<PAGE> 1
Registration No. 333-51271
and 333-51271-01
As filed with the Securities and Exchange Commission on May 14, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SUCCESS BANCSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
DELAWARE 6712 #36-3497644
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
SUCCESS CAPITAL TRUST I
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6719 #36-4223071
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. Employer
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) Identification No.)
</TABLE>
One Marriott Drive
Lincolnshire, Illinois 60069
(847) 634-4200
(Address and Telephone Number of Each Registrant's Principal Executive Offices)
Saul D. Binder
President and Chief Executive Officer
Success Bancshares, Inc.
One Marriott Drive
Lincolnshire, Illinois 60069
(847) 634-4200
(Name, Address and Telephone Number of Agent for Service for Each Registrant)
Please address a copy of all communications
to:
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<S> <C>
Steven Schwartz Edwin S. del Hierro
Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C. Barack Ferrazzano Kirschbaum Perlman & Nagelberg
200 North LaSalle Street, Suite 2100 333 West Wacker Drive, Suite 2700
Chicago, Illinois 60601 Chicago, Illinois 60606
Telephone No: (312) 346-3100 Telephone No: (312) 984-3100
Fax No: (312) 621-1750 Fax No: (312) 984-3150
</TABLE>
Approximate Date of Proposed Sale to the Public: As soon as practicable
after the 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. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(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 this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
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====================================================================================================================================
TITLE OF EACH CLASS AMOUNT TO PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER UNIT(1) AGGREGATE OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8.95% Cumulative Trust Preferred
Securities of Success Capital Trust I 1,725,000 shares $10.00 $17,250,000 $5,088.75
====================================================================================================================================
8.95% Junior Subordinated Deferrable
Interest Debentures of Success Bancshares,
Inc.(2).................................... -- -- -- --
====================================================================================================================================
Guarantee of Success Bancshares, Inc.
with respect to Trust Preferred
Securities(3).............................. -- -- -- --
====================================================================================================================================
Total(4) .................................. -- -- -- $5,088.75(5)
====================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457.
(2) The 8.95% Junior Subordinated Deferrable Interest Debentures (the
"Junior Subordinated Debentures") will be purchased by Success Capital
Trust I with the proceeds of the sale of the 8.95% Cumulative Trust
Preferred Securities (the "Trust Preferred Securities"). The Junior
Subordinated Debentures may later be distributed for no additional
consideration to the holders of Trust Preferred Securities upon the
dissolution of Success Capital Trust I and the distribution of its
assets. No separate registration fee is payable with respect to the
Junior Subordinated Debentures pursuant to Rule 457(i).
(3) No separate consideration will be received for the Success Bancshares,
Inc. Guarantee.
(4) Such amount represents the liquidation amount of the Success Capital
Trust I Trust Preferred Securities and the principal amount of Junior
Subordinated Debentures that may be distributed to holders of such
Trust Preferred Securities upon any liquidation of Success Capital
Trust I.
(5) Previously paid.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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
May 13, 1998
PROSPECTUS
Success Capital Trust I [LOGO]
8.95% Cumulative Trust Preferred Securities
(Liquidation Amount $10 per Trust Preferred Security)
Fully and Unconditionally Guaranteed, as Described Herein, by
Success Bancshares, Inc. [LOGO]
The 8.95% Cumulative Trust Preferred Securities (the "Trust Preferred
Securities") offered hereby represent undivided beneficial interests in the
assets of Success Capital Trust I, a statutory business trust formed under the
laws of the State of Delaware ("Success Capital"). Success Bancshares, Inc., a
Delaware corporation (referred to as the "Company" when such reference includes
Success Bancshares, Inc. and its subsidiaries, collectively, or "Success
Bancshares" when referring only to the parent company) will be the owner of all
of the beneficial interests represented by common securities of Success Capital
(the "Common Securities" and, collectively with the Trust Preferred Securities,
the "Trust Securities"). Success Capital exists for the sole purpose of issuing
the Trust Securities and investing the proceeds thereof in 8.95% Junior
Subordinated Deferrable Interest Debentures (the "Junior Subordinated
Debentures") to be issued by Success Bancshares. The Junior Subordinated
Debentures will mature on May 19, 2028, which date may be advanced (such
date, as advanced, if appropriate, the "Stated Maturity") to a date not earlier
than May 19, 2003 if certain conditions are met (including Success Bancshares
having received prior approval of the Board of Governors of the Federal Reserve
System (the "Federal Reserve") to do so if then required under applicable
capital guidelines, policies or regulations of the Federal Reserve).
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE TRUST
PREFERRED SECURITIES OFFERED HEREBY.
THESE SECURITIES ARE NOT SAVINGS OR DEPOSIT ACCOUNTS 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 GOVERNMENTAL
AGENCY OR OTHERWISE.
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.
<TABLE>
<CAPTION>
==============================================================================================================================
Underwriting Proceeds to
PRICE TO PUBLIC Commissions(1) Success Capital(2)(3)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Trust Preferred Security $10.00 (2) $9.60
- ------------------------------------------------------------------------------------------------------------------------------
Total(4) $15,000,000 (2) $14,400,000
==============================================================================================================================
</TABLE>
(1) Success Bancshares and Success Capital have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(2) In view of the fact that all of the proceeds of the sale of the Trust
Preferred Securities will be used to purchase the Junior Subordinated
Debentures, Success Bancshares has agreed to pay the Underwriters as
compensation for arranging the investment therein of such proceeds,
$0.40 per Trust Preferred Security, or $600,000 in the aggregate
($690,000 if the Underwriters' over-allotment option is exercised in
full). See "Underwriting."
(3) Before deducting offering expenses payable by Success Bancshares
estimated to be approximately $260,000.
(4) Success Capital and Success Bancshares have granted the Underwriters a
30-day option to purchase up to 225,000 additional Trust Preferred
Securities on the same terms and conditions set forth above solely to
cover over-allotments, if any. If this option is exercised in full, the
total Price to Public and Proceeds to Success Capital will be
$17,250,000 and $16,560,000, respectively. See "Underwriting".
The Trust Preferred Securities are offered by the Underwriters named
herein, subject to prior sale, when, as and if issued by Success Capital and
delivered to and accepted by the Underwriters and subject to certain prior
conditions, including the right of the Underwriters to reject any order in whole
or in part. It is expected that delivery of the Trust Preferred Securities will
be through the facilities of The Depository Trust Company, New York, New York,
on or about May 19, 1998.
EVEREN SECURITIES, INC. TUCKER ANTHONY INCORPORATED
<PAGE> 3
(continued from previous page)
The Trust Preferred Securities will have a preference under certain
circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise over the Common Securities. See
"Description of Trust Preferred Securities--Subordination of Common Securities
of Success Capital held by Success Bancshares."
Holders of the Trust Preferred Securities will be entitled to receive
preferential cumulative cash distributions ("Distributions") accruing from the
date of original issuance and payable quarterly in arrears on the 15th day of
March, June, September and December of each year (subject to possible deferral
as described below), commencing June 15, 1998, at the annual rate of 8.95% of
the Liquidation Amount (as defined herein). The amount of each Distribution due
with respect to the Trust Preferred Securities will include amounts accrued
through the date the Distribution is due. So long as no Debenture Event of
Default (as defined herein) shall have occurred and be continuing, Success
Bancshares will have the right to defer any payment of interest on the Junior
Subordinated Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarters with respect to each deferral period (each,
an "Extension Period"), provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures or end on a date other
than an Interest Payment Date (as defined herein). Upon the termination of any
such Extension Period and the payment of all amounts then due, Success
Bancshares may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Junior Subordinated
Debentures are so deferred, Distributions on the Trust Preferred Securities
will also be deferred and Success Bancshares will not be permitted, subject to
certain exceptions described herein, to declare or pay any cash distributions
with respect to its capital stock or to make any payment with respect to its
debt securities that rank pari passu with or junior to the Junior Subordinated
Debentures. During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue at the rate of 8.95%, compounded quarterly
(and the amount of Distributions to which holders of the Trust Preferred
Securities are entitled will accumulate at the rate of 8.95% per annum,
compounded quarterly), and holders of the Trust Preferred Securities will be
required to accrue income and will be required to pay United States federal
income tax on that income. See "Risk Factors--Risks Relating to Trust Preferred
Securities--Option to Defer Interest Payment Period; Tax and Market Price
Consequences of a Deferral of Interest Payments," "Description of Junior
Subordinated Debentures--Option to Defer Interest Payment Period" and "Certain
Federal Income Tax Consequences--Interest Income and Original Issue Discount."
Success Bancshares will, through the Guarantee Agreement, the Trust
Agreement and the Indenture (each as defined herein), taken together, fully,
irrevocably and unconditionally guarantee all of Success Capital's obligations
under the Trust Preferred Securities (the "Guarantee"). See "Relationship Among
the Trust Preferred Securities, the Junior Subordinated Debentures and the
Guarantee--Full and Unconditional Guarantee." Under the Guarantee, Success
Bancshares will guarantee the payment of Distributions by Success Capital and
payments on liquidation of, or redemption of, the Trust Preferred Securities
(subordinated to the right to payment of Senior and Subordinated Debt of Success
Bancshares, as defined in "Description of Junior Subordinated
Debentures--Subordination") to the extent of funds held by Success Capital. The
Guarantee does not cover payment of Distributions when Success Capital does not
have sufficient funds to pay Distributions or upon the dissolution of Success
Capital. See "Risk Factors--Risks Relating to Trust Preferred
Securities--Limitations on Direct Actions Against Success Bancshares and on
Rights Under Guarantee" and "Description of Guarantee." If Success Bancshares
does not make required payments on the Junior Subordinated Debentures held by
Success Capital, Success Capital will have insufficient funds to pay
Distributions on the Trust Preferred Securities. In such event, a holder of the
Trust Preferred Securities will have the right to institute a legal proceeding
directly against Success Bancshares pursuant to terms of the Indenture to
enforce payment of such Distributions to such holder. See "Description of Junior
Subordinated Debentures--Enforcement of Certain Rights by Holders of Trust
Preferred Securities." The obligations of Success Bancshares under the Guarantee
and the Junior Subordinated Debentures are subordinate and junior in right of
payment to all Senior and Subordinated Debt of Success Bancshares. See "Risk
Factors--Risks Relating to Trust Preferred Securities--Subordination of Success
Bancshares' Obligations Under the Junior Subordinated Debentures and the
Guarantee."
CERTAIN PERSONS PARTICIPATING IN THE PUBLIC OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE TRUST
PREFERRED SECURITIES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE
OF TRUST PREFERRED SECURITIES TO COVER THE SYNDICATE SHORT POSITIONS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THE PUBLIC OFFERING, CERTAIN PERSONS MAY ENGAGE IN
PASSIVE MARKET-MAKING TRANSACTIONS IN THE TRUST PREFERRED SECURITIES ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE
"UNDERWRITING."
ii
<PAGE> 4
(continued from previous page)
The Trust Preferred Securities are subject to mandatory redemption, in
whole or in part, upon repayment of the Junior Subordinated Debentures at the
Stated Maturity or their earlier redemption, in each case at a redemption price
equal to the aggregate liquidation preference of the Trust Preferred Securities
plus any accumulated and unpaid Distributions thereon to the date of redemption.
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of Success Bancshares, subject to any required prior approval of the
Federal Reserve, (i) at any time or from time to time, in whole or in part, on
or after May 19, 2003 or (ii) at any time, in whole (but not in part),
within 90 days following the occurrence and during the continuance of a Tax
Event, an Investment Company Event or a Capital Treatment Event (each as defined
herein), in each case at a redemption price equal to the accrued and unpaid
interest on the Junior Subordinated Debentures to the date fixed for redemption,
plus 100% of the principal amount thereof. See "Description of Trust Preferred
Securities--Redemption."
Success Bancshares will have the right at any time to dissolve Success
Capital and, after satisfaction of liabilities to creditors of Success Capital
as required by applicable law, to cause a Like Amount (as defined herein) of the
Junior Subordinated Debentures to be distributed to the holders of the Trust
Preferred Securities in liquidation of Success Capital, subject to Success
Bancshares having received prior approval of the Federal Reserve if then
required under applicable capital guidelines, policies or regulations of the
Federal Reserve. See "Description of Trust Preferred Securities--Dissolution of
Success Capital and Distribution of Junior Subordinated Debentures."
The Junior Subordinated Debentures are unsecured and subordinated to
all Senior and Subordinated Debt. As of December 31, 1997, Success Bancshares
had approximately $18.6 million aggregate principal amount of Senior and
Subordinated Debt outstanding. The terms of the Junior Subordinated Debentures
place no limitation on the amount of Senior and Subordinated Debt that Success
Bancshares can issue. See "Risk Factors--Risks Relating to Trust Preferred
Securities--Subordination of Success Bancshares' Obligations Under the Junior
Subordinated Debentures and the Guarantee" and "Description of Junior
Subordinated Debentures--Subordination."
In the event of the dissolution of Success Capital, after satisfaction
of liabilities to creditors of Success Capital as required by applicable law,
the holders of Trust Preferred Securities will be entitled to receive a
liquidation amount of $10 per Trust Preferred Security ("Liquidation Amount"),
plus accumulated and unpaid Distributions thereon to the date of payment, which
may be in the form of a Distribution of such Like Amount of Junior Subordinated
Debentures, subject to certain exceptions. See "Description of Trust Preferred
Securities--Dissolution of Success Capital and Distribution of Junior
Subordinated Debentures."
Application has been made to list the Trust Preferred Securities on the
Nasdaq National Market ("Nasdaq"). Although EVEREN Securities, Inc. and Tucker
Anthony Incorporated (the "Underwriters") have indicated an intention to make a
market in the Trust Preferred Securities, the Underwriters are not obligated to
make a market in the Trust Preferred Securities, and any market-making may be
discontinued at any time at the sole discretion of the Underwriters. There can
be no assurance that a market will develop for the Trust Preferred Securities.
See "Risk Factors--Risks Relating to Trust Preferred Securities--Absence of
Existing Public Market; Possible Volatility of Market Prices" and
"Underwriting."
The Trust Preferred Securities will be represented by one or more
global certificates registered in the name of The Depository Trust Company (the
"Depositary") or its nominee. Beneficial interests in the Trust Preferred
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by participants in the Depositary. Except as
described herein, Trust Preferred Securities in certificate form will not be
issued in exchange for global certificates. See "Book- Entry Issuance."
As used herein, (i) the "Indenture" means the Junior Subordinated
Indenture under which the Junior Subordinated Debentures will be issued dated as
of May 19, 1998, as amended and supplemented from time to time, between
Success Bancshares and Bankers Trust Company, as trustee (the "Indenture
Trustee"), (ii) the "Trust Agreement" means the Trust Agreement relating to
Success Capital dated May 19, 1998, as amended and restated from time to
time, among Success Bancshares, Bankers Trust Company, as property trustee (the
"Property Trustee"), Bankers Trust (Delaware), as Delaware trustee (the
"Delaware Trustee"), and the Administrative Trustees named therein (collectively
with the Property Trustee and the Delaware Trustee, the "Issuer Trustees") and
(iii) the "Guarantee Agreement" means the Guarantee Agreement dated as
May 19, 1998, as amended and supplemented from time to time, between
Success Bancshares and Bankers Trust Company, as guarantee trustee (the
"Guarantee Trustee").
iii
<PAGE> 5
[MAP OF SUCCESS BANCSHARES BANKING LOCATIONS
(INCLUDING FUTURE BRANCHES IN DOWNTOWN
CHICAGO AND THE SUBURBAN COMMUNITIES OF SKOKIE (2
BRANCHES), MUNDELEIN, LAKE ZURICH AND NORTH
LIBERTYVILLE, ILLINOIS)]
iv
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Company's Consolidated Financial Statements, including the
accompanying notes, appearing elsewhere in this Prospectus. Unless the context
clearly suggests otherwise, references to the "Company" include Success
Bancshares and its subsidiaries, collectively, and references to "Success
Bancshares" include the parent company only. Except as otherwise indicated, the
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option. Prospective investors should carefully consider the
matters set forth in "Risk Factors."
THE COMPANY
Success Bancshares is a bank holding company headquartered in
Lincolnshire, Illinois. Together with its majority owned subsidiary, Success
National Bank (the "Bank"), the Company had total assets of $378.7 million at
December 31, 1997. Through the Bank, the Company engages in full service
community banking. The Bank is also headquartered in Lincolnshire, Illinois,
located approximately 35 miles north of downtown Chicago, and has eight branch
offices, in addition to its headquarters. These branch offices are located in
Deerfield (2), Libertyville, Lincolnwood (2), Chicago (Lincoln Park), Arlington
Heights and Northbrook, Illinois.
Through its branch network, the Company provides community banking
services to individuals, small-to-medium-sized businesses, local governmental
units and institutional clients primarily in the northern Chicagoland area.
These services include traditional checking, NOW, money market, savings and time
deposit accounts, as well as a number of innovative deposit products targeted to
specific market segments. The Bank offers home equity, home mortgage, commercial
real estate, commercial and consumer loans, safe deposit box facilities and
other innovative and traditional services specially tailored to meet the needs
of customers in its target markets. The Company's goal is to continue to offer
innovative, attractive financial products to businesses and individuals in its
target markets.
As a community bank, the Bank stresses personalized service, local
decision making, quick response to customers and strong relationships with
business, civic and community organizations. Management believes this marketing
and service approach enables the Bank to compete effectively with the money
center, super regional and regional banks that have a presence in its target
markets.
The Company's goal is to foster continued profitable growth while
maintaining strong credit quality. To achieve this goal, the Company's strategic
plan is focused on providing a high level of service to its core customers while
expanding its market share in its target markets. Key elements of the Company's
strategic plan include:
- MAINTAINING STRONG LOCAL PRESENCE AND DECISION-MAKING AUTHORITY. The
Company's strong local presence combined with its focus on local decision making
provide the Bank with the competitive advantage of being able to tailor products
and services to meet the needs of the customers, to make decisions for customers
quickly and to enjoy the symbiotic benefits of investing and participating in
its community.
- PROVIDING A HIGH LEVEL OF SERVICE THROUGH QUALITY EMPLOYEES. The
Company intends to compete with larger institutions by providing a high level of
individualized service and responsiveness, which the Company maintains by
emphasizing the recruiting and training of competent and highly motivated
employees who are able to make decisions and quickly respond to customers'
needs.
- POSITIONING FOR CONTROLLED MARKET EXPANSION. The Company will pursue
disciplined growth by opening branches in areas where management believes local
residents and small-to-medium-sized businesses would benefit from a community
banking alternative. The Company believes that continued consolidation in the
banking industry will provide attractive growth opportunities. The Company's
strategic plan also includes opportunistically acquiring other financial
institutions.
<PAGE> 7
- INCREASING ITS PORTFOLIO OF HIGH QUALITY LOANS. The Company is
committed to maintaining strong credit quality as it grows its loan portfolio.
- FOCUSING ON CORE CUSTOMERS. The Company believes that focusing on
establishing and maintaining long-term relationships with individuals and
small-to-medium-sized businesses in its target markets will result in growth and
increased profitability.
- CREATING INNOVATIVE AND NICHE PRODUCTS. The Company intends to
continue developing innovative loan and deposit products. The Company also
intends to continue developing lending niches which generate loan growth and
service its target markets.
RECENT DEVELOPMENTS
Expansion
Since the consummation of its initial public offering in October 1997,
the Company has worked to aggressively execute its strategic plan.
- The Company has used its capital to grow its asset base from $345.6
million at September 30, 1997 to $378.7 million at December 31, 1997.
- In addition to opening its Lincolnwood/International Office branch in
November 1997, the Company's expansion plans currently include:
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LOCATION PROJECTED BRANCH OPENING BY STATUS
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<S> <C> <C>
Downtown Chicago June 30, 1998 Lease prepared for execution.
Skokie September 30, 1998 Lease executed.
Skokie/Oakton Street September 30, 1998 Lease executed; negotiating
village approval.
Mundelein September 30, 1998 Purchase agreement executed;
remodeling in progress.
Lake Zurich September 30, 1998 Final negotiations on branch
purchase agreement and lease
in progress.
North Libertyville December 31, 1998 Construction in progress.
</TABLE>
- The Company is currently negotiating an agreement to purchase an
industrial loan company with an aggregate asset base of $15 million located in
the State of Hawaii. Although this acquisition is not located in the Company's
primary target markets, management believes that it would be attractive given
the limited number of banking institutions in the State of Hawaii and the local
market knowledge of the President and Chief Executive Officer of Success
Bancshares.
Other
- The Bank has applied to the Office of the Comptroller of the Currency
(the "OCC") for authorization to undertake a transaction the result of which
would be that Success Bancshares would acquire ownership of 100% of the
outstanding capital stock of the Bank (the "Minority Acquisition"). As of
December 31, 1997, Success Bancshares owned 100% of the outstanding preferred
stock and 92% of the outstanding common stock of the Bank.
The Company's principal executive offices are located at One Marriott
Drive, Lincolnshire, Illinois 60069, and its telephone number is (847) 634-4200.
2
<PAGE> 8
SUCCESS CAPITAL
Success Capital is a statutory business trust formed under Delaware law
pursuant to (i) the Trust Agreement and (ii) the filing of a Certificate of
Trust with the Secretary of State of the State of Delaware on April 21, 1998.
The initial trust agreement will be amended and restated in its entirety
substantially in the form to be filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. Success Capital was formed for
the exclusive purposes of (i) issuing and selling the Trust Securities, (ii)
using the proceeds from the sale of the Trust Securities to acquire the Junior
Subordinated Debentures issued by Success Bancshares and (iii) engaging in only
those other activities necessary, advisable or incidental thereto (such as
registering the transfer of the Trust Preferred Securities). Accordingly, the
Junior Subordinated Debentures will be the sole assets of Success Capital, and
payments by Success Bancshares under the Junior Subordinated Debentures (and any
proceeds derived therefrom) will be the sole revenues of Success Capital. The
Common Securities will rank pari passu, and payments will be made thereon pro
rata, with the Trust Preferred Securities, except that upon the occurrence and
during the continuance of an event of default under the Trust Agreement
resulting from an event of default under the Indenture, the rights of Success
Bancshares as holder of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Trust Preferred Securities. See
"Description of Trust Preferred Securities--Subordination of Common Securities
of Success Capital Held by Success Bancshares." Success Bancshares will acquire
Common Securities in an aggregate liquidation amount equal to 3% of the total
capital of Success Capital. Success Capital has a term of 31 years, but may
terminate earlier as provided in the Trust Agreement.
Success Capital's principal executive offices are located at One
Marriott Drive, Lincolnshire, Illinois 60069, and its telephone number is (847)
634-4200.
3
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
TRUST PREFERRED SECURITIES ISSUER.............. Success Capital
SECURITIES OFFERED............................. 1,500,000 Trust Preferred Securities having a Liquidation Amount of $10 per
Trust Preferred Security. The Trust Preferred Securities represent undivided
beneficial interests in Success Capital's assets, which will consist solely of
the Junior Subordinated Debentures (and any proceeds derived therefrom) and
rights to payments thereunder. Success Capital has granted the Underwriters an
option, exercisable within 30 days after the date of this Prospectus, to
purchase up to an additional 225,000 Trust Preferred Securities at the initial
offering price, solely to cover over-allotments, if any.
OFFERING PRICE................................. $10 per Trust Preferred Security
DISTRIBUTIONS.................................. The Distributions payable on each Trust Preferred Security will be fixed at a
rate per annum of 8.95% of the Liquidation Amount, will be cumulative, will
accrue from the date of issuance of the Trust Preferred Securities and will be
payable quarterly in arrears on the 15th day of March, June, September and
December of each year, commencing on June 15, 1998 (subject to possible
deferral as described below). See "Description of Trust Preferred Securities-
Distributions.
EXTENSION PERIODS.............................. So long as no Debenture Event of Default shall have occurred and be
continuing, Success Bancshares will have the right, at any time, to defer
payments of interest on the Junior Subordinated Debentures by extending the
interest payment period thereon for a period not exceeding 20 consecutive
quarters with respect to each Extension Period, provided that no Extension
Period may extend beyond the Stated Maturity of the Junior Subordinated
Debentures or end on a date other than an Interest Payment Date. If interest
payments are so deferred, Distributions on the Trust Preferred Securities will
also be deferred and Success Bancshares will not be permitted, subject to
certain exceptions described herein, to declare or pay any cash distributions
with respect to Success Bancshares' capital stock or make any payments with
respect to any debt securities that rank pari passu with or junior to the
Junior Subordinated Debentures. During an Extension Period, Distributions will
continue to accumulate interest thereon compounded quarterly. Because interest
would continue to accrue and compound on the Junior Subordinated Debentures,
to the extent permitted by applicable law, holders of the Trust Preferred
Securities will be required to accrue income for United States federal
income tax purposes without regard to whether holders receive Distributions.
See "Risk Factors--Risks Relating to Trust Preferred Securities--Option to
Defer Interest Payment Period; Tax and Market Price Consequences of a
Deferral of Interest Payments," "Description of Junior Subordinated
Debentures--Option to Defer Interest Payment Period" and "Certain Federal
Income Tax Consequences--Interest Income and Original Issue Discount."
</TABLE>
4
<PAGE> 10
<TABLE>
<S> <C>
REDEMPTION..................................... The Trust Preferred Securities are subject to mandatory redemption by Success
Capital as described below upon repayment of the Junior Subordinated
Debentures at their Stated Maturity in an amount equal to the amount of Junior
Subordinated Debentures maturing on or being redeemed on such date, at a
redemption price equal to the aggregate Liquidation Amount of the Trust
Preferred Securities plus accumulated and unpaid Distributions thereon to such
date. The Junior Subordinated Debentures will mature on May 19, 2028, which
date may be advanced as set forth in the next sentence. Subject to Federal
Reserve approval if then required under applicable capital guidelines,
policies or regulations of the Federal Reserve, the Junior Subordinated
Debentures are redeemable prior to maturity at the option of Success
Bancshares (i) at any time or from time to time, in whole or in part, on
or after May 19, 2003 or (ii) at any time, in whole (but not in part), within
90 days following the occurrence and during the continuance of a Tax Event,
an Investment Company Event or a Capital Treatment Event, in each case at a
redemption price equal to 100% of the principal amount of the Junior
Subordinated Debentures so redeemed, together with any accrued but unpaid
interest to the date of redemption. See "Description of Trust Preferred
Securities--Redemption" and "Description of Junior Subordinated
Debentures--Redemption."
DISTRIBUTION OF THE JUNIOR
SUBORDINATED DEBENTURES........................ Success Bancshares has the right at any time to dissolve Success Capital and,
after satisfaction of liabilities to creditors of Success Capital as required
by applicable law, to cause the Junior Subordinated Debentures to be
distributed to holders of Trust Preferred Securities in liquidation of Success
Capital, subject to Success Bancshares having received prior approval of the
Federal Reserve to do so if then required under applicable capital guidelines,
policies or regulations of the Federal Reserve. See "Description of Trust
Preferred Securities--Dissolution of Success Capital and Distribution of
Junior Subordinated Debentures."
GUARANTEE...................................... Taken together, Success Bancshares' obligations under various documents
described herein, including the Guarantee Agreement, provide a full guarantee
of payments by Success Capital of Distributions and other amounts due on the
Trust Preferred Securities. Under the Guarantee Agreement, Success Bancshares
guarantees the payment of Distributions by Success Capital and payments on
dissolution of Success Capital or redemption of the Trust Preferred Securities
(subordinate to the right to payment of Senior and Subordinated Debt of
Success Bancshares) to the extent of funds held by Success Capital. If
Success Capital has insufficient funds to pay Distributions on the Trust
Preferred Securities (i.e., if Success Bancshares has failed to make required
payments under the Junior Subordinated Debentures), a holder of the Trust
Preferred Securities would have the right to institute a legal proceeding
directly against Success Bancshares to enforce payment of such Distributions
to such holder. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Trust Preferred
Securities," "Description of Junior Subordinated Debentures-- Debenture Events
of Default" and "Description of Guarantee."
</TABLE>
5
<PAGE> 11
<TABLE>
<S> <C>
RANKING........................................ The Trust Preferred Securities will rank pari passu, and payments thereon will
be made pro rata, with the Common Securities, except as described under
"Description of Trust Preferred Securities-- Subordination of Common
Securities of Success Capital Held by Success Bancshares." The Guarantee and
the Junior Subordinated Debentures are unsecured and subordinated to all
Senior and Subordinated Debt of Success Bancshares. At December 31, 1997, the
aggregate outstanding Senior and Subordinated Debt of Success Bancshares was
approximately $18.6 million. In addition, because Success Bancshares is a
holding company, all obligations of Success Bancshares relating to the
securities described herein will be effectively subordinated to all
existing and future liabilities of Success Bancshares' subsidiaries, including
the Bank. Success Bancshares may cause additional Trust Preferred Securities
to be issued by trusts similar to Success Capital in the future, and there is
no limit on the amount of such securities that may be issued. In this event,
Success Bancshares' obligations under the Junior Subordinated Debentures to
be issued to such other trusts and Success Bancshares' guarantees of the
payments by such trusts will rank pari passu with Success Bancshares'
obligations under the Junior Subordinated Debentures and the Guarantee,
respectively.
VOTING RIGHTS.................................. The holders of the Trust Preferred Securities will have no voting rights
except in limited circumstances relating only to the modification of the Trust
Preferred Securities, the dissolution of Success Capital and certain other
matters described herein. See "Description of Trust Preferred
Securities--Voting Rights; Amendment of the Trust Agreement."
PROPOSED NASDAQ NATIONAL MARKET(SM)
SYMBOL........................................ SXNBP
USE OF PROCEEDS................................ The proceeds to Success Capital from the sale of the Trust Preferred
Securities offered hereby will be invested by Success Capital in the Junior
Subordinated Debentures. Success Bancshares intends to invest (immediately
following the consummation of the proposed Minority Acquisition) approximately
$13,000,000 of the net proceeds in the Bank in the form of common stock of the
Bank to increase its capital level to support anticipated growth. Prior to
the consummation of the Minority Acquisition, Success Bancshares may invest
up to $13,000,000 of the net proceeds in the Bank in the form of preferred
stock of the Bank. See "Business--Recent Developments." Success Bancshares
intends to use the remaining net proceeds for general corporate purposes,
which may include, without limitation, funding additional investments in the
Bank and possible future acquisitions. Pending the investment by Success
Bancshares in the Bank, Success Bancshares will invest such proceeds in
short-term, highly-rated marketable debt securities. See "Use of Proceeds."
ERISA CONSIDERATIONS........................... Prospective purchasers should carefully consider the restrictions on purchase
set forth in "ERISA Considerations."
</TABLE>
6
<PAGE> 12
<TABLE>
<S> <C>
ABSENCE OF MARKET FOR TRUST PREFERRED
SECURITIES..................................... The Trust Preferred Securities will be a new issue of securities for which
there currently exists no market. Although the Underwriters have informed
Success Bancshares and Success Capital that they currently intend to make a
market in the Trust Preferred Securities, they are not obligated to do so, and
any such market-making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the development or liquidity of
any market for the Trust Preferred Securities. See "Underwriting."
RATING......................................... The Trust Preferred Securities will not be rated by any nationally recognized
statistical rating organization. See "Risk Factors--Risks Relating to Trust
Preferred Securities--Absence of Rating for Trust Preferred Securities."
RISK FACTORS................................... An investment in the Trust Preferred Securities involves substantial risks
that should be considered by prospective purchasers. In addition, because
holders of the Trust Preferred Securities may receive Junior Subordinated
Debentures on dissolution of Success Capital, and because payments on the
Junior Subordinated Debentures are the sole source for Distributions on, and
redemptions of, the Trust Preferred Securities, prospective purchasers of the
Trust Preferred Securities are also making an investment decision with
regard to the Junior Subordinated Debentures and should carefully review all
of the information relating to the Junior Subordinated Debentures contained
in this Prospectus. See "Risk Factors" and "Description of the Junior
Subordinated Debentures."
</TABLE>
7
<PAGE> 13
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary consolidated financial and other data should be read in
conjunction with the Company's Consolidated Financial Statements, including the
accompanying notes, appearing elsewhere in this Prospectus and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ---------- ----------
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C>
Interest income..................... $ 24,912 $ 19,850 $ 18,675 $ 14,619 $ 10,960
Interest expense.................... 12,861 10,020 9,886 7,221 5,016
--------- --------- --------- -------- ---------
Net interest income............. 12,051 9,830 8,789 7,398 5,944
Provision for loan losses........... 766 310 207 250 220
--------- --------- --------- -------- ---------
Net interest income after
provision for loan losses...... 11,285 9,520 8,582 7,148 5,724
Other operating income.............. 8,191 7,149 6,004 5,007 5,501
Other operating expenses............ 17,853 15,630 13,342 12,016 10,144
Minority interest in income of
subsidiary bank................ 37 23 47 58 79
--------- --------- --------- -------- ---------
Income before taxes.............. 1,586 1,016 1,197 81 1,002
Income tax expense (benefit)........ 499 233 260 (182) 176
--------- --------- --------- -------- ---------
Net income....................... $ 1,087 $ 783 $ 937 $ 263 $ 826
========== ========== ========== ========= ==========
COMMON SHARE DATA:
Earnings per common share
Basic............................ $ 0.68 $ 0.66 $ 0.93 $ 0.27 $ 0.92
Diluted.......................... 0.65 0.63 0.86 0.26 0.84
Book value(1)....................... 10.30 8.99 7.48 5.83 7.27
Weighted average common
shares outstanding(2)............ 1,531,000 1,061,000 1,011,000 990,000 899,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ----------- ----------- --------- ----------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Loans, net.......................... $ 287,025 $ 203,299 $ 171,135 $ 139,491 $ 109,224
Total assets........................ 378,719 276,349 251,338 222,809 190,677
Deposits............................ 329,424 245,105 227,308 204,171 162,676
Borrowings, including repurchase
agreements................... 16,163 18,975 14,395 11,174 19,644
Shareholders' equity (3)............ 30,070 10,100 8,085 5,973 6,706
</TABLE>
8
<PAGE> 14
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
PERFORMANCE DATA:
Net interest margin(4) ................. 4.17% 4.25% 4.14% 4.14% 4.38%
Return on average assets ............... 0.34 0.31 0.40 0.13 0.53
Return on average equity ............... 7.76 8.33 14.48 4.29 14.00
Loans to deposits ...................... 87.13 82.94 75.29 68.32 67.14
Average equity to average assets ....... 4.39 3.66 2.77 3.00 3.77
ASSET QUALITY RATIOS:
Non-performing loans to total loans(5) . 0.63% 0.06% 0.37% 0.27% 1.25%
Non-performing assets to total assets .. 0.56 0.04 0.25 0.17 0.72
Allowance for loan losses to total loans 0.72 0.70 0.70 0.71 0.78
Non-performing loans to
allowance for loan losses ........... 87.54 8.28 53.74 38.10 160.35
Net loan charge-offs to average loans .. 0.05 0.04 0.01 0.08 0.01
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND DIVIDENDS(6):
Excluding deposit interest ............. 1.90 1.64 2.07 1.10 3.21
Including deposit interest ............. 1.12 1.09 1.12 1.01 1.20
OTHER:
Banking facilities ..................... 9 7 7 5 4
Full-time equivalent employees ......... 162 144 150 120 114
</TABLE>
- ----------
(1) Book value per share is calculated using total shareholders' equity
divided by shares outstanding at end of period.
(2) The increase in weighted average common shares outstanding from
1,061,000 at December 31, 1996 to 1,531,000 at December 31, 1997 is
attributable to Success Bancshares' initial public offering of common
stock consummated in October 1997.
(3) The decrease in shareholders' equity from $6,706 in 1993 to $5,973 in
1994 is primarily attributable to the implementation of SFAS 115
Accounting for Certain Investments in Debt and Equity Securities on
December 31, 1993. The unrealized net loss on securities
available-for-sale, net of tax declined $1.6 million during 1994, and
was recorded as a reduction in shareholders' equity.
(4) Net interest income on a tax-equivalent basis divided by average
interest-earning assets.
(5) Non-performing loans consist of non-accrual loans and loans
contractually past due 90 days or more and still accruing.
(6) Earnings consist of income before income tax plus interest expense.
Fixed charges consist of interest expense.
9
<PAGE> 15
RISK FACTORS
Prospective investors should consider carefully the following factors
associated with the ownership of Trust Preferred Securities together with the
other information contained in this Prospectus. 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, 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, performance or achievements to differ. These considerations are not
intended to represent a complete list of the general or specific risks that may
affect Success Bancshares and Success Capital. It should be recognized that
other risks, including general economic factors and expansion strategies, may be
significant, presently or in the future, and the risks set forth below may
affect the Company and Success Capital to a greater extent than indicated.
RISKS RELATING TO TRUST PREFERRED SECURITIES
SUBORDINATION OF SUCCESS BANCSHARES' OBLIGATIONS UNDER THE JUNIOR SUBORDINATED
DEBENTURES AND THE GUARANTEE
All obligations of Success Bancshares under the Junior Subordinated
Debentures and the Guarantee will be unsecured and rank subordinate and junior
in right of payment to all current and future Senior and Subordinated Debt, the
amount of which is unlimited. At December 31, 1997, the aggregate outstanding
Senior and Subordinated Debt of Success Bancshares was approximately $18.6
million. As a holding company, the right of Success Bancshares to participate in
any distribution of assets of any subsidiary upon such subsidiary's liquidation
or reorganization or otherwise (and thus the ability of holders of the Trust
Preferred Securities to benefit indirectly from such distribution) is subject to
the prior claims of creditors of that subsidiary, except to the extent that
Success Bancshares may itself be recognized as a creditor of that subsidiary.
Accordingly, the Junior Subordinated Debentures and all obligations of Success
Bancshares relating to the Trust Preferred Securities (including obligations
under the Guarantee) will be effectively subordinated to all existing and future
liabilities of the Bank and any other subsidiaries, and holders of the Trust
Preferred Securities should look only to the assets of Success Bancshares, and
not of its subsidiaries, for principal and interest payments on the Junior
Subordinated Debentures. None of the Indenture, the Guarantee Agreement or the
Trust Agreement will place any limitation on the amount of secured or unsecured
debt, including Senior and Subordinated Debt, that may be incurred by Success
Bancshares or its subsidiaries. Further, there will be no limitation on Success
Bancshares' ability to issue additional Junior Subordinated Debentures in
connection with any further offerings of Trust Preferred Securities, and such
additional debentures would rank pari passu with the Junior Subordinated
Debentures. In addition, all obligations of Success Bancshares under the Junior
Subordinated Debentures will rank subordinate to the deposit liabilities of the
Bank, which are insured by the Federal Deposit Insurance Corporation (the
"FDIC"). See "Description of Junior Subordinated Debentures--Subordination" and
"Description of Guarantee--Status of the Guarantee."
OPTION TO DEFER INTEREST PAYMENT PERIOD; TAX AND MARKET PRICE CONSEQUENCES OF A
DEFERRAL OF INTEREST PAYMENTS
So long as no Debenture Event of Default shall have occurred and be
continuing, Success Bancshares will have the right under the Indenture to defer
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarters with respect to
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures or end on a date other
than an Interest Payment Date. As a consequence of any such deferral, quarterly
Distributions on the Trust Preferred Securities by Success Capital will be
deferred (and the amount of Distributions to which holders of the Trust
Preferred Securities are entitled will accumulate additional interest thereon at
the rate of 8.95% per annum, compounded quarterly, from the relevant payment
date for such Distributions) during any such Extension Period. During any such
Extension Period, Success Bancshares will be prohibited from (i) declaring or
10
<PAGE> 16
paying any dividends or distributions on, or redeeming, purchasing, acquiring or
making a liquidation payment with respect to, any of Success Bancshares' capital
stock (other than (a) paying dividends or distributions in common stock of
Success Bancshares, (b) redeeming rights or taking certain other actions under
any shareholders' rights plan, (c) reclassifying any class of Success
Bancshares' capital stock into another class of capital stock or (d) purchasing
Success Bancshares' common stock related to rights under any of Success
Bancshares' benefit plans for its Directors, officers or employees), (ii) making
any payment of principal, interest or premium, if any, on or repaying,
repurchasing, or redeeming any debt securities of Success Bancshares that rank
pari passu or junior in interest to the Junior Subordinated Debentures (provided
this restriction will not prohibit payments under the Guarantee) or (iii)
redeeming, purchasing or acquiring less than all of the Junior Subordinated
Debentures or any of the Trust Preferred Securities. Further, during an
Extension Period, Success Bancshares would have the ability to continue to make
payments on Senior and Subordinated Debt. Prior to the termination of any
Extension Period, so long as no Debenture Event of Default shall have occurred
and be continuing, Success Bancshares may further extend such Extension Period
provided that such extension does not cause such Extension Period to exceed 20
consecutive quarters, to extend beyond the Stated Maturity of the Junior
Subordinated Debentures or to end on a date other than an Interest Payment Date.
Upon the termination of any Extension Period, and the payment of all interest
then accrued and unpaid (including the additional amounts of interest
accumulated on the Trust Preferred Securities at the rate of 8.95% per annum,
compounded quarterly), Success Bancshares may elect to begin a new Extension
Period, subject to the above requirements. Subject to the foregoing, there is no
limitation on the number of times that Success Bancshares may elect to begin an
Extension Period. See "Description of Trust Preferred Securities--Distributions"
and "Description of Junior Subordinated Debentures--Option to Defer Interest
Payment Period."
If Success Bancshares exercises its right to defer payments of
interest, the holders of Trust Preferred Securities will be required to include
their pro rata share of original issue discount ("OID") in gross income as it
accrues for United States federal income tax (and possibly other) purposes in
advance of the receipt of cash. See "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount." Should Success
Bancshares elect to exercise its right to defer payments of interest in the
future, the market price of the Trust Preferred Securities is likely to be
adversely affected. A holder that disposes of such holder's Trust Preferred
Securities during an Extension Period, therefore, might not receive the same
return on such holder's investment as a holder that continues to hold the Trust
Preferred Securities. As a result of the existence of Success Bancshares' right
to defer interest payments, the market price of the Trust Preferred Securities
may be more volatile than the market prices of other securities on which OID
accrues that are not subject to any such deferral.
DEPENDENCE ON DIVIDENDS AND INTEREST PAYMENTS FROM THE BANK
The ability of Success Capital to pay amounts due on the Trust
Preferred Securities is dependent upon Success Bancshares making payments on the
Junior Subordinated Debentures as and when required. As a holding company
without significant assets other than its equity interest in the Bank, Success
Bancshares' ability to pay interest on the Junior Subordinated Debentures to
Success Capital (and consequently Success Capital's ability to pay Distributions
on the Trust Preferred Securities) and its obligations under the Guarantee
depends primarily upon the cash dividends Success Bancshares receives from the
Bank. Dividend payments from the Bank are subject to regulatory limitations,
generally based on current and retained earnings, imposed by the various
regulatory agencies with authority over the Bank, as well as certain other
regulatory restrictions if such dividends would impair the safety and soundness
of the Bank. Payment of dividends by the Bank is also subject to the Bank's
profitability, financial condition and capital expenditures and other cash flow
requirements. No assurance can be given that the Bank will be able to pay
dividends in the future. See "Supervision and Regulation."
ADVANCEMENT OF STATED MATURITY OF JUNIOR SUBORDINATED DEBENTURES; REDEMPTION OF
TRUST PREFERRED SECURITIES
Success Bancshares will have the right, subject to receipt of prior
approval from the Federal Reserve if then required under applicable capital
guidelines, policies or regulations of the Federal Reserve, at any time to
advance the maturity of the Junior Subordinated Debentures to a date not earlier
than five years from the date of issuance and thereby cause the Trust Preferred
Securities to be redeemed on such earlier date. See "Description of Junior
Subordinated Debentures--Redemption."
11
<PAGE> 17
TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL TREATMENT EVENT REDEMPTION
Upon the occurrence and during the continuation of a Tax Event, an
Investment Company Event or a Capital Treatment Event (whether occurring before
or after May 19, 2003), Success Bancshares will have the right, if certain
conditions are met, to redeem the Junior Subordinated Debentures in whole (but
not in part) at 100% of the principal amount together with accrued but unpaid
interest to the date fixed for redemption within 90 days following the
occurrence of such Tax Event, Investment Company Event or Capital Treatment
Event and therefore to cause a mandatory redemption of the Trust Preferred
Securities. The exercise of such right is subject to Success Bancshares having
received prior approval of the Federal Reserve to do so if then required under
applicable guidelines, policies or regulations of the Federal Reserve. See
"Description of Trust Preferred Securities--Redemption."
A "Tax Event" means the receipt by Success Bancshares and Success
Capital of an opinion of counsel experienced in such matters to the effect that,
as a result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such prospective change, pronouncement or decision is announced on or after the
original issuance of the Trust Preferred Securities, there is more than an
insubstantial risk that (i) Success Capital is, or will be within 90 days of the
date of such opinion, subject to United States federal income tax with respect
to income received or accrued on the Junior Subordinated Debentures, (ii)
interest payable by Success Bancshares on the Junior Subordinated Debentures is
not, or within 90 days of such opinion will not be, deductible by Success
Bancshares, in whole or in part, for United States federal income tax purposes,
or (iii) Success Capital is, or will be within 90 days of the date of the
opinion, subject to more than a de minimis amount of other taxes, duties or
other governmental charges. See "--Uncertainty of Deductibility of Interest on
the Junior Subordinated Debentures and Related Possible Tax Law Changes" below
for a discussion of certain legislative proposals that, if adopted, could give
rise to a Tax Event, which may permit Success Bancshares to cause a redemption
of the Junior Subordinated Debentures (and therefore the Trust Preferred
Securities) prior to May 19, 2003.
An "Investment Company Event" means the receipt by Success Capital of
an opinion of counsel experienced in such matters to the effect that, as a
result of any change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, Success Capital is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), which change
becomes effective on or after the original issuance of the Trust Preferred
Securities.
A "Capital Treatment Event" means the receipt by Success Bancshares of
an opinion of counsel experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such prospective change, pronouncement or decision is announced on or after the
date of issuance of the Trust Preferred Securities under the Trust Agreement,
the Trust Preferred Securities (or any substantial portion thereof) do not, or
within 90 days of the date of such opinion will not, constitute Tier 1 capital
(or the then equivalent thereof), except as otherwise restricted under the 25%
Capital Limitation (as defined herein), for purposes of the capital adequacy
guidelines of the Federal Reserve, as then in effect and applicable to Success
Bancshares.
UNCERTAINTY OF DEDUCTIBILITY OF INTEREST ON THE JUNIOR SUBORDINATED DEBENTURES
AND RELATED POSSIBLE TAX LAW CHANGES
Success Bancshares' ability to deduct the interest paid on the Junior
Subordinated Debentures depends upon whether the Junior Subordinated Debentures
are characterized as debt instruments for federal income tax purposes, taking
all the relevant facts and circumstances into account. Success Bancshares
believes that the Junior Subordinated Debentures are debt instruments for
federal income tax purposes and that interest on the Junior
12
<PAGE> 18
Subordinated Debentures will, therefore, be deductible by Success Bancshares.
There is no clear authority on the appropriate characterization for federal
income tax purposes of instruments such as the Junior Subordinated Debentures
when they are issued in connection with an offering of securities such as the
Trust Preferred Securities.
Under the Taxpayer Relief Act of 1997, enacted on August 5, 1997,
issuers of certain convertible debt instruments are not entitled to deduct
interest thereon. For example, interest is not deductible if the debt instrument
is convertible into equity of the issuer (or a related party) at the option of
the holder and there is a substantial certainty that the holder will exercise
the conversion option. Similarly, interest is not deductible if the debt
instrument is part of an arrangement which is reasonably expected to result in a
conversion at the option of the issuer (or a related party). Success Bancshares
believes that this legislation will not affect the deductibility of interest on
the Junior Subordinated Debentures. The Internal Revenue Service (the
"Service"), however, has not yet issued any guidance regarding its
interpretation of the new legislation. There can be no assurance that the
Service will not take the position that interest on the Junior Subordinated
Debentures is not deductible. Accordingly, there can be no assurance that an
audit or future interpretation by the Service of the new legislation will not
result in a Tax Event and a redemption of the Trust Preferred Securities before,
or after May 19, 2003. If the interest on the Junior Subordinated
Debentures is not deductible by Success Bancshares, Success Bancshares would
have significant additional income tax liabilities. Any such tax liability
could adversely affect the ability of Success Bancshares to pay interest on the
Junior Subordinated Debentures to Success Capital (and consequently Success
Capital's ability to pay Distributions on the Trust Preferred Securities and
Success Bancshares' ability to pay its obligations under the Guarantee).
Two recent legislative initiatives, the 1998 budget proposals of
President Clinton's administration and the Revenue Reconciliation Bill of 1996,
could have denied interest deductions for interest on the Junior Subordinated
Debentures. Neither the 1998 proposal nor the 1996 bill has been enacted.
However, future enactment of these or similar proposals could affect deduction
of interest expenses and OID with respect to the Junior Subordinated Debentures.
This, in turn, could give rise to a Tax Event, which would permit Success
Bancshares, upon approval of the Federal Reserve if such approval is then
required under applicable capital guidelines, policies or regulations of the
Federal Reserve, to cause a redemption of the Trust Preferred Securities. See
"Description of Trust Preferred Securities--Redemption," "Description of Junior
Subordinated Debentures--Redemption" and "Certain Federal Income Tax
Consequences--Possible Tax Law Changes Affecting the Trust Preferred
Securities."
POSSIBLE DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TRUST
PREFERRED SECURITIES
Success Bancshares will have the right at any time to dissolve Success
Capital and, after satisfaction of liabilities to creditors of Success Capital
as required by applicable law, cause the Junior Subordinated Debentures to be
distributed to the holders of the Trust Preferred Securities in liquidation of
Success Capital. The exercise of such right is subject to Success Bancshares
having received prior approval of the Federal Reserve if then required under
applicable capital guidelines, policies or regulations of the Federal Reserve.
Because holders of the Trust Preferred Securities may receive Junior
Subordinated Debentures in liquidation of Success Capital, and because
Distributions are otherwise dependent upon payments on the Junior Subordinated
Debentures, prospective purchasers of the Trust Preferred Securities are also
making an investment decision with regard to the Junior Subordinated Debentures
and should carefully review all the information regarding the Junior
Subordinated Debentures contained herein. See "Description of Trust Preferred
Securities--Dissolution of Success Capital and Distribution of Junior
Subordinated Debentures" and "Description of Junior Subordinated Debentures."
Under current United States federal income tax law and interpretations
and assuming, as expected, Success Capital is classified as a grantor trust for
such purposes, Success Bancshares does not believe that a distribution of the
Junior Subordinated Debentures upon a liquidation of Success Capital would be a
taxable event to holders of the Trust Preferred Securities. However, if a Tax
Event were to occur which would cause Success Capital to be subject to United
States federal income tax with respect to income received or accrued on the
Junior Subordinated Debentures, a distribution of the Junior Subordinated
Debentures by Success Capital could be a taxable event to Success Capital and
the holders of the Trust Preferred Securities. See "Certain Federal Income Tax
Consequences--Distribution of Junior Subordinated Debentures to Holders of Trust
Preferred Securities."
13
<PAGE> 19
LIMITATIONS ON DIRECT ACTIONS AGAINST SUCCESS BANCSHARES AND ON RIGHTS UNDER THE
GUARANTEE
The Guarantee will guarantee to the holders of the Trust Preferred
Securities the following payments, to the extent not paid by Success Capital:
(i) any accumulated and unpaid Distributions required to be paid on the Trust
Preferred Securities, to the extent that Success Capital has funds on hand
available therefor at such time, (ii) the redemption price with respect to any
Trust Preferred Securities called for redemption, to the extent that Success
Capital has funds on hand available therefor at such time and (iii) upon a
voluntary or involuntary dissolution of Success Capital (unless the Junior
Subordinated Debentures are distributed to holders of the Trust Preferred
Securities), the lesser of (a) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions to the date of payment to the extent that
Success Capital has funds on hand available therefor at such time (the
"Liquidation Distribution") and (b) the amount of assets of Success Capital
remaining available for distribution to holders of the Trust Preferred
Securities after satisfaction of liabilities to creditors of Success Capital as
required by applicable law. The holders of not less than a majority in aggregate
liquidation amount of the Trust Preferred Securities have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Guarantee Trustee in respect of the Guarantee or to direct the exercise
of any trust power conferred upon the Guarantee Trustee under the Guarantee
Agreement. Any holder of the Trust Preferred Securities may institute a legal
proceeding directly against Success Bancshares to enforce its rights under the
Guarantee without first instituting a legal proceeding against Success Capital,
the Guarantee Trustee or any other person or entity. If Success Bancshares were
to default on its obligation to pay amounts payable under the Junior
Subordinated Debentures, Success Capital would lack sufficient funds for the
payment of Distributions or amounts payable on redemption of the Trust Preferred
Securities or otherwise, and, in such event, holders of the Trust Preferred
Securities would not be able to rely upon the Guarantee for payment of such
amounts. Instead, in the event a Debenture Event of Default shall have occurred
and be continuing and such event is attributable to the failure of Success
Bancshares to pay interest on or principal of the Junior Subordinated Debentures
on the payment date on which such payment is due and payable, then a holder of
Trust Preferred Securities may institute a legal proceeding directly against
Success Bancshares for enforcement of payment to such holder of the principal of
or interest on such Junior Subordinated Debentures having a principal amount
equal to the aggregate Liquidation Amount of the Trust Preferred Securities of
such holder (a "Direct Action"). In connection with such Direct Action, Success
Bancshares will have a right of set-off under the Indenture to the extent of any
payment made by Success Bancshares to such holder of Trust Preferred Securities
in the Direct Action. Except as described herein, holders of Trust Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the Junior Subordinated Debentures or assert directly any other
rights in respect of the Junior Subordinated Debentures. See "Description of
Junior Subordinated Debentures--Enforcement of Certain Rights by Holders of
Trust Preferred Securities" and "Description of Guarantee." The Trust Agreement
provides that each holder of Trust Preferred Securities by acceptance thereof
agrees to the provisions of the Guarantee Agreement and the Indenture.
LIMITED VOTING RIGHTS
Holders of Trust Preferred Securities generally will have limited
voting rights relating only to the modification of the Trust Preferred
Securities, the dissolution of Success Capital and the exercise of Success
Capital's rights as a holder of Junior Subordinated Debentures and the
Guarantee. Holders of Trust Preferred Securities will not be entitled to vote to
appoint, remove or replace the Property Trustee or the Delaware Trustee, and
such voting rights will be vested exclusively in the holder of the Common
Securities except upon the occurrence of certain events described in the Trust
Agreement. In no event will the holders of the Trust Preferred Securities have
the right to vote to appoint, remove or replace the Administrative Trustees;
such voting rights will be vested exclusively in the holder of the Common
Securities. The Property Trustee, the Administrative Trustees and Success
Bancshares may amend the Trust Agreement without the consent of holders of Trust
Preferred Securities, subject to certain exceptions, to ensure that Success
Capital will be classified for United States federal income tax purposes as a
grantor trust or to ensure that Success Capital will not be required to register
as an "investment company." See "Description of Trust Preferred
Securities--Voting Rights; Amendment of the Trust Agreement" and "--Removal of
Trustees."
14
<PAGE> 20
LIMITED COVENANTS
The covenants in the Indenture are limited, and there are no covenants
relating to Success Bancshares in the Trust Agreement. As a result, neither the
Indenture nor the Trust Agreement protects holders of Junior Subordinated
Debentures or Trust Preferred Securities, respectively, in the event of a
material adverse change in the Company's financial condition or results of
operations or limits the ability of Success Bancshares or any subsidiary to
incur additional indebtedness. Therefore, the provisions of these governing
instruments should not be considered a significant factor in evaluating whether
Success Bancshares will be able to comply with its obligations under the Junior
Subordinated Debentures or the Guarantee.
TRUST PREFERRED SECURITIES NOT FDIC INSURED
The Trust Preferred Securities are not savings or deposit accounts or
other obligations of a bank, and are not insured by the Bank Insurance Fund, the
Savings Association Insurance Fund, the FDIC or any other governmental agency or
otherwise.
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF MARKET PRICES
There exists no public market for the Trust Preferred Securities. Success
Bancshares has applied to have the Trust Preferred Securities approved for
listing on Nasdaq. There can be no assurance that an active and liquid trading
market will develop or that a continued listing of the Trust Preferred
Securities will be available on Nasdaq. Although the Underwriters have informed
Success Capital and Success Bancshares that they intend to make a market in the
Trust Preferred Securities, the Underwriters are not obligated to do so and any
such market-making activity may be terminated at any time without notice to the
holders of the Trust Preferred Securities. In the event that an active trading
market for the Trust Preferred Securities does not develop, the market price and
liquidity of the Trust Preferred Securities will be adversely affected.
Future trading prices of the Trust Preferred Securities may be subject to
significant fluctuations in response to prevailing interest rates, the operating
results and financial condition of the Company, the market for similar
securities and general market and economic conditions. The offering price and
rate of Distributions of the Trust Preferred Securities have been determined by
negotiations among representatives of Success Bancshares and the Underwriters,
and the offering of the Trust Preferred Securities may not be indicative of the
market price following the offering. As a result of the existence of Success
Bancshares' right to (i) defer interest payments on or, subject to prior
approval of the Federal Reserve if then required under applicable capital
guidelines, policies or regulations of the Federal Reserve, advance the Stated
Maturity of the Junior Subordinated Debentures, and (ii) dissolve Success
Capital and distribute Junior Subordinated Debentures to the holders of Trust
Preferred Securities, the market price of the Trust Preferred Securities may be
more volatile than the market prices of debt securities that are not subject to
such provisions. There can be no assurance as to the market prices for the Trust
Preferred Securities or the Junior Subordinated Debentures, which are not being
listed on Nasdaq, that may be distributed in exchange for the Trust Preferred
Securities if Success Bancshares exercises its right to dissolve Success
Capital. Accordingly, the Trust Preferred Securities that an investor may
purchase, or the Junior Subordinated Debentures that a holder of the Trust
Preferred Securities may receive in dissolution of Success Capital, may trade at
a discount from the price that the investor paid to purchase the Trust Preferred
Securities. See "Description of Junior Subordinated Debentures--Distribution
Upon Liquidation."
TRADING PRICE
The Trust Preferred Securities may trade at a price that does not fully
reflect the value of accrued but unpaid interest with respect to the underlying
Junior Subordinated Debentures. A holder who uses the accrual method of
accounting for tax purposes (and a cash method holder, if the Junior
Subordinated Debentures are deemed to have been issued with OID) and who
disposes of its Trust Preferred Securities between record dates for payments of
Distributions thereon will be required to include accrued but unpaid interest on
the Junior Subordinated Debentures through the date of disposition in income as
ordinary income (i.e., interest or, possibly, OID), and to add such amount to
its adjusted tax basis in its share of the underlying Junior Subordinated
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (which will include all accrued but unpaid
15
<PAGE> 21
interest), a holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes. See "Certain Federal Income Tax
Considerations--Interest Income and Original Issue Discount" and --Sales or
Redemption of Trust Preferred Securities."
ABSENCE OF RATING FOR TRUST PREFERRED SECURITIES
The Trust Preferred Securities are not rated by any rating agency and
are not anticipated to be rated in the future. The Company believes, however,
that if the Trust Preferred Securities were to be rated, the rating determined
would be that of speculative grade.
RISKS RELATING TO THE COMPANY
IMPACT OF BRANCH OPENINGS AND ACQUISITIONS ON PROFITABILITY
The Company's recent historical results have been impacted by the
opening of its branch banking facilities. Each of the various branch facilities
was newly opened by the Company within the past six years, including the
Lincolnwood/International Office branch which opened in November 1997, the
Arlington Heights branch which opened in September 1997 and the downtown
Deerfield branch which opened in April 1997. The level of reported net income
and return on average assets for the Company in the near term will continue to
be impacted by start-up costs associated with these branching operations.
Management believes that new branch facilities typically require 18 to 30 months
of operation before becoming profitable, due to the impact of organizational and
overhead expenses, the start-up phase of generating deposits and the time lag
typically involved in redeploying deposits into attractively priced loans and
other higher yielding assets. The Company intends to expand in its target
markets by establishing additional branches, and is currently in the process of
opening branches in downtown Chicago and the suburban communities of Skokie (2
branches), Mundelein, Lake Zurich and North Libertyville, Illinois. To the
extent the Company undertakes additional branching, the Company is likely to
continue to experience the effects of higher operating expenses relative to
operating income from the new branches, which may limit increases in
profitability. The Company's ability to expand by establishing new branch
offices is dependent on its ability to identify advantageous branch office
locations and generate new deposits and loans from those locations that will
create an acceptable level of net income for the Company. There can be no
assurance the Company will be able to successfully establish additional
branches.
Although the Company has expanded through establishing new branch
offices in the past, the Company's strategic plan also includes selectively
acquiring other financial institutions in its target markets. There can be no
assurance that potential acquisitions will be available on terms acceptable to
the Company or that the required regulatory approvals for any proposed
acquisitions will be obtained. There also can be no assurance that the Company
will be able to successfully integrate, operate and manage any business that it
does acquire so as to maintain or increase profitability.
ADVERSE IMPACT OF ECONOMIC CONDITIONS
Economic conditions beyond the Company's control may have a significant
adverse impact on the Company's operations. Examples of such conditions include:
(i) the strength of credit demand by customers, (ii) the introduction and growth
of new investment instruments and transaction accounts by non-bank financial
competitors and (iii) changes in the general levels of interest rates, including
changes resulting from the monetary activities of the Federal Reserve.
Economic growth in the Company's market area is dependent upon the
local economy. Adverse changes in the economy of the Chicago metropolitan area
would likely impair the Bank's ability to gather deposits and could otherwise
have a negative effect on its business, including the demand for new loans, the
ability of customers to repay loans and the value of the collateral pledged to
the Bank. See "Business--The Company" and "--Competition."
16
<PAGE> 22
CREDIT RISK; ALLOWANCE FOR LOAN LOSSES
There are risks inherent in making any loan, including risks with
respect to the period of time over which the loan may be repaid, risks resulting
from changes in economic and industry conditions including those in the
Company's local market area, risks inherent in dealing with individual borrowers
and risks resulting from uncertainties as to the future value of the collateral.
The Company's allowance for loan losses is established in consultation with
management of the Bank and is maintained at a level considered adequate by
management to absorb anticipated loan losses. The amount of future losses is
susceptible to changes in economic, operating and other conditions, including
changes in interest rates, that may be beyond the Company's control, and such
losses may exceed current estimates. There can be no assurance that the
Company's allowance for loan losses will prove sufficient to cover actual loan
losses in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition."
EFFECT OF INTEREST RATES
Like most banks, the Bank realizes income primarily from the spread
between interest earned on loans and investments and the interest paid on
deposits and borrowings. It is expected that the Bank, from time to time, will
experience "gaps" in the interest rate sensitivities of its assets and
liabilities, meaning that either its interest-bearing liabilities will be more
sensitive to changes in market interest rates than its interest-earning assets,
or vice versa. In either event, if market interest rates should move contrary to
the Bank's position, the "gap" will adversely affect the Bank's earnings. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Asset/Liability Management."
COMPLIANCE WITH REGULATORY CAPITAL REQUIREMENTS; EFFECT ON GROWTH
The Federal Reserve has established certain minimum risk-based capital
standards that apply to bank holding companies, and the OCC has established
certain minimum risk-based capital standards for national banks. As of December
31, 1997, Success Bancshares and the Bank equaled or exceeded all capital
adequacy requirements. As of December 31, 1997, the most recent notification
from the OCC categorized the Bank as "well capitalized" under the regulatory
framework for prompt corrective action. The growth of Success Bancshares and the
Bank in the past has been, and may in the future be, constrained by these
capital adequacy requirements. There can be no assurance that Success Bancshares
and/or the Bank will continue to be in compliance with all of the applicable
regulatory capital requirements. Bank holding companies and/or banks which are
not in compliance with the applicable capital requirements may be subject to
significant operating restrictions including, among other restrictions,
restrictions on the payment of dividends and incurring additional indebtedness.
Any imposition of such operating restrictions on Success Bancshares and/or the
Bank could have an adverse effect on the Company's growth and its financial
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Supervision and
Regulation."
RELIANCE ON KEY PERSONNEL
The Company's success to date has been influenced strongly by its
ability to attract and to retain senior management experienced in providing
community banking services. Success Bancshares' ability to retain the management
team of the Bank and, as Success Bancshares grows, to attract and retain
qualified additional senior and middle management, will continue to be important
to successful implementation of the Company's strategy. Currently, Success
Bancshares is the beneficiary under a key-man life insurance policy on Saul D.
Binder, President and Chief Executive Officer of Success Bancshares and the
Bank, in the amount of $1.0 million. Mr. Binder has also entered into an
employment agreement with Success Bancshares. Steven A. Covert, Executive Vice
President and Chief Financial Officer of Success Bancshares, has entered into an
Executive Severance Agreement with Success Bancshares. The unexpected loss of
services of any key management personnel, or the inability to recruit and retain
qualified personnel in the future, could have an adverse effect on the Company's
business and financial results. See "Management."
17
<PAGE> 23
COMPETITION
The Company is headquartered in Lincolnshire, Illinois, a suburb of
Chicago. The Company currently conducts its business from its main office and
eight additional branch offices, all of which are located in the north and
northwest suburbs of Chicago and the north side of Chicago. The Company faces
significant competition both in making loans and in attracting deposits. Most of
the Company's mortgage loans are secured by properties located in Cook and Lake
Counties. The Chicago metropolitan area has a high density of financial
institutions, many of which have a state-wide or regional presence, and, in some
cases, a national presence, and all of which are competitors of the Company to
varying degrees. The Company's competition for loans comes principally from
commercial banks, savings banks, savings and loan associations, credit unions,
mortgage banking companies and insurance companies. Many of the Company's
non-bank competitors are not subject to the same degree of regulation as that
imposed on bank holding companies, federally insured banks and national banks.
As a result, such non-bank competitors have advantages over the Company in
providing certain services. The Company's most direct competition for deposits
has historically come from commercial banks, savings banks, savings and loan
associations and credit unions, many of which are significantly larger than the
Company and, therefore, have greater financial and marketing resources than
those of the Company. The Company faces additional competition for deposits from
short-term money market funds, other corporate and government securities funds
and from other financial institutions such as brokerage firms and insurance
companies. Such competition may limit the growth and profitability of the
Company in the future. See "Business--Competition" and "--Market."
SUPERVISION AND REGULATION
Bank holding companies and national banks operate in a highly regulated
environment and are subject to supervision and examination by federal regulatory
agencies. Success Bancshares is subject to the Bank Holding Company Act of 1956,
as amended (together with the regulations issued thereunder, the "BHC Act"), and
to regulation and supervision by the Federal Reserve. The Bank, as a national
bank that is a member of the Federal Reserve System and insured by the FDIC, is
subject to the primary regulation and supervision of the OCC, and secondarily,
of the FDIC. Federal laws and regulations govern numerous matters including
changes in the ownership or control of banks and bank holding companies,
maintenance of adequate capital and the financial condition of a financial
institution, permissible types, amounts and terms of extensions of credit and
investments, permissible non-banking activities, the level of reserves against
deposits and restrictions on dividend payments. The OCC and the FDIC possess
cease and desist powers to prevent or remedy unsafe or unsound practices or
violations of law by national banks, and the Federal Reserve possesses similar
powers with respect to bank holding companies. These and other restrictions
limit the manner in which Success Bancshares and the Bank may conduct business
and obtain financing. Furthermore, the commercial banking business is affected
not only by general economic conditions, but also by the monetary policies of
the Federal Reserve. Changes in monetary or legislative policies may affect the
interest rates the Bank must offer to attract deposits and the interest rates it
must charge on its loans, as well as the manner in which it offers deposits and
makes loans. These monetary policies have had, and are expected to continue to
have, significant effects on the operating results of commercial banks,
including the Bank. See "Supervision and Regulation."
YEAR 2000 COMPLIANCE
The Company has established a committee (the "Y2K Committee") comprised
of senior management to address the implications of the Year 2000 ("Y2K") on the
Company's business systems, services, major loan customers and competitive
conditions. The Y2K Committee reports directly to the Company's Audit Committee
and has adopted a formal Y2K plan designed to minimize the impact of the Y2K on
the Company. Such plan has been approved by the Audit Committee.
The Company does not maintain a proprietary mainframe system. Instead,
the majority of the Company's data processing services are provided by M&I Data
Systems ("M&I"), located in Milwaukee, Wisconsin, which is a major third party
provider of data processing services to financial institutions. Several other
third-party providers supply the remainder of the Company's data processing
services. The Y2K Committee is closely monitoring the progress of M&I and such
other providers toward resolving the Y2K issues in their products as well as
evaluating other systems used by the Company but must rely on the cooperation of
M&I and such providers to assure Y2K
18
<PAGE> 24
compliance. There can be no assurances that M&I or any other data processing
services providers of the Company will timely convert their products to properly
utilize dates beyond December 31, 1999 and the failure by M&I and/or any of such
other providers to do so could have an adverse impact on the Company. See
"Supervision and Regulation--Year 2000."
USE OF PROCEEDS
All of the net proceeds from the sale of Trust Preferred Securities
will be invested by Success Capital in the Junior Subordinated Debentures. The
net proceeds to Success Bancshares from the sale of the Junior Subordinated
Debentures are estimated to be $14,140,000 (assuming no exercise of the
over-allotment option and net of estimated underwriting commission and other
estimated offering expenses). Success Bancshares intends to invest (immediately
following the consummation of the proposed Minority Acquisition) approximately
$13,000,000 of the net proceeds in the Bank in the form of common stock of the
Bank to increase its capital to support anticipated growth. Prior to the
consummation of the Minority Acquisition, Success Bancshares may invest up to
$13,000,000 of the net proceeds in the Bank in the form of preferred stock of
the Bank. See "Business--Recent Developments." Success Bancshares intends to use
the remaining net proceeds to fund additional growth of the Bank or for general
corporate purposes, which may include, without limitation, potential future
acquisitions. Pending the investment by Success Bancshares in the Bank, Success
Bancshares will invest such proceeds in short-term, highly-rated marketable debt
securities.
MARKET FOR TRUST PREFERRED SECURITIES
Success Bancshares has applied for listing of the Trust Preferred
Securities on Nasdaq under the symbol SXNBP. There can be no assurance, however,
that an active and liquid trading market will develop or, if developed, that
such a market will continue. The offering price and rate of Distributions of the
Trust Preferred Securities have been determined by negotiations among
representatives of Success Bancshares and the Underwriters, and the offering
price of the Trust Preferred Securities may not be indicative of the market
price following the offering.
ACCOUNTING TREATMENT
For financial reporting purposes, Success Capital will be treated as a
subsidiary of Success Bancshares and, accordingly, the accounts of Success
Capital will be included in the consolidated financial statements of the
Company. The Trust Preferred Securities will be presented as a separate line
item below debt and above equity in the consolidated balance sheet of the
Company under the caption "Company Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures,"
and appropriate disclosures about the Trust Preferred Securities, the Guarantee
and the Junior Subordinated Debentures will be included in the notes to
consolidated financial statements. For financial reporting purposes, the Company
will record Distributions payable on the Trust Preferred Securities as an
expense in the consolidated statements of operations.
Future reports of Success Bancshares filed under the Exchange Act will
include a footnote to the financial statements stating that (i) Success Capital
is wholly owned, (ii) the sole assets of Success Capital are the Junior
Subordinated Debentures (specifying the principal amount, interest rate and
maturity date of such Junior Subordinated Debentures), and (iii) the Guarantee
constitutes a full and unconditional guarantee by Success Bancshares of the
obligations of Success Capital under the Trust Preferred Securities. Success
Capital will not provide separate reports under the Exchange Act.
19
<PAGE> 25
CAPITALIZATION
The following table sets forth the Company's consolidated
capitalization as of December 31, 1997, (i) on a historical basis and (ii) on a
pro forma basis, giving effect to the issuance of the Trust Preferred Securities
by Success Capital and the application of the estimated net proceeds from the
sale thereof including, but not limited to, the purchase of the Junior
Subordinated Debentures from Success Bancshares. See "Use of Proceeds." This
data should be read in conjunction with the financial statements, including the
notes thereto, of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------
ACTUAL PRO FORMA
-------------- -------------
(dollars in thousands)
<S> <C> <C>
Long-term debt ....................................................................... $ 6,720 $ 6,720
9% Convertible subordinated notes .................................................... 200 200
-------- --------
Total Long-term Debt .............................................................. 6,920 6,920
Company obligated mandatory redeemable preferred securities of
subsidiary trust holding solely junior subordinated debentures .................. -- 15,000
Shareholders' Equity:
Common stock, $0.001 par value, 7,500,000 shares authorized
2,918,324 shares issued............................................................ 3 3
Additional paid-in-capital ........................................................... 24,151 24,151
Retained earnings .................................................................... 6,352 6,352
Loan to Employee Stock Ownership Plan ................................................ (158) 158)
-------- --------
Total before unrealized loss on securities ........................................ 30,348 30,348
Unrealized loss on securities available for sale, net of tax ....................... (278) (278)
-------- --------
Total shareholders' equity (1) .................................................... 30,070 30,070
-------- --------
Total capitalization ............................................................... $ 36,990 $ 51,990
======== ========
</TABLE>
- ---------
(1) As of December 31, 1997, the Company's regulatory capital ratios were as
follows: a leverage ratio of 9.69%, a tier 1 ratio of 11.55% and a total
risk-based capital ratio of 12.37%. On October 21, 1996, the Federal Reserve
approved, subject to certain limitations as to amount, the use of certain
cumulative preferred stock instruments such as Trust Preferred Securities as
Tier 1 capital for bank holding companies such as Success Bancshares. The
Company has elected to issue the Trust Preferred Securities because it
expects the Trust Preferred Securities to qualify as Tier 1 capital and the
Distributions payable on the Trust Preferred Securities to be a tax
deductible expense of Success Bancshares. Success Banchares expects that,
upon completion of the sale of the Trust Preferred Securities, Trust
Preferred Securities having an aggregate Liquidation Amount of approximately
$9,665,000 will qualify as Tier 1 capital, and that the remaining amounts
will qualify as Tier 2 capital, under the capital guidelines of the Federal
Reserve. Capital received from the proceeds of the sale of the Trust
Preferred Securities cannot constitute more than 25% of the total Tier 1
capital of the Company (the "25% Capital Limitation"). See "Supervision and
Regulation."
20
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data with respect to the
Company's consolidated financial position at December 31, 1997, 1996 and 1995,
and its results of operations for the years ended December 31, 1997, 1996 and
1995 have been derived from, and should be read in conjunction with, the audited
consolidated financial statements, and notes thereto, of the Company appearing
elsewhere in this Prospectus. The selected consolidated financial data with
respect to the Company's consolidated financial position as of December 31, 1994
and 1993 and its results of operations for the years ended December 31, 1994 and
1993 have been derived from audited consolidated financial statements of the
Company, which are not presented herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Interest income .......................... $ 24,912 $ 19,850 $ 18,675 $ 14,619 $ 10,960
Interest expense ......................... 12,861 10,020 9,886 7,221 5,016
----------- ----------- ----------- ----------- -----------
Net interest income .................. 12,051 9,830 8,789 7,398 5,944
Provision for loan losses ................ 766 310 207 250 220
----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses ....................... 11,285 9,520 8,582 7,148 5,724
Other operating income
Service charges on deposit accounts ... 1,879 1,402 1,134 865 687
Securities gains, net ................. -- -- 25 61 481
Gain on sales of loans, net ........... 61 109 84 94 1,077
Writedown of real estate loans
held-for-sale, transferred to portfolio -- (74) -- (572) --
Credit card processing income ......... 5,987 5,334 4,389 4,071 2,960
Other fees and commissions ............ 264 378 372 488 296
----------- ----------- ----------- ----------- -----------
Total other operating income ........ 8,191 7,149 6,004 5,007 5,501
Other operating expenses
Salaries and employee benefits ........ 6,177 5,513 4,729 3,986 2,755
Occupancy and equipment expenses ...... 2,044 1,715 1,388 1,287 934
Credit card processing expenses ....... 5,541 5,013 3,879 3,756 3,290
Other non-interest expenses ........... 4,091 3,389 3,346 2,987 3,165
----------- ----------- ----------- ----------- -----------
Total other operating expenses ...... 17,853 15,630 13,342 12,016 10,144
Minority interest in income of
subsidiary bank ....................... 37 23 47 58 79
Income before taxes ................... 1,586 1,016 1,197 81 1,002
Income tax expense (benefit) ............. 499 233 260 (182) 176
----------- ----------- ----------- ----------- -----------
Net income ............................ $ 1,087 $ 783 $ 937 $ 263 $ 826
=========== =========== =========== =========== ===========
COMMON SHARE DATA:
Earnings per common share
Basic ................................. $ 0.68 $ 0.66 $ 0.93 $ 0.27 $ 0.92
Diluted ............................... 0.65 0.63 0.86 0.26 0.84
Book value(1) ............................ 10.30 8.99 7.48 5.83 7.27
Weighted average common shares
outstanding(2) ........................ 1,531,000 1,061,000 1,011,000 990,000 899,000
</TABLE>
21
<PAGE> 27
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................... $ 23,901 $ 13,833 $ 20,559 $ 18,909 $ 8,190
Securities..................................... 53,754 47,707 50,732 55,614 55,393
Real estate loans held for sale............... 65 117 203 40 11,021
Loans, net.................................... 287,025 203,299 171,135 139,491 109,224
Total assets.................................. 378,719 276,349 251,338 222,809 190,677
Deposits...................................... 329,424 245,105 227,308 204,171 162,676
Borrowings, including repurchase agreements... 16,163 18,975 14,395 11,174 19,644
Shareholders' equity(3)....................... 30,070 10,100 8,085 5,973 6,706
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Performance Data:
Net interest margin(4)........................ 4.17% 4.25% 4.14% 4.14% 4.38%
Return on average assets...................... 0.34 0.31 0.40 0.13 0.53
Return on average equity...................... 7.76 8.33 14.48 4.29 14.00
Loans to deposits............................. 87.13 82.94 75.29 68.32 67.14
Average equity to average assets.............. 4.39 3.66 2.77 3.00 3.77
ASSET QUALITY RATIOS:
Non-performing loans to total loans(5)........ 0.63% 0.06% 0.37% 0.27% 1.25%
Non-performing assets to total assets......... 0.56 0.04 0.25 0.17 0.72
Allowance for loan losses to total loans...... 0.72 0.70 0.70 0.71 0.78
Non-performing loans to allowance for
loan losses ............................... 87.54 8.28 53.74 38.10 160.35
Net loan charge-offs to average loans......... 0.05 0.04 0.01 0.08 0.01
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND DIVIDENDS(6):
Excluding deposit interest.................... 1.90 1.64 2.07 1.10 3.21
Including deposit interest.................... 1.12 1.09 1.12 1.01 1.20
CAPITAL RATIOS:
Leverage(7)................................... 9.69% 4.37% 3.70% 3.52% 3.67%
Tier 1(8)..................................... 11.55 6.20 5.68 5.79 5.96
Total risk-based(9)........................ 12.37 8.00 7.53 7.83 8.35
OTHER:
Banking facilities............................ 9 7 7 5 4
Full-time equivalent employees................ 162 144 150 120 114
</TABLE>
- ------------------
(1) Book value per share is calculated using total shareholders' equity
divided by shares outstanding at end of period.
(2) The increase in weighted average common shares outstanding from
1,061,000 at December 31, 1996 to 1,531,000 at December 31, 1997 is
attributable to Success Bancshares' initial public offering of common
stock consummated in October 1997.
(3) The decrease in shareholders' equity from $6,706 in 1993 to $5,973 in
1994 is primarily attributable to the implementation of SFAS 115
Accounting for Certain Investments in Debt and Equity Securities on
December 31, 1993. The unrealized net loss on securities
available-for-sale, net of tax, declined $1.6 million during 1994, and
was recorded as a reduction in shareholders' equity.
(4) Net interest income on a tax-equivalent basis divided by average
interest-earning assets.
(5) Non-performing loans consist of non-accrual loans and loans
contractually past due 90 days or more and still accruing.
(6) Earnings consist of income before income tax plus interest expense.
Fixed charges consist of interest expense.
(7) Tier 1 capital to total average assets.
(8) Tier 1 capital to risk weighted assets.
(9) Total capital to risk weighted assets.
22
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with "Selected
Consolidated Financial Data" and the Consolidated Financial Statements of the
Company, including the accompanying notes, each appearing elsewhere in this
Prospectus. In addition to historical information, the following "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ significantly from those anticipated in
these forward-looking statements as a result of certain factors, including those
discussed in "Risk Factors" contained elsewhere in this Prospectus. The
financial information provided below may be rounded to the nearest decimal (in
the case of amounts in excess of $1.0 million) or the nearest hundred thousand
dollars (in the case of all other amounts) in order to simplify the presentation
of management's discussion and analysis. However, the ratios and percentages
provided below are calculated (adjusted for rounding) using the detailed
financial information contained in the financial statements, notes and tables
included elsewhere herein.
GENERAL
Success Bancshares' principal business is conducted by the Bank, its
majority-owned subsidiary, and consists of full service community banking. The
profitability of the Company's operations depends primarily on its net interest
income, provision for loan losses, other operating income and other operating
expenses. Net interest income is the difference between the income the Company
receives on its loan and investment portfolios and its cost of funds, which
consists of interest paid on deposits and borrowings. The provision for loan
losses reflects the cost of credit risk in the Company's loan portfolio. Other
operating income consists of service charges on deposit accounts, securities
gains, gains on sale of loans, credit card processing income and other fees and
commissions. Other operating expenses include salaries and employee benefits as
well as occupancy and equipment expenses, credit card processing expenses and
other non-interest expenses.
Net interest income is dependent on the amounts and yields of
interest-earning assets as compared to the amounts of and rates on
interest-bearing liabilities. Net interest income is sensitive to changes in
market rates of interest and the Company's asset/liability management procedures
in coping with such changes. The provision for loan losses is dependent on
increases in the loan portfolio and management's assessment of the
collectibility of the loan portfolio, as well as economic and market factors.
Non-interest expenses are heavily influenced by the growth of operations, with
additional employees necessary to staff and open new branch facilities and
marketing expenses necessary to promote the new branch facilities. Growth in the
number of account relationships directly affects such expenses as data
processing costs, supplies, postage and other miscellaneous expenses.
CONSOLIDATED RESULTS OF OPERATIONS
Comparison of Results of Operations for the Years Ended December 31, 1997 and
December 31, 1996
General. The Company's net income for the year ended December 31, 1997
was $1.1 million compared to net income of $783,000 for the year ended December
31, 1996. The $304,000 increase in net income was primarily attributable to an
increase in net interest income and other operating income, partially offset by
increased net operating expenses.
Net interest income. Net interest income increased to $12.1 million for
the year ended December 31, 1997 from $9.8 million for 1996. This increase in
net interest income of $2.2 million, or 22.6%, was attributable to a $5.1
million increase in interest income resulting from the $57.3 million, or 24.2%,
increase in average interest-earning assets in the year ended December 31, 1997
compared to the year ended December 31, 1996. Partially offsetting this increase
in interest income was a $2.8 million increase in interest expense for the year
ended December 31, 1997, a 28.4% increase from 1996. The Company's net interest
margin decreased to 4.17% for 1997 compared to 4.25% in 1996 as a result of the
impact of promoting home equity loan growth by offering lower interest rates and
market competition for high-quality loan customers.
23
<PAGE> 29
Provision for loan losses. The provision for loan losses increased to
$766,000 for the fiscal year ended December 31, 1997, from $310,000 in the prior
year, which increase was necessary to reflect the increase in commercial real
estate lending and to offset an increase in net charge-offs. At December 31,
1997, the allowance for loan losses represented 0.72% of loans outstanding,
which management believed was adequate to cover potential losses in the
portfolio. There can be no assurance that future losses will not exceed the
amounts provided for, thereby affecting future results of operations. The amount
of future additions to the allowance for loan losses is dependent upon actual
charge-offs during the year, historical loss experience, delinquent loans and an
evaluation of current and prospective economic conditions in the Company's
market area.
Other operating income. Total other operating income increased
approximately $1.1 million, or 14.6%, to $8.2 million for 1997, compared to $7.1
million in 1996. Service charges on deposit accounts increased by 34.0% to $1.9
million for the year ended December 31, 1997, from $1.4 million in 1996. The
increase is primarily attributable to a 15.0% increase in the average balance of
deposit accounts subject to such service charges and a 102.5% increase in
average overdrafts outstanding. The majority of service charges on deposit
accounts consisted of fees charged for overdrafts and failure to maintain
required balances. Credit card processing income increased to $6.0 million from
$5.3 million for the years ended December 31, 1997 and 1996, respectively, due
primarily to a 10.3% increase in the amount of credit card sales processed and
an increase in rates charged to merchants. Total processing volume increased to
$290.3 million for the year ended December 31, 1997, from $263.2 million in
1996.
Other operating expenses. Total other operating expenses increased $2.3
million, or 14.2%, to $17.9 million for 1997, as compared to $15.6 million in
1996. This increase reflects the higher level of expenditures required to
support the Company's growth. Salaries and employee benefits increased to $6.2
million for the year ended December 31, 1997, as compared to $5.5 million for
the prior year. The increase of $664,000 reflects increased staffing to support
new locations and the growth in deposit and loan accounts at existing banking
locations which are required to maintain high levels of customer service. Also
contributing to the increase in salaries were normal salary increases. Occupancy
and equipment expenses increased to $2.0 million for 1997, from $1.7 million for
1996, primarily due to improvements in the Company's computer systems and the
costs associated with the April 1997 opening of the downtown Deerfield branch
location and September 1997 opening of the Arlington Heights branch location.
Data processing expense increased to $889,000, or 40.4%, for the year ended
December 31, 1997, compared to $633,000 for 1996, primarily due to substantially
higher volume levels and the costs associated with the conversion of the
Company's data processing provider in March 1997. Credit card processing
expenses increased $528,000, or 10.5%, to $5.5 million for 1997, compared to
$5.0 million for 1996, primarily due to the increase in the amount of credit
card sales processed. Other non-interest expenses increased by $360,000, or
13.6%, to $3.0 million for the year ended December 31, 1997, from $2.6 million
for 1996, primarily due to a $321,000 increase in legal fees attributable to
increased collection costs and other matters.
Income taxes. The Company recorded income tax expense of $499,000 for
1997, compared to an income tax expense of approximately $233,000 in 1996, which
increase is attributable to the increase in net income before tax.
Comparison of Results of Operations for the Years Ended December 31, 1996 and
December 31, 1995
General. The Company's net income was $783,000 for the year ended
December 31, 1996, compared to net income of $937,000 for the year ended
December 31, 1995, a decrease of $154,000 or 16.4%. The decrease in net income
was primarily due to increases in interest expense of $134,000, the provision
for possible loan losses of $103,000 and other operating expenses of $2.3
million, offset by increases in interest income of $1.2 million and other
operating income of $1.1 million.
Net interest income. Net interest income increased by $1.0 million, or
11.8%, to $9.8 million in 1996 from $8.8 million in 1995. This increase was
attributable to a $17.8 million increase in average interest-earning assets to
$236.4 million in 1996 from $218.6 million in 1995. The Company's net interest
margin in 1996 increased to 4.25% compared to 4.14% in 1995. This increase was
primarily due to the Company's ability to use the increase in demand deposits
and other borrowings to fund higher yielding commercial loans and real estate
mortgage loans.
24
<PAGE> 30
Provision for loan losses. The provision for loan losses increased to
$310,000 in 1996 from $207,000 in 1995, to provide for the growth in the
Company's loan portfolio. Total loans increased $32.4 million, or 18.7% to
$205.4 million at December 31, 1996, from $173.0 million at December 31, 1995.
At December 31, 1996, the allowance for loan losses represented 0.70% of total
loans, which management believed was adequate to cover potential losses in the
loan portfolio.
Other operating income. Other operating income increased by $1.1
million, or 19.1%, to $7.1 million in 1996 from $6.0 million in 1995.
Contributing to this increase was an increase in service charges on deposit
accounts of $268,000 to $1.4 million in 1996 and an increase in credit card
processing income of $945,000 to $5.3 million in 1996. The increase in service
charges on deposit accounts is directly attributable to the $17.8 million, or
7.8%, increase in deposits to $245.1 million at December 31, 1996, from $227.3
million at December 31, 1995. The increase in credit card processing income is
primarily attributable to the increase in the number of participating merchants
and a corresponding processing volume increase to $263.2 million at December 31,
1996, from $214.7 million at December 31, 1995, a 22.6% increase.
Other operating expenses. Other operating expenses increased $2.3
million, or 17.1%, to $15.6 million in 1996 from $13.3 million in 1995,
primarily due to a $784,000 increase in salaries and employee benefits primarily
attributable to a full year of staffing of two additional branches, adding a
number of experienced senior personnel and additional staff to position the
Company for anticipated growth and normal annual salary and wage increases.
Occupancy and equipment expenses increased $327,000, or 23.6%, to $1.7 million
in 1996 from $1.4 million in 1995 primarily due to a full year of operating of
two additional branch facilities in 1996, one of which was in operation for 10
months in 1995 and the other for less than one month in 1995. Credit card
processing expenses increased by approximately $1.1 million, or 29.2%, to $5.0
million in 1996 from $3.9 million in 1995, primarily due to the increase in the
number of participating merchants and corresponding processing volume increases.
Income taxes. The Company recorded an income tax expense of $233,000 in
1996 compared to $260,000 in 1995, reflecting the decrease in the Company's net
income before taxes in 1996.
INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
The following table sets forth the average daily balances, net interest
income and expense and average yields and rates for the Company's
interest-earning assets and interest-bearing liabilities for the indicated years
on a tax-equivalent basis assuming a 34% tax rate.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1997 1996
-------------------------------- --------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ------ -------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans (1) (2)................................... $239,084 $21,755 9.10% $182,453 $16,764 9.19%
Taxable investment securities................... 38,801 2,318 5.97 40,423 2,397 5.93
Investment securities exempt from
Federal income taxes......................... 8,214 613 7.46 8,824 671 7.60
Interest-bearing deposits with
financial institutions....................... 4,032 215 5.33 2,189 125 5.71
Other interest-earning assets................... 3,576 208 5.82 2,500 120 4.80
-------- ------- ----- -------- ------- -----
Total interest-earning assets................... 293,707 $25,109 8.55% 236,389 $20,077 8.49%
Non-interest-earning assets..................... 25,335 19,890
-------- --------
Total assets................................ $319,042 $256,279
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
NOW & money market accounts.................. $ 88,652 $ 3,114 3.51% $ 76,127 $ 2,557 3.36%
Savings deposits............................. 19,946 640 3.21 18,329 606 3.31
Time deposits................................ 127,236 7,436 5.84 96,308 5,469 5.68
Notes payable................................... 4,249 363 8.54 4,237 355 8.38
Other borrowings................................ 20,978 1,308 6.24 15,923 1,033 6.49
-------- ------- ---- -------- ------- ----
Total interest-bearing liabilities.............. 261,061 12,861 4.93 210,924 10,020 4.75
Demand deposits - non-interest-bearing.......... 40,868 33,922
Other non-interest-bearing liabilities.......... 2,560 1,515
Minority interest in subsidiary bank............ 544 515
Shareholders' equity............................ 14,009 9,403
-------- --------
Total liabilities and shareholder's equity... $319,042 $256,279
======== ========
Net interest income............................. $ 12,248 $ 10,057
======== ========
Net interest margin............................. 4.17% 4.25%
==== ====
<CAPTION>
Year Ended December 31,
----------------------------------
1995
----------------------------------
Average Yield/
Balance Interest Rate
--------- --------- ------
<S> <C> <C> <C>
ASSETS
Loans (1) (2)................................... $156,896 $14,965 9.54%
Taxable investment securities................... 43,515 2,936 6.75
Investment securities exempt from
Federal income taxes......................... 11,895 825 6.94
Interest-bearing deposits with
financial institutions....................... 4,586 108 2.35
Other interest-earning assets................... 1,744 103 5.91
-------- ------- ----
Total interest-earning assets................... 218,636 $18,937 8.66%
Non-interest-earning assets..................... 14,846
--------
Total assets................................ $233,482
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
NOW & money market accounts.................. $ 68,574 $ 2,534 3.70%
Savings deposits............................. 18,293 589 3.22
Time deposits................................ 96,020 5,648 5.88
Notes payable................................... 5,190 449 8.65
Other borrowings................................ 10,746 666 6.20
-------- ------- ----
Total interest-bearing liabilities.............. 198,823 9,886 4.97
Demand deposits - non-interest-bearing.......... 26,884
Other non-interest-bearing liabilities.......... 789
Minority interest in subsidiary bank............ 513
Shareholders' equity............................ 6,473
--------
Total liabilities and shareholder's equity... $233,482
========
Net interest income............................. $ 9,051
=======
Net interest margin............................. 4.14%
====
</TABLE>
- ------------------
(1) Non-accrual loans are included in average loans.
(2) Interest income on loans includes loan origination and other fees of
$762,000, 817,000 and 819,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
25
<PAGE> 31
The increase in average interest-earning assets of $57.3 million to
$293.7 million for the year ended December 31, 1997, is primarily attributable
to the Company's loan growth. The average balance of loans during 1997 was
$239.1 million, compared with $182.5 million for 1996, an increase of 31.0%.
The Company has been actively pursuing new commercial loan
relationships in its market area. Commercial loans and commercial mortgage loans
totaled $151.0 million at December 31, 1997, compared with $102.2 million at
December 31, 1996, an increase of $48.8 million, or 47.7%.
The Company also launched a successful home equity product in 1997.
This home equity line of credit offers a 7.5% fixed rate for three years and
then converts to a prime rate-based adjustable loan. As of December 31, 1997,
total closed commitments on this product were $61.8 million, and $27.5 million
was drawn and outstanding.
The Company primarily utilized interest-bearing deposits to fund loan
growth, which contributed to the $50.1 million increase in average
interest-bearing liabilities during 1997.
CHANGES IN INTEREST INCOME AND EXPENSE
The following table shows the dollar amount of changes in interest
income and expense by major categories of interest-earning assets and
interest-bearing liabilities attributable to changes in volume or rate or both,
for the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1997 Compared to 1996 1996 Compared to 1995
------------------------------ ------------------------------
Change due to Change due to
--------------------- Total -------------------- Total
Volume Rate Change Volume Rate Change
--------- --------- --------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Net loans (1) ................................... $ 5,155 $ (164) $ 4,991 $ 2,365 $ (566) $ 1,799
Taxable investment securities ................... (97) 18 (79) (199) (340) (539)
Investment securities exempt from
Federal income taxes(1) ....................... (46) (12) (58) (228) 74 (154)
Interest-bearing deposits with financial
institutions .................................. 99 (9) 90 (78) 95 17
Other interest-earning assets ................... 59 29 88 39 (22) 17
------- ------- ------- ------- ------- -------
Total increase (decrease) in interest income 5,170 (138) 5,032 1,899 (759) 1,140
------- ------- ------- ------- ------- -------
INTEREST-BEARING LIABILITIES:
NOW and money market accounts ................... $ 435 $ 122 $ 557 $ 265 $ (242) $ 23
Savings deposits ................................ 52 (18) 34 1 16 17
Time deposits ................................... 1,804 163 1,967 17 (196) (179)
Notes payable ................................... 1 7 8 (80) (14) (94)
Other borrowings ................................ 317 (42) 275 335 32 367
------- ------- ------- ------- ------- -------
Total increase (decrease) in interest
expense ................................... 2,609 232 2,841 538 (404) 134
------- ------- ------- ------- -------
Increase (decrease) in net interest income .. $ 2,561 $ (370) $ 2,191 $ 1,361 $ (355) $ 1,006
======= ======= ======= ======= ======= =======
</TABLE>
(1) Tax-exempt income is reflected on a fully tax equivalent basis utilizing a
34% rate for all periods presented. -
Volume variances are computed using the change in volume multiplied by
the previous year's rate. Rate variances are computed using the changes in rate
multiplied by the previous year's volume. The change in interest due to both
rate and volume has been allocated between the factors in proportion to the
relationship of the absolute dollar amounts of the change in each.
26
<PAGE> 32
FINANCIAL CONDITION
Total consolidated assets of the Company increased $102.4 million, or
37%, to $378.7 million at December 31, 1997 from $276.3 million at December 31,
1996. Growth in loans was the largest component of this increase.
Securities
The following table sets forth certain information with respect to the
Company's securities portfolio.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------
1997 1996 1995
----------------------- ------------------------ -------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
----------- ---------- ----------- ----------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury......................... $ 3,775 $ 3,792 $ 748 $ 754 $ 1,236 $ 1,250
U.S. government sponsored entities.... 3,346 3,301 5,846 5,721 7,845 7,643
States and political subdivisions, exempt
from Federal income taxes........... 4,437 4,442 1,565 1,561 1,779 1,769
Mortgage-backed securities............ 7,019 7,054 2,568 2,585 555 556
SBA guaranteed loan participation
certificate......................... 3,221 3,238 4,337 4,290 4,293 4,359
Other securities...................... 182 263 110 236 14 99
----------- --------- ----------- ----------- ----------- -----------
Total............................. $ 21,980 $ 22,090 $ 15,174 $ 15,147 $ 15,722 $ 15,676
=========== ========= =========== =========== =========== ===========
SECURITIES HELD-TO-MATURITY:
U.S. Treasury......................... $ 246 $ 248 $ 242 $ 245 $ 238 $ 246
U.S. government sponsored entities.... 14,754 14,962 15,368 15,403 17,719 17,907
States and political subdivisions
Taxable............................. 1,791 1,899 1,845 1,939 1,845 2,006
Exempt from Federal income taxes.... 6,506 6,702 6,906 7,041 7,174 7,327
Mortgage-backed securities............ 5,148 5,409 5,804 6,037 6,384 6,768
Other securities...................... 3,219 3,219 2,395 2,395 1,696 1,696
----------- --------- ----------- ----------- ----------- -----------
Total............................. $ 31,664 $ 32,439 $ 32,560 $ 33,060 $ 35,056 $ 35,950
=========== ========= =========== =========== =========== ===========
</TABLE>
Securities of a Single Issuer
There were no securities of any single issuer, other than the U.S.
Treasury or U.S. government sponsored entities, which had a book value in excess
of 10% of shareholders' equity at December 31, 1997.
27
<PAGE> 33
Securities, Maturities and Yields
The following table sets forth maturities and the weighted average
yields of the securities at December 31, 1997.
<TABLE>
<CAPTION>
MATURITY
---------------------------------------------------------------------------------------------
Due in One Year or Due After One Year Due After Five Years
Less Through Five Years Through Ten Years Due After Ten Years
-------------------- ------------------- -------------------- --------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Balance Yield Balance Yield Balance Yield Balance Yield
--------- -------- --------- --------- ------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasury....................... $2,030 5.42% $ 1,762 6.48% $ - - % $ - -%
U.S. government sponsored
entities.......................... 1,335 3.71 749 5.66 1,217 5.81 - -
State and political
subdivisions(1)................... 585 5.86 2,087 6.28 1,770 6.34 - -
Mortgage-backed securities (2)...... 4,007 6.10 3,047 6.80 - - - -
SBA guaranteed loan participation
certificates (2).................. 94 8.22 68 7.48 - - 3,076 7.02
Other securities................. - - - - - - 263 5.53
------ ---- -------- ----- ------- ---- ------ ----
$8,051 5.54% $ 7,713 6.48% $ 2,987 6.12% $3,339 6.90%
====== ==== ======== ===== ======= ==== ====== ====
HELD-TO-MATURITY:
U.S. Treasury.................... $ 246 6.61% $ - -% $ - -% $ - -%
U.S. government sponsored
entities....................... 3,574 4.87 2,885 6.44 7,835 6.68 460 5.49
States and political
subdivisions(1)................ 461 7.38 3,049 7.45 1,965 8.16 2,822 8.44
Mortgage-backed securities(2).... - - 1,360 7.58 2,948 7.30 840 7.39
Other securities................. - - 150 8.00 300 7.65 2,769 5.93
------ ---- -------- ----- ------ ---- ------ ----
$4,281 5.24% $ 7,444 7.09% $13,048 7.07% $6,891 7.11%
====== ==== ======== ===== ======= ==== ====== ====
</TABLE>
- -----------
(1) The yield is reflected on a fully tax equivalent basis utilizing a 34%
tax rate.
(2) These securities are presented based on contractual maturities.
Loan Portfolio
The loan portfolio is the largest category of the Company's
interest-earning assets. Total loans as a percentage of total assets increased
to 76.5% at December 31, 1997, from 74.3% at December 31, 1996.
The following table sets forth the historical composition of the loan
portfolio.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994
-------------------- ---------------------- ---------------------- ----------------------
Percent of Percent of Percent of Percent of
Amount Portfolio Amount Portfolio Amount Portfolio Amount Portfolio
-------- --------- --------- --------- ---------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial................... $ 87,506 30.21% $ 58,912 28.68% $ 45,217 26.14% $ 33,640 23.83%
Real estate - construction... 13,409 4.63 12,282 5.98 12,821 7.41 8,656 6.13
Real estate - mortgages...... 106,120 36.64 84,920 41.34 68,227 39.44 63,533 45.01
Home equity.................. 72,944 25.18 43,193 21.03 37,820 21.86 30,810 21.83
Installment.................. 9,253 3.19 5,615 2.73 8,655 5.00 4,056 2.87
Credit cards................. 432 0.15 503 0.24 261 0.15 443 0.33
-------- -------- --------- -------- --------- -------- --------- ---------
Total gross loans....... 289,664 100.00% 205,425 100.00% 173,001 100.00% 141,138 100.00%
======== ======== ======== =========
Unearned discount............ - (2) (3) (8)
Net deferred loan fees....... (187) (261) (223) (126)
Unaccreted discount
from loss on transfer
of loans from held-for-
sale to portfolio .......... (373) (438) (451) (513)
-------- --------- ---------- ---------
Loans, net of unearned
discount and net deferred
loan fees.................. 289,104 204,724 172,324 140,491
Allowance for loan losses.... (2,079) (1,425) (1,189) (1,000)
-------- --------- ---------- ---------
Net loans................. $287,025 $ 203,299 $ 171,135 $ 139,491
======== ========= ========== =========
<CAPTION>
December 31,
---------------------------
1993
---------------------------
Percent of
Amount Portfolio
--------- -----------
<S> <C> <C>
Commercial................... $ 34,118 30.96%
Real estate - construction... 6,697 6.08
Real estate - mortgages...... 29,691 26.94
Home equity.................. 36,366 33.00
Installment.................. 2,771 2.51
Credit cards................. 562 0.51
-------- --------
Total gross loans....... 110,205 100.00%
========
Unearned discount............ (18)
Net deferred loan fees (108)
Unaccreted discount
from loss on transfer
of loans from held-for-
sale to portfolio .......... -
Loans, net of unearned --------
discount and net deferred
loan fees.................. 110,079
Allowance for loan losses.... (855)
--------
Net loans................. $109,224
========
</TABLE>
Commercial Loans: Commercial loans are generally written with
adjustable interest rates to match variable rate funding sources. Such loans
increased $28.6 million to $87.5 million at December 31, 1997, as the Company
actively pursued more commercial loan relationships. Commercial loans
represented 30.2% of the total loan portfolio at December 31, 1997, as compared
to 28.7% of the total loan portfolio at December 31, 1996.
28
<PAGE> 34
Real Estate Mortgage Loans: Real estate mortgage loans, which consist
of residential and commercial loans secured by real estate, totaled $106.1
million at December 31, 1997, compared to $84.9 million at December 31, 1996.
This increase is primarily related to an increased emphasis in commercial real
estate lending. Real estate mortgage loans are typically written with fixed
rates of interest, and commercial real estate loans typically have a five-year
balloon feature.
Home Equity Loans: Home equity loans increased $29.8 million, or 68.9%,
from December 31, 1996 and were $72.9 million at December 31, 1997. At December
31, 1997, home equity loans accounted for 25.2% of the total loan portfolio,
compared to 21.0% of the total loan portfolio at December 31, 1996. The increase
in home equity loans is primarily due to the success of the Company's prime
rate-based home equity products, including a new product promoted by the Company
featuring a 7.5% fixed rate for three years, adjusting to prime thereafter. As
of December 31, 1997, $61.8 million of total commitments on the loans had been
closed, with $27.5 million drawn and outstanding. Home equity lines of credit,
in addition to senior mortgage indebtedness, normally do not exceed 80% of the
residential real estate collateral value. These loan to value ratios help to
limit the credit risk associated with these loans.
The Bank has no concentrations of loans to borrowers engaged in the
same or similar industries that exceed 10% of total loans. The Company maintains
a policy of directing its lending activities to the target markets from which
its deposits are drawn.
Loan Maturities
The following table sets forth the maturities of commercial and real
estate construction loans outstanding at December 31, 1997. Also set forth are
the amounts of such loans due after one year, classified according to
sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
MATURITY
-------------------------------------------------------------------------
DUE IN ONE DUE AFTER ONE YEAR
YEAR OR LESS THROUGH FIVE YEARS DUE AFTER FIVE YEARS TOTAL
------------ --------------------------- ----------------------------- -----------
(dollars in thousands)
FLOATING FLOATING
FIXED RATE FIXED RATE
------------ ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial and real estate
construction loans............ $ 88,318 $ 5,840 $ 3,232 $ 2,838 $ 687 $ 100,915
============ ============ ============= =========== ========== ===========
</TABLE>
Non-performing Loans
Non-performing loans include: (1) loans accounted for on a non-accrual
basis, (2) accruing loans contractually past due 90 days or more as to interest
or principal payments and (3) loans whose terms have been renegotiated to
provide a reduction or deferral of interest or principal because of a
deterioration in the financial position of the borrower.
29
<PAGE> 35
The Bank has a reporting and control system to monitor non-performing
loans. The following table provides certain information on the Bank's
non-performing loans at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ----------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans........................................ $ 1,479 $ - $ 13 $ 258 $ 852
Restructured loans...................................... - - - - -
Loans 90 days or more past due, accruing................ 341 118 626 123 519
------------ ------------ ------------ ----------- ------------
Total non-performing loans......................... $ 1,820 $ 118 $ 639 $ 381 $ 1,371
============ ============ ============ =========== ============
Non-performing loans to loans, net of unearned
discount and net deferred loan fees................ 0.63% 0.06% 0.37% 0.27% 1.25%
Non-performing loans to allowance for loan loss......... 87.54% 8.28% 53.74% 38.10% 160.35%
</TABLE>
The increase in non-performing loans of $1.7 million from December 31,
1996 to December 31, 1997 is primarily attributable to seven loans. Of these
loans, two (totaling $303,000) are 90 days or more past due but still accruing
interest. Each of these loans is secured by a first lien on residential real
estate or a second lien where the Bank also holds the first lien. Should
management's view of the collectibility of these loans change, they may be
transferred to nonaccrual status. The remaining five large non-performing loans
are nonaccrual and are summarized as follows:
<TABLE>
<CAPTION>
Number Balance at
Loan Type of Loans December 31, 1997
--------------------------------------- -------------------- -------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Residential Mortgage - 1st Lien 2 $ 385
Commercial Mortgage - 1st Lien 1 555
Commercial Construction 1 342
Commercial Line of Credit 1 100
</TABLE>
Management is aggressively pursuing collection efforts with respect to each of
these non-performing loans.
Loans with principal or interest payments contractually due but not yet
paid are reviewed by senior management on a weekly basis and are placed on
nonaccrual status when scheduled payments remain unpaid for 90 days or more,
unless the loan is both well-secured and in the process of collection. Interest
income on nonaccrual loans is recorded when actually received in contrast to the
accrual basis, which records income over the period in which it is earned,
regardless of when it is received.
Potential Problem Loans
In addition to those loans disclosed under "Non-performing Loans,"
there are certain loans in the portfolio which management has identified through
its problem loan identification system which exhibit a higher than normal credit
risk. Management's review of the total loan portfolio to identify loans where
there is concern that the borrower will not be able to continue to satisfy
present loan repayment terms includes factors such as review of individual
loans, recent loss experience and current economic conditions. Loans in this
category include those with characteristics such as those that have recent
adverse operating cash flow or balance sheet trends, or have general risk
characteristics that the loan officer believes might jeopardize the future
timely collection of principal and interest payments. The principal amount of
loans in this category as of December 31, 1997 and December 31, 1996 were
approximately $3.7 million and $983,000, respectively. One loan, a commercial
mortgage totaling $2.9 million, secured by a strip shopping center in Deerfield,
Illinois, contributed to the majority of this increase. This loan, while
current, was added to the Bank's watch list due to its debt service coverage and
loan to value ratio. At December 31, 1997, there were no significant loans which
were classified by any bank regulatory agency that are not included above as
non-performing or as a potential problem loan.
30
<PAGE> 36
Other Real Estate Owned
The Bank had one property, a single-family home in Deerfield, Illinois,
totaling $290,000 in other real estate owned at December 31, 1997, and none at
December 31, 1996.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered
adequate to provide for potential future losses in the Company's loan portfolio.
The level of the allowance is based upon management's periodic and comprehensive
evaluation of the loan portfolio, as well as current and projected economic
conditions. Reports of examination furnished by Federal banking authorities are
also considered by management in this regard. These evaluations by management in
assessing the adequacy of the allowance include consideration of past loan loss
experience, changes in the composition of the loan portfolio, the volume and
condition of loans outstanding and current market and economic conditions.
Loans are charged to the allowance for loan losses when deemed
uncollectible by management, although collection efforts may continue and future
recoveries may occur.
Set forth in the following table is an analysis of the allowance for
loan losses.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ----------- ------------- ------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period......... $ 1,425 $ 1,189 $ 1,000 $ 855 $ 647
Charge-offs:
Commercial............................ 71 49 - 88 26
Real estate - construction............ - - - - -
Real estate - mortgage................ - - - - -
Home equity........................... - - - - -
Installment........................... 23 20 4 1 7
Credit cards.......................... 55 9 15 50 19
--------- ---------- ---------- ----------- ----------
Total charge-offs........................ 149 78 19 139 52
--------- ---------- ---------- ----------- ----------
Recoveries:
Commercial............................ 22 - - 31 23
Real estate - construction............ - - - - -
Real estate - mortgage................ - - - - -
Home equity........................... - - - - -
Installment........................... 15 3 - 1 -
Credit cards.......................... - 1 1 2 17
--------- ---------- ---------- ----------- ----------
Total recoveries......................... 37 4 1 34 40
--------- ---------- ---------- ----------- ----------
Net charge-offs.......................... 112 74 18 105 12
Provision for loan losses................ 766 310 207 250 220
--------- ---------- ---------- ----------- ----------
Allowance at end of period............... $ 2,079 $ 1,425 $ 1,189 $ 1,000 $ 855
========= ========== ========== =========== ==========
Allowance to loans, net of unearned
discount and net deferred loan fees.... 0.72% 0.70% 0.70% 0.71% 0.78%
Net charge-offs to average net loans..... 0.05% 0.04% 0.01% 0.08% 0.01%
</TABLE>
31
<PAGE> 37
The loan loss provision of $766,000 in 1997 reflects an increase of
$456,000 from the 1996 provision. The increase was necessary to reflect the
increase in commercial real estate lending and to offset an increase in net
charge-offs.
The following table presents the allocation of the allowance for loan
losses.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------ ------------------- ----------------- ----------------- -----------------
Percent of Percent of Percent of Percent of Percent of
loans of loans of loans of loans of loans of
each each each each each
category category category category category
to total to total to total to total to total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ------- ------ --------- -------- -------- ------- --------- ------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.................... $ 829 30.21% $ 597 28.68% $ 596 26.14% $ 550 23.83% $ 478 30.96%
Real estate - construction.... - 4.63 - 5.98 - 7.41 - 6.13 - 6.08
Real estate - mortgage........ 118 36.64 59 41.34 37 39.44 27 45.01 20 26.94
Installment................... 56 3.19 34 2.73 36 5.00 35 2.87 53 2.51
Home equity................... 387 25.18 224 21.03 190 21.86 180 21.83 163 33.00
Credit cards.................. 5 0.15 12 0.24 7 0.15 9 0.33 34 0.51
Unallocated................... 684 - 499 - 323 - 199 - 107 -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total.................... $2,079 100.00% $1,425 100.00% $1,189 100.00% $1,000 100.00% $ 855 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Control of the Company's loan quality is continually monitored by
management and is reviewed by the Board of Directors and loan committee of the
Bank on a monthly basis, subject to the oversight by Success Bancshares' Board
of Directors through its members who serve on the loan committee. Independent
external review of the loan portfolio is provided by the examinations conducted
by regulatory authorities, independent public accountants in conjunction with
their annual audit and an independent loan review performed by an entity engaged
by the Board of Directors of the Bank. The amount of additions to the allowance
for loan losses which are charged to earnings through the provision for loan
losses is determined based on a variety of factors, including actual charge-offs
during the year, historical loss experience, delinquent loans and an evaluation
of current and prospective economic conditions in the Company's market area.
Although management believes the allowance for loan losses is adequate to cover
any potential losses, there can be no assurance that the allowance will prove
sufficient to cover actual loan losses in the future.
Asset/Liability Management
As a continuing part of its financial strategy, the Company attempts to
manage the impact of fluctuations in market interest rates on its net interest
income. This effort entails providing a reasonable balance between interest rate
risk, credit risk, liquidity risk and maintenance of yield. Asset/liability
management policies are established and monitored by management in conjunction
with the Board of Directors of the Bank, subject to general oversight by Success
Bancshares' Board of Directors. The policies establish guidelines for acceptable
limits on the sensitivity of the market value of assets and liabilities to
changes in interest rates.
The Company's net income is dependent on its net interest income. Net
interest income is susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than
interest-earning assets. When interest-bearing liabilities mature or reprice
more quickly than interest-earning assets in a given period, a significant
increase in market rates of interest could adversely affect net interest income.
Similarly, when interest-earning assets mature or reprice more quickly than
interest-bearing liabilities, falling interest rates could result in a decrease
in net income.
32
<PAGE> 38
The following table illustrates the Company's estimated interest rate
sensitivity and periodic and cumulative gap positions as calculated as of
December 31, 1997.
<TABLE>
<CAPTION>
Time to Maturity or Repricing
--------------------------------------------------------------------------
0-90 Days 91-365 Days 1-5 Years Over 5 Years Total
------------ -------------- ------------- ------------ ------------
(dollars in thousands)
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C> <C>
Net loans(1)............................ $ 121,152 $ 18,265 $ 112,632 $ 34,976 $ 287,025
Securities.............................. 9,363 12,227 17,451 14,713 53,754
Interest-bearing deposits with 564 - - - 564
financial institutions..............
Federal funds sold...................... 7,000 - - - 7,000
---------- ---------- ----------- ---------- -----------
Total interest-earning assets $ 138,079 $ 30,492 $ 130,083 $ 49,689 $ 348,343
========== ========== =========== ========== ===========
Interest-Bearing Liabilities:
NOW and money market accounts...... $ 45,061 $ 8,891 $ 51,828 $ 3,218 $ 108,998
Savings deposits................... 626 1,907 10,927 5,929 19,389
Time deposits...................... 57,298 51,305 46,798 411 155,812
Borrowings......................... 5,544 4,162 4,056 2,401 16,163
---------- ----------- ----------- ---------- -----------
Total interest-bearing liabilities $ 108,529 $ 66,265 $ 113,609 $ 11,959 $ 300,362
========== ========== =========== ========== ===========
Rate sensitive assets (RSA)........ $ 138,079 $ 168,571 $ 298,654 $ 348,343 $ 348,343
Rate sensitive liabilities (RSL)... $ 108,529 $ 174,794 $ 288,403 $ 300,362 $ 300,362
Cumulative gap (GAP = RSA - RSL).. $ 29,550 $ (6,223) $ 10,251 $ 47,981 $ 47,981
RSA/Total assets................... 36.46% 44.51% 78.86% 91.98% 91.98%
RSL/Total assets................... 28.66% 46.15% 76.15% 79.31% 79.31%
GAP/Total assets................... 7.80% (1.64%) 2.71% 12.67% 12.67%
GAP/RSA............................ 21.40% (3.69%) 3.43% 13.77% 13.77%
</TABLE>
(1) Includes loans held for sale.
While the gap position illustrated above is a useful tool that
management can assess for general positioning of the Company's balance sheets,
management uses an additional measurement tool to evaluate its asset/liability
sensitivity which determines exposure to changes in interest rates by measuring
the percentage change in net interest income due to changes in rates over a
one-year time horizon. Management measures such percentage change assuming an
instantaneous permanent parallel shift in the yield curve of 100 and 200 basis
points, both upward and downward. The model uses an option-based pricing
approach to estimate the sensitivity of mortgage loans. The most significant
embedded option in these types of assets is the prepayment option of the
borrowers. The model uses various prepayment assumptions depending upon the type
of mortgage instrument (residential mortgages, commercial mortgages,
mortgage-backed securities, etc.). Prepayment rates for mortgage instruments
ranged from 5 to 45 CPR (Constant Prepayment Rate) as of December 31, 1997. For
administered rate core deposits (e.g. NOW and savings accounts), the model
utilizes interest rate floors equal to 100 basis points below their current
levels.
Utilizing this measurement concept, the interest rate risk of the
Company, expressed as a percentage change in net interest income over a one-year
time horizon due to changes in interest rates, at December 31, 1997, was as
follows:
<TABLE>
<CAPTION>
Basis Point Change
-------------------------------------------------------
<S> <C> <C> <C> <C>
+200 +100 -100 -200
------------- ----------- ----------- -----------
Percentage change in net interest income due to an
immediate change in interest over a one-year time
horizon........................................... 0.94% 0.52% (0.03%) (3.52%)
</TABLE>
33
<PAGE> 39
The Company does not currently engage in trading activities or use
derivative instruments to control interest rate risk. Although such activities
may be permitted with the approval of the Board of Directors of the Bank, the
Company does not intend to engage in such activities in the immediate future.
Interest rate risk is the most significant market risk affecting the
Company. Other types of market risk, such as foreign currency exchange rate risk
and commodity price risk, do not arise in the normal course of the Company's
business activities.
Deposits
Average total deposits were $276.7 million for the year ended December
31, 1997, an increase of 23.2% from 1996. The increase in deposits occurred as a
result of opening new branches, and continued emphasis on deposit growth through
marketing and rate promotions. The composition of deposits has not changed
significantly from 1996.
The following table sets forth the maturities of certificates of
deposit and other time deposits of $100,000 or more at December 31, 1997.
<TABLE>
<CAPTION>
December 31, 1997
--------------------------
(dollars in thousands)
<S> <C> <C>
Maturing within three months.......................................... $ 29,614
After three but within six months..................................... 7,861
After six but within twelve months.................................... 11,342
After twelve months................................................... 12,149
--------------
Total............................................................. $ 60,966
==============
</TABLE>
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are overnight repurchase
agreements with customers of the Bank and primarily consist of U.S. government
sponsored entity obligations. The securities underlying the agreements are
book-entry securities. During the period, the securities were delivered by
appropriate entry into a third-party custodian's account designated by the Bank
under a written custodial agreement that explicitly recognizes the customer's
interest in the securities. At December 31, 1997, no material amount of
agreements to repurchase securities sold were outstanding with any individual
customer. Securities sold under agreements to repurchase averaged $5.8 million
and $4.1 million during 1997 and 1996, respectively, and the maximum amounts
outstanding at any month-end during 1997 and 1996 were $12.0 million and $4.6
million, respectively. The weighted average rate paid during 1997 and 1996 was
4.15% and 4.20%, respectively, and the weighted average rate at the end of 1997
and 1996 was 4.54% and 4.23%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Success Bancshares and the Bank are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements could result in certain mandatory, and
possibly additional discretionary, actions by regulators that, if undertaken,
could have a direct material adverse effect on the Company's growth and
financial condition. The regulations require Success Bancshares and the Bank to
meet specific capital adequacy guidelines that involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting principles. The capital adequacy guidelines are also
subject to qualitative judgments by the regulators about risk weightings and
other factors.
Quantitative measures established by Federal Reserve, OCC and FDIC
regulations to ensure capital adequacy require Success Bancshares and the Bank
to maintain minimum ratios of Tier 1 capital (as defined in such regulations) to
total average assets (as defined in such regulations) ("leverage ratio") and
minimum ratios of Tier 1 Capital and total capital (as defined in such
regulations) to risk weighted assets (as defined in such regulations) ("Tier 1
Ratio" and "Total Risk-Based Capital Ratio," respectively). As of December 31,
1997, Success Bancshares
34
<PAGE> 40
and the Bank were in compliance with all applicable regulatory capital
requirements. However, there can be no assurance that Success Bancshares or the
Bank will continue to be in compliance with such regulatory capital
requirements. See "Supervision and Regulation."
Liquidity management at the Bank involves planning to meet anticipated
funding needs at a reasonable cost. Liquidity management is guided by policies
formulated and monitored by Success Bancshares' senior management and the Bank's
asset/liability committee, which take into account the marketability of assets,
the sources and stability of funding and the level of unfunded commitments. The
Bank's principal sources of funds are deposits, short-term borrowings and
capital contributions by Success Bancshares through its capital-raising efforts
or out of the proceeds of borrowings under the revolving line of credit.
Borrowings by the Bank from the Federal Reserve Bank of Chicago and Federal Home
Loan Bank of Chicago provide additional sources of short-term liquidity.
The Bank's core deposits, the most stable source of liquidity for
community banks due to the nature of long-term relationships generally
established with depositors and the security of deposit insurance provided by
the FDIC, are available to provide long-term liquidity. At December 31, 1997 and
1996, 68.4% and 69.8%, respectively, of Success Bancshares' total assets were
funded by core deposits with balances less than $100,000, while remaining assets
were funded by other funding sources such as core deposits with balances in
excess of $100,000, public funds, purchased funds and the capital of the Bank.
Liquid assets refer to money market assets such as cash and due from
banks, Federal funds sold and interest-bearing time deposits with financial
institutions, as well as securities available-for-sale and securities
held-to-maturity with a remaining maturity less than one year. Net liquid assets
represent the sum of the liquid asset categories less the amount of assets
pledged to secure public funds. At December 31, 1997 and 1996, net liquid assets
totaled approximately $39.0 million and $26.3 million, respectively. The
increase in net liquid assets from December 31, 1996 to December 31, 1997 is a
result of excess cash received from deposit inflows being invested in short-term
funds and the timing of investment maturities.
The Company's cash flows are composed of three classifications: cash
flows from operating activities, cash flows from investing activities, and cash
flows from financing activities. Net cash provided by operating activities,
consisting primarily of earnings, was $2.9 million for the year ended December
31, 1997, and $1.6 million for the year ended December 31, 1995. Net cash used
in operating activities was $266,000 for the year ended December 31, 1996. A
significant component in the fluctuation of net cash provided by or used in
operating activities is the timing of the sale of loans held for sale to
permanent investors. Net cash used in investing activities, consisting primarily
of loan and investment funding, was $93.0 million, $29.9 million and $26.4
million for the years ended December 31, 1997, 1996, and 1995, respectively. Net
cash provided by financing activities, consisting principally of deposit growth
and the issuance of stock, was $100.1 million, $23.5 million, and $26.9 million
for the years ended December 31, 1997, 1996 and 1995, respectively.
EFFECTS OF INFLATION
The financial statements and related financial data concerning the
Company presented herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. Inflation can have a significant effect on the operating results of
all industries. However, the effects of inflation in the local economy and on
the Company's operating results have been relatively modest for the past several
years. Since substantially all of the Company's assets and liabilities are
monetary in nature, such as cash, securities, loans and deposits, their values
are less sensitive to the effects of inflation than to changing interest rates,
which do not necessarily change in accordance with inflation rates.
The primary impact of inflation on the operations of the Company is
reflected in increased operating costs. Furthermore, inflation can directly
affect the value of loan collateral in general, and real estate collateral in
particular. These factors are taken into account in the initial underwriting
process and over the life of the Company's loans. The Company believes that it
has systems in place to continue to manage the rates, liquidity and
35
<PAGE> 41
interest rate sensitivity of the Company's assets and liabilities. See
"--Financial Condition--Asset/Liability Management."
FORWARD-LOOKING STATEMENTS
Statements made about the Company's future economic performance,
strategic plans or objectives, revenues or earnings projections or other
financial items and similar statements are not guarantees of future performance,
but are forward-looking statements. By their nature, these statements are
subject to numerous uncertainties that could cause actual results to differ
materially from those in the statements. Important factors that might cause the
Company's actual results to differ materially include, but are not limited to,
the following:
- - Federal and state legislative and regulatory developments;
- - The impact of continued loan and deposit promotions on the Company's
net interest margin;
- - The impact of opening, staffing and operating new branch facilities;
- - Changes in management's estimate of the adequacy of the allowance for
loan losses;
- - Changes in the level and direction of loan delinquencies and
write-offs;
- - Interest rate movements and their impact on customer behavior and the
Company's net interest margin;
- - The impact of repricing and competitors' pricing initiatives on loan
and deposit products;
- - The Company's ability to adapt successfully to technological changes to
meet customers' needs and developments in the marketplace;
- - The Company's ability to access cost effective funding; and
- - Changes in financial markets and general economic conditions.
36
<PAGE> 42
BUSINESS
THE COMPANY
Success Bancshares, a Delaware corporation, is a bank holding company
headquartered in Lincolnshire, Illinois. Together with the Bank, its majority
owned subsidiary, the Company had total assets of $378.7 million at December 31,
1997. Success Bancshares was originally incorporated in September 1984. Through
the Bank, the Company engages in full service community banking. The Bank is
also headquartered in Lincolnshire, Illinois, located approximately 35 miles
north of downtown Chicago, and, in addition to its headquarters, has eight
branch offices, all of which have been established since 1992:
<TABLE>
<CAPTION>
Average
BANK OR COMMUNITIES Household
BRANCH LOCATION Date Opened Total Deposits SERVED Population(1) Income(2)
- -------------------------- -------------------- ---------------- ----------------- ------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Lincolnshire March 1973 $142,105 Lincolnshire 3,955 $123,364
(Headquarters) Vernon Hills 18,830 53,722
Lake Forest 18,771 142,688
Lincolnwood February 1992 100,190 Lincolnwood 12,168 75,654
Skokie 58,980 53,390
Evanston 73,433 56,079
West Rogers Park 65,374 37,975
Peterson Park 16,236 41,463
Lincoln Park April 1993 22,692 Lincoln Park 61,092 67,158
Lakeview 91,031 44,515
Libertyville March 1994 17,377 Libertyville 19,757 72,815
Green Oaks 2,416 95,025
Mundelein 23,995 50,466
Mettawa 386 204,615
Northbrook March 1995 19,055 Northbrook 33,476 107,350
Glencoe 8,705 164,254
Winnetka 12,899 174,957
Glenview 37,836 83,709
Deerfield/Riverwoods December 1995 7,205 Riverwoods 3,049 169,359
Buffalo Grove 39,806 64,797
Wheeling 30,863 43,976
Deerfield/Downtown April 1997 12,914 Deerfield 17,822 90,821
Highland Park 29,309 119,892
Bannockburn 1,495 139,510
Arlington Heights September 1997 7,488 Arlington Heights 77,438 59,692
Mount Prospect 53,605 53,502
Prospect Heights 15,635 50,605
Palatine 39,985 56,951
Lincolnwood/International November 1997 398 Lincolnwood 12,168 75,654
Office Skokie 58,980 53,390
Evanston 73,433 56,079
West Rogers Park 65,374 37,975
Peterson Park 16,236 41,463
</TABLE>
- ----------------------
(1) Reflects 1994 census estimates published by Bureau of the Census, U.S.
Department of Commerce.
(2) Provided by Northeastern Illinois Planning Commission derived from 1989
information reported in 1990 U.S. Census Data.
37
<PAGE> 43
The Company's 1998 expansion plans include opening branches in downtown
Chicago and the suburban communities of Skokie (2 branches), Mundelein, Lake
Zurich and North Libertyville, Illinois.
The Company provides community banking services to individuals,
small-to-medium-sized businesses, local governmental units and institutional
clients primarily in the Northern Chicagoland area. These services include
traditional checking, NOW, money market, savings and time deposit accounts, as
well as a number of innovative deposit products targeted to specific market
segments. The Bank offers home equity, home mortgage, commercial real estate,
commercial and consumer loans, safe deposit facilities and other innovative and
traditional services specially tailored to meet the needs of customers in its
target markets. The Company's goal is to continue to offer innovative,
attractive financial products to businesses and individuals in its target
markets.
As a community bank, the Bank stresses personalized service, local
decision making, quick response to customers and strong relationships with
business, civic and community organizations. Management believes this marketing
and service approach enables the Bank to compete effectively with the money
center, super regional and regional banks that have a presence in its target
markets.
STRATEGY
The Company's goal is to foster continued profitable growth in the
assets of the Bank while maintaining strong credit quality. To achieve this
goal, the Company's strategic plan is focused on providing a high level of
service to its core customers while expanding its market share in the north and
northwest suburbs of Chicago and the north side of Chicago. Key elements of the
Company's strategic plan include:
- MAINTAINING STRONG LOCAL PRESENCE AND DECISION-MAKING AUTHORITY. The
Company's strong local presence combined with its focus on local decision making
differentiates it from larger financial institutions with national or regional
markets that have branches in the Company's target markets. The Company believes
that these principles provide the Bank with the competitive advantage of being
able to tailor products and services to meet the needs of the customers, to make
decisions for customers quickly and to enjoy the symbiotic benefits of investing
and participating in its community.
- PROVIDING A HIGH LEVEL OF SERVICE THROUGH QUALITY EMPLOYEES. A
cornerstone of the Company's strategy is to provide customers with quality
products and services delivered through traditional and state-of-the-art
systems, while making highly responsive and personalized attention to customer
service the priority in all of its operations. The rapid pace of consolidation
in the financial services industry has led to the disenchantment of many
individuals and small businesses with the perceived lower level of service
offered by the resulting larger institutions. The Company intends to capitalize
on this negative perception by providing a high level of individualized service
and responsiveness. The Company believes that providing this individualized
service depends on competent and highly motivated employees who are able to make
decisions and quickly respond to customers' needs. To ensure professional
servicing of commercial and retail customers of the Bank, the Company emphasizes
the recruiting and training of such employees at all levels of the organization.
The Company expects that a well-trained, motivated and loyal staff will produce
the maximum personal contact needed to understand and meet customer needs and
preferences.
- POSITIONING FOR CONTROLLED MARKET EXPANSION. The Company believes
that there are significant opportunities to grow its deposit and loan base. In
anticipation of such opportunities, the Company has invested in structuring an
organization that is capable of handling a much larger scope of operations. New
systems and quality personnel have been put in place so that new branches may be
opened or added in a cost effective manner. The Company will pursue disciplined
growth in its target markets by opening or acquiring branches in areas where
management believes local residents and small-to-medium-sized businesses would
benefit from a community banking alternative. Following an industry trend, the
Company will continue to pursue branching opportunities at non-traditional
outlets. Although the Company has expanded through establishing new branch
offices in the past, the Company's strategic plan also includes selectively
acquiring other financial institutions.
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<PAGE> 44
- INCREASING ITS PORTFOLIO OF HIGH QUALITY LOANS. The Company's policy is
to respond to all creditworthy segments of its target markets as a key to its
long-term success. The Company makes an active effort to determine the credit
needs of the communities in its target markets, including low and moderate
income areas and individuals, and to evaluate the products it offers and the
design of those products to determine whether it is effectively responding to
such communities. The Bank adheres to strict underwriting standards in its loan
origination activities and loans in excess of certain specified lending limits
are subject to approval by the Bank's loan committee or, in certain
circumstances, by the full Board of Directors of the Bank. The Board of
Directors and loan committee of the Bank, which include a number of persons who
also serve as Directors of Success Bancshares, review the loan portfolio on a
monthly basis to assess loan quality. In addition to the internal review
process, independent external review of the loan portfolio is provided by the
examinations conducted by regulatory authorities, independent public accountants
in connection with their annual audit and a loan review performed by an
independent consultant engaged by the audit committee of the Bank's Board of
Directors. The Company has historically had a high quality loan portfolio as
exhibited by a loan loss rate (net charge-offs to average total loans) of 0.05%
for the year ended December 31, 1997. The Company is committed to maintaining
strong credit quality while increasing its loan portfolio as the Company grows.
- FOCUSING ON CORE CUSTOMERS. The Company continues to focus on
establishing and maintaining long-term relationships with its core customers.
The Company emphasizes relationships with individuals and small-to-medium-sized
businesses in its target markets and believes that focusing on its core
customers will result in growth and increased profitability.
- CREATING INNOVATIVE AND NICHE PRODUCTS. The Company intends to
continue developing innovative loan and deposit products. The Company believes
that its local presence and focus on local decision making enable the Bank to
target and be more responsive to the needs of its customers by offering
customized products and services. For instance, the Company developed the SIGMA
account which combines a checking account and credit card with a home equity
loan. The Company also intends to continue to develop lending niches which
generate loan growth and service its target markets. The Company has developed a
strong expertise in real estate loans to small entrepreneurs and in loans to the
long-term health care industry. The Company is also one of the few sources of
loans for co-operative apartments in Chicagoland and provides unique and
flexible home equity loans. The Company intends to continue to market its
products aggressively through creative newspaper and other advertising, special
promotions and frequently sponsored community events. The Bank also emphasizes
business development calling programs and superior servicing of existing
commercial loan customers.
RECENT DEVELOPMENTS
Expansion
Since the consummation of its initial public offering in October 1997, the
Company has worked to aggressively execute its strategic plan.
- The Company has used its capital to grow its asset base from $345.6
million at September 30, 1997 to $378.7 million at December 31, 1997.
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<PAGE> 45
- In addition to opening its Lincolnwood/International Office branch in
November 1997, the Company's expansion plans currently include:
<TABLE>
<CAPTION>
LOCATION PROJECTED BRANCH OPENING BY STATUS
<S> <C> <C>
Downtown Chicago June 30, 1998 Lease prepared for execution.
Skokie September 30, 1998 Lease executed.
Skokie/Oakton Street September 30, 1998 Lease executed; negotiating
village approval.
Mundelein September 30, 1998 Purchase agreement executed;
remodeling in progress.
Lake Zurich September 30, 1998 Final negotiations on branch purchase
agreement and lease in progress.
North Libertyville December 31, 1998 Construction in progress.
</TABLE>
- The Company is currently negotiating an agreement to purchase an
industrial loan company with an aggregate asset base of $15 million located in
the State of Hawaii. Although this acquisition is not located in the Company's
primary target markets, management believes that it would be attractive given
the limited number of banking institutions in the State of Hawaii and the local
market knowledge of the President and Chief Executive Officer of Success
Bancshares.
Other
- The Bank has applied to the OCC for authorization to undertake the
Minority Acquisition, a transaction the result of which would be that Success
Bancshares would acquire ownership of 100% of the outstanding capital stock of
the Bank. As of December 31, 1997, Success Bancshares owned 100% of the
outstanding preferred stock and 92% of the outstanding common stock of the Bank.
SERVICES
Deposit Services
The Bank's deposit accounts include certificates of deposit, savings
accounts, checking and NOW accounts and money market accounts. In connection
with its opening of new banking facilities, the Bank has aggressively marketed
innovative deposit products at highly competitive rates to increase its market
share in its target markets. Innovative deposit products offered by the Bank
include:
- MORE ACCOUNT. The More account is an open time account with its
interest rate tied directly to the 13-week U.S. Treasury bill rate. The account
is structured in such a way that the larger the customer's balance, the higher
the rate of return on the customer's investment.
- BUSINESS MORE II ACCOUNT. The Business More II Account features a
high variable interest rate based on the 13-week U.S. Treasury bill rate
compounded monthly which is earned on open accounts based on various levels of
daily balances. The rate on this money market account is subject to change
weekly and the depositor must maintain a minimum daily balance in the account
each day to earn interest.
- CIVIC PLUS ACCOUNT. The Civic Plus Account helps not-for-profit
organizations stretch their resources by paying them 5% interest on average
outstanding monthly balances and by waiving all monthly check processing fees
and monthly minimum balance requirements.
- SURE PAY OVERDRAFT PROGRAM. Sure Pay is a pre-approved method of
borrowing funds short-term through a line of credit. Sure Pay covers overdrafts
and allows cash advances by check and ATM withdrawals. The Company believes that
Sure Pay's annual percentage rate is significantly below the rate of interest on
most credit cards.
40
<PAGE> 46
Lending Services
The Bank has concentrated its efforts on building its lending services
in the following areas:
- COMMERCIAL AND INDUSTRIAL LOANS. These loans are made to
small-to-medium-sized businesses that are sole proprietorships, partnerships or
corporations. Generally, these loans are secured with collateral including
accounts receivable, inventory and equipment, and generally require personal
guarantees of the principals.
- COMMERCIAL REAL ESTATE LOANS. The Bank offers loans for acquisition,
development, and construction of real estate secured by the real estate
involved, in addition to loans secured by commercial real estate, multi-family
residential properties and other non-farm, non-residential properties. The Bank
also makes loans to small-to-medium-sized real estate developers building ten
homes or fewer per year and rehabbers doing a small number of projects per year.
These loans typically have 20 to 30 year amortization schedules with five-year
balloons and are personally guaranteed by the borrowers.
- RESIDENTIAL REAL ESTATE LOANS. These are loans made to finance
residential units that house from one to four families. The Company originates
only fixed rate residential real estate loans including 15 year, 30 year, 5/25,
7/23 and five-year balloon mortgages. A majority of loans originated pursuant to
Fannie Mae and FHLMC guidelines are sold in the secondary market with servicing
retained by the Company. The Bank is one of a limited number of lending
institutions in the Chicago area to offer financing for co-operative apartments.
In addition, the Bank makes non-conforming loans which are held in its
portfolio. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition--Financial Condition."
- HOME EQUITY LINES OF CREDIT. The Bank has originated many unique and
flexible home equity lines of credit for its customers. These lines of credit
are secured by the borrower's home and can be drawn on at the discretion of the
borrower. These lines of credit are typically at variable interest rates. When
made, home equity lines, combined with the outstanding loan balance of prior
mortgage loans, generally do not exceed 80% of the appraised value of the
underlying real estate collateral.
The following accounts demonstrate the Bank's determination to meet the specific
needs of its customer base:
- SIGMA ACCOUNT. With a SIGMA account, an interest-bearing checking
account, an equity line of credit secured by a mortgage on the customer's
primary residence and a Visa/Mastercard Gold card are combined into one
convenient account that is available for a ten year period. Deposits to the
SIGMA checking account are automatically applied against any amount outstanding
under the equity line of credit thus minimizing interest charges. Where there is
no outstanding balance on the equity line of credit, the deposits automatically
earn interest at a premium over the rate then being paid by the Bank on its NOW
checking accounts. The SIGMA equity line of credit is available when the
customer needs funds in excess of the customer's balance in the SIGMA checking
account. The equity line of credit bears a variable interest rate based upon the
prime rate with a maximum rate below current market rates. Interest charges
incurred by the customer on the equity line of credit are often tax deductible.
The Visa/Mastercard Gold card provides the customer with purchase flexibility
and allows the customer to avoid incurring any monthly credit card interest
charges by automatically transferring the full amount of the outstanding balance
on the SIGMA Gold card from the customer's SIGMA checking account and, when
necessary, the customer's SIGMA line of credit.
- SUCCESS PLUS ACCOUNT. The Success Plus account is a home equity line
of credit which allows the customer to access the line of credit by writing a
check or using a special Visa Gold card that makes advances directly from the
line of credit. No minimum draw is required, repayment is spread over ten years,
and interest is charged based upon the prime rate. An enhancement to this
product was launched in 1997 which offered a 7.5% fixed rate of interest for
three years, adjusting to the prime rate thereafter.
- SUCCESS FOR SENIORS ACCOUNT. Success for Seniors is the Bank's
alternative to reverse mortgage products for individuals over the age of 62. It
combines a primary checking account with a 20-year home equity line of credit up
to 75% of the home's appraised value, which converts into 30-year fixed rate
mortgage at the end of
41
<PAGE> 47
the 20-year term. The product also offers a Visa Gold card, and an attractive
interest rate on the first $1,000 in the NOW account.
- READY ACCESS PROGRAM. The Bank, in conjunction with the Office of the
Illinois State Treasurer, offers a unique program which enables individuals with
disabilities to obtain low fixed rate financing in order to purchase
transportation modifications and technical devices to achieve greater mobility
and to enhance their quality of life through a more independent lifestyle. Under
this program, the Treasurer's Office deposits state funds with participating
financial institutions, such as the Bank, which then offer low interest Ready
Access loans to individuals with disabilities.
COMPETITION
Success Bancshares competes in the commercial banking industry
through its subsidiary, the Bank, in the communities it serves. The commercial
banking industry is highly competitive, and the Bank faces strong direct
competition for deposits, loans, and other financial-related services. Factors
which affect competition generally include the general and local economic
conditions, current interest rate levels and volatility in the mortgage markets.
The Bank competes directly in Cook and Lake counties with other commercial
banks, thrifts, credit unions, stockbrokers and the finance divisions of
automobile companies. Some of these competitors are local, while others are
statewide or nationwide. The Bank has developed a community banking and
marketing strategy. In keeping with this strategy, the Bank provides highly
personalized and responsive service characteristic of locally-owned and managed
institutions. As such, the Bank competes for other deposits principally by
offering depositors a variety of deposit programs, convenient office locations,
hours and other services. The Bank competes for loan originations primarily
through the interest rates and loan fees it charges, the efficiency and quality
of services it provides to borrowers and the variety of its loan products. Some
of the financial institutions and financial services organizations with which
the Bank competes are not subject to the same degree of regulation as that
imposed on bank holding companies and national banking associations. In
addition, the larger banking organizations have significantly greater resources
than those that will be available to the Bank. As a result, such competitors
have advantages over the Bank in providing certain non-deposit services.
Currently, major competitors in certain of the Bank's markets include Harris
Trust and Savings Bank, The Northern Trust Company, LaSalle Bank, N.A., First
National Bank of Chicago and American National Bank and Trust Company of
Chicago.
EMPLOYEES
As of December 31, 1997, the Company had 162 full-time equivalent
employees. The employees are not represented by a collective bargaining unit.
The Company considers its relationship with its employees to be good.
PROPERTIES
Success Bancshares and the Bank are headquartered in Lincolnshire,
Illinois. In addition to its headquarters, the Bank has eight branch facilities
located in Deerfield (2), Libertyville, Lincolnwood (2), Chicago (Lincoln Park),
Arlington Heights and Northbrook, Illinois.
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<PAGE> 48
The table below summarizes the Company's owned and leased facilities.
<TABLE>
<CAPTION>
Approximate
Location Type of Facility Square Footage Expiration Date
- -------------------------------- ----------------------------------------- --------------------- -------------------------
<S> <C> <C> <C>
Lincolnshire, IL Corporate headquarters and branch 11,760 Owned
Lincolnwood, IL Branch 8,760 Owned
Lincolnwood/International Branch 1,900 October 2001
Office, IL
Lincoln Park, IL Branch 1,967 April 2003
Libertyville, IL Operations center and branch 8,100 Owned
Northbrook, IL Branch 1,950 November 1998
Deerfield/Riverwoods, IL Commercial loan center and branch 4,100 September 1998
Deerfield/Downtown, IL Branch 2,200 Owned
Arlington Heights, IL Branch 1,300 Owned
</TABLE>
LEGAL PROCEEDINGS
Success Bancshares and the Bank are from time to time parties in
various routine legal actions arising in the normal course of business.
Management believes that there is no proceeding threatened or pending against
Success Bancshares or the Bank which, if determined adversely, would materially
adversely affect the consolidated financial position or operations of the
Company.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under
federal and state law. References under this heading to applicable statutes or
regulations are brief summaries of portions thereof which do not purport to be
complete and which are qualified in their entirety by reference to those
statutes and regulations. Any change in applicable laws or regulations may have
a material adverse effect on the business of commercial banks and bank holding
companies, including Success Bancshares and the Bank. However, management is not
aware of any pending regulatory or legislative proposals or current
recommendations by any regulatory authority which, if implemented, would have or
would be reasonably likely to have a material effect on liquidity, capital
resources or operations of Success Bancshares or the Bank.
BANK HOLDING COMPANY REGULATION
General
Success Bancshares is registered as a "bank holding company" with the
Federal Reserve and, accordingly, is subject to supervision by the Federal
Reserve under the BHC Act. Success Bancshares is required to file with the
Federal Reserve periodic reports and such additional information as the Federal
Reserve may require pursuant to the BHC Act. The Federal Reserve examines
Success Bancshares and may examine the Bank.
Investments and Activities
The BHC Act generally requires prior Federal Reserve approval for,
among other things, the acquisition by a bank holding company of direct or
indirect ownership or control of more than 5% of the voting shares or
substantially all the assets of any bank or bank holding company, or for a
merger or consolidation of a bank holding company with another bank holding
company. With certain exceptions, the BHC Act prohibits a bank holding company
from acquiring direct or indirect ownership or control of voting shares of any
company which is not a bank or bank holding company and from engaging directly
or indirectly in any activity other than banking or managing or controlling
banks or performing services for its authorized subsidiaries. Under the BHC Act
and Federal Reserve regulations, Success Bancshares and the Bank are prohibited
from engaging in certain tie-in arrangements in connection with an extension of
credit, lease, sale of property or furnishing of services.
43
<PAGE> 49
Under the Change in Bank Control Act, any person who proposes to
acquire 10% or more of the outstanding voting stock of Success Bancshares may be
required either to demonstrate that such person is not in control of Success
Bancshares or to obtain Federal Reserve approval to acquire control of Success
Bancshares. Prior regulatory approval will be required before acquiring the
power to directly or indirectly direct the management, operations or policies of
Success Bancshares or the Bank or before acquiring control of 25% or more of any
class of Success Bancshares' or Bank's outstanding voting stock. In addition,
any corporation, partnership or trust that acquires 25% or more of the
outstanding voting stock of Success Bancshares or the Bank, or acquires the
power to directly or indirectly direct the management, operations or policies of
Success Bancshares or the Bank, will have to obtain approval of the Federal
Reserve to become a bank holding company and thereafter be subject to regulation
as such.
It is the policy of the Federal Reserve that Success Bancshares is
expected to act as a source of financial strength to the Bank and to commit
resources to support the Bank. The Federal Reserve takes the position that in
implementing this policy, it may require Success Bancshares to provide such
support when Success Bancshares otherwise would not consider itself able to do
so.
Capital Requirements
The Federal Reserve has adopted risk-based capital requirements for
assessing bank holding company capital adequacy. These standards define
regulatory capital and establish minimum capital standards in relation to assets
and off-balance sheet exposures, as adjusted for credit risks. Under the Federal
Reserve's risk-based guidelines, capital is classified into two categories. For
bank holding companies, Tier 1 capital, or "core" capital, consists of common
shareholders' equity, perpetual preferred stock and trust preferred stock (both
subject to certain limitations) and minority interest in the common equity
accounts of consolidated subsidiaries, and is reduced by goodwill, certain other
intangible assets and certain investments in other corporations. Tier 2 capital
consists of the allowance for loan and lease losses (subject to certain
conditions and limitations), perpetual preferred stock (to the extent not
included in Tier 1 capital), "hybrid capital instruments," perpetual debt and
mandatory convertible debt securities, and term subordinated debt and
intermediate-term preferred stock.
Under the Federal Reserve's capital guidelines, bank holding companies
are required to maintain a minimum ratio of qualifying capital to risk-weighted
assets of 8.0%, of which at least 4.0% must be in the form of Tier 1 capital.
The Federal Reserve also requires a minimum leverage ratio of Tier 1 capital to
total average assets of 3.0%, except that bank holding companies not rated in
the highest category under the regulatory rating system are required to maintain
a leverage ratio of 1.0% to 2.0% above such minimum.
In its capital adequacy guidelines, the Federal Reserve emphasizes that
the foregoing standards are supervisory minimums and that banking organizations
generally are expected to operate well above the minimum ratios. These
guidelines also provide that banking organizations experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum levels. The growth of Success Bancshares and the
Bank has been, and may in the future be, constrained by these capital adequacy
requirements.
As of December 31, 1997, Success Bancshares had a Tier 1 Ratio of
11.55%, a Total Risk-Based Capital Ratio of 12.37% and a leverage ratio of
9.69%.
Dividend Limitations
As a holding company, Success Bancshares is dependent upon dividend
distributions from the Bank for its income. Federal statutes, regulations and
policies impose restrictions on the payment of dividends by Success Bancshares
and the Bank.
Federal Reserve policy provides that a bank holding company should
not pay dividends unless (i) the bank holding company's net income over the
prior year is sufficient to fully fund the dividends and (ii) the prospective
rate of earnings retention appears consistent with the capital needs, asset
quality and overall financial condition of the bank holding company and its
subsidiaries.
44
<PAGE> 50
Delaware law also places certain limitations on the ability of
Success Bancshares to pay dividends. For example, Success Bancshares may not pay
dividends to its shareholders if, after giving effect to the dividend, Success
Bancshares would not be able to pay its debts as they become due. The right of
Success Bancshares, its shareholders and its creditors to participate in any
distribution of the assets or earnings of its subsidiaries is further subject to
the prior claims of creditors of the respective subsidiaries. Since a major
source of Success Bancshares' revenue is dividends Success Bancshares receives
and expects to receive from the Bank, Success Bancshares' ability to pay
dividends is likely to be dependent on the amount of dividends paid by the Bank.
No assurance can be given that the Bank will, in any circumstances, pay
dividends to Success Bancshares.
BANK REGULATION
General
The Bank is subject to supervision and examination by the OCC pursuant
to the National Bank Act and regulations promulgated thereunder. The Bank is a
member of the Federal Reserve and as such is also subject to examination by the
Federal Reserve.
The deposits of the Bank are insured by the Bank Insurance Fund under
the provisions of the Federal Deposit Insurance Act (the "FDIA"), and the Bank
is, therefore, also subject to supervision and examination by the FDIC. The FDIA
requires that the appropriate federal regulatory authority (the OCC, in the case
of the Bank) approve any merger and/or consolidation by or with an insured bank,
as well as the establishment or relocation of any bank or branch office. The
FDIC also supervises compliance with the provisions of federal law and
regulations which place restrictions on loans by FDIC-insured banks to their
directors, executive officers and other controlling persons.
Furthermore, banks are affected by the credit policies of other
monetary authorities, including the Federal Reserve, which regulate the national
supply of bank credit. Such regulation influences overall growth of bank loans,
investments and deposits and may also affect interest rates charged on loans and
paid on deposits. The monetary policies of the Federal Reserve have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future.
Transactions with Insiders and Affiliates
Transactions between a bank and its holding company or other affiliates
are subject to various restrictions imposed by state and federal regulatory
agencies. Such transactions include loans and other extensions of credit,
purchases of securities and other assets and payments of fees or other
distributions. In general, these restrictions limit the amount of transactions
between an institution and an affiliate of such institution, as well as the
aggregate amount of transactions between an institution and all of its
affiliates, and require transactions with affiliates to be on terms comparable
to those for transactions with unaffiliated entities. Federal law and
regulations also restrict the extent to which the Bank may lend to its Directors
and officers, to the Directors, officers and shareholders of Success Bancshares
and to entities controlled by such persons.
Dividend Limitations
Pursuant to the National Bank Act, national banks may pay dividends
only out of undivided profits. Federal law and regulations prohibit any national
bank, such as the Bank, from declaring dividends in any calendar year in excess
of its net profits for the year to date plus the retained net profits for the
preceding two years without the prior approval of the OCC. Furthermore, the OCC
may prohibit the payment of a dividend by a national bank if it determines that
such payment would constitute an unsafe or unsound practice.
In addition to the foregoing, the ability of the Bank to pay dividends
may be affected by the various minimum capital requirements and the capital and
non-capital standards established under the Federal Deposit Insurance
Corporation Improvements Act of 1991 ("FDICIA"), as described below.
45
<PAGE> 51
Standards for Safety and Soundness
The FDIA, as amended by FDICIA and the Riegle Community Development
and Regulatory Improvement Act of 1994, requires federal bank regulatory
agencies to prescribe standards of safety and soundness, by regulations or
guidelines, relating generally to operations and management, asset growth, asset
quality, earnings, stock valuation, and compensation. The OCC and the other
federal bank regulatory agencies have adopted, effective August 9, 1995, a set
of guidelines prescribing safety and soundness standards pursuant to FDICIA, as
amended. The guidelines establish general standards relating to internal
controls and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, and compensation,
fees and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risks and exposures
specified in the guidelines. The guidelines prohibit excessive compensation as
an unsafe and unsound practice and describe compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director or principal stockholder. In addition,
each of the federal banking regulators (including the OCC) adopted regulations
that authorize, but do not require, the appropriate regulator to order an
institution that has been given notice by the appropriate regulator that it is
not satisfying any of such safety and soundness standards to submit a compliance
plan. If, after being so notified, an institution fails to submit an acceptable
compliance plan or fails in any material respect to implement an accepted
compliance plan, the appropriate regulator must issue an order directing action
to correct the deficiency and may issue an order directing other actions of the
types to which an undercapitalized association is subject under the "prompt
corrective action" provisions of FDICIA. If an institution fails to comply with
such an order, the appropriate regulator may seek to enforce such order in
judicial proceedings and to impose civil money penalties. The federal bank
regulatory agencies also proposed guidelines for asset quality and earnings
standards.
Capital Requirements
The OCC has established the following minimum capital standards for
national banks, such as the Bank: a leverage requirement consisting of a minimum
ratio of Tier 1 Capital to total assets of 3% for the most highly-rated banks
within minimum requirements of 4% to 5% for all others, and a risk-based capital
requirement consisting of a minimum ratio of total capital to total
risk-weighted assets of 8%, at least one-half of which must be Tier 1 Capital.
For purposes of these capital standards, Tier 1 Capital and total capital
consist of substantially the same components as Tier 1 Capital and total capital
under the Federal Reserve's capital guidelines for bank holding companies. See
"--Bank Holding Company Regulation--Capital Requirements."
The capital requirements described above are minimum requirements.
Higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual institutions. For example, the
regulations of the OCC provide that additional capital may be required to take
adequate account of, among other things, interest rate risk or the risks posed
by concentrations of credit, nontraditional activities or securities trading
activities.
During the year ended December 31, 1997, the Bank was not required by
the OCC to increase its capital to an amount in excess of the minimum regulatory
requirement. As of December 31, 1997, the Bank exceeded its minimum regulatory
capital requirements with a leverage ratio of 8.90% and a risk-based capital
ratio of 11.38%.
In August 1995, the federal banking agencies published a final rule
modifying their existing risk-based capital standards to provide for
consideration of interest rate risk when assessing the capital adequacy of a
bank. Under the final rule, the regulators must explicitly include a bank's
exposure to declines in the economic value of its capital due to changes in
interest rates as a factor in evaluating a bank's capital adequacy. The federal
banking agencies also have adopted a joint agency policy statement providing
guidance to banks for managing interest rate risk. This policy statement
emphasizes the importance of adequate oversight by management and a sound risk
management process. The assessment of interest rate risk management made by the
banks' examiners will be incorporated into the banks' overall risk management
rating and used to determine the effectiveness of management.
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<PAGE> 52
Prompt Corrective Action
FDICIA requires the federal banking regulators, including the OCC, to
take prompt corrective action with respect to depository institutions that fall
below certain capital standards and prohibits any depository institution from
making any capital distribution that would cause it to be undercapitalized.
Institutions that are not adequately capitalized may be subject to a variety of
supervisory actions including, but not limited to, restrictions on growth,
investment activities, capital distributions and affiliate transactions and will
be required to submit a capital restoration plan which, to be accepted by the
regulators, must be guaranteed in part by any company having control of the
institution (such as Success Bancshares). In other respects, FDICIA provides for
enhanced supervisory authority, including greater authority for the appointment
of a conservator or receiver for under capitalized institutions. The
capital-based prompt corrective action provisions of FDICIA and their
implementing regulations apply to FDIC-insured depository institutions. However,
federal banking agencies have indicated that, in regulating bank holding
companies, the agencies may take appropriate action at the holding company level
based on their assessment of the effectiveness of supervisory actions imposed
upon subsidiary insured depository institutions pursuant to the prompt
corrective action provisions of FDICIA.
Insurance of Deposit Accounts
Under FDICIA, as an FDIC-insured institution, the Bank is required to
pay deposit insurance premiums based on the risk it poses to the insurance fund.
The FDIC has authority to raise or lower assessment rates on insured deposits in
order to achieve certain designated reserve ratios in the insurance funds and to
impose special additional assessments. FDIC regulations provide for an
assessment range of zero to 0.27% of insured deposits depending on the risk
category to which an institution is assigned. Each depository institution is
assigned to one of three capital groups: "well capitalized", "adequately
capitalized" or "less than adequately capitalized." Within each capital group,
institutions are assigned to one of three supervisory subgroups: "healthy,"
"supervisory concern" or "substantial supervisory concern." Accordingly, there
are nine combinations of capital groups and supervisory subgroups to which
varying assessment rates would be applicable.
During 1997, the Bank was assessed at an average annual rate of 0% of
deposits. Deposit insurance may be terminated by the FDIC upon a finding that an
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC. The management of the
Bank does not know of any practice, condition or violation that might lead to
termination of deposit insurance.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996
enacted on September 30, 1996 provides that beginning with semi-annual periods
after December 31, 1996, deposits insured by the BIF will also be assessed to
pay interest on the bonds (the "FICO Bonds") issued in the late 1980s by the
Financing Corporation to recapitalize the now defunct Federal Savings & Loan
Insurance Corporation. For purposes of the assessments to pay interest on the
FICO Bonds, BIF deposits will be assessed at a rate of 20.0% of the assessment
rate applicable to Savings Association Insurance Fund ("SAIF") deposits until
December 31, 1999. After the earlier of December 31, 1999 or the date on which
the last savings association ceases to exist, full pro rata sharing of FICO
assessments will begin. During 1997, assessments for the payment of interest on
the FICO Bonds were approximately 1.3 basis points for BIF-assessable deposits
and approximately 6.4 basis points for SAIF-assessable deposits. The payment of
the assessment to pay interest on the FICO Bonds did not materially affect the
Bank.
Federal Reserve System
The Bank is subject to Federal Reserve regulations requiring depository
institutions to maintain non-interest-earning reserves against their transaction
accounts (primarily NOW and regular checking accounts). The Federal Reserve
regulations generally require that 3.0% reserves must be maintained against
total transaction accounts of $47.8 million or less plus 10.0% on the remainder.
The first $4.7 million of otherwise reservable balances (subject to adjustments
by the Federal Reserve) are exempted from the reserve requirements. The Bank is
in compliance with the foregoing requirements.
47
<PAGE> 53
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), a financial institution
has a continuing and affirmative obligation, consistent with the safe and sound
operation of such institution, to help meet the credit needs of its entire
community, including low- and moderate-income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires each federal banking agency, in
connection with its examination of a financial institution, to assess and assign
one of four ratings to the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications by the institution, including applications for charters, branches
and other deposit facilities, relocations, mergers, consolidations, acquisitions
of assets or assumptions of liabilities and savings and loan holding company
acquisitions. The CRA also requires that all institutions make public disclosure
of their CRA ratings. The Bank received a "satisfactory" rating from the OCC on
its most recent CRA performance evaluations.
In April 1995, federal banking agencies adopted amendments revising
their CRA regulations. Among other things, the amended CRA regulations
substitute for the prior process-based assessment factors a new evaluation
system that rates an institution based on its actual performance in meeting
community needs. In particular, the system focuses on three tests: (i) a lending
test, to evaluate the institution's record of making loans in its assessment
areas, (ii) an investment test, to evaluate the institution's record of
investing in community development projects, affordable housing and programs
benefiting low or moderate income individuals and businesses and (iii) a service
test, to evaluate the institution's delivery of services through its branches,
ATMs and other offices. The amended CRA regulations also clarify how an
institution's CRA performance is considered in the application process.
Brokered Deposits
Well-capitalized institutions are not subject to limitations on
brokered deposits, while an adequately capitalized institution is able to
accept, renew or rollover brokered deposits only with a waiver from the FDIC and
subject to certain restrictions on the yield paid on such deposits.
Undercapitalized institutions are not permitted to accept brokered deposits. The
Bank is eligible under the statutory standard to accept brokered deposits and
may use this funding source form time to time when management deems it
appropriate from an asset/liability management perspective.
MONETARY POLICY AND ECONOMIC CONDITIONS
The earnings of banks and bank holding companies are affected by
general economic conditions and also by the fiscal and monetary policies of
federal regulatory agencies, including the Federal Reserve. Through open market
transactions, variations in the discount rate and the establishment of reserve
requirements, the Federal Reserve exerts considerable influence over the cost
and availability of funds obtainable for lending or investing.
The above monetary and fiscal policies and resulting changes in
interest rates have affected the operating results of all commercial banks in
the past and are expected to do so in the future. The Bank cannot fully predict
the nature or the extent of any effects which fiscal or monetary policies may
have on its business and earnings.
YEAR 2000
The federal banking regulators have issued several statements providing
guidance to financial institutions on the steps the regulators expect financial
institutions to take to become Y2K compliant. Each of the federal banking
regulators is also examining the financial institutions under its jurisdiction
to assess each institution's compliance with the outstanding guidance. If an
institution's progress in addressing the Y2K problem is deemed by its primary
federal regulator to be less than satisfactory, the institution will be required
to enter into a memorandum of understanding with the regulator which will, among
other things, require the institution to promptly develop and submit an
acceptable plan for becoming Y2K compliant and to provide periodic reports
describing the institution's progress in implementing the plan. Failure to
satisfactorily address the Y2K problem may also expose a financial
48
<PAGE> 54
institution to other forms of enforcement action that its primary federal
regulator deems appropriate to address the deficiencies in the institution's Y2K
remediation program. See "Risk Factors--Risks Relating to Success
Bancshares--Year 2000 Compliance."
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Directors, executive officers and certain other key employees of
Success Bancshares, and their respective ages and principal positions with
Success Bancshares and the Bank as of April 1, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Saul D. Binder(1)......................... 58 Director, President and Chief Executive Officer of
Success Bancshares and President and Chief Executive
Officer of the Bank
Christa N. Calabrese.................... 49 Executive Vice President and Chief Lending Officer of the Bank
Steven A. Covert........................ 36 Executive Vice President and Chief Financial Officer of Success
Bancshares and the Bank
Ronald W. Tragasz....................... 51 Senior Vice President and Cashier of the Bank
Marlene Sachs........................... 66 Secretary of Success Bancshares and Vice President and Secretary
to the Board of Directors of the Bank
George M. Ohlhausen(1)(2)............... 75 Chairman of the Board of Directors of Success Bancshares
Charles G. Freund(3)(4)................. 74 Director of Success Bancshares
Avrom H. Goldfeder(4)(5)................ 38 Director of Success Bancshares
Samuel D. Kahan(3)(4)................... 51 Director of Success Bancshares
Sherwin Koopmans(2)(5).................. 56 Director of Success Bancshares
Norman D. Rich(1)(2).................... 63 Director of Success Bancshares
- -------------------
(1) Class III Director
(2) Member of the Audit Committee
(3) Class I Director
(4) Member of the Compensation Committee
(5) Class II Director
</TABLE>
Saul D. Binder has been President and Chief Executive Officer since
joining the Bank in 1982, and has been President and Chief Executive Officer of
Success Bancshares since 1992. Mr. Binder has been a Director of the Bank since
1982 and a Director of Success Bancshares since its incorporation in 1986. From
March 1985 to December 1989, Mr. Binder served as President of the Bank of
Bellwood. From August 1986 to December 1989, he served as President of First
National Bank of Wheaton. From August 1985 to December 1989, Mr. Binder served
as Secretary of Bellwood Bancorp.
Christa N. Calabrese has been Executive Vice President of the Bank
since October 1997 and Chief Lending Officer of the Bank since 1992. She also
served as Senior Vice President of the Bank from 1992 to October 1997. Prior to
joining the Bank, Ms. Calabrese was an Asset Specialist with the Resolution
Trust Corporation from 1990 to 1992. From 1969 through 1990, Ms. Calabrese held
commercial lending positions with local community banks.
49
<PAGE> 55
Steven A. Covert was named Executive Vice President and Chief Financial
Officer of Success Bancshares and the Bank in September 1995. From July 1993 to
December 1994, Mr. Covert was Senior Vice President and Chief Financial Officer
of Ithaca Bancorp, Inc., a bank holding company located in Ithaca, New York.
From January 1991 to July 1993, Mr. Covert was Vice President and Chief
Financial Officer of Center Banks, Incorporated, a bank holding company located
in Skaneateles, New York. Prior to January 1991, Mr. Covert was employed by KPMG
Peat Marwick LLP as an auditor, where he obtained his license as a Certified
Public Accountant.
Ronald W. Tragasz joined the Bank in September 1991, and is currently
Senior Vice President and Cashier of the Bank and Assistant Secretary of Success
Bancshares. Prior to September 1991, Mr. Tragasz was employed by the Bank of
Ravenswood as Cashier and by First National Bank of Chicago as Assistant Vice
President, where he was responsible for bank operating functions and various
branch operations.
Marlene Sachs has been Secretary of Success Bancshares since its
inception, and Vice President, Secretary and Assistant to the President of the
Bank since 1982.
George M. Ohlhausen has been Chairman of the Board of Directors of
Success Bancshares since September 1991. Since 1951, Mr. Ohlhausen has been
President of George M. Ohlhausen, Inc., which represents a variety of jewelry
manufacturers. He has served as a Director of the Bank since 1982 and of Success
Bancshares since 1989.
Charles G. Freund has been Chairman of the Board Emeritus of the Bank
since September 1991. From August 1989 to September 1991, Mr. Freund was
Chairman of the Board of the Bank. Prior to his retirement in 1986, Mr. Freund
was Vice President, Secretary and Treasurer of Mid-Con Corp., a natural gas
transmission company. He currently serves as a Director of Lincoln National
Income Fund, Lincoln National Convertible Securities Fund and the Mathers Fund.
Mr. Freund has been a Director of the Bank since 1978 and of Success Bancshares
since 1989.
Avrom H. Goldfeder has been a Director of Success Bancshares since
1997. Mr. Goldfeder has been a member-trader of the Chicago Board of Trade
(CBOT) since 1986. He is a member of the CBOT Business Conduct Committee and is
Vice Chairman of the CBOT Educational Research Foundation. Mr. Goldfeder was a
founding partner of the Financial Futures Interest Rate Group before joining ING
Futures and Options in October 1990.
Samuel D. Kahan has been a Director of Success Bancshares since 1995.
Mr. Kahan is an economist and since October 1995, has been President of A.S.K.
Financial Research Ltd., an economic research firm. From 1985 to 1995, Mr. Kahan
was the Chief Economist for Fuji Securities, Inc., a subsidiary of Fuji Bank,
Ltd.
Sherwin Koopmans has been a Director of Success Bancshares since 1997.
Prior to his retirement in January 1996, Mr. Koopmans was the Associate Director
of the Division of Depository and Asset Services for the FDIC from July 1994 to
December 1995. Prior to working for the FDIC, Mr. Koopmans was the Regional
Director and then the Vice President for Resolution for the Resolution Trust
Corporation from December 1991 to July 1994.
Norman D. Rich has been a Director of both Success Bancshares and the
Bank since 1991. Mr. Rich is a principal of the accounting and consulting firm
of Veatch, Rich & Nadler, Chtd., and has been during the last five years. Mr.
Rich is a Certified Public Accountant.
Success Bancshares' Board of Directors consists of seven (7) members
divided into three classes of Directors who are elected to hold office for
staggered three-year terms as provided in Success Bancshares' By-laws. Those
persons currently serving as Class I Directors will hold office until the Annual
Stockholder Meeting to be held in June 1998; Class II Directors will hold office
until the Annual Stockholder Meeting to be held in 1999; and Class III Directors
will hold office until the Annual Stockholder Meeting to be held in 2000.
Executive officers are appointed annually by the Board of Directors and
serve at the Board's discretion, subject to any written employment agreements
with Success Bancshares. See " --Employment Agreements."
There are no familial relationships among any of the executive officers
or Directors of Success Bancshares.
50
<PAGE> 56
DIRECTORS' COMPENSATION
Prior to August 1997, the same people were members of both the Board of
Directors of Success Bancshares and the Board of Directors of the Bank and were
compensated only as members of the Bank's Board of Directors in the amount of
$300 per month of service in addition to $300 per meeting attended. Since August
1997, each member of Success Bancshares' Board of Directors, other than any
member who is also an executive officer, has received a fee of $1,000 a month.
In addition, Success Bancshares reimburses all of its Directors for all
travel-related expenses incurred in connection with their activities as
Directors. George M. Ohlhausen receives an additional $32,500 annually for
serving as Chairman of the Board of Directors of Success Bancshares, and Norman
D. Rich receives an additional $10,000 annually for serving as Chairman of the
Audit Committee.
As of January 1, 1997, each Director of Success Bancshares and the Bank
was granted an option to purchase up to 10,000 shares of Success Bancshares'
common stock at the book value per share thereof on the last day of the month
prior to the month in which such option was either fully or partially exercised.
Such options were to expire, by their terms, on December 31, 1997. In June 1997,
both the Board of Directors of Success Bancshares and the Board of Directors of
the Bank approved a resolution which reduced the number of shares for which
options could be exercised to 1,000 shares and changed the expiration date of
such options to July 23, 1997. Between January 1, 1997 and July 30, 1997,
Directors of Success Bancshares and the Bank exercised options to purchase an
aggregate of 14,761 shares of common stock at a weighted average exercise price
of $8.52 per share. Management does not presently intend to award regular annual
option grants to Directors of Success Bancshares and the Bank in the future.
COMMITTEES OF THE BOARD OF DIRECTORS
Success Bancshares has two committees of its Board, the Audit Committee
and the Compensation Committee. The members of the Audit Committee are Messrs.
Rich, Ohlhausen and Koopmans. The Audit Committee's functions include
recommending to the Board of Directors the engagement of the Company's
independent certified public accountants, reviewing with such accountants the
plan and results of their audit of the Company's financial statements and
determining the independence of such accountants. The members of the
Compensation Committee are Messrs. Freund, Goldfeder and Kahan. The Compensation
Committee reviews and makes recommendations with respect to compensation of
officers and key employees, including the grant of options under the Success
Bancshares 1995 Stock Option Plan (the "1995 Stock Option Plan").
EXECUTIVE COMPENSATION
The following table shows certain information concerning the
compensation of the Chief Executive Officer and the Chief Financial Officer (the
"Named Executive Officers") of Success Bancshares during the fiscal years ended
December 31, 1997, 1996 and 1995. No other executive officer of Success
Bancshares or the Bank had total compensation during the fiscal year ended
December 31, 1997 which exceeded $100,000.
51
<PAGE> 57
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
ALL OTHER
Name and Principal Position YEAR SALARY BONUS COMPENSATION
- --------------------------- ------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C>
Saul D. Binder
President and Chief Executive Officer
of Success Bancshares and the Bank ........... 1997 $175,000 - $19,420(1)
1996 175,000 - 19,503(2)
1995 175,000 - 5,116(3)
Steven A. Covert
Executive Vice President and Chief
Financial Officer of Success
Bancshares and the Bank .................. 1997 $95,000 $10,000 $ 2,961(4)
1996 95,000 - 794(5)
1995(6) 33,250 - -
</TABLE>
- -------------------
(1) Includes $500 contributed by Success Bancshares for Mr. Binder under
Success Bancshares' 401(k) Plan (the "401k Plan") and $18,920 allocated
to Mr. Binder under Success Bancshares' Employee Stock Ownership Plan
(the "ESOP").
(2) Includes $200 contributed by Success Bancshares for Mr. Binder under
the 401k Plan and $19,303 allocated to Mr. Binder under the ESOP.
(3) Includes $200 contributed by Success Bancshares for Mr. Binder under
the 401k Plan and $4,916 allocated to Mr. Binder under the ESOP.
(4) Includes $500 contributed by Success Bancshares for Mr. Covert under
the 401k Plan and $2,461 allocated to Mr. Covert under the ESOP.
(5) Includes $200 contributed by Success Bancshares for Mr. Covert under
the 401k Plan and $594 allocated to Mr. Covert under the ESOP.
(6) Mr. Covert joined the Company in August 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information on option exercises in 1997 by
the Named Executive Officers and the value of such Officers' unexercised options
at December 31, 1997. Success Bancshares made no option grants in 1997 to the
Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED Value of Unexercised in the
OPTIONS AT Money Options at
DECEMBER 31, 1997 December 31, 1997(1)
--------------------------------- ---------------------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------- -------------- --------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Saul D. Binder(2) - - 113,390 - $1,035,843 -
Steven A. Covert(3) - - 17,000 17,000(4) 128,750 128,750
</TABLE>
- -------------
(1) Based on the closing price of $13.75 per share on December 31, 1997.
There is no guarantee that if and when these options are exercised they
will have this value.
(2) Of these options, options to purchase 28,390, 68,000 and 17,000 shares
of Success Bancshares' common stock were granted in February 1990,
April 1992 and January 1993, respectively, at exercise prices
reflecting the fair market value as of the dates of such option grants
of $1.82, $5.41 and $6.09 per share, respectively.
(3) Granted in October 1995 under the 1995 Stock Option Plan at the fair
market value on the date of grant of $6.18.
(4) Future exercisability is subject to vesting and the optionee remaining
employed by Success Bancshares.
EMPLOYMENT AGREEMENTS
The Bank has entered into an Employment Agreement dated February 1,
1997 with Mr. Binder (the "Employment Agreement"). The Employment Agreement will
remain in effect until Mr. Binder reaches the age of 65 or until the earlier
termination of Mr. Binder's employment by either the Bank or Mr. Binder himself.
The
52
<PAGE> 58
annual base salary for Mr. Binder as of the execution of the Employment
Agreement was $175,000. In addition to his salary, Mr. Binder is entitled to
receive an annual bonus in an amount determined by the Board of Directors of the
Bank and to participate in and receive benefits under any employee insurance and
fringe benefits programs that may be established by the Bank for its employees
or senior executive officers. Under the terms of the Employment Agreement, Mr.
Binder is entitled to reimbursement for reasonable expenses incurred by him in
the performance of his duties and to use of a Bank automobile. In addition, the
Employment Agreement states that the Bank will continue to pay Mr. Binder's
salary, bonus (if any) and benefits for the duration for the term of the
Agreement or, if there are less than 18 months remaining in the term of the
Agreement, for a period of 18 months after the termination of Mr. Binder's
employment, in the event of (i) the mutual agreement of the parties to terminate
the Agreement, (ii) termination by Mr. Binder due to the Bank's breach of the
Agreement or (iii) Mr. Binder's death or disability. The Employment Agreement
further provides that upon a change of control of the Bank (as defined in the
Agreement to include certain sales, transfers or dispositions of the shares of
stock or assets of the Bank), Mr. Binder will receive a lump sum payment in the
amount of $299,000.
In addition, Success Bancshares has entered into an Executive Severance
Agreement dated August 21, 1995 (the "Severance Agreement"), with Steven A.
Covert, Executive Vice President and Chief Financial Officer of Success
Bancshares and the Bank. The Severance Agreement provides that Mr. Covert is
entitled to a lump sum payment in an amount equal to a maximum of 300% of his
highest annual base salary in effect at any time prior to the termination of his
employment if Mr. Covert's employment is terminated by the Bank without cause
(as defined in the Severance Agreement) or by Mr. Covert with good reason (as
defined in the Severance Agreement) during the period of five years from the
date of the Severance Agreement, in the event of a change of control (as defined
in the Severance Agreement) that occurs within six months of such termination.
STOCK OPTION PLANS
Success Bancshares adopted the 1995 Stock Option Plan for executive
officers and other key personnel of Success Bancshares and the Bank effective
October 31, 1995, except that no member of the Compensation Committee may
participate in such Plan. Options may be granted under the 1995 Stock Option
Plan to purchase an aggregate of 170,000 shares of Success Bancshares' common
stock. Pursuant to the 1995 Stock Option Plan, vesting of options granted
thereunder is determined by the Compensation Committee of the Board of Directors
and typically is over a period not exceeding four years. Options must be
exercised within 10 years after the date of grant, subject to cancellation in
the event that the employment of a grantee is terminated for cause (as defined
in the Plan). Incentive options granted under the 1995 Stock Option Plan must
have a minimum exercise price equal to 110% (100% in certain circumstances) of
the fair market value of the underlying shares on the date of grant. The
exercise price of all other options is determined by the Compensation Committee.
The aggregate fair market value of the shares (determined at the time the option
is granted) as to which options are exercisable for the first time by any
participant during any single calendar year (under the 1995 Stock Option Plan
and under any other option plan of Success Bancshares or any affiliate thereof)
may not exceed $100,000. At December 31, 1997, there were 38,250 outstanding
options under the 1995 Stock Option Plan to buy Success Bancshares' common stock
at a price of $6.18 per share, 34,000 of which were held by Mr. Covert, a Named
Executive Officer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the initial public offering of Success Bancshares common stock
and the establishment of the Compensation Committee of the Board of Directors in
October 1997, the Board of Directors of Success Bancshares and the Bank, in
consultation with Saul D. Binder, President and Chief Executive Officer of
Success Bancshares and the Bank, determined the compensation of the executive
officers. Since October 1997, such compensation has been determined solely by
the Compensation Committee.
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<PAGE> 59
CERTAIN TRANSACTIONS
From time to time, the Bank makes loans and extends credit to certain
of Success Bancshares' and/or the Bank's officers and Directors and to certain
companies affiliated with such persons. In the opinion of Success Bancshares,
all of such loans and extensions of credit were made in the ordinary course of
business, on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other third parties, and did not involve more than the normal risk of
collectibility or present other unfavorable features. At December 31, 1997, an
aggregate of $2.8 million of loans and extensions of credit were outstanding to
certain officers and Directors of Success Bancshares and/or the Bank and to
certain companies affiliated with such persons.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Success Bancshares' common stock as of April 1, 1998 by:
(i) each person or entity known to Success Bancshares to be the beneficial owner
of more than 5% of its outstanding common stock, (ii) each Named Executive
Officer, (iii) each Director of Success Bancshares and (iv) all Directors and
executive officers of Success Bancshares as a group.
<TABLE>
<CAPTION>
Number of
Shares
NAME AND ADDRESS OF Beneficially Percentage of Outstanding
BENEFICIAL OWNER(1) Owned Shares Owned
- --------------------------------------------------- ------------- -------------------------
<S> <C> <C>
Saul D. Binder....................................... 194,447(2) 6.4%
Steven A. Covert..................................... 17,000(3) *
Charles G. Freund.................................... 49,912(4) 1.6
Avrom H. Goldfeder................................... - -
Samuel D. Kahan...................................... 2,200(5) *
Sherwin Koopmans..................................... - -
George M. Ohlhausen.................................. 248,886(6) 8.1
Norman D. Rich....................................... 18,699(7) *
Naschon Draiman(8)................................... 155,674(9) 5.1
All Directors and executive
officers as a group (11 persons)(10).............. 537,674 17.6
</TABLE>
- -----------------------
* Less than 1%.
(1) The address of each person listed above, unless noted otherwise in the
footnotes, is c/o Success Bancshares, Inc., One Marriott Drive,
Lincolnshire, Illinois 60069.
(2) Includes 113,390 shares subject to options exercisable within 60 days of
April 1, 1998.
(3) Represents shares subject to options exercisable within 60 days of April 1,
1998.
(4) Includes 22,924 shares held in trust with respect to which Mr. Freund has
sole voting and dispositive power.
(5) Includes 1,700 shares as to which Mr. Kahan shares beneficial ownership
with his spouse.
(6) Includes 108,485 shares held in trust with respect to which Mr. Ohlhausen
has sole voting and dispositive power, and 68,000 shares held in trust with
respect to which Mr. Ohlhausen shares voting and dispositive power with his
spouse.
(7) Includes 3,896 shares held in trust with respect to which Mr. Rich's spouse
has voting and dispositive power, and 2,210 shares beneficially owned by
Mr. Rich's spouse.
(8) Mr. Draiman's address is 6134 North St. Louis Avenue, Chicago, Illinois
60659.
(9) Includes 73,193 shares as to which Mr. Draiman shares beneficial ownership
with his spouse.
(10) Includes 132,090 shares subject to options exercisable within 60 days of
April 1, 1998.
54
<PAGE> 60
DESCRIPTION OF TRUST PREFERRED SECURITIES
The Trust Preferred Securities will be issued pursuant to the terms of
the Trust Agreement. The Trust Agreement will be qualified as an indenture under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
terms of the Trust Preferred Securities will include those stated in the Trust
Agreement and those made part of the Trust Agreement by the Trust Indenture Act.
This summary of certain terms and provisions of the Trust Preferred Securities
and the Trust Agreement does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms, and the Trust
Indenture Act. Wherever particular defined terms of the Trust Agreement (as
amended or supplemented from time to time) are referred to herein, such defined
terms are incorporated herein. The form of the Trust Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Administrative
Trustees on behalf of Success Capital will issue the Trust Securities. The Trust
Preferred Securities will represent preferred undivided beneficial interests in
the assets of Success Capital, and the holders thereof will be entitled to a
preference in certain circumstances with respect to Distributions and amounts
payable on dissolution of Success Capital over the Common Securities (which will
be held by Success Bancshares), as well as other benefits as described in the
Trust Agreement. See "--Subordination of Common Securities of Success Capital
Held by Success Bancshares."
Legal title to the Junior Subordinated Debentures will be held by the
Property Trustee in trust for the benefit of the holders of the Trust Preferred
Securities. The Guarantee of Success Bancshares will be a guarantee on a
subordinated basis and will not guarantee payment of Distributions or amounts
payable on redemption of the Trust Preferred Securities or on dissolution of
Success Capital if Success Capital does not have funds on hand available to make
such payments. See "Description of Guarantee" and "Relationship Among the Trust
Preferred Securities, the Junior Subordinated Debentures and the Guarantee."
DISTRIBUTIONS
Payment of Distributions
Distributions on the Trust Preferred Securities will be payable at the
annual rate of 8.95% of the Liquidation Amount, payable quarterly in arrears on
the 15th day of March, June, September and December in each year (subject to
possible deferral as described below), commencing June 15, 1998, to the holders
of the Trust Preferred Securities on the relevant record dates (each date on
which Distributions are payable in accordance with the foregoing, a
"Distribution Date"). The amount of each Distribution due with respect to the
Trust Preferred Securities will include amounts accrued through the date the
Distribution payment is due. Distributions on the Trust Preferred Securities
will be payable to the holders thereof as they appear on the register of Success
Capital on the relevant record date which, for so long as the Trust Preferred
Securities remain in book-entry form, will be one Business Day (as defined
below) prior to the relevant Distribution Date and, in the event the Trust
Preferred Securities are not in book-entry form, will be the first day of the
month in which the relevant Distribution Date occurs. Distributions will be
cumulative and will accumulate from the date of original issuance.
The amount of Distributions payable for each full Distribution period
will be computed by dividing the rate per annum by four. The amount of
Distributions payable for any period less than a full Distribution period will
be computed on the basis of a 360-day year of twelve 30-day months. In the event
that any date on which Distributions are payable on the Trust Preferred
Securities is not a Business Day, payment of the Distribution payable on such
date will be made on the next Business Day (and without any interest or other
payment in respect to any such delay) except that, if such Business Day is in
the next succeeding calendar year, payment of such Distribution will be made on
the immediately preceding Business Day, in each case with the same force and
effect as if made on the date such payment was originally payable. As used in
this Prospectus, a "Business Day" means any day other than a Saturday, a Sunday,
a day on which banking institutions in the City of New York are
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authorized or required by law or executive order to remain closed or a day on
which the Corporate Trust Office of the Property Trustee, the Delaware Trustee
or the Indenture Trustee is closed for business.
The funds of Success Capital available for distribution to holders of
its Trust Preferred Securities will be dependent upon payments by Success
Bancshares under the Junior Subordinated Debentures in which Success Capital
will invest the proceeds from the issuance and sale of its Trust Preferred
Securities. See "Description of Junior Subordinated Debentures." If Success
Bancshares does not make interest payments on the Junior Subordinated
Debentures, the Property Trustee will not have funds available to pay
Distributions on the Trust Preferred Securities. The payment of Distributions
(if and to the extent Success Capital has funds available for the payment of
such Distributions) will be guaranteed by Success Bancshares. See "Description
of Guarantee."
Extension Period
So long as no Debenture Event of Default shall have occurred and be
continuing, Success Bancshares will have the right under the Indenture to defer
the payment of interest on the Junior Subordinated Debentures at any time or
from time to time for a period not exceeding 20 consecutive quarters with
respect to each such period, provided that no Extension Period may extend beyond
the Stated Maturity of the Junior Subordinated Debentures or end on a date other
than an Interest Payment Date. As a consequence of any such election, quarterly
Distributions on the Trust Preferred Securities will be deferred by Success
Capital during any such Extension Period. Distributions to which holders of
Trust Preferred Securities are entitled but which have been so deferred will
accumulate additional interest thereon at the rate per annum of 8.95% thereof,
compounded quarterly from the relevant Distribution Date, to the extent
permitted under applicable law. The term "Distributions" as used herein shall
include any such additional accumulated interest. During any such Extension
Period, Success Bancshares will be prohibited from (i) declaring or paying any
dividends or distributions on, or redeeming, purchasing, acquiring or making a
liquidation payment with respect to, any of Success Bancshares' capital stock
(other than (a) paying dividends or distributions in common stock of Success
Bancshares, (b) redeeming rights or taking certain other actions under a
shareholders' rights plan, (c) reclassifying any class of Success Bancshares'
capital stock into another class of capital stock and (d) purchasing Success
Bancshares' common stock related to rights under any of Success Bancshares'
benefit plans for its Directors, officers or employees), (ii) making any payment
of principal, interest or premium, if any, on, or repaying, repurchasing or
redeeming, any debt securities of Success Bancshares that rank pari passu with
or junior in interest to the Junior Subordinated Debentures (except for payments
under the Guarantee) or (iii) redeeming, purchasing or acquiring less than all
of the Junior Subordinated Debentures or any of the Trust Preferred Securities.
Prior to the termination of any such Extension Period, so long as no Debenture
Event of Default shall have occurred and be continuing, Success Bancshares may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 20 consecutive quarters, extend beyond the
Stated Maturity or end on a date other than an Interest Payment Date. Upon the
termination of any such Extension Period and the payment of all Distributions
then due, and subject to the foregoing limitations, Success Bancshares may elect
to begin a new Extension Period. Success Bancshares must give the Issuer
Trustees notice of its election of such Extension Period at least one Business
Day prior to the next succeeding Interest Payment Date on which interest on the
Junior Subordinated Debentures would be payable but for such deferral or, so
long as the Junior Subordinated Debentures are held by Success Capital, at least
one Business Day prior to the earlier of (i) the date the Distributions on the
Trust Preferred Securities would have been payable but for the election to begin
such Extension Period and (ii) the date the Administrative Trustees are required
to give notice to the New York Stock Exchange, Nasdaq or any applicable stock
exchange or automated quotation system on which the Trust Preferred Securities
are then listed or quoted or to the holders of the Trust Preferred Securities on
the record date or the date Distributions are payable, but in any event not less
than one Business Day prior to such record date. The Property Trustee will give
notice of Success Bancshares' election to begin a new Extension Period to the
holders of the Trust Preferred Securities. Subject to the foregoing, there is no
limitation on the number of times that Success Bancshares may elect to begin an
Extension Period. Success Bancshares has no current intention of exercising its
right to defer payments of interest by extending the interest payment period on
the Junior Subordinated Debentures. However, if Success Bancshares exercises its
right to defer payments of interest, the holders of Trust Preferred Securities
will be required to include their pro rata share of OID in gross income as its
accrues for United States federal income tax (and possibly other) purposes in
advance of the receipt of cash. See "Description of Junior Subordinated
Debentures--Option to Defer Interest Payment Period" and "Certain Federal Income
Tax Consequences Interest Income and Original Issue Discount."
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REDEMPTION
Upon the repayment or redemption at any time, in whole or in part, of
any Junior Subordinated Debentures, the proceeds from such repayment or
redemption shall be applied by the Property Trustee to redeem a Like Amount of
the Trust Preferred Securities, upon not less than 30 nor more than 60 days'
notice of a date of redemption (the "Redemption Date"), at the Redemption Price
(as defined below). See "Description of Junior Subordinated
Debentures--Redemption." If less than all of the Junior Subordinated Debentures
are to be repaid or redeemed on a Redemption Date, then the proceeds from such
repayment or redemption shall be allocated to the redemption of the Trust
Preferred Securities in such manner as the Property Trustee shall deem fair and
appropriate. The amount of premium, if any, paid by Success Bancshares upon the
redemption of all or any part of the Junior Subordinated Debentures to be repaid
or redeemed on a Redemption Date shall be allocated to the redemption of the
Trust Preferred Securities in such manner as the Property Trustee shall deem
fair and appropriate.
Success Bancshares will have the right to redeem the Junior
Subordinated Debentures (i) at any time and from time to time, in whole or in
part, on or after May 19, 2003 or (ii) at any time, in whole (but not in part),
within 90 days following the occurrence and during the continuance of a Tax
Event, an Investment Company Event or a Capital Treatment Event, in each case at
a redemption price equal to 100% of the principal amount thereof, together with
the accrued and unpaid interest on the Junior Subordinated Debentures so
redeemed to the date fixed for redemption, and subject to receipt of prior
approval by the Federal Reserve if then required under applicable capital
guidelines, policies or regulations of the Federal Reserve. See "Description of
Junior Subordinated Debentures--Redemption."
In the event a Tax Event has occurred and is continuing and Success
Capital is the holder of all outstanding Trust Preferred Securities, so long as
no Debenture Event of Default has occurred and is continuing and Success
Bancshares does not elect to redeem the Junior Subordinated Debentures and
thereby cause a mandatory redemption of the Trust Securities or to dissolve
Success Capital and cause the Junior Subordinated Debentures to be distributed
to holders of the Trust Preferred Securities in dissolution of Success Capital
as described below, such Trust Preferred Securities will remain outstanding and
Additional Sums (as defined below), if any, will be payable on the Junior
Subordinated Debentures.
DEFINITIONS
"Additional Sums" means the additional amounts as may be necessary to
be paid by Success Bancshares with respect to the Junior Subordinated Debentures
in order that the amount of Distributions then due and payable by Success
Capital on the outstanding Trust Preferred Securities of Success Capital shall
not be reduced as a result of any additional taxes, duties and other
governmental charges to which Success Capital has become subject as a result of
a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust Preferred
Securities, Trust Preferred Securities having a Liquidation Amount equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Trust Preferred Securities based upon the relative
Liquidation Amounts of such classes and (ii) with respect to a distribution of
Junior Subordinated Debentures to holders of Trust Preferred Securities in
connection with a dissolution of Success Capital, Junior Subordinated Debentures
having a principal amount equal to the Liquidation Amount of the Trust Preferred
Securities of the holder to whom such Junior Subordinated Debentures are
distributed.
"Redemption Price" means, with respect to any Trust Preferred Security,
the Liquidation Amount of such Trust Preferred Security, plus accumulated and
unpaid Distributions to the Redemption Date, plus the related amount of the
premium, if any, paid by Success Bancshares upon the concurrent redemption of a
Like Amount of Junior Subordinated Debentures.
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DISSOLUTION OF SUCCESS CAPITAL AND DISTRIBUTION OF JUNIOR SUBORDINATED
DEBENTURES
Subject to Success Bancshares and Success Capital having received prior
approval of the Federal Reserve if so required under applicable capital
guidelines, policies or regulations of the Federal Reserve, Success Bancshares
will have the right at any time to dissolve Success Capital and, after
satisfaction of the liabilities of creditors of Success Capital as provided by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of Trust Preferred Securities in liquidation of Success Capital.
In addition, pursuant to the Trust Agreement, Success Capital will
automatically dissolve upon expiration of its term and will earlier dissolve on
the first to occur of: (i) certain events of bankruptcy, dissolution or
liquidation of Success Bancshares or Success Capital, (ii) upon Success
Bancshares delivering written direction to the Property Trustee to dissolve
Success Capital (which direction is optional and, except as described above,
wholly within the discretion of Success Bancshares), (iii) redemption of all of
the Trust Preferred Securities as described under "--Redemption" and (iv) the
entry of an order for the dissolution of Success Capital by a court of competent
jurisdiction.
If an early dissolution occurs as described in clause (i), (ii) or (iv)
above, Success Capital shall be dissolved by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by distributing,
after satisfaction of liabilities to creditors of Success Capital as provided by
applicable law, to the holders of such Trust Preferred Securities a Like Amount
of the Junior Subordinated Debentures, unless such distribution is not
practical, in which event such holders will be entitled to receive out of the
assets of Success Capital available for distribution to holders, after
satisfaction of liabilities to creditors of Success Capital as provided by
applicable law, an amount equal to, in the case of holders of Trust Preferred
Securities, the aggregate of the Liquidation Amount plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because Success Capital has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by Success
Capital on the Trust Preferred Securities shall be paid on a pro rata basis. The
holder(s) of the Common Securities will be entitled to receive distributions
upon any such liquidation pro rata with the holders of the Trust Preferred
Securities, except that if a Debenture Event of Default has occurred and is
continuing, the Trust Preferred Securities shall have a priority over the Common
Securities.
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures for Trust Preferred Securities (the "Liquidation Date")
(i) such Trust Preferred Securities will no longer be deemed to be outstanding,
(ii) the Depositary or its nominee, as the record holder of the Trust Preferred
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution and (iii) any certificates representing Trust Preferred Securities
not held by the Depositary or its nominee will be deemed to represent the Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of such Trust Preferred Securities, and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid Distributions on such
Trust Preferred Securities until such certificates are presented to the
Administrative Trustees or their agent for transfer or reissuance whereupon a
certificate representing such Junior Subordinated Debentures will be issued to
such holder and authenticated.
Under current United States federal income tax law and interpretations
and assuming, as expected, Success Capital is treated as a grantor trust, a
distribution of the Junior Subordinated Debentures should not be a taxable event
to holders of the Trust Preferred Securities. Should there be a change in law, a
change in legal interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to holders of the Trust Preferred
Securities. See "Certain Federal Income Tax Consequences." If Success Bancshares
elects neither to redeem the Junior Subordinated Debentures prior to maturity
nor to dissolve Success Capital and distribute the Junior Subordinated
Debentures to holders of the Trust Preferred Securities, the Trust Preferred
Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures.
If Success Bancshares elects to dissolve Success Capital and thereby
causes the Junior Subordinated Debentures to be distributed to holders of the
Trust Preferred Securities in dissolution of Success Capital, Success Bancshares
shall continue to have the right to advance the maturity of such Junior
Subordinated Debentures, subject to certain conditions. See "Description of
Junior Subordinated Debentures--General."
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There can be no assurance as to the market prices for the Trust
Preferred Securities or the Junior Subordinated Debentures that may be
distributed in exchange for the Trust Preferred Securities if a dissolution of
Success Capital were to occur. Accordingly, the Trust Preferred Securities that
an investor may purchase, or the Junior Subordinated Debentures that the
investor may receive on dissolution of Success Capital, may trade at a discount
to the price that the investor paid to purchase the Trust Preferred Securities
offered hereby. See "Description of Junior Subordinated Debentures--Distribution
Upon Liquidation."
REDEMPTION PROCEDURES
Trust Preferred Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the applicable proceeds from the
contemporaneous redemption of the Junior Subordinated Debentures. Redemptions of
the Trust Preferred Securities shall be made, and the Redemption Price shall be
payable on each Redemption Date, only to the extent that Success Capital has
funds on hand available for the payment of such Redemption Price. See
"--Subordination of Common Securities of Success Capital Held by Success
Bancshares."
If Success Capital gives a notice of redemption in respect of the Trust
Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, to the extent funds are available, the Property Trustee will deposit
irrevocably with the Depositary funds sufficient to pay the aggregate Redemption
Price and will give the Depositary irrevocable instructions and authority to pay
the Redemption Price to the holders of such Trust Preferred Securities. See
"Book-Entry Issuance." If such Trust Preferred Securities are no longer in
book-entry form, the Property Trustee, to the extent funds are available, will
deposit with the Paying Agent (as defined herein) for such Trust Preferred
Securities funds sufficient to pay the aggregate Redemption Price and will give
such Paying Agent irrevocable instructions and authority to pay the Redemption
Price to the holders thereof upon surrender of their certificates evidencing
such Trust Preferred Securities. Notwithstanding the foregoing, Distributions
payable on or prior to the Redemption Date shall be payable to the holders of
such Trust Preferred Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of the
holders of the Trust Preferred Securities will cease, except the right of the
holders of the Trust Preferred Securities to receive the applicable Redemption
Price, but without interest on such Redemption Price, and such Trust Preferred
Securities will cease to be outstanding. In the event that any date fixed for
redemption of such Trust Preferred Securities is not a Business Day, then
payment of the Redemption Price payable on such date will be made on the next
succeeding Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day (and
without any interest or other payment with respect to such delay). In the event
that payment of the Redemption Price in respect of Trust Preferred Securities
called for redemption is improperly withheld or refused and not paid either by
Success Capital or by Success Bancshares pursuant to the Guarantee,
Distributions on such Trust Preferred Securities will continue to accrue at the
then applicable rate, from the Redemption Date originally established by Success
Capital for such Trust Preferred Securities to the date such Redemption Price is
actually paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the Redemption Price. See "Description of
Guarantee."
Payment of the Redemption Price on the Trust Preferred Securities and
any distribution of Junior Subordinated Debentures to holders of Trust Preferred
Securities shall be made to the applicable record holders thereof as they appear
on the register of such Trust Preferred Securities on the relevant record date,
which date shall be one Business Day prior to the relevant Redemption Date or
Liquidation Date, as applicable; provided, however, that in the event that any
Trust Preferred Securities are not in book-entry form, the relevant record date
for such Trust Preferred Securities shall be a date at least 15 days prior to
the Redemption Date or Liquidation Date, as applicable. In the case of a
dissolution, the record date shall be no more than 45 days before the
Liquidation Date.
If less than all of the Trust Preferred Securities issued by Success
Capital are to be redeemed on a Redemption Date, then the aggregate Redemption
Price for such Trust Preferred Securities to be redeemed shall be allocated pro
rata to the Trust Preferred Securities and Common Securities based upon the
relative Liquidation Amounts of such classes. The particular Trust Preferred
Securities to be redeemed shall be selected, within 60 days prior to the
Redemption Date, by the Property Trustee from the outstanding Trust Preferred
Securities not
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previously called for redemption in such manner as the Property Trustee may deem
fair and appropriate, or if the Trust Preferred Securities are then held in the
form of a Global Preferred Security (as defined herein) in such manner as the
Property Trustee may deem fair and appropriate, in accordance with the
Depositary's customary procedures. The Property Trustee shall promptly notify
the Securities Registrar (as defined herein) in writing of the Trust Preferred
Securities selected for redemption and, in the case of any Trust Preferred
Securities selected for partial redemption, the Liquidation Amount thereof to be
redeemed. For all purposes of the Trust Agreement, unless the context otherwise
requires, all provisions relating to the redemption of Trust Preferred
Securities shall relate to the portion of the aggregate Liquidation Amount of
Trust Preferred Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each holder of Trust Preferred
Securities at such holder's registered address. Unless Success Capital defaults
in payment of the applicable Redemption Price on and after the Redemption Date,
Distributions will cease to accrue on such Trust Preferred Securities called for
redemption.
Subject to applicable law (including, without limitation, United States
federal securities law and the BHC Act), and provided that Success Bancshares
has not and is not continuing its right to defer interest payments, Success
Bancshares may at any time and from time to time purchase outstanding Trust
Preferred Securities by tender, in the open market or by private agreement.
SUBORDINATION OF COMMON SECURITIES OF SUCCESS CAPITAL HELD BY SUCCESS BANCSHARES
Payment of Distributions on, and the Redemption Price of, the Trust
Preferred Securities and Common Securities, as applicable, shall be made pro
rata based on the Liquidation Amounts of the Trust Preferred Securities and
Common Securities; provided, however, that if on any Distribution Date or
Redemption Date a Debenture Event of Default shall have occurred and be
continuing, no payment of any Distribution on, or applicable Redemption Price
of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of the Common Securities, shall be
made unless payment in full in cash of all accumulated and unpaid Distributions
on all of the outstanding Trust Preferred Securities for all Distribution
periods terminating on or prior thereto, or in the case of payment of the
applicable Redemption Price the full amount of such Redemption Price on all of
the outstanding Trust Preferred Securities then called for redemption, shall
have been made or provided for, and all funds available to the Property Trustee
shall first be applied to the payment in full in cash of all Distributions on,
or Redemption Price of, the Trust Preferred Securities then due and payable.
In the case of any Event of Default (as defined herein) under the Trust
Agreement resulting from a Debenture Event of Default, Success Bancshares as
holder of the Common Securities will be deemed to have waived any right to act
with respect to any such Event of Default until the effect of all such Events of
Default have been cured, waived or otherwise eliminated. Until all such Events
of Default have been so cured, waived or otherwise eliminated, the Property
Trustee shall act solely on behalf of the holders of the Trust Preferred
Securities and not on behalf of Success Bancshares as holder of the Common
Securities, and only the holders of the Trust Preferred Securities will have the
right to direct the Property Trustee to act on their behalf.
EVENTS OF DEFAULT; NOTICE
Any one of the following events that has occurred and is continuing
constitutes an "Event of Default" under the Trust Agreement (an "Event of
Default") with respect to the Trust Preferred Securities (whatever the reason
for such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures--Debenture Events of Default"); or
(ii) default by Success Capital in the payment of any Distribution when
it becomes due and payable, and continuation of such default for a period of 30
days; or
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(iii) default by Success Capital in the payment of any Redemption Price
of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement (other
than a default or breach in the performance of a covenant or warranty which is
addressed in clause (ii) or (iii) above), and continuation of such default or
breach for a period of 60 days after there has been given, by registered or
certified mail, to the Issuer Trustees and Success Bancshares by the holders of
at least 25% in aggregate Liquidation Amount of the outstanding Trust Preferred
Securities, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" under the
Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by Success Bancshares to appoint
a successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Trust Preferred Securities
and the Administrative Trustees, unless such Event of Default shall have been
cured or waived. Success Bancshares is required to file annually with the
Property Trustee a certificate as to whether or not it is in compliance with all
the conditions and covenants applicable to it under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Trust Preferred Securities shall have a preference over the Common Securities
upon termination of Success Capital as described in "--Dissolution of Success
Capital and Distribution of Junior Subordinated Debentures."
REMOVAL OF TRUSTEES
Unless a Debenture Event of Default shall have occurred and be
continuing, any of the Issuer Trustees may be removed at any time by the holder
of the Common Securities. If a Debenture Event of Default has occurred and is
continuing, the Issuer Trustees, with the exception of the Administrative
Trustees, may be removed at such time by the holders of a majority in
Liquidation Amount of the outstanding Trust Preferred Securities. In no event
will the holders of the Trust Preferred Securities have the right to vote to
appoint, remove or replace the Administrative Trustees, which voting rights are
vested exclusively in Success Bancshares as the holder of the Common Securities.
No resignation or removal of an Issuer Trustee and no appointment of a successor
trustee shall be effective until the acceptance of appointment by the successor
trustee in accordance with the provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at
any time or times, for the purpose of meeting the legal requirements of the
Trust Indenture Act or of any jurisdiction in which any property of Success
Capital may at the time be located, at the request of the Property Trustee,
Success Bancshares, as the holder of the Common Securities, and the
Administrative Trustees will have power to appoint one or more persons either to
act as a co-trustee, jointly with the Property Trustee, of all or any part of
such property, or to act as separate trustee of any such property, in either
case with such powers as may be provided in the instrument of appointment, and
to vest in such person or persons in such capacity any property, title, right or
power deemed necessary or desirable, subject to the provisions of the Trust
Agreement.
MERGER OR CONSOLIDATION OF TRUSTEES
Any Person (as defined in the Trust Agreement) into which the Property
Trustee or the Delaware Trustee may be merged or converted or with which it may
be consolidated, or any Person resulting from any merger, conversion or
consolidation to which such Issuer Trustee shall be a party, or any Person
succeeding to all or substantially all the corporate trust business of such
Issuer Trustee, will be the successor of such Issuer Trustee under the Trust
Agreement, provided such Person is otherwise qualified and eligible.
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MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF SUCCESS CAPITAL
Success Capital may not merge with or into, consolidate, amalgamate or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other Person, except as
described below. Success Capital may, at the request of Success Bancshares,
without the consent of the holders of the Trust Preferred Securities, merge with
or into, consolidate, amalgamate or be replaced by, or convey, transfer or lease
its properties and assets substantially as an entirety to, a trust organized as
such under the laws of any State; provided, that (i) such successor entity
either (a) expressly assumes all of the obligations of Success Capital with
respect to the Trust Preferred Securities or (b) substitutes for the Trust
Preferred Securities other securities having substantially the same terms as the
Trust Preferred Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Trust Preferred Securities rank in priority with
respect to distributions and payments upon liquidation, redemption and
otherwise, (ii) Success Bancshares expressly appoints a trustee of such
successor entity possessing the same powers and duties as the Property Trustee
as the holder of the Junior Subordinated Debentures, (iii) the Successor
Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or other
organization on which the Trust Preferred Securities are then listed, if any,
(iv) such merger, consolidation, amalgamation, conveyance, transfer or lease
does not cause the Trust Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, (v) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Trust Preferred Securities (including any
Successor Securities) in any material respect, (vi) such successor entity has a
purpose identical to that of Success Capital, (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, Success
Bancshares has received an opinion from independent counsel to Success Capital
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Trust
Preferred Securities (including any Successor Securities) in any material
respect and (b) following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither Success Capital nor such successor entity
will be required to register as an investment company under the Investment
Company Act and (viii) Success Bancshares or any permitted successor or designee
owns all of the common securities of such successor entity and guarantees the
obligations of such successor entity under the Successor Securities at least to
the extent provided by the Guarantee. Notwithstanding the foregoing, Success
Capital shall not, except with the consent of holders of 100% in Liquidation
Amount of the Trust Preferred Securities, consolidate, amalgamate, merge with or
into or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause Success Capital or the successor entity to be classified as other
than a grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of
Guarantee--Amendments and Assignment" and as otherwise required by law and the
Trust Agreement, the holders of the Trust Preferred Securities will have no
voting rights. The Trust Agreement may be amended from time to time by Success
Bancshares, the Property Trustee and the Administrative Trustees, without the
consent of the holders of the Trust Preferred Securities, (i) to cure any
ambiguity, correct or supplement any provisions in the Trust Agreement that may
be inconsistent with any other provision or to make any other provisions with
respect to matters or questions arising under the Trust Agreement, which shall
not be inconsistent with the other provisions of the Trust Agreement or (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such extent
as shall be necessary to ensure that Success Capital will be classified for
United States federal income tax purposes as a grantor trust at all times that
any Trust Preferred Securities are outstanding or to ensure that Success Capital
will not be required to register as an "investment company" under the Investment
Company Act; provided, however, that in the case of clause (i), such action
shall not adversely affect in any material respect the interests of any holder
of Trust Preferred Securities. The Trust Agreement may be amended by the Issuer
Trustees and Success Bancshares (i) with the consent of holders representing not
less than a majority of the aggregate Liquidation Amount of the outstanding
Trust Preferred Securities and (ii) upon receipt by the Issuer Trustees of an
opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Issuer Trustees in accordance with such amendment will not
affect Success Capital's status as a grantor trust for United States federal
income tax purposes or Success Capital's exemption from
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status as an "investment company" under the Investment Company Act, provided
that without the consent of each holder of Trust Preferred Securities, the Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution or other payment on the Trust Preferred Securities or otherwise
adversely affect the amount of any Distribution or other payment required to be
made in respect of the Trust Preferred Securities as of a specified date or (ii)
restrict the right of a holder of Trust Preferred Securities to institute suit
for the enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee, or
executing any trust or power conferred on the Property Trustee with respect to
the Junior Subordinated Debentures, (ii) waive any past default that is waivable
under the Indenture, (iii) exercise any right to rescind or annul a declaration
that the principal of all the Junior Subordinated Debentures shall be due and
payable or (iv) consent to any amendment, modification or termination of the
Indenture or the Junior Subordinated Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the holders of
a majority in aggregate Liquidation Amount of all outstanding the Trust
Preferred Securities; provided, however, that where a consent under the
Indenture would require the consent of each holder of Junior Subordinated
Debentures affected thereby, no such consent shall be given by the Issuer
Trustees without the prior consent of each holder of the Trust Preferred
Securities. The Issuer Trustees shall not revoke any action previously
authorized or approved by a vote of the holders of the Trust Preferred
Securities and the Administrative Trustees except by subsequent vote of the
holders of the Trust Preferred Securities. The Property Trustee shall notify
each holder of the Trust Preferred Securities and the Administrative Trustees of
any notice of default with respect to the Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of such holders of the Trust
Preferred Securities, prior to taking any of the foregoing actions, the Issuer
Trustees shall obtain an opinion of counsel experienced in such matters to the
effect that Success Capital will not be classified as other than a grantor trust
for United States federal income tax purposes.
Any required approval of holders of the Trust Preferred Securities may
be given at a meeting of holders of Trust Preferred Securities convened for such
purpose or pursuant to written consent. The Property Trustee will cause a notice
of any meeting at which holders of the Trust Preferred Securities are entitled
to vote, or of any matter upon which action by written consent of such holders
is to be taken, to be given to each holder of record of the Trust Preferred
Securities in the manner set forth in the Trust Agreement.
No vote or consent of the holders of the Trust Preferred Securities
will be required for Success Capital to redeem and cancel the Trust Preferred
Securities in accordance with the Trust Agreement.
Notwithstanding that holders of the Trust Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Trust Preferred Securities that are owned by Success Bancshares, the
Issuer Trustees or any affiliate of Success Bancshares or any Issuer Trustees,
shall, for purposes of such vote or consent, be treated as if they were not
outstanding.
EXPENSES AND TAXES
In the Indenture, Success Bancshares, as borrower, has agreed to pay
all debts and other obligations (other than with respect to the Trust Preferred
Securities) and all costs and expenses of Success Capital (including costs and
expenses relating to the organization of Success Capital) and to pay any and all
taxes and all costs and expenses with respect thereto (other than United States
withholding taxes) to which Success Capital might become subject. The foregoing
obligations of Success Bancshares under the Indenture are for the benefit of,
and shall be enforceable by, any person to whom any such debts, obligations,
costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor
has received notice thereof. Any such Creditor may enforce such obligations of
Success Bancshares directly against Success Bancshares, and Success Bancshares
has irrevocably waived any right or remedy to require that any such Creditor
take any action against Success Capital or any other person before proceeding
against Success Bancshares. Success Bancshares has also agreed in the Indenture
to execute such additional agreements as may be necessary or desirable to give
full effect to the foregoing.
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GLOBAL TRUST PREFERRED SECURITIES
The Trust Preferred Securities will be represented by one or more
global certificates registered in the name of the Depositary or its nominee
("Global Trust Preferred Security"). Beneficial interests in the Trust Preferred
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by participants in the Depositary. Except as
described below, Trust Preferred Securities in certificated form will not be
issued in exchange for the global certificates. See "Book-Entry Issuance."
No global security may be exchanged for Trust Preferred Securities
registered in the names of persons other than the Depositary or its nominee
unless (i) the Depositary notifies the Indenture Trustee that it is unwilling or
unable to continue as a depositary for such global security and Success
Bancshares is unable to locate a qualified successor depositary, (ii) Success
Bancshares executes and delivers to the Indenture Trustee a written order
stating that it elects to terminate the book-entry system through the Depositary
or (iii) there shall have occurred and be continuing a Debenture Event of
Default under the Indenture. Any global security that is exchangeable pursuant
to the preceding sentence shall be exchangeable for definitive certificates
registered in such names as the Depositary shall direct. It is expected that
such instructions will be based upon directions received by the Depositary with
respect to ownership of beneficial interests in such global security. In the
event that Trust Preferred Securities are issued in definitive form, such Trust
Preferred Securities will be in denominations of $10 and integral multiples
thereof and may be transferred or exchanged at the offices described below.
Unless and until it is exchanged in whole or in part for the individual
Trust Preferred Securities represented thereby, a Global Trust Preferred
Security 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 nominee to a successor
depositary or any nominee of such successor.
Payments on Global Trust Preferred Securities will be made to the
Depositary, as the depositary for the Global Trust Preferred Securities. In the
event the Trust Preferred Securities are issued in definitive form,
Distributions will be payable, the transfer of the Trust Preferred Securities
will be registrable, and Trust Preferred Securities will be exchangeable for
Trust Preferred Securities of other denominations of a like aggregate
Liquidation Amount, at the corporate office of the Property Trustee, or at the
offices of any Paying Agent or transfer agent appointed by the Administrative
Trustees, provided that payment of any Distribution may be made at the option of
the Administrative Trustees by check mailed to the address of the persons
entitled thereto or by wire transfer. In addition, if the Trust Preferred
Securities are issued in certificated form, the record dates for payment of
Distributions will be the first day of the month in which the relevant
Distribution Date occurs. For a description of the terms of the depositary
arrangements relating to payments, transfers, voting rights, redemptions and
other notices and other matters, see "Book-Entry Issuance."
Upon the issuance of a Global Trust Preferred Security, and the deposit
of such Global Trust Preferred Security with or on behalf of the Depositary, the
Depositary for such Global Trust Preferred Security or its nominee will credit,
on its book-entry registration and transfer system, the respective aggregate
Liquidation Amounts of the individual Trust Preferred Securities represented by
such Global Trust Preferred Securities to the accounts of persons that have
accounts with the Depositary ("Participants"). Such accounts shall be designated
by the dealers, underwriters or agents with respect to such Trust Preferred
Securities. Ownership of beneficial interests in a Global Trust Preferred
Security will be limited to Participants or persons that may hold interests
through Participants. Ownership of beneficial interests in such Global Trust
Preferred Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the applicable Depositary or its
nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Trust Preferred Security.
So long as the Depositary for a Global Trust Preferred Security, or its
nominee, is the registered owner of such Global Trust Preferred Security, such
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Trust Preferred Securities represented by such Global
Trust Preferred Security for all purposes under the Trust Agreement governing
such Trust Preferred Securities. Except as provided below, owners
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of beneficial interests in a Global Trust Preferred Security will not be
entitled to have any of the individual Trust Preferred Securities represented by
such Global Trust Preferred Security registered in their names, will not receive
or be entitled to receive physical delivery of any such Trust Preferred
Securities in definitive form and will not be considered the owners or holders
thereof under the Trust Agreement.
None of Success Bancshares, the Property Trustee, any Paying Agent or
the Securities Registrar for such Trust Preferred Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Global Trust
Preferred Security representing such Trust Preferred Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Success Bancshares expects that the Depositary for Trust Preferred
Securities or its nominee, upon receipt of any payment of the Liquidation Amount
or Distributions in respect of a permanent Global Trust Preferred Security
immediately will credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interest in the aggregate
Liquidation Amount of such Global Trust Preferred Security as shown on the
records of such Depositary or its nominee. Success Bancshares also expects that
payments by Participants to owners of beneficial interests in such Global Trust
Preferred Security held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name."
Such payments will be the responsibility of such Participants.
PAYMENT AND PAYING AGENCY
Payments in respect of the Trust Preferred Securities shall be made to
the Depositary, which shall credit the relevant accounts at the Depositary on
the applicable Distribution Dates or, if any of the Trust Preferred Securities
are not held by the Depositary, such payments shall be made by check mailed to
the address of the holder entitled thereto as such address shall appear on the
register. The paying agent (the "Paying Agent") shall initially be the Property
Trustee and any co-paying agent chosen by the Property Trustee and acceptable to
the Administrative Trustees and Success Bancshares. The Paying Agent shall be
permitted to resign as Paying Agent upon 30 days' written notice to the
Administrative Trustees and the Property Trustee. In the event that the Property
Trustee shall no longer be the Paying Agent, the Administrative Trustees shall
appoint a successor to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar (the "Securities Registrar")
and transfer agent for the Trust Preferred Securities. Registration of transfers
of the Trust Preferred Securities will be effected without charge by or on
behalf of Success Capital, but upon payment of any tax or other governmental
charges that may be imposed in connection with any transfer or exchange. Success
Capital and the Property Trustee will not be required to register or cause to be
registered the transfer of the Trust Preferred Securities after such Trust and
the Property Trustee Preferred Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of Trust
Preferred Securities unless it is offered security or indemnity satisfactory to
it against the costs, expenses and liabilities that might be incurred thereby.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate Success Capital in such a way that Success Capital
will not be deemed to be an "investment company" required to be registered under
the Investment Company Act or classified as an association taxable as a
corporation for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of
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Success Bancshares for United States federal income tax purposes. In this
connection, the Property Trustee, Success Bancshares and the Administrative
Trustees are authorized to take any action, not inconsistent with applicable
law, the certificate of trust of Success Capital or the Trust Agreement, that
Success Bancshares and the Administrative Trustees determine in their discretion
to be necessary or desirable for such purposes, as long as such action does not
materially adversely affect the interests of the holders of the Trust Preferred
Securities.
Holders of the Trust Preferred Securities have no preemptive or similar
rights.
GOVERNING LAW
The Trust Agreement will be governed by and construed in accordance
with the laws of the State of Delaware.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
Concurrently with the issuance of the Trust Preferred Securities,
Success Capital will invest the proceeds thereof, together with the
consideration paid by Success Bancshares for the Common Securities, in Junior
Subordinated Debentures issued by Success Bancshares. The Junior Subordinated
Debentures will be issued as unsecured debt under the Indenture between Success
Bancshares and the Indenture Trustee. The Indenture will be qualified under the
Trust Indenture Act. The following summary of the terms and provisions of the
Junior Subordinated Debentures and the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the
Indenture, which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part, and to the Trust Indenture Act. Whenever
particular defined terms of the Indenture are referred to herein, such defined
terms are incorporated herein by reference.
GENERAL
The Junior Subordinated Debentures will bear interest at the annual
rate of 8.95% of the principal amount thereof, payable quarterly in arrears on
the 15th day of March, June, September and December of each year (each, an
"Interest Payment Date"), commencing June 15, 1998, to the person in whose name
each Junior Subordinated Debenture is registered, subject to certain exceptions,
at the close of business on the Business Day immediately preceding such Interest
Payment Date. Notwithstanding the above, in the event that either the (i) Junior
Subordinated Debentures are held by the Property Trustee and the Trust Preferred
Securities are no longer in book-entry only form or (ii) the Junior Subordinated
Debentures are not represented by a Global Subordinated Debenture (as defined
herein), the record date for such payment shall be the first day of the month in
which such payment date occurs. The amount of each interest payment due with
respect to the Junior Subordinated Debentures will include amounts accrued
through the date the interest payment is due. It is anticipated that, until the
dissolution, if any, of Success Capital, each Junior Subordinated Debenture will
be held in the name of the Property Trustee in trust for the benefit of the
holders of the Trust Preferred Securities. The amount of interest payable for
any period will be computed on the basis of a 360-day year of twelve 30-day
months. In the event that any date on which interest is payable on the Junior
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on the date such payment was originally payable. Accrued
interest that is not paid on the applicable Interest Payment Date will bear
additional interest on the amount thereof (to the extent permitted by law) at
the rate per annum of 8.95% thereof, compounded quarterly. The term "interest"
as used herein shall include quarterly interest payments, interest on
quarterly interest payments not paid on the applicable Interest Payment Date
and Additional Sums (as defined herein), as applicable.
The Junior Subordinated Debentures will mature on May 19, 2028. Such
date may be advanced once at any time by Success Bancshares to any date not
earlier than May 19, 2003 subject to Success Bancshares having received
prior approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. In the event that Success
Bancshares elects to advance the Stated Maturity of the Junior
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Subordinated Debentures, it shall give notice to the Indenture Trustee and the
holders of the Junior Subordinated Debentures no less than 90 days prior to the
effectiveness thereof.
The Junior Subordinated Debentures will be unsecured and will rank
junior and be subordinate in right of payment to all Senior and Subordinated
Debt of Success Bancshares. Because Success Bancshares is a holding company, the
right of Success Bancshares to participate in any distribution of assets of any
subsidiaries, including the Bank, upon any such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the Trust
Preferred Securities to benefit indirectly from such distribution), is subject
to the prior claims of creditors of that subsidiary, except to the extent that
Success Bancshares may itself be recognized as a creditor of that subsidiary.
Accordingly, the Junior Subordinated Debentures will be effectively subordinated
to all existing and future liabilities of the Bank, and holders of Junior
Subordinated Debentures should look only to the assets of Success Bancshares,
and not of its subsidiaries, for principal and interest payments on the Junior
Subordinated Debentures. The Indenture will not limit the incurrence or issuance
of other secured or unsecured debt of Success Bancshares, including Senior and
Subordinated Debt, whether under any existing or other indenture that Success
Bancshares may enter into in the future or otherwise. In addition, the
obligations of Success Bancshares under the Junior Subordinated Debentures will
rank subordinate to the deposit liabilities of the Bank, which are insured by
the FDIC. See "--Subordination."
OPTION TO DEFER INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default shall have occurred and be
continuing, Success Bancshares will have the right under the Indenture to defer
the payment of interest at any time or from time to time for a period not
exceeding 20 consecutive quarters, provided that no Extension Period may extend
beyond the Stated Maturity or end on a date other than an Interest Payment Date.
Prior to the termination of any such Extension Period, so long as no Debenture
Event of Default shall have occurred and be continuing Success Bancshares may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 20 consecutive quarters, or extend beyond
the Stated Maturity or end on a date other than an Interest Payment Date. At the
end of such Extension Period, Success Bancshares must pay all interest then
accrued and unpaid (together with interest thereon at the annual rate of 8.95%,
compounded quarterly, to the extent permitted by applicable law). The amount of
additional interest payable for any full interest period will be computed by
dividing the rate per annum by four. Upon the termination of any such Extension
Period and the payment of all amounts then due on any Interest Payment Date,
Success Bancshares may elect to begin a new Extension Period, subject to the
above requirements.
During any such Extension Period, Success Bancshares may not (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of Success Bancshares'
capital stock (other than (a) dividends or distributions in common stock of
Success Bancshares, (b) redeeming rights or taking certain other actions under a
shareholders' rights plan, (c) reclassification of any class of Success
Bancshares' capital stock into another class of capital stock and (d) purchases
of Success Bancshares' common stock related to rights under any of Success
Bancshares' benefit plans for its Directors, officers or employees), (ii) make
any payment of principal, interest or premium, if any, on or repay, repurchase
or redeem any debt securities of Success Bancshares that rank pari passu with or
junior in interest to the Junior Subordinated Debentures (provided this
restriction will not prohibit payments under the Guarantee) or (iii) redeem,
purchase or acquire less than all of the Junior Subordinated Debentures or any
of the Trust Preferred Securities.
Success Bancshares must give the Indenture Trustee notice of its
election of any Extension Period at least one Business Day prior to the next
succeeding Interest Payment Date on which interest on the Junior Subordinated
Debentures would be payable but for such deferral or, so long as the Junior
Subordinated Debentures are held by Success Capital, at least one Business Day
prior to the earlier of (i) the date the Distributions on the Trust Preferred
Securities would have been payable except for the election to begin or extend
such Extension Period or (ii) the date the Administrative Trustees are required
to give notice to the New York Stock Exchange, Nasdaq or any applicable stock
exchange or automated quotation system on which the Trust Preferred Securities
are then listed or quoted or to the holders of the Trust Preferred Securities of
the record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date. The Indenture Trustee
shall give notice of Success Bancshares' election to begin or extend a new
Extension Period to the holders of the Trust Preferred Securities. There is no
limitation on the number of times that Success Bancshares may elect to begin an
Extension Period.
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Distributions on the Trust Preferred Securities will be deferred by
Success Capital during any such Extension Period. See "Description of the Trust
Preferred Securities--Distributions." During an Extension Period, interest will
continue to accrue and holders of Junior Subordinated Debentures will be
required to accrue interest income for United States federal income tax
purposes. For a description of certain federal income tax consequences and
special considerations applicable to any such Junior Subordinated Debentures,
see "Certain Federal Income Tax Consequences."
REDEMPTION
Subject to Success Bancshares having received prior approval of the
Federal Reserve if then required under applicable capital guidelines, policies
or regulations of the Federal Reserve, the Junior Subordinated Debentures are
redeemable prior to maturity at the option of Success Bancshares (i) at any time
and from time to time, in whole or in part, on or after May 19, 2003 or (ii) at
any time in whole (but not in part), within 90 days following the occurrence and
during the continuance of a Tax Event, an Investment Company Event or a Capital
Treatment Event, in each case at a redemption price equal to 100% of the
principal amount thereof, together with the accrued and unpaid interest on the
Junior Subordinated Debentures so redeemed to the date fixed for redemption.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to the Indenture Trustee and to each
holder of Junior Subordinated Debentures to be redeemed at such holder's
registered address. Unless Success Bancshares defaults in payment of the
redemption price, on and after the redemption date interest ceases to accrue on
such Junior Subordinated Debentures or portions thereof called for redemption.
If Success Capital is required to pay additional taxes, duties or other
governmental charges as a result of a Tax Event, Success Bancshares will pay as
additional amounts on the Junior Subordinated Debentures the Additional Sums.
The Junior Subordinated Debentures will not be subject to any sinking
fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of Trust Preferred
Securities--Dissolution of Success Capital and Distribution of Junior
Subordinated Debentures," under certain circumstances involving the dissolution
of Success Capital, the Junior Subordinated Debentures may be distributed to the
holders of the Trust Preferred Securities in liquidation of Success Capital
after satisfaction of liabilities to creditors of Success Capital as provided by
applicable law. If distributed to holders of the Trust Preferred Securities in
liquidation, the Junior Subordinated Debentures will initially be issued in the
form of one or more global securities and the Depositary, or any successor
depositary for the Trust Preferred Securities, will act as depositary for the
Junior Subordinated Debentures. It is anticipated that the depositary
arrangements for the Junior Subordinated Debentures would be substantially
identical to those in effect for the Trust Preferred Securities. If the Junior
Subordinated Debentures are distributed to the holders of Trust Preferred
Securities upon the liquidation of Success Capital, Success Bancshares will use
its best efforts to list the Junior Subordinated Debentures on Nasdaq or such
other stock exchange or automated quotation system, if any, on which the Trust
Preferred Securities are then listed or quoted. There can be no assurance as to
the market price of any Junior Subordinated Debentures that may be distributed
to the holders of Trust Preferred Securities.
RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there shall have occurred any event of which Success
Bancshares has actual knowledge that (a) with the giving of notice or the lapse
of time, or both, would constitute a Debenture Event of Default and (b) in
respect of which Success Bancshares shall not have taken reasonable steps to
cure, (ii) Success Bancshares shall have given notice of its election of an
Extension Period as provided in the Indenture with respect to the Junior
Subordinated Debentures and shall not have rescinded such notice, or such
Extension Period, or any extension thereof, shall be continuing, (iii) while the
Junior Subordinated Debentures are held by Success Capital, Success Bancshares
shall be in default with respect to its payment of any obligation under the
Guarantee or (iv) there shall have occurred and be continuing a Debenture Event
of Default, then Success Bancshares will not (1) declare or pay
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any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of Success Bancshares's capital stock
(other than (a) paying dividends or distributions in common stock of Success
Bancshares, (b) redeeming rights or taking certain other actions under a
shareholders' rights plan, (c) reclassifying of any class of Success Bancshares'
capital stock into another class of capital stock and (d) purchasing of Success
Bancshares' common stock related to rights under any of Success Bancshares'
benefit plans for its Directors, officers or employees), (2) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of Success Bancshares that rank pari passu with or junior in
interest to the Junior Subordinated Debentures or make any guarantee payments
with respect to any guarantee by Success Bancshares of the debt securities of
any subsidiary of Success Bancshares if such guarantee ranks pari passu with or
junior in interest to the Junior Subordinated Debentures (provided this
restriction will not prohibit payments under the Guarantee) or (3) redeem,
purchase or acquire less than all of the Junior Subordinated Debentures or any
of the Trust Preferred Securities.
SUBORDINATION
In the Indenture, Success Bancshares has covenanted and agreed that any
Junior Subordinated Debentures issued thereunder will be subordinate and junior
in right of payment to all Senior and Subordinated Debt to the extent provided
in the Indenture. No payments on account of principal or interest, if any, in
respect of the Junior Subordinated Debentures may be made if there shall have
occurred and be continuing a default in any payment with respect to Senior and
Subordinated Debt. In the event of (i) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to Success Bancshares, its creditors or its property, (ii)
any proceeding for the liquidation, dissolution or other winding up of Success
Bancshares, voluntary or involuntary, whether or not involving insolvency or
bankruptcy proceedings, (iii) any assignment by Success Bancshares for the
benefit of creditors or (iv) any other marshalling of the assets of Success
Bancshares (each such event, if any, a "Proceeding"), all Senior and
Subordinated Debt (including any interest thereon accruing after the
commencement of any such Proceeding) shall first be paid in full before any
payment or distribution, whether in cash, securities or other property, shall be
made to any holder of Junior Subordinated Debentures on account thereof. Any
payment or distribution, whether in cash, securities or other property (other
than securities of Success Bancshares or any other entity provided for by a plan
of reorganization or readjustment, the payment of which is subordinate, at least
to the extent provided in these subordination provisions with respect to the
indebtedness evidenced by the Junior Subordinated Debentures, to the payment of
all Senior and Subordinated Debt at the time outstanding and to any securities
issued in respect thereof under any such plan of reorganization or
readjustment), which would otherwise (but for these subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures shall be
paid or delivered directly to the holders of Senior and Subordinated Debt in
accordance with the priorities then existing among such holders until all Senior
and Subordinated Debt (including any interest thereon accruing after the
commencement of any Proceeding) shall have been paid in full.
In the event of any Proceeding, after payment in full of all sums owing
with respect to Senior and Subordinated Debt, the holders of the Junior
Subordinated Debentures, together with the holders of any obligations of Success
Bancshares ranking on a parity with the Junior Subordinated Debentures, shall be
entitled to be paid from the remaining assets of Success Bancshares the amounts
at the time due and owing on account of unpaid principal of (and premium, if
any) and interest on the Junior Subordinated Debentures and such other
obligations before any payment or other distribution, whether in cash, property
or otherwise, shall be made on account of any capital stock or any obligations
of Success Bancshares ranking junior to the Junior Subordinated Debentures, and
such other obligations. If, notwithstanding the foregoing, any payment or
distribution of any character or any security, whether in cash, securities or
other property (other than securities of Success Bancshares or any other entity
provided for by a plan of reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in these subordination provisions
with respect to the indebtedness evidenced by the Junior Subordinated
Debentures, to the payment of all Senior and Subordinated Debt at the time
outstanding and to any securities issued in respect thereof under any plan of
reorganization or readjustment), shall be received by the Indenture Trustee or
any holder of Junior Subordinated Debentures in contravention of any of the
terms of the Indenture and before all Senior and Subordinated Debt shall have
been paid in full, 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 and Subordinated Debt at the time outstanding in
accordance with the priorities then existing among such holders for application
to the payment of all Senior and Subordinated Debt remaining unpaid, to the
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extent necessary to pay all such Senior and Subordinated Debt in full. In the
event of the failure of the Indenture Trustee or any holder of Junior
Subordinated Debentures to endorse or assign any such payment, distribution or
security, each holder of Senior and Subordinated Debt is irrevocably authorized
pursuant to the Indenture to endorse or assign the same.
Subject to the payment in full of all amounts due or to become due on
all Senior and Subordinated Debt, or the provision for such payment in cash or
cash equivalents or otherwise in a manner satisfactory to the holders of Senior
and Subordinated Debt, the holders of the Junior Subordinated Debentures will be
subrogated to the extent of the payments or distributions made to the holders of
such Senior and Subordinated Debt (equally and ratably with the holders of all
indebtedness of Success Bancshares that by its express terms is subordinated to
Senior and Subordinated Debt of Success Bancshares to substantially the same
extent as the Junior Subordinated Debentures are subordinated to the Senior and
Subordinated Debt and is entitled to like rights of subrogation by reason of any
payments or distributions made to holders of such Senior and Subordinated Debt)
to the rights of the holders of such Senior and Subordinated Debt to receive
payments and distributions of cash, property and securities applicable to the
Senior and Subordinated Debt until the principal of (and premium, if any) and
interest (including Additional Sums) on the Junior Subordinated Debentures shall
be paid in full.
The holders of Senior and Subordinated Debt may, at any time and from
time to time, without the consent of or notice to the Indenture Trustee or the
holders of the Junior Subordinated Debentures, without incurring responsibility
to such holders and without impairing or releasing the subordination or the
obligations of such holders to the holders of Senior and Subordinated Debt, do
any one or more of the following: (i) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, Senior and
Subordinated Debt, or otherwise amend or supplement in any manner Senior and
Subordinated Debt or any instrument evidencing the same or any agreement under
which Senior and Subordinated Debt is outstanding; (ii) sell, exchange, release
or otherwise deal with any property pledged, mortgaged or otherwise securing
Senior and Subordinated Debt; (iii) release any person liable in any manner for
the collection of Senior and Subordinated Debt; and (iv) exercise or refrain
from exercising any rights against Success Bancshares and any other person.
"Debt" means with respect to any person, whether recourse is to all or
a portion of the assets of such person and whether or not contingent: (i) every
obligation of such person for money borrowed, (ii) every obligation of such
person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such person, (iv) every obligation of such person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every capital lease obligation of such person, (vi) all
indebtedness of such person whether incurred on or prior to the date of the
Indenture or thereafter incurred, for claims in respect of derivative products
including interest rate, foreign exchange rate and commodity forward contracts,
options and swaps and similar arrangements and (vii) every obligation of the
type referred to in clauses (i) through (vi) of another person and all dividends
of another person the payment of which, in either case, such person has
guaranteed or is responsible or liable, directly or indirectly, as obligor or
otherwise.
"Senior and Subordinated Debt" means the principal of (and premium, if
any) and interest, if any (including interest accruing on or after the filing of
any petition in bankruptcy or for reorganization relating to Success Bancshares
whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt of Success Bancshares whether incurred on or prior to the
date of the Indenture or thereafter incurred, unless, in the instrument creating
or evidencing the same or pursuant to which the same is outstanding, it is
provided that such obligations are not superior in right of payment to the
Junior Subordinated Debentures or to other Debt which is pari passu with, or
subordinated to, the Junior Subordinated Debentures; provided, however, that
Senior and Subordinated Debt shall not be deemed to include (i) any Debt of
Success Bancshares which when incurred and without respect to any election under
Section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was
without recourse to Success Bancshares, (ii) any Debt of Success Bancshares to
any of its subsidiaries, (iii) Debt to any employee of Success Bancshares and
(iv) any other debt securities issued pursuant to the Indenture.
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The Indenture places no limitation on the amount of additional Senior
and Subordinated Debt that may be incurred by Success Bancshares. Success
Bancshares expects from time to time to incur additional Debt constituting
Senior and Subordinated Debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the
name of Success Capital. If the Junior Subordinated Debentures are distributed
to holders of Trust Preferred Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Trust Preferred Securities. See "
Book-Entry Issuance."
Although the Depositary has agreed to the procedures described under
"Book-Entry Issuance," it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time. If
the Depositary is at any time unwilling or unable to continue as depositary and
a successor depositary is not appointed by Success Bancshares within 90 days of
receipt of notice from the Depositary to such effect, Success Bancshares will
cause the Junior Subordinated Debentures to be issued in definitive form.
Payments on Junior Subordinated Debentures represented by a global
security (the "Global Subordinated Debenture") will be made to Cede & Co., the
nominee for the Depositary, as the registered holder of the Junior Subordinated
Debentures, as described under "Book-Entry Issuance." If Junior Subordinated
Debentures are issued in certificated form, principal and interest will be
payable, the transfer of the Junior Subordinated Debentures will be registrable
and Junior Subordinated Debentures will be exchangeable for Junior Subordinated
Debentures of other authorized denominations of a like aggregate principal
amount, at the corporate trust office of the Indenture Trustee or at the offices
of any Paying Agent or transfer agent appointed by Success Bancshares, provided
that payment of interest may be made at the option of Success Bancshares by
check mailed to the address of the persons entitled thereto.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations, and of a
like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as
provided above, and may be presented for registration of transfer (with the form
of transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the Securities Registrar. Success Bancshares
may at any time rescind the designation of any such transfer agent or approve a
change in the location through which any such transfer agent acts, provided that
Success Bancshares maintains a transfer agent in the place of payment. Success
Bancshares may at any time designate additional transfer agents with respect to
the Junior Subordinated Debentures.
In the event of any redemption, neither Success Bancshares nor the
Indenture Trustee shall be required to (i) issue, register the transfer of or
exchange Junior Subordinated Debentures during a period beginning at the opening
of business 15 days before the day of selection for redemption of Junior
Subordinated Debentures and ending at the close of business on the day of
mailing of the relevant notice of redemption or (ii) to register the transfer or
exchange of any Junior Subordinated Debentures so selected for redemption,
except, in the case of any Junior Subordinated Debentures being redeemed in
part, any portion thereof not to be redeemed.
MODIFICATION OF INDENTURE
From time to time Success Bancshares and the Indenture Trustee may,
without the consent of the holders of the Junior Subordinated Debentures, amend,
waive or supplement the Indenture for specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies (provided that any such
action does not materially adversely affect the interests of the holders of the
Junior Subordinated Debentures or the Trust Preferred Securities so long as they
remain outstanding) and qualifying, or maintaining the qualification of, the
Indenture under the Trust Indenture Act. The Indenture contains provisions
permitting Success Bancshares and the Indenture Trustee, with the consent of the
holders of not less than a majority in principal amount of the outstanding
Junior Subordinated Debentures, to modify the Indenture in a manner affecting
the rights of the holders of the Junior Subordinated Debentures; provided, that
no such modification may, without the consent of the holder of each
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outstanding Junior Subordinated Debenture, (i) change the Stated Maturity of the
Junior Subordinated Debentures, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon or (ii) reduce
the percentage of principal amount of Junior Subordinated Debentures, the
holders of which are required to consent to any such modification of the
Indenture, provided that so long as any of the Trust Preferred Securities remain
outstanding, no such modification may be made that adversely affects the holders
of such Trust Preferred Securities in any material respect, and no termination
of the Indenture may occur, and no waiver of any Debenture Event of Default or
compliance with any covenant under the Indenture may be effective, without the
prior consent of the holders of at least a majority of the aggregate Liquidation
Amount of the Trust Preferred Securities unless and until the principal of the
Junior Subordinated Debentures and all accrued and unpaid interest thereon have
been paid in full and certain other conditions are satisfied.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes a "Debenture Event of Default" with respect to the
Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures, when due (subject to the deferral of any due date in the case of an
Extension Period); or
(ii) failure to pay any principal on the Junior Subordinated Debentures
when due, whether at maturity, upon redemption, by declaration of acceleration
or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 60 days after written notice to
Success Bancshares from the Indenture Trustee or to Success Bancshares and the
Indenture Trustee by the holders of at least 25% in aggregate outstanding
principal amount of the Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of
Success Bancshares.
The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Indenture
Trustee. The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures may declare
the principal due and payable immediately upon a Debenture Event of Default. If
the Indenture Trustee or such holders of such Junior Subordinated Debentures
fail to make such declaration, the holders of at least 25% in aggregate
Liquidation Amount of the Trust Preferred Securities shall have such right. The
holders of a majority in aggregate outstanding principal amount of the Junior
Subordinated Debentures may annul such declaration and waive the default if the
default (other than the non-payment of the principal of the Junior Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Indenture Trustee.
Should the holders of the Junior Subordinated Debentures fail to annul such
declaration and waive such default, the holders of a majority in aggregate
Liquidation Amount of the Trust Preferred Securities shall have such right.
The holders of a majority in aggregate outstanding principal amount of each
of the Junior Subordinated Debentures and the Trust Preferred Securities may, on
behalf of the holders of all the Junior Subordinated Debentures and Trust
Preferred Securities, respectively, waive any past default, except a default in
the payment of principal or interest (unless such default has been cured and a
sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Indenture Trustee) or
a default in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each outstanding
Junior Subordinated Debenture.
Success Bancshares is required to file annually with the Indenture
Trustee a certificate as to whether or not Success Bancshares is in compliance
with all the conditions and covenants applicable to it under the Indenture.
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ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If a Debenture Event of Default shall have occurred and be continuing
and such event is attributable to the failure of Success Bancshares to pay
interest or principal on the Junior Subordinated Debentures on the date such
interest or principal is otherwise due and payable, a holder of Trust Preferred
Securities may institute a Direct Action. Success Bancshares may not amend the
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Trust Preferred Securities
outstanding. If the right to bring a Direct Action is removed, Success Capital
may become subject to the reporting obligations under the Exchange Act. Success
Bancshares shall have the right under the Indenture to set-off any payment made
to such holder of Trust Preferred Securities by Success Bancshares in connection
with a Direct Action.
The holders of the Trust Preferred Securities will not be able to
exercise directly any remedies other than those set forth in the preceding
paragraph available to the holders of the Junior Subordinated Debentures unless
there shall have been an Event of Default under the Trust Agreement. See
"Description of the Trust Preferred Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that Success Bancshares shall not consolidate
with or merge into any other Person or convey, transfer or lease its properties
and assets substantially as an entirety to any Person, and no Person shall
consolidate with or merge into Success Bancshares or convey, transfer or lease
its properties and assets substantially as an entirety to Success Bancshares,
unless (i) in case Success Bancshares consolidates with or merges into another
Person or conveys, transfers or leases its properties and assets substantially
as an entirety to any Person, the successor Person is organized under the laws
of the United States or any state or the District of Columbia, and such
successor Person expressly assumes Success Bancshares' obligations on the Junior
Subordinated Debentures, (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time or
both, would become a Debenture Event of Default, shall have occurred and be
continuing, (iii) such transaction is permitted under the Trust Agreement and
the Guarantee Agreement and does not give rise to any breach or violation of the
Trust Agreement or Guarantee Agreement and (iv) certain other conditions as
prescribed in the Indenture are met.
The general provisions of the Indenture do not afford holders of the
Junior Subordinated Debentures protection in the event of a highly leveraged or
other transaction involving Success Bancshares that may adversely affect holders
of the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Indenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at their Stated Maturity within one year, and Success Bancshares deposits or
causes to be deposited with the Indenture Trustee funds, in trust, for the
purpose and in an amount in the currency or currencies in which the Junior
Subordinated Debentures are payable sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Indenture Trustee for cancellation, for the principal and interest to the
date of the deposit or to the Stated Maturity, as the case may be, then the
Indentures will cease to be of further effect (except as to Success Bancshares'
obligations to pay all other sums due pursuant to the Indenture and to provide
the officers' certificates and opinions of counsel described therein), and
Success Bancshares will be deemed to have satisfied and discharged the
Indenture.
COVENANTS OF SUCCESS BANCSHARES
Success Bancshares will covenant in the Indenture, as to the Junior
Subordinated Debentures, that if and so long as (i) a Debenture Event of Default
has occurred and is continuing, (ii) Success Capital is the holder of all such
Junior Subordinated Debentures and (iii) any of certain Tax Events in respect of
Success Capital has occurred and is continuing in respect of the Trust Preferred
Securities, Success Bancshares will pay to Success Capital Additional
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Sums. Success Bancshares will also covenant, as to the Junior Subordinated
Debentures (i) to maintain directly or indirectly 100% ownership of the Common
Securities of Success Capital, provided that certain successors which are
permitted pursuant to the Indenture may succeed to Success Bancshares' ownership
of the Common Securities, (ii) not to voluntarily (and use reasonable efforts
not to allow to involuntarily) terminate, wind up or liquidate Success Capital,
except in connection with (a) a distribution of Junior Subordinated Debentures
to the holders of the Trust Preferred Securities in liquidation of Success
Capital or (b) certain mergers, consolidations or amalgamations permitted by the
Trust Agreement and (iii) to use its reasonable efforts, consistent with the
terms and provisions of the Trust Agreement, to cause Success Capital to remain
classified as a grantor trust and not as an association taxable as a corporation
for United States federal income tax purposes.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed
by and construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Indenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Indenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Indenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
Bankers Trust Company, the Indenture Trustee, may serve from time to
time as trustee under other indentures or trust agreements with Success
Bancshares or its subsidiaries relating to other issues of their securities. In
addition, Success Bancshares and certain of its affiliates may have other
banking relationships with Bankers Trust Company and its affiliates.
BOOK-ENTRY ISSUANCE
The Depositary will act as securities depositary for all of the Trust
Preferred Securities and, in the event of the distribution of the Junior
Subordinated Debentures to holders of Trust Preferred Securities, may act as
securities depositary for all of the Junior Subordinated Debentures. The Trust
Preferred Securities will be issued only as fully-registered securities
registered in the name of Cede & Co. (the Depositary's nominee). One or more
fully-registered global certificates will be issued for the Trust Preferred
Securities and will be deposited with the Depositary.
The Depositary is a limited purpose trust company organized under New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its Participants deposit with the
Depositary. The Depositary also facilitates the settlement among Participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
"Direct Participants" include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. The Depositary
is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the Depositary system is also available to
others such as securities brokers and dealers, banks and trust companies that
clear through or maintain custodial relationships with Direct Participants,
either directly or indirectly ("Indirect Participants"). The rules applicable to
the Depositary and its Participants are on file with the Securities and Exchange
Commission (the "Commission").
Purchases of Trust Preferred Securities within the Depositary system
must be made by or through Direct Participants, which will receive a credit for
the Trust Preferred Securities
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on the Depositary's records. The ownership interest of each actual purchaser of
each Trust Preferred Security ("Beneficial Owner") is in turn to be recorded
on the Direct and Indirect Participants' records. Beneficial Owners will not
receive written confirmation from the Depositary of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which the Beneficial Owners
purchased Trust Preferred Securities. Transfers of ownership interests in the
Trust Preferred Securities are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Trust
Preferred Securities, except in the event that use of the book-entry system for
the Trust Preferred Securities is discontinued.
The Depositary has no knowledge of the actual Beneficial Owners of the
Trust Preferred Securities; the Depositary's records reflect only the
identity of the Direct Participants to whose accounts such Trust Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by the Depositary to
Direct Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners and the
voting rights of Direct Participants, Indirect Participants and Beneficial
Owners, will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder
of the Trust Preferred Securities. If less than all of the Trust Preferred
Securities are being redeemed, the amount to be redeemed will be determined in
accordance with the Trust Agreement.
Although voting with respect to the Trust Preferred Securities
is limited to the holders of record of the Trust Preferred Securities, in
those instances in which a vote is required, neither the Depositary nor Cede &
Co. will itself consent or vote with respect to Trust Preferred Securities.
Under its usual procedures, the Depositary would mail an omnibus proxy (the
"Omnibus Proxy") to the Property Trustee as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts such Trust Preferred Securities are
credited on the record date (identified in a listing attached to the Omnibus
Proxy).
Distribution payments on the Trust Preferred Securities
will be made by the Property Trustee to the Depositary. The Depositary's
practice is to credit Direct Participants' accounts on the relevant payment
date in accordance with their respective holdings shown on the Depositary's
records unless the Depositary has reason to believe that it will not receive
payments on such payment date. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices and will be
the responsibility of such Participant and not of the Depositary, the Property
Trustee, Success Capital or Success Bancshares, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
Distributions to the Depositary is the responsibility of the Property Trustee,
disbursement of such payments to Direct Participants is the responsibility of
the Depositary, and disbursements of such payments to the Beneficial Owners is
the responsibility of Direct and Indirect Participants.
The Depositary may discontinue providing its services as securities
depositary with respect to any of the Trust Preferred Securities at any time
by giving reasonable notice to the Property Trustee and Success Bancshares. In
the event that a successor securities depositary is not obtained, definitive
Trust Preferred Securities certificates representing such Trust Preferred
Securities are required to be printed and delivered. Success Bancshares, at its
option, may decide to discontinue use of the system of book-entry transfers
through the Depositary (or a successor depositary). After a Debenture Event of
Default, the holders of a majority in liquidation preference of Trust
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Preferred Securities may determine to discontinue the system of book-entry
transfers through the Depositary. In any such event, definitive certificates
for such Trust Preferred Securities will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that Success
Capital and Success Bancshares believe to be accurate, but Success Capital and
Success Bancshares assume no responsibility for the accuracy thereof. Neither
Success Capital nor Success Bancshares has any responsibility for the
performance by the Depositary or its Participants of their respective
obligations as described herein or under the rules and procedures governing
their respective operations.
DESCRIPTION OF GUARANTEE
The Guarantee Agreement will be executed and delivered by Success
Bancshares concurrently with the issuance of the Trust Preferred Securities.
Bankers Trust Company will act as Guarantee Trustee under the Guarantee
Agreement for the purposes of compliance with the Trust Indenture Act, and the
Guarantee Agreement will be qualified as an Indenture under the Trust Indenture
Act. The following summary of certain provisions of the Guarantee does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the Guarantee Agreement, including the
definitions therein of certain terms, the Indenture, the Trust Agreement and the
Trust Indenture Act. The form of the Guarantee Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Trust Preferred Securities.
GENERAL
The Guarantee will be an irrevocable guarantee on a subordinated basis
of Success Capital's obligations under the Trust Preferred Securities, but will
apply only to the extent that Success Capital has funds sufficient to make such
payments, and is not a guarantee of collection. Success Bancshares will
irrevocably agree to pay in full on a subordinated basis, to the extent set
forth herein, the Guarantee Payments (as defined below) to the holders of the
Trust Preferred Securities, as and when due, regardless of any defense, right of
set-off or counterclaim that Success Capital may have or assert other than the
defense of payment. The following payments with respect to the Trust Preferred
Securities, to the extent not paid by or on behalf of Success Capital (the
"Guarantee Payments"), will be subject to the Guarantee: (i) any accumulated and
unpaid Distributions required to be paid on the Trust Preferred Securities, to
the extent that Success Capital has funds on hand available therefor at such
time, (ii) the redemption price with respect to any Trust Preferred Securities
called for redemption, to the extent that Success Capital has funds on hand
available therefor at such time and (iii) upon a voluntary or involuntary
dissolution of Success Capital (unless the Junior Subordinated Debentures are
distributed to holders of the Trust Preferred Securities), the lesser of (a) the
Liquidation Distribution and (b) the amount of assets of Success Capital
remaining available for distribution to holders of Trust Preferred Securities
after satisfaction of liabilities to creditors of Success Capital as required by
law. Success Bancshares' obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts by Success Bancshares to the holders
of the Trust Preferred Securities or by causing Success Capital to pay such
amounts to such holders.
If Success Bancshares does not make interest payments on the Junior
Subordinated Debentures held by Success Capital, Success Capital will not be
able to pay Distributions on the Trust Preferred Securities and will not have
funds legally available therefor. The Guarantee will rank subordinate and junior
in right of payment to all Senior and Subordinated Debt of Success Bancshares.
See "--Status of the Guarantee." Because Success Bancshares is a holding
company, the right of Success Bancshares to participate in any distribution of
assets of any subsidiary upon such subsidiary's liquidation or reorganization or
otherwise, is subject to the prior claims of creditors of that subsidiary,
except to the extent Success Bancshares may itself be recognized as a creditor
of that subsidiary. Accordingly, Success Bancshares' obligations under the
Guarantee will be effectively subordinated to all existing and future
liabilities of Success Bancshares' subsidiaries, and claimants should look only
to the assets of Success Bancshares for payments thereunder. Except as otherwise
described herein, the Guarantee Agreement does not limit the incurrence or
issuance of other secured or unsecured debt of Success Bancshares, including
Senior and Subordinated Debt, whether under the Indenture, under any other
indenture that Success Bancshares may enter into in the future or otherwise.
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Success Bancshares will, through the Guarantee Agreement, the Trust
Agreement and the Indenture, taken together, fully, irrevocably and
unconditionally guarantee all of Success Capital's obligations under the Trust
Preferred Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
Guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of Success
Capital's obligations under the Trust Preferred Securities. See "Relationship
Among the Trust Preferred Securities, the Junior Subordinated Debentures and the
Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of Success
Bancshares and will rank subordinate and junior in right of payment to all
Senior and Subordinated Debt in the same manner as the Junior Subordinated
Debentures.
The Guarantee will constitute a guarantee of payment and not of
collection. For example, the guaranteed party may institute a legal proceeding
directly against Success Bancshares to enforce its rights under the Guarantee
without first instituting a legal proceeding against any other person or entity.
The Guarantee will be held for the benefit of the holders of the Trust Preferred
Securities. The Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by Success Capital or upon
distribution to the holders of the Trust Preferred Securities of the Junior
Subordinated Debentures. The Guarantee Agreement does not place a limitation on
the amount of additional Senior and Subordinated Debt that may be incurred by
Success Bancshares. Success Bancshares expects from time to time to incur
additional Debt constituting Senior and Subordinated Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely
affect the rights of holders of the Trust Preferred Securities (in which case no
vote will be required), the Guarantee Agreement may not be amended without the
prior approval of the holders of not less than a majority of the aggregate
Liquidation Amount of such outstanding Trust Preferred Securities. See
"Description of Trust Preferred Securities--Voting Rights; Amendment of the
Trust Agreement." All guarantees and agreements contained in the Guarantee
Agreement shall bind the successors, assigns, receivers, trustees and
representatives of Success Bancshares and shall inure to the benefit of the
holders of the Trust Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee Agreement will occur upon the
failure of Success Bancshares to perform any of its payment obligations or the
failure of Success Bancshares to perform any other obligations thereunder that
remains unremedied for 30 days. The holders of not less than a majority in
aggregate Liquidation Amount of the Trust Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee Agreement. Any holder of the Trust Preferred Securities may institute
a legal proceeding directly against Success Bancshares to enforce its rights
under the Guarantee without first instituting a legal proceeding against Success
Capital, the Guarantee Trustee or any other person or entity.
Success Bancshares, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not Success Bancshares is in
compliance with all the conditions and covenants applicable to it under the
Guarantee Agreement.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance
of a default by Success Bancshares in performance of the Guarantee, undertakes
to perform only such duties as are specifically set forth in the Guarantee
Agreement and, after default with respect to the Guarantee, must exercise the
same degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision,
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the Guarantee Trustee is under no obligation to exercise any of the powers
vested in it by the Guarantee Agreement at the request of any holder of the
Trust Preferred Securities unless it is offered reasonable security and
indemnity against the costs, expenses and liabilities that might be incurred
thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Trust Preferred Securities, upon
full payment of the amounts payable pursuant to the Trust Agreement upon
dissolution of Success Capital or upon distribution of Junior Subordinated
Debentures to the holders of the Trust Preferred Securities. The Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of the Trust Preferred Securities must restore payment of any
sums paid under the Trust Preferred Securities or the Guarantee.
GOVERNING LAW
The Guarantee Agreement will be governed by and construed in accordance
with the laws of the State of New York.
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE JUNIOR SUBORDINATED
DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Trust Preferred
Securities (to the extent Success Capital has funds available for the payment of
such Distributions) are irrevocably guaranteed by Success Bancshares as and to
the extent set forth under "Description of Guarantee." Taken together, Success
Bancshares' obligations under the Indenture, the Trust Agreement and the
Guarantee Agreement will provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of distributions and other amounts due on
the Trust Preferred Securities. No single document standing alone or operating
in conjunction with fewer than all of the other documents constitutes such
Guarantee. It is only the combined operation of those documents that has the
effect of providing a full, irrevocable and unconditional guarantee of Success
Capital's obligations under the Trust Preferred Securities. If and to the extent
that Success Bancshares does not make payments on the Junior Subordinated
Debentures, Success Capital will not pay Distributions or other amounts due on
the Trust Preferred Securities. The Guarantee does not cover payment of
Distributions when Success Capital does not have sufficient funds to pay such
Distributions. In such event, the remedy of a holder of the Trust Preferred
Securities is to institute Direct Action. The obligations of Success Bancshares
under the Guarantee will be subordinate and junior in right of payment to all
Senior and Subordinated Debt.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on
the Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Trust Preferred Securities,
primarily because: (i) the aggregate principal amount of the Junior Subordinated
Debentures will be equal to the sum of the aggregate Liquidation Amount of the
Trust Preferred Securities and Common Securities, (ii) the interest rate and
interest and other payment dates on the Junior Subordinated Debentures will
match the rate of Distributions and Distribution and other payment dates for the
Trust Preferred Securities, (iii) Success Bancshares shall pay for all and any
costs, expenses and liabilities of Success Capital except Success Capital's
obligations to holders of Trust Preferred Securities and (iv) the Trust
Agreement will further provide that Success Capital will not engage in any
activity that is not consistent with its limited purposes.
Notwithstanding anything to the contrary in the Indenture, Success
Bancshares has the right to set-off any payment it is otherwise required to make
thereunder with and to the extent Success Bancshares has theretofore made, or is
concurrently on the date of such payment making, a payment under the Guarantee.
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ENFORCEMENT RIGHTS OF HOLDERS OF THE TRUST PREFERRED SECURITIES UNDER THE
GUARANTEE
A holder of Trust Preferred Securities may institute a legal proceeding
directly against Success Bancshares to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Guarantee Trustee,
Success Capital or any other person or entity.
A default or event of default under any Senior and Subordinated Debt
would not constitute a default or Event of Default. However, in the event of
payment defaults under, or acceleration of, Senior and Subordinated Debt, the
subordination provisions of the Indenture provide that no payments may be made
in respect of the Junior Subordinated Debentures until such Senior and
Subordinated Debt has been paid in full or any payment default thereunder has
been cured or waived. Failure to make required payments on Junior Subordinated
Debentures would constitute an Event of Default.
LIMITED PURPOSE OF SUCCESS CAPITAL
The Trust Preferred Securities will evidence a beneficial interest in
Success Capital, and Success Capital exists for the sole purpose of issuing the
Trust Preferred Securities and investing the proceeds thereof in Junior
Subordinated Debentures and activities necessary or incidental thereto. A
principal difference between the rights of a holder of the Trust Preferred
Securities and a holder of a Junior Subordinated Debenture is that a holder of
Junior Subordinated Debentures is entitled to receive from Success Bancshares
the principal amount of and interest accrued on Junior Subordinated Debentures
held, while a holder of the Trust Preferred Securities is entitled to receive
Distributions from Success Capital (or from Success Bancshares under the
Guarantee) if and to the extent Success Capital has funds available for the
payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of Success Capital, the
holders of Trust Preferred Securities will be entitled to receive, out of assets
held by Success Capital, the Liquidation Distribution in cash. See "Description
of Trust Preferred Securities--Dissolution of Success Capital and Distribution
of Junior Subordinated Debentures." Upon any voluntary or involuntary
liquidation or bankruptcy of Success Bancshares, the Property Trustee, as holder
of the Junior Subordinated Debentures, would be a subordinated creditor of
Success Bancshares, subordinated in right of payment to all Senior and
Subordinated Debt as set forth in the Indenture, but entitled to receive payment
in full of principal and interest, before any shareholders of Success Bancshares
receive payments or distributions. Since Success Bancshares will be the
guarantor under the Guarantee and agree to pay for all costs, expenses and
liabilities of Success Capital (other than Success Capital's obligations to the
holders of its Trust Preferred Securities), the positions of a holder of the
Trust Preferred Securities and a holder of Junior Subordinated Debentures
relative to other creditors and to shareholders of Success Bancshares in the
event of liquidation or bankruptcy of Success Bancshares are expected to be
substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Much Shelist Freed Denenberg Ament Bell & Rubenstein,
counsel to the Company ("Counsel"), the following summary accurately describes
the material United States federal income tax consequences that may be relevant
to the purchase, ownership and disposition of Trust Preferred Securities.
Unless otherwise stated, this summary deals only with Trust Preferred
Securities held as capital assets by United States Persons (defined below) who
purchase the Trust Preferred Securities upon original issuance at their
original offering price. As used herein, a "United States Person" means a
person that is (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (iii) an estate
the income of which is subject to United States federal income taxation
regardless of its source or (iv) a trust the income of which is subject to
United States federal income taxation regardless of its source; provided,
however, that for taxable years beginning after December 31, 1996 (or, if a
trustee so elects, for taxable years ending after August 20, 1996), a "United
States Person" shall include any trust if a court is able to exercise primary
supervision over the administration of such trust and one or more United States
fiduciaries have the authority to control all substantial decisions of such
trust. The tax treatment of holders may vary depending on their particular
situation. This summary does not address all the tax consequences that may be
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relevant to a particular holder or to holders who may be subject to special tax
treatment, such as banks, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors or foreign investors. In addition, this summary does not include any
description of any alternative minimum tax consequences or the tax laws of any
state, local or foreign government that may be applicable to a holder of Trust
Preferred Securities. This summary is based on the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury regulations promulgated thereunder
and administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis.
The following discussion does not discuss the tax consequences that
might be relevant to persons that are not United States Persons ("non-United
States Persons"). Non-United States Persons should consult their own tax
advisors as to the specific United States federal income tax consequences of the
purchase, ownership and disposition of Trust Preferred Securities.
The authorities on which this summary is based are subject to various
interpretations and the opinions of Counsel are not binding on the Service or
the courts, either of which could take a contrary position. Moreover, no rulings
have been or will be sought from the Service with respect to the transactions
described herein. Accordingly, there can be no assurance that the Service will
not challenge the opinions expressed herein or that a court would not sustain
such a challenge. Nevertheless, Counsel has advised that it is of the view that,
if challenged, the opinions expressed herein would be sustained by a court with
jurisdiction in a properly presented case.
Holders should consult their own tax advisors with respect to the tax
consequences to them of the purchase, ownership and disposition of the Trust
Preferred Securities, including the tax consequences under state, local, foreign
and other tax laws and the possible effects of changes in United States federal
or other tax laws. For a discussion of the possible redemption of the Trust
Preferred Securities upon the occurrence of certain tax events, see "Description
of the Trust Preferred Securities--Redemption."
CLASSIFICATION OF SUCCESS CAPITAL
In connection with the issuance of the Trust Preferred Securities,
Counsel is of the opinion that, under current law and assuming compliance with
the terms of the Trust Agreement, and based on certain facts and assumptions
contained in such opinion, Success Capital will be classified as a grantor trust
and not as an association taxable as a corporation for United States federal
income tax purposes. As a result, each beneficial owner of the Trust Preferred
Securities (a "Securityholder") will be treated as owning an undivided
beneficial interest in the Junior Subordinated Debentures. Accordingly, each
Securityholder will be required to include in its gross income its pro rata
share of the interest income or OID that is paid or accrued on the Junior
Subordinated Debentures. See "--Interest Income and Original Issue Discount." No
amount included in income with respect to the Trust Preferred Securities will be
eligible for the dividends received deduction.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Company intends to take the position that the Junior Subordinated
Debentures will be classified for United States federal income tax purposes as
indebtedness of Success Bancshares under current law, and, by acceptance of a
Trust Preferred Security, each holder covenants to treat the Junior Subordinated
Debentures as indebtedness and the Trust Preferred Securities as evidence of an
indirect beneficial ownership interest in the Junior Subordinated Debentures. No
assurance can be given, however, that such position of Success Bancshares will
not be challenged by the Service or, if challenged, that such a challenge will
not be successful. The remainder of this discussion assumes that the Junior
Subordinated Debentures will be classified for United States federal income tax
purposes as indebtedness of Success Bancshares. See "Risk Factors--Risks
Relating to Trust Preferred Securities--Uncertainty of Deductibility of Interest
on the Junior Subordinated Debentures and Related Possible Tax Law Changes."
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INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Except as set forth below, stated interest on the Junior Subordinated
Debentures generally will be included in income by a Securityholder at the time
such interest income is paid or accrued in accordance with such Securityholder's
regular method of tax accounting.
Success Bancshares believes that, under the applicable Treasury
regulations, the Junior Subordinated Debentures will not be considered to have
been issued with "original issue discount" (OID) within the meaning of Section
1273(a) of the Code. If, however, Success Bancshares exercises its right to
defer payments of interest on the Junior Subordinated Debentures, the Junior
Subordinated Debentures will become OID instruments at such time and all
Securityholders will be required to accrue the stated interest on the Junior
Subordinated Debentures on a daily basis during the Extension Period, even
though Success Bancshares will not pay such interest until the end of the
Extension Period, and even though some Securityholders may use the cash method
of tax accounting. Moreover, thereafter the Junior Subordinated Debentures will
be taxed as OID instruments for as long as they remain outstanding. Thus, even
after the end of the Extension Period, all Securityholders would be required to
continue to include the stated interest on the Junior Subordinated Debentures in
income on a daily economic accrual basis, regardless of their method of tax
accounting and in advance of receipt of the cash attributable to such interest
income. Under the OID economic accrual rules, a Securityholder would accrue an
amount of interest income each year that approximates the stated interest
payments called for under the Junior Subordinated Debentures, and actual cash
payments of interest on the Junior Subordinated Debentures would not be reported
separately as taxable income.
The Treasury regulations described above have not yet been addressed in
any rulings or other interpretations by the Service, and it is possible that the
Service could take a contrary position. If the Service were to assert
successfully that the stated interest on the Junior Subordinated Debentures was
OID regardless of whether Success Bancshares exercises its right to defer
payments of interest on such debentures, all Securityholders would be required
to include such stated interest in income on a daily economic accrual basis as
described above.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TRUST PREFERRED
SECURITIES
Under current law, a distribution by Success Capital of the Junior
Subordinated Debentures as described under the caption "Description of the Trust
Preferred Securities--Dissolution of Success Capital and Distribution of Junior
Subordinated Debentures" will be non-taxable and will result in the
Securityholder receiving directly its pro rata share of the Junior Subordinated
Debentures previously held indirectly through Success Capital, with a holding
period and aggregate tax basis equal to the holding period and aggregate tax
basis such Securityholder had in its Trust Preferred Securities before such
distribution. If, however, the dissolution of Success Capital were to occur
because Success Capital is subject to United States federal income tax with
respect to income accrued or received on the Junior Subordinated Debentures as a
result of a Tax Event or otherwise, the distribution of Junior Subordinated
Debentures to Securityholders by Success Capital could be a taxable event to
Success Capital and each Securityholder, and a Securityholder would recognize
gain or loss as if the Securityholder had exchanged its Trust Preferred
Securities for the Junior Subordinated Debentures it received upon the
liquidation of Success Capital. A Securityholder would recognize interest income
in respect of Junior Subordinated Debentures received from Success Capital in
the manner described above under "--Interest Income and Original Issue
Discount."
SALES OR REDEMPTION OF TRUST PREFERRED SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of Trust
Preferred Securities (including a redemption for cash) in an amount equal to the
difference between the amount realized (which for this purpose, will exclude
amounts attributable to accrued interest or OID not previously included in
income) and the Securityholder's adjusted tax basis in the Trust Preferred
Securities sold or so redeemed. Gain or loss recognized by a Securityholder on
Trust Preferred Securities held for more than one year will generally be taxable
as long-term capital gain or loss. Amounts attributable to accrued interest with
respect to a Securityholder's pro rata share of the Junior Subordinated
Debentures not previously included in income will be taxable as ordinary income.
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BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of OID accrued on the Trust Preferred Securities held of
record by United States Persons (other than corporations and other exempt
Securityholders), if any, will be reported to the Service. "Backup" withholding
at a rate of 31% will apply to payments of interest to non-exempt United States
Persons unless the Securityholder furnishes its taxpayer identification number
in the manner prescribed in applicable Treasury Regulations, certifies that such
number is correct, certifies as to no loss of exemption from backup withholding
and meets certain other conditions. Any amounts withheld from a Securityholder
under the backup withholding rules will be allowed as a refund or a credit
against such Securityholder's United States federal income tax liability,
provided the required information is furnished to the Service.
POSSIBLE TAX LAW CHANGES AFFECTING THE TRUST PREFERRED SECURITIES
Two recent legislative initiatives, the 1998 budget proposals of
President Clinton's administration and the Revenue Reconciliation Bill of 1996,
could have denied interest deductions for interest on the Junior Subordinated
Debentures. Neither the 1998 proposal nor the 1996 bill has been enacted.
However, future enactment of these or similar proposals could affect deduction
of interest expenses and OID with respect to the Junior Subordinated Debentures.
This, in turn, could give rise to a Tax Event, which would permit Success
Bancshares, upon approval of the Federal Reserve if such approval is then
required under applicable capital guidelines, policies or regulations of the
Federal Reserve, to cause a redemption of the Trust Preferred Securities. See
"Risk Factors--Risks Relating to Trust Preferred Securities--Uncertainty of
Deductibility of Interest on the Junior Subordinated Debentures and Related
Possible Tax Law Changes," "Description of the Trust Preferred
Securities--Redemption--Tax Event Redemption" and "Description of Junior
Subordinated Debentures--Redemption."
ERISA CONSIDERATIONS
Success Bancshares, the obligor with respect to the Junior Subordinated
Debentures held by Success Capital, and its affiliates and the Property Trustee
may be considered a "party in interest" (within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) or a "disqualified
person" (within the meaning of Section 4975 of the Code) with respect to many
employee benefit plans ("Plans") that are subject to ERISA. Any purchaser
proposing to acquire Trust Preferred Securities with assets of any Plan should
consult with its counsel. The purchase and/or holding of Trust Preferred
Securities by a Plan that is subject to the fiduciary responsibility provisions
of ERISA or the prohibited transaction provisions of Section 4975 of the Code
(including individual retirement arrangements and other plans described in
Section 4975(e)(1) of the Code) and with respect to which Success Bancshares,
the Property Trustee or any affiliate is a service provider (or otherwise is a
party in interest or a disqualified person) may constitute or result in a
prohibited transaction under ERISA or Section 4975 of the Code, unless such
Trust Preferred Securities are acquired pursuant to and in accordance with an
applicable exemption, such as Prohibited Transaction Class Exemption ("PTCE")
84-14 (an exemption for certain transactions determined by an independent
qualified professional asset manager), PTCE 91-38 (an exemption for certain
transactions involving bank collective investment funds), PTCE 90-1 (an
exemption for certain transactions involving insurance company pooled separate
accounts), PTCE 95-60 (an exemption for transactions involving certain insurance
company general accounts) or PTCE 96-23 (an exemption for certain transactions
determined by an in-house asset manager). In addition, a Plan fiduciary
considering the purchase of Trust Preferred Securities should be aware that the
assets of Success Capital may be considered "plan assets" for ERISA purposes. In
such event, service providers with respect to the assets of Success Capital may
become parties in interest or disqualified persons with respect to investing
Plans, and any discretionary authority exercised with respect to the Junior
Subordinated Debentures by such persons could be deemed to constitute a
prohibited transaction under ERISA or the Code. In order to avoid such
prohibited transactions, each investing Plan, by purchasing the Trust Preferred
Securities, will be deemed to have directed Success Capital to invest in the
Junior Subordinated Debentures and to have appointed the Property Trustee.
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DESCRIPTION OF SUCCESS BANCSHARES CAPITAL STOCK
GENERAL
Success Bancshares is authorized to issue 7,500,000 shares, $0.001 par
value per share, of common stock (the "Common Stock") and 1,000,000 shares,
$0.001 par value per share, of preferred stock (the "Preferred Stock"). As of
December 31, 1997, there were issued and outstanding 2,918,324 shares of Common
Stock and no shares of Preferred Stock, with 153,340 additional shares of Common
Stock reserved for issuance upon the exercise of currently outstanding options,
each of which represents the right to purchase one share of Common Stock. Each
share of Common Stock has the same relative rights as, and is identical in all
respects with, each other share of Common Stock.
COMMON STOCK
Dividends
The holders of Common Stock are entitled to receive and share equally
in such dividends, if any, declared by the Board of Directors out of funds
legally available therefor. Success Bancshares may pay dividends if, as and when
declared by its Board of Directors. The payment of dividends by Success
Bancshares is subject to limitations which are imposed by the Delaware General
Corporation Law (the "DGCL"). Under these restrictions, dividends may be paid
only out of "surplus," as defined by the DGCL, or, if there should be no
surplus, out of the corporation's net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. If Success Bancshares
issues Preferred Stock, the holders thereof may have a priority over the holders
of the Common Stock with respect to dividends.
Voting Rights
The holders of Common Stock possess voting rights in Success
Bancshares. Shareholders elect Success Bancshares' Board of Directors and act on
such other matters as are required to be presented to them under the DGCL or
Success Bancshares' Certificate of Incorporation or as are otherwise presented
to them by the Board of Directors. Each holder of Common Stock is entitled to
one vote per share and will not have any right to cumulate votes in the election
of Directors. Accordingly, holders of more than 50% of the outstanding shares of
Common Stock are able to elect all of the Directors to be elected each year.
Although there are no present plans to do so, if Success Bancshares issues
Preferred Stock, holders of the Preferred Stock may also possess voting rights.
See "--Certain Anti-Takeover Effects of Success Bancshares' Certificate of
Incorporation and By-laws and Delaware Law."
Liquidation
In the event of any liquidation, dissolution or winding-up of Success
Bancshares, the holders of its Common Stock would be entitled to receive, after
payment or provision for payment of all debts and liabilities of Success
Bancshares, all assets of Success Bancshares available for distribution. If
Preferred Stock is issued, the holders thereof may have a priority over the
holders of the Common Stock in the event of any liquidation or dissolution.
Preemptive Rights and Redemption
Holders of Common Stock are not entitled to preemptive rights with
respect to any shares which may be issued by Success Bancshares in the future.
The Common Stock is not subject to mandatory redemption by Success Bancshares.
PREFERRED STOCK
The Board of Directors is authorized, pursuant to Success Bancshares'
Certificate of Incorporation, to issue one or more series of Preferred Stock
with respect to which the Board of Directors, without stockholder approval, may
determine voting, conversion and other rights which could adversely affect the
rights of holders of Common Stock. The rights of the holders of the Common Stock
would generally be subject to the prior rights of the
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Preferred Stock with respect to dividends, liquidation preferences and other
matters. Among other things, Preferred Stock could be issued by Success
Bancshares to raise capital or to finance acquisitions. The issuance of
Preferred Stock under certain circumstances could have the effect of delaying or
preventing a change in control of Success Bancshares. Success Bancshares has no
present plans to issue any shares of Preferred Stock.
CERTAIN ANTI-TAKEOVER EFFECTS OF SUCCESS BANCSHARES' CERTIFICATE OF
INCORPORATION AND BY-LAWS AND DELAWARE LAW
General
Certain provisions of Success Bancshares' Certificate of Incorporation,
By-laws and the DGCL may have the effect of impeding the acquisition of control
of Success Bancshares by means of a tender offer, a proxy fight, open-market
purchases or otherwise in a transaction not approved by the Board of Directors.
These provisions may have the effect of discouraging a future takeover
attempt which is not approved by the Board of Directors but which individual
shareholders may deem to be in their best interests or in which shareholders may
receive a substantial premium for their shares over then current market prices.
As a result, shareholders who might desire to participate in such a transaction
may not have an opportunity to do so. Such provisions will also render the
removal of the current Board of Directors or management of Success Bancshares
more difficult.
The provisions of the Certificate of Incorporation and By-laws
described below are designed to reduce, or have the effect of reducing, the
vulnerability of Success Bancshares to an unsolicited proposal for the
restructuring or sale of all or substantially all of the assets of Success
Bancshares or an unsolicited takeover attempt which is unfair to shareholders.
The following description of certain of the provisions of the
Certificate of Incorporation and By-laws of Success Bancshares is necessarily
general and is qualified in its entirety by reference to the Certificate of
Incorporation and By-laws of Success Bancshares.
Authorized Shares
Success Bancshares' Certificate of Incorporation authorizes the
issuance of 7,500,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock. The shares of Common Stock and Preferred Stock have been authorized in an
amount which provides the Board of Directors with as much flexibility as
possible to effect, among other things, transactions, financings, acquisitions,
stock dividends, stock splits and employee stock options. However, these
authorized shares may also be used by the Board of Directors consistent with its
fiduciary duty to deter future attempts to gain control of Success Bancshares.
The Board of Directors also has sole authority to determine the terms of any one
or more series of Preferred Stock, including voting rights, conversion rates and
liquidation preferences. As a result of the ability to fix voting rights for a
series of Preferred Stock, the Board of Directors has the power to the extent
consistent with its fiduciary duty to issue a series of Preferred Stock to
persons friendly to management in order to attempt to block a merger or other
transaction by which a third party seeks control, and thereby assist the
incumbent Board of Directors and management to retain their respective
positions.
Classified Board of Directors; Filling of Board Vacancies
The Board of Directors is divided into three classes, each of which
contains approximately one-third of the whole number of the members of the Board
of Directors. Each class serves a staggered three-year term, with approximately
one-third of the total number of Directors being elected each year. The
Certificate of Incorporation and By-laws provide that the size of the Board of
Directors is determined by a majority of the Directors. The Certificate of
Incorporation and By-laws also provide that any vacancy occurring in the Board
of Directors, including a vacancy created by an increase in the number of
Directors or resulting from death, resignation, retirement, disqualification,
removal from office or other cause, shall be filled for the remainder of the
unexpired term exclusively by a majority vote of the Directors then in office.
Shareholders may elect Directors at either an annual or special meeting. Under
the DGCL, members of a staggered board may only be removed for cause unless the
corporation's certificate of incorporation provides otherwise. Success
Bancshares' Certificate of Incorporation does not provide for removal of
Directors without cause. The staggered board is intended to provide for
continuity
84
<PAGE> 90
of the Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors.
Cumulative Voting; Action by Written Consent and Shareholder Meetings
The Certificate of Incorporation does not provide for cumulative voting
for any purpose. The Certificate of Incorporation and By-laws also provide that
any action required or permitted to be taken by the shareholders at an annual or
special meeting may be effected by written consent in lieu of a meeting.
Directors also retain the right to postpone any previously scheduled stockholder
meeting and adjourn any stockholder meeting at any time, whether or not a quorum
is present.
Delaware Business Combination Statute
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, an "interested stockholder" of a Delaware corporation shall
not engage in any business combination, including mergers or consolidations or
acquisitions of additional shares of the corporation, with the corporation for a
three-year period following the time that such stockholder becomes an interested
stockholder unless (i) prior to such time, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares) or (iii) at or subsequent to such time, the
business combination is approved by the board of directors of the corporation
and authorized at an annual or special meeting of shareholders by the
affirmative vote of at least 66% of the outstanding voting stock which is not
owned by the interested stockholder. Except as otherwise specified in Section
203, an interested stockholder is defined to include any person that is (x) the
owner of 15% or more of the outstanding voting stock of the corporation or (y)
an affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date of determination, and the
affiliates and associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. Success Bancshares has
not elected to be exempt from the restrictions imposed under Section 203. The
provisions of Section 203 may encourage persons interested in acquiring Success
Bancshares to negotiate in advance with the Board of Directors of Success
Bancshares since the shareholder approval requirement would be avoided if a
majority of the Directors then in office approves either the business
combination or the transaction which results in any such person becoming an
interested stockholder. Such provisions also may have the effect of preventing
changes in the management of Success Bancshares. It is possible that such
provisions could make it more difficult to accomplish transactions which Success
Bancshares's shareholders may otherwise deem to be in their best interests.
Amendment of the Certificate of Incorporation and By-laws
The Certificate of Incorporation provides that the affirmative vote of
the holders of at least 80% of the voting stock, voting together as a single
class, is required to amend provisions of the Certificate of Incorporation
relating to Board of Directors and shareholder amendment of the Certificate of
Incorporation and By-laws, limitation of Directors' liability for monetary
damages, shareholder action without a meeting and the number, election and term
of Success Bancshares' Directors. By-laws may be amended only by the Board of
Directors of Success Bancshares or by the affirmative vote of the holders of at
least 80% of the voting stock, voting together as a single class.
Certain By-law Provisions
The By-laws of Success Bancshares also require a shareholder who
intends to nominate a candidate for election to the Board of Directors or to
raise new business at a shareholder meeting to provide advance notice to the
Secretary of Success Bancshares. The notice provision requires a shareholder who
desires to raise new business to provide certain information to Success
Bancshares concerning the nature of the new business, the shareholder and such
shareholder's interest in the business matter. Similarly, a shareholder wishing
to nominate any person for
85
<PAGE> 91
election as a Director must provide Success Bancshares with certain information
concerning the nominee and such proposing shareholder.
The provisions described above are intended to reduce Success
Bancshares' vulnerability to takeover attempts and certain other transactions
which have not been negotiated with and approved by members of its Board of
Directors.
Attempts to take over corporations have recently become increasingly
common. An unsolicited non-negotiated proposal can seriously disrupt the
business and management of a corporation and cause it great expense.
Accordingly, the Board of Directors believes it is in the best interests of
Success Bancshares and its shareholders to encourage potential acquirors to
negotiate directly with management and that these provisions will encourage such
negotiations and discourage non-negotiated takeover attempts. It is also the
view of the Board of Directors that these provisions should not discourage
persons from proposing a merger or other transaction at a price that reflects
the true value of Success Bancshares and that otherwise is in the best interest
of all shareholders.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Certificate of Incorporation provides that a Director of Success
Bancshares will not be personally liable to Success Bancshares or its
shareholders for monetary damages for breach of fiduciary duty as a Director,
except, if required by the DGCL as amended from time to time, for liability (i)
for any breach of the Director's duty of loyalty to Success Bancshares or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, which concerns unlawful payments of dividends, stock purchases or
redemptions or (iv) for any transaction from which the Director derived an
improper personal benefit. Neither the amendment nor repeal of such provision
will eliminate or reduce the effect of such provision in respect of any matter
occurring, or any cause of action, suit or claim that, but for such provision,
would accrue or arise prior to such amendment or repeal.
While the Certificate of Incorporation provides Directors with
protection from awards for monetary damages for breaches of their duty of care,
it does not eliminate such duty. Accordingly, the Certificate of Incorporation
will have no effect on the availability of equitable remedies such as an
injunction or recission based on a Director's breach of his or her duty of care.
The Certificate of Incorporation provides that each person who was or
is made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person, or a person of whom such
person is the legal representative, is or was a Director or officer of Success
Bancshares or is or was serving at the request of Success Bancshares as a
Director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether or not the basis of such proceeding is alleged
action in an official capacity as agent, will be indemnified and held harmless
by Success Bancshares to the fullest extent authorized by the DGCL, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits Success Bancshares to provide broader
indemnification rights than said law permitted Success Bancshares to provide
prior to such amendment), against all expense, liability and loss reasonably
incurred or suffered by such person in connection therewith. Such rights are not
exclusive of any other right which any person may have or thereafter acquire
under any statute, provision of the Certificate of Incorporation, By-laws,
agreement, vote of shareholders or disinterested directors or otherwise. No
repeal or modification of such provision will in any way diminish or adversely
affect the rights of any Director, officer, employee or agent of Success
Bancshares thereunder in respect of any occurrence or matter arising prior to
any such repeal or modification. The Certificate of Incorporation also
specifically authorizes Success Bancshares to maintain insurance and to grant
similar indemnification rights to employees or agents of Success Bancshares.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to Directors, officers or persons controlling Success
Bancshares pursuant to the foregoing provisions, Success Bancshares has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
86
<PAGE> 92
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement"), dated May 13, 1998, between Success Bancshares,
Success Capital, EVEREN Securities, Inc. and Tucker Anthony Incorporated (the
"Underwriters"), Success Capital has agreed to sell to the Underwriters, and the
Underwriters have agreed to purchase from Success Capital, the aggregate
Liquidation Amount of Trust Preferred Securities set forth opposite their
respective names below at the public offering price subject to the underwriting
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
UNDERWRITER LIQUIDATION AMOUNT
----------- ------------------
<S> <C>
EVEREN Securities, Inc............................. $ 12,000,000
Tucker Anthony Incorporated........................ $ 3,000,000
------------------
Total.............................................. $ 15,000,000
==================
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the Trust Preferred Securities offered hereby
if any of such Trust Preferred Securities are purchased.
The Underwriters have advised Success Bancshares and Success Capital
that they propose to offer the Trust Preferred Securities directly to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $0.20 per
Trust Preferred Security. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $0.10 per Trust Preferred Security to
certain other dealers. After the public offering, the public offering price,
concession and reallowance and other selling terms may be changed by the
Underwriters. Because the National Association of Securities Dealers, Inc.
("NASD") may view the Trust Preferred Securities as interests in a direct
participation program, the offering of the Trust Preferred Securities is being
made in compliance with the applicable provisions of Rule 2810 of the NASD's
Conduct Rules.
Success Bancshares and Success Capital have granted the Underwriters an
option, exercisable within 30 days of the date of this Prospectus, to purchase
up to an additional $2,250,000 aggregate Liquidation Amount of Trust Preferred
Securities to cover over-allotments, if any, at the public offering price plus
accrued Distributions. The Underwriters may exercise such option only for the
purpose of covering over-allotments, if any, made in connection with the
distribution of the Trust Preferred Securities offered hereby.
In view of the fact that the proceeds from the sale of the Trust
Preferred Securities will be used to purchase the Junior Subordinated Debentures
issued by Success Bancshares, Success Bancshares has agreed to pay as
compensation for the Underwriters' arranging the investment therein of such
proceeds an amount equal to $0.40 per Trust Preferred Security (or $600,000
($690,000 if the over-allotment option is exercised in full) in the aggregate).
Success Bancshares has also agreed to reimburse the Underwriters for their
reasonable out-of-pocket expenses, including legal fees and expenses relating to
the offering of the Trust Preferred Securities; provided that such reimbursement
may not exceed $25,000 without Success Bancshares' prior consent.
Each of Success Bancshares and Success Capital has agreed to indemnify
the Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make in respect thereof.
In connection with the offering of Trust Preferred Securities, the
Underwriters may engage in transactions that are intended to stabilize, maintain
or otherwise affect the market price of the Trust Preferred Securities. Such
transactions may include an overallotment, creating a syndicate short position.
The Underwriters may also bid for and purchase Trust Preferred Securities. These
activities stabilize or maintain the market price of the Trust Preferred
Securities above independent market levels. The Underwriters are not required to
engage in these activities and may end these activities at any time.
87
<PAGE> 93
EVEREN Securities, Inc. served as the underwriter in the initial public
offering of Success Bancshares common stock consummated in October 1997, and has
made a market in the common stock since such time. In addition, the Underwriters
may provide in the future investment banking services to Success Bancshares and
its affiliates for which such Underwriters or their affiliates would expect to
receive customary fees and commissions.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Trust
Preferred Securities, the enforceability of the Trust Agreement and the creation
of Success Capital will be passed upon by Morris, Nichols, Arsht & Tunnell,
special Delaware counsel to Success Bancshares and Success Capital. The validity
of the Guarantee and the Junior Subordinated Debentures and certain matters
relating to United States federal income tax considerations will be passed upon
for Success Bancshares by Much Shelist Freed Denenberg Ament Bell & Rubenstein,
P.C., Chicago, Illinois. Certain legal matters will be passed upon for the
Underwriters by Barack Ferrazzano Kirschbaum Perlman & Nagelberg, Chicago,
Illinois.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996 and for each of the years in the three-year period ended December
31, 1997 (included in this Prospectus and the Registration Statement of which it
is a part) have been audited by McGladrey & Pullen LLP, independent certified
public accountants, as set forth in their report thereon included herein. The
consolidated financial statements referenced above are included in reliance upon
such report and upon the authority of said firm as experts in auditing and
accounting.
The Company dismissed Crowe, Chizek and Company LLP, its independent
certified public accountants, effective October 1995. In connection with the
1993 and 1994 audits and during the interim period prior to the dismissal, there
were no disagreements with the former accountants on any matter or accounting
principle or practice, financial statement disclosure, or auditing scope or
procedure. The former accountant's reports included in the 1993 and 1994
financial statements were unqualified. The Company engaged McGladrey & Pullen,
LLP as its new independent public accountants effective with the dismissal of
its former accountants. During the Company's 1993 and 1994 fiscal years and
during the interim period prior to engagement there were no consultations with
McGladrey & Pullen, LLP with regard to either the application of accounting
principles as to any specific transaction, either completed or proposed, the
type of audit opinion that would be rendered on the Company's financial
statements or any matter of disagreements with the former accountants. The Board
of Directors approved the Audit Committee's recommendation to change
accountants. In consideration of Crowe, Chizek and Company LLP, providing
assurances to the Underwriters with respect to the Company's financial
information prior to 1995 included in this Prospectus, the Company agreed to
defend, indemnify and hold harmless to the extent permitted by law Crowe, Chizek
and Company LLP and its personnel from any claim which arises from the use of
such financial information, including attorneys' fees and costs of defense. This
indemnification is inoperable if Crowe, Chizek and Company LLP is held liable
for professional malpractice or pays any final or non-appealable settlement.
AVAILABLE INFORMATION
Success Bancshares and Success Capital have jointly filed a
Registration Statement on Form S-1 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act with the
Commission in connection with the Trust Preferred Securities offered by this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement. Success Bancshares 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 materials, in
addition to the Registration Statement, may be inspected and copies thereof may
be obtained at prescribed rates from the Public Reference Facilities of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional
Office of the Commission at the following locations: Seven World Trade Center,
Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. This information is also available on the Internet at
the Commission's web site. The address for the web site is: http://www.sec.gov.
The Registration Statement and such reports, proxy statements
88
<PAGE> 94
and other information may also be inspected at the offices of The Nasdaq Stock
Market, 1735 K Street, N.W., Washington, D.C. 20006.
For further information with respect to Success Bancshares, Success
Capital and the securities offered hereby, reference is hereby made to the
Registration Statement and the exhibits and the financial statements, notes and
schedules filed as a part thereof. Statements contained in this Prospectus
concerning the provisions of any contract, agreement or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the Registration
Statement for a full statement of the provisions thereof. Each such statement in
this Prospectus is qualified in all respects by such reference.
No separate financial statements of Success Capital have been included
herein. Success Bancshares and Success Capital do not consider that such
financial statements would be material to holders of the Trust Preferred
Securities because Success Capital is a newly-formed special purpose entity, has
no operating history or independent operations and is not engaged in and does
not propose to engage in any activity other than holding as trust assets the
Junior Subordinated Debentures of Success Bancshares and issuing the Trust
Securities. See "Prospectus Summary--Success Capital," "Description of Trust
Preferred Securities," "Description of Junior Subordinated Debentures" and
"Description of Guarantee."
89
<PAGE> 95
INDEX TO FINANCIAL STATEMENTS
SUCCESS BANCSHARES, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of McGladrey & Pullen, LLP......................................................................F-1
Consolidated Balance Sheets at December 31, 1997 and December 31, 1996.................................F-2
Consolidated Statements of Income for the years ended December 31, 1997, 1996 and
1995 ..............................................................................................F-3
Consolidated Statements of Shareholders' Equity at December 31, 1997, 1996 and 1995....................F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and
1995 ..............................................................................................F-5
Notes to Consolidated Financial Statements.............................................................F-6
</TABLE>
<PAGE> 96
Report of Independent Auditors
Board of Directors and Shareholders
Success Bancshares, Inc.
Lincolnshire, Illinois
We have audited the accompanying consolidated balance sheets of Success
Bancshares, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the years ended December 31, 1997, 1996, and 1995. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Success Bancshares,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years ended December 31, 1997, 1996, and
1995, in conformity with generally accepted accounting principles.
Schaumburg, Illinois McGladrey & Pullen, LLP
February 13, 1998
F-1
<PAGE> 97
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 23,901 $13833
Interest-bearing time deposits with
financial institutions -- 99
Securities available-for-sale 22,090 15,147
Securities held-to-maturity (fair value
$32,439 and $33,060 at 1997 and
1996, respectively) 31,664 32,560
Real estate loans held-for-sale 65 117
Loans, less allowances for loan losses
of $2,079 and $1,425 at 1997 and
1996, respectively 287,025 203,299
Premises and equipment, net 8,786 7,049
Other real estate owned 290 --
Interest receivable and other assets 4,898 4,245
- ------------------------------------------------------------------------------------------
$ 378,719 $ 276,349
==========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing deposits $ 45,225 $ 42,596
Interest bearing deposits 284,199 202,509
- ------------------------------------------------------------------------------------------
Total deposits 329,424 245,105
Note payable -- 4,815
Federal Home Loan Bank advances 10,720 5,152
Securities sold under repurchase agreements 3,814 4,255
Demand notes payable to U.S. Government 1,429 1,586
Convertible subordinated debentures 200 3,167
Interest payable and other liabilities 2,482 1,645
- ------------------------------------------------------------------------------------------
Total liabilities 348,069 265,725
Minority interest in subsidiary bank 580 524
Shareholders' equity
Series B convertible preferred
stock, $1 par value 100,000 shares
unauthorized, 93,141 shares issued
and outstanding at 1996 -- 94
Common stock, $.001 par value at
1997 and $1 at 1996, 7,500,000
shares authorized, 2,918,324 and
953,391 shares issued and
outstanding, at 1997 and 1996,
respectively 3 953
Class A common stock, $1 par
value, 1,000,000 shares authorized, -0-
and 115,500 shares issued and
outstanding at 1997 and 1996, respectively -- 116
Additional paid-in capital 24,151 4,348
Retained earnings 6,352 5,305
Loan to Employee Stock Ownership Plan (158) (137)
- ------------------------------------------------------------------------------------------
Total before unrealized loss on securities 30,348 10,679
Unrealized loss on securities, net of tax (278) (579)
- ------------------------------------------------------------------------------------------
Total shareholders' equity 30,070 10,100
- ------------------------------------------------------------------------------------------
$ 378,719 $ 276,349
==========================================================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-2
<PAGE> 98
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
Interest income
Loans (including fee income) $ 21,746 $ 16,757 $ 14,956
Investment securities
Taxable 2,318 2,397 2,936
Exempt from federal income tax 425 451 572
Other interest income 423 245 211
- ------------------------------------------------------------------------------------------------------------
Total interest income 24,912 19,850 18,675
Interest expense
Deposits 11,190 8,632 8,771
Note payable 363 355 449
Convertible subordinated debentures 303 339 185
Other borrowings 1,005 694 481
- ------------------------------------------------------------------------------------------------------------
Total interest expense 12,861 10,020 9,886
- ------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 12,051 9,830 8,789
Provision for loan losses 766 310 207
- ------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 11,285 9,520 8,582
Other operating income
Service charges on deposit accounts 1,879 1,402 1,134
Securities gains, net -- -- 25
Gains on sales of loans, net 61 109 84
Writedown of real estate loans held-for-sale,
transferred to portfolio -- (74) --
Credit card processing income 5,987 5,334 4,389
Other fees and commissions 264 378 372
- ------------------------------------------------------------------------------------------------------------
Total other operating income 8,191 7,149 6,004
Other operating expenses
Salaries and employee benefits 6,177 5,513 4,729
Occupancy and equipment expenses 2,044 1,715 1,388
Federal deposit and other insurance 199 113 350
Data processing 889 633 501
Credit card processing expenses 5,541 5,013 3,879
Other noninterest expenses 3,003 2,643 2,495
- ------------------------------------------------------------------------------------------------------------
Total other operating expenses 17,853 15,630 13,342
Minority interest in income of subsidiary bank 37 23 47
- ------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,586 1,016 1,197
Income tax expense 499 233 260
- ------------------------------------------------------------------------------------------------------------
NET INCOME 1,087 783 937
Preferred stock dividends 40 81 --
- ------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 1,047 $ 702 $ 937
============================================================================================================
Basic earnings per share $ .68 $ .66 $ .93
Diluted earnings per share $ .65 $ .63 $ .86
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-3
<PAGE> 99
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Series B Class A
Preferred Common Stock Common Additional
Stock Stock Paid-In Capital
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ -- $ 1,025 $ -- $ 2,639
Net income -- -- -- --
Issuance of 16,186 shares of common stock -- 16 -- 94
Issuance of 40,000 shares of Class A common -- -- 40 560
Loan to ESOP -- -- -- --
Repayment of ESOP loan -- -- -- --
Change in unrealized net loss on securities,
net of taxes -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 -- 1,041 40 3,293
Net income -- -- -- --
Issuance of 5,658 shares of common stock -- 6 -- 39
Issuance of 75,500 shares of Class A common stock -- -- 76 1,016
Conversion of common stock to series B preferred 94 (94) -- --
Series B Preferred stock dividends -- -- -- --
Repayment of ESOP loan -- -- -- --
Change in unrealized net loss on securities,
net of taxes -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 94 953 116 4,348
Net income -- -- -- --
Issuance of 16,461 shares of common stock,
through option exercise -- 16 -- 140
Change in par value per common share from
$1.00 to $0.001 -- (1,061) -- 1,061
Series B Preferred stock dividends -- -- -- --
Conversion of Class A common stock into
common stock -- -- (116) 116
Conversion of Series B preferred stock into
common stock (94) 94 -- --
Issuance of 1,380,000 shares through initial public
offering, net of expenses -- 1 -- 15,539
Conversion of subordinated debentures into common
stock -- -- -- 2,917
Loan to ESOP -- -- -- --
ESOP shares released -- -- -- 30
Change in unrealized net loss on securities,
net of taxes -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ -- $ 3 $ -- $ 24,151
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Unrealized Net Total
Retained Gain (Loss) on ESOP Shareholders'
Earnings Securities Loan Equity
(In thousands)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ 3,666 $ (1,925) $ (62) $ 5,973
Net income 937 -- -- 937
Issuance of 16,186 shares of common stock -- -- -- 110
Issuance of 40,000 shares of Class A common -- -- -- 600
Loan to ESOP -- -- (147) (147)
Repayment of ESOP loan -- -- 26 26
Change in unrealized net loss on securities,
net of taxes -- 586 -- 586
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 4,603 (709) (183) 8,085
Net income 783 -- -- 783
Issuance of 5,658 shares of common stock -- -- -- 45
Issuance of 75,500 shares of Class A common stock -- -- -- 1,092
Conversion of common stock to series B preferred -- -- -- --
Series B Preferred stock dividends (81) -- -- (81)
Repayment of ESOP loan -- -- 46 46
Change in unrealized net loss on securities,
net of taxes -- 130 -- 130
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 5,305 (579) (137) 10,100
Net income 1,087 -- -- 1,087
Issuance of 16,461 shares of common stock,
through option exercise -- -- -- 156
Change in par value per common share from
$1.00 to $0.001 -- -- -- --
Series B Preferred stock dividends (40) -- -- (40)
Conversion of Class A common stock into
common stock -- -- -- --
Conversion of Series B preferred stock into
common stock -- -- -- --
Issuance of 1,380,000 shares through initial public
offering, net of expenses -- -- -- 15,540
Conversion of subordinated debentures into common
stock -- -- -- 2,917
Loan to ESOP -- -- (50) (50)
ESOP shares released -- -- 29 59
Change in unrealized net loss on securities,
net of taxes -- 301 -- 301
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ 6,352 $ (278) $ (158) $ 30,070
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-4
<PAGE> 100
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,087 $ 783 $ 937
Adjustments to reconcile net income to net cash
provided by operating activities
Premium amortization on securities, net of discount accretion (43) (49) (44)
Provision for loan losses 766 310 207
Depreciation and amortization 878 623 508
Provision for deferred taxes (279) (88) (208)
Minority interest in income of subsidiary bank 37 23 47
Net gains on sales of securities -- -- (25)
Loans originated for sale (3,373) (5,453) (9,652)
Proceeds from sales of loans 3,486 3,326 9,438
Net (gains) losses on sales of loans (61) (109) (84)
Writedown of loans held for sale, transferred to portfolio -- 74 --
Accretion of loan discount (65) (87) (62)
Deferred loan fees (74) 38 96
Change in interest receivables and other assets (374) (518) 606
Change in interest payable and other liabilities 837 605 25
Other 109 256 (175)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 2,931 (266) 1,614
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of available-for-sale securities $- $- $ 5,803
Proceeds from maturities of available-for-sale securities 8,856 3,828 1,231
Purchases of available-for-sale securities (15,651) (3,906) (2,272)
Proceeds from maturities of held-to-maturity securities 1,381 3,171 2,990
Purchases of held-to-maturity securities (374) -- (1,834)
Changes in interest-bearing balances with financial institutions 99 100 298
Loans made to customers, net (84,643) (30,218) (32,112)
Proceeds from sales of other real estate -- -- 366
Premises and equipment expenditures (2,615) (2,889) (800)
Purchase of subsidiary bank common stock (5) (25) (84)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (92,952) (29,939) (26,414)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in non-interest bearing deposits $ 2,629 $ 7,428 $ 5,916
Increase in interest bearing deposits 81,690 10,369 17,222
Increase (decrease) in demand notes payable to US Government (157) 1,251 (249)
Increase (decrease) in securities sold under agreements to repurchase (441) 2,387 59
Repayments of notes payable (7,815) (2,015) (1,690)
Proceeds from notes payable 3,000 3,000 1,000
Proceeds from Federal Home Loan Bank advances 11,750 4,000 6,000
Repayment of Federal Home Loan Bank advances (6,182) (4,798) (2,300)
Issuance of convertible subordinated debentures -- 755 400
Issuance of common stock 15,676 1,137 710
ESOP loan for common shares purchased by ESOP (50) -- (147)
Principal payment on ESOP loan 29 46 26
Dividends paid (40) (81) --
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 100,089 23,479 26,947
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 10,068 (6,726) 2,147
Cash and cash equivalents at beginning of year 13,833 20,559 18,412
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 23,901 $ 13,833 $ 20,559
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the year for: Interest on deposits $ 11,002 $ 8,647 $ ,784
Interest on borrowings 1,708 1,373 1,144
Income taxes 570 352 121
Selected noncash investing activities
Other real estate acquired in settlement of loans $ 90 $ - $ 26
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-5
<PAGE> 101
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Success Bancshares, Inc. (the Company), through its subsidiary, Success National
Bank (the Bank), provides a full range of financial services to customers
through nine locations in the Chicago metropolitan area.
(a) Basis of Presentation: The consolidated financial statements of Success
Bancshares, Inc. include the accounts of the Company and its
majority-owned subsidiary, Success National Bank, and its wholly-owned
subsidiary, Success Realty Ventures, Inc. (Success). The Company owns
100% of the Bank's preferred stock and approximately 92% of the Bank's
common stock. Significant intercompany accounts and transactions have
been eliminated in consolidation.
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. Significant estimates which
are particularly susceptible to change in a short period of time
include the determination of the allowance for possible loan losses.
Actual results could differ from those estimates.
(b) Cash and Cash Equivalents: Cash and cash equivalents include cash on
hand, noninterest-bearing amounts due from banks, interest-bearing
demand balances with banks, and federal funds sold. Generally, federal
funds are sold or purchased for one-day periods. Cash flows from loans
originated by the Bank, deposits, securities sold under agreements to
repurchase and demand notes payable to U.S. Government are reported
net.
(c) Securities: Securities classified as held-to-maturity are those debt
securities the Company has both the positive intent and ability to hold
to maturity regardless of changes in market conditions, liquidity needs
or changes in general economic conditions. These securities are carried
at cost adjusted for amortization of premium and accretion of discount
which are recognized in interest income using the interest method over
the period to maturity. Transfer of debt securities into the
held-to-maturity classification from the available-for-sale
classification are made at fair value on the date of transfer. The
unrealized gain or loss on the date of transfer is retained as a
separate component of stockholders' equity and in the carrying value of
the held-to-maturity securities. Such amounts are amortized over the
remaining contractual lives of the securities by the interest method.
Securities classified as available-for-sale are those debt securities
that the Company intends to hold for an indefinite period of time, but
not necessarily to maturity. Any decision to sell a security classified
as available for sale would be based on various factors, including
significant movements in interest rates, changes in the maturity mix of
the Company's assets and liabilities, liquidity needs, regulatory
capital considerations and other similar factors. Securities available
for sale are carried at fair value. The difference between fair value
and amortized cost results in an unrealized gain or loss. Unrealized
gains or losses are reported as increases or decreases in stockholders'
equity, net of the related deferred tax effect. Realized gains or
losses, determined on the basis of the cost of specific securities
sold, are included in earnings. Premiums and discounts are recognized
in interest income using the interest method over their contractual
lives.
(d) Real Estate Loans Held-for-Sale: Real estate loans held-for-sale are
carried at the lower of cost, net of loan fees collected, or fair value
in the aggregate. Loans are sold without recourse with servicing
retained. Gains and losses from the sale of loans are determined based
upon the net proceeds and the carrying value of the loans sold after
allocating cost to servicing rights retained. Net unrealized losses are
recognized in a valuation allowance by charges to income.
Transfer of loans held for sale to portfolio are accounted for at the
lower of cost or fair value at the date of transfer. The excess of the
carrying value over the fair value as of the transfer date is accreted
into interest income over the remaining estimated lives of the
transferred loans. Cost approximated fair value for loans held for sale
as of December 31, 1997 and 1996.
F-6
<PAGE> 102
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Loans: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff ("portfolio" loans) are
stated net of unearned income, deferred loan fees, unaccreted discounts
and the allowance for loan losses. Interest on loans is accrued over
the term of the loan based on the amount of principal outstanding. For
impaired loans, accrual of interest is discontinued on a loan when
management believes, after considering collection efforts and other
factors, that the borrower's financial condition is such that
collection of interest is doubtful. Additionally, interest income is
reduced for any amounts previously accrued. Interest income is
subsequently recognized only to the extent cash payments are received
and the principal is considered fully collectible. Discounts are
accreted into income over the estimated lives of the loans on a method
that approximates the interest method. Loan origination fees and costs
are deferred and recognized over the life of the loan as a yield
adjustment.
Because some loans may not be paid in full, an allowance for loan
losses is recorded. Increases to the allowance are recorded by a
provision for loan losses charged to expense. Estimating the risk of
loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained at a level considered adequate
to cover possible losses that are currently anticipated based on past
loss experience, general economic conditions, information about
specific borrower situations including their financial position and
collateral values, and other factors and estimates which are subject to
change over time. A loan is charged-off by management as a loss when
deemed uncollectible, although collection efforts continue and future
recoveries may occur.
Commercial loans less than $100,000, residential real estate mortgages,
home equity loans, and installment loans are considered small balance
homogenous loan pools and are not evaluated for purposes of impairment.
All other loans are specifically evaluated for impairment. Loans are
considered impaired when, based on current information and events, it
is probable that the Company will not be able to collect all amounts
due according to the contractual terms of the loan agreement. The
impairment is measured based on the present value of expected future
cash flows, or alternatively, the observable market price of the loans
or the fair value of the collateral. However, for those loans that are
collateral-dependent and for which management has determined
foreclosure is probable, the measure of impairment of those loans is to
be based on the fair value of the collateral. The amount of impairment,
if any, and any subsequent changes are included in the allowance for
loan losses.
(f) Premises and Equipment: Buildings, leasehold improvements, furniture,
and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided on the
straight-line method over estimated useful lives of the related assets.
Maintenance and repairs are expensed as incurred, while major
improvements are capitalized.
(g) Other Real Estate Owned: Other real estate owned (OREO) represents
properties acquired through foreclosure or other proceedings and is
initially recorded at fair value at the date of foreclosure, which
establishes a new cost. After foreclosure, OREO is held for sale and is
carried at the lower of cost or fair value less estimated costs of
disposal. Any write-down to fair value at the time of transfer to OREO
is charged to the allowance for loan losses. Property is evaluated
regularly to ensure the recorded amount is supported by its current
fair value and valuation allowances to reduce the carrying amount to
fair value less estimated costs to dispose are recorded as necessary.
Revenue and expense from the operations of OREO and changes in the
valuation allowance are included in the results of operations.
(h) Income Taxes: The Company files a consolidated income tax return with
its subsidiaries. Its share of the consolidated income tax provision is
computed on a separate return basis. Deferred taxes are provided using
the liability method to recognize deferred tax assets for deductible
temporary differences and operating loss and tax credit carryforwards
and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
F-7
<PAGE> 103
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) Earnings Per Share: In 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share. Statement 128 replaced
the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings
per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement
128 requirements.
(j) Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities: The Financial Accounting Standards Board
Statement No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities, distinguishes transfers of
financial assets that are sales from transfers that are secured
borrowings. A transfer of financial assets in which the transferor
surrenders control over those assets is accounted for as a sale to the
extent that consideration other than beneficial interest in the
transferred assets is received in exchange. The Statement also
establishes standards on the initial recognition and measurement of
servicing assets and other retained interests and servicing
liabilities, and their subsequent measurement. The Statement requires
that debtors reclassify financial assets pledged as collateral and that
secured parties recognize those assets and their obligation to return
them in certain circumstances in which the secured party has taken
control of those assets. In addition, the Statement requires that a
liability be derecognized only if the debtor is relieved of its
obligation through payment to the creditor or by being legally released
from being the primary obligor under the liability either judicially or
by the creditor. The Statement was effective for transactions occurring
after December 31, 1996, except for transactions relating to secured
borrowings and collateral for which the effective date is December 31,
1997. On January 1, 1997, the Company adopted the Statement except for
as it relates to transactions involving secured borrowings and
collateral. The effect of adoption of this Statement was not material.
Also, the Company believes the adoption of the Statement for
transactions relating to secured borrowings and collateral will not
have a material impact on its consolidated financial statements.
(k) Current Accounting Developments: Comprehensive income: The Financial
Accounting Standards Board has issued Statement No. 130, Reporting
Comprehensive Income, that the Company will be required to adopt for
its year ended December 31, 1998. This pronouncement is not expected to
have a significant impact on the Company's financial statements. The
Statement establishes standards for the reporting and presentation of
comprehensive income and its components. The statement requires that
items recognized as components of comprehensive income be reported in a
financial statement. The statement also requires that a company
classify items of other comprehensive income by their nature in a
financial statement, and display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial
position. Comprehensive income at the Company currently consists of
unrealized gains and losses on securities available-for-sale.
Segments of an enterprise: Statement of Financial Accounting Standard
No. 131, Disclosures about Segments of an Enterprise and Related
Information, was issued in July 1997 by the Financial Accounting
Standards Board. The Statement requires the Company to disclose the
factors used to identify reportable segments including the basis of
organization, differences in products and services, geographic areas,
and regulatory environments. The Statement additionally requires
financial results to be reported in the financial statements for each
reportable segment. The Statement is effective for financial statement
periods beginning after December 15, 1997. The Company does not believe
the adoption of the statement will have a material impact on the
consolidated financial statements.
(l) Prior Year Reclassifications: Certain reclassifications were made to
make the 1996 and 1995 financial statements comparable with the 1997
presentation.
F-8
<PAGE> 104
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash and due from banks $ 16,337 $ 13,780
Interest-bearing demand balances with financial institutions 564 53
Federal funds sold 7,000 -
$ 23,901 $ 13,833
----------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997 and 1996, reserves of $7.2 million and $2.5 million,
respectively, were required to be held as cash or on deposit with the Federal
Reserve Bank of Chicago. These reserves do not earn interest.
NOTE 3 - SECURITIES
The amortized cost, gross unrealized gains and losses, and fair values of
securities at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury $ 748 $ 6 $ - $ 754
U.S. Government sponsored entities 5,846 2 (127) 5,721
States and political sub-divisions
exempt from Federal income taxes 1,565 6 (10) 1,561
Mortgage-backed securities 2,568 17 - 2,585
SBA guaranteed loan participation
certificates 4,337 3 (50) 4,290
Other securities 110 126 - 236
$15,174 $160 $(187) $15,147
----------------------------------------------------------------------------------------------------------------------------
Securities held-to-maturity
U.S. Treasury $ 242 $ 3 $ - $ 245
U.S. Government sponsored entities 15,368 279 (244) 15,403
States and political sub-divisions
Taxable 1,845 94 - 1,939
Exempt from Federal income taxes 6,906 147 (12) 7,041
Mortgage-backed securities 5,804 233 - 6,037
Other securities 2,395 - - 2,395
----------------------------------------------------------------------------------------------------------------------------
$32,560 $756 $(256) $33,060
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of securities at December 31, 1997, by
contractual maturity, are shown below. Expected maturities of mortgage backed
securities and SBA guaranteed loan participation certificates will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Therefore, these
securities are not included in the maturity categories in the following maturity
summary.
<TABLE>
<CAPTION>
Available-for-sale Held-to-maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 3,964 $ 3,950 $ 4,281 $ 4,264
Due after one year through five years 4,578 4,598 6,084 6,188
Due after five years through ten years 3,016 2,987 10,100 10,401
Due after ten years 182 263 6,051 6,177
Mortgage-backed securities and SBA
guaranteed loan participation
certificates 10,240 10,292 5,148 5,409
----------------------------------------------------------------------------------------------------------------------------
$21,980 $22,090 $31,664 $32,439
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-9
<PAGE> 105
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SECURITIES (CONTINUED)
The amortized cost, gross unrealized gains and losses, and fair values of
securities at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury $ 748 $ 6 $- $ 754
U.S. Government sponsored entities 5,846 2 (127) 5,721
States and political sub-divisions
exempt from Federal income taxes 1,565 6 (10) 1,561
Mortgage-backed securities 2,568 17 -- 2,585
SBA guaranteed loan participation
certificates 4,337 3 (50) 4,290
Other securities 110 126 -- 236
-----------------------------------------------------------------------------------------------------------------
$ 15,174 $ 160 $ (187) $ 15,147
-----------------------------------------------------------------------------------------------------------------
Securities held-to-maturity
U.S. Treasury $ 242 $ 3 $- $ 245
U.S. Government sponsored entities 15,368 279 (244) 15,403
States and political sub-divisions
Taxable 1,845 94 -- 1,939
Exempt from Federal income taxes 6,906 147 (12) 7,041
Mortgage-backed securities 5,804 233 -- 6,037
Other securities 2,395 -- -- 2,395
-----------------------------------------------------------------------------------------------------------------
$ 32,560 $ 756 $ (256) $ 33,060
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of securities available-for-sale and realized gross gains
and losses in 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale
Proceeds from sales $ - $ - $5,803
Gross gains $ - $ - $ 56
Gross losses $ - $ - $ 31
</TABLE>
Securities with a carrying value of approximately $32.2 and $24.2 million at
December 31, 1997 and 1996, respectively, were pledged to secure public deposits
and for other purposes as required or permitted by law.
NOTE 4 - LOANS
Loans at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Commercial $ 87,506 $ 58,912
Residential real estate - mortgage 42,651 41,586
Commercial real estate - mortgage 63,469 43,334
Real estate - construction 13,409 12,282
Home equity 72,944 43,193
Other loans 9,685 6,118
-------------------------------------------------------------------------------------------------------------
Total loans 289,664 205,425
Less
Unearned discount - (2)
Deferred loan fees (187) (261)
Unaccreted discount resulting from loss on
transfer of loans from held-for-sale to portfolio (373) (438)
Allowance for loan losses (2,079) (1,425)
-------------------------------------------------------------------------------------------------------------
Net loans $287,025 $203,299
-------------------------------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE> 106
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LOANS (CONTINUED)
Activity in the allowance for loan losses is summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,425 $1,189 $1,000
Provision for loan losses 766 310 207
Recoveries on loans previously charged-off 37 4 1
Loans charged-off (149) (79) (19)
---------------------------------------------------------------------------------------------------------
Balance at end of year $2,079 $1,425 $1,189
---------------------------------------------------------------------------------------------------------
</TABLE>
Impaired loan information as of and for the years ended December 31, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Impaired loans for which no allowance has been provided $1,479 $450
Impaired loans for which an allowance has been provided - -
------------------------------------------------------------------------------------------------------
Total loans determined to be impaired $1,479 $450
------------------------------------------------------------------------------------------------------
Allowance provided for impaired loans, included in the allowance for
loan losses $ - $ -
------------------------------------------------------------------------------------------------------
Average recorded investment in impaired loans $1,869 $694
Interest income recognized from impaired loans 231 101
Cash basis interest income recognized from impaired loans 79 94
</TABLE>
Mortgage loans serviced for the Federal Home Loan Mortgage Corporation by the
Company are not included in the accompanying consolidated balance sheets. The
unpaid principal balances of these loans were approximately $50.1 and $53.4
million at December 31, 1997 and 1996, respectively.
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Land $ 2,904 $ 2,454
Building and leasehold improvements 5,444 4,458
Furniture and equipment 4,232 3,167
------------------------------------------------------------------------------------
Total cost 12,580 10,079
Less accumulated depreciation and amortization 3,794 3,030
------------------------------------------------------------------------------------
Net book value $ 8,786 $ 7,049
------------------------------------------------------------------------------------
</TABLE>
The Company has agreed to acquire a back office facility in 1998 for $1.6
million.
NOTE 6 - DEPOSITS
Deposits at December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Demand deposits:
Non-interest-bearing $ 45,225 $ 42,596
Interest-bearing 76,058 47,620
---------------------------------------------------------------------------------------------------
Total demand deposits 121,283 90,216
Savings 19,389 19,022
Money market 32,940 34,486
Other deposits 17,015 22,696
Time:
Due within one year 91,444 50,477
Due within one to two years 40,262 18,269
Due within two to three years 3,020 5,878
Due within three to four years 2,417 1,479
Due thereafter 1,654 2,582
---------------------------------------------------------------------------------------------------
Total time deposits 138,797 78,685
---------------------------------------------------------------------------------------------------
Total deposits $329,424 $245,105
---------------------------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE> 107
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - DEPOSITS (CONTINUED)
Time deposits in amounts of $100,000 or more were approximately $48.0 million
and $29.9 million at December 31, 1997 and 1996, respectively.
Interest expense on deposits for the years ending December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest-bearing demand $ 1,658 $ 1,200 $ 1,062
Savings 640 606 589
Money market 1,456 1,357 1,472
Other deposits 973 1,224 1,561
Time 6,463 4,245 4,087
----------------------------------------------------------------------
$11,190 $ 8,632 $ 8,771
----------------------------------------------------------------------
</TABLE>
NOTE 7 - BORROWING ARRANGEMENTS
Note payable at December 31, 1997 and 1996 is comprised of a $10.0 million
revolving line of credit with Cole Taylor Bank with interest at the prime rate
(8.50% at December 31, 1997) payable quarterly, maturing June 15, 1998.
The revolving line of credit is secured by the common and preferred stock of the
Bank owned by the Company.
In addition, the Bank's allowance for loan losses must be at least 100% of the
Bank's nonperforming loans. Nonperforming loans and other real estate are
also limited under the agreement to 20% of the Bank's capital.
The Bank can also borrow from the Federal Reserve Bank ("FRB") up to 75% of
loans pledged to the FRB. As of December 31, 1997 and 1996, there were no loans
pledged to the FRB and there were no borrowings outstanding at either date.
NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES
At December 31, 1997 and 1996, advances from the Federal Home Loan Bank of
Chicago ("FHLB") were as follows:
<TABLE>
<CAPTION>
Frequency Advance Amount
Maturity Interest of Rate -----------------------------
Date Rate Adjustment 1997 1996
----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
November, 1997 5.66% Fixed $ - $ 2,000
August, 1998 5.98% Fixed 4,000 --
July, 1999 6.30% Fixed 2,000 --
May, 2002 (1) 6.83% Fixed 1,782 1,869
February, 2003 (1) 5.65% Fixed 1,223 1,283
July, 2004 (1) 6.38% Fixed 1,715 --
----------------------------------------------------------------------------------------------------
$10,720 $ 5,152
----------------------------------------------------------------------------------------------------
</TABLE>
(1) 15 year amortizing advance with a seven year balloon.
The Bank maintains a collateral pledge agreement with the FHLB covering secured
advances. Under this agreement, first mortgages on improved residential property
not more than 90 days delinquent are pledged as collateral. Total loans pledged
to secure advances at December 31, 1997 and 1996 were approximately $39.5
million and $14.6 million, respectively.
F-12
<PAGE> 108
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are overnight repurchase
agreements with customers of the Bank and consist of primarily U.S. government
sponsored entity obligations.
The securities underlying the agreements are book-entry securities. During the
period, the securities were delivered by appropriate entry into a third-party
custodian's account designated by the Bank under a written custodial agreement
that explicitly recognizes the customer's interest in the securities. At
December 31, 1997, no material amount of agreements to repurchase securities
sold were outstanding with any individual customer. Securities sold under
agreements to repurchase averaged $5.8 million and $4.1 million during 1997 and
1996, respectively, and the maximum amounts outstanding at any month-end during
1997 and 1996 were $12.0 million and $4.6 million, respectively. The weighted
average rate paid during 1997 and 1996 was 4.15% and 4.20%, respectively, and
the weighted average rate at the end of 1997 and 1996 was 4.54% and 4.23%.
NOTE 10 - CONVERTIBLE SUBORDINATED DEBENTURES
In 1992, the Company issued $2.2 million of ten year 9% convertible subordinated
debentures (the debentures). The debentures pay interest semi-annually. The
debentures are convertible at any time prior to maturity into common stock at
$8.57 per share. The Company can redeem the debentures (a) without paying a
premium if the book value per share of the Company's common stock equals or
exceeds the conversion price; or (b) with a premium of between 10% and 2%
depending on the redemption date. All but $200,000 of these debentures were
converted to common stock in October 1997.
In November 1995, the Company began a private placement of units consisting of
$4,000 principal amount of ten year convertible subordinated notes (the Notes)
and 400 shares of Class A Common Stock. The interest on the notes was payable
semi-annually. The rate on the notes was 15% for notes in denominations less
than $100,000 and 17% for notes of $100,000 or more. All of these notes were
converted into common stock of the Company in October 1997.
The following table summarizes the debentures and notes outstanding at December
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
9% Debentures $200 $2,012
15% Notes - 235
17% Notes - 920
-----------------------------------------------------------
$200 $3,167
-----------------------------------------------------------
</TABLE>
NOTE 11 - SHAREHOLDERS' EQUITY AND CAPITAL STANDARDS
On July 23, 1997, the Company approved a 1.7 for 1 stock split effective July
30, 1997, on common shares. All references in the accompanying financial
statements to the number of common shares and per common share amounts have been
retroactively restated to reflect the stock split.
The Series B preferred stock was noncumulative and each share was convertible
into one share of common stock, which occurred in July 1997. All outstanding
shares were held by the Company's Employee Stock Ownership Plan.
The Company and the Bank are 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. The regulations require
the Company and the Bank to meet specific capital adequacy guidelines that
involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting principles.
The capital classifications are also subject to qualitative judgments by the
regulators about risk weightings and other factors.
F-13
<PAGE> 109
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - SHAREHOLDERS' EQUITY AND CAPITAL STANDARDS (CONTINUED)
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum ratios (set forth in the
table below) of Tier I capital (as defined in the regulations) to total average
assets (as defined) ("leverage ratio") and minimum ratios of Tier I and total
capital (as defined) to risk-weighted assets (as defined). Management believes
that as of December 31, 1997 the Company and the Bank met all capital adequacy
requirements to which they were subject. As of December 31, 1997, the most
recent notification from the corresponding regulatory agency categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action. To be considered well capitalized, under this framework, the Bank must
maintain minimum leverage, Tier I and Total Capital ratios as set forth in the
following table. There are no conditions or events since the notification that
management believes has changed the Bank's category.
The required ratios and the Company's actual ratios at December 31, 1997 and
1996, are presented below:
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
-----------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Capital (to Risk Weighted Assets):
Consolidated $ 33,124 12.37% $ 21,425 8.0% Not Applicable
Bank 30,425 11.38 21,388 8.0 $ 26,734 10.0%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 30,928 11.55 10,713 4.0 Not Applicable
Bank 28,346 10.60 10,694 4.0 16,041 6.0%
Tier 1 Capital (to Average Assets):
Consolidated 30,928 9.69 12,762 4.0 Not Applicable
Bank $ 28,346 8.90% $ 12,739 4.0% $ 15,924 5.0%
As of December 31, 1996
Total Capital (to Risk Weighted Assets):
Consolidated $ 14,475 8.00% $ 14,481 8.0% Not Applicable
Bank 20,207 11.20 14,471 8.0 $ 18,088 10.0%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 11,203 6.20 7,240 4.0 Not Applicable
Bank 18,782 10.40 7,235 4.0 10,853 6.0%
Tier 1 Capital (to Average Assets):
Consolidated 11,203 4.37 7,688 4.0 Not Applicable
Bank $ 18,782 7.30% $ 7,673 4.0% $ 12,788 5.0%
</TABLE>
Banking regulations limit the amount of dividends that the Bank may pay without
the prior approval of regulatory authorities. As of December 31, 1997,
approximately $1.4 million of the Bank's retained earnings were available for
dividends without prior regulatory approval. In addition, the Company's debt
agreement with its lending institution requires the Bank to maintain minimum
capital requirements which serve to limit dividends from the Bank. Under the
debt agreement, the Company and the Bank are required to maintain minimum
capital of $28.0 million and $26.0 million, respectively, and minimum Tier I
capital to assets ratio for the Bank of 6%. The Company's and Bank's capital
levels exceed these requirements. The debt agreement imposes a more restrictive
dividend limitation on the Bank than the banking regulations. The Bank may not
declare a dividend, other than for the purpose of the Company's debt service,
without the written consent of Cole Taylor Bank. The Company cannot declare cash
dividends in excess of 50% of its annual earnings or acquire any of its own
stock without the written consent of Cole Taylor Bank.
NOTE 12 - EMPLOYEE STOCK OWNERSHIP PLAN
The Company maintains an Employee Stock Ownership Plan ("ESOP"), which also has
a 401(k) feature. The ESOP covers substantially all employees of the Bank. The
ESOP is internally leveraged. Loans from the Company to the ESOP to acquire
Company stock are recorded as a reduction of shareholders' equity. At December
31, 1997 and 1996, the fair value of unearned ("suspense") ESOP shares is
approximately $255,000 and $236,000, respectively.
F-14
<PAGE> 110
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
Suspense shares are released and allocated to participants as the ESOP's debt to
the Company is repaid. Employer contributions, including any matching
contribution for the 401(k) provision, are made at the discretion of the Bank's
Board of Directors. Contributions to the ESOP, which are not materially
different from the fair value of shares allocated to participants, were
partially funded through dividends on the Series B preferred stock during 1997,
and fully in 1996. The fair value of dividends paid on suspense shares was not
material and was charged to retained earnings. Preferred dividends of $40,000
and $81,000 were paid in 1997 and 1996, respectfully. For the year ended
December 31, 1997, $59,000 was recorded as compensation expense. During 1995,
contributions of $72,000 were charged to compensation expense.
Shares of the Company's stock held by the ESOP as of December 31, 1997 and 1996,
are shown in the following table. The allocated and unallocated shares as of
December 31, 1997 are approximations, as the 1997 participant allocation has not
yet been completed.
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------------------------------------------------------
Common Series B Preferred
<S> <C> <C>
Shares allocated to participants 75,527 41,891
Suspense (unallocated) shares 18,577 12,898
----------------------------------------------------------------------------------------------
Total ESOP Shares 91,104 54,789
----------------------------------------------------------------------------------------------
</TABLE>
NOTE 13 - STOCK OPTIONS
In the past, the Company's Board of Directors has granted nonqualified options
to various members of senior management. The outstanding stock options may be
exercised at any time by the respective officers through a period ending three
years after termination of employment with the Bank or the Company. There were
no such options granted during 1997 or 1996.
In 1995, the Company adopted a qualified incentive stock option plan for senior
officers of the Company with options to be granted at the fair value of the
stock at the date of grant. Under this plan, 170,000 shares of authorized but
unissued common stock are reserved for the granting of options. Vesting of the
options is determined by the Board of Directors and typically is over a period
not exceeding four years. Options must be exercised within ten years after the
date of grant. The following table summarizes data concerning stock options:
<TABLE>
<CAPTION>
Weighted
Common Option Average
Shares Price Exercise
Under Option Per Share Price
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, December 31, 1995 156,740 $1.82 - $6.18 $5.04
-----------------------------------------------------------------------------------------------------------------------
Canceled (3,400) $6.09 $6.09
-----------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 1996 and 1997 153,340 $1.82 - $6.18 $5.02
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, there are options exercisable for 136,340 shares at a
weighted average price of $4.88.
Grants under the plan are accounted for following APB Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been recognized for
incentive stock option grants under the stock option plan. Had compensation cost
for the stock-based compensation plan been determined based on the grant date
fair values of awards, reported income and earnings per common share would have
been reduced to the pro forma amounts shown below:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income applicable to common stock (In thousands):
As reported $1,047 $ 702 $ 937
Pro Forma $1,047 $ 702 $ 904
Basic earnings per common share:
As reported $ 0.68 $0.66 $0.93
Pro Forma $ 0.68 $0.66 $0.89
Diluted earnings per common share:
As reported $0.65 $0.63 $0.86
Pro Forma $0.65 $0.63 $0.84
</TABLE>
F-15
<PAGE> 111
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - STOCK OPTIONS (CONTINUED)
The fair value of each option grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants during the year ended December 31, 1995; dividend yield of 0% for the
period; expected volatility of 0% for the period; risk free rate of return of
5.88%; and, expected life of 4 years.
Under the provisions of Statement No. 123, pro forma net income reflects only
options granted in 1995. Therefore, the full impact of calculating compensation
cost for stock options under Statement No. 123 is not reflected in the pro forma
net income amounts presented above because compensation cost for options granted
prior to January 1, 1995 is not considered.
NOTE 14 - INCOME TAXES
The deferred tax assets and liabilities consist of the following components as
of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 656 $ 402
Securities available for sale 224 398
Deferred loan fees 113 142
Premises and equipment 121 50
Stock options -- 12
Loans 145 170
---------------------------------------------------------------
1,259 1,174
---------------------------------------------------------------
Deferred tax liabilities:
State income taxes $ 68 $ 27
Loans - tax mark to market 24 159
Mortgage servicing rights 38 33
Other 30 21
---------------------------------------------------------------
160 240
---------------------------------------------------------------
Net deferred tax assets $1,099 $ 934
---------------------------------------------------------------
</TABLE>
No valuation allowance was considered necessary.
Income tax expense for the years ended December 31, 1997, 1996 and 1995,
consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current $ 778 $ 321 $ 468
Deferred (279) (88) (208)
--------------------------------------------------------------------------------
$ 499 $ 233 $ 260
--------------------------------------------------------------------------------
</TABLE>
Reconciliations of income tax expense computed at the statutory federal income
tax rate to the Company's income tax expense for the years ended December 31,
1997, 1996, and 1995, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Income tax expense at statutory rate $ 539 $ 345 $ 407
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit 82 21 13
Nontaxable interest income (net of disallowed expenses) (155) (141) (178)
Other 33 8 18
--------------------------------------------------------------------------------------------------------
$ 499 $ 233 $ 260
--------------------------------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE> 112
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - COMPUTATION OF EARNINGS PER SHARE
The table following summarizes the computation of earnings per share for the
years indicated:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------------
Income Share Per-Share Income Share Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Net income $1,087 $783
Less: Preferred stock dividends (40) (81)
------ ----
BASIC EPS
Income available to
common stockholders 1,047 1,531 $0.68 $702 1,061 $0.66
EFFECT OF DILUTIVE SECURITIES
Options 76 61
Convertible subordinated debt
--------------------- -------------------
DILUTED EPS
Income available to common stock-
holders + assumed conversions $1,047 $1,607 $0.65 $702 $1,122 $0.63
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------
1995
-------------------------------------------
Income Share Per-Share
(Numerator) (Denominator) Amount
-------------------------------------------
<S> <C> <C> <C>
Net income $937
Less: Preferred stock dividends -
---
BASIC EPS
Income available to
common stockholders 937 1,011 $0.93
EFFECT OF DILUTIVE SECURITIES
Options 47
Convertible subordinated debt 112 158
---------------------------------------
DILUTED EPS
Income available to common stock-
holders + assumed conversions $1,049 $1,215 $0.86
-------------------------------------------
</TABLE>
In 1997 and 1996, the assumed conversion of the convertible subordinated debt
would have had an antidilutive effect and as such, was not included in diluted
EPS for those years. Additionally, the convertible Series B Preferred stock
would have had an antidilutive effect in 1997 and 1996, and as such, was not
included in diluted EPS for these years. There was no Series B Preferred stock
outstanding in 1995.
NOTE 16 - COMMITMENTS, CONTINGENCIES AND CREDIT RISK
Credit risk: The Company makes loans to, and obtains deposits from, customers
primarily in Lake County, Cook County, DuPage County, and McHenry County,
Illinois and surrounding areas. Most loans are secured by specific items of
collateral, including residential and commercial real estate and other business
and consumer assets. Collateral held varies but may include deposits held in
financial institutions; U.S. Treasury securities; other marketable securities;
income-producing commercial properties; residential real estate; accounts
receivable; and property, plant and equipment.
Financial instruments with off-balance sheet risk: The Company is a party to
financial instruments with off-balance-sheet risk in the normal course of
business to meet financing needs of its customers. These financial instruments
include commitments to make loans, standby letters of credit, and unused lines
of credit. The Company's exposure to credit loss in the event of nonperformance
by the other parties is represented by the contractual amounts of the
instruments. The Company uses the same credit policy to make such commitments as
it uses for on-balance-sheet items.
At December 31, 1997 and 1996, the contract amount of these financial
instruments is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Financial instruments whose contract amount represents credit risk
Unused home equity lines of credit $75,588 $45,195
Unused commercial and other consumer lines of credit 14,676 10,007
Standby letters of credit 2,041 1,808
Commitments to make loans 20,765 28,723
</TABLE>
Since many commitments to make loans expire without being used, the amounts
above do not necessarily represent future cash commitments. Collateral obtained
upon exercise of the commitment is determined using management's credit
evaluation of the borrower, and may include commercial and residential real
estate and other business and consumer assets.
F-17
<PAGE> 113
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS, CONTINGENCIES AND CREDIT RISK (CONTINUED)
Low Income Housing Support: In December 1997, the Bank agreed to participate in
the Chicago Equity Fund. This fund finances low income housing projects in
neighborhoods around the Chicagoland area. The Bank has committed to invest
$250,000 in the Fund over a seven to nine year period.
Litigation: From time to time, the Company and the Bank are involved in
litigation, both as a defendant and as a plaintiff. Management believes that the
ultimate liability from such actions, if any, will not have a material effect on
the financial condition of the Company or the Bank.
Lease Commitments: The Bank leases branch facilities under noncancelable
operating lease agreements. Rent expense for branch facilities was $285,000,
$322,000, and $246,000 in 1997, 1996 and 1995, respectively, excluding taxes,
insurance and maintenance. The branch facilities are charged for their
proportionate share of taxes, insurance and maintenance costs plus monthly rent.
The minimum rental commitments, not including taxes, insurance and maintenance,
at December 31, 1996 under the leases are summarized below:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $ 168,660
1999 98,640
2000 98,640
2001 90,724
2002 51,144
2003 and thereafter 8,524
--------------------------------------------------------------
Total $ 516,332
--------------------------------------------------------------
</TABLE>
NOTE 17 - RELATED PARTY TRANSACTIONS
In the normal course of business, certain executive officers, directors, and
companies with which they are affiliated have borrowed funds from the Bank. In
the opinion of management, these loans were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unrelated parties. The activities in total
loans during 1997 is as follows (In thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Balance as of January 1, 1997 $2,053
New loans 983
Repayments (187)
---------------------------------------------------------
Balance as of December 31, 1997 $2,849
---------------------------------------------------------
</TABLE>
NOTE 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments.
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and these short-term instruments approximate their fair values.
Securities: Fair values for investment securities 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.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values
for other loans are determined using estimated future cash flows, discounted at
the interest rates currently being offered for loans with similar terms to
borrowers with similar credit quality.
Deposit liabilities: The fair value of deposits with no stated maturity, such as
noninterest bearing deposits, savings, NOW accounts, and money market accounts,
is equal to the amount payable on demand (i.e. the carrying value.) 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.
F-18
<PAGE> 114
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Borrowed funds: The fair value is estimated using a discounted cash flow
calculation using the rate currently available for similar term borrowings.
Accrued interest receivable and payable: The carrying amounts reported in the
balance sheet approximate their fair values.
Off-balance-sheet instruments: Fair values for the Company's off-balance-sheet
instruments are based on fees currently charged to enter into similar
agreements, taking into account the remaining term of the agreements and the
counterparties' credit standing. There is no material difference between the
notional amount and the estimated fair value of off-balance sheet items which
are primarily comprised of commitments to extend credit which are generally
priced at market at the time of funding.
The carrying amount and estimated fair value of financial instruments at
December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------------------------------------------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 23,901 $ 23,901 $ 13,833 $ 13,833
Investment securities 53,754 54,529 47,707 48,207
Loans held-for-sale 65 65 117 117
Loans 287,025 292,219 203,299 203,043
Accrued interest receivable 2,507 2,507 1,761 1,761
Financial liabilities:
Deposits $329,424 $332,121 $245,105 $245,865
Borrowed funds 16,163 16,469 18,975 19,719
Accrued interest payable 510 510 359 359
</TABLE>
Loan commitments on which the committed interest rate is less than the current
market rate are insignificant at December 31, 1997.
The Company assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, fair
values of the Company's financial instruments will change when interest rate
levels change and that change may be either favorable or unfavorable to the
Company. Management attempts to match maturities of assets and liabilities to
the extent believed necessary to minimize interest rate risk. However, borrowers
with fixed rate obligations are more likely to prepay in a falling rate
environment and less likely to prepay in a rising rate environment. Conversely,
depositors who are receiving fixed rates are more likely to withdraw funds
before maturity in a rising rate environment and less likely to do so in a
falling rate environment. Management monitors rates and maturities of assets and
liabilities and attempts to minimize interest rate risk by adjusting terms of
new loans and deposits and by investing in securities with terms that mitigate
the Company's overall interest rate risk.
F-19
<PAGE> 115
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - PARENT COMPANY FINANCIAL INFORMATION
Presented below are the condensed balance sheets as of December 31, 1997 and
1996 and statements of income and statements of cash flows for the years ended
December 31, 1997, 1996, and 1995 for Success Bancshares, Inc.:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Cash on deposit with subsidiary bank $ 800 $ 388
Securities available-for-sale 2,293 -
Investment in subsidiaries 27,289 17,496
Other assets 425 374
--------------------------------------------------------------------------------------------------------
$30,807 $18,258
--------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable $ - $ 4,815
Note payable - Success Realty Ventures, Inc. 105 105
Subordinated convertible debt 200 3,167
Other liabilities 432 71
--------------------------------------------------------------------------------------------------------
Total liabilities 737 8,158
Shareholders' equity 30,070 10,100
--------------------------------------------------------------------------------------------------------
$30,807 $18,258
--------------------------------------------------------------------------------------------------------
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Operating income
Dividends from subsidiary bank $ 1,187 $949 $830
Interest and other income 53 32 47
- -----------------------------------------------------------------------------------------------------------------------
1,240 981 877
Operating expenses
Interest 686 695 640
Other expense 340 126 100
- -----------------------------------------------------------------------------------------------------------------------
1,026 821 740
- -----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES 214 160 137
Income tax benefit 387 319 263
- -----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF 601 479 400
SUBSIDIARIES
Equity in undistributed income of subsidiaries 486 304 537
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME $1,087 $783 $937
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-20
<PAGE> 116
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES [LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,087 $ 783 $ 937
Adjustments to reconcile net income to net cash from operating activities
Equity in undistributed income of subsidiaries (486) (304) (537)
Change in other assets and liabilities 310 62 (67)
Other (82) 15 --
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 829 556 333
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of available-for-sale securities (2,212) -- --
Purchase of subsidiary bank stock (9,005) (3,025) (1,084)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (11,217) (3,025) (1,084)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in:
Subordinated debt -- 755 400
Repayment of note payable (7,815) (2,015) (1,690)
Proceeds from note payable 3,000 3,000 1,000
Notes payable to subsidiary -- -- 105
Payment from (loan to) ESOP, net (21) 46 (122)
Dividends on Series B preferred stock (40) (81) --
Issuance of common stock 15,676 1,137 710
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 10,800 2,842 404
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 412 373 (347)
Cash at beginning of year 388 15 362
- ----------------------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 800 $ 388 $ 15
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-21
<PAGE> 117
May 13, 1998
PROSPECTUS
No dealer, salesperson or other person has been authorized in
connection with any offering made hereby to give any information or to make any
representation other than those contained in this Prospectus and, if given or
made, such information or representation must not be relied upon as having been
authorized by Success Bancshares, Success Capital or any of the Underwriters.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, to any person in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making the offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such an offer or solicitation. Neither the delivery of this Prospectus
nor any sale made hereunder shall create any implication that the information
contained herein is correct as of any date subsequent to the date hereof.
<TABLE>
<CAPTION>
TABLE OF CONTENTS 1,500,000 TRUST PREFERRED SECURITIES
<S> <C> <C>
Page
Prospectus Summary................................. 1
Risk Factors....................................... 10
Use of Proceeds.................................... 19
Market for Trust Preferred Securities.............. 19 SUCCESS CAPITAL TRUST I [LOGO]
Accounting Treatment............................... 19
Capitalization..................................... 20
Selected Consolidated Financial Data .............. 21 8.95% CUMULATIVE TRUST PREFERRED
Management's Discussion and Analysis of SECURITIES
Financial Condition and Results of Operations... 23 (LIQUIDATION AMOUNT $10 PER TRUST
Business........................................... 37 PREFERRED SECURITY)
Supervision and Regulation......................... 43 FULLY AND UNCONDITIONALLY
Management......................................... 49 GUARANTEED, AS DESCRIBED HEREIN, BY
Certain Transactions............................... 54
Principal Shareholders............................. 54
Description of Trust Preferred Securities.......... 55
Description of Junior Subordinated Debentures...... 66
Book-Entry Issuance................................ 74
Description of Guarantee........................... 76
Relationship Among the Trust Preferred
Securities, the Junior Subordinated Debentures
and the Guarantee............................... 78
Certain Federal Income Tax Consequences............ 79
ERISA Considerations............................... 82 SUCCESS BANCSHARES, INC. [LOGO]
Description of Success Bancshares Capital ---------------------
Stock........................................... 83
Underwriting....................................... 87 EVEREN SECURITIES, INC.
Legal Matters...................................... 88
Experts............................................ 88 TUCKER ANTHONY INCORPORATED
Available Information.............................. 88
Financial Statements............................... F-1
</TABLE>
Until 25 days after the date of this Prospectus, all dealers effecting
transactions in the registered securities, whether or not participating in this
offering, may be required to deliver a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
<PAGE> 118
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this offering are as set
forth in the following table.
<TABLE>
<S> <C>
SEC registration fee............................................................ $ 5,088.75
NASD filing fee................................................................. 2,225.00
Nasdaq National Market application fee.......................................... 40,681.51
Trustees' fees and expenses..................................................... 9,000.00
Reimbursable underwriter expenses............................................... 25,000.00
Printing and engraving expenses................................................. 30,000.00
Accounting fees and expenses.................................................... 25,000.00
Legal fees and expenses......................................................... 105,000.00
Miscellaneous................................................................... 18,004.74
------------
Total.................................................................. $ 260,000.00
============
</TABLE>
- ------------------
All amounts except the SEC registration fee, the NASD filing fee, the
Nasdaq National Market application fee and the reimbursable underwriter expenses
are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Success Bancshares is a Delaware corporation. Reference is made to
Section 102(b)(7) of the DGCL, which enables a corporation in its original
certificate of incorporation or an amendment thereto to eliminate or limit the
personal liability of a director for violations of the director's fiduciary
duty, except: (i) for any breach of the director's duty of loyalty to the
corporation or its shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
unlawful payments of dividends or unlawful stock purchases or redemptions) or
(iv) for any transaction from which a director derived an improper personal
benefit.
Reference is also made to Section 145 of the DGCL, which provides that
a corporation may indemnify any person, including an officer or director, who
is, or is threatened to be made, party to any threatened, pending or completed
legal action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such officer,
director, employee or agent acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the corporation's best interest and, for
criminal proceedings, had no reasonable cause to believe that his conduct was
unlawful. A Delaware corporation may indemnify any officer or director in any
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expense that
such officer or director actually and reasonably incurred.
Success Bancshares' Certificate of Incorporation limits the personal
liability of Directors to the fullest extent permitted by Delaware law. In
addition, Success Bancshares' Certificate of Incorporation and By-laws provide
that Success Bancshares shall, to the fullest extent permitted by Delaware law,
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact that he
or she is or was a Director, officer, employee or agent of Success Bancshares or
is or was serving at the request of Success Bancshares as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any
II-1
<PAGE> 119
and all expenses, liabilities or other matters referred to or covered by
Delaware law, which were reasonably incurred by such person. This
indemnification is in addition to any other rights of indemnification to which
such persons may be entitled under Success Bancshares' Certificate of
Incorporation, By-laws, any agreement or notice of shareholders or disinterested
Directors.
Success Bancshares' Certificate of Incorporation and By-laws also
permit it to secure insurance on behalf of any Director, officer, employee or
other agent for any liability arising out of his or her actions in such
capacity, regardless of whether Delaware law, the Certificate of Incorporation
or By-laws would permit indemnification. Success Bancshares does not have any
separate indemnification agreements with its Directors or officers.
The description of Delaware law is not intended to be complete. The
description of Success Bancshares' Certificate of Incorporation and its By-laws
is not intended to be complete and is respectively qualified in its entirety by
such Certificate and By-laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following securities, which were not registered under the
Securities Act, were sold by Success Bancshares during the three-year period
ending April 1, 1998:
(i) Effective July 24, 1997, holders of Success Bancshares' 115,500
outstanding shares of Class A Common Stock, par value $1.00 per share, received
.8749 shares of Success Bancshares' common stock, in exchange for each share of
Class A Common Stock, resulting in the issuance of 101,032 shares of common
stock. This transaction was exempt from registration pursuant to Section 3(a)(9)
of the Securities Act.
(ii) Effective July 24, 1997, holders of Success Bancshares' 53,591
outstanding shares of Series B Convertible Preferred Stock received one share of
Success Bancshares' common stock in exchange for each share of Series B
Convertible Preferred Stock, resulting in the issuance of 53,591 shares of
common stock. This transaction was exempt from registration pursuant to Section
3(a)(9) of the Securities Act.
(iii) A stock split was effected on July 30, 1997 (the "Stock Split"),
pursuant to which holders of Success Bancshares' 725,292 outstanding shares of
common stock received 1.7 shares of common stock in exchange for each share of
common stock, resulting in the issuance of 507,675 shares of common stock. This
transaction was exempt from registration pursuant to Section 3(a)(9) of the
Securities Act.
(iv) In October 1997, holders of $1,815,000 aggregate outstanding
principal amount of Success Bancshares' 9% Convertible Subordinated Debentures
("Debentures"), received one share of Success Bancshares' common stock in
exchange for each $8.58 principal amount of Debentures, resulting in the
issuance of 211,257 shares of common stock. This transaction was exempt from
registration pursuant to Section 3(a)(9) of the Securities Act.
(v) In October 1997, holders of $1,155,000 aggregate outstanding
principal amount of Success Bancshares' Convertible Subordinated Notes
("Notes"), received one share of Success Bancshares' common stock in exchange
for each $12.50 principal amount of Notes, resulting in the issuance of 92,400
shares of common stock. This transaction was exempt from registration pursuant
to Section 3(a)(9) of the Securities Act.
(vi) On January 1, 1997, each member of the Board of Directors of
Success Bancshares and the Bank was granted an option to purchase up to 10,000
shares of Success Bancshares' common stock on or prior to December 31, 1997 at
the book value per share of common stock on the last day of the month prior to
the month in which such option was either fully or partially exercised. In June
1997, however, the Board of Directors of each of Success Bancshares and the Bank
approved a resolution which reduced to 1,000 the number of shares of common
stock for which options granted on January 1, 1997 could be exercised and
changed the expiration date of such options to July 23, 1997. This issuance of
options was exempt from registration pursuant to Section 3(a)(9) of the
Securities Act.
II-2
<PAGE> 120
(vii) Success Bancshares issued and sold 35,307 shares of common stock
at an average exercise price of $7.79 per share (after giving effect to the
Stock Split) to its Directors pursuant to the exercise of stock options granted
as part of its Director Stock Option Program. The shares of common stock were
issued pursuant to the Section 4(2) private placement exemption from the
Securities Act.
(viii) During the period beginning in November 1995, and ended in June
1996, Success Bancshares issued and sold 288.5 Units at a purchase price of
$10,000 per Unit to 21 purchasers. Each Unit consisted of 400 shares of Class A
Common Stock and $4,000 principal amount of 15% or 17% Convertible Subordinated
Notes (264,145 shares of Success Bancshares' common stock after giving effect to
the Stock Split and other transactions described above in this Item 15). The
Units were issued and sold primarily to accredited investors as well as a
limited number of non-accredited investors pursuant to the Section 4(2) private
placement exemption from the Securities Act in accordance with Regulation D
promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
EXHIBIT
NUMBER EXHIBIT TITLE
1.1 Form of Underwriting Agreement.
3.1 Second Restated Certificate of Incorporation of
Success Bancshares (incorporated by reference to
Exhibit 3.1 of Success Bancshares' Form S-1
Registration Statement (No. 333-32561) filed
with the Commission on July 31, 1997).
3.2 By-laws of Success Bancshares (incorporated by
reference to Exhibit 3.2 of Success Bancshares'
Form S-1 Registration Statement (No. 333-32561)
filed with the Commission on July 31, 1997).
4.1 Form of Subordinated Indenture relating to the
Junior Subordinated Debentures (incorporated by
reference to Exhibit 4.1 of the Form S-1
Registration Statement of Success Bancshares and
Success Capital (No. 333-51271 and 333-51271-01)
filed with the Commission on April 28, 1998).
4.2 Form of Junior Subordinated Debenture
Certificate (included as an exhibit to Exhibit
4.1).
4.3 Certificate of Trust of Success Capital
(incorporated by reference to Exhibit 4.3 of the
Form S-1 Registration Statement of Success
Bancshares and Success Capital (No. 333-51271
and 333-51271-01) filed with the Commission on
April 28, 1998).
4.4 Form of Amended and Restated Trust Agreement of
Success Capital (incorporated by reference to
Exhibit 4.4 of the Form S-1 Registration
Statement of Success Bancshares and Success
Capital (No. 333-51271 and 333-51271-01) filed
with the Commission on April 28, 1998).
4.5 Form of Trust Preferred Security Certificate of
Success Capital (included as an exhibit to
Exhibit 4.4).
4.6 Form of Common Security Certificate of Success
Capital (included as an exhibit to Exhibit 4.4).
4.7 Form of Guarantee Agreement of Success
Bancshares relating to the Trust Preferred
Securities (incorporated by reference to Exhibit
4.7 of the Form S-1 Registration Statement of
Success Bancshares and Success Capital (No.
333-51271 and 333-51271-01) filed with the
Commission on April 28, 1998).
II-3
<PAGE> 121
5.1 Opinion of Much Shelist Freed Denenberg Ament
Bell & Rubenstein, P.C.
5.2 Opinion of Morris, Nichols, Arsht & Tunnell.
8.1 Opinion of Much Shelist Freed Denenberg Ament
Bell & Rubenstein, P.C. as to certain federal
income tax matters.
10.1 $10 Million Business Loan Agreement, dated
January 13, 1997, between Success Bancshares and
Cole Taylor Bank (incorporated by reference to
Exhibit 10.1 of Success Bancshares' 1997 Annual
Report on Form 10-K filed with the Commission on
March 31, 1998).
10.2 1995 Success Bancshares, Inc. Employee Stock
Option Plan (incorporated by reference to
Exhibit 10.2 of Success Bancshares' Form S-1
Registration Statement (No. 333-32561) filed
with the Commission on July 31, 1997).
10.3 Employment Agreement between Success Bancshares
and Saul D. Binder (incorporated by reference to
Exhibit 10.3 of Success Bancshares' Form S-1
Registration Statement (No. 333-32561) filed
with the Commission on July 31, 1997).
10.4 Executive Severance Agreement between Success
Bancshares and Steven A. Covert (incorporated by
reference to Exhibit 10.4 of Success Bancshares'
Form S-1 Registration Statement (No. 333-32561)
filed with the Commission on July 31, 1997).
10.5 Lease with respect to Lincolnwood branch banking
facility (October, 1991) (incorporated by
reference to Exhibit 10.5 of Success Bancshares'
Form S-1 Registration Statement (No. 333-32561)
filed with the Commission on July 31, 1997).
10.6 Lease with respect to Lincoln Park branch
banking facility (April, 1993) (incorporated by
reference to Exhibit 10.6 of Success Bancshares'
Form S-1 Registration Statement (No. 333-32561)
filed with the Commission on July 31, 1997).
10.7 Lease with respect to Northbrook branch banking
facility (December, 1994) (incorporated by
reference to Exhibit 10.7 of success
Bancshares' Form S-1 Registration Statement (No.
333-32561) filed with commission on July 31,
1997).
10.8 Lease with respect to Deerfield/Riverwoods
branch banking facility (September, 1995)
(incorporated by reference to Exhibit 10.8 of
Success Bancshares' Form S-1 Registration
Statement (No. 333-32561) filed with the
Commission on July 31, 1997).
21.1 Subsidiaries of Success Bancshares (incorporated
by reference to Exhibit 21.1 of Success
Bancshares' Form S-1 Registration Statement (No.
333-32561) filed with the Commission on July 31,
1997).
23.1 Consent of McGladrey & Pullen LLP (incorporated
by reference to Exhibit 23.1 of the Form S-1
Registration Statement of Success Bancshares and
Success Capital (No. 333-51271 and 333-51271-01)
filed with the Commission on April 28, 1998).
23.2 Consent of Much Shelist Freed Denenberg Ament
Bell & Rubenstein, P.C. (included as part of
Exhibits 5.1 and 8.1).
23.3 Consent of Morris, Nichols, Arsht & Tunnell
(included as part of Exhibit 5.2).
II-4
<PAGE> 122
24.1 Power of Attorney (incorporated by reference to
the signature page of the Registration
Statement on Form S-1 of Success Bancshares
and Success Capital (No. 333-51271 and
333-51271-01) filed with the Commission on
April 28, 1998).
25.1 Form T-1 Statement of Eligibility of Bankers
Trust Company to act as trustee under the
Subordinated Indenture (incorporated by
reference to Exhibit 25.1 of the Form S-1
Registration Statement of Success Bancshares and
Success Capital (No. 333-51271 and 333-51271-01)
filed with the Commission on April 28, 1998).
25.2 Form T-1 Statement of Eligibility of Bankers
Trust (Delaware) to act as trustee under the
Trust Agreement (incorporated by reference to
Exhibit 25.2 of the Form S-1 Registration
Statement of Success Bancshares and Success
Capital (No. 333-51271 and 333-51271-01) filed
with the Commission on April 28, 1998).
25.3 Form T-1 Statement of Eligibility of Bankers
Trust Company to act as trustee under the
Guarantee Agreement (incorporated by reference
to Exhibit 25.3 of the Form S-1 Registration
Statement of Success Bancshares and Success
Capital (No. 333-51271 and 333-51271-01) filed
with the Commission on April 28, 1998).
27.1 Financial Data Schedule (incorporated by
reference to Exhibit 27.1 of the Form S-1
Registration Statement of Success Bancshares and
Success Capital (No. 333-51271 and 333-51271-01)
filed with the Commission on April 28, 1998).
(B) FINANCIAL STATEMENT SCHEDULES.
All Schedules have been omitted as not applicable or not required under
Regulation S-X.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
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 Registrants 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 Act and will be governed by the final
adjudication of such issue.
The Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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 Registrants 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 of 1933, 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.
II-5
<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Amendment No. 2 to Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, State of Illinois, on May 14, 1998.
SUCCESS BANCSHARES, INC.
By: /s/ Saul D. Binder
----------------------------------
Saul D. Binder
President and Chief Executive Officer
SUCCESS CAPITAL I
By: Success Bancshares, Inc.
By: /s/ Saul D. Binder
----------------------------------
Saul D. Binder
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement has been signed on May 14, 1998, by
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURES Title
---------- -----
<S> <C>
/s/ Saul D. Binder President and
- ----------------------------- Chief Executive Officer
Saul D. Binder (Principal Executive Officer)
/s/ Saul D. Binder*
- ----------------------------
Steven A. Covert Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Saul D. Binder* Director
- -----------------------------
Charles G. Freund
/s/ Saul D. Binder* Director
- -----------------------------
Samuel D. Kahan
/s/ Saul D. Binder* Director
- -----------------------------
George M. Ohlhausen
/s/ Saul D. Binder* Director
- -----------------------------
Norman D. Rich
</TABLE>
- --------------------------------
* As their Attorney-in-Fact
II-6
<PAGE> 124
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
1.1 Form of Underwriting Agreement.
3.1 Second Restated Certificate of Incorporation of Success
Bancshares (incorporated by reference to Exhibit 3.1 of
Success Bancshares' Form S-1 Registration Statement (No.
333-32561) filed with the Commission on July 31, 1997).
3.2 By-laws of Success Bancshares (incorporated by reference
to Exhibit 3.2 of Success Bancshares' Form S-1
Registration Statement (No. 333-32561) filed with the
Commission on July 31, 1997).
4.1 Form of Subordinated Indenture relating to the Junior
Subordinated Debentures (incorporated by reference to
Exhibit 4.1 of the Form S-1 Registration Statement of
Success Bancshares and Success Capital (No. 333-51271 and
333-51271-01) filed with the Commission on April 28,
1998).
4.2 Form of Junior Subordinated Debenture Certificate
(included as an exhibit to Exhibit 4.1).
4.3 Certificate of Trust of Success Capital (incorporated by
reference to Exhibit 4.3 of the Form S-1 Registration
Statement of Success Bancshares and Success Capital (No.
333-51271 and 333-51271-01) filed with the Commission on
April 28, 1998).
4.4 Form of Amended and Restated Trust Agreement of Success
Capital (incorporated by reference to Exhibit 4.4 of the
Form S-1 Registration Statement of Success Bancshares and
Success Capital (No. 333-51271 and 333-51271-01) filed
with the Commission on April 28, 1998).
4.5 Form of Trust Preferred Security Certificate of Success
Capital (included as an exhibit to Exhibit 4.4).
4.6 Form of Common Security Certificate of Success Capital
(included as an exhibit to Exhibit 4.4).
4.7 Form of Guarantee Agreement of Success Bancshares relating
to the Trust Preferred Securities (incorporated by
reference to Exhibit 4.7 of the Form S-1 Registration
Statement of Success Bancshares and Success Capital (No.
333-51271 and 333-51271-01) filed with the Commission on
April 28, 1998).
5.1 Opinion of Much Shelist Freed Denenberg Ament Bell &
Rubenstein, P.C.
5.2 Opinion of Morris, Nichols, Arsht & Tunnell.
8.1 Opinion of Much Shelist Freed Denenberg Ament Bell &
Rubenstein, P.C. as to certain federal income tax matters.
10.1 $10 Million Business Loan Agreement, dated January 13,
1997, between Success Bancshares and Cole Taylor Bank
(incorporated by reference to Exhibit 10.1 of Success
Bancshares' 1997 Annual Report on Form 10-K filed with the
Commission on March 31, 1998).
E-1
<PAGE> 125
10.2 1995 Success Bancshares, Inc. Employee Stock Option Plan
(incorporated by reference to Exhibit 10.2 of Success
Bancshares' Form S-1 Registration Statement (No.
333-32561) filed with the Commission on July 31, 1997).
10.3 Employment Agreement between Success Bancshares and Saul
D. Binder (incorporated by reference to Exhibit 10.3 of
Success Bancshares' Form S-1 Registration Statement (No.
333-32561) filed with the Commission on July 31, 1997).
10.4 Executive Severance Agreement between Success Bancshares
and Steven A. Covert (incorporated by reference to Exhibit
10.4 of Success Bancshares' Form S-1 Registration
Statement (No. 333-32561) filed with the Commission on
July 31, 1997).
10.5 Lease with respect to Lincolnwood branch banking facility
(October, 1991) (incorporated by reference to Exhibit 10.5
of Success Bancshares' Form S-1 Registration Statement
(No. 333-32561) filed with the Commission on July 31,
1997).
10.6 Lease with respect to Lincoln Park branch banking facility
(April, 1993) (incorporated by reference to Exhibit 10.6
of Success Bancshares' Form S-1 Registration Statement
(No. 333-32561) filed with the Commission on July 31,
1997).
10.7 Lease with respect to Northbrook branch banking facility
(December, 1994) (incorporated by reference to Exhibit
10.7 of Success Bancshares' Form S-1 Registration
Statement (No. 333-32561) filed with the Commission on
July 31, 1997).
10.8 Lease with respect to Deerfield/Riverwoods branch banking
facility (September, 1995) (incorporated by reference to
Exhibit 10.8 of Success Bancshares' Form S-1 Registration
Statement (No. 333-32561) filed with the Commission on
July 31, 1997).
21.1 Subsidiaries of Success Bancshares (incorporated by
reference to Exhibit 21.1 of Success Bancshares' Form S-1
Registration Statement (No. 333-32561) filed with the
Commission on July 31, 1997).
23.1 Consent of McGladrey & Pullen LLP (incorporated by
reference to Exhibit 23.1 of the Form S-1 Registration
Statement of Success Bancshares and Success Capital (No.
333-51271 and 333-51271-01) filed with the Commission on
April 28, 1998).
23.2 Consent of Much Shelist Freed Denenberg Ament Bell &
Rubenstein, P.C. (included as part of Exhibits 5.1 and
8.1).
23.3 Consent of Morris, Nichols, Arsht & Tunnell (included as
part of Exhibit 5.2).
24.1 Power of Attorney (incorporated by reference to the
signature page of the Registration Statement on Form S-1
of Success Bancshares and Success Capital (No. 333-51271
and 333-51271-01) filed with the Commission on
April 28, 1998).
25.1 Form T-1 Statement of Eligibility of Bankers Trust Company
to act as trustee under the Subordinated Indenture
(incorporated by reference to Exhibit 25.1 of the Form S-1
Registration Statement of Success Bancshares and Success
Capital (No. 333-51271 and 333-51271-01) filed with the
Commission on April 28, 1998).
25.2 Form T-1 Statement of Eligibility of Bankers Trust
(Delaware) to act as trustee under the Trust Agreement
(incorporated by reference to Exhibit 25.2 of the Form S-1
Registration Statement of Success Bancshares and Success
Capital (No. 333-51271 and 333-51271-01) filed with the
Commission on April 28, 1998).
E-2
<PAGE> 126
25.3 Form T-1 Statement of Eligibility of Bankers Trust Company
to act as trustee under the Guarantee Agreement
(incorporated by reference to Exhibit 25.3 of the Form S-1
Registration Statement of Success Bancshares and Success
Capital (No. 333-51271 and 333-51271-01) filed with the
Commission on April 28, 1998).
27.1 Financial Data Schedule (incorporated by reference to
Exhibit 27.1 of the Form S-1 Registration Statement of
Success Bancshares and Success Capital (No. 333-51271 and
333-51271-01) filed with the Commission on April 28,
1998).
E-3
<PAGE> 1
Success Bancshares, Inc.
Success Capital Trust I
1,725,000 % Cumulative Trust Preferred Securities
(Liquidation Amount $10 per Trust Preferred Security)
May _, 1998
UNDERWRITING AGREEMENT
EVEREN Securities, Inc.
Tucker Anthony Incorporated
<PAGE> 2
Success Bancshares, Inc.
Success Capital Trust I
1,725,000 % Cumulative Trust Preferred Securities
(Liquidation Amount $10 per Trust Preferred Security)
UNDERWRITING AGREEMENT
EVEREN Securities, Inc.
May __, 1998
Tucker Anthony Incorporated
Individually and as Representatives of
the Several Underwriters
c/o EVEREN Securities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601-1994
Ladies and Gentlemen:
Success Bancshares, Inc., a Delaware corporation (the "Company"), and its
fiduciary subsidiary, Success Capital Trust I (the "Trust" and, together with
the Company, the "Offerors"), a statutory business trust organized under the
Delaware Business Trust Act (the "Delaware Act"), confirm their agreement with
the several underwriters listed in Schedule I hereto (the "Underwriters"), for
whom EVEREN Securities, Inc. and Tucker Anthony Incorporated have been duly
authorized to act as representatives, with respect to the proposed issuance and
sale by the Trust of its % Cumulative Trust Preferred Securities
(liquidation amount $10 per security) representing undivided beneficial
interests in the assets of the Trust (the "Trust Preferred Securities"). The
Offerors propose that the Trust issue the Trust Preferred Securities pursuant to
an Amended and Restated Trust Agreement among Bankers Trust Company, as property
trustee (the "Property Trustee), Bankers Trust (Delaware), as Delaware trustee
(the "Delaware Trustee"), the administrative trustees named therein (the
"Administrative Trustees") and the Company (the "Trust
<PAGE> 3
Agreement"). The Trust Preferred Securities will be guaranteed by the Company
with respect to distributions and payments upon liquidation, redemption and
otherwise (the "Guarantee") pursuant to a Guarantee Agreement (the "Guarantee
Agreement") between the Company and Bankers Trust Company, as trustee (the
"Guarantee Trustee"). The proceeds of the sale of the Trust Preferred
Securities will be combined with the proceeds from the sale by the Trust to the
Company of the Trust's common securities (the "Common Securities") and will be
used to purchase junior subordinated deferrable interest debentures (the
"Junior Subordinated Debentures") issued by the Company pursuant to an
Indenture ("Indenture") between the Company and Bankers Trust Company, as
trustee (the "Indenture Trustee"). The Offerors hereby confirm their respective
agreements with the Underwriters as follows:
1. The Trust Preferred Securities. The 1,500,000 Trust Preferred
Securities proposed to be sold by the Trust are hereinafter referred to as the
"Firm Securities." The Trust also proposes to grant to the Underwriters an
option to purchase up to 225,000 additional Trust Preferred Securities (the
"Additional Securities") if requested by the Underwriters as provided in
Section 3 hereof. The Firm Securities and the Additional Securities are herein
collectively called the "Securities. "
2. Registration Statement and Prospectus. The Offerors have prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations (the "Rules and Regulations") of the Commission
thereunder (collectively, the "Act"), and the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act")' a registration statement on Form S-1 (File
Nos. 333-51271 and 333-51271-01) including a prospectus, relating to the
Securities, the Junior Subordinated Debentures and the Guarantee, that may have
been amended; each such amendment was so prepared and filed. The registration
statement, as amended at the time when it became or becomes effective,
including all financial schedules and exhibits thereto and all of the
information (if any) deemed to be part of the registration statement at the
time of its effectiveness pursuant to Rule 430A under the Act ("Rule 430A"), is
hereinafter referred to as the "Registration Statement"; the prospectus in the
form first provided to the Underwriters by the Offerors in connection with the
offering and sale of the Securities (whether or not required to be filed
pursuant to Rule 424(b) under the Act ("Rule 424(b)")) is hereinafter referred
to as the "Prospectus," except that if any revised prospectus shall be provided
to the Underwriters by the Offerors for use in connection with the offering of
the Securities that differs from the Prospectus (whether or not any such
revised prospectus is required to be filed by the Offerors pursuant to Rule
424(b)), the term "Prospectus" shall refer to the revised prospectus from and
after the time it is first provided to the
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<PAGE> 4
Underwriters for such use; and each preliminary prospectus included in the
Registration Statement prior to the time it became or becomes effective is
herein referred to as a "Preliminary Prospectus."
3. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to the
terms and conditions hereof, (i) the Trust agrees to issue and sell to the
Underwriters, at a price of $10.00 per Security (the "Purchase Price"),
1,500,000 Firm Securities; and (ii) each Underwriter agrees, severally and not
jointly, to purchase from the Trust, at the Purchase Price, the aggregate
number of Firm Securities set forth opposite the name of such Underwriter in
Schedule I hereto. As compensation to the Underwriters for their commitments
hereunder and in view of the fact that the proceeds of the sale of the
Securities (together with the proceeds from the sale by the Trust to the
Company of the Common Securities) will be used to purchase the Junior
Subordinated Debentures, the Company will agree to pay at the Closing Date to
the Underwriters a commission per Security equal to $0.40 per Security, or
$600,000 in the aggregate ($690,000 if the over-allotment option with respect
to the Additional Securities is exercised in full).
On the basis of the representations and warranties contained in this
Agreement, and subject to the terms and conditions hereof, (i) the Trust agrees
to sell to the Underwriters, at the Purchase Price, up to 225,000 Additional
Securities; and (ii) the Underwriters shall have the right to purchase,
severally and not jointly, from time to time, up to an aggregate of 225,000
Additional Securities at the Purchase Price. Additional Securities may be
purchased as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Securities. If
any Additional Securities are to be purchased, each Underwriter, severally and
not jointly, agrees to purchase the number of Additional Securities that bears
the same proportion to the total number of Additional Securities to be
purchased as the number of Firm Securities set forth opposite the name of such
Underwriter in Schedule I bears to the total number of Firm Securities.
4. Agreements of the Offerors as to Delivery and Payment. The Offerors
agree with each Underwriter that:
(a) Delivery to the Underwriters of, and payment to the Trust for, the
Firm Securities shall be made at 10:00 A.M., Chicago time, on the third (or if
the Firm Securities are priced, as contemplated by Rule 15c6-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), after 4:30
p.m. Eastern time, on the fourth) full business day (such time and date being
referred to as the "Closing Date") following the date of the initial public
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<PAGE> 5
offering of the Firm Securities as advised to you by the Company, at such place
as you shall designate.
(b) Delivery to the Underwriters of and payment for any
Additional Securities to be purchased by the Underwriters shall be made
at such place as you shall designate, at 10:00 A.M., Chicago time, on
such date or dates (individually, an "Option Closing Date" and collectively,
the "Option Closing Dates"), which may be the same as the Closing Date but
shall in no event be earlier than the Closing Date, as shall be specified in
a written notice from you to the Offerors of the Underwriters' determination
to purchase a number, specified in said notice, of Additional Securities. Any
such notice may be given at any time within 30 days after the date of this
Agreement.
(c) The Securities will be delivered by the Trust to the
Underwriters on the Closing Date or the applicable Option Closing Date against
payment of the Purchase Price therefor by certified or official bank check or
wire transfer of next-day funds payable to the order of the Trust to an account
designated by the Trust. Delivery of the Securities may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by you. Certificates representing the Securities, in
definitive form and in such denominations and registered in such names as
you may request in writing not less than two business days prior to the
Closing Date or the applicable Option Closing Date notice to the Offerors
shall be prepared and will be made available for inspection not later than
9:30 A.M., Chicago time, on the business day next preceding the Closing Date
or the applicable Option Closing Date, with any transfer taxes payable
upon initial issuance or the transfer thereof duly paid by the Company for
the respective accounts of the Underwriters against payment of the Purchase
Price therefor.
5. Further Agreements of the Offerors. The Offerors also agree with each
Underwriter that:
(a) they will, if the Registration Statement has not heretofore become
effective under the Act, file an amendment to the Registration Statement or,
if necessary pursuant to Rule 430A under the Act, a post-effective amendment
to the Registration Statement, as soon as practicable after the
execution and delivery of this Agreement, and will use their best efforts to
cause the Registration Statement or such post-effective amendment to become
effective at the earliest possible time; and the Offerors will comply fully and
in a timely manner with the applicable provisions of Rule 424(b) and Rule
430A under the Act;
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<PAGE> 6
(b) they will advise you promptly and, if requested by you, confirm
such advice in writing, (i) when the Registration Statement has become
effective, if and when the Prospectus is sent for filing pursuant to Rule 424
under the Act and when any post-effective amendment to the Registration
Statement becomes effective, (ii) of the receipt of any comments from the
Commission that relate to the Registration Statement or requests by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement, or of the suspension of qualification of the
Securities for offering or sale in any jurisdiction, or the initiation or, to
the best knowledge of the Offerors, threat of any proceedings for such
purpose by the Commission or any state securities commission or other
regulatory authority, and (iv) of the happening of any event or information
becoming known during the period referred to in paragraph (e) below that makes
any statement of a material fact made in the Registration Statement untrue or
that requires the making of any additions to or changes in the Registration
Statement (as amended or supplemented from time to time) in order to make the
statements therein not misleading or that makes any statement of a material
fact made in the Prospectus (as amended or supplemented from time to time)
untrue or that requires the making of any additions to or changes in the
Prospectus (as amended or supplemented from time to time) in order to make the
statements therein, not misleading; if at any time the Commission shall issue
or institute proceedings (or threaten to institute any such proceedings) to
issue any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory authority
shall issue or institute proceedings (or threaten to institute proceedings) to
issue an order suspending the qualification or exemption of the Securities
under any state securities or blue sky laws, the Offerors shall use best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time;
(c) they will furnish to you without charge one signed copy of the
Registration Statement as first filed with the Commission and of each amendment
to it, including all exhibits filed therewith, and will furnish to you and each
Underwriter designated by you such number of conformed copies of the
Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request;
(d) they will not file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective, or make
any amendment or supplement to the Prospectus of which you shall not previously
have been advised and provided a copy a reasonable
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<PAGE> 7
period of time prior to the filing thereof or to which you or your counsel
shall reasonably object, and they will prepare and file with the Commission,
promptly upon your reasonable request, any amendment to the Registration
Statement or supplement to the Prospectus that may be necessary or advisable in
connection with the distribution of the Securities by you in your or your
counsel's opinion, and will use best efforts to cause the same to become
effective as promptly as possible;
(e) promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as a prospectus is required by the
Act to be delivered in connection with the sales by an underwriter or a dealer
(in the opinion of your counsel), they will furnish to each Underwriter and
dealer without charge as many copies of the Prospectus (and any amendment or
supplement of the Prospectus) as such Underwriter or dealer may reasonably
request for the purposes contemplated by the Act, and the Offerors consent to
the use of the Prospectus and any amendment or supplement thereto by any
Underwriter or any dealer, both in connection with the offering or sale of the
Securities and for such period of time thereafter as the Prospectus is required
by the Act to be delivered in connection therewith;
(f) if during the period specified in paragraph (e) any event shall
occur or information become known as a result of which in the reasonable good
faith opinion of your counsel it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in light of the
circumstances existing as of the date the Prospectus is delivered to a
purchaser, not misleading, or it is necessary to amend or supplement the
Prospectus to comply with any law, forthwith to prepare and, subject to
paragraph 5(d) above, they will file with the Commission at the sole expense of
the Company an appropriate amendment or supplement to the Prospectus so that
the statements of any material facts in the Prospectus, as so amended and
supplemented, will not in light of the circumstances when it is so delivered,
be misleading, or so that the Prospectus will comply with law and it will
furnish to the Underwriters and to such dealers as the Underwriters shall
specify, at the sole expense of the Company, such number of copies thereof as
such Underwriters or dealers may reasonably request;
(g) prior to any public offering of the Securities, it will cooperate
with you and counsel for the Underwriters in connection with the registration
or qualification of the Securities for offer and sale by the several
Underwriters and by dealers under the state securities or blue sky laws of such
jurisdictions as you may reasonably request (provided that the Offerors shall
not be obligated to qualify as foreign corporations in any jurisdiction in
which they are
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<PAGE> 8
not so qualified or to take any action which would subject them to general
consent to service of process in any jurisdiction in which they are not now so
subject), and the Offerors will continue such qualification in effect so long
as required by law for the distribution of the Securities and will file such
consents to service of process or other documents as may be necessary in order
to effect such registration or qualification (provided that the Offerors shall
not be obligated to take any action that would subject it to general consent to
service of process in any jurisdiction in which they are not now so subject);
(h) they will not, prior to the exercise in full or termination or
expiration of the option to purchase the Option Securities, incur any material
liability or obligation, direct or contingent, or enter into any material
transaction, other than in the ordinary course of business, except as
contemplated by the Prospectus;
(i) they will mail and make generally available to their security
holders and furnish to the Underwriters as soon as reasonably practicable a
consolidated earnings statement covering a period of at least 12 months
beginning after the "effective date" (as defined in Rule 158 under the Act) of
the Registration Statement (but in no event commencing later than 90 days after
such date) that will satisfy the provisions of Section 11 (a) of the Act and
Rule 158 thereunder, and will advise you in writing when such statement has
been made so available;
(j) during the period of three years after the date of this
Agreement, they will furnish to you a copy (i) as soon as practicable after the
filing thereof, of each report filed by either of the Offerors with the
Commission, any securities exchange or the National Association of Securities
Dealers, Inc. ("NASD"); (ii) as soon as practicable after the release thereof,
of each material press release in respect of either of the Offerors; (iii) as
soon as available, of each report of the Company mailed to shareholders; and
(iv) as soon as available, such other publicly available information concerning
the Offerors as you may reasonably request;
(k) whether or not the transactions contemplated hereby are
consummated or this Agreement becomes effective as to all of its provisions or
is terminated, to pay all costs, fees and expenses incident to the performance
by the Offerors of their obligations hereunder, including (i) the preparation,
printing, filing and distribution under the Act of the Registration Statement
(including financial statements and exhibits), each Preliminary Prospectus and
all amendments and supplements to any of them prior to or during the period
specified in paragraph (e) above of this Section 5, (ii) the
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<PAGE> 9
word processing, reproduction and distribution of this Agreement, the
Blue Sky Survey and any other agreements, memoranda, correspondence and other
documents prepared and delivered by the Underwriters or their counsel in
connection with the offering of the Securities (including in each case any
disbursements of counsel for the Underwriters relating to such preparation and
delivery), (iii) the registration or qualification of the Securities for offer
and sale under the securities or blue sky laws of the several states, including
in each case the fees and disbursements of counsel for the Underwriters,
relating to such registration or qualification and memoranda relating thereto,
(iv) filings and clearance with the NASD in connection with the offering and
sale of the Securities, (v) the listing of the Securities on the Nasdaq
National Market ("Nasdaq"), (vi) furnishing such copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus and all amendments and
supplements thereto as may be requested for use in connection with the offering
or sale of the Securities by the Underwriters or by dealers to whom the
Securities may be sold, (vii) obtaining the opinions to be provided pursuant to
Sections 8(f), 8(g) and 8(h) of this Agreement and (viii) the performance by
the Offerors of all of their other obligations under this Agreement; if the
sale of the Securities provided for herein is not consummated because the
Underwriters exercise their right to terminate this Agreement pursuant to
Section 9 hereof and any of the following have occurred during the term of
this Agreement: (a) there has been any material adverse change in the
condition (financial or otherwise), earnings, affairs, business or prospects
of the Company, or (b) either Offeror shall refuse or be unable to comply with
any provision hereof (except as the result of a breach of this Agreement by
the Underwriters), the Company will promptly reimburse the Underwriters upon
demand for all reasonable out-of-pocket expenses (including the fees and
disbursements of counsel for the Underwriters), not to exceed $25,000 in the
aggregate, that shall have been incurred by the Underwriters in connection with
the proposed purchase and sale of Securities;
(l) they will use the net proceeds received by them from the sale of
the Securities and the Junior Subordinated Debentures in the manner specified
in the Prospectus and will file such reports with the Commission with respect
to the application of the proceeds therefrom as may be required in accordance
with Rule 463 under the Act and will furnish you copies of any such reports as
soon as practicable after the filing thereof;
(m) if, at the time of effectiveness of the Registration Statement,
any information shall have been omitted therefrom in reliance upon Rule 430A,
then immediately following the execution and delivery of this Agreement, they
will prepare, and file or transmit for filing with the Commission in accordance
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<PAGE> 10
with such Rule 430A and Rule 424(b), copies of an amended prospectus, or, if
required by such Rule 430A, a post-effective amendment to the Registration
Statement (including an amended prospectus), containing all information so
omitted;
(n) they will use best efforts to cause the Securities to be listed,
subject to notice of issuance or sale, on Nasdaq and will comply with all
registration, filing and reporting requirements of Nasdaq;
(o) they will not take, directly or indirectly, any action designed to
or which might reasonably be expected to cause or result in the stabilization
or manipulation of the price of any security of either Offeror to facilitate
the sale or resale of the Securities;
(p) they will inform the Florida Department of Banking and Finance at
any time prior to the consummation of the distribution of the Securities by the
Underwriters if either of them commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba, with such
information to be provided within 90 days after the commencement thereof or
after a change occurs with respect to previously reported information; and
(q) they will use its best efforts to do and perform all things
required to be done and performed under this Agreement by them prior to or
after the Closing Date or any Option Closing Date, as the case may be, and to
satisfy all conditions precedent to the delivery of the Securities.
6. Representations and Warranties.
(a) The Offerors jointly and severally represent and warrant to, and
agree with, each Underwriter as of the date hereof, the Closing Date and each
Option Closing Date (except for such representations that are specified as
being made as of a particular date) as follows:
(i) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus relating to the proposed
offering of the Securities nor instituted or threatened any proceedings
for that purpose. The Registration Statement, on the date it was or is
declared effective by the Commission, each Preliminary Prospectus, on the
date of the filing thereof with the Commission, and the Prospectus and
any amendment or supplement thereto, on the date of filing thereof with
the Commission (or if not filed, on the date provided by the Offerors to
the Underwriters in connection with the
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offering and sale of the securities) and at the Closing Date and each Option
Closing Date conformed or will conform in all material respects with the
requirements of the Act, the Rules and Regulations and the Trust Indenture Act
and the rules and regulations thereunder. The Registration Statement, on the
date it was or is declared effective by the Commission, upon the filing or
first delivery to the Underwriters of the Prospectus (or any supplement to the
Prospectus (including any term sheet meeting the requirements of Rule 434 of
the Rules and Regulations) and at the Closing Date and each Option Closing Date
did not or will not contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; each Preliminary Prospectus; and on the date of the filing
thereof with the Commission, and the Prospectus and any amendment or supplement
thereto, on the date of filing thereof with the Commission (or if not filed, on
the date provided by the Offerors to the Underwriters in connection with the
offering and sale of the Securities) and at the Closing Date and each Option
Closing Date did not and will not include an untrue statement of material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; provided that the foregoing shall not apply to
statements in or omissions from the Registration Statement and the Prospectus
made or omitted in reliance upon, and in conformity with, information relating
to the Underwriters furnished in writing to the Offerors by or on behalf of the
Underwriters with your consent expressly for use therein. The Offerors hereby
acknowledge for all purposes under this Agreement that (A) the statements set
forth under the caption "Underwriting" in the Prospectus and (B) the
stabilization legend on the gate-fold of the Prospectus constitute the only
written information furnished to the Offerors by or on behalf of the
Underwriters for use in the preparation of the Registration Statement or the
Prospectus or any amendment or supplement thereto.
(ii) The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of Delaware and is duly registered
as a bank holding company under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"), supervised by the Board of Governors of the Federal
Reserve System (the "FRB"). The Trust, Success National Bank, a national
banking association chartered under the federal laws of the United States (the
"Bank"), and Success Realty Ventures, Inc., a Delaware corporation (each of the
Bank and
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Success Realty Ventures, Inc., a "Subsidiary" and, collectively, the
"Subsidiaries") constitute the only subsidiaries of the Company. Each
Subsidiary has been duly organized and is validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization, as the
case may be. Each of the Company and its Subsidiaries has full power and
authority, corporate or otherwise, to own or lease its properties and assets
and to conduct its business as described in the Registration Statement and the
Prospectus and is duly qualified to do business and in good standing in each
jurisdiction in which it owns or leases real property or in which the conduct
of its business or the ownership or leasing of property requires such
qualification, except where the failure to be so qualified, either individually
or in the aggregate, would not have a material adverse effect on the condition
(financial or otherwise), business, assets, prospects, net worth or results of
operations of the Trust, the Company and the Subsidiaries, taken as a whole (a
"Material Adverse Effect"). Other than the Trust and the Subsidiaries, the
Company does not have any "significant subsidiaries" as defined in Rule 1-02 of
Regulation S-X under the Act. The accounts of the Bank are insured by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation (the "FDIC") up to
the maximum applicable amount in accordance with the rules and regulations of
the FDIC, and no proceedings for the termination or revocation of such
membership or insurance are pending, or to the best knowledge of the Offerors,
threatened.
(iii) The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Act with full trust power and
authority to own property and to conduct its business as described in the
Registration Statement and Prospectus and to enter into and perform its
obligations under this Agreement, the Securities, the Common Securities and the
Trust Agreement and is authorized to do business in each jurisdiction in which
such qualification is required, except where the failure to so qualify would
not have a Material Adverse Effect. The Trust has conducted and will conduct no
business other than the transactions contemplated by the Trust Agreement and
described in the Prospectus. The Trust is not a party to or otherwise bound by
any agreement other than those described in the Prospectus. The Trust is and
will be classified for United States federal income tax purposes as a grantor
trust and not as an association taxable as a corporation.
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(iv) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and Prospectus, (A) none of the Offerors or the Subsidiaries has incurred any
material liabilities or obligations, direct or contingent, or entered into any
material transactions not in the ordinary course of business, nor purchased any
of its outstanding capital stock or declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock or otherwise, and (B)
there has not been any material adverse change in either Offeror's or any
Subsidiary's condition (financial or otherwise), business, affairs, prospects
or results of operations or any material change in their respective capital
stock, shortterm debt or long-term debt.
(v) The Junior Subordinated Debentures have been duly authorized by
the Company and at the Closing Date will have been duly executed by the Company
and, when authenticated in the manner provided in the Indenture and delivered
against payment therefor as described in the Prospectus, will constitute valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as enforceability of the same may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general equity principles,
will be in the form contemplated by, and entitled to the benefits of, the
Indenture and will conform in all material respects to the statements relating
thereto in the Prospectus.
(vi) The Common Securities have been duly authorized by the Trust and,
when issued and delivered by the Trust to the Company against payment therefor
as described in the Registration Statement and Prospectus, will be validly
issued and (subject to the terms of the Trust Agreement) fully paid and
nonassessable undivided beneficial interests in the assets of the Trust and
will conform in all material respects to all statements relating thereto
contained in the Prospectus. The issuance of the Common Securities is not
subject to preemptive or other similar rights. At the Closing Date all of the
issued and outstanding Common Securities of the trust will be directly owned by
the Company free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity.
(vii) The Securities have been duly authorized by the Trust Agreement
and, when issued and delivered pursuant to this Agreement against payment of
the consideration set forth herein, will be validly
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issued and fully paid and non-assessable undivided beneficial interests in the
Trust, will be entitled to the benefits of the Trust Agreement and will in all
material respects conform to the statements relating thereto contained in the
Prospectus. The issuance of the Securities is not subject to preemptive or
other similar rights. Holders of Securities will be entitled to the same
limitation of personal liability under Delaware law as extended to stockholders
of a private corporation for profit.
(viii) Each of this Agreement, the Indenture, the Trust Agreement and
the Guarantee Agreement has been duly authorized, executed and delivered by the
Company and/or the Trust, as the case may be, and constitutes a legal, valid
and binding obligation of the Company and/or the Trust, as the case may be,
enforceable in accordance with its terms, except as enforceability of the same
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and by general equity
principles. Each Offeror has full power and authority to enter into this
Agreement, the Indenture, the Trust Agreement and the Guarantee Agreement, as
the case may be, and, in the case of the Trust, to authorize, issue and sell
the Securities as contemplated by this Agreement, and each of the Indenture,
the Trust Agreement and the Guarantee Agreement has been duly qualified under
the Trust Indenture Act and will conform in all material respects to the
statements relating thereto in the Registration Statement and the Prospectus.
(ix) Neither the Company nor any Subsidiary is in violation of its
respective charter or by-laws. The Trust is not in violation of the Trust
Agreement or its certificate of trust filed with the State of Delaware on April
21, 1998 (the "Certificate of Trust"). Neither Offeror nor any Subsidiary is in
violation of or in breach of or in default in (nor has any event occurred that
with notice or lapse of time, or both, would be a breach of or a default in)
the performance of any obligation, agreement or condition contained in any
material agreement, lease, contract, permit, license, franchise agreement,
mortgage, loan agreement, debenture, note, deed of trust, bond, indenture or
other evidence of indebtedness or any other instrument or obligation
(collectively, "Obligations and Instruments") to which any of them is a party
or by which any of them or any of their respective properties or assets is
bound or affected (except for such contravention or default as would not have a
Material Adverse Effect). Neither Offeror nor any Subsidiary is in violation of
any statute, judgment, decree, order, rule or regulation (collectively, "Laws")
applicable to any of them or any of their
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<PAGE> 15
respective properties or assets that, alone, or together with other violations
of Laws would result in a Material Adverse Effect. To the best knowledge of the
Offerors, no other party under any contract or other agreement to which either
Offeror or any Subsidiary is a party is in material default thereunder except
for such defaults as would not individually or in the aggregate result in a
Material Adverse Effect.
(x) The execution, delivery and performance of this Agreement, the
Indenture, the Trust Agreement and the Guarantee Agreement and the consummation
of the transactions contemplated hereby or thereby will not, alone or upon
notice or the passage of time or both, (A) require any consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body or third party (except such as may be
required under the Act and the securities or blue sky laws of the various
states or by the NASD), (B) result in the creation or imposition of any lien,
charge or encumbrance upon any of the properties or assets of either Offeror
pursuant to the terms and provisions of any Obligation or Instrument, (C)
conflict with or constitute a breach or default under any Obligation or
Instrument to which either Offeror is a party or by which either of them or any
of their respective properties or assets is bound (except for such creation,
conflict, breach or default as would not have a Material Adverse Effect), or
conflict with or result in a breach or violation of any of the terms and
provisions of the Company's charter or by-laws, the Trust's Trust Agreement or
its Certificate of Trust, or (D) assuming compliance with the Act and all
applicable state securities or Blue Sky laws, violate or conflict with any Laws
applicable to the Company or any of its properties or assets (except for such
violation or conflict as could not have a Material Adverse Effect). No action,
suit or proceeding before any court or arbitrator or any governmental body,
agency or official (domestic or foreign) is pending against or, to the best
knowledge of the Offerors, threatened against either Offeror, that, if
adversely determined, could reasonably be expected to in any manner invalidate
this Agreement, the Indenture, the Trust Agreement or the Guarantee Agreement.
(xi) Except as set forth in the Prospectus, there is no action, suit,
proceeding, inquiry or investigation, governmental or otherwise before any
court, arbitrator or governmental agency or body (collectively, "Proceedings")
pending to which either Offeror or any Subsidiary is a party or to which any of
their respective properties or assets are subject, that, if determined
adversely to them, might result in
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a Material Adverse Effect, or that seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge the issuance or sale of any of the
Securities to be sold hereunder, and, to the best knowledge of the Offerors, no
such Proceedings are threatened or contemplated.
(xii) There is no contract, document, agreement or transaction to
which either Offeror or any Subsidiary is a party, or that involved or involves
any of them or any of their respective properties or assets that is required to
be described in or filed as exhibits to the Registration Statement or the
Prospectus by the Act or the Rules and Regulations that have not been so
described or filed.
(xiii) No action has been taken with respect to either Offeror, and,
to the best knowledge of the Offerors, no statute, rule, regulation or order
has been enacted, adopted or issued by any governmental agency that suspends
the effectiveness of the Registration Statement, prevents or suspends the use
of any Preliminary Prospectus or the Prospectus or suspends the sale of the
Securities in any jurisdiction referred to in Section 5(g) hereof. No
injunction, restraining order or order of any nature by a federal or state
court of competent jurisdiction has been issued with respect to either Offeror
that might prevent the issuance of the Securities, suspend the effectiveness of
the Registration Statement, prevent or suspend the use of any Preliminary
Prospectus or the Prospectus or suspend the sale of the Securities in any
jurisdiction referred to in Section 5(g) hereof; and every request of the
Commission, or any securities authority or agency of any jurisdiction, for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) has been complied with in all material respects.
(xiv) All of the issued and outstanding shares of capital stock of the
Company are duly authorized and are validly issued, fully paid and
non-assessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the holders
thereof are not subject to personal liability by reason of being such holders.
The capital stock of the Company conforms to the description thereof in the
Registration Statement and Prospectus under the caption "Capitalization."
Except as otherwise stated in the Registration Statement and Prospectus, there
are no preemptive rights or other rights to subscribe for or to purchase, or
any restriction upon the voting or transfer of, any shares of the Company's
capital stock
<PAGE> 17
pursuant to the Company's charter, by-laws or any agreement or other instrument
to which the Company is a party to by which the Company is bound. Neither the
filing of the Registration Statement nor the offering or sale of the Junior
Subordinated Debentures or Securities as contemplated by this Agreement gives
rise to any rights for or relating to the registration of any shares of capital
stock of the Company. All of the issued and outstanding shares of capital stock
of each Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and except as set forth on Schedule 11 hereto,
the Company owns of record and beneficially, free and clear of any securities
interests, claims, liens, proxies, equities or other encumbrances, all of the
issued and outstanding shares of such stock. Except as described in the
Registration Statement and the Prospectus, there are no options, warrants,
agreements, contracts or other rights in existence to purchase or acquire from
the Company or any Subsidiary any shares of the capital stock of the Company or
such Subsidiary.
(xv) The Indenture, the Trust Agreement and the Guarantee Agreement
are in substantially the respective forms filed as exhibits to the Registration
Statement.
(xvi) The Company's obligations under the Guarantee are subordinated
and junior in right of payment to all "Senior and Subordinated Debt" (as
defined in the Indenture) of the Company.
(xvii) The Junior Subordinated Debentures are subordinate and junior
in right of payment to all "Senior and Subordinated Debt" of the Company.
(xviii) Each of the Administrative Trustees is an employee of the
Company and has been duly authorized by the Company to execute and deliver the
Trust Agreement.
(xix) Neither Offeror nor any Subsidiary has violated any foreign,
federal, state or local law or regulation relating to the protection of human
health and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws") that, in each case or in the
aggregate, might result in a Material Adverse Effect. To the best knowledge of
the Offerors, none of the property owned or leased by either Offeror or any
Subsidiary is contaminated with any waste or hazardous substances, nor, to the
best knowledge of the Offerors, may either Offeror or any Subsidiary be
<PAGE> 18
deemed an "owner or operator" of a "facility" or "vessel" that owns, possesses,
transports, generates, discharges or disposes of a "hazardous substance" as
those terms are defined in Sections 9601 of the Comprehensive Response Compen-
sation and Liability Act of 1980, U.S.C. Sections 9601 et seq.
(xx) Each of the Company and the Subsidiaries is in compliance in all
material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). No "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) which could have a material adverse effect on the general
affairs, management, financial position stockholders' equity or results of
operations of the Company and its Subsidiaries for which the Company or any
Subsidiary would have any liability. Neither the Company nor any Subsidiary has
incurred or expects to incur liability under (A) Title IV of ERISA with respect
to termination of, or withdrawal from, any "pension plan," or (B) Sections 412
or 4971 of the Internal Revenue Code or 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"), in each case
which could have a Material Adverse Effect. Each "pension plan" for which the
Company or any Subsidiary would have any liability that is intended to be
qualified under Section 501 (a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification, except for such losses as
would not have a Material Adverse Effect.
(xxi) The Offerors and the Subsidiaries hold such permits, licenses,
franchises and authorizations of governmental or regulatory authorities or
third parties ("Permits"), including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease and operate their respective
properties and assets and to conduct their respective businesses, except where
the failure to have any such Permit would not have a Material Adverse Effect.
To the best knowledge of the Offerors, the Offerors and the Subsidiaries have
fulfilled and performed all of their respective material obligations with
respect to such Permits, and no event has occurred that allows, or after notice
or lapse of time or both, would allow revocation or termination thereof or
result in any other material impairment of the rights of the holder of any such
Permit.
<PAGE> 19
(xxii) Neither of the Offerors nor any Subsidiary is an "investment
company", a company "controlled" by an "investment company" or an "investment
adviser" within the meaning of the Investment Company Act of 1940, as amended
(the "Investment Company Act").
(xxiii) The Offerors and the Subsidiaries have good and marketable
title, free and clear of all liens, claims, encumbrances and restrictions
(except liens for taxes not yet due and payable) to all property and assets
described in the Registration Statement as being owned by them, except as
described or referred to in the Prospectus or as would not have a Material
Adverse Effect. All leases to which either Offeror or any Subsidiary is a party
and which are material to the Company and the Subsidiaries on a consolidated
basis are subsisting, valid and binding and no default of such Offeror or
Subsidiary or, to the best knowledge of the Offerors, any other person has
occurred or is continuing thereunder that might result in a Material Adverse
Effect. Such Offeror or Subsidiary enjoys peaceful and undisturbed possession
under all such leases to which they are a party as lessee with such exceptions
as do not materially interfere with the use made thereof by such Offeror or
Subsidiary.
(xxiv) The Offerors and the Subsidiaries maintain reasonably adequate
insurance for the conduct of their respective businesses in accordance with
prudent business practices with reputable third-party insurers.
(xxv) McGladrey & Pullen LLP, the accounting firm that has certified
or reviewed, or shall certify or review, the financial statements and
supporting schedules filed or to be filed with the Commission as part of the
Registration Statement and the Prospectus, is an independent public accounting
firm with respect to the Trust, the Company and the Subsidiaries as required by
the Act.
(xxvi) The consolidated financial statements of the Company, together
with related notes and schedules of the Company included in the Registration
Statement and the Prospectus, comply in all material respects with the
requirements of the Act and the Exchange Act, are accurate and present fairly
the financial position, results of operations and cash flows of the Company at
the indicated dates and for the indicated periods. Such financial statements of
have been prepared in accordance with generally accepted accounting principles
("GAAP")
<PAGE> 20
consistently applied throughout the periods involved except as otherwise
disclosed therein, and all adjustments necessary for a fair presentation of
results for such periods have been made. The summary and selected financial and
operating data included in the Registration Statement and the Prospectus
present fairly the information shown therein and have been compiled on a basis
consistent with the audited financial statements included therein except as
otherwise disclosed therein.
(xxvii) No holder of any security of either Offeror has any right to
require inclusion of any such security in the Registration Statement. There are
no preemptive rights with respect to the offering being made by the Prospectus.
(xxviii) No labor dispute with the employees of either Offeror or any
Subsidiary exists, or to the best knowledge of the Offerors, is imminent, that
could result in a Material Adverse Effect.
(xxix) Each of the Offerors and each Subsidiary has filed or caused to
be filed, or has properly filed extensions for, all foreign, federal, state and
local income, value added and franchise tax returns and has paid all taxes and
assessments shown thereon as due, except for such taxes and assessments as are
disclosed or adequately reserved against and that are being contested in good
faith by appropriate proceedings, promptly instituted and diligently conducted.
All material tax liabilities are adequately provided for on the books of the
such Offeror or Subsidiary, and there is no material tax deficiency that has
been or might be asserted against any of them that is not so provided for.
(xxx) The Offerors and the Subsidiaries own or possess, or can acquire
on reasonable terms, the patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names (collectively, "Patents and
Proprietary Rights") currently employed by them in connection with the
businesses they now operate except where the failure to so own, possess or
acquire such Patents and Proprietary Rights would not have a Material Adverse
Effect. Neither of the Offerors nor any Subsidiary has received any notice or
is otherwise aware of any infringement of or conflict with asserted rights of
others with respect to any Patent or Proprietary Rights that, if the subject of
<PAGE> 21
any unfavorable decision, ruling or finding, singly or in the aggregate, could
result in a Material Adverse Effect.
(xxx)) Each Offeror and each Subsidiary is conducting and intends to
conduct its business so as to comply in all material respects with applicable
federal, state, local and foreign government Laws, except where the failure to
comply would not have a Material Adverse Effect. Except as set forth in the
Registration Statement and the Prospectus, neither of the Offerors nor any
Subsidiary is charged with or, to the best knowledge of the Offerors, under
investigation with respect to, any material violation of any such Laws.
(xxxii) Neither Offeror has taken or will take, directly or
indirectly, any action designed to or which has constituted or that might
reasonably be expected to cause or result, under the Exchange Act or otherwise,
in stabilization or manipulation of the price of any security of either Offeror
to facilitate the sale or resale of the Securities.
(xxxiii) None of the Offerors, any Subsidiary nor, to the best
knowledge of the Offerors, any employee or agent of any of them has made any
payment of funds of such Offeror or Subsidiary or received has retained any
funds in violation of any Law, rule or regulation (including, without
limitation, the Foreign Corrupt Practices Act) or of a character required to be
disclosed in the Prospectus. Neither of the Offerors nor any Subsidiary has, at
any time during the past five years, (A) made any unlawful contributions to any
candidate for any political office, or failed fully to disclose any
contribution in violation of law, or (B) made any unlawful payment to state,
federal or foreign government officer or officers, or other person charged with
similar public or quasi-public duty.
(xxxiv) Each of the Company and the Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, and (iii) access to assets is permitted only in
accordance with management's general or specific authorization.
(xxxv) The Offerors have not distributed and will not distribute any
prospectus or other offering material in connection with the offering
20
<PAGE> 22
and sale of the Securities other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by the
Company.
(xxxvi) Other than as contemplated by this Agreement or described in
the Registration Statement, neither Offeror has incurred any liability for any
finder's or broker's fee or agent's commission in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(xxxvii) The Bank is in good standing with the Office of the
Comptroller of the Currency (the "OCC"), and the activities of the Company and
the Bank are permitted under applicable federal and state banking laws and
regulations. The Company has all necessary approvals, including the approvals
of the OCC and the FRB, to own the capital stock of the Bank. Neither the
Company nor the Bank is a party or subject to any agreement or memorandum with,
or directive or order issued by, the FRB, the OCC, the Office of the Illinois
Commissioner of Banks and Real Estate (the "Commissioner"), the FDIC or other
bank regulatory authority having jurisdiction over it (the "Banking
Regulators"), which imposes any restrictions or requirements not generally
applicable bank holding companies or commercial banks. Neither the Company nor
the Bank is subject to any directive from any Banking Regulator to make any
material change in the method of conducting their respective businesses, and no
such directive is pending or threatened by such Banking Regulators.
(xxxviii) The Offerors expect that Securities having an aggregate
liquidation amount of approximately $9,665,000 will qualify as "tier 1" capital
(as defined in 12 C.F.R. Part 325).
(xxxix) The Company has taken and will continue diligently to take all
actions necessary to the consummation of the Minority Acquisition (as defined
in the Prospectus), and, to the best knowledge of the Company, there exists no
reason that such Minority Acquisition would not be consummated.
(xi) The conditions for use of Form S-1, as set forth in the General
Instructions thereto, have been satisfied.
21
<PAGE> 23
(xii) The Offerors and the Subsidiaries are in compliance with all
provisions of Section 1 of Florida Statutes, Section 517.075, An Act Relating
to Disclosure of Doing Business with Cuba.
(b) Any certificate signed by any officer of the Company or a trustee
of the Trust and delivered to you or to counsel for the Underwriters shall be
deemed a representation and warranty jointly and severally made by the Offerors
to each Underwriter as to the matters covered thereby and shall be deemed
incorporated herein in its entirety and shall be effective as if such
representation and warranty were made herein.
7. Indemnification.
(a) The Offerors jointly and severally agree to indemnify and hold
harmless each of the Underwriters and each person, if any, who controls each of
the Underwriters within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act (the "indemnified parties") from and against any and all
losses, claims, damages, liabilities and judgments caused by, arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (as amended or supplemented if the
Offerors shall have furnished any amendments or supplements thereto), including
the information deemed to be part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A, if applicable, or the Prospectus or any
Preliminary Prospectus or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the Offerors shall not be liable in any
such case to the extent that such losses, claims, damages, liabilities or
judgments are caused by an untrue statement or omission made or omitted in
reliance upon, and in conformity with, information relating to the Underwriters
furnished in writing to the Offerors by or on behalf of the Underwriters with
your consent expressly for use therein.
(b) In case any action shall be brought against any of the indemnified
parties, based upon any Preliminary Prospectus, the Registration Statement or
the Prospectus or any amendment or supplement thereto and with respect to which
indemnity may be sought against the Offerors, such indemnified parties shall
promptly notify the Offerors in writing (but the failure so to notify shall not
relieve the Offerors of any liability that they may otherwise have to such
indemnified parties under this Section 7 (although the Offerors' liability to
an indemnified party may be reduced on a monetary basis to the extent, but only
to the extent, they have been prejudiced by such failure
22
<PAGE> 24
on the part of such indemnified party)) and the Offerors shall promptly assume
the defense thereof, including the employment of counsel satisfactory to such
indemnified party and payment of all fees and expenses. The indemnified parties
shall each have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such indemnified parties unless (i) the employment
of such counsel shall have been specifically authorized by the Offerors, (ii)
the Offerors shall have failed to assume promptly the defense or to employ
counsel reasonably satisfactory to such indemnified party or (iii) the named
parties to any such action (including any impleaded parties) include both the
indemnified parties and the Offerors, and an indemnified party shall have been
advised by counsel that there may be one or more legal defenses available to
one or more of the indemnified parties that are different from or additional to
those available to the Offerors (in which case the Offerors shall not have the
right to assume the defense of such action on behalf of such indemnified party,
it being understood, however, that the Offerors shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for the indemnified
parties, which firm shall be designated in writing by you, and that all such
fees and expenses shall be reimbursed promptly as they are incurred). The
Offerors shall not be liable for any settlement of any such action effected
without their written consent, which consent shall not be unreasonably
withheld, but if settled with the written consent of the Offerors, the Offerors
agree to indemnify and hold harmless the indemnified parties from and against
any and all loss or liability by reason of such settlement. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second sentence of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 10 business days after delivery by registered or
certified mail to the proper address for notice to such indemnifying party of
the aforesaid request (whether or not such delivery is accepted) and (ii) such
indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could be a party and indemnity could be
sought hereunder by such indemnified party, unless such settlement includes an
unconditional and complete release in writing of such indemnified
23
<PAGE> 25
party from any and all liability on claims that are the subject matter of such
proceeding, which such settlement shall be in form and substance reasonably
satisfactory to the indemnified party. The indemnification provided in this
Section 7 will be in addition to any liability which the Offerors may otherwise
have.
(c) The Underwriters agree, severally and not jointly, to indemnify
and hold harmless the Offerors and their directors, officers and trustees and
any person controlling the Company within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, to the same extent as the foregoing
indemnity from the Offerors to the Underwriters but only with reference to
information stated in or omitted from the Registration Statement, the
Prospectus or any Preliminary Prospectus in reliance upon, and in conformity
with, information relating to the Underwriters furnished in writing to the
Offerors by or on behalf of the Underwriters with your consent expressly for
use therein. In case any action shall be brought against the Offerors or any
other such person based on the Registration Statement, the Prospectus or any
Preliminary Prospectus and in respect of which indemnity may be sought against
the Underwriters, the Underwriters shall have the rights and duties given to
the Offerors by Section 7(b) hereof (except that if the Offerors shall have
assumed the defense thereof, such Underwriter shall not be required to do so,
but may employ separate counsel therein and participate in the defense thereof
but the fees and expenses of such counsel shall be at the expense of such
Underwriter), and the Offerors and such other persons shall have the rights and
duties given to the "indemnified parties" by Section 7(b) hereof.
(d) If the indemnification provided for in this Section 7 is for any
reason unavailable to an indemnified party or insufficient to hold such
indemnified party harmless in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the Offerors on the one hand and the
Underwriters on the other from the offering of the Securities or (ii) if the
allocation provided in clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Offerors on
the one hand and the Underwriters on the other in connection with the
statements or omissions or alleged statements or omissions that resulted in
such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the
Offerors on the
24
<PAGE> 26
one hand and the Underwriters on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering and
sale of the Securities (before deducting expenses) received by the
Offerors on the one hand, and the total underwriting discounts and
commissions received by the Underwriters on the other, bears to the
total price to the public of the Securities, in each case as set forth
in the table on the cover page of the Prospectus. The relative fault
of the Offerors and the Underwriters shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or the alleged omission to state a
material fact relates to information supplied by the Offerors or the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
The Offerors and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to
in the immediately preceding paragraph. The amount paid or payable by
an indemnified party as a result of the losses, claims, damages,
liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section
7, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Securities
underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has
otherwise paid or been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligation in this Section 7(d) to contribute are
several in proportion to the respective amount of Securities purchased
hereunder by each Underwriter and not joint.
8. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Firm Securities on the
Closing Date and the Option Securities on any Option Closing Date are subject to
the fulfillment of each of the following conditions on or prior to the Closing
Date and each Option Closing Date:
25
<PAGE> 27
(a) All the representations and warranties of the Offerors contained
in this Agreement and in any certificate delivered hereunder shall be true and
correct on the Closing Date and each Option Closing Date with the same force
and effect as if made on and as of the Closing Date or Option Closing Date, as
applicable. The Offerors shall not have failed at or prior to the Closing Date
or Option Closing Date, as applicable, to perform or comply in all respects
with any of the agreements herein contained and required to be performed or
complied with by them at or prior to the Closing Date.
(b) If the Registration Statement is not effective at the time of the
execution and delivery of this Agreement, the Registration Statement shall have
become effective (or, if a post-effective amendment is required to be filed
pursuant to Rule 430A under the Act, such post-effective amendment shall have
become effective) not later than 4:30 P.M., Chicago time, on the date
immediately following the date of this Agreement or such later time as you may
approve in writing or, if the Registration Statement has been declared
effective prior to the execution and delivery hereof in reliance on Rule 430A,
the Prospectus shall have been filed as required hereby, if necessary; and at
the Closing Date and each applicable Option Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been commenced or shall
be pending before or, to the best knowledge of the Underwriters and the
Offerors, threatened by the Commission. Every request for additional
information on the part of the Commission shall have been complied with to the
Underwriters' satisfaction. No stop order suspending the sale of the Securities
in any jurisdiction referred to in Section 5(g) shall have been issued, and no
proceeding for that purpose shall have been commenced or shall be pending or
threatened.
(c) The Securities shall have been qualified for sale under the blue
sky laws of such states as shall have been specified by you; provided that you
and your counsel shall use best efforts to qualify the Securities for sale
under such laws.
(d) The legality and sufficiency of the authorization, issuance and
sale or transfer and sale of the Securities hereunder, the execution and
delivery of this Agreement and all corporate proceedings and other legal
matters incident thereto, and the form of the Registration Statement and the
Prospectus (except financial statements) shall have been approved by counsel
for the Underwriters exercising reasonable judgment, and no Underwriter shall
have advised the Company that the Registration Statement or the Prospectus, or
any amendment or supplement thereto, contains an untrue statement of
26
<PAGE> 28
material fact, or omits to state a fact that in your opinion is material and is
required to be stated therein or is necessary to make the statements therein
not misleading.
(e) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred any material change, or any material development
involving a prospective change, in or affecting particularly the business or
properties of the Offerors or the Subsidiaries, whether or not arising in the
ordinary course of business, that, in your reasonable judgment, makes it
impractical or inadvisable to proceed with the public offering or purchase of
the Securities as contemplated hereby.
(f) You shall have received an opinion (satisfactory to you and your
counsel) dated the Closing Date or the Option Closing Date, as the case may be,
of Much Shelist Freed Denenberg Ament Bell & Rubenstein, counsel for Offerors,
to the effect that:
(i) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of Delaware. The
Bank has been duly organized and is validly existing as a national
banking association in good standing under the federal laws of the
United States. Each of the Company and the Subsidiaries has all
necessary power and authority, corporate or otherwise, to own, lease
and operate their respective properties and assets and to conduct
their respective businesses as described in the Registration Statement
and the Prospectus, and each is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in
which its ownership or lease or real property or the conduct of its
business makes such qualification necessary and in which the failure
to so qualify could have a Material Adverse Effect.
(ii) Each Offeror has all necessary power and authority,
corporate, trust or otherwise, to enter into and perform this
Agreement, the Indenture, the Trust Agreement and the Guarantee
Agreement, as applicable, and to effect the transactions contemplated
hereby or thereby. The performance of the Offerors' respective
obligations hereunder and under the Indenture, the Trust Agreement and
the Guarantee Agreement, as applicable, have been duly authorized by
all necessary action. This Agreement, the Indenture, the Trust
Agreement and the Guarantee Agreement have been duly executed and
delivered by and on behalf of the Trust and/or the Company, as
applicable, and, assuming due authorization, execution and delivery of
such agreements
27
<PAGE> 29
by the other parties thereto, constitute legal, valid and binding agreements of
the Trust and/or the Company, as applicable, enforceable in accordance with
their respective terms, except as enforceability of the same may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or
other similar laws of general applicability relating to or affecting creditors'
rights generally and by general equity principles. No approval, consent, order,
authorization, designation, declaration or filing by or with any regulatory,
administrative or other governmental body or, to the best of such counsel's
knowledge, third party, is necessary in connection with the execution and
delivery of this Agreement, the Indenture, the Trust Agreement or the Guarantee
Agreement and the consummation of the transactions contemplated herein or
therein or as contemplated by the Prospectus (other than as may be required by
the Trust Indenture Act, the Act, the NASD or as required by state securities
or blue sky laws or in connection with approval of the Trust's Nasdaq National
Market listing application, as to which such counsel need express no opinion)
except such as have been obtained or made, with counsel specifying the same.
(iii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under "Capitalization." All of the
shares of outstanding capital stock of the Company have been duly authorized
and validly issued, are fully paid and non-assessable and were not issued in
violation of any preemptive rights or, to the best of such counsel's knowledge,
other rights to subscribe for or purchase securities. Except as set forth in
the Registration Statement and the Prospectus, to the best of such counsel's
knowledge, no options, warrants or other rights to convert any obligation into,
or exchange any securities for, shares of capital stock or ownership interests
in the Company are outstanding.
(iv) To the best of such counsel's knowledge, after due inquiry,
neither the filing of the Registration Statement or any amendment thereto nor
the offer and sale of the Securities to the Underwriters as contemplated by
this Agreement gives rise to any rights, nor do any rights exist, for or
relating to the registration under the Act of any securities of either Offeror.
(v) The Registration Statement has become effective under the Act, the
Prospectus has been filed as required by this Agreement, if necessary, and to
the best of such counsel's knowledge: (i) after telephonic inquiry of the
Commission, no stop order suspending the
28
<PAGE> 30
effectiveness of the Registration Statement has been issued; and (ii) no
proceedings for that purpose are pending or have been initiated or threatened
by the Commission. The Registration Statement (including the information deemed
to be part of the Registration Statement at the time of effectiveness pursuant
to Rule 430A, if applicable), the Prospectus and each amendment or supplement
thereto (except for the financial statements and other statistical or financial
data included therein, as to which such counsel need express no opinion) comply
as to form in all material respects with the requirements of the Act and the
Rules and Regulations.
(vi) The descriptions in the Registration Statement and Prospectus of
contracts, instruments and other documents filed as exhibits to the
Registration Statement, and the description of legal and governmental
proceedings, are accurate in all material respects, and such counsel does not
know of any Proceedings required to be described in the Prospectus that are not
described, or of any contracts or documents of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that were not described and filed as
required.
(vii) Neither the filing of the Registration Statement or any amendment
nor the execution and performance of this Agreement, the Indenture, the Trust
Agreement or the Guarantee Agreement, nor the consummation of the transactions
contemplated herein or therein, to the best of such counsel's knowledge, will
contravene any of the provisions of, or result in a default under (nor, to the
best of such counsel's knowledge, has any event occurred which with notice or
lapse of time, or both, would constitute a breach or default under), any
Obligations and Instruments to which the Trust or the Company is a party or by
which their property is bound (except for such contravention or default which
would not have a Material Adverse Effect), or violate any of the provisions of
the charter or by-laws of the Company or the Certificate of Trust of the Trust,
or violate any Laws known to such counsel.
(viii) Neither the Trust, the Company nor any Subsidiary is an
"investment company" or a company controlled by an "investment company" within
the meaning of the Investment Company Act.
(ix) The statements in the Prospectus under the caption "Description
of Trust Preferred Securities," "Description of Junior Subordinated Debentures,"
"Description of Guarantee" and
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<PAGE> 31
"Relationship among the Trust Preferred Securities, the Junior
Subordinated Debentures and the Guarantee," insofar as such statements
constitute matters of law applicable to the Offerors or summaries of
documents, fairly present the information required to be included
therein in all material respects.
(x) All of the issued and outstanding Common Securities of
the Trust are owned by the Company, free and clear of any security
interest mortgage, pledge, lien, encumbrance, claim or equitable right.
(xi) The Trust Agreement has been duly qualified under the
Trust Indenture Act.
(xii) The Junior Subordinated Debentures are subordinate and
junior in right of payment to all Senior and Subordinated Debt (as
defined in the Indenture) of the Company.
(xiii) No Tax Event, Capital Treatment Event or Investment
Company Event (each as defined in the Indenture) has occurred.
(xiv) The statements set forth in the Prospectus under the
caption "Certain Federal Income Tax Consequences" constitute an
accurate summary of the matters addressed therein, subject to the
limitations and based upon current law and the assumptions stated or
referred to therein.
(xv) To the best of such counsel's knowledge and information
after due inquiry, the Trust is not required to be authorized to do
business in any other jurisdiction, and the Trust is not a party to or
otherwise bound by any agreement other than those described in the
Prospectus.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Offerors,
representatives of the independent public accountants of the Company and
representatives of the Underwriters and their counsel, at which the contents of
the Registration Statement and the Prospectus and related matters were discussed
and, although such counsel is not passing upon, and does not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus (except as set forth
above) and has not made any independent check or verification thereof, on the
basis of the foregoing (relying as to materiality upon
30
<PAGE> 32
the statements of officers and other representatives of the Company), no facts
have come to such counsel's attention that lead such counsel to believe that
either the Registration Statement or any amendment (including any
post-effective amendment) thereto at the time such Registration Statement or
amendment became effective, and as of the Closing Date and any
applicable Option Closing Date, contained or contains an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that the
Prospectus or any amendment or supplement thereto as of their respective dates
and as of the Closing Date and any applicable Option Closing Date contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that such counsel need express no opinion with respect
to the financial statements, schedules and other financial data included in
the Registration Statement or the Prospectus.
(g) You shall have received an opinion (satisfactory to you and your
counsel) dated the Closing Date or the Option Closing Date, as the case may be,
of White & Case, counsel for the Property Trustee under the Trust Agreement,
the Indenture Trustee under the Indenture and the Guarantee Trustee under the
Guarantee Agreement, to the effect that:
(i) Bankers Trust Company is duly incorporated and is validly
existing in good standing as a banking corporation with trust powers
under the laws of the State of New York.
(ii) The Indenture Trustee has the requisite power and
authority to execute, deliver and perform its obligations under the
Indenture and has taken all necessary corporate action to authorize
the execution, delivery and performance by it of the Indenture.
(iii) The Guarantee Trustee has the requisite power and
authority to execute, deliver and perform its obligations under the
Guarantee Agreement and has taken all necessary corporate action to
authorize the execution, delivery and performance by it of the
Guarantee Agreement.
(iv) The Property Trustee has the requisite power and
authority to execute, deliver and perform its obligations under the
Trust
31
<PAGE> 33
Agreement and has taken all necessary corporate action to authorize
the execution and delivery of the Indenture.
(v) Each of the Indenture and the Guarantee Agreement has
been duly executed and delivered by the Indenture Trustee and the
Guarantee Trustee, respectively, and constitutes a legal, valid and
binding obligation of the Indenture Trustee and the Guarantee
Trustee, respectively, enforceable against the Indenture Trustee and
the Guarantee Trustee, respectively, in accordance with their
respective terms, except that certain payment obligations may be
enforceable solely against the assets of the Trust and except that
such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, liquidation, fraudulent conveyance and
transfer or other similar laws affecting the enforcement of
creditors' rights generally, and by principles of equity, including,
without limitation, concepts of materiality, reasonableness, good
faith and fair dealing (regardless of whether such enforceability is
considered in a proceeding in equity or at law), and by the effect of
applicable public policy on the enforceability of provisions relating
to indemnification or contribution.
(vi) The Junior Subordinated Debentures delivered on the
Closing Date have been duly authenticated by the Indenture Trustee in
accordance with the terms of the Indenture.
(h) You shall have received an opinion (satisfactory to you and your
counsel) dated the Closing Date or the Option Closing Date, as the case may be,
of Morris, Nichols, Arsht & Tunnell, special Delaware counsel for the Offerors,
to the effect that:
(i) The Trust has been duly created and is validly existing
in good standing as a business trust under the Delaware Act, and all
filings required as of the date hereof under the Delaware Act with
respect to the creation and valid existence of the Trust as a business
trust have been made, except to the extent that enforcement thereof
may be limited by (A) bankruptcy, insolvency, receivership,
liquidation, fraudulent conveyance, reorganization, moratorium and
similar laws of general applicability relating to or affecting
creditors' rights and remedies, (B) general principles of equity
(regardless of whether considered and applied in a proceeding in
equity or at law), and (C) considerations of public policy and the
effect of applicable law relating to fiduciary duties.
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<PAGE> 34
(ii) Under the Trust Agreement and the Delaware Act, the
Trust has the trust power and authority to own property and to
conduct its business, all as described in the Prospectus.
(iii) The Trust Agreement constitutes a valid and binding
obligation of the Company and each of the Property Trustee and the
Administrative Trustees, and is enforceable against the Company and
each of the Property Trustee and the Administrative Trustees in
accordance with its terms.
(iv) Under the Trust Agreement and the Delaware Act, the
Trust has the trust power and authority (i) to execute and deliver,
and to perform its obligations under, this Agreement, and (ii) to
issue, and to perform its obligations under, the Securities and the
Common Securities.
(v) Under the Trust Agreement and the Delaware Act, the
execution and delivery by the trust of this Agreement, and the
performance by it of its obligations hereunder, have been duly
authorized by all necessary trust action on the part of the Trust.
(vi) The Securities have been duly authorized for issuance
by the Trust Agreement and, when issued, delivered and paid for in
accordance with the terms of the Trust Agreement and this Agreement
and as described in the Prospectus, will be validly issued and
(subject to the qualifications set forth in the last sentence of this
subsection (vi)) fully paid and non-assessable undivided beneficial
interests in the assets of the Trust. The holders of the Securities
will be entitled to the same limitation of personal liability extended
to stockholders of private corporations for profit organized under the
General Corporation Law of the State of Delaware; provided that such
opinion need not address the liability of any holder of a Security
that is, was or becomes a named trustee of the Trust. Such opinion
may note that the holders of the Securities may be required to make
payment or provide indemnity or security as set forth in the Trust
Agreement.
(vii) The Common Securities have been duly authorized for
issuance by the Trust Agreement and, when issued, delivered and paid
for in accordance with the terms of the Trust Agreement and as
described in the Prospectus, will be validly issued and (subject to
the qualifications set forth in the next sentence) fully paid and
nonassessable undivided beneficial interests in the assets of the
Trust.
33
<PAGE> 35
Such opinion may note that the holders of the Common Securities may be
required to make payment or provide indemnity or security as set forth
in the Trust Agreement.
(viii) Under the Trust Agreement and the Delaware Act, the
issuance of the Securities and the Common Securities is not subject to
preemptive rights.
(ix) The issuance and sale by the Trust of the Securities and
the Common Securities, the purchase by the Trust of the Junior
Subordinated Debentures, the execution, delivery and performance by
the Trust of this Agreement, consummation by the Trust of the
transactions contemplated by this Agreement and compliance by the
Trust with its obligations under this Agreement do not violate (A) any
of the provisions of the Certificate of Trust or the Trust Agreement,
or (B) any applicable Delaware law or administrative regulation.
(i) You shall have received an opinion of Barack Ferrazzano Kirschbaum
Perlman & Nagelberg, counsel for the Underwriters, dated the Closing Date or
the Option Closing Date, as the case may be, in form and substance reasonably
satisfactory to you.
(j) You shall have received, in connection with the execution of this
Agreement and on the Closing Date and each Option Closing Date, a "cold
comfort" letter from McGladrey & Pullen LLP and Crowe, Chizek and Company LLP,
dated as of each such date in form and substance satisfactory to you with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(k) You shall have received from the Company a certificate, signed by
the Chief Executive Officer and Chief Financial Officer of the Company,
addressed to the Underwriters and dated the Closing Date or Option Closing
Date, as applicable, to the effect that:
(i) such officer does not know of any Proceedings instituted,
threatened or contemplated against the Company of a character required
to be disclosed in the Prospectus that are not so disclosed, and such
officer does not know of any material contract required to be filed as
an exhibit to the Registration Statement which is not so filed:
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<PAGE> 36
(ii) such officer has carefully examined the Registration
Statement and the Prospectus and all amendments or supplements thereto
and, in such officer's opinion, such Registration Statement or such
amendment as of its effective date and as of the Closing Date, and the
Prospectus or such supplement as of its date and as of the Closing
Date, did not contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading and, in such officer's
opinion, since the effective date of the Registration Statement, no
event has occurred or information become known that should have been
set forth in an amendment to the Registration Statement or a
supplement to the Prospectus which has not been so set forth in such
amendment or supplement;
(iii) the representations and warranties of the Company set
forth in Section 6(a) of this Agreement are true and correct as of the
date of this Agreement and as of the Closing Date or the Option
Closing Date, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date; and
(iv) the Commission has not issued an order preventing or
suspending the use of the Prospectus or any preliminary prospectus
filed as a part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the best knowledge of
the respective signers, no proceedings for that purpose have been
instituted or are pending or contemplated under the Act.
The delivery of the certificate provided for in this subparagraph shall be
and constitute a representation and warranty of the Company as to the facts
required in the immediately foregoing clauses (iii) and (iv) of this
subparagraph to be set forth in said certificate.
(1) You shall have received from the Trust a certificate, signed by
the Administrative Trustees, addressed to the Underwriters and dated the Closing
Date or Option Closing Date, as applicable, to the effect that:
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<PAGE> 37
(i) such officer has carefully examined the Registration
Statement and the Prospectus and all amendments or supplements thereto and,
in such officer's opinion, such Registration Statement or such amendment as
of its effective date and as of the Closing Date, and the Prospectus or
such supplement as of its date and as of the Closing Date, did not contain
an untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and, in such officer's opinion, since the effective date of the
Registration Statement, no event has occurred or information become known
that should have been set forth in an amendment to the Registration
Statement or a supplement to the Prospectus which has not been so set forth
in such amendment or supplement;
(ii) the representations and warranties of the Trust set
forth in Section 6(a) of this Agreement are true and correct as of the
date of this Agreement and as of the Closing Date or the Option Closing
Date, as the case may be, and the Trust has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date; and
(iii) the Commission has not issued an order preventing or
suspending the use of the Prospectus or any preliminary prospectus filed as
a part of the Registration Statement or any amendment thereto; no stop
order suspending the effectiveness of the Registration Statement has been
issued, and, to the best knowledge of the respective signers, no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act.
The delivery of the certificate provided for in this subparagraph shall be
and constitute a representation and warranty of the Company as to the facts
required in the immediately foregoing clauses (ii) and (iii) of this
subparagraph to be set forth in said certificate.
(m) You and your counsel shall have received on or before the Closing Date
or the Option Closing Date, as the case may be, such further documents,
opinions, certificates and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Offerors as you and they shall
have reasonably requested from the Offerors.
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<PAGE> 38
9. Effective Date of Agreement, Termination and Defaults. This Agreement
shall become effective upon, and shall not be deemed delivered until, the later
of (i) execution of this Agreement and (ii) when notification of the
effectiveness of the Registration Statement has been released by the Commission.
This Agreement may be terminated at any time prior to the Closing Date and
any exercise of the option to purchase Additional Securities may be cancelled at
any time prior to any Option Closing Date by the Underwriters by written notice
to the Offerors if any of the following has occurred: (i) since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, any material adverse change or development involving a prospective
material adverse change in the condition, financial or otherwise, of the Company
and the Subsidiaries, taken as a whole, or the earnings, affairs, management, or
business of the Company and the Subsidiaries, taken as a whole, whether or not
arising in the ordinary course of business, that would, in your sole judgment,
make it impracticable to market the Securities on the terms and in the manner
contemplated in the Prospectus, (ii) any outbreak or escalation of hostilities
or other national or international calamity or crisis or change in economic
conditions or in the financial markets of the United States that, in your sole
judgment, is material and adverse and would, in your sole judgment, make it
impracticable to market the Securities on the terms and in the manner
contemplated in the Prospectus, (iii) the suspension or material limitation of
trading in securities on the Nasdaq, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order of
any court or other governmental authority that in your opinion materially and
adversely affects, or will materially and adversely affect, the business or
operations of the Company and the Subsidiaries, taken as a whole, (v) the
declaration of a banking moratorium by either federal or Delaware state
authorities, (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs that in your
opinion has a material adverse effect on the financial markets in the United
States or (vii) any change in financial markets or in political, economic or
financial conditions which, in your opinion, either renders it impracticable or
inadvisable to proceed with the offering and sale of the Securities on the terms
set forth in the Prospectus or materially adversely affects the market for the
Securities.
If on the Closing Date or on any Option Closing Date, as the case may be,
any of the Underwriters shall fail or refuse to purchase the Firm Securities or
Additional Securities, as the case may be, which it has agreed to purchase
hereunder on such date, and the aggregate number of Firm Securities or
Additional Securities, as the case may be, that such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed, in the
aggregate, 20% of the total number of Securities that all Underwriters are
obligated to purchase on such date, each nondefaulting Underwriter shall be
obligated, in the proportion which the number of Firm
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<PAGE> 39
Securities set forth opposite its name in Schedule I hereto bears to the total
number of Firm Securities or Additional Securities, as the case may be, that
all the nondefaulting Underwriters have agreed to purchase, or in such other
proportion as you may specify, to purchase the Firm Securities or Additional
Securities, as the case may be, that such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
Closing Date or on the Option Closing Date, as the case may be, any of the
Underwriters shall fail or refuse to purchase the Firm Securities or Additional
Securities, as the case may be, in an amount that exceeds, in the aggregate,
20% of the total number of the Securities, and arrangements satisfactory to you
and the Offerors for the purchase of such Securities are not made within 48
hours after such default, this Agreement shall terminate without liability on
the part of the non-defaulting Underwriters and the Offerors, except as
otherwise provided in this Section 9. In any such case that does not result in
termination of this Agreement, either you or the Offerors may postpone the
Closing Date or the Option Closing Date, as the case may be, for not longer
than seven (7) days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve a defaulting Underwriter from liability in respect of any default of
any such Underwriter under this Agreement.
The indemnity and contribution provisions and other agreements,
representations and warranties of the Offerors set forth in or made pursuant to
this Agreement shall remain operative and in full force and effect, and will
survive delivery of and payment for the Securities, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf of
any of the Underwriters or by or on behalf of the Offerors, (ii) acceptance of
the Securities and payment therefor hereunder or (iii) termination of this
Agreement. Notwithstanding any termination of this Agreement, the Company shall
be liable for and shall pay all expenses it has agreed to pay pursuant to
Section 5(1).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of, and shall be binding upon, the Offerors, the Underwriters,
any indemnified person referred to herein and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
terms "successors and assigns" shall not include a purchaser of any of the
Securities from any of the several Underwriters merely because of such purchase.
10. Effectiveness of Registration Statement. You and the Offerors will use
your and their best efforts to cause the Registration Statement to become
effective, if it has not yet become effective, and to prevent the issuance of
any stop order
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<PAGE> 40
suspending the effectiveness of the Registration Statement and, if such stop
order be issued, to obtain as soon as possible the lifting thereof.
11. Miscellaneous. All communications hereunder will be in writing and, if
sent to the Underwriters will be mailed, delivered or telegraphed and confirmed
to you c/o EVEREN Securities, Inc., 77 West Wacker Drive, Chicago, Illinois
60601-1994, Attention: Syndicate Department, with a copy to Barack Ferrazzano
Kirschbaum Perlman & Nagelberg, 333 West Wacker Drive, Suite 2700, Chicago,
Illinois 60606, Attention: Edwin S. del Hierro; and if sent to the Company or
the Trust will be mailed, delivered or telegraphed and confirmed to the Company
or the Trust at the Company's corporate headquarters with a copy to Much Shelist
Freed Denenberg Ament Bell & Rubenstein, P.C., 200 North LaSalle Street, Suite
2100, Chicago, Illinois 60601-1095, Attention: Jeffrey Rubenstein and Steven
Schwartz.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF ILLINOIS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
39
<PAGE> 41
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Trust and the several Underwriters, including you.
Very truly yours,
SUCCESS BANCSHARES, INC.
By:__________________________________
Name: _______________________________
Title: ______________________________
SUCCESS CAPITAL TRUST I
By:__________________________________
Name: _______________________________
Title: ______________________________
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
EVEREN Securities, Inc.
Acting as Representative of the
several Underwriters named in Schedule 1.
By: EVEREN Securities, Inc.
By:__________________________________
Name: _______________________________
Title: ______________________________
40
<PAGE> 42
SCHEDULE I
Number of
Firm Securities
to be
Underwriter Purchased
EVEREN Securities, Inc....................... 1,200,000
Tucker Anthony Incorporated.................. 300,000
----------
TOTAL 1,500,000
==========
41
<PAGE> 43
SCHEDULE 11
The Company currently owns 92% of the outstanding common stock of the Bank.
42
<PAGE> 1
EXHIBIT 5.1
MUCH SHELIST FREED DENENBERG AMENT BELL & RUBENSTEIN, P.C.
200 North LaSalle Street, Suite 2100
Chicago, Illinois 60601
Telephone: (312) 346-3100
May 14, 1998
Board of Directors
Success Bancshares, Inc.
One Marriott Drive
Lincolnshire, Illinois 60069
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933,
as amended (the "Act"), of up to $17,250,000 aggregate principal amount
of Junior Subordinated Deferrable Interest Debentures (the "Junior Subordinated
Debentures") of Success Bancshares, Inc., a Delaware corporation (the
"Corporation"), up to $17,250,000 aggregate liquidation amount of Cumulative
Trust Preferred Securities (the "Trust Preferred Securities") of Success
Capital Trust I, a business trust created under the laws of the State of
Delaware (the "Issuer"), and the Guarantee with respect to the Trust Preferred
Securities (the "Guarantee") to be executed and delivered by the Corporation
for the benefit of the holders from time to time of the Trust Preferred
Securities, we, as your counsel, have examined such corporate records,
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, when:
(i) the Registration Statement relating to the Junior
Subordinated Debentures, the Trust Preferred Securities and the
Guarantee has become effective under the Act;
(ii) the Guarantee Agreement relating to the Guarantee with
respect to the Trust Preferred Securities of the Issuer has been duly
executed and delivered;
(iii) the Junior Subordinated Debentures have been duly
executed and authenticated in accordance with the Indenture and issued
and delivered as contemplated in the Registration Statement; and
(iv) the Trust Preferred Securities have been duly executed in
accordance with the Amended and Restated Trust Agreement of the
<PAGE> 2
Page 2
Issuer and issued and delivered as contemplated in the Registration
Statement,
the Junior Subordinated Debentures and the Guarantee relating to the Trust
Preferred Securities of the Issuer will constitute valid and legally binding
obligations of the Corporation, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
We understand that you have received an opinion regarding the Trust
Preferred Securities from Morris, Nichols, Arsht & Tunnell, special Delaware
counsel for the Corporation and the Issuer. We are expressing no opinion with
respect to the matters contained in such opinion.
Also, we have relied as to certain matters on information obtained from
public officials, officers of the Corporation and other sources believed by us
to be responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the heading "Legal
Matters" in the Prospectus. 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 Act.
Very truly yours,
MUCH SHELIST FREED DENENBERG
AMENT BELL & RUBENSTEIN, P.C.
By: /s/ Steven Schwartz
--------------------------
Steven Schwartz, a Partner
/kar
<PAGE> 1
EXHIBIT 5.2
[Letterhead of Morris, Nichols, Arsht & Tunnell]
May 14, 1998
Success Capital Trust I
c/o Success Bancshares, Inc.
One Marriott Drive
Lincolnshire, Illinois 60069
Re: Success Capital Trust I
Ladies and Gentlemen:
We have acted as special Delaware counsel to Success Capital
Trust I, a Delaware statutory business trust (the "Trust"), and Success
Bancshares, Inc., a Delaware corporation ("Success Bancshares "), in connection
with certain matters relating to (i) the creation of the Trust and (ii) the
proposed issuance by the Trust of Preferred Securities to beneficial owners
pursuant to and as described in Registration Statement Nos. 333-51271 and
333-51271-01 (and the Prospectus forming a part thereof) on Form S-1 filed with
the Securities and Exchange Commission on April 28, 1998, and the amendments
thereto as of the date hereof (as so amended, the "Registration Statement").
Capitalized terms used herein and not otherwise herein defined are used as
defined in the Amended and Restated Trust Agreement of the Trust in the form
attached as an exhibit to the Registration Statement (the "Governing
Instrument").
In rendering this opinion, we have examined and relied upon
copies of the following documents in the forms provided to us: the Certificate
of Trust of the Trust as filed in the Office of the Secretary of State of the
State of Delaware (the "State Office") on April 21, 1998 (the "Certificate of
Trust"); a Trust Agreement of the Trust dated as of April 21, 1998 (the
"Original Governing Instrument"); the Governing Instrument; the Junior
Subordinated Indenture to be entered into between Success Bancshares and Bankers
Trust Company, as Trustee (the "Indenture"); the Guarantee Agreement to be
entered into between Success Bancshares and Bankers Trust Company, as Trustee;
the form of Underwriting Agreement relating to the Preferred Securities among
Success Bancshares, the Trust, EVEREN Securities, Inc. and Tucker Anthony
Incorporated (the "Underwriting Agreement"); the Registration Statement; and a
certification of good standing of the Trust obtained as
<PAGE> 2
Success Capital Trust I
May 14, 1998
Page 2
of a recent date from the State Office. In such examinations, we have assumed
the genuineness of all signatures, the conformity to original documents of all
documents submitted to us as drafts or copies or forms of documents to be
executed and the legal capacity of natural persons to complete the execution of
documents. We have further assumed for purposes of this opinion: (i) the due
formation or organization, valid existence and good standing of each entity
(other than the Trust) that is a party to any of the documents reviewed by us
under the laws of the jurisdiction of its respective formation or organization;
(ii) the due authorization, execution and delivery by, or on behalf of, each of
the parties thereto of the above-referenced documents (including, without
limitation, the due authorization, execution and delivery of the Governing
Instrument and the Underwriting Agreement prior to the first issuance of
Preferred Securities); (iii) that no event has occurred subsequent to the filing
of the Certificate of Trust, or will occur prior to the first issuance of
Preferred Securities, that would cause a dissolution or liquidation of the Trust
under the Original Governing Instrument or the Governing Instrument, as
applicable; (iv) that the activities of the Trust have been and will be
conducted in accordance with the Original Governing Instrument or the Governing
Instrument, as applicable, and the Delaware Business Trust Act, 12 Del. C.
Sections 3801 et seq. (the "Delaware Act"); (v) that each Holder of Preferred
Securities has, or prior to the first issuance of Preferred Securities will
have, made payment of the required consideration therefor and received a
Preferred Securities Certificate in consideration thereof in accordance with the
terms and conditions of the Governing Instrument, the Registration Statement and
the Underwriting Agreement and that the Preferred Securities are otherwise
issued and sold to the Preferred Securities Holders in accordance with the
terms, conditions, requirements and procedures set forth in the Governing
Instrument, the Registration Statement and the Underwriting Agreement; and (vi)
that the documents examined by us are in full force and effect, express the
entire understanding of the parties thereto with respect to the subject matter
thereof and have not been modified, supplemented or otherwise amended, except as
herein referenced. We have not reviewed any documents other than those
identified above in connection with this opinion, and we have assumed that there
are no other documents that are contrary to or inconsistent with the opinions
expressed herein. Further, we express no opinion with respect to, and assume no
responsibility for the contents of, the Registration Statement or any other
offering material relating to the Preferred Securities. No opinion is expressed
herein with respect to the requirements of, or compliance with, federal or state
securities or blue sky laws. As to any fact material to our opinion, other than
those assumed, we have relied without independent investigation on the
above-referenced documents and on the accuracy, as of the date hereof, of the
matters therein contained.
Based on and subject to the foregoing, and limited in all
respects to matters of Delaware law, it is our opinion that:
1. The Trust is a duly created and validly existing business
trust in good standing under the laws of the State of Delaware.
2. Upon issuance, the Preferred Securities will constitute
validly issued and, subject to the qualifications set forth in paragraph 3
below, fully paid and nonassessable beneficial
<PAGE> 1
EXHIBIT 8.1
MUCH SHELIST FREED DENENBERG AMENT BELL & RUBENSTEIN, P.C.
200 North LaSalle Street, Suite 2100
Chicago, Illinois 60601
Telephone: (312) 346-3100
May 14, 1998
Board of Directors
Success Bancshares, Inc.
One Marriott Drive
Lincolnshire, Illinois 60069
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
As special federal tax counsel to Success Capital Trust I (the
"Issuer") and Success Bancshares, Inc. in connection with the issuance by the
Issuer of up to $17,250,000 of its Cumulative Trust Preferred Securities
pursuant to the prospectus (the "Prospectus") contained in the Registration
Statement, and assuming the operative documents described in the Prospectus will
be performed in accordance with the terms described therein, we hereby confirm
to you our opinion as set forth under the heading "Certain Federal Income Tax
Consequences" in the Prospectus, subject to the limitations set forth therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Certain
Federal Income Tax Consequences" in the Prospectus. 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 Act.
Very truly yours,
MUCH SHELIST FREED DENENBERG
AMENT BELL & RUBENSTEIN, P.C.
By: /s/ Steven Schwartz
-------------------------
Steven Schwartz, a Partner
