless and until it is exchanged in whole or in part for Debentures in
certificated form, this Debenture may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary" or to such other effect as such Depositary, if any, and the Trustee
may agree.
Each Depositary, if any, for a Book-Entry Debenture must, at the time of its
designation and at all times while it serves as Depositary, be a clearing
agency registered under the Exchange Act and any other applicable statute or
regulation. The Trustee shall have no responsibility to determine if the
Depositary is so registered. Each Depositary, if any, shall enter into an
agreement with the Trustee governing its respective rights with regard to
Book-Entry Debentures.
No Debenture shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Debenture a
certificate of authentication substantially in the form provided for herein
executed by the Trustee; and such certificate upon any Debenture shall be
conclusive evidence, and the only evidence, that such Debenture has been duly
authenticated and delivered hereunder.
SECTION 3.4. Temporary Debentures.
Pending the preparation of definitive Debentures, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Debentures which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Debentures in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Debentures may determine, as evidenced by their
execution of such Debentures.
Except in the case of temporary Debentures in global form, which shall be
exchanged in accordance with the provisions hereof, if temporary Debentures are
issued, the Company will cause definitive Debentures to be prepared without
unreasonable delay. After the preparation of definitive Debentures, the
temporary Debentures shall be exchangeable for definitive Debentures upon
surrender of the temporary Debentures at the office or agency of the Company in
the Place of Payment, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Debentures, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Debentures of authorized denominations. Until
so exchanged, the temporary Debentures shall in all respects be entitled to the
same benefits under this Indenture as definitive Debentures.
SECTION 3.5. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Principal Corporate Trust Office a
register (herein referred to as the "Debenture Register") in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for
the registration of Debentures and the registration of transfers of Debentures.
Any such register shall be in written form or in any other form capable of
being converted into written form within a reasonable time. The Trustee is
hereby appointed "Debenture Registrar" for the purpose of registering
Debentures and transfers of Debentures as herein provided.
-18-
<PAGE> 25
Prior to the effectiveness of the Debenture Registration Statement as
contemplated by Section 15.2, or the removal by the Company pursuant to Section
15.6 of legends restricting transfer and stop transfer instructions, each
certificate representing a Debenture (whether upon original issuance or
issuance upon any transfer) shall contain one or more legends as contemplated
by Section 2.3. One of such legends shall be substantially as follows:
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, EXCHANGED,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND
ANY APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
NECESSARY HAS BEEN DELIVERED TO THE ISSUER.
Accordingly, prior to the effectiveness of the Debenture Registration
Statement, or such removal of legends and stop transfer instructions,
Debentures shall not in any event be transferred by the Debenture Registrar in
the absence of a Company Order to the effect that the Holder requesting the
registration of a transfer has complied with the applicable legend requirements
with respect to such requested transfer. Such Company Order as furnished to
the Debenture Registrar shall be accompanied by a copy of the documentation
[e.g., an opinion of counsel, "accredited investor" and/or "qualified
institutional buyer" (as defined in Rule 501 and Rule 144A, respectively,
within the regulations of the Commission) representations, and investment
representations] which the Company determined to be satisfactory to establish
compliance with such legend requirements.
Upon presentation or surrender of a Debenture for registration of transfer
or exchange accompanied by a Company Order, if required, at the office or
agency of the Company in the Place of Payment, the Company shall execute, and
the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Debentures of any authorized
denominations, of a like aggregate principal amount. Every presented or
surrendered Debenture shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the Holder thereof or his attorney
duly authorized in writing in form satisfactory to the Company or the Debenture
Registrar.
At the option of the Holder, Debentures (except a Book-Entry Debenture
representing all or a portion of the Debentures) may be exchanged for other
Debentures of any authorized denominations, of a like aggregate principal
amount upon surrender of the Debentures to be exchanged at such office or
agency. Whenever any Debentures are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Debentures
which the Debentureholder making the exchange is entitled to receive.
All Debentures issued upon any registration of transfer or exchange of
Debentures shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Debentures
surrendered upon such registration of transfer or exchange.
The Company shall not be required (i) to issue, to register the transfer of
or to exchange Debentures during a period beginning at the opening of business
on a Business Day fifteen (15) days before the day of any selection of
Debentures for redemption under Section 12.4 and ending at the close of
business on the day of selection or (ii) to register the transfer of or
exchange of any Debentures so selected for redemption in whole or in part,
except the unredeemed portion of any Debentures being redeemed in part.
No service charge shall be made for any registration of transfer or exchange
of Debentures, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Debentures, other than exchanges
pursuant to Sections 3.4 or 8.6 not involving any transfer.
-19-
<PAGE> 26
Notwithstanding any other provision of this Section, unless and until it is
exchanged in whole or in part for Debentures in certificated form, a Book-Entry
Debenture, if any, may not be transferred except as a whole by any Depositary
to a nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of any such Depositary or by any such Depositary
or any such nominee to a successor Depositary or a nominee of any such
successor Depositary.
If at any time the Depositary, if any, notifies the Company that it is
unwilling or unable to continue as Depositary or if at any time the Depositary,
if any, ceases to be a clearing agency registered under the Exchange Act, the
Company shall appoint such a successor Depositary. If a successor Depositary
is not appointed by the Company within ninety (90) days after the Company
receives such notice or becomes aware of such ineligibility, the Company shall
execute, and the Trustee, upon receipt of a Company Order for the
authentication and delivery of certificated Debentures, shall authenticate and
make available for delivery Debentures in certificated form in an aggregate
principal amount equal to the principal amount of the Book-Entry Debenture or
Debentures in exchange for such Book-Entry Debenture or Debentures.
The Company may at any time and in its sole discretion determine that the
Debentures issued in the form of one or more global Debentures shall no longer
be represented by such Book-Entry Debentures. In such event the Company shall
execute, and the Trustee, upon receipt of a Company Order for the
authentication and delivery of certificated Debentures, shall authenticate and
make available for delivery, Debentures in certificated form and in an
aggregate principal amount equal to the principal amount of the Debenture or
Debentures in global form in exchange for such Debenture or Debentures in
global form.
In any exchange provided for in any of the preceding two paragraphs, the
Company shall execute and the Trustee shall authenticate and make available for
delivery Debentures in certificated form in authorized denominations.
Upon the exchange of a Book-Entry Debenture, if any, for Debentures in
certificated form, such Book-Entry Debentures shall be cancelled by the
Trustee. Debentures issued in exchange for a Book-Entry Debenture pursuant to
this Section shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall make available for delivery such Debentures to the Persons in whose names
such Debentures are so registered.
SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Debentures.
If (i) any mutilated Debenture is surrendered to the Trustee, or if the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Debenture, and (ii) there is delivered to the
Company and the Trustee such security or indemnity as may be required by them
to save each of them harmless, then, in the absence of notice to the Company or
the Trustee that such Debenture has been acquired by a bona fide purchaser, the
Company shall execute and upon its request the Trustee shall authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Debenture, a new Debenture of like tenor and principal amount, bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Debenture has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Debenture, pay or authorize the payment of such
Debenture (without surrender thereof except in the case of a mutilated
Debenture) if the applicant for such payment shall furnish to the Company (and
to the Trustee, if the Trustee is acting at the time as Paying Agent) such
security or indemnity as it may require to save it harmless and, in the case of
destruction, loss or theft, evidence to the satisfaction of the Company of the
destruction, loss or theft of such Debenture and of the ownership thereof.
-20-
<PAGE> 27
Upon the issuance of any new Debenture under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every new Debenture issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Debenture shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Debenture shall be at any time enforceable by anyone,
and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Debentures duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Debentures.
SECTION 3.7. Payment of Interest; Interest Rights Preserved.
Interest on any Debenture which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Debenture (or one or more Predecessor Debentures) is registered at
the close of business on the Regular Record Date for such interest payment.
Any interest on any Debenture which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the registered Holder on the
relevant Regular Record Date by virtue of having been such Holder; and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or Clause (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Debentures (or their respective
Predecessor Debentures) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed
in the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Debenture and
the date of the proposed payment (the "Special Payment Date"), and at the
same time the Company shall deposit with the Trustee or the Paying Agent
(or, if the Company is acting as its own Paying Agent, segregate and hold in
trust as provided in Section 4.3), an amount of money equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest, or shall
make arrangements satisfactory to the Trustee for such deposit prior to the
Special Payment Date, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this Clause
provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than fifteen (15)
nor less than ten (10) days prior to the Special Payment Date and not less
than ten (10) days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed, first
class, postage prepaid, to each Debentureholder at his address as it appears
in the Debenture Register, not less than ten (10) days prior to such Special
Record Date. The Trustee may, in its discretion, in the name and at the
expense of the Company, cause a similar notice to be published at least once
in an Authorized Newspaper in the Place of Payment, but such publication
shall not be a condition precedent to the establishment of such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor having been given as aforesaid, such
Defaulted Interest shall be paid on the Special Payment Date to the Persons
in whose names the Debentures (or their respective Predecessor Debentures)
are registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following Clause (2).
-21-
<PAGE> 28
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Debentures may be listed, and upon such notice as may
be required by such exchange, if, after notice given by the Company to the
Trustee of the proposed payment pursuant to this Clause, such manner of
payment shall be deemed practicable by the Trustee.
SECTION 3.8. Persons Deemed Owners.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name any Debenture is registered as the absolute
owner of such Debenture for the purpose of receiving payment of principal of,
and, subject to Section 3.7, interest on, such Debenture and for all other
purposes whatsoever, whether or not such Debenture be overdue and
notwithstanding any notation of ownership or other writing thereon, and neither
the Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 3.9. Cancellation.
All Debentures surrendered for payment, registration of transfer or exchange
or conversion shall, if surrendered to any person other than the Trustee, be
delivered to the Trustee and, if not already cancelled, shall be promptly
cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Debentures previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all
Debentures so delivered shall be promptly cancelled by the Trustee. No
Debentures shall be authenticated in lieu of or in exchange for any Debentures
cancelled as provided in this Section, except as expressly permitted by this
Indenture. All cancelled Debentures held by the Trustee shall be destroyed and
the Trustee shall deliver a certificate of destruction to the Company.
SECTION 3.10. Computation of Interest.
Interest on the Debentures shall be computed on the basis of a 360-day year
of twelve 30-day months.
ARTICLE IV
Covenants
SECTION 4.1. Payment of Principal and Interest.
The Company will duly and punctually pay the principal of and interest on
the Debentures in accordance with the terms of the Debentures and this
Indenture. If at the applicable time the Trustee is acting as Paying Agent,
then not less than three (3) Business Days prior (if by check) and one (1)
Business Day prior (if by wire transfer) to an Interest Payment Date, the
Company shall deposit with the Trustee money sufficient for such payments.
SECTION 4.2. Maintenance of Office or Agency.
The Company will maintain an office or agency in the Place of Payment where
Debentures may be presented or surrendered for payment, where Debentures may be
surrendered for registration of transfer or for exchange or conversion and
where notices and demands to or upon the Company in respect of the Debentures
and this Indenture may be served. The Company will give prompt written notice
to the Trustee of the location, and of any change in the location, of such
office or agency. If at any time the Company shall fail to maintain such
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at
the Principal Corporate Trust Office
-22-
<PAGE> 29
of the Trustee, and the Company hereby appoints the Trustee its agent to
receive all such presentations, surrenders, notices and demands.
SECTION 4.3. Money for Debenture Payments to be Held in Trust.
If the Company shall assume the duties of Paying Agent, it will, on or
before each due date of the principal of or interest or premium, if any, on any
of the Debentures, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal or interest or premium,
if any, so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided, and will promptly notify the Trustee
of its action or failure to so act.
Whenever the Company is not acting as its own Paying Agent, it will, prior
to each due date of the principal of or interest on any of the Debentures,
deposit with the Paying Agent a sum sufficient to pay the principal or interest
or premium, if any, so becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such sums, and (unless such Paying Agent is
the Trustee) the Company will promptly notify the Trustee of its action or
failure so to act.
The Company will cause the Paying Agent (if other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of principal of or
interest or premium, if any, on the Debentures in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such Persons
or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Debentures) in the making of any payment of principal
or interest or premium, if any; and
(3) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct the Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same terms as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of or interest or
premium, if any, on any Debenture and remaining unclaimed for two (2) years
after such principal or interest or premium, if any, has become due and
payable, shall be paid to the Company upon Company Request, or (if then held by
the Company) shall be discharged from such trust; and the Holder of such
Debenture shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in an Authorized Newspaper
in the Place of Payment, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than thirty (30) days
from the date of such publication, any unclaimed balance of such money then
remaining will be repaid to the Company.
-23-
<PAGE> 30
The Trustee and the Paying Agent shall promptly pay to the Company upon
Company Request any excess money or securities held by them at any time.
SECTION 4.4. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, all material taxes, assessments and
governmental charges levied or imposed upon it or upon its income, profits or
property; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment or charge
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings.
SECTION 4.5. Maintenance of Properties.
The Company will, in all material respects, cause all its properties and the
properties of its Subsidiaries used or useful in the conduct of the business of
the Company and its Subsidiaries to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section shall prevent the Company or a Subsidiary from discontinuing the
operation and maintenance of any of its properties if such discontinuance is,
in the judgment of the Company, desirable in the conduct of its business and is
not disadvantageous in any material respect to the Debentureholders.
SECTION 4.6. Statement as to Compliance.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company, a written statement signed by the Chairman of
the Board of Directors, the President or a Vice President and by the Chief
Financial Officer, the Treasurer, an Assistant Treasurer, the Controller or an
Assistant Controller of the Company, stating, as to each signatory thereof,
that:
(1) a review of the activities of the Company during such year and
of performance under this Indenture has been made under his supervision, and
(2) to the best of his or her knowledge, based on such review, the
Company has performed and fulfilled all of its obligations under this
Indenture throughout such year, or, if an Event of Default shall have
occurred, specifying each such Event of Default known to him and the nature
and status thereof.
The Company will, so long as any of the Debentures are Outstanding, deliver
to the Trustee, forthwith upon becoming aware of any Event of Default, an
Officer's Certificate specifying such Event of Default.
SECTION 4.7. Corporate Existence.
Subject to Article Nine, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and its
Subsidiaries; provided, however, that the Company shall not be required to
preserve any right or franchise of the Company or its Subsidiaries if the Board
of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company or its Subsidiaries and
that the loss thereof is not disadvantageous in any material respect to the
Debentureholders.
-24-
<PAGE> 31
SECTION 4.8. Restrictions on Dividends, Redemptions and Other Payments.
The Company shall not declare or pay any dividends on, or purchase, redeem
or otherwise acquire for value, any of its Capital Stock now or hereafter
outstanding (other than redemption or repurchase of the Debentures in
accordance with the terms of this Indenture) or return any capital to holders
of its Capital Stock as such, or make any distribution of assets to holders of
its Capital Stock as such, unless, from and after the date of any such dividend
declaration (a "Declaration Date") or the date of any such purchase,
redemption, payment or distribution specified above (a "Redemption Date"), the
Company retains cash, cash equivalents (as determined in accordance with
generally accepted accounting principles) or marketable securities (with a
market value as measured on the applicable Declaration Date or Redemption Date)
in an amount not less than the aggregate amount of the two consecutive
semi-annual interest payments that will be due and payable on the Debentures
following such Declaration Date or Redemption Date, as the case may be;
provided, however, that the amount of each semiannual interest payment made by
the Company with respect to the Debentures following such Declaration Date or
Redemption Date, as applicable, shall be deducted from the aggregate amount of
cash or cash equivalents which the Company shall be required to retain pursuant
to the foregoing provision.
ARTICLE V
Debentureholders' Lists and Reports by the
Trustee and the Company
SECTION 5.1. Company to Furnish Trustee Names and Addresses of
Debentureholders.
The Company will furnish or cause to be furnished to the Trustee (i) not
more than five (5) days after each Regular Record Date, a list, in such form as
the Trustee may reasonably require, of the names and addresses of the Holders
of Debentures as of such Regular Record Date; provided, however, that the
Company shall not be required to furnish the Trustee the names and addresses of
the Holders of Debentures if the Trustee receives such names and addresses of
the Holders of Debentures in its capacity as Debenture Registrar.
SECTION 5.2. Preservation of Information; Communications to
Debentureholders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders of Debentures contained in the
most recent list furnished to the Trustee as provided in Section 5.1 and the
names and addresses of Holders of Debentures received by the Trustee at any
time that it is acting as Debenture Registrar (if so acting). The Trustee may
destroy any list furnished to it as provided in Section 5.1 upon receipt of a
new list so furnished.
(b) The Trustee shall comply with Section 312(b) of the TIA. The Trustee,
the Company, and any other Person shall have the protection of Section 312(c)
of the TIA.
SECTION 5.3. Reports by Trustee.
(a) So long as the Debentures are Outstanding, within sixty (60) days
after May 15 of each year (the "Reporting Date"), the Trustee shall, if
required by Section 313(a) of the TIA, transmit by mail to the Company and all
Debentureholders, as their names and addresses appear in the Debenture
Register, a brief report dated as of such Reporting Date that complies with
Section 313(a) of the TIA.
(b) A copy of each such report shall, at the time of such transmission to
the Company and the Debentureholders, be filed by the Trustee with each
securities exchange upon which the Debentures are listed,
-25-
<PAGE> 32
and also with the Commission. The Company will notify the Trustee when the
Debentures are listed on any securities exchange.
SECTION 5.4. Reports by Company.
The Company will:
(1) file with the Trustee, within thirty (30) days after the
Company is required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file with
the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or,
if the Company is not required to file information, documents or reports
pursuant to either of such sections, then it will file with the Trustee and the
Commission, in accordance with rules and regulations prescribed from time to
time by the Commission, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of the
Exchange Act in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules and
regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports, if any, with respect to
compliance by the Company with the conditions and covenants of this Indenture
as may be required from time to time by such rules and regulations;
(3) transmit by mail to all Debentureholders as their names and
addresses appear in the Debenture Register, such summaries of any information,
documents and reports required to be filed by the Company pursuant to
paragraphs (1) and (2) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission; and
(4) furnish to the Trustee, not less often than annually, a brief
certificate from the principal executive officer, principal financial officer
or principal accounting officer as to his or her knowledge of the Company's
compliance with all conditions and covenants set forth in Article Four of this
Indenture. For purposes of this paragraph, such compliance shall be determined
without regard to any period of grace or requirement of notice provided under
the Indenture.
ARTICLE VI
Remedies
SECTION 6.1. Events of Default.
"Event of Default", wherever used herein, means any one of the following
events, continued for the period of time, if any, and after the giving of the
notice, if any, therein designated, (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Debenture when
it becomes due and payable, and continuance of such default for a period of
thirty (30) days; or
(2) default in the payment of the principal of any Debenture at its
Maturity; or
-26-
<PAGE> 33
(3) default in the performance, or breach, of any material
covenant or warranty of the Company in this Indenture (other than a covenant
or warranty a default in the performance or the breach of which is elsewhere
in this Section specifically dealt with), and continuance of such default or
breach for a period of sixty (60) days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least twenty-five percent (25%)
in aggregate principal amount of the Debentures then Outstanding, a written
notice specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(4) the entry of a decree or order by a court having jurisdiction
in the premises adjudging the Company a bankrupt, or approving as properly
filed a petition seeking liquidation, reorganization, arrangement,
adjustment or composition of or in respect of the Company under the Federal
Bankruptcy Act or any other applicable Federal or State law, and the
continuance of any such decree or order unstayed and in effect for a period
of ninety (90) consecutive days, or the institution by the Company of
proceedings to be adjudicated a bankrupt, or the consent by it to the
institution of bankruptcy proceedings against it, or the filing by it of a
petition or answer or consent seeking liquidation, reorganization or relief
under the Federal Bankruptcy Act or any other similar applicable Federal or
State law, or the taking of corporate action by the Company in furtherance
of any such action; or
(5) the entry of a decree or order by a court having jurisdiction
in the premises appointing a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or of any
substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree or order unstayed and
in effect for a period of ninety (90) consecutive days, or the consent by
the Company to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or of any
substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing of its inability
to pay its debts generally as they become due, or the taking of corporate
action by the Company in furtherance of any such action.
SECTION 6.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default described in paragraph (4) of Section 6.1 occurs and
is continuing, then the Trustee or the Holders of not less than thirty percent
(30%) in aggregate principal amount of the Debentures then Outstanding may
declare the principal of all the Debentures to be due and payable immediately,
by a notice in writing to the Company (and to the Trustee if given by the
Debentureholders), and upon any such declaration, such principal shall become
immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Debentures then Outstanding, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(a) all overdue interest on all Debentures;
(b) the principal of any Debentures which have become due
otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Debentures; and
(c) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel;
-27-
<PAGE> 34
and
(2) all Events of Default, other than the non-payment of the
principal of Debentures which have become due solely by such
acceleration, have been cured or waived as provided in Section 6.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 6.3. Suits for Enforcement by Trustee.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Debentureholders by such appropriate judicial proceedings, as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid
of the exercise of any power granted herein, or to enforce any other proper
remedy.
SECTION 6.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company, or any other obligor upon the
Debentures or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Debentures
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of principal
and interest owing and unpaid in respect of the Debentures and to file such
other papers or documents as may be necessary or advisable in order to have
the claim of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Debentureholders allowed in such judicial
proceeding, and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by each
Debentureholder to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the
Debentureholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Debentureholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Debentures or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Debentureholder in any such proceeding.
SECTION 6.5. Trustee May Enforce Claims Without Possession of Debentures.
All rights of action and claims under this Indenture or the Debentures may
be prosecuted and enforced by the Trustee without the possession of any of the
Debentures or the production thereof in any proceeding
-28-
<PAGE> 35
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Debentures in respect of which
such judgment has been recovered.
SECTION 6.6. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be applied
in the following order, at the date or dates fixed by the Trustee and in case
of the distribution of such money on account of principal or interest, upon
presentation of the Debentures and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
First: To the Trustee for amounts due under Section 7.7;
Second: To the Debentureholders for amounts then due and unpaid upon the
Debentures for principal and interest, in respect of which or for the benefit
of which such money has been collected, ratably, without preference or priority
of any kind, according to the amounts due and payable on such Debentures for
principal and interest, respectively; and
Third: To the Company.
SECTION 6.7. Limitation on Suits.
No Holder of any Debenture shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment
of a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee
and the Company of a continuing Event of Default;
(2) the Holders of not less than thirty percent (30%) in aggregate
principal amount of the Outstanding Debentures shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for sixty (60) days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceedings; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such sixty (60) day period by the Holders of a
majority in principal amount of the Outstanding Debentures;
it being understood and intended that no one or more Holders of Debentures
shall have any right in any manner whatever by virtue of, or by availing of,
any provision of this Indenture to affect, disturb or prejudice the rights of
any other Holders or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all the Holders
of Debentures.
-29-
<PAGE> 36
SECTION 6.8. Unconditional Right of Debentureholders to Receive Principal
and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Debenture shall have the right which is absolute and unconditional to receive
payment of the principal of and interest on such Debenture on the Stated
Maturity expressed in such Debenture, and to institute suit for the enforcement
of any such payment, and such right shall not be impaired without the consent
of such Holder.
SECTION 6.9. Restoration of Rights and Remedies.
If the Trustee or any Debentureholder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Debentureholder, then and in every such case the
Company, the Trustee and the Debentureholders shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and the Debentureholders shall continue as though no such proceeding
had been instituted.
SECTION 6.10. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Debentures in the last paragraph of
Section 3.6, no right or remedy herein conferred upon or reserved to the
Trustee or to the Debentureholders is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
SECTION 6.11. Delay or Omission Not A Waiver.
No delay or omission of the Trustee or of any Holder of any Debenture to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by
law to the Trustee or to the Debentureholders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the
Debentureholders, as the case may be.
SECTION 6.12. Control by Debentureholders.
The Holders of a majority in principal amount of the Outstanding Debentures
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, provided that:
(1) such direction shall not be in conflict with any rule of law
or with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.13. Waiver of Past Defaults.
The Holders of a majority in principal amount of the Outstanding Debentures
may, on behalf of the Holders of all the Debentures, waive any past default
hereunder and its consequences, except a default:
(1) in the payment of the principal of or interest on any
Debenture, or
-30-
<PAGE> 37
(2) in respect of a covenant or provision hereof which under
Article Eight cannot be modified or amended without the consent of the
Holders of each Outstanding Debenture affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 6.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Debenture by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any negligent
action taken or negligent failure to act as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Debentureholder, or
group of Debentureholders, holding in the aggregate more than ten percent (10%)
in principal amount of the Outstanding Debentures, or to any suit instituted by
any Debentureholder for the enforcement of the payment of the principal of, or
interest on, any Debenture on or after the Stated Maturity expressed in such
Debenture.
SECTION 6.15. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any
such law and covenants that it will not hinder, delay or impede the execution
of any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE VII
The Trustee
SECTION 7.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee, and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in the
case of any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall be
under a duty to examine the same to determine whether or not they conform to
the requirements of this Indenture.
-31-
<PAGE> 38
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own wilful misconduct, except that:
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable to any Holder or to the
Company with respect to any action taken or omitted to be taken by it in
good faith in accordance with the direction of the Holders of not less than
a majority in principal amount of the Outstanding Debentures relating to the
time, method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 7.2. Notice of Defaults.
Within ninety (90) days after the occurrence of any default hereunder, the
Trustee shall transmit by mail to all Debentureholders, as their names and
addresses appear in the Debenture Register, notice of such default hereunder
known to the Trustee, unless such default shall have been cured or waived;
provided, however, that, except in the case of any default of the character
specified in Section 6.1(1) or (2), the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors or Responsible Officers of the
Trustee in good faith determine that the withholding of such notice is in the
interests of the Debentureholders; and provided, further, that in the case of
any default of the character specified in Section 6.1(3), no such notice to
Debentureholders shall be given until at least sixty (60) days after the
occurrence thereof. For the purpose of this Section, "default" means any event
which is, or after notice or lapse of time or both would become, an Event of
Default.
SECTION 7.3. Certain Rights of Trustee.
Except as otherwise provided in Section 7.1:
(1) the Trustee may rely conclusively on, and shall be protected
in acting or refraining from acting on, any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties;
-32-
<PAGE> 39
(2) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors shall be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Debentureholders pursuant to this Indenture, unless
such Debentureholders shall have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture or other paper or document but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney;
(7) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(8) except with respect to Section 4.1 herein, the Trustee shall
have no duty to inquire as to the performance of the Company's covenants in
Article Four. In addition, the Trustee shall not be deemed to have
knowledge of any Event of Default except (i) any Event of Default occurring
pursuant to Sections 6.1(1) and 6.1(2) or (ii) any Event of Default of which
the Trustee shall have received written notification or obtained actual
knowledge.
SECTION 7.4. Not Responsible for Recitals or Issuance of Debentures.
The recitals contained herein and in the Debentures, except the certificates
of authentication, shall be taken as the statements of the Company, and the
Trustee assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Debentures, or with respect to any disclosure or offering materials used in the
sale of the Debentures. The Trustee shall not be accountable for the use or
application by the Company of Debentures or the proceeds thereof.
SECTION 7.5. May Hold Debentures.
The Trustee, any Paying Agent, Debenture Registrar or any other agent of the
Company, in its individual or any other capacity, may become the owner or
pledgee of Debentures and, subject to Sections 7.8 and 7.12,
-33-
<PAGE> 40
if operative, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Paying Agent, Debenture Registrar or such other
agent.
SECTION 7.6. Money Held in Trust.
Money held by the Trustee in trust hereunder shall be held in a separate
interest-bearing account and invested as directed by the Company, and such
funds shall at all times be segregated from all other funds and assets owned or
held by the Trustee. Any interest on any money received by the Trustee
hereunder shall be for the benefit of the Company and shall be paid to the
Company upon Company Request.
SECTION 7.7. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation
of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
Subject to the provisions of Section 7.12, the Trustee shall have a first
charge, prior in right to the Holders, against any funds held by it, or
otherwise coming into its hands, following an Event of Default.
SECTION 7.8. Corporate Trustee Required; Eligibility; Disqualification.
There shall at all times be a Trustee hereunder which shall be a corporation
organized and doing business under the laws of the United States of America or
of any State or Territory or of the District of Columbia or a corporation or
other person permitted to act as Trustee by the Commission, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least $25,000,000, and subject to supervision or examination by
Federal or State, Territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant to law
or to the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. Neither the Company nor
any of its Affiliates shall serve as Trustee hereunder. The Trustee shall be
subject to the provisions of Section 310(b) of the Trust Indenture Act. This
Indenture shall always have a Trustee who satisfies the requirements of Section
310(a)(1) of the Trust Indenture Act.
If at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
-34-
<PAGE> 41
SECTION 7.9. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 7.10.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within thirty (30) days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Debentures, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
Section 310(b) of the Trust Indenture Act after written request therefor by
the Company or by any Debentureholder who has been a bona fide Holder of a
Debenture or Debentures for at least six (6) months; or
(2) the Trustee shall cease to be eligible under Section 310(a) of
the Trust Indenture Act and shall fail to resign after written request
therefor by the Company or by any such Debentureholder; or
(3) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee and appoint a successor trustee, or (ii) subject to the provisions of
Section 6.14, any Debentureholder who has been a bona fide Holder of a
Debenture for at least six (6) months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee.
If, within one (1) year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of
the Holders of a majority in principal amount of the Outstanding Debentures
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Debentureholders and accepted appointment in the manner hereinafter provided,
any Debentureholder who has been a bona fide Holder of a Debenture for at least
six (6) months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of
Debentures as their names and addresses appear in the Debenture Register. Each
notice shall indicate the name of the successor Trustee and the address of its
Principal Corporate Trust Office.
-35-
<PAGE> 42
SECTION 7.10. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the registration or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder, subject nevertheless to its lien, if any, provided for in
Section 7.7. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all of such rights, power and trusts.
No successor Trustee shall accept its appointment unless at the time of such
acceptance such successor Trustee shall be qualified and eligible under this
Article.
SECTION 7.11. Merger, Conversion, Consolidation or Succession to Business of
Trustee.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Debentures shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Debentures so authenticated with the same
effect as if the successor Trustee had itself authenticated such Debentures.
SECTION 7.12. Preferential Collection of Claims against Company.
The Trustee shall comply with Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship listed in Section 311(b) of the Trust
Indenture Act. A trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent indicated therein.
ARTICLE VIII
Supplemental Indentures
SECTION 8.1. Supplemental Indentures Without Consent of Debentureholders.
Without the consent of the Holders of any Debentures, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation to the
Company, and the assumption by any such successor of the covenants of the
Company herein and in the Debentures contained; or
(2) to add to the covenants of the Company, for the benefit of the
Holders of the Debentures, or to surrender any right or power herein
conferred upon the Company; or
-36-
<PAGE> 43
(3) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to make
any other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this
Indenture, provided such action shall not adversely affect the interests of
the Holders of the Debentures; or
(4) to convey, transfer, assign, mortgage or pledge to or with the
Trustee any property or assets which the Company may desire to convey,
transfer, assign, mortgage or pledge; or
(5) to add to or change any of the provisions of this Indenture to
such extent as shall be necessary to permit or facilitate the issuance of
Debentures in bearer form, registrable or not registrable as to principal,
and with or without interest coupons.
The Trustee is hereby authorized to join with the Company in the execution
of any such supplemental indenture, to make any further appropriate agreements
and stipulations which may be therein contained and to accept the conveyance,
transfer, assignment, mortgage or pledge of any property thereunder, but the
Trustee shall not be obligated to, but may in its discretion, enter into any
such supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section 8.1
may be executed by the Company and the Trustee without the consent of the
Holders of any of the Debentures at the time Outstanding, notwithstanding any
of the provisions of Section 8.2.
SECTION 8.2. Supplemental Indentures With Consent of Debentureholders.
With the consent of the Holders of not less than sixty-six and two thirds
percent (66 2/3%) in principal amount of the Outstanding Debentures, by Act of
said Holders delivered to the Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee may amend this Indenture or
the Debentures and enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders of the Debentures under this Indenture;
provided, however, that no such amendment or supplemental indenture shall,
without the consent of the Holders of each Outstanding Debenture affected
thereby:
(1) change the Stated Maturity of the principal of, or interest
on, any Debenture, or reduce the principal amount thereof, the rate of
interest or premium, if any, thereon or change any Place of Payment where,
or the coin or currency in which, any Debentures or the interest or premium,
if any, thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof; or
(2) except as otherwise permitted or contemplated in Article
Thirteen, increase the Conversion Price of any Debenture; or
(3) make any change in Section 6.8; or
(4) reduce the percentage in principal amount of the Outstanding
Debentures, the consent of whose Holders is required for any such
supplemental indenture or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture;
or
-37-
<PAGE> 44
(5) modify any of the provisions of this Section or Section 6.13,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Debenture affected thereby.
It shall not be necessary for any Act of Debentureholders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 8.3. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 7.1) shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 8.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and the respective rights,
limitations of rights, obligations, duties and immunities under this Indenture
of the Trustee, the Company and the Holders of Debentures shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and such supplemental indenture shall form a part
of this Indenture for any and all purposes; and every Holder of Debentures
theretofore or thereafter authenticated and delivered thereunder shall be bound
thereby.
SECTION 8.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall be
prepared as if subject to the requirements of the TIA as then in effect.
SECTION 8.6. Reference in Debentures to Supplemental Indentures.
Debentures authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Debentures so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any such supplemental indenture, may be
prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Debentures.
SECTION 8.7. Subordination Unimpaired.
No supplemental indenture executed pursuant to this Article shall affect the
superior position of the holders of Senior Indebtedness with respect to such
Debentures.
-38-
<PAGE> 45
ARTICLE IX
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 9.1. Company May Consolidate, etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other corporation
or convey or transfer its property and assets substantially as an entirety to
any Person, unless:
(1) the corporation formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer the
properties and assets of the Company substantially as an entirety shall be a
corporation organized and existing under the laws of the United States of
America or any State or the District of Columbia, and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and punctual payment
of the principal of and interest on all the Debentures and the performance
of every covenant of this Indenture on the part of the Company to be
performed or observed;
(2) immediately after giving effect to such transaction, no Event
of Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continuing; and
(3) the Company shall have delivered to the Trustee an Officers'
Certificate stating that such consolidation, merger, conveyance or transfer
and such supplemental indenture comply with this Article and that all
conditions precedent herein provided for relating to such transaction have
been complied with.
SECTION 9.2. Successor Corporation Substituted.
Upon any consolidation or merger of the Company into another entity, or any
conveyance or transfer of the properties and assets of the Company
substantially as an entirety in accordance with Section 9.1, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such conveyance or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor corporation had been
named as the Company herein.
SECTION 9.3. Limitation on Lease of Properties as Entirety.
The Company shall not lease its properties and assets substantially as an
entirety to any Person.
ARTICLE X
Satisfaction, Discharge and Defeasance
SECTION 10.1. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange or conversion of
Debentures herein expressly provided for), and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either:
-39-
<PAGE> 46
(a) all Debentures theretofore authenticated and
delivered (other than (i) Debentures which have been destroyed, lost or
stolen and which have been replaced or paid as provided in Section 3.6 and
(ii) Debentures for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter repaid
to the Company or discharged from such trust, as provided in Section 4.3)
have been delivered to the Trustee cancelled or for cancellation at any time
after the Distribution Date; or
(b) all such Debentures not theretofore delivered to the
Trustee cancelled or for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one (1) year,
and the Company, in the case of (i) or (ii) above, has deposited or caused to
be deposited with the Trustee, as trust funds in trust for the purpose, an
amount in money or noncallable U.S. Government Obligations sufficient to pay
and discharge the entire indebtedness on such Debentures not theretofore
delivered to the Trustee cancelled or for cancellation, for principal and
interest to the date of such deposit (in the case of Debentures which have
become due and payable) or to the date of redemption or the Stated Maturity;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with.
However, the obligations in Article Thirteen shall survive until the Debentures
are no longer outstanding. Thereafter, notwithstanding the satisfaction and
discharge of this Indenture, the obligations of the Company to the Trustee
under Section 7.7 shall survive.
SECTION 10.2. Application of Trust Money.
All money deposited with the Trustee pursuant to Section 10.1 shall be held
in trust and applied by it, in accordance with the provisions of the Debentures
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent), as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such money has been deposited with the Trustee. Money held by
the Trustee in trust hereunder shall be held in a separate interest bearing
account and such funds shall at all times be segregated from all other funds
and assets owned or held by the Trustee. Any interest on any money received by
the Trustee hereunder shall be for the benefit of the Company and shall be paid
to the Company on Company Request.
Any money deposited with the Trustee in trust for the payment of the
principal of and interest on any Debenture pursuant to Section 10.1 and
remaining unclaimed for two (2) years after such principal or interest has
become due and payable, shall be paid to the Company on Company Request; and
the Holder of such Debenture shall thereafter, as an unsecured general
creditor, look to the Company for payment thereof, and all liability of the
Trustee with respect to such trust money and any interest accrued thereon shall
thereupon cease; provided, however, that the Trustee, before being required to
make any such repayment, may at the expense of the Company cause to be
published once, in an Authorized Newspaper in the Place of Payment, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than
-40-
<PAGE> 47
thirty (30) days from the date of such publication, any unclaimed balance of
such money then remaining will be repaid to the Company.
The Trustee shall promptly pay to the Company upon Company Request any
excess money or securities held by it at any time.
SECTION 10.3. Satisfaction, Discharge and Defeasance of Debentures.
(a) The Company will be deemed to have been Discharged (as defined below)
from its obligations with respect to the Debentures; or
(b) The Company will cease to be under any obligation to comply with any
term, provision or condition set forth in (i) Article Nine or (ii) the terms,
provisions or conditions of the Debentures (provided, however, that the Company
may not cease to comply with any obligations as to which it may not be
Discharged pursuant to the definition of "Discharged"), if, in the case of (a)
and (b), with respect to the Debentures on the 91st day after the applicable
conditions set forth below in (x) and (y) have been satisfied:
(x)(1) the Company has paid or caused to be paid all other
sums payable with respect to the Outstanding Debentures (in addition to any
required under (y)); and
(2) the Company has delivered to the Trustee an Officers'
Certificate stating that all conditions precedent herein provided for
relating to the satisfaction and discharge of the entire indebtedness on all
Outstanding Debentures have been complied with;
(y)(l) the Company shall have deposited or caused to be
deposited irrevocably with the Trustee as a trust fund specifically pledged
as security for, and dedicated solely to, the benefit of the Holders of the
Debentures (i) an amount in the coin or currency of the United States of
America as at the time of such deposit is legal tender for the payment of
public and private debts or (ii) non-callable U.S. Government Obligations
which through the payment of interest and principal in respect thereof in
accordance with their terms will provide, not later than the due date of any
payment of principal and interest under the Debentures, money in an amount
or (iii) a combination of (i) and (ii) sufficient (in the opinion with
respect to (ii) and (iii) of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to
the Trustee) to pay and discharge each installment of principal of, and
interest on, the outstanding Debentures on the dates such installments of
interest or principal are due;
(2)(i) no Event of Default or event (including such
deposit) which with notice or lapse of time or both would become an Event of
Default shall have occurred and be continuing on the date of such deposit,
(ii) no Event of Default as defined in clause (4) or (5) of Section 6.1, or
event which with notice or lapse of time or both would become an Event of
Default under either such clause, shall have occurred within ninety (90)
days after the date of such deposit and (iii) such deposit and the related
intended consequence under (a) or (b) will not result in any default or
event of default under any material indenture, agreement or other instrument
binding upon the Company or any Subsidiary or any of their properties; and
(3) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that Holders of the Debentures will not
recognize income, gain or loss for Federal income tax purposes as a result
of the Company's exercise of its option under this Section 10.3 and will be
subject to Federal income tax in the same amount, in the same manner and at
the same times as would have been the case if such option had not been
exercised.
-41-
<PAGE> 48
Any deposits with the Trustee referred to in clause (y)(1) above will
be made under the terms of an escrow trust agreement in form and substance
satisfactory to the Trustee and the Company.
"Discharged" means that the Company will be deemed to have paid and
discharged the entire indebtedness represented by, and obligations under, the
Debentures and to have satisfied all the obligations under this Indenture
relating to the Debentures (and the Trustee, at the expense of the Company,
will execute proper instruments acknowledging the same), except (A) the rights
of Holders thereof to receive, from the trust fund described in clause (y)(1)
above, payments of the principal of and the interest on the Debentures when
such payments are due, (B) the Company's obligations with respect to the
Debentures under Sections 3.5, 3.6., 10.2, 4.2, 4.3 (penultimate paragraph
only) and Article Thirteen and the Company's obligations to the Trustee under
Sections 7.7 and 7.9, and (C) the rights, powers, trusts, duties and immunities
of the Trustee hereunder, will survive such discharge. The Company will
reimburse the trust fund for any loss suffered by it as a result of any tax,
fee or other charge imposed on or assessed against deposited U.S. Government
Obligations or any principal, premium or interest paid on such U.S. Government
Obligations, and, subject to the provisions of Section 7.7, will indemnify the
Trustee against any claims made against the Trustee in connection with any such
loss.
ARTICLE XI
Subordination of Debentures
SECTION 11.1. Subordination.
The Company covenants and agrees, and each Holder of Debentures, by his
acceptance thereof, likewise covenants and agrees, that the indebtedness
represented by the Debentures and the payment of the principal of, interest and
premium, if any, on each and all of the Debentures is expressly subordinated,
to the extent and in the manner hereinafter set forth, in right of payment to
the prior payment in full of all Senior Indebtedness, and that the
subordination is for the benefit of the holder of Senior Indebtedness.
SECTION 11.2. Distribution of Assets, etc.
No payment on account of principal of or interest on the Debentures shall be
made, and no Debentures shall be purchased or otherwise acquired, and no funds
shall be set aside for the purchase of any Debentures, either directly or
indirectly, by the Company, if a default in the payment of the principal of or
premium, if any, or interest on any Senior Indebtedness shall have occurred and
continued beyond any applicable period of grace so as to entitle the holder of
such Senior Indebtedness to accelerate its maturity, unless and until such
default shall have been cured or waived or shall have ceased to exist or moneys
for the payment thereof shall have been duly set aside.
In the event of any distribution of assets of the Company upon any
dissolution, winding up, total or partial liquidation, or reorganization of the
Company, whether in bankruptcy, insolvency or receivership proceedings, or upon
any assignment for the benefit of creditors or any other marshalling of the
assets and liabilities of the Company, or otherwise,
(1) all of the principal of and premium, if any, and interest on
all Senior Indebtedness shall first be paid in full or moneys for the full
payment thereof shall have been duly set aside before any payment is made
upon the principal of or interest on any Debenture, and
(2) any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities
(other than securities of the Company as reorganized or readjusted, or
securities of the Company or of any other corporation provided for by a plan
of reorganization or
-42-
<PAGE> 49
readjustment, the payment of which is subordinated to the payment of all
principal of and premium, if any, and interest on such Senior Indebtedness
as may at the time be outstanding and to any securities issued in respect
thereof under any such plan of reorganization or readjustment, provided that
the obligations represented by all notes or other evidences of Senior
Indebtedness are assumed by the new corporation, if any, resulting from any
such reorganization or readjustment and provided further that the rights of
the holders of Senior Indebtedness are not, without the consent of such
holders, altered by such reorganization or readjustment), to which the
Debentureholders would be entitled except for the provisions of this
Article, shall be paid by the liquidating trustee or agent or other Person
making such payment or distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or otherwise, to the holders of Senior
Indebtedness (pro rata to each such holder on the basis of the respective
amounts of Senior Indebtedness held by such holder) or their
representatives, to the extent necessary to pay the principal of and
premium, if any, and interest on all Senior Indebtedness in full, after
giving effect to any concurrent payment or distribution to the holders of
Senior Indebtedness, before any payment or distribution is made to the
Debentureholders or to the Trustee.
If the payment of principal of and any interest on the Debentures is
accelerated because of an Event of Default, no payment on account of principal
of or interest on the Debentures shall be made until all of the principal of
and premium, if any, and interest on all Senior Indebtedness has been paid in
full or due provision has been made for such payment.
In the event that, notwithstanding the foregoing, any payment or
distribution of any character or any security, whether in cash, securities or
other property (other than securities of the Company as reorganized or
readjusted, or securities of the Company or of any other corporation provided
for by a plan of reorganization or readjustment, the payment of which is
subordinated to the payment of all principal of and premium, if any, and
interest on such Senior Indebtedness as may at the time be outstanding and to
any securities issued in respect thereof under any such plan of reorganization
or readjustment provided that the obligations represented by all notes or other
evidences of Senior Indebtedness are assumed by the new corporation, if any,
resulting from any such reorganization or readjustment and provided further
that the rights of the holders of Senior Indebtedness are not, without the
consent of such holders, altered by such reorganization or readjustment), shall
be received by the Trustee or any Holder in contravention of any of the terms
hereof, such payment or distribution or security shall be received in trust for
the benefit of, and shall be paid over or delivered and transferred to, the
holders of the Senior Indebtedness at the time outstanding in accordance with
priorities then existing among such holders for application to the payment of
all Senior Indebtedness remaining unpaid, to the extent necessary to pay all
such Senior Indebtedness in full. In the event of the failure of the Trustees
or any Holder to endorse or assign any such payment, distribution or security,
each holder of Senior Indebtedness is hereby irrevocably authorized to endorse
or assign the same.
SECTION 11.3. Subrogation.
Subject to the payment in full of all Senior Indebtedness, the
Debentureholders shall be subrogated (equally and ratably with the holders of
all other indebtedness of the Company which, by its express terms, ranks on a
parity with the Debentures and is entitled to like rights of subrogation) to
the rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company applicable to the
Senior Indebtedness until all amounts owing on the Debentures shall be paid in
full, and, as between the Company, its creditors other than holders of Senior
Indebtedness, and the Debentureholders, no such payment or distribution made to
the holders of Senior Indebtedness by virtue of this Article which otherwise
would have been made to the Debentureholders, shall be deemed to be a payment
by the Company on account of the Senior Indebtedness, it being understood that
the provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the Debentureholders, on the one hand, and the
holders of the Senior Indebtedness, on the other hand.
-43-
<PAGE> 50
SECTION 11.4. Obligation of the Company Unconditional.
Nothing contained in this Article or elsewhere in this Indenture or in the
Debentures is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness, and the
Debentureholders, the obligation of the Company, which is absolute and
unconditional, to pay to the Debentureholders the principal of and interest on
the Debentures as and when the same shall become due and payable in accordance
with their terms, or affect the relative rights of the Debentureholders and
creditors of the Company other than the holders of Senior Indebtedness, nor
shall anything herein or therein prevent the Trustee or any Debentureholder
from exercising all remedies otherwise permitted by applicable law upon an
Event of Default under this Indenture, subject to the rights, if any, under
this Article of the holders of Senior Indebtedness in respect of cash, property
or securities of the Company received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee and the Debentureholders shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction in which
any such dissolution, winding up, liquidation or reorganization proceeding
affecting the affairs of the Company is pending and the Trustee, subject to the
provisions of Section 7.1, and the Debentureholders shall be entitled to rely
upon a certificate of the liquidating trustee or agent or other person making
any payment or distribution to the Trustee or to the Debentureholders for the
purpose of ascertaining the persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount paid or distributed
thereon, and all other facts pertinent thereto or to this Article.
SECTION 11.5. Payments on Debentures Permitted.
Nothing contained in this Article or elsewhere in this Indenture or in any
of the Debentures shall affect the obligation of the Company to make, or
prevent the Company from making, payment of the principal of or interest on the
Debentures in accordance with the provisions hereof, except as otherwise
provided in this Article.
SECTION 11.6. Effectuation of Subordination by Trustee.
Each Holder of Debentures, by his acceptance thereof, authorizes and directs
the Trustee on his behalf to take such action at the request of the Company as
may be necessary or appropriate to effectuate the subordination provided in
this Article and appoints the Trustee his attorney-in-fact for any and all such
purposes.
SECTION 11.7. Knowledge of Trustee.
Notwithstanding the provisions of this Article or any other provisions of
this Indenture, but subject to the provisions of Section 7.1, the Trustee shall
not be charged with knowledge of the existence of any facts which would
prohibit the making of any payment of moneys to or by the Trustee, or the
taking of any other action by the Trustee under this Article Eleven, unless and
until the Trustee shall have received written notice thereof, in the manner
required by Section 1.5, from the Company, any Debentureholder, any Paying
Agent, any Debenture Registrar, or the holder or representative of any class of
Senior Indebtedness.
SECTION 11.8. Trustee May Hold Senior Indebtedness.
The Trustee shall be entitled to all the rights set forth in this Article
with respect to any Senior Indebtedness at the time held by it, to the same
extent as any other holder of Senior Indebtedness, and
-44-
<PAGE> 51
nothing in Section 7.12 or elsewhere in this Indenture shall deprive the
Trustee of any of its rights as such holder.
SECTION 11.9. Rights of Holders of Senior Indebtedness Not Impaired.
No right of any present or future holder of any Senior Indebtedness to
enforce the subordination herein shall at any time or in any way be prejudiced
or impaired by any act or failure to act on the part of the Company or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holders may have or be
otherwise charged with.
SECTION 11.10. Alteration of Senior Indebtedness.
The Holders of any Senior Indebtedness may extend, renew, modify or amend
the terms of such Senior Indebtedness or any security therefor and may release,
sell or exchange such security and otherwise deal freely with the Company, all
without notice to or consent of the Debentureholders and without affecting the
liabilities and obligations of the Company, the Trustee or the Debentureholders
under this Indenture or the Debentures.
SECTION 11.11. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee, provided,
however, that Sections 11.7, 11.8, and 11.10 shall not apply to the Company if
it acts as Paying Agent.
SECTION 11.12. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Indebtedness and shall not be liable to any such holders if the Trustee
shall in good faith mistakenly pay over or distribute to Holders of Debentures
or to the Company or to any other person cash, property or securities to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
Eleven or otherwise.
ARTICLE XII
Redemption
SECTION 12.1. Mandatory Redemption.
The Company shall have no mandatory redemption or sinking fund obligations
with respect to the Debentures.
SECTION 12.2. Optional Redemption.
The Company may redeem all or any portion of the Debentures at any time and
from time to time under the circumstances, upon the terms, and at the
redemption prices, set forth in the form of Debenture included in Section 2.1.
Any redemption pursuant to this Section 12.2 shall be made pursuant to the
provisions of Sections 12.3 through 12.8. Notwithstanding the other provisions
hereof, the Company may not redeem all or any portion of the Debentures unless
the Debenture Registration Statement shall have been declared effective, except
under the circumstances contemplated by Section 15.6.
-45-
<PAGE> 52
SECTION 12.3. Notices to Trustee.
If the Company elects to redeem Debentures pursuant to the optional
redemption provisions of Section 12.2, it shall furnish to the Trustee, at
least thirty-five (35) days but not more than sixty (60) days before a
redemption date, an Officers' Certificate setting forth the redemption date,
the principal amount of Debentures to be redeemed, the redemption price, and
that any condition to such redemption set forth in Section 12.2 has been
satisfied or waived, or is inapplicable.
SECTION 12.4. Selection of Debentures to be Redeemed.
If less than all of the Debentures are to be redeemed, the Trustee shall
select the Debentures to be redeemed among the Holders of the Debentures pro
rata or in accordance with a method the Trustee considers fair and appropriate
(and in such manner as complies with applicable legal and stock exchange
requirements, if any). In the event of partial redemption by lot, the
particular Debentures to be redeemed shall be selected, unless otherwise
provided herein, not less than thirty (30) nor more than sixty (60) days prior
to the redemption date by the Trustee from the outstanding Debentures not
previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Debentures
selected for redemption and, in the case of any Debenture selected for partial
redemption, the principal amount thereof to be redeemed. Debentures and
portions of them selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Debentures of a Holder are to be redeemed,
the entire outstanding amount of Debentures held by such Holder shall be
redeemed. Except as provided in the preceding sentence, provisions of this
Indenture that apply to Debentures called for redemption also apply to portions
of Debentures called for redemption.
SECTION 12.5. Notice of Redemption.
At least thirty (30) days but not more than sixty (60) days before a
redemption date, the Company shall mail a notice of redemption to each Holder
whose Debentures are to be redeemed.
The notice shall identify the Debentures to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Debenture is being redeemed in part, the portion of the
principal amount of such Debenture to be redeemed and that, after the
redemption date, upon surrender of such Debenture, a new Debenture or
Debentures in principal amount equal to the unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Debentures called for redemption must be surrendered to
the Paying Agent to collect the redemption price; and
(6) that interest on Debentures called for redemption ceases to
accrue on and after the redemption date.
At the Company's request, the Trustee shall give the notice of redemption in
the Company's name and at its expense; provided, however, that the Company
shall deliver to the Trustee, at least thirty-five (35) days
-46-
<PAGE> 53
prior to the redemption date, an Officers' Certificate requesting that the
Trustee give such notice and setting forth the information to be stated in such
notice as provided in the preceding paragraph.
SECTION 12.6. Effect of Notice of Redemption.
Once notice of redemption is mailed, Debentures called for redemption and
not converted into Common Stock pursuant to Article Thirteen become due and
payable on the redemption date at the redemption price.
SECTION 12.7. Deposit of Redemption Price.
At least three (3) Business Days (if by check) and one (1) Business Day (if
by wire transfer) prior to the redemption date, the Company shall deposit with
the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest on all Debentures to be redeemed on that date.
The Trustee or the Paying Agent shall return to the Company any money not
required for that purpose.
If the Company complies with the preceding paragraph, interest on the
Debentures to be redeemed will cease to accrue on the applicable redemption
date, whether or not such Debentures are presented for payment. If any
Debenture called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest will be paid on the unpaid principal, from the redemption
date until such principal is paid, and on any interest not paid on such unpaid
principal, in each case at the rate provided in the Debentures and in Section
4.1.
SECTION 12.8. Debentures Redeemed in Part.
Upon surrender of a Debenture that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the Holder at the expense of the
Company a new Debenture equal in principal amount to the unredeemed portion of
the Debenture surrendered.
SECTION 12.9. Repurchasing of Debentures.
Nothing herein shall prohibit the Company from repurchasing from time to
time all or any portion of the Debentures in the open market or in privately
negotiated transactions.
ARTICLE XIII
Conversion of Debentures
SECTION 13.1. Conversion Privilege.
Subject to and upon compliance with the provisions of this Article Thirteen
and the terms of the form of Debenture set forth in Section 2.3, at the option
of the Holder, any Debenture or any portion of the principal amount thereof
which is $1,000 or a whole multiple thereof, may, at any time on or before
December 1, 2011, or in case such Debenture or some portion thereof shall be
called for redemption prior to such date, then, with respect to such Debenture
or portion thereof, until and including, but not after, the close of business
on the third (3rd) business day next preceding the date fixed for such
redemption, be converted at the principal amount thereof into Common Stock at
the Conversion Price in effect at the date of conversion.
-47-
<PAGE> 54
SECTION 13.2. Manner of Exercise of Conversion Privilege.
To exercise the conversion privilege, the Holder shall surrender such
Debenture to the Debenture Registrar, together with a duly executed conversion
notice in the form provided on the Debenture, and, if so required by the
Debenture Registrar, the Debenture shall also be accompanied by proper
assignments thereof to the Company or in blank for transfer and any requisite
Federal and state transfer tax stamps. Debentures surrendered for conversion
during the period from the close of business on the record date preceding an
Interest Payment Date to the opening of business on such Interest Payment Date
shall (unless any such Debenture or the portion thereof being converted shall
have been called for redemption) also be accompanied by payment in funds in
cash or by certified bank cashier's check of an amount equal to the interest
payable on such Interest Payment Date on the principal amount of such Debenture
then being converted. As promptly as practicable after the surrender of
Debenture for conversion, the Company shall issue and shall deliver to the
Debenture Registrar for delivery to such Holder, or his designee, a certificate
or certificates for the number of full shares of Common Stock issuable upon the
conversion of such Debenture or portion thereof and a check or cash in respect
of any fraction of a share of Common Stock issuable upon such conversion, all
as provided in this Section 13.2, together with a Debenture or Debentures in
principal amount equal to the unconverted and unredeemed portion, if any, of
the Debenture so converted. Conversion shall be deemed to have been effected
on the date on which notice (and payment, if required) shall have been received
at the Debenture Registrar's office and such Debenture shall have been
surrendered to the Debenture Registrar, and at that time the rights of the
holder as a Holder shall cease as to that portion of the Debenture converted,
and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become on said date the holder or holders of record of
the shares represented thereby; provided, however, that in the event any such
conversion occurs on any date when the stock transfer books of the Company are
closed, the person or persons in whose name or names the certificates for
shares of Common Stock are to be issued will be deemed the record holder or
holders thereof for all purposes on the next succeeding day on which such stock
transfer books are open, and the conversion shall be at the Conversion Price in
effect on such next succeeding day on which such transfer books are open.
Subject to the foregoing, no adjustment shall be made for interest accrued on
any Debenture that shall be converted (unless any such Debenture or the portion
thereof being converted shall have been called for redemption) or for dividends
on any Common Stock that shall be issued upon the conversion of such Debenture.
SECTION 13.3. Cash Adjustment Upon Conversion.
The Company shall not be required to issue fractions of shares of Common
Stock upon conversion of Debentures. If more than one Debenture shall be
surrendered for conversion at any time by the same holder, the number of full
shares of Common Stock which shall be issuable upon conversion thereof shall be
computed on the basis of the aggregate principal amount of the Debentures so
surrendered. If any fractional interest in a share of Common Stock would be
deliverable upon the conversion of any Debenture or Debentures, the Company
shall make an adjustment therefor in cash equal to the current market value of
such fractional interest computed to the nearest thousandth of a share at the
closing price on the Nasdaq National Market or, if then traded on a national
securities exchange, the closing price on such exchange or the highest bid
quotation on an automated quotation system on the last business day prior to
the date of conversion, or if the Common Stock shall not then be listed on the
Nasdaq National Market or on an exchange or included on an automated quotation
system, as reported by the National Quotation Bureau, Inc. or similar reporting
service.
-48-
<PAGE> 55
SECTION 13.4. Conversion Price.
The Conversion Price shall be as specified in the form of Debenture set
forth in Section 2.3 or, after adjustment as provided in this Section 13, the
Conversion Price as so adjusted.
SECTION 13.5. Adjustment of Conversion Price.
The Conversion Price shall be adjusted from time to time as follows:
(a) In case the Company shall, at any time or from time to time
while any of the Debentures are outstanding, (i) issue any shares of its
capital stock as a dividend (or other distribution) on its Common Stock;
(ii) subdivide its outstanding shares of Common Stock into a greater number
of shares; (iii) combine its outstanding shares of Common Stock into a
smaller number of shares, or (iv) issue by reclassification of its Common
Stock any shares of stock of the Company, the Conversion Price in effect
immediately prior thereto shall be adjusted so that any Debentureholder who
thereafter converts his Debenture shall be entitled to receive the number of
shares of capital stock of the Company which he would have owned or have
been entitled to receive after the happening of any of the events described
above, had such Debenture been converted immediately prior to the happening
of such event. Any adjustment made pursuant to this subdivision (a) shall
become effective, in the case of a dividend, on the payment date
retroactively to immediately after the opening of business on the day
following the record date for the determination of shareholders entitled to
receive such dividend, subject to the provisions of subdivision (f) of this
Section 13.5, and shall become effective in the case of a subdivision,
combination or reclassification immediately after the opening of business on
the day following the day when such subdivision, combination or
reclassification, as the case may be, becomes effective.
(b) In case the Company shall, at any time or from time to time
while any of the Debentures are outstanding, issue rights or warrants
entitling anyone to subscribe for or purchase shares of Common Stock at a
price per share less than the then current market price per share of Common
Stock (as defined in subdivision (d) below) at the Measurement Date (as
defined below), the Conversion Price in effect immediately prior to the
issuance of such rights or warrants shall be adjusted as follows: the number
of shares of Common Stock into which $1,000 principal amount of Debentures
was theretofore convertible shall be multiplied by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of additional shares of
Common Stock offered for subscription or purchase, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase at
such current market price; and the Conversion Price shall be adjusted by
dividing $1,000 by the new number of shares into which $1,000 principal
amount of Debentures shall be convertible as aforesaid. The term
"Measurement Date" shall mean, with respect to determining current market
price in connection with the issuance of rights or warrants to purchase
Common Stock, the earlier of (i) the date upon which the Company enters into
a bona fide and binding agreement for the issuance of such rights or
warrants and (ii) the issuance or grant thereof. Such adjustment shall
become effective on the date of such issuance, all as determined by the
independent certified public accountants then regularly auditing the
accounts of the Company, whose determination shall be conclusive, subject to
the provisions of subdivision (f) of this Section 13.5.
(c) In case the Company shall, at any time or from time to time
while any of the Debentures are outstanding, distribute to all holders of
shares of Common Stock evidences of its indebtedness or securities or assets
(excluding cash dividends or cash distributions payable out of retained
earnings, or
-49-
<PAGE> 56
distributions payable in shares of Common Stock) or rights to subscribe for
same (excluding those referred to in subdivision (b) above), the Conversion
Price in effect immediately prior to such distribution shall be adjusted as
follows: the number of shares of Common Stock into which $1,000 principal
amount of Debentures was theretofore convertible shall be multiplied by a
fraction, the numerator of which shall be the current market price per share
of Common Stock (as defined in subdivision (d) below) on the record date for
such distribution, and the denominator of which shall be such current market
price per share of the Common Stock, less the then fair market value (as
determined by the Board of Directors of the Company, whose determination
shall be conclusive) of the portion of the assets or Securities or evidences
of indebtedness so distributed or of such subscription rights applicable to
one share of Common Stock; and the Conversion Price shall be adjusted by
dividing $1,000 by the new number of shares into which $1,000 principal
amount of Debentures shall be convertible as aforesaid. Such adjustment
shall become effective on the date of such distribution retroactively to
immediately after the opening of business on the day following the record
date for the determination of shareholders entitled to receive such
distribution, subject to the provisions of subdivision (f) of this Section
13.5. For the purposes of this subdivision (c), retained earnings shall be
computed by adding thereto all charges against retained earnings on account
of dividends paid in shares of Common Stock in respect of which the
Conversion Price has been adjusted, all as determined by the independent
certified public accountants then regularly auditing the accounts of the
Company, whose determination shall be conclusive.
(d) For the purpose of any computation under subdivision (b) and
(c) above, the current market price per share of Common Stock at any date
shall be deemed to be the average of the market values of the Common Stock
for the ten (10) consecutive business days immediately preceding the day in
question. The market value of the Common Stock for each day shall be
determined as provided in Section 13.3.
(e) Except as herein otherwise provided, no adjustment in the
Conversion Price shall be made by reason of the issuance in exchange for
cash, property or services, of shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock, or carrying the
right to purchase any of the foregoing.
(f) If the Company shall take a record of the holders of Common
Stock for the purpose of entitling them to receive any dividend, for any
subscription or purchase rights or any distribution and shall, thereafter
and before the distribution to stockholders of any such dividend,
subscription or purchase rights or distribution, abandons its plan to pay or
deliver such dividend, subscription or purchase rights or distribution, then
no adjustment of the Conversion Price shall be required by reason of the
taking of such record.
(g) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least one
percent (1%) in such price; provided, however, that any adjustments which by
reason of this subdivision (g) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 13.5 shall be made to the nearest cent or to
the nearest one-thousandth of a share, as the case may be.
(h) Whenever the Conversion Price is adjusted as herein provided,
the Company shall (i) forthwith place on file at the corporate trust office
of the Trustee and the Debenture Registrar a statement signed by the
Chairman of the Board, the President or an Executive Vice President of the
Company, and by its Chief Financial Officer, Treasurer or an Assistant
Treasurer showing in detail the facts requiring such adjustment and the
Conversion Price after such adjustment and the statement of the Company's
independent certified public accountants confirming the Conversion Price
after such adjustment, and the Trustee and Debenture Registrar shall exhibit
the same from time to time to any Holder desiring to inspect
-50-
<PAGE> 57
such certificate during normal business hours, and (ii) cause a notice
stating that such adjustment has been effective and the adjusted Conversion
Price to be mailed to the Holders of Debentures at their last addresses as
they shall appear on the books of the Debenture Registrar.
SECTION 13.6. Effect of Reclassifications, Consolidations, Mergers or Sales
on Conversion Privileges.
In case of any reclassification or change of outstanding shares of Common
Stock issuable upon conversion of the Debentures (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), or in case of any consolidation
of the Company with one or more other corporations (other than a consolidation
in which the Company is the continuing corporation and which does not result in
any reclassification or change of outstanding shares of Common Stock issuable
upon conversion of the Debentures), or in case of the merger of the Company
into another corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, the Company, or such successor or purchasing corporation, as the
case may be, shall execute with the Trustee a supplemental indenture which
shall be prepared as if subject to the TIA as then in effect, providing that
each Holder shall have the right to convert their outstanding Debenture into
the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock into which such
Debenture might have been converted immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance. Such supplemental indenture
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article Thirteen and any
such adjustments which shall be approved by the Board of Directors and set
forth in such supplemental indenture shall be conclusive for all purposes of
this Section 13.6, and the Trustee shall not be under any responsibility to
determine the correctness of any provision contained in such supplemental
indenture relating to either the kind or amount of shares of stock or
securities or property receivable by Debentureholders upon the conversion of
their Debentures after any such reclassification, change, consolidation,
merger, sale or conveyance.
The above provisions of this Section 13.6 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, sales and
conveyances.
SECTION 13.7. Taxes on Conversions.
The issue of stock certificates on conversion of Debentures shall be made
without charge to the converting Debentureholder for any issue tax in respect
of the issue thereof. The Company shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock (or other security) in any name other than
that of the Holder of any Debenture converted, and the Company shall be not
required to issue or deliver any such stock certificate unless and until the
person or persons requesting the issue thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
SECTION 13.8. Company to Reserve Stock.
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, for the purpose of effecting
the conversion of the Debentures, such number of its duly
-51-
<PAGE> 58
authorized shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding Debentures.
The Company covenants that all shares of Common Stock which may be issuable
upon conversion of Debentures shall upon issue be fully paid and non-assessable
and free from all taxes, liens and charges with respect to the issue thereof.
SECTION 13.9. Disclaimer by Trustee of Responsibility for Certain Matters.
Neither the Trustee nor any conversion agent shall at any time be under any
duty or responsibility to any Holder to determine whether any facts exist which
may require any adjustment of the Conversion Price, or with respect to the
nature or extent of any such adjustment when made, or with respect to the
method employed, or provided to be employed, herein or in any supplemental
indenture in making such adjustment. Neither the Trustee nor any conversion
agent shall be accountable with respect to the validity or value (or the kind
or amount) of any shares of Common Stock, or of any securities or property,
which may at any time be issued or delivered upon the conversion of any
Debenture; and neither the Trustee nor any conversion agent makes any
representation with respect thereto. Neither the Trustee nor any conversion
agent shall be responsible for any failure of the Company to make any cash
payment or to issue, register the transfer of or deliver any shares of Common
Stock or stock certificates or other securities or property upon the surrender
of any Debenture for the purpose of conversion or to comply with any of the
covenants of the Company contained in this Article Thirteen.
SECTION 13.10. Company to Give Notice of Certain Events.
In the event that the Company shall:
(1) pay any dividend or make any distribution to the holders of
Common Stock otherwise than in cash out of its retained earnings; or
(2) offer for subscription, pro rata, to the holders of Common
Stock any additional shares of stock of any class or any other right; or
(3) effect any reclassification or change of outstanding shares of
Common Stock issuable upon the conversion of the Debentures (other than a
change in par value, or from par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination), or any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation in which the Company is the
continuing corporation and which does not result in any reclassification or
change of outstanding shares of Common Stock issuable upon conversion of the
Debentures), or any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety;
then, and in any one or more of such events, the Company will give a
Responsible Officer of the Trustee and the Debenture Registrar written
notice thereof at least two (2) business days prior to (i) the record date
fixed with respect to any of the events specified in (1) and (2) above, and
(ii) the effective date of any of the events specified in (3) above; and
shall mail a copy of such notice to Holders at their last addressees, as
they appear upon the books of the Debenture Registrar.
-52-
<PAGE> 59
ARTICLE XIV
Immunity of Directors, Officers, Employees and Stockholders
SECTION 14.1. Exemption from Individual Liability.
No Affiliate, officer, director, employee or stockholder, as such, of the
Company, or its Subsidiaries, shall have any liability for any obligations of
the Company under the Debenture or this Indenture, or for any claim based on,
in respect of or by reason of such obligations or their creation. Each
Debentureholder by accepting a Debenture hereby expressly waives and releases
all such liability. The waiver and release are part of the consideration for
the issue of the Debentures.
ARTICLE XV
Registration Under Securities Act
SECTION 15.1. Debentures Entitled to Registration.
The Debentures and the shares of Common Stock issued or issuable upon
conversion of the Debentures shall be entitled to the registration rights set
forth in this Article 15.
SECTION 15.2. Debenture Registration Statement.
The Company shall, at its expense, cause a registration statement on the
appropriate form to be filed with the Commission covering the registration of
the Debentures and the shares of Common Stock issued or issuable upon
conversion of the Debentures (the "Debenture Registration Statement") within
the time required by Section 15.3. Upon and after any such filing, the Company
shall take all reasonable steps necessary to promptly cause the Debenture
Registration Statement to be declared effective by the Commission. The Company
shall give prompt written notice of the declaration of effectiveness of the
Debenture Registration Statement to each Debentureholder whose securities are
included therein, and thereafter shall supply at its expense such reasonable
number of copies of the applicable prospectus as may be requested in writing by
such Debentureholders. The Trustee shall have no obligation to file the
Debenture Registration Statement.
SECTION 15.3. Timing of Filing Debenture Registration Statement.
(a) Unless the Debenture Registration Statement shall have earlier been
declared effective under the circumstances contemplated by Section 15.3(b), the
Debenture Registration Statement shall be filed with the Commission on the
earlier of the first filing after the date of this Indenture of a registration
statement with the Commission by the Company for any other purpose, or December
31, 1998.
(b) Unless the Debenture Registration Statement shall have earlier been
declared effective under the circumstances contemplated by Section 15.3(a), the
Company shall not redeem all or any portion of the Debentures unless the
Debenture Registration Statement shall have been declared effective.
SECTION 15.4. Period of Effectiveness; State Law Requirements.
Following the effectiveness of the Debenture Registration Statement, the
Company shall use its best efforts to keep it continuously effective and
current until the expiration of two (2) years following the
-53-
<PAGE> 60
commencement of the first holding period under the Commission's Rule 144 with
respect to the Debentures and the underlying shares of Common Stock. The
Company shall contemporaneously take at its expense those steps necessary to
assist Holders in their compliance with state securities laws' registration or
qualification requirements that may be applicable to re-sales of the Debentures
and such shares of Common Stock in jurisdictions where the Debentures were
originally offered and sold by the Company.
SECTION 15.5. Debentureholder to Supply Information.
Each Holder, by acceptance of a Debenture or the Common Stock issued on
conversion thereof, shall be deemed to have agreed to provide the Company with
all information regarding the Holder, including the nature and amount of
beneficial ownership by the Holder of Debentures and Common Stock, that the
Company may reasonably request to include the Holder's Debentures and related
shares of Common Stock in the Debenture Registration Statement. The request
from the Company shall be sent to each Debentureholder at his address as it
appears on the Debenture Register. The requested information shall be mailed
by the Debentureholders to the Company at its address set forth herein or
pursuant hereto within not more than five (5) Business Days of the
Debentureholders' receipt of the request from the Company.
SECTION 15.6. Exception to Requirements.
Notwithstanding the other provisions hereof, the Company shall not be
required to file and pursue the effectiveness of the Debenture Registration
Statement if at the applicable time the Company shall reasonably believe the
Debentures and the underlying shares of Common Stock are no longer subject to
restriction on transfer under applicable securities laws as a result of the
issuance of those securities in a transaction under Section 4(2) of the
Securities Act or Rule 506 of Regulation D thereunder. In this event, the
Company shall, at its expense, promptly take all reasonable steps necessary to
remove legends from each certificate representing the securities and to remove
all stop transfer instructions that may have been issued to the Debenture
Registrar or any transfer agent for the Common Stock.
* * * * * * * * * * * * * * * *
This instrument may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed and attested, all as of the day and year first above written.
Attest: REPUBLIC BANCSHARES, INC.
By: ________________________________ By:__________________________________
Christopher M. Hunter, William R. Falzone, Vice President
Corporate Secretary and Chief Financial Officer
-54-
<PAGE> 61
Attest: SOUTHTRUST BANK OF FLORIDA,
NATIONAL ASSOCIATION
By: _____________________________ By:__________________________________
Authorized Signatory Scott A. Schuhle,
Authorized Signatory
-55-
<PAGE> 1
Exhibit 5.1
October 30, 1997
Republic ancshares, Inc.
111 Second Avenue, N.E.
St. Petersburg, Florida 33701
Re: 6.0% Convertible Subordinated Debentures due 2011
Gentlemen:
We refer to the Registration Statement (the "Registration Statement")
on Form S-2 filed by Repulic Bancshares, Inc. (the "Company") for the purpose
of registering under the Securities Act of 1933 (the "Securities Act") up to in
6,000,000 in aggregate principal amount of the Company's 6.0% Convertible
Subordinated Debentures due 2011 (the "Debentures") and the shares of the
Company's Common Stock, par value $2.00 per share (the "Common Stock"), issuable
upon conversion of the Debentures, pursuant to the Indenture between the Company
and SouthTrust Bank, National Association, as indenture trustee (the
"Indenture").
In connection with the foregoing registration, we have acted as
counsel for the Company and have examined originals, or copies certified to our
satisfaction, of such corporate records of the Company, certificates of public
officials and representatives of the Company and other documents as we deemed
it necessary to require as a basis for the opinions expressed below.
On the basis of the foregoing, and having regard for legal
consideration we deem relevant, it is our opinion that: (i) the Debentures
constitute binding obligations of the Company to the holders hereof; and (ii)
<PAGE> 2
Reptron Electronics, Inc.
August 4, 1997
Page 2
delivered in accordance with the terms of the Indenture; and (d) the Debentures
are valid and legally binding obligations of the Company; and
2. The Common Stock issuable upon conversion of the Debentures has
been duly authorized and reserved for issuance by the Company and, if and when
issued upon conversion of the Debentures in accordance with the terms of the
Indenture, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement, and to the reference to this firm under the caption
"Legal Matters" contained in the prospectus filed as part thereof. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act.
Very truly yours,
HOLLAND & KNIGHT LLP
By: /s/ CHESTER E. BUCHELLER
--------------------------
CHESTER E. BUCHELLER
<PAGE> 1
EXHIBIT 12.1
<TABLE>
<CAPTION>
Six Months Ended Seven Months Ended Five Months Ended Years Ended
June 30, Years Ended December 31, December 31, May 31, December 31,
---------------- ------------------------ ------------------ ----------------- ------------
1997 1996 1996 1995 1994 1994 1993 1994 1993 1993 1992
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income before
goodwill & taxes $ 3,595 $ 3,966 $ 6,016 $ 7,648 $ 7,369 $ 4,311 $2,182 $3,058 $(1,114) $(1,251) $ 29?
Fixed interest charges 18,608 15,749 32,926 30,001 16,871 10,711 3,110 6,140 1,970 6,054 6,05?
Non-cumulative Preferred
Stock Dividends 132 132 264 264 264 196 0 66 0 -- --
------- ------- ------- ------- ------- ------- ------ ------ ------- ------- ------
Earnings: $22,335 $19,847 $39,206 $37,913 $24,504 $15,220 $3,252 $9,284 $ 856 $ 4,803 $6,32?
Ratio of Earnings to Fixed 1.11 1.10 1.19 1.26 1.45 1.42 1.70 1.51 0.43 0.79 1.4?
Charges:
</TABLE>
<PAGE> 1
EXHIBIT 23.3
[LETTERHEAD] ARTHUR ANDERSEN LLP
CONSENT TO USE OF REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference and inclusion in this registration statement of our
report dated February 7, 1997 (except with respect to the matter discussed in
Note 18, as to which the date is March 10, 1997), included in Republic
Bancshares, Inc.'s Form 10-K for the year ended December 31, 1996, and to all
references to our firm included in this registration statement.
/s/ Arthur Andersen LLP
Tampa, Florida,
October 29, 1997
<PAGE> 1
EXHIBIT 23.4
Consent of Independent Accountants
We consent to the use of our report dated February 11, 1997, except for Note
21, as to which the date is March 11, 1997, relating to the Consolidated
Financial Statements of F.F.O. Financial Group, Inc. as of December 31, 1996
and 1995, and for each of the years in the three-year period ended December 31,
1996, and to the use of our review report on the unaudited Condensed
Consolidated Financial Statements of F.F.O. Financial Group, Inc. as of June
30, 1997 and for the three- and six-month periods ended June 30, 1997 and 1996,
and to the reference to our Firm under the caption "Experts" in the Form S-2
Registration Statement of Republic Bancshares, Inc.
/s/ HACKER, JOHNSON, COHEN & GRIEB PA
HACKER, JOHNSON, COHEN & GRIEB PA
Orlando, Florida
October 28, 1997
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) ______
-------------------------------------------------
SOUTHTRUST BANK, NATIONAL ASSOCIATION
as Successor Trustee by merger to SouthTrust Bank of Florida, National
Association
(Exact name of trustee as specified in its charter)
Alabama 63-0022787
(Jurisdiction of incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
420 North 20th Street
Birmingham, AL 35203
(Address of principal (Zip code)
executive offices)
-------------------------------------------------
Republic Bancshares, Inc.
(Exact name of obligor as specified in its charter)
Florida 59-6000825
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 Second Avenue NE
Suite 300
St. Petersburg, FL 33701
(Address of principal (Zip code)
executive offices)
6% Convertible Subordinated Debentures due 2011
(Title of the indenture securities)
<PAGE> 2
GENERAL
1. General Information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank Federal Deposit Insurance Corporation
Atlanta, GA Washington, D.C.
State of Alabama Comptroller of the Currency
State Banking Department Administrator of National Banks
101 South Union Street Southeastern District
Montgomery, AL 36130-0901 Marquis One Tower, Suite 600
245 Peachtree Center Ave., N.E.
Atlanta, GA 30303
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe such affiliation.
None.
3., 4., 5., 6., 7., 8., 9., 10., 11., 12., 13., 14. and 15.
Republic Bancshares, Inc. is currently not in default under any of its
outstanding securities for which SouthTrust Bank, National Association is
trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,
13, 14 and 15 of Form T-1 are not required under Section B of the General
Instructions.
<PAGE> 3
16. List of Exhibits
T-1.1 Amended and Restated Articles of Association of SouthTrust Bank of
Florida, National Association.
T-1.2 Certificate of Comptroller of the Currency (Business Powers)
T-1.3 Certificate of Comptroller of the Currency (Fiduciary Powers)
T-1.4 Amended and Restated Bylaws of SouthTrust Bank of Florida, National
Association
T-1.6 The consent of SouthTrust Bank, National Association required by
Section 321(b) of the Trust Indenture Act of 1939.
T-1.7 A copy of the latest report of condition of SouthTrust Bank,
National Association pursuant to law or the requirements of its
supervising or examining authority.
Letter from the Comptroller of the Currency certifying the merger of
various SouthTrust banks into SouthTrust Bank, National Association
<PAGE> 4
EXHIBIT T-1.1
AMENDED AND RESTATED ARTICLES OF ASSOCIATION
SOUTHTRUST BANK OF FLORIDA, NATIONAL ASSOCIATION
FIRST. The title of this Association shall be "SouthTrust Bank of Florida,
National Association."
SECOND. The main office of the Association shall be in St. Petersburg, County of
Pinellas, State of Florida. The general business of the Association shall be
conducted at its main office and its branches.
THIRD. The Board of Directors of this Association shall consist of not less than
five nor more than twenty-five persons, the exact number of directors within
such minimum and maximum limits to be fixed and determined from time to time by
resolution of the Board of Directors or by resolution of the shareholders at any
annual or special meeting thereof. Unless otherwise provided by the laws of the
United States, any vacancy in the Board of Directors for any reason, including
an increase in the number thereof, may be filled by action of the Board of
Directors.
Honorary or advisory members of the Board of Directors, without voting power or
power of final decision in matters concerning the business and affairs of the
Association, may be appointed by resolution of the Board of Directors. If
requested by the Board of Directors, honorary or advisory directors shall attend
meetings of the Board of Directors, but shall not have voting power. Honorary or
advisory Directors shall not be counted for purposes of determining the number
of Directors of the association or the presence of a quorum in connection with
any Board action, and shall not be required to own qualifying shares. The
Amended and Restated By-laws of the Association shall contain such other
provisions regarding honorary or advisory members of the Board of Directors as
are not inconsistent with these Amended and Restated Articles of Association.
FOURTH. The annual meeting of shareholders of the Association shall be held in
the City of St. Petersburg, State of Florida, at the Association's principal
offices on the third Tuesday of January of each year at such time as may be
fixed by the Board of Directors of the Association, and if a legal holiday, then
on the next following banking day, or at such other date, time and place as may
be fixed by the Board of Directors and stated in the notice of the meeting. At
the annual meeting of shareholders, the shareholders shall elect a Board of
Directors of the Association and transact such other business as properly may be
brought before such meeting.
Nominations of persons for election to the Board of Directors of the Association
may be made by the Board of Directors or by any holder of any outstanding
capital stock of the Association entitled to vote in respect of the election of
directors of the Association. Nominations, other than those made by or on behalf
of the Board of Directors of the Association, shall be made in writing and shall
be delivered or mailed to the Chairman of the
<PAGE> 5
Board or the President of the Association and to the Comptroller of the
Currency, Washington, D.C., not less than fourteen days nor more than fifty days
prior to any meeting of shareholders called for the election of directors,
provided, however, that if less than twenty-one days' notice of the meeting is
given to the shareholders, such nomination shall be mailed or delivered to the
Chairman of the Board or the President of the Association and to the Comptroller
of the Currency not later than the close of business on the seventh day
following the day on which the notice of meeting was mailed. Such notification
shall contain the following information to the extent known to the notifying
shareholder: (a) the name and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the total number of shares of
capital stock of the bank that will be voted for each proposed nominee; (d) the
name and residence address of the notifying shareholder; and (e) the number of
shares of capital stock of the Bank owned by the notifying shareholder.
Nominations not made in accordance herewith may, in the discretion of the
chairman of the meeting, be disregarded by the chairman of the meeting, and if
so disregarded by the chairman of the meeting, the inspectors of election, or
the persons performing a similar duty, may disregard all votes cast for such
nominees.
Unless otherwise specified in these Amended and Restated Articles of Association
or required by law, (1) all matters requiring shareholder action, including
amendments to the Articles of Association, must be approved by shareholders
owing a majority voting interest in the outstanding voting stock, and (2) each
shareholder shall be entitled to one vote per share.
FIFTH. The amount of authorized capital stock of this Association shall be
$10,000,000.00 divided into 1,000,000 shares of common stock of the par value
per share of Ten Dollars and No/100 ($10.00) but said capital stock may be
increased or decreased from time to time, in accordance with the provisions of
the laws of the United States.
If the capital stock is increased by the sale of additional shares thereof, each
shareholder shall be entitled to subscribe for such additional shares in
proportion to the number of shares of said capital stock owned by him at the
time the increase is authorized by the shareholders, unless another time
subsequent to the date of the shareholders' meeting is specified in a resolution
adopted by the shareholders at the time the increase is authorized. The Board of
Directors shall have the power to prescribe a reasonable period of time within
which the preemptive rights to subscribe to the new shares of capital stock must
be exercised.
The Board of Directors of this Association may authorize the issue of capital
stock or of debt obligations, whether or not subordinated, without the approval
of its shareholders;
SIXTH. The Board of Directors shall appoint one of its members President of this
Association, who shall be Chairman of the Board, unless the board appoints
another director to be Chairman. The Board of Directors shall have the power to
appoint one or more Vice Presidents and to appoint a Cashier and such other
officers and employees as may be required to transact the business of this
Association.
2
<PAGE> 6
The Board of Directors shall have the power to define the duties of the officers
and employees of the Association; to fix the to be paid to them; to dismiss
them; to require bonds from them and to fix the penalty thereof; to regulate the
manner in which any increase of the capital of the Association shall be made; to
manage and administer the business and affairs of the Association; to make all
By-laws that may be lawful for them to make; and generally to do and perform all
acts that may be legal for a Board of Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the location of
the main office to any other place within the limits of St. Petersburg, Florida,
without the approval of the shareholders but subject to the approval of the
Comptroller of the Currency; and shall have the power to establish or change the
location of any branch or branches of the Association to any other location,
without the approval of the shareholders but subject to the approval of the
Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the law of the United States.
NINTH. The Board of Directors of this Association, or any shareholder owning, in
the aggregate, not less than 10 percent of the outstanding capital stock of this
Association entitled to vote in respect of any matter to be considered at any
special meeting of shareholders, may call a special meeting of shareholders at
any time. Unless otherwise provided by law, a notice of the date, place, time
and purpose of every special meeting of the shareholders shall be given by
first-class mail, postage prepaid, mailed at least ten days and not more than
sixty days to the date of such meeting to each shareholder of record at his
address as shown upon the books of this Association, and a notice of the date,
place and time of every annual meeting of the shareholders shall be given by
first-class mail, postage prepaid, mailed at least ten days prior to the date of
such meeting to each shareholder of record at his address at least ten days and
not more than sixty days prior to the date of such meeting to each shareholder
of record at his address as shown upon the books of this Association.
TENTH Subject to the limitations stated in this Article Tenth, the Association
shall indemnify its directors, honorary and advisory directors, officers and
employees to the extent permitted by the General Corporation Law of Delaware, as
such law shall be in force from time to time. In addition to the conditions
under which indemnification is permitted under the General Corporation Law of
Delaware, such indemnification shall not be made by the Association if in the
judgment of the Association the director, honorary or advisory director, officer
or employee has not cooperated with the Association in its dealing with any
aspect of the claim, suit, action or proceeding in which the Association has an
interest. If requested by the Association, the director, honorary or advisory
director, officer or employee shall assist in investigations and in the conduct
of suits, including attending hearings and trials and giving evidence in
connection therewith. Such indemnification shall not include indemnification of
directors, honorary or advisory directors, officers or employees of the against
expenses, penalties, or other payments incurred in an administrative
3
<PAGE> 7
proceeding or action instituted by an appropriate regulatory agency which
proceeding or action results in a final order assessing civil money penalties or
requiring affirmative action by an individual in the form of payments to the
Association, except that the Association may advance expenses in connection with
such a proceeding or action as set forth below.
The Association may pay premiums for insurance covering the liability of its
directors, honorary or advisory directors, officers or employees except where
prohibited by the General Corporation Law of Delaware and except with regard to
insurance coverage for a formal order assessing civil money penalties against an
Association director, honorary or advisory director, officer, or employee
arising out of an administrative proceeding or action instituted by an
appropriate bank regulatory agency.
The indemnification provisions of this Article Tenth are not intended to
adversely affect any rights that the Association or any director, honorary or
advisory director, officer or employee of the Association may have with respect
to any insurance policy, including, without limitation, any insurance policy
maintained by the Association.
The Association shall advance expenses to its directors, honorary or advisory
directors, officers or employees arising out of such an administrative
proceeding or action instituted by an appropriate regulatory agency prior to a
final order being entered only in accordance with the following:
All advances must be subject to reimbursement if a final order
is entered in the action assessing civil money penalties or requiring
payments to the Association. Moreover, before any advances are made,
the Board of Directors of the Association, in good faith, must
determine in writing, that all of the following conditions are met:
(1) the officer, director, honorary or advisory
director, or employee has a substantial likelihood of
prevailing on the merits;
(2) in the event the officer, director, honorary or
advisory director or employee does not prevail, he or she will
have the financial capability to reimburse the Association;
and
(3) payment of expenses by the Association will not
adversely affect the Association's safety and soundness.
If at any time the Board of Directors of the Association believes, or
should reasonably believe that either conditions (1), (2) or (3) are no
longer met, the Association must cease paying such expenses or
premiums. Further, the Board of Directors of the Association must enter
into a written agreement with the director, honorary or advisory
director, officer or employee specifying the
4
<PAGE> 8
conditions under which he or she will be required to reimburse the
Association. At a minimum, the agreement shall require reimbursement
for expenses already paid, if and to the extent the Board of Directors
finds that the director, honorary or advisory director, officer or
employee willfully misrepresented factors relevant to the Board of
Directors' determination of conditions (1) or (2), or if a final
decision assessing penalties or requiring payments is returned. The
Association shall ensure that it complies with all applicable laws and
regulations affecting loans to directors, officers and employees,
including but not limited to 12 U.S.C. Sections 84, 375a and 375b and
12 C.F.R. Section 215, as such laws and regulations shall be in effect
from time to time, in the event reimbursement is required.
ELEVENTH. These Amended and Restated Articles of Association may be amended at
any regular or special meeting of the shareholders by the affirmative vote of
the holders of a majority of the stock of this Association, unless the vote of
the holders of a greater amount of stock is required by law, and in that case by
the vote of the holders of such greater amount.
5
<PAGE> 9
EXHIBIT T-1.2
COMPTROLLER OF THE CURRENCY
[TREASURY DEPARTMENT [LOGO] OF THE UNITED STATES]
WASHINGTON, D.C.
WHEREAS, satisfactory evidence has been presented to the Comptroller of
the Currency that SOUTHTRUST BANK OF WEST FLORIDA located in ST. PETERSBURG
State of FLORIDA has complied with all provisions of the statutes of the United
States required to be complied with before being authorized to commence the
business of banking as a National Banking Association;
NOW, THEREFORE, thereby certify that the above named association is
authorized to commence the business of banking as a National Banking
Association under the title SOUTHTRUST BANK OF FLORIDA, NATIONAL ASSOCIATION
effective DECEMBER 15, 1995
IN TESTIMONY WHEREOF, witness my signature and seal of
office this 15TH day of DECEMBER 1995
Charter No. 23021 /s/
DEPUTY Comptroller of the Currency
<PAGE> 10
EXHIBIT T-1.3
Comptroller of the Currency
Administrator of National Banks
Southeastern District
Marquis One Tower Suite 800
245 Peachtree Center Ave., N.E.
Atlanta, Georgia 30303
TRUST PERMIT
WHEREAS, - SOUTHTRUST BANK OF FLORIDA, NATIONAL ASSOCIATION, located in St.
Petersburg, Florida, being a national banking association, organized under the
statutes of the United States, has made application for authority to act as
fiduciary;
AND WHEREAS, applicable provisions of the statutes of the United States
authorize the grant of such authority;
NOW THEREFORE, I hereby certify that the said association is authorized to act
in 411 fiduciary capacities permitted by such statutes.
IN TESTIMONY WHEREOF, witness my signature and seal of the OCC this 15TH day of
DECEMBER 1995.
/s/ William J. Abernathy, Jr.
William J. Abernathy, Jr.
Director for Compliance and
Bank Analysis
Charter Number 23021
<PAGE> 11
EXHIBIT T-1.4
EXHIBIT C
SOUTHTRUST BANK OF FLORIDA, NATIONAL ASSOCIATION
ST. PETERSBURG, MONA
AMENDED AND RESTATED
BY-LAWS
<PAGE> 12
ARTICLE ONE
SHAREHOLDERS
Section 1.
The annual meeting of shareholders of the Association shall be held in
the City of St. Petersburg, State of Florida, at the Association's principal
offices on the third Tuesday of January of each year at such time as may be
fixed by the Board of Directors of the Association, and if a legal holiday,
then on the next following banking day, or at such other date, tune and place
as may be fixed by the Board of Directors and stated in the notice of the
meeting. At the annual meeting of shareholders, the shareholders shall elect a
Board of Directors of the Association and transact such other business as
properly may be brought before such meeting. Written notice of the annual
meeting of shareholders, stating the date, place and time thereof, shall be
mailed, postage prepaid, at least ten days and not more than sixty days prior
to the date thereof, to each shareholder entitled to vote in respect of the
matters to be considered at such annual meeting of shareholders.
Section 2.
The Board of Directors of the Association, or any shareholder owning,
in the aggregate, not less than 10 percent of the outstanding capital stock of
the Association entitled to vote in respect of any matter to be considered at
any special meeting of shareholders, may call a special meeting of shareholders
at any time. Unless otherwise provided by law, written notice of any special
meeting of shareholders, stating the date, place, tune and purposes thereof,
shall be mailed, postage prepaid, at least ten days and not more than sixty
days prior to the date thereof, to each shareholder entitled to vote at such
special meeting of shareholders.
Section 3.
The holders of the outstanding common stock of the Association shall
be entitled to one vote for each share held by them with respect to all matters
coming before any meeting of shareholders as to which a vote or consent of the
shareholders is required, including the election of directors. Except as
otherwise provided by law or by the Amended and Restated Articles of
Association, a majority of the outstanding capital stock of the Association
entitled to vote thereat shall constitute a quorum in all meetings of the
shareholders, and a majority of the votes cast shall decide every issue or
question presented to any meeting of the shareholders, except that the Board of
Directors of the Association may increase the vote of the shareholders required
with respect to any such matter or question.
Section 4.
At any meeting of shareholders, a shareholder entitled to vote thereat
may be represented by proxy duly appointed by such shareholder in writing Any
person or group of persons, including directors or attorneys for the
Association, may be designated to act as proxy
1
<PAGE> 13
for any such shareholders, but officers or employees of the Association may not
be designated to act as proxy.
Section 5.
The Board of Directors of the Association may fix a record date for
determining shareholders of the Association entitled to notice of and to vote
at any meeting of the shareholders of the Association, which date shall be a
date not in excess of sixty days prior to the date of such meeting.
Section 6.
If a meeting of shareholders is adjourned to a different date, time or
place, notice need not be given of the new date, time or place, provided that
the new date, time or place is announced at the meeting before adjournment,
unless an additional item of business is to be considered at such adjourned
meeting or unless the Association becomes aware of an intervening event
materially affecting any matter to be voted on at such adjourned meeting. If a
new record date for the adjourned meeting is fixed, notice of the adjourned
meeting, stating the date, time, place and purposes thereof, shall be given to
each shareholder of record entitled to vote at such adjourned meeting.
ARTICLE: TWO
DIRECTORS AND OTHER POSITIONS
Section 1.
(a) The business and the affairs of the Association shall be managed
and administered by the Board of Directors of the Association, which shall
consist of not less than five nor more than twenty-five persons, the exact
number of which, within such limits, to be established from time to time by the
Board of Directors or by the holders of the majority of the outstanding capital
stock of the Association entitled to vote in respect of the election of
directors of the Association.
(b) Nominations of persons for election to the Board of Directors of
the Association may be made by the Board of Directors or by any holder of any
outstanding capital stock of the Association entitled to vote in respect of the
election of directors of the Association. Nominations, other than those made by
or on behalf of the Board of Directors of the Association, shall be made in
writing and shall be delivered or mailed to the Chairman of the Board or the
President of the Association and to the Comptroller of the Currency,
Washington, D.C., not less than fourteen days nor more than fifty days prior to
any meeting of shareholders called for the election of directors, provided,
however, that if less than twenty-one days' notice of the meeting is given to
the shareholders, such nomination shall be mailed or delivered to the Chairman
of the Board or the President of the Association and to the Comptroller of the
2
<PAGE> 14
Currency not later than the close of business on the seventh day following the
day on which the notice of meeting was mailed. Such notification shall contain
the following information to the extent known to the notifying shareholder: (a)
the name and address of each proposed nominee; (b) the principal occupation of
each proposed nominee; (c) the total number of shares of capital stock of the
bank that will be voted for each proposed nominee; (d) the name and residence
address of the notifying shareholder; and (e) the number of shares of capital
stock of the Bank owned by the notifying shareholder. Nominations not made in
accordance herewith may, in the discretion of the chairman of the meeting, be
disregarded by the chairman of the meeting, and if so disregarded by the
chairman of the meeting, the inspectors of election, or the persons performing
a similar duty, may disregard all votes cast for such nominees.
(c) Directors need not be elected by written ballot, unless the
chairman of the meeting otherwise determines.
(d) Directors elected- at any meeting of shareholders shall serve for
the ensuing year and until their successors are elected and shall qualify,
subject to other provisions hereof and subject to the ability of the holders of
a majority of the outstanding capital stock entitled to vote in respect of the
election of directors to remove a director, with or without cause, at any tune.
No director shall act as a director until he shall have taken the oath of
office required by law.
Section 2.
All vacancies on the Board of Directors occurring in the intervals
between meetings of the shareholders may be filled by the Board of Directors.
Section 3.
The Board of Directors shall meet immediately upon adjournment of
the meeting of shareholders at which such directors have been elected, or at
such other time as the Board of Directors may determine, and following such
initial meeting, the Board of Directors shall hold regular meetings on the third
Tuesday in each month at 10:30 a.m. at the principal offices of the
Association, unless said Tuesday is a legal holiday, in which case, the meeting
shall be held on the next following banking day at the same place and hour.
Section 4.
Special meetings of the Board of Directors may be called by the
Chairman of the Board, the President or any three members of the Board of
Directors. Each member of the Board of Directors shall be given a reasonable
advance notice of any special meeting of the Board of Directors, stating the
date, time and place of such special meeting, which notice may be given in
writing or in person or by telegram, telephone or other reasonable means.
3
<PAGE> 15
Section 5.
Each director of the Association who is not an officer or employee of
the Association shall be entitled to an attendance fee for each meeting of the
Board of Directors and a quarterly retainer fee, the amount of such fees to be
established from time to time by the Human Resources Committee of the Board of
Directors.
Section 6.
A majority of the entire Board of Directors is required to constitute
a quorum of the Board of Directors authorized to transact business at any
meeting of the Board of Directors. Except as otherwise provided by law, the
Amended and Restated Articles of Association or the Amended and Restated
By-laws, an act of the majority of the directors present at a meeting of the
Board of Directors, at which a quorum is present, shall be the act of the Board
of Directors. In the absence of a quorum, no business shall be transacted
except that the members of the Board of Directors present may adjourn such
meeting from time to time until a quorum is secured.
Section 7.
If a majority of the directors present at any meeting of the Board of
Directors so determines, any action of the Board of Directors may be conducted
by written ballot.
Section 8.
At the initial meeting of the Board of Directors after each annual
meeting of shareholders, the Board of Directors shall elect the committees and
officers contemplated by these Amended and Restated By-laws.
Section 9.
(a) Any director of the Association or any member of any Area Board
who has reached his or her 72nd birthday or who has retired from his or her
principal business position or occupation will not be eligible for re-election
as director or as a member of a Area Board; provided, however, that the
foregoing provision relating to retirement from such person's principal
business position or occupation shall not apply to any director who has served
as Chairman of the Board of the Association.
Section 10.
A director of the Association is eligible for election as a director
emeritus if such person is ineligible for reselection as a director of the
Association under Section 9 above or if such person has served as a director of
the Association for at least five years and voluntarily declines to stand for
reselection as a director. Irnrnediately following each annual meeting of
4
<PAGE> 16
shareholders, or from time to time as the Board of Directors may determine, the
Board of Directors, in its discretion, may elect one or more eligible persons
to serve as a director emeritus for the ensuing year or until his or her
successor is elected and shall qualify. Notwithstanding the foregoing, the
Board of Directors of the Association may remove, with or without cause, a
director emeritus from office at any time. If requested by the Board of
Directors, a director emeritus may attend meetings of the Board of Directors,
but shall not have voting power or power of final decision on any matter
concerning the business or affairs of the Association, and his or her presence
at any meeting of the Board of Directors shall not be counted in the
determination of a quorum. A director emeritus shall not have the same
responsibilities and liabilities imposed by law and banking regulation upon
members of the Board of Directors. A director emeritus shall receive such fees
as the Board of Directors may from time to time determine. A director emeritus
shall not be required to own qualifying shares of Common Stock of SouthTrust
Corporation.
Section 11.
Immediately following each annual meeting of shareholders, or from
time to time as the Board of Directors may determine, the Board of Directors of
the Association may elect persons to serve as honorary members of the Board of
Directors, and in this regard, may establish, in its discretion and by
appropriate resolution, separate honorary boards in each city or other
geographical area in which the Association transacts business (each honorary
board being hereinafter referred to as the "Area Board"). Members of each Area
Board shall be elected to serve for the ensuing year and until their successors
are elected and shall qualify. Notwithstanding the foregoing, the Board of
Directors of the Association may remove, with or without cause, any member of
any Area Board at any time. The members of the Area Boards shall assist the
Board of Directors and the officers of the Association in business development,
with particular emphasis being placed upon business development in the city or
other geographical area with respect to which such members have been
designated, and shall have such other duties and functions as the Board of
Directors, by appropriate resolution, shall determine; provided, however, that
the members of the Area Boards shall not have power of final decision on any
matter concerning the business or affairs of the Association. If requested by
the Board of Directors, the members of the Area Boards shall attend meetings of
the Board of Directors of the Association, but shall not have voting power, and
the presence of any Area Board member at any meeting of the Board of Directors
shall not be counted in the determination of a quorum. Members of the Area
Boards shall not be deemed to have the responsibilities and liabilities imposed
upon directors of the Association by law and banking regulations. Members of
the Area Boards may receive such fees as the Human Resources Committee of the
Board of Directors may from time to time determine. The members of each Area
Board shall not be required to own qualifying shares of Common Stock of
SouthTrust Corporation.
The provisions of the Amended and Restated Articles of Association and
the Amended and Restated By-laws of the Association governing the conduct of
meetings of the Board of Directors, including, without limitation, the time and
place of any such meeting, the power to convene or call a meeting, the giving
of notice of any meeting, and the quorum and
5
<PAGE> 17
voting requirements thereof, shall apply to each Area Board, and meetings and
other business of each Area Board shall be convened and conducted in accordance
with such provisions.
The Chief Executive Officer of the city or other geographical area for
which any Area Board is established shall serve as an ex officio member of any
such Area Board. In addition, subject to the other notice provisions contained
herein, the Chief Executive Officer of the city or other geographical area for
which any Area Board is established shall be entitled to convene or call
meetings of any such Area Board and shall be entitled to attend and vote in
respect of all matters coming before meetings of any such Area Board.
ARTICLE THREE
OFFICERS
Section 1.
The officers of the Association shall be a Chairman of the Board of
Directors, who shall serve as Chief Executive Officer, and a President, who
shall serve as Chief Administrative Officer, both of whom shall be directors;
one or more Vice Presidents, one or more of whom may be designated as Executive
Vice Presidents, one or more of whom may be designated as Senior Vice
Presidents; and one or more of whom may be designated as Group Vice Presidents;
one or more Assistant Vice Presidents; a Cashier; a Secretary; a Comptroller;
and such other officers as may, from time to time, be appointed, or elected, by
the Board of Directors to perform such duties as may be designated by the Board
of Directors of the Association. The same person may be elected to more than
one of such offices, provided that no person may be President and Cashier at
the same time. If the office of the Chairman of the Board of Directors becomes
vacant, the powers and duties herein vested in and imposed upon the holder of
that office shall be vested in and discharged by the President, and the number
of persons constituting the Executive Committee of the Board of Directors shall
be correspondingly decreased while any such vacancy continues.
Section 2.
The Chairman of the Board or, in his absence, the President shall
preside at all meetings of the Board of Directors and, in case of absence or
inability to act of the Chairman of the Board and of the President, the Board
of Directors shall appoint one of their members to preside during such absence
or inability.
The Chairman of the Board, or in his absence, the President shall
preside at all meetings of the Executive Committee of the Board of Directors,
and, in case of absence or inability to act of the Chairman of the Board and
the President, the Executive Committee shall elect one of its members to
preside during such absence or inability.
6
<PAGE> 18
The Chairman of the Board shall exercise general supervision of the
business and affairs of the Association, and, without [UNITING THE foregoing,
shall act as the Chief Executive Officer of the Association. In the absence of
the Chairman of the Board, the powers and duties hereby vested in and imposed
such person shall be exercised by the President. In the absence of both the
Chairman of the Board and the President, those powers and duties shall be
exercised by such officer of the Association as may have been designated for
that purpose by the Chairman of the Board or the President, as the case may be.
If none has been so designated by either thereof, the Board of Directors shall
designate an officer of the Association to act in such capacity.
Section 3.
The President shall have general executive and administrative powers
with respect to the business and affairs of the Association and shall have and
may exercise any and all other powers and duties pertaining by law, regulation
or practice to the office of President. The President also shall have and may
exercise such further powers and duties as may from time to time be assigned or
conferred upon him by the Board of Directors of the Association.
Section 4.
The Vice Presidents of the Association shall perform such duties and
possess such powers as may be directed and delegated by the Board of Directors;
the Executive Vice President(s) shall rank in priority over all other Vice
Presidents; and the Senior Vice President(s) and Group Vice President(s) shall
rank below any Executive Vice President but shall rank in priority and in
presiding over all other Vice Presidents.
Section 5.
The Secretary shall attend all meetings of the Board of Directors and
record all the proceedings of the meetings of the Board of Directors in a boor:
to be kept for that purpose, which will be housed in the office of the
Secretary. The Secretary shall give, or cause to be given, notice of all
meetings of the Board of Directors, and shall perform such other duties as may
be prescribed by the Board of Directors. The Secretary shall have the custody
of the corporate seal of the Association and he or she, or in the Secretary's
absence, the Cashier or an Assistant Secretary, or any other of ficer of THE
ASSOCIATION designated by the Board of Directors, shall have authority to affix
the same to any instrument requiring it. When so affixed, it may be attested by
his or her signature or by the signature of the Cashier. The Board of Directors
may give general authority to any other officer to affix the seal of the
Association and to attest the affixing by his signature.
Section 6.
The Cashier shall have the custody of such property and assets of the
Association as may be entrusted to him or her by the Board of Directors. In the
absence, removal or other
7
<PAGE> 19
disability of the Cashier, the Chairman of the Board or the President shall
designate an officer for that purpose who shall perform his or her duties until
action by the Board of Directors or Executive Committee.
Section 7.
The Chairman of the Board, the President, any Executive Vice
President, any Senior Vice President, any Group Vice President or any Vice
President shall have the power and authority to execute bonds, mortgages and
other contracts requiring a seal, under the seal of the Association, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and the execution thereof shall be expressly delegated
by the Board of Directors to some other officer or agent of the Association.
Section 8.
The other officers of the Association shall perform such duties as may
be prescribed by the Board of Directors, the Chairman of the Board or the
President.
Section 9.
Any office described in Sections 1 through 6 of Article Three of the
Amended and Restated By-laws may, by appropriate resolution adopted by the
Board of Directors of the Association, be established in respect of any city or
other geographical area in which the Association transacts business and the
Board of Directors of the Association may elect persons to fill any such office
created thereby in Section 1 through 6 of Article Three hereof. In such event,
the duties and responsibilities assigned to each officer of the Association
also shall constitute the duties and responsibilities of the person serving in
a comparable office with respect to any such city or other geographical area,
and such persons shall be deemed officers of the Association, except that, in
the latter case, such duties and responsibilities shall be limited to the
operations of the Association in the city or other geographical area with
respect to which such person has been so designated, and provided that there
shall be only one Cashier of the Association Any person designated by the Board
of Directors to serve as an officer with respect to any city or other
geographical area shall be given such title as the Board of Directors may
determine; provided, however, that such titles shall distinguish such persons
from those persons holding comparable positions with the Association.
Section 10.
The officers of this Association shall receive such compensation as
may be fixed by the Board of Directors or, if the Board of Directors directs,
and following advice or consultation with such persons as the Board of
Directors deems appropriate, the Human Resources Committee.
8
<PAGE> 20
Section 11.
The Chairman of the Board may suspend any officer of the Association
except the President until the regular or called meeting of the Board of
Directors, and any officer of this Association may be removed by a majority of
the Board of Directors at any regular or called meeting of the Board of
Directors.
Section 12.
Bonds shall be required of the officers, tellers and other employees
in such amounts as may be designated by the Board of Directors.
Section 13.
The officers shall hold office from the time of their respective
elections until the first meeting of the Board of Directors following the next
annual meeting of the shareholders or until their successors shall be elected
and qualify; provided, however, that the Board of Directors may remove, with or
without cause, any officer of the Association at any tune.
ARTICLE FOUR
CONVEYANCES, TRANSFERS AND CONTRACTS
Section 1.
The Chairman of the Board or the President is authorized, in his
discretion, to do and perform any and all corporate and official acts in
carrying on the business of the Association. Each is hereby empowered, in his
discretion, to appoint all necessary agents or attorneys. The Chairman of the
Board, the President, any Executive Vice President, any Senior Vice President,
any Group Vice President or any Vice President is also authorized to make,
execute and acknowledge all deeds, mortgages, releases, leases, agreements,
contracts, bills of sale, assignments, transfers, powers of attorney or of
substitution, proxies to vote stock, or any other instrument in writing that
may be necessary in the purchase, sale, mortgage, lease, assignment, transfer,
management, or handling In any way of any property of any description, held or
controlled by the Association, and the Secretary or Cashier is authorized to
attest and affix the corporate seal to any and all instruments in writing
requiring such attestation or which are executed under seal The enumeration of
particular powers in this By-law shall not restrict, or be taken to restrict,
in any way the general powers and authority herein given to said officer
Section 2.
The Chairman of the Board, the President, any Executive Vice
President, Senior Vice President, Group Vice President, Vice President or
Assistant Vice President, the Comptroller, the Cashier, or any employee so
designated by the Chairman of the Board or the
9
<PAGE> 21
President, is authorized and empowered to receive and give receipts for money
due and payable to the Association from any source whatever and to sign and
endorse checks, drafts and warrants in its name or on its behalf.
ARTICLE FIVE
COMMITTEES
Section 1.
EXECUTIVE COMMITTEE. The Board of Directors shall, at its initial
meeting after its election in each year, elect from among their number a
committee of three or more who, with the Chairman of the Board AND THE
President of the Association, acting as ex officio members, shall constitute
the Executive Committee of the Board of Directors. Each member of the Executive
Committee shall serve for the ensuing year and until his or her successor is
elected and shall qualify; provided, however, that any member of the Executive
Committee may be removed, with or without cause, at any time by the Board of
Directors. All vacancies in said Committee shall be filled by the Board of
Directors.
The Chairman of the Board of Directors and the President of the
Association shall be ax-officio members of the Committee and shall have the
power to vote with respect to all matters coming before the Executive
Committee. The Executive Committee shall meet at such times as it may decide.
It shall keep a separate book of minutes of its proceedings and actions, and
make reports to the Board of Directors, from time to time, of its actions.
All the powers of the Board of Directors when the Board is not in
session may be exercised by the Executive Committee, except that the Executive
Committee shall not declare dividends or distribute assets of the Association.
Unless otherwise provided by resolutions duly adopted by the Board of
Directors, a majority of the Executive Committee shall constitute a quorum for
the transaction of business.
The Executive Committee shall review all loans when the total
liability of the borrower exceeds an established amount, which amount is to be
determined and set by the Board of Directors from tune to time.
All persons appointed or elected to office by the Executive Committee
shall hold their respective offices only until the next annual meeting of the
Board of Directors.
Each member of the Executive Committee, except salaried officers of
the Association, shall be entitled to an attendance fee for each meeting of the
Committee, the amount of such fee to be established by the Board of Directors.
10
<PAGE> 22
Section 2.
AUDIT AND EXAMINATION COMMITTEE. The Board of Directors shall, at its
initial meeting after its election in each year, elect from among its number a
committee of three or more who constitute the Audit and Examination Committee
of the Board of Directors. No member of the Audit and Examination Committee
shall be an officer or employee of the Association. Each member of the Audit
and Examination Committee shall serve until his or her successor is elected and
shall qualify; provided, however, that any member of the Audit and Examination
Committee may be removed, with or without cause, at any time by the Board of
Directors of the Association.
The Audit and Examination Committee shall make suitable examinations
every six months of the affairs of the Association. The result of such
examination shall be reported in writing to the Board of Directors at the next
regular meeting thereafter, stating whether the Association is in a sound and
solvent condition, whether adequate internal audit controls and procedures are
being maintained, and recommending to the Board such changes in the manner of
doing business, etc. as shall be deemed advisable. The Audit and Examination
Committee, upon its own recommendation and with the approval of the Board of
Directors, may employ a qualified finn of Certified Public Accountants to make
an examination and audit of the Association. If such a procedure is followed,
the one annual examination and audit of such firm of accountants and the
presentation of its report to the Board of Directors will be deemed sufficient
to comply with the requirements of this section of these Amended and Restated
Bylaws.
Each member of the Audit and Examination Committee, except salaried
officers, shall be entitled to an attendance fee for each meeting of the
Committee, the amount of such fee to be established by the Human Resources
Committee of the Board of Directors.
Section 3.
HUMAN RESOURCES COMMITTEE. The Board of Directors shall, at its
initial meeting after its election in each year, elect from among its number a
committee of three or more members who shall constitute the Human Resources
Committee. Each member of the Human Resources Committee shall serve for the
ensuing year and until his or her successor is elected and shall qualify;
provided, however, that any member of the Human Resources Committee may be
removed, with or without cause, at any time by the Board of Directors of the
Association. The Human Resources Committee shall monitor, on behalf of the
Board of Directors, management's performance in providing the management and
manpower requirements for the proper functioning and progress of the
Association and shall counsel with management; the Human Resources Committee
shall review plans for management succession, management training and
management development programs; the Human Resources Committee shall review
(and, if directed by the Board of Directors, establish) salary and wage
administration procedures, including current ranges and surveys; approve any
major deviation from established salary and wage levels; review compliance with
applicable regulations; approve (and, if directed by the
11
<PAGE> 23
Board of Directors, establish) compensation of the principal executive
officers, considering the recommendation of the Chairman of the Board, and in
the case of the Chief Executive Officer's salary, considering the
recommendation of the Chairman or President of SouthTrust Corporation;
establish directors' fees, review and recommend proposed new Board members;
review employee relation plans and activities; and establish a budget for
contributions and review management's recommendations for individual
contributions.
Each member of the Human Resources Committee shall be entitled to an
attendance fee for each meeting of the Human Services Committee, the amount of
such fee to be established by the Board of Directors.
Section 4.
The Board of Directors also may appoint, from time to time, such other
committees, including temporary committees, for such purposes and with such
powers as the Board of Directors may determine, and may establish such
attendance fees for the members of such other cornmiKees as the Board of
Directors may determine.
Section 5.
The persons constituting the entire membership of any committee
provided for or created pursuant to the Amended and Restated By-laws may be
increased by the Board of Directors whenever it sees fit. In the case of any
such increase in the membership of any such committee, the Board of Directors
may fix the term of service on any committee of any person elected to fill a
vacancy created by any such increase.
ARTICLE SIX
LOANS
Section 1.
Loans may be made by or upon the authority of the Executive Committee
or its designee as specified in the Loan Policy and Administration Manual.
Section 2.
On payment of the sums loaned for which collateral security has been
taken, either by mortgage of real or personal property or by other pledge of
collateral, the Executive Committee shall from time to time designate bank
officers that shall have the full power and authority to release or cancel the
same on the margin of the record, if recorded, or in any other manner as the
law in such cases may require or permit.
12
<PAGE> 24
ARTICLE SEVEN
BORROWINGS
Section 1.
With the approval of the Board of Directors or Executive Committee,
the Chairman of the Board, the President, any Executive Vice President, Senior
Vice President, Group Vice President, or Vice President shall have the
authority to borrow money, including the authority to pledge and hypothecate
any securities or any stocks or bonds, notes, or any property, real or
personal, of the Association as collateral for such loan, and to endorse or
guarantee in its name any notes or obligations payable or belonging to the
Association and to execute and acknowledge, any document or Instrument required
for such purpose or purposes.
Section 2.
All time or interest bearing certificates of deposit may be signed by
the Chairman of the Board, the President, any Executive Vice President, Senior
Vice President, Group Vice President, Vice President or any Assistant Vice
President, the Cashier or any employee or employees of the Association
designated by name or by job title or description from time to time by the
Chairman of the Board or the President. The provisions of this Section 2 are
supplemental to any other provision of these Amended and Restated By-laws.
ARTICLE EIGHT
SAVINGS DEPOSITS
Section 1.
Savings deposits shall be subject to such rules and regulations as may
be adopted from time to time by the Board of Directors of this Association.
ARTICLE NINE
CORPORATE SEAL
Section 1.
The Corporate Seal of the Association shall be circular in shape and
around the outer circle shall have the words: SOUTHTRUST BANK OF FLORIDA,
NATIONAL ASSOCIATION and on the inner circle may, but need not include the
words: ST. PETERSBURG, FLORIDA.
13
<PAGE> 25
ARTICLE TEN
DIVIDENDS AND DISTRIBUTIONS
Section 1.
The Board of Directors may, at any regular or special meeting, declare
such dividends, or make such distributions, as in its judgment are proper, out
of the earnings and funds of the Association legally available therefor.
ARTICLE ELEVEN
STOCK CERTIFICATES
Section 1.
Certificates evidencing shares of capital stock of this Association
shall be signed by the Chairman of the Board, the President or any Vice
President or Assistant Vice President and the Cashier, or the Secretary and
shall have the seal of the Association affixed thereto. Stock certificates
shall conform to law in all respects.
Section 2.
Transfers of shares of capital stock of the Association can only be
made in writs upon the production of a certificate or certificates evidencing
such shares of capital stock with a transfer and assignment endorsed thereon by
the person, or persons, in whose name the certificates were issued, the
personal representatives thereof, or duly authorized attorneys-in-fact. The
former certificate, or certificates, shall be surrendered and canceled before
the new certificate or certificates are issued or delivered.
Section 3.
The stock transfer books may be closed for such purposes and such time
as may be specified in resolutions duly adopted by the Board of Directors.
Section 4.
In case of loss or destruction of any certificate evidencing shares of
capital stock of the Association, the holder or owner thereof shall give notice
thereof to the Cashier or Secretary of the Association, and if such holder or
owner shall desire the issue of a new certificate in the place of the one lost
or destroyed, he or she shall make affidavit of such loss or destruction and
deliver the same to the Cashier or the Secretary of the Association and
accompany the same with a bond, with security satisfactory to the Association,
to indemnify and save harmless the Association against any loss, damage or
expense in case the certificate so lost or destroyed should thereafter be
presented to the Association. The proof of loss, and the
14
<PAGE> 26
condition and security of the said bond, shall be approved by the Executive
Committee or Board of Directors before the issue of any new certificate.
ARTICLE TWELVE
AMENDMENT AND REPEAL OF THE AMENDED AND RESTATED BY-LAWS
Section 1.
The Amended and Restated By-laws may be altered, amended or repealed
by the Board of Directors or the shareholders of the Association.
ARTICLE THIRTEEN
EMERGENCY PREPAREDNESS PROGRAM
Section 1.
In the event of the destruction of properties, personnel and records
of the Association, to the extent that continued operation of the Association
is not reasonably possible, provisions in various resolutions hereafter adopted
by the Board of Directors with reference to emergency operations shall become
effective and continue to be in effect until conditions warrant the
reestablishment of operations.
15
<PAGE> 27
EXHIBIT T-1.6
The consent of United States institutional trustees required by
Section 321(b) of the Act.
SouthTrust Bank National Association
420 North 20th Street
Birmingham, AL 35203
October 21, 1997
Securities and Exchange Commission 450 5th Street, N.W.
Washington, D.C. 20549
Gentlemen:
Pursuant to the provisions-of Section 321(b) of-the Trust Indenture Act-of
1939, and subject to the limitations set forth therein, Bank, National
Association hereby consents that reports of examinations-of SouthTrust Bank,
National Association by Federal, State, Territorial or District authorities may
be furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
Sincerely,
SOUTHTRUST BANK NATIONAL; ASSOCIATION
By: /s/ Scott A. Schuhle
---------------------------
Authorized Signatory
<PAGE> 28
<TABLE>
<S> <C> <C>
LIABILITIES
Deposits:
In domestic offices......................................................................................... 18,345,934
Noninterest-bearing................................................................. 2,267,432
Interest-bearing.................................................................... 16,078,502
In foreign offices, Edge and Agreement subsidiaries, and IBFs............................................... 595,955
Noninterest-bearing.................................................................. 0
Interest-bearing .................................................................... 595,955
Federal funds purchased and securities sold under agreements to repurchase................................... 3,151,732
Demand notes issued to the U.S. Treasury..................................................................... 57,435
Trading liabilities ......................................................................................... 0
Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
With a remaining maturity of one year or less.............................................................. 3,162,073
With a remaining maturity of more than one year through three years........................................ 440,291
With a remaining maturity of more than three years......................................................... 607,375
Bank's liability on acceptances executed and outstanding..................................................... 20,847
Subordinated notes and debentures............................................................................ 384,600
Other liabilities............................................................................................ 329,046
Total liabilities............................................................................................ 27,095,288
EQUITY CAPITAL
Perpetual preferred stock and related surplus................................................................ 0
Common stock................................................................................................. 9,007
Surplus...................................................................................................... 854,785
Undivided profits and capital reserves....................................................................... 1,113,510
Net unrealized holding gains (losses) on available-for-sale securities....................................... 9,147
Cumulative foreign currency translation adjustments.......................................................... 0
Total equity capital......................................................................................... 1,986,449
Total liabilities, limited-life preferred stock, and equity capital.......................................... 29,081,737
</TABLE>
I, Tobin N. Vinson, Vice President/STC-Financial
Reporting, do hereby declare that this Report of
Condition is true and correct to the best of my
knowledge and belief.
/s/ Tobin N. Vinson
----------------------
Tobin N. Vinson
10-21-97
----------------------
Date
2
<PAGE> 29
[COMPANY LOGO]
- ------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
- ------------------------------------------------------------------------------
Southeastern District
Marquis One Tower, Suite 600
245 Peachtree Center Ave., N.E.
Atlanta, Georgia 30303
June 2, 1997
Anitta Pross
Senior Administrative Officer
SouthTrust Corporation
P. O. Box 2554
Birmingham, Alabama 35290
Re: 97-SE-02-0019 SouthTrust Bank, National Association
Birmingham, Alabama
Dear Ms. Pross:
This letter is the official certification of the Comptroller of the Currency
(OCC) to merge SouthTrust Bank of South Mississippi, Biloxi, Mississippi,
SouthTrust Bank of North Carolina, Charlotte, North Carolina, SouthTrust Bank
of Northwest Florida, Marianna, Florida, SouthTrust Bank of Russell County,
Phenix City, Alabama, SouthTrust Bank of Florida, National Association, St.
Petersburg, Florida, SouthTrust Bank of Georgia, National Association, Atlanta,
Georgia, SouthTrust Bank of Columbus, National Association, Columbus, Georgia,
SouthTrust Bank of Tennessee, National Association, Nashville, Tennessee, and
SothTrust Bank of South Carolina, National Association, Charleston, South
Carolina, into SouthTrust Bank of Alabama, National Association, Birmingham,
Alabama, effective as of June 2, 1997. The resulting bank title is SouthTrust
Bank, National Association, charter number 14569, with its head office to be
located in Birmingham, Alabama.
This is also the official OCC authorization given to SouthTrust Bank, National
Association to operate the target institution's former head offices and their
branches as branches. Enclosed is a listing of the newly authorized branches
and their assigned OCC branch numbers.
Very truly yours,
/s/ John O. Stein
- ------------------
John O. Stein
Corporate Manager
Enclosure
<PAGE> 30
EXHIBIT T-1.7
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
SouthTrust Bank, N.A. of Birmingham
------------------------------------- --------------------
Name of Bank City
in the state of Alabama , at the close of business on June 30, 1997.
---------------
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
Cash and balances due from depository institutions:
<S> <C>
Noninterest-bearing balances and currency and coin ............................... 943,595
Interest-bearing balances ........................................................ 17,968
Held-to-maturity securities ........................................................ 2,196,767
Available-for-sale securities ...................................................... 3,510,613
Federal funds sold and securities purchased under agreements to resell ............. 136,925
Loan and Lease financing receivables:
Loans and Leases, net of unearned income ........................ 21,275,571
LESS: Allowance for loan and lease losses ...................... 297,642
LESS: Allocated transfer risk reserve .......................... 0
Loans and leases, net of unearned income, allowance, and reserve ................. 20,977,929
Trading assets ..................................................................... 0
Premises and fixed assets (including capitalized leases) ........................... 541,165
Other real estate owned ............................................................ 58,702
Investments in unconsolidated subsidiaries and associated companies ................ 0
Customers' liability to this bank on acceptances outstanding ....................... 20,847
Intangible assets .................................................................. 262,859
Other assets ....................................................................... 414,367
Total assets ....................................................................... 29,081,737
</TABLE>
CONTINUED ON NEXT PAGE
1
