UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarterly Period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file no. 0-20863
CAPITAL FACTORS HOLDING , INC.
-----------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
FLORIDA 65-0500757
- --------------------------------- -------------------------
(State or other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
1799 West Oakland Park Boulevard,
- -------------------------------------------------------------------------------
Fort Lauderdale, Florida 33311
(Address of Principal Executive Offices) (Zip Code)
(954) 730-2900
--------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports). and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of November 13, 1996 there were 12,300,000 shares of the registrant's Common
Stock outstanding.
Page 1 of 19 Pages
<PAGE>
ITEM 1.
PART I. FINANCIAL INFORMATION
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------
(Unaudited) (Audited)
ASSETS
Cash $ 28,397,677 $ 20,326,814
Restricted Cash 6,562,500 16,187,500
Receivables 502,182,662 361,205,965
Unearned discounts (3,079,841) (3,404,016)
Allowance for credit losses (2,976,841) (2,980,778)
------------- -------------
Receivables, net 496,125,980 354,821,171
Property and equipment, net 3,139,772 3,285,049
Other Assets 7,691,846 4,850,831
------------- -------------
TOTAL $ 541,917,775 $ 399,471,365
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Due to affiliates $ 5,377,526 $ 6,452,964
Capital Factors variable rate asset backed
certificates 175,000,000 175,000,000
Notes payable to affiliates 76,816,000 52,260,000
Other borrowings 39,000,000 0
Due to factoring clients 181,945,943 128,577,577
Other liabilities 5,059,142 3,840,425
------------- -------------
Total liabilities 483,198,611 366,130,966
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 12,300,000
shares at 9/30/96 and 10,000,000 shares at
12/31/95, authorized, issued and outstanding 123,000 100,000
Additional paid-in capital 27,165,299 9,542,096
Retained earnings 31,430,865 23,698,303
------------- -------------
Total stockholders' equity 58,719,164 33,340,399
------------- -------------
TOTAL $ 541,917,775 $ 399,471,365
============= =============
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------------ ----------- ----------- -------------
REVENUES
<S> <C> <C> <C> <C>
Factoring fees $ 6,898,155 $ 5,218,060 $ 18,541,388 $ 14,373,768
Interest income 9,445,097 7,510,920 25,460,552 20,127,549
Letter of Credit and other fees 871,416 758,235 2,396,221 1,800,744
Other 430,418 437,337 1,079,160 1,035,998
------------ ------------ ------------ ------------
Total revenues 17,645,086 13,924,552 47,477,321 37,338,059
------------ ------------ ------------ ------------
EXPENSES
Interest expense 4,099,800 3,114,696 11,161,660 8,173,142
Interest expense to affiliates 1,176,177 1,273,162 3,594,839 3,555,549
Salaries and benefits 3,669,812 2,863,249 10,331,990 8,214,682
Provision for credit losses 700,000 700,000 2,800,000 1,650,000
Occupancy and other office
expenses 963,707 671,884 2,707,843 1,824,671
Depreciation 167,895 162,076 475,729 480,460
Professional fees 230,681 238,327 679,185 732,168
Other 902,611 645,881 2,493,449 1,874,450
------------ ------------ ------------ ------------
Total expenses 11,910,683 9,669,275 34,244,695 26,505,122
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 5,734,403 4,255,277 13,232,626 10,832,937
PROVISION FOR INCOME TAXES 2,463,001 1,730,795 5,500,064 4,356,831
------------ ------------ ------------ ------------
NET INCOME $ 3,271,402 $ 2,524,482 $ 7,732,562 $ 6,476,106
============ ============ ============ ============
Earnings per common and common
equivalent share:
Primary $ 0.28 $ 0.25 $ 0.73 $ 0.65
============ ============ ============ ============
Fully diluted $ 0.27 $ 0.25 $ 0.72 $ 0.65
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Nine Months Ended
September 30,
1996 1995
------------ ------------
OPERATING ACTIVITIES:
Net income $ 7,732,562 $ 6,476,106
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 475,729 480,460
Deferred income taxes (90,636) (444,512)
Provision for credit losses 2,800,000 1,650,000
Increase in restricted cash (375,000) (11,500,000)
Loss on sale of assets 14,495 3,872
(Increase)decrease in due to affiliates (1,075,438) 251,310
Other assets (2,400,697) (439,030)
Other liabilities 1,218,717 5,973,991
------------ -------------
Net cash provided by operating activities 8,299,732 2,452,197
------------ ------------
INVESTING ACTIVITIES:
Loan to clients, net 6,138,818 (3,852,807)
Increase in asset based loans (13,851,998) (17,255,110)
Net increase in factoring accounts receivable,
net of due to factoring clients (85,617,953) (46,467,095)
Sales of participations 5,236,296 1,335,796
Payments on participations (2,741,606) (1,298,396)
Purchase of property and equipment (347,223) (678,241)
Disposal of property and equipment 25,033 18,837
------------ ------------
Net cash used in investing activities (91,158,633) (68,197,016)
------------ ------------
FINANCING ACTIVITIES:
Restricted proceeds from senior certificates 10,000,000 50,000,000
Net proceeds from sale of common stock 17,646,203 0
Proceeds from borrowing 119,863,000 47,060,000
Payments on borrowing (56,307,000) (31,191,033)
Payments of deferred financing costs (857,985) (655,901)
Amortization of deferred costs 585,546 439,515
------------ ------------
Net cash provided by financing activities 90,929,764 65,652,581
------------ ------------
NET INCREASE (DECREASE) IN CASH 8,070,863 (92,238)
CASH, BEGINNING OF PERIOD 20,326,814 15,446,835
------------ ------------
CASH, END OF PERIOD 28,397,677 15,354,597
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest 13,572,703 10,649,942
============ ============
See accompanying notes to consolidated financial statements.
4
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1: GENERAL
- ---------------
The accompanying unaudited consolidated financial statements of Capital Factors
Holding, Inc. and Subsidiaries (the "Company") have been prepared on a
consistent basis in conformity with generally accepted accounting principles,
and in the opinion of management, reflect all adjustments (principally
consisting of normal, recurring accruals) necessary to present fairly the
financial condition of the Company as of September 30, 1996 and December 31,
1995, the results of its operations for the three and nine month periods ended
September 30, 1996 and 1995 and its cash flows for the nine months ended
September 30, 1996 and 1995. Certain amounts in the 1995 Consolidated Statements
of Income have been reclassified to conform with the 1996 consolidated financial
statement presentation. All significant inter-company transactions and balances
have been eliminated. The December 31, 1995 amounts were derived from previously
audited statements. All interim information at September 30, 1996 and 1995 and
for the three and nine months then ended was not audited.
The accounting policies followed for interim financial reporting are consistent
with the accounting policies set forth in Note 2 to the Consolidated Financial
Statements appearing in the Company's Form S-1 Registration Statement as filed
with the Securities and Exchange Commission on May 9, 1996 as thereafter
amended.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation." This statement requires certain disclosures about stock-based
employee compensation regardless of the method used to account for it, defines a
fair value based method of accounting for an employee stock option or similar
equity instrument and encourages all entities to adopt that method of accounting
for all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for stock based compensation
plans using the intrinsic value method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities electing to remain with the accounting method set forth in
APB Opinion No. 25 must make pro forma disclosures of net income and, if
presented, earnings per share as if the fair value method of accounting defined
in SFAS No. 123 had been applied. Under the fair value method, compensation cost
is measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. Under the
intrinsic value method, compensation cost is the excess, if any, of the quoted
market price of the stock at grant date, or other measurement date, over the
amount an employee must pay to acquire the stock. The disclosure requirements of
SFAS No. 123 are effective for financial statements for fiscal years beginning
after December 15, 1995. Pro forma disclosures required for entities that elect
to continue to measure compensation cost using APB No. 25 must include the
effects of all awards granted in fiscal years that begin after December 15,
1994. The Company will measure compensation cost for stock-based compensation as
prescribed by APB No. 25.
5
<PAGE>
NOTE 2: RECEIVABLES
- -------------------
Receivables consist of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------
Nonrecourse $ 277,103,247 $ 215,243,095
Recourse 153,000,273 81,232,416
------------- -------------
Factored accounts receivables 430,103,520 296,475,511
Loans to factoring clients 19,911,704 26,415,014
Asset based loans 52,167,438 38,315,440
------------- -------------
$ 502,182,662 $ 361,205,965
============= =============
The Company specifically considered $701,358 and $2,184,046 of its client
advances impaired at September 30, 1996 and December 31, 1995, respectively, and
has discontinued the accrual of interest income. The allowance for credit losses
related to these impaired loans for the same periods was $31,270 and $133,847,
respectively.
Changes in the Company's allowance for credit losses were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
------------------------------------- ---------------------
% of % of % of
SEPT 30, FACTORED SEPT 30, FACTORED DECEMBER 31, FACTORED
1996 SALES 1995 SALES 1995 SALES
---------- ------ ---------- ------- ---------- --------
<S> <C> <C> <C> <C>
Beginning balance $2,980,778 $1,774,101 $1,774,101
Allowance related to
acquisition of
TempFunds America, Inc. 100,000
Provision for credit losses 2,800,000 .15 1,650,000 .11 2,234,721 .11
Charge-offs (3,381,611) .18 (1,256,430) .08 (1,625,148) .08
Recoveries 477,674 .03 463,099 .03 597,104 .03
---------- ------ ----------- ------- ---------- -------
Net charge-offs (2,903,937) .15 (793,331) .05 (1,028,044) .05
---------- ------ ----------- ------- ---------- -------
Ending balance $2,976,841 $2,630,770 $2,980,778
========== ========== ==========
</TABLE>
The adequacy of the provision for credit losses recorded by the Company is
assessed by management based in part on the level of net charge-offs relative to
accounts receivable purchased. These statistics are believed to be significant
indicators of inherent losses because the receivables portfolio turns over
approximately seven times each year. Accounts receivable which are past due will
not be written off if, in the opinion of management, collection is likely from
the customer, client or collateral realization, if any. In making this
determination, management considers the quality of the collateral, the
creditworthiness of the customer and client, economic conditions
6
<PAGE>
and other factors which may be relevant. This statistical assessment is
supplemented by a review of the recorded allowance for credit losses at each
month end relative to total accounts receivable at month end, taking into
consideration specific potential problem accounts, accounts purchased with
recourse where payment has not been made by the Company to its client, and other
factors which may be relevant.
Historically, the provision for credit losses as a percentage of factored sales
and net charge-offs as a percentage of factored sales ranged from 0.11% to 0.31%
and 0.05% to 0.30%, respectively. The provision for credit losses as a
percentage of factored sales increased from .11% for the nine months ended
September 30, 1995 to 0.15% for the nine months ended September 30, 1996. Net
charge-offs as a percentage of factored sales also increased from 0.05% to 0.15%
for the same nine month periods, respectively. The 1996 ratios listed above,
although higher than those experienced in 1995, reflect normal credit losses
consistent with the Company's historical experience and expectations. Based on
these relationships, and a review of the recorded allowance and accounts
receivable at each period end, management believes the provisions and allowance
to be adequate to absorb known and inherent losses in the accounts receivable
portfolio. Because the assessment of the adequacy of the allowance and
provisions for credit losses involves a significant degree of estimation and is
subject to change, future provisions for credit losses may be greater or less
than actual charge-offs.
NOTE 3: BORROWINGS
- ------------------
Borrowings are summarized as follows:
September 30, December 31,
1996 1995
------------- -------------
Variable rate asset backed certificates
due 1999 through 2001 $ 175,000,000 $ 175,000,000
Variable rate revolving credit line
due on demand 76,816,000 52,260,000
Variable rate revolver loan due 1999 29,000,000
7.95% subordinated notes due 2001 10,000,000
------------- -------------
Total borrowings $ 290,816,000 $ 227,260,000
============= =============
NOTE 4: ACQUISITION
- -------------------
On August 9, 1996 the Company closed on the acquisition of substantially all of
the assets of TempFunds America, Inc. and its affiliate, TempFunds America
Funding Corporation of South Carolina, Inc. (collectively "TempFunds"),
specialized financial services companies principally engaged in providing
receivables-based commercial financing and related fee-based credit, collection
and management information services to temporary employment and home health care
agencies. The acquisition was completed through Capital TempFunds, Inc., a newly
formed North Carolina Corporation and wholly owned subsidiary of Factors.
The TempFunds entities provide certain services not presently provided by the
Company, including billing, payroll processing, payroll tax, payroll reporting
and other payroll
7
<PAGE>
services and insurance reporting. The purchase price paid by the Company was
approximately $5.9 million (approximately $5.0 million equal to the net book
value of the assets plus an additional $900,000). An additional amount up to
$900,000 is payable over a three year period if certain contingencies are met.
In connection with the acquisition, all rights, title and interest, to the
nationally registered service mark of "TempFunds America" were assigned to
Capital TempFunds, Inc. who intends to conduct business in said name.
The purchase was funded under the Company's revolving line of credit with
Capital Bank.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
INTRODUCTION
Capital Factors Holding, Inc. ("Holding") is a majority owned subsidiary of
Capital Bank (the "Bank"). The Bank is a wholly-owned subsidiary of Capital
Bancorp. Holding has two wholly-owned subsidiaries, Capital Factors, Inc.
("Factors") and CF One, Inc. Factors has one wholly-owned subsidiary, CF Funding
Corp. Throughout this discussion, Holding and its subsidiaries are collectively
referred to as the "Company."
The following discussion and analysis presents the significant changes in the
financial condition and results of operations for the periods indicated. The
discussion should be read in conjunction with the consolidated financial
statements and notes included in Part I, Item 1 of this report.
The Company provides fee-based services to its clients, including credit
protection, collection and management information services, and also makes
advances to many of its clients. Clients are generally manufacturers of goods or
providers of services in various industries. At the time the Company purchases
the factored receivables, the Company records a receivable and an offsetting
liability "due to factoring client." Advances, which are interest earning and
secured by the client's factored receivables, are recorded by the Company as
reductions to the amounts due to the factoring client for factored receivables.
Cash collections from the client's customers are used to repay the client's
loans. If, as a result of financial inability to pay, a client's customer fails
to pay a receivable that was credit-approved by the Company, the Company will
ultimately bear any loss with respect to such receivable. In the event of
dilution in excess of the unfinanced portion of receivables, where factored
receivables are not fully collected for a reason other than the customer's
financial inability to pay, such as breach of warranty, the Company will in
practice typically need to look to newer receivables of the client for the
collection of the outstanding obligation to the Company and may not be repaid.
In contrast to the Company's purchase of factored receivables, when the Company
makes an asset-based loan, a client assigns its collateral (usually account
receivable and inventory) to the Company. Upon request of the client, the
Company may advance funds to the client as a loan in an amount based upon the
eligible collateral. When funds are advanced to a client, a loan receivable
balance is created, and cash is disbursed. Although the Company loans funds to
the client based on eligible collateral, the Company provides no credit
protection and, accordingly, does not assume the risk of loss from a client's
customers' inability to pay, although the Company may actually suffer a loss if
all sources of repayment fail, including other collateral and guarantees, if
any. In connection with asset-based loans, instead of a factoring fee, the
Company earns a facility fee. Both factored advances and asset-based loans bear
interest at a rate tied to the prime rate.
The Company operates through four regional offices (including the Florida
office) and currently has over 400 clients who generate annual sales from
$500,000 to over $100 million, and services over 100,000 customers of those
clients. The majority of the Company's customers are large national or regional
department store chains or specialty retailers. At September 30, 1996, the
largest amount due from any one customer, a
9
<PAGE>
national department store chain, was approximately $22.3 million.
The Company's factored sales volume can be affected in several ways, including
new clients, client retention or losses, inflation and other economic
conditions. Additionally, fluctuations in the sales dollar volume of the
Company's clients, both positive and negative, have a direct impact on the
Company's factored sales volume and factoring fees. In this regard, the Company
has historically experienced seasonal fluctuations in its factored sales volume
and factoring fees as a result of the seasonality of the sales of certain of the
Company's clients, especially those in the apparel industry, who typically ship
more goods during the four-month period of August through November in order to
fill increased customer orders in anticipation of "back to school" and the
ensuing holiday season. The Company realized approximately 40% of its annual
factored sales volume during this 4-month period in 1994 and 1995.
MONITORING ASSET QUALITY AND CREDIT LOSSES
- ------------------------------------------
The monitoring of asset quality is a routine function performed by management to
control credit losses. The Company's allowance for credit losses is determined
after evaluating the receivables portfolio, current market conditions, changes
in the nature and volume of the portfolio, past loss experience and other
pertinent factors.
Set forth below are those ratios and statistics utilized by management in
monitoring asset quality for the nine months ended September 30, 1996 and
September 30, 1995:
AS OF SEPTEMBER 30,
----------------------
1996 1995
--------- ---------
(UNAUDITED, DOLLARS IN THOUSANDS)
Provision for credit losses $ 2,800 $ 1,650
Charge-offs net of recoveries $ 2,904 $ 793
Allowance for credit losses-specific $ 461 $ 690
Allowance for credit losses-general $ 2,516 $ 1,941
----------- ---------
Total allowance for credit losses $ 2,977 $ 2,631
Accounts receivable turnover in days 51 51
Accounts receivable past due more
than 60 days as a percentage of
total factored receivables 7.63% 5.50%
Accounts receivable past due more
than 90 days as a percentage of
total factored receivables 4.80% 3.17%
Credit-approved accounts receivable
past due more than 60 days as a
percentage of credit approved
receivables 2.13%(1) 2.38%(1)
Credit-approved accounts receivable
past due more than 90 days as a
percentage of credit approved
receivables 1.70%(1) 0.81%(1)
10
<PAGE>
Provision for credit losses as a
percentage of factored sales 0.15% 0.11%
Net charge-offs to factored sales 0.15% 0.05%
Average receivables $411,848 $296,728
Provision for credit losses as a
percentage of average receivables 0.91%(2) 0.74%(2)
Net charge-offs as a percentage of
average receivables 0.94%(2) 0.36%(2)
Non-accruing advances $ 701 $ 928
Non-accruing advances as a percentage
of receivables 0.14% 0.26%
Provision for credit losses as a percentage
of average funds employed 1.36%(2) 1.08%(2)
Net charge-offs as a percentage of
average funds employed 1.41%(2) 0.52%(2)
Non-accruing advances as a percentage
of funds employed 0.22% 0.39%
(1) Management considers the aging of credit-approved receivables a more
meaningful measure of exposure to credit risk than the aging of total
receivables.
(2) Computed on an annualized basis.
The Company regularly reviews its outstanding accounts receivable and other
extensions of credit, such as advances to clients, to determine the adequacy of
its allowance for credit losses. Factors such as the level of related credit
balances of clients and the impact of economic conditions on the
creditworthiness of the Company's clients and the client's customers are given
significant consideration in determining the adequacy of the Company's allowance
for credit losses. The Company's methodology for calculating its reserve for
doubtful accounts has remained consistent for the periods shown above, and
includes a specific and general component. Specific reserves are established for
receivables and client advances which the Company's management deems to be
wholly or partially uncollectible. The general reserve represents 0.75% of those
receivables (other than healthcare receivables, which have a lower general
reserve) that are not specifically reserved for but for which the Company has
provided credit guarantees.
The provision for credit losses as a percentage of factored sales increased from
0.11% for the nine months ended September 30, 1995 to 0.15%. The provision for
credit losses as a percentage of average receivables and the provision for
credit losses as a percentage of average funds employed increased to 0.91% and
1.36%, respectively, for the nine months ended September 30, 1996, from 0.74%
and 1.08%, respectively in the nine months ended September 30, 1995, reflecting
a higher net charge-off rate. Management anticipates that the provision for
credit losses during the remainder of 1996 will be higher than during 1995 and
more consistent with the Company's historical experience.
Net charge-offs as a percentage of factored sales ranged from 0.05% to 0.30% in
the 1991-1995 period. Net charge-offs as a percentage of factored sales
increased from 0.05% for the period ended September 30, 1995 to 0.15% for the
period ended September 30, 1996. The net charge-offs percentage increased in
1996 due to the charge-off in the first quarter of $600,000 related to the
bankruptcy of a large Northeastern regional chain store, but net charge-offs
remained well within the Company's historical experience. Net charge-offs as a
percentage of average receivables and net charge-offs as a percentage of average
funds employed increased 0.58% and 0.89%, respectively, for
11
<PAGE>
the nine months ended September 30, 1996 as compared to the same period in 1995
due primarily to the $600,000 charge off described above.
Non-accruing advances as a percentage of funds employed have historically
remained below 1.00% and during the nine months ended September 30, 1996 and
1995, were at 0.22% and 0.39%, respectively. Non-accruing advances as a
percentage of receivables decreased from 0.26% to 0.14%, for the same nine month
periods ended September 30, 1995 and 1996, respectively. Management believes
that non-accruing advance fluctuations below 1.0% are a normal part of the
Company's ongoing business and are not significant.
Credit-approved accounts receivable past due more than 60 days as a percentage
of credit-approved factored receivables and accounts receivable past due more
than 90 days as a percentage of credit-approved factored receivables equaled
2.13% and 1.70%, respectively at September 30, 1996 as compared to 2.38% and
0.81%, respectively at September 30, 1995. Management considers these levels
acceptable. Accounts receivable past due more than 60 days as a percentage of
total factored receivables and accounts receivable past due more than 90 days as
a percentage of total factored receivables equaled 7.63% and 4.80, respectively,
for the nine month period ended September 30, 1996 as compared to 5.50% and
3.17%, respectively, for the nine month period ended September 30, 1995. The
increase in these ratios was due to an increase in healthcare factored
receivables from $14.9 million at September 30,1995 to $21.9 million at
September 30, 1996, that are slower paying with higher delinquency ratios.
Healthcare factored receivables are not credit-approved thus the Company does
not guarantee payment of the receivables.
FINANCIAL CONDITION - SEPTEMBER 30, 1996 AS COMPARED TO DECEMBER 31, 1995
- -------------------------------------------------------------------------
Total assets increased to $541.9 million at September 30, 1996 from $399.5
million at December 31, 1995. The $142.4 million increase was due primarily to a
$141.3 million dollar increase in net receivables.
Factored accounts receivables increased $133.6 million primarily as a result of
increased factored sales and the seasonal fluctuation in the Company's factored
sales volume, which generally have been highest during the period from August
through November. During such 4-month period, the Company's clients, especially
those in the apparel industry, typically ship more goods in order to fill
increased customer orders in anticipation of "back to school" and the ensuing
holiday season. The Company's factored accounts receivable are due from clients'
customers geographically located throughout the United States, principally
retailers, manufacturers and distributors. Asset based loans, which represent
loans provided to clients principally collateralized by accounts receivable,
increased $13.9 million from December 31, 1995 to September 30, 1996. Restricted
Cash decreased primarily as a result of the final draw down of $10.0 million of
cash maintained in a Pre-Funding account related to the third series of variable
rate asset-backed certificates collateralized by factored advances ("Securitized
Financings"), but was offset by an increase in Non-restricted Cash which is
subject to fluctuations in daily deposit volumes.
The increase in assets was principally funded by an increase in its debt
outstanding under the Company's debt facility with Capital Bank and two new
credit facilities closed by the Company during the nine months ended September
30, 1996. Outstanding debt under the Capital Bank facility increased from
approximately $52.3 million at December 31, 1996 to approximately $76.8 million
at September 30, 1996. In April 1996, the Company closed a revolving credit
facility in the amount of $40 million with an
12
<PAGE>
unaffiliated bank. At September 30, 1996 the Company had $29.0 million
outstanding under this facility, which bears interest at LIBOR plus 2.15%. In
May 1996, the Company, through its wholly-owned subsidiary, CF One, Inc., raised
an additional $10 million through the issuance of 5 year notes, due and payable
in July 2001, which bear a fixed rate of interest of 7.95%.
Stockholders' equity increased approximately $25.4 million during the first nine
months of 1996 as a result of $17.6 million in net proceeds received from the
sale of approximately 19% of the Company's common stock and $7.7 million of net
income earned by the Company. On July 10, 1996, the Company completed an initial
public offering of 2,000,000 shares of common stock and on August 5, 1996, sold
an additional 300,000 pursuant to the Underwriters' over-allotment option.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1995
- -------------------------------------------------------------------------------
Net income increased 29.6% to approximately $3.3 million for the three month
period ended September 30, 1996 from approximately $2.5 million for the
comparable period in 1995 due primarily to an increase in operating revenues.
Operating revenues (total revenues less interest expense) increased from
approximately $9.5 million for the three month period ended September 30, 1995
to approximately $12.4 million for the comparable period in 1996, a 29.7%
increase. These increases were primarily a result of a 26.3% increase in the
Company's factored sales volume from $561.2 million to $708.9 million for the
three month period ended September 30, 1995 and September 30, 1996,
respectively, and the resulting increase in interest income and factoring fees.
The factored sales volume increases were attributable to continued growth of the
Company's client base, with all four regional offices contributing to the
increase.
Factoring fee income increased to approximately $6.9 million for the three month
period ended September 30, 1996 as compared to approximately $5.2 million for
the three month period ended September 30, 1995 as a result of a 26.3% increase
in factored sales. Factoring fee income as a percentage of factored sales for
the three month periods increased from 0.93% in 1995 to 0.98% in 1996. During
the three month period ended September 30, 1995 the Company processed $15.7
million of initial factored sales from a new healthcare client for which no
commission was charged. Excluding this $15.7 million of factored sales,
factoring fee income as a percentage of factored sales for the three months
ended September 30, 1995 equaled .96%.
Net interest income (interest income less interest expense) increased to
approximately $4.2 million for the three months ended September 30, 1996 from
approximately $3.1 million for the comparable period in 1995, a 33.5% increase.
The increase resulted primarily from the approximately $17,6 million of net
proceeds raised by the Company's issuance of common stock in July 1996 which
were used to reduce the debt outstanding under a debt facility with Capital
Bank. The interest rate on this facility was 8.25% at September 30, 1996.
Additionally, the Company entered into a $40,000,000 revolving loan agreement
bearing interest at LIBOR plus 2.15% in April 1996 with an unaffiliated bank.
Average borrowings from the revolving loan during the three month period ended
September 30, 1996 equaled approximately $28.6 million and had an effective
interest rate of 8.04% for the three month period. Interest income also
increased due to an increase of $85.3 million in average outstanding funds
employed for the three months ended September 30, 1996 as compared to the same
period in the prior year.
13
<PAGE>
Letter of credit and other fee income increased to approximately $871,000 for
the three months ended September 30, 1996 from $758,000 for the three months
ended September 30, 1995, a 14.9% increase. Letter of credit fees increased
approximately 28.8% or $65,800 during the three month period while other fee
income increased by approximately $47,000 due to the increased factoring volume
and asset based lending activities, and growth in the Company's healthcare
division.
The provision for credit losses equaled $700,000 for both the three months ended
September 30, 1996 and the three months ended September 30, 1995. Provisions for
credit losses as a percentage of factored sales decreased to 0.10% for the three
months ended September 30, 1996 as compared to 0.12% for the comparable period
in 1995, reflecting a slightly lower net charge-off rate for the quarter (see
"Monitoring Asset Quality and Credit Losses")
Operating expenses increased from $4,581,000 to $5,935,000 for the three month
period ended September 30, 1995 as compared to the three months ended September
30, 1996. This $1.4 million or 30% increase is primarily the result of expansion
in the regional offices and the acquisition of Capital TempFunds, Inc.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1995
- -------------------------------------------------------------------------------
Net income increased $1.3 million to approximately $7.7 million for the nine
month period ended September 30, 1996 from approximately $6.5 million for the
comparable period in 1995, a 19.4% increase due to an increase in operating
revenues offset by an increase in the provision for credit losses. Operating
revenues increased 27.8% from approximately $25.6 million to $32.7 million,
respectively, for the nine month periods ended September 30,1995 and September
30, 1996. These increases were primarily a result of a 29.0% increase in the
Company's factored sales volume from $1.5 billion to $1.9 billion for the nine
month period ended September 30, 1995 and September 30, 1996, respectively. This
increase in factored sales was attributable to the opening of the Charlotte
office which increased factored sales volume by $124.0 million in the nine month
period, combined with continued growth of the Company's New York and California
offices. The Company's healthcare division, which commenced operations in
September 1994, contributed $91.5 million in factored sales, a 36.6% increase
over its contribution over the prior comparable period.
The Company experienced a 29.0% increase in factoring fee income for the nine
months ended September 30, 1996 as compared to the nine months ended September
30, 1995 as a result of a 29.0% increase in factored sales. Factoring fee income
as a percentage of factored sales for the nine month periods remained flat at
0.98% in 1995 and 1996.
Net interest income increased to approximately $10.7 million for the nine months
ended September 30, 1996 from approximately $8.4 million for the comparable
period in 1995, a 27.4% increase, principally as a result of an increase of
$72.0 million, a 35.5% increase, in average outstanding funds employed for the
nine months ended September 30, 1996 as compared to the same period in the prior
year. Net interest income for the nine months ended September 30, 1996 was also
favorably impacted by continued interest expense reductions achieved through the
issuance of $50,000,000 of additional Certificates under the Securitized
Financings agreement in July 1995, entering into a $40,000,000 revolving loan
agreement with an unaffiliated bank in April 1996, and the issuance of
$10,000,000 in subordinated notes in May 1996. Average borrowings from the
14
<PAGE>
revolving loan during the nine month period ended September 30, 1996 equaled
approximately $15.5 million and had an effective interest rate of 8.2% for the
nine month period. The $10,000,000 notes bear interest at a fixed annual rate of
7.95%.
Letter of credit and other fee income increased to approximately $2.4 million
for the nine months ended September 30, 1996 from $1.8 million for the nine
months ended September 30, 1995, a 33.0% increase. Letter of credit fees
increased approximately 39.0% or $243,000 during the nine month period.
The provision for credit losses increased to $2,800,000 for the nine months
ended September 30, 1996 from $1,650,000 for the nine months ended September 30,
1995. This increase is primarily attributable to an increase in outstanding
accounts receivable. The provisions for credit losses as a percentage of
factored sales for the nine months ended September 30, 1996 increased to .15% as
compared to .11% for the comparable period in 1995, reflecting a higher net
charge-off rate (see "Monitoring Asset Quality and Credit Losses")
Operating expenses increased from $13,125,000 to $16,688,000 for the nine month
period ended September 30, 1995 as compared to the nine months ended September
30, 1996. This $3.6 million or 27.1% increase is primarily the result of opening
the North Carolina regional office and expansion of the existing regional
offices and the healthcare division.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's principal source of funding is from its asset securitization
program, the Securitized Financings which include three series of asset-backed
certificates aggregating $175.0 million. The certificates issued under each
series bear interest at LIBOR plus 1.25% (6.75391% at September 30, 1996,
excluding annualized transaction costs of 0.37%) and interest is payable
monthly. The Company may continue to use the Securitized Financings for funding,
provided eligible client advances are available for transfer to the trust
created to accommodate the Securitized Financings (the "Trust") for future
funding through new series. Generally, all of the client advances made by the
Company, with the exception of those made by its healthcare division, as well as
certain asset-based loans, are eligible for transfer to the Trust. As of
September 30, 1996, the Company had transferred to the Trust client advances
aggregating nearly $254.9 million. The scheduled maturity date of the
certificates corresponding to each series is December 1999 ($100 million), June
2000 ($25 million), and January 2001 ($50 million), respectively.
In April 1996, the Company entered into a $40.0 million revolving credit
facility with an unaffiliated bank. The indebtedness under this facility is
secured by advances not collateralizing the Securitized Financings (primarily
advances made by the Company's healthcare division or asset-based loans). The
indebtedness under this revolving facility bears interest at a rate of LIBOR
plus 2.15%, payable monthly. The indebtedness under this facility matures upon
termination in March 1999, although it will be automatically renewed for
additional one year periods unless the Company or the lender terminate it. The
Company also has a $125.0 million unsecured revolving line of credit with
Capital Bank, pursuant to which the Company had outstanding borrowings of
approximately $76.8 million at September 30, 1996. Indebtedness under this
facility bears interest at the prime rate, as published in The Wall Street
Journal (8.25% at
15
<PAGE>
September 30, 1996), is subject to annual review by Capital Bank each June and
is due on demand. In May 1996, $10.0 million subordinated notes were issued
through CF One, Inc. These notes are due and payable in July 2001 and bear
interest at an annual fixed rate of 7.95%. In addition to the continued
availability of the above financing, the Company's future liquidity will
continue to be dependent upon its ability to collect the accounts receivable
purchased from its clients. Of the Company's approximately $502.2 million of
accounts receivable outstanding at September 30, 1996, approximately $214.3
million have balances exceeding $1 million. These customers are primarily large
national or regional department store chains or specialty retailers. At
September 30, 1996, the largest amount due from any one customer, a national
chain store, was approximately $22.3 million. In addition, the Company's
accounts receivable turned over in an average of 51 days during 1995 and 51 days
during the nine months ended September 30, 1996.
The Company had no material commitments for capital expenditures as of September
30, 1996.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
THE COMPANY
- -----------
From time to time, the Company has been a party to lawsuits and claims,
including lender liability claims, which management considers incidental to
normal operations. The Company is currently a party to one lawsuit that was
dismissed after trial. The plaintiff is currently appealing the dismissal.
Management, after review, including consultation with counsel, believes that
any ultimate liability which could arise from this current lawsuit would not
materially affect the financial position of the Company.
BANCORP AND CAPITAL BANK LEGAL PROCEEDINGS
- ------------------------------------------
NATHAN J. ESFORMES, STANLEY I. WORTON, M.D., AND LEONARD WIEN, AS INDIVIDUAL
SHAREHOLDERS AND ON BEHALF OF ALL OTHER SHAREHOLDERS OF CAPITAL BANCORP V. ABEL
HOLTZ, FANA HOLTZ, DANIEL M. HOLTZ, JAVIER J. HOLTZ, CAPITAL BANK AND CAPITAL
BANCORP CIRCUIT COURT FOR THE 11TH JUDICIAL DISTRICT IN AND FOR DADE COUNTY,
FLORIDA CASE NO. 95-02515.
Capital Bancorp ("Bancorp") filed a motion to lift the stay in this action,
which was held in abeyance at the plaintiffs' request by the court at a hearing
held on October 7, 1996. As a result, the report issued by the Independent
Committee (which concluded that, based on its investigation and the
investigation of its counsel and accounting firm, that no legal basis for
pursuing the derivative action exists and that the derivative action is not in
the best interest of Bancorp or the Bank, and as such, should be dismissed) has
not yet been filed with the court. However, in early November, the Plaintiffs
filed a motion to lift the stay and to schedule an evidentiary hearing on the
Independence of the Independent Committee and the reasonableness of its
investigation. A hearing on this motion has not yet been set.
Regulatory Matter
The administrative hearing regarding the application by Daniel Holtz, Chairman
of the Board, Chief Executive Officer and President of Bancorp, Fana Holtz, the
Vice-Chairman of the Board, and Javier Holtz, an executive officer of Bancorp,
to acquire and/or maintain a controlling interest in the Bank through their
ownership and control of Bancorp, commenced in August 1996 and ended on November
8, 1996. An order has not yet been made on the application and is not
anticipated prior to the first quarter of 1997.
17
<PAGE>
ITEM 5. OTHER INFORMATION
- --------------------------
On August 9, 1996 the Company closed on the acquisition of substantially all of
the assets of TempFunds America, Inc. and its affiliate, TempFunds America
Funding Corporation of South Carolina, Inc. (collectively "TempFunds"),
specialized financial services companies principally engaged in providing
receivables-based commercial financing and related fee-based credit, collection
and management information services to temporary employment and home health care
agencies. The acquisition was completed through Capital TempFunds, Inc., a newly
formed North Carolina Corporation and wholly owned subsidiary of Factors.
The TempFunds entities provide certain services not presently provided by the
Company, including billing, payroll processing, payroll tax, payroll reporting
and other payroll services and insurance reporting. The purchase price paid by
the Company was approximately $5.9 million (approximately $5.0 million equal to
the net book value of the assets plus an additional $900,000). An additional
amount up to $900,000 is payable over a three year period if certain
contingencies are met. In connection with the acquisition, all rights, title and
interest, to the nationally registered service mark of "TempFunds America" were
assigned to Capital TempFunds, Inc. who intends to conduct business in said
name.
The purchase was funded under the Company's revolving line of credit with
Capital Bank.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.1 - Employment Contract Among James L. Morrison and Capital
Factors, Inc.
(b) Exhibit 10.2 - Employment Contract Among Stephen J. Donohue and Capital
Factors, Inc.
(c) Exhibit 11 - Statement re: Calculation of Earnings Per Share
(d) Exhibit 27.1 - Financial Data Schedule
(e) No Current Reports on Form 8-K were filed by the Company during the quarter
and nine months ended September 30, 1996.
18
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 1996 By: /s/ DENNIS A. MCDERMOTT
---------------------------
DENNIS A. MCDERMOTT
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
19
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into on
this _____ day of _________________, 1996, for the period commencing on January
1, 1997 and ending on December 31, 2001 by and between CAPITAL FACTORS, INC., a
Florida corporation (the "Company"), and JAMES L. MORRISON (hereinafter called
the "Executive").
R E C I T A L S
A. The Executive is currently employed as Executive Vice President and
Regional Manager of the California office of the Company.
B. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
C. The Boards of Directors (the "Boards") of the Company and Capital
Factors Holding, Inc., the parent company of the Company ("Holding"), and the
Compensation and Benefits Committee of Holding (the "Committee") recognize that
the Executive has contributed to the growth and success of the Company, and
desire to assure the Company of the Executive's continued employment and to
compensate him therefor.
D. The Boards and the Committee have determined that this Agreement
will reinforce and encourage the Executive's continued attention and dedication
to the Company.
E. The Executive is willing to make his services available to the
Company and on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT. The Company hereby agrees to employ the
Executive and the Executive hereby agrees to serve the Company on the terms and
conditions set forth herein.
1.2 DUTIES OF EXECUTIVE. During the term of this Agreement,
the Executive shall serve as the Executive Vice President and Regional Manager
of the California office of the Company reporting directly to the President and
Board of Directors of the Company, shall diligently perform all services as may
be assigned to him by the Board or the President of the Company (provided that,
such services shall not materially differ from the services currently provided
by the Executive), and shall exercise such power and authority as may from time
to time
<PAGE>
be delegated to him by the Boards or the President of the Company. The Executive
shall devote his full time and attention to the business and affairs of the
Company and its subsidiaries, render such services to the best of his ability,
and use his best efforts to promote the interests of the Company and its
subsidiaries.
2. TERM. The term of this Agreement, and the employment of the
Executive hereunder, shall commence as of January 1, 1997 (the "Commencement
Date") and shall expire on December 31, 2001 (the "Expiration Date"), unless
sooner terminated in accordance with the terms and conditions hereof (the
"Term").
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive a base salary (the
"Base Salary") at the annual rate of $210,000 during 1997, with such Base Salary
payable in installments consistent with the Company's normal payroll schedule,
subject to applicable withholding and other taxes. The Base Salary shall be
adjusted during each other year of the Term to reflect, at a minimum, an eight
percent (8%) increase from the Base Salary paid to the Executive in the previous
year. The Base Salary shall also be reviewed, at least annually, for merit
increases and may, by action and in the discretion of the Boards, or the
Compensation and Benefits Committee (the "Committee") of Capital Factors
Holding, Inc. ("Holding"), the parent company of the Company, be increased at
any time or from time to time.
3.2 SIGNING BONUS AND COMPANY LOAN. Upon execution of this
Agreement, the Company shall: (i) pay the Executive $100,000 in cash as a
signing bonus, subject to applicable withholding and other taxes; and (ii) loan
the Executive $100,000 (the "Company Loan"). The Company Loan shall bear
interest at THE WALL STREET JOURNAL prime rate (as defined in the Capital Bank
line of credit agreements) plus 1 1/2%. On each December 31 during the Term,
commencing on December 31, 1997, until paid in full, Twenty-Five Thousand
Dollars ($25,000) of the principal amount of the Company Loan together with all
interest accrued on the Company Loan through such date shall become immediately
due and payable, except that if in any one year (but only the first and no more
than one such year) during the Term that EBT (as hereinafter defined) for that
year has not increased by at least 15% from EBT for the prior year, such amount
and all further installments under the Company Loan shall not become due and
payable until the December 31 following the December 31 that they would
otherwise have become due, although interest shall continue to accrue at the
applicable rate. Notwithstanding the foregoing, the entire principal balance
together with all accrued interest thereon shall be due and payable in full in
the event of and upon the earlier termination of this Agreement. Notwithstanding
the foregoing, for each December 31 during the Term that the Executive continues
to be employed by the Company at such time and at which EBT for the year ending
on such December 31 has increased by at least 15% from EBT for the prior year,
the Company shall pay to the Executive a bonus equal to the amount of principal
and accrued interest due and payable to the Company under the Company Loan at
such December 31.
- 2 -
<PAGE>
3.3 INCENTIVE COMPENSATION.
(a) The Executive shall be entitled to receive
incentive compensation ("Incentive Compensation") during each year of the Term
of this Agreement, commencing with the 1997 year equal to 3% of EBT for such
year. For purposes hereof, "EBT" is the Company's net earnings before income
taxes attributable to the California regional office or the difference between
(i) Net Revenues (as hereinafter defined) and (ii) the sum of total operating
expenses and any provisions of the California regional office.
EBT shall be derived from Holding's annual audited consolidated
financial statements for Holding's year and shall be calculated in accordance
with generally accepted accounting principles, applied consistently with prior
periods; provided that (i) EBT shall exclude extraordinary gains or losses
attributable to the California regional office of the Company, (ii) funding
costs attributable to the California regional office shall be calculated in
accordance with funding costs of the Company, and (iii) the Incentive
Compensation for any one year shall never exceed an amount equal to two times
the Executive's Base Salary for that year. Absent fraud, or manifest or gross
error, the determination of EBT by the Company will be final and shall not be
subject to further review, challenge or adjustment by the Executive.
(b) The Executive shall be entitled to receive the
estimated amount of the Incentive Compensation (the "Estimated Incentive
Compensation"), net of applicable withholding and other taxes, within thirty
(30) days after the end of the year, such Estimated Incentive Compensation to be
derived from the Company's and Holding's unaudited financial statements as
reviewed and approved by the Board. The Estimated Incentive Compensation will be
subject to upward or downward adjustment based on Holding's annual audited
consolidated financial statements reported on by Holding's independent certified
public accountants (the "Adjustment"). The Adjustment shall be paid by the
Executive to the Company, or shall be paid by the Company to the Executive, as
the case may be, within fifteen (15) days of receipt of Holding's audited
consolidated financial statements. In the event the Executive does not reimburse
the Company for any Adjustment within such fifteen-day period, the Company shall
have the right to offset the Adjustment against any other payments due to the
Executive hereunder.
3.4 ACCUMULATED ADDITIONAL BONUS FROM PRIOR EMPLOYMENT
AGREEMENT. Upon the execution of this Agreement, the Executive shall receive an
additional cash bonus (the "Additional Bonus") in the amount of $120,000,
subject to applicable withholding and other taxes, representing the pro rata
portion of the Additional Bonus provided for in Section 3.4 of the Employment
Agreement dated January 1, 1993 by and between the Company and the Executive
(the "Prior Employment Agreement"). The Executive shall not be entitled to any
other portion of the Additional Bonus provided for in Section 3.4 of the Prior
Employment Agreement and hereby waives any and all rights to such payment.
3.5 DEFERRED COMPENSATION. The Executive shall be entitled to
deferred compensation equal to .50 of his Base Salary (the "Deferred
Compensation"), vesting and payable as set forth below, for each year during the
Term that (i) Net Revenues for such year have increased at least 13.5% over Net
Revenues for the prior year, and (ii) EBT for such year has
- 3 -
<PAGE>
increased at least 22.5% over EBT for the prior year. For purposes hereof, Net
Revenues is the sum of (i) the difference between interest income and interest
expense of the California regional office of the Company, (ii) factoring fees or
commission income of the California regional office of the Company, (iii)
discount income of the California regional office of the Company and (iv) other
income of the California regional office of the Company.
The Executive's rights in and to the Deferred Compensation for each
year shall vest as follows:
(i) The Executive shall vest in 50% of the Deferred
Compensation payable for any year during the Term on the January 1
first following the third anniversary of December 31 of the year in
which Deferred Compensation is earned by the Executive, provided that
the Executive is still employed by the Company at such time;
(ii) The Executive shall vest in an additional 25% of
the Deferred Compensation payable for any year during the Term on the
January 1 first following the fourth anniversary of December 31 of the
year in which Deferred Compensation is earned by the Executive,
provided that the Executive is still employed by the Company at such
time;
(iii) The Executive shall vest in the final 25% of
the Deferred Compensation payable for any year during the Term on the
January 1 first following the fifth anniversary of December 31 of the
year in which Deferred Compensation is earned by the Executive,
provided that the Executive is still employed by the Company at such
time; and
(iv) Notwithstanding the foregoing, the Executive
shall not be required to remain employed by the Company after the
Expiration Date in order to vest in and to be paid Deferred
Compensation vesting after the Expiration Date, provided that the
Executive is employed by the Company pursuant to this Agreement through
the Expiration Date. Furthermore, should the Company and the Executive
enter into another employment agreement or amend or extend this
Agreement for an additional period of five years or more, then,
immediately following the Expiration Date, the remaining unvested
portion of the Deferred Compensation shall immediately become vested
and payable subject to the other provisions of this Agreement.
Subject to Section 3.6 hereof, upon or after the Executive's vesting in any
Deferred Compensation, whether during or after the Term, such Deferred
Compensation shall be paid to the Executive. Subject to Section 3.6 hereof,
payments shall be made on the date on which the Executive's Deferred
Compensation vests (the "Vesting Date"), or on such later date elected in
writing by the Executive at least one year prior to the earlier of the Vesting
Date or the Expiration Date.
- 4 -
<PAGE>
3.6 EVENT OF NON-DEDUCTIBILITY.
SECTION 162(M) LIMITS. Notwithstanding any other
provision of this Agreement, payment of the portion (the "Section 162(m)
Portion") of the Executive's Incentive Compensation earned for any calendar year
that would not otherwise be deductible by reason of Section 162(m) of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (collectively, "Section 162(m)") (determined after taking into
account all other remuneration required to be taken into account under Section
162(m) for the year), as well as payment of any Deferred Compensation earned for
such year, shall be subject to the following conditions: (i) the performance
goals and incentive and deferred compensation set forth in Sections 3.3 and 3.5
that must be satisfied in order for the Section 162(m) Portion to be earned for
that year shall be subject to the approval of, and may be modified by, the
Committee, at such times as may be required for the Section 162(m) Portion to be
deductible under Section 162(m); (ii) payment of the Section 162(m) Portion
shall be subject to the approval by the shareholders of Holding of the material
terms of the performance goals and incentive and deferred compensation relating
to the Section 162(m) Portion before the Section 162(m) Portion is paid; and
(iii) the maximum amount of Incentive Compensation and Deferred Compensation
payable to the Executive is as set forth in Sections 3.3 and 3.5 of this
Agreement. If and to the extent that any remuneration (including without
limitation any Deferred Compensation) payable by the Company to the Executive
for any year would exceed the maximum amount of such remuneration that the
Company or Holding may deduct for that year by reason of Section 162(m), payment
of the portion of the remuneration for that year that would not be so deductible
under Section 162(m) shall, in the sole discretion of the Committee, be deferred
so that it shall become payable at such time or times as the Committee
reasonably determines that it first would be deductible by the Company or
Holding under Section 162(m), with interest at the "short-term applicable
federal rate" as such term is defined in Section 1274(d) of the Code. The grant
of options to purchase shares of Common Stock pursuant to Section 4.5 has been
approved by both the Stock Option Committee of Capital Bancorp and the Committee
and is subject to and conditioned upon the approval by shareholders of Holding
of the Company's Stock Option Plan. The Company agrees to seek the shareholder
approvals described in this Section 3.6.
3.7 NO PAYMENT IN VIOLATION OF APPLICABLE LAW OR REGULATION.
Notwithstanding anything else contained herein, no payment shall be made
hereunder that constitutes a golden parachute payment or prohibited
indemnification payment in violation of 12 CFR Part 359.
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. During the term of Executive's
employment hereunder, the Company, upon the submission of proper substantiation
by the Executive, shall reimburse the Executive for all reasonable expenses
actually paid or incurred by the Executive in the course of and pursuant to the
business of the Company. The Executive shall account to the Company in writing
for all expenses for which reimbursement is sought and shall supply to the
Company copies of all relevant invoices, receipts or other evidence reasonably
requested by the Company.
- 5 -
<PAGE>
4.2 OTHER BENEFITS. The Executive shall be entitled to
participate in all medical and hospitalization, group life insurance, and any
and all other plans as are presently and hereinafter offered by the Company to
its executives. The Executive shall be entitled to 20 business days of vacation
every year. During the term of this Agreement, the Company shall continue to pay
for the Executive's membership in a country club on terms consistent with past
practices.
4.3 WORKING FACILITIES. The Company shall furnish the Executive
with an office, secretarial help and such other facilities and services suitable
to his position and adequate for the performance of his duties hereunder.
4.4 AUTOMOBILE. The Company shall pay the Executive an
automobile allowance of $600 per month during the Initial Term of this
Agreement.
4.5 STOCK OPTIONS. Holding has granted to the Executive options
to purchase 60,000 shares of Common Stock pursuant to a Stock Option Agreement
dated ______________ and the Company's Stock Option Plan. The Executive shall
also be eligible to be considered for the grant of options under the Capital
Bancorp Stock Option Plan pursuant to the terms thereof and subject to the
restrictions contained therein.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all times have
the right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, for cause. For purposes of this Agreement, the term
"cause" shall mean (i) an action or omission of the Executive which constitutes
a willful and material breach of this Agreement which is not cured within
fifteen (15) days after receipt by the Executive of written notice of same, (ii)
fraud, embezzlement, misappropriation of funds or breach of trust, (iii) any
criminal act which is a felony, (iv) gross negligence in connection with the
performance of the Executive's duties hereunder, (v) material and willful or
knowing failure or refusal (other than as a result of a disability) by the
Executive to perform his duties hereunder, or (vi) the request by any regulatory
agency that regulates Capital Bank or Capital Bancorp that the Executive be
removed from his duties hereunder. Any termination for cause shall be made in
writing to the Executive, which notice shall set forth in detail all acts or
omissions upon which the Company is relying for such termination. The Executive
shall have the right to address the Company's Board regarding the acts set forth
in the notice of termination. Upon any termination pursuant to this Section 5.1,
the Executive shall be entitled to be paid his Base Salary to the date of
termination and the Company shall have no further liability hereunder (other
than for (i) reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 4.1, and
(ii) payment of compensation for unused vacation days that have accumulated
during the calendar year in which such termination occurs).
5.2 DISABILITY. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Executive's employment
hereunder, if the Executive shall, as the result of mental or physical
incapacity, illness or disability, become unable to perform his obligations
hereunder for a period of 90 consecutive days. Upon any termination pursuant to
this Section 5.2, the Company shall (i) pay to the Executive any unpaid Base
Salary through the
- 6 -
<PAGE>
effective date of termination specified in such notice, (ii) pay to the
Executive the Incentive Compensation, if any, not yet paid to the Executive for
any year prior to such termination, at such time as the Incentive Compensation
would otherwise have been payable to the Executive, and (iii) pay to the
Executive a severance payment equal to three (3) months of the Executive's Base
Salary at the time of such disability, (iv) pay to the Executive (within 45 days
after such termination) a pro rata portion of the Incentive Compensation, if
any, for the year in which such termination occurs, as calculated pursuant to
the terms of Section 3.3 (including the provisos set forth in clauses (i) -
(iii) of such Section); provided that, for purposes of such calculation, (x) EBT
shall be calculated for the portion of the year through the end of the month
prior to the month in which such termination occurs and based upon unaudited
financial information prepared in accordance with generally accepted accounting
principles, applied consistently with prior periods, as approved and reviewed by
the Board or the Committee, as applicable, and (y) in determining the maximum
Incentive Compensation for such year, Base Salary shall be the amount of Base
Salary actually paid to the Executive during the year of termination other than
pursuant to Section 5.2(iii), and (v) pay to the Executive, within 45 days after
the termination date, any Deferred Compensation earned in prior years during the
Term, whether or not vested, and a pro rata portion of the Deferred Compensation
for the current year, if any. Whether any Deferred Compensation is due for the
current year shall be determined pursuant to Section 3.5(i)-(iii) after
multiplying each of Net Revenues and EBT for the year through the month prior to
the month in which termination occurs by a fraction, the numerator of which is
12 and the denominator of which is the number of months in the year through the
month prior to the month in which termination occurs, and using the product of
each in performing the calculations under Section 3.5(i)-(iii). If Deferred
Compensation is due, the amount due shall be calculated by multiplying .50 by
the amount of Base Salary paid to the Executive for the year excluding severance
payments pursuant to Section 5.2(iii). The Company shall have no further
liability hereunder (other than for (i) reimbursement for reasonable business
expenses incurred prior to the date of termination, subject, however to the
provisions of Section 4.1, and (ii) payment of compensation for unused vacation
days that have accumulated during the calendar year in which such termination
occurs).
5.3 DEATH. In the event of the death of the Executive during
the term of his employment hereunder, the Company shall (i) pay to the estate of
the deceased Executive any unpaid Base Salary through the Executive's date of
death, (ii) pay to the estate of the deceased Executive the Incentive
Compensation, if any, not yet paid to the Executive for any year prior to the
date of death, at such time as the Incentive Compensation would otherwise have
been payable to the Executive, (iii) pay to estate of the deceased Executive
(within 45 days after such termination) a pro rata portion of the Incentive
Compensation, if any, for the year in which such termination occurs, as
calculated pursuant to the terms of Section 3.3 (including the provisos set
forth in clauses (i) and (ii) of such Section); provided that, for purposes of
such calculation, (x) EBT shall be calculated for the portion of the year
through the end of the month prior to the month in which such termination occurs
and based upon unaudited financial information prepared in accordance with
generally accepted accounting principles, applied consistently with prior
periods, as approved and reviewed by the Board or the Committee, as applicable,
and (y) in determining the maximum Incentive Compensation for such year, Base
Salary shall be the amount of Base Salary actually paid to the Executive during
the year of termination, and (iv) pay to the estate of the deceased Executive,
within 45 days after the termination date, any Deferred Compensation earned in
prior years during the Term, whether or not vested, and a pro rata
- 7 -
<PAGE>
portion of the Deferred Compensation for the current year, if any. Whether any
Deferred Compensation is due for the current year shall be determined pursuant
to Section 3.5(i)-(iii) after multiplying each of Net Revenues and EBT for the
year through the month prior to the month in which termination occurs by a
fraction, the numerator of which is 12 and the denominator of which is the
number of months in the year through the month prior to the month in which
termination occurs, and using the product of each in performing the calculations
under Section 3.5(i)-(iii). If Deferred Compensation is due, the amount due
shall be calculated by multiplying .50 by the amount of Base Salary paid to the
Executive for the year. The Company shall have no further liability hereunder
(other than for (i) reimbursement for reasonable business expenses incurred
prior to the date of the Executive's death, subject, however to the provisions
of Section 4.1, and (ii) payment of compensation for unused vacation days that
have accumulated during the calendar year in which such termination occurs).
5.4 TERMINATION WITHOUT CAUSE. At any time the Company shall
have the right to terminate the Executive's employment hereunder by written
notice to the Executive. Upon any termination pursuant to this Section 5.4 (that
is not a termination under any of Sections 5.1, 5.2, 5.3, 5.5 or 5.6), the
Company shall (i) pay to the Executive any unpaid Base Salary through the
effective date of termination specified in such notice, (ii) subject to the
second last sentence of this Section 5.4, continue to pay the Executive's Base
Salary through the Expiration Date, in the manner and at such time as the Base
Salary would otherwise have been payable to the Executive, (iii) pay to the
Executive the Incentive Compensation, if any, not yet paid to the Executive for
any year prior to such termination, at such time as the Incentive Compensation
would otherwise have been payable to the Executive, (iv) pay to the Executive
(within 45 days after such termination) a pro rata portion of the Incentive
Compensation, if any, for the year in which such termination occurs, as
calculated pursuant to the terms of Section 3.3 (including the provisos set
forth in clauses (i)-(iii) of such Section); provided that, for purposes of such
calculation, (x) EBT shall be calculated for the portion of the year through the
end of the month prior to the month in which such termination occurs and based
upon unaudited financial information prepared in accordance with generally
accepted accounting principles, applied consistently with prior periods, as
approved and reviewed by the Board or the Committee, as applicable, and (y) in
determining the maximum Incentive Compensation for such year, Base Salary shall
be the amount of Base Salary actually paid to the Executive during the year of
termination other than pursuant to Section 5.4(ii), and (v) pay to the
Executive, within 45 days after the termination date, any Deferred Compensation
earned in prior years during the Term, whether or not vested, and a pro rata
portion of the Deferred Compensation for the current year, if any. Whether any
Deferred Compensation is due for the current year shall be determined pursuant
to Section 3.5(i)-(iii) after multiplying each of Net Revenues and EBT for the
year through the month prior to the month in which termination occurs by a
fraction, the numerator of which is 12 and the denominator of which is the
number of months in the year through the month in which termination occurs, and
using the product of each in performing the calculations under Sections
3.5(i)-(iii). If Deferred Compensation is due, the amount due shall be
calculated by multiplying .50 by the amount of Base Salary paid to the Executive
for the year other than pursuant to Section 5.4(ii). The Company shall have no
further liability hereunder (other than for (i) reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 4.1, and (ii) payment of compensation for unused
vacation days that have accumulated during the calendar year in which such
termination occurs). Notwithstanding the foregoing, if the Executive shall find
- 8 -
<PAGE>
other employment prior to the Expiration Date, then the Executive shall notify
the Company in writing of the date and terms of such employment and the Company
shall be entitled to reduce the amount payable to the Executive pursuant to
Section 5.4(ii) during the period from the commencement of such other employment
until the Expiration Date (the "Other Employment Period") by the compensation
payable to the Executive for services rendered in connection with such other
employment during the Other Employment Period. Nothing contained in this Section
5.4 or elsewhere herein shall relieve the Executive from any obligation to
comply with any of the provisions of Section 6 hereof, which shall remain
binding on the Executive.
5.5 RESIGNATION BY EXECUTIVE. The Executive shall at all times
have the right, upon 90 days written notice to the Company, to terminate the
Executive's employment hereunder. Upon any termination pursuant to this Section
5.5, the Executive shall be entitled to be paid his Base Salary to the date of
termination and the Company shall have no further liability hereunder (other
than for (i) reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 4.1, and
(ii) payment of compensation for unused vacation days that have accumulated
during the calendar year in which such termination occurs).
5.6 CHANGE IN CONTROL. In the event that (x) a Change in
Control (as hereafter defined) in Holding shall occur during the Term, and (y)
within one year of such Change in Control, the Executive is (i) assigned any
position, duties or responsibilities that are significantly diminished or
changed when compared with the position, duties or responsibilities of the
Executive prior to such Change in Control, (ii) forced to relocate to another
location more than 50 miles from his location prior to the Change in Control or
(iii) no longer provided coverage under benefit programs in existence prior to
the Change in Control (unless a comparable substitute is offered) (any of (i) to
(iii) being hereinafter referred to as an "Event"); then the Executive, by
written notice to the Company at any time within the thirty (30) day period
following the occurrence of an Event, shall have the right to terminate his
employment hereunder. For purposes of this Agreement, the term "Change in
Control" shall be deemed to have occurred if (a) Capital Bank and any other
direct or indirect subsidiaries of Capital Bancorp ("Corporate Affiliates"),
after aggregating all the shares of Holding held by such entities, no longer own
enough shares of Holding to, in the aggregate, be the largest single shareholder
of Holding, (b) Capital Bank and its Corporate Affiliates, in the aggregate,
cease to own at least 25% of the outstanding Common Stock of Holding; or (c)
there occurs any transaction which shall include a series of transactions
occurring within 60 days or occurring pursuant to a plan (collectively,
"Transaction") that has the result that (i) shareholders of Capital Bancorp
immediately before such Transaction cease to own at least 51% of the voting
stock of Capital Bancorp or of any entity that results from the participation of
Capital Bancorp in a reorganization, consolidation, merger, liquidation or any
other form of corporate transaction and (ii) any person or group of persons
acting in concert acquire in excess of 40% or more of the outstanding voting
stock of Capital Bancorp; provided, however, that it shall not constitute a
"Change in Control" if all or part of the shares in Holding are distributed to
shareholders of Capital Bancorp, regardless of the manner in which such shares
are distributed. In the event that Capital Bank and Capital Bancorp make such a
distribution then, thereafter, a "Change in Control" shall be deemed to have
occurred only upon the following: (a) the shareholders of Holding shall approve
and Holding shall consummate a plan of merger, consolidation, reorganization,
liquidation or any other form of corporate transaction in which shareholders of
- 9 -
<PAGE>
Holding immediately before such transaction cease to own at least 51% of the
voting stock of Holding or any other entity that results from the participation
of Holding in any of the foregoing; or (b) the shareholders of Holding shall
approve and Holding shall consummate a plan for the sale, lease, exchange or
other disposition of all or substantially all of the property and assets of
Holding.
Upon termination by the Executive pursuant to this Section 5.6, Holding
shall (i) pay to the Executive any unpaid Base Salary through the effective date
of termination specified in such notice, (ii) pay to the Executive the Incentive
Compensation, if any, not yet paid to the Executive for any year prior to such
termination, at such time as the Incentive Compensation would otherwise have
been payable to the Executive, (iii) pay to the Executive (within 45 days after
such termination) a pro rata portion of the Incentive Compensation, if any, for
the year in which such termination occurs, as calculated pursuant to the terms
of Section 3.3 (including the provisos set forth in clauses (i)-(iii) of such
Section); provided that, for purposes of such calculation, EBT shall be
calculated for the portion of the year through the end of the month prior to the
month in which such termination occurs and based upon unaudited financial
information prepared in accordance with generally accepted accounting
principles, applied consistently with prior periods, as approved and reviewed by
the Board or the Committee, as applicable, and (y) in determining the maximum
Incentive Compensation for such year, Base Salary shall be the amount of Base
Salary actually paid to the Executive during the year of termination other than
as a lump sum pursuant to Section 5.6, (iv) pay to the Executive, within 45 days
after the termination date, any Deferred Compensation earned in prior years
during the Term, whether or not vested, and a pro rata portion of the Deferred
Compensation for the current year, if any (whether any Deferred Compensation is
due for the current year shall be determined pursuant to Section 3.5(i)-(iii)
after multiplying each of Net Revenues and EBT for the year through the month
prior to the month in which termination occurs by a fraction, the numerator of
which is 12 and the denominator of which is the number of months in the year
through the month in which termination occurs, and using the product of each in
performing the calculations under Sections 3.5(i)-(iii). If Deferred
Compensation is due, the amount due shall be calculated by multiplying .50 by
the amount of Base Salary paid to the Executive for the year other than as a
lump sum pursuant to this Section 5.6; and (v) pay to the Executive a lump sum
equal to the sum of (a) two years' Base Salary at the date of termination plus
(b) the product of his Incentive Compensation for the prior year multiplied by
two. In the event that the Executive's employment is terminated by the Company
within one year following a Change in Control and Without Cause, then, in lieu
of the compensation in clause (v) of this paragraph above, the Company shall pay
to the Executive a lump sum equal to the sum of (a) two years' Base Salary at
the date of termination and (b) the product of the sum of his Incentive
Compensation and Deferred Compensation for the prior year multiplied by two. The
Company shall also continue to pay the premiums for the same or substantially
similar medical and hospitalization, life (including any split dollar life
insurance policy existing presently) and other insurance coverage provided to
the Executive pursuant to Section 4.2 hereof for a period of two years from the
date of termination. In addition, all options held by the Executive to purchase
shares of Common Stock shall immediately vest in the Executive, subject to any
other restrictions contained in the applicable option agreement or option plan.
The Company shall have no further liability hereunder (other than for (i)
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of
- 10 -
<PAGE>
Section 4.1, and (ii) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination occurs).
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. For the period through the Expiration
Date (except that, if the Executive's employment is terminated pursuant to
Sections 5.4 or 5.6 hereof, the period shall be the greater of (i) one year
after such termination date, but in no event beyond the Expiration Date, or (ii)
(A) if the termination is pursuant to Section 5.4, the period of time that or
for which the Executive is receiving Base Salary payments or (B) if the
termination is pursuant to Section 5.6, the period of time with respect to which
the Executive receives a lump sum Base Salary payment pursuant to Section 5.6
(identified as two years in Section 5.6)), the Executive shall not, directly or
indirectly, engage in or have any interest in any sole proprietorship,
partnership, corporation or business or any other person or entity (whether as
an employee, officer, director, partner, agent, security holder, creditor,
consultant or otherwise) that directly or indirectly engages in competition with
the Company in any state in which the Company operates or has a client or
customer at the time of such termination; provided that such provision shall not
apply to the Executive's ownership of Common Stock of Holding or the acquisition
by the Executive, solely as an investment, of securities of any issuer that is
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended, and that are listed or admitted for trading on any United States
national securities exchange or that are quoted on the National Association of
Securities Dealers Automated Quotations System, or any similar system or
automated dissemination of quotations of securities prices in common use, so
long as the Executive is not a member of any control group (within the meaning
of the rules and regulations of the Securities and Exchange Commission) of any
such issuer.
6.2 NONDISCLOSURE. The Executive shall not divulge,
communicate, use to the detriment of the Company or for the benefit of any other
person or persons, or misuse in any way, any confidential information pertaining
to the business of the Company. Any confidential information or data now or
hereafter acquired by the Executive with respect to the business of the Company
(which shall include, but not be limited to, information concerning the
Company's financial condition, prospects, customers, sources of leads and
methods of doing business) shall be deemed a valuable, special and unique asset
of the Company that is received by the Executive in confidence and as a
fiduciary, and Executive shall remain a fiduciary to the Company with respect to
all of such information.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. For the period
through the Expiration Date, and for a period of two years following the
Expiration Date (except that, the period shall be six months after the
Expiration Date if (i) the Executive is employed by the Company on the
Expiration Date, and (ii) the Company has not offered, at or prior to the
Expiration Date, to employ the Executive after the Expiration Date on terms that
provide for payment of (x) a base salary equal to or greater than the Base
Salary (adjusted for cost-of-living increases) being paid to the Executive on
the Expiration Date, and (y) incentive compensation on terms equal to or greater
than the Incentive Compensation terms in effect as of the Expiration Date) the
Executive shall not, directly or indirectly, for himself or for any other
person, firm, corporation, partnership, association or other entity (i) employ
or attempt to employ or enter into
- 11 -
<PAGE>
any contractual arrangement with any employee or former employee of the Company,
unless such employee or former employee has not been employed by the Company for
a period in excess of six months, and/or (ii) call on or solicit any of the
actual or targeted prospective clients of the Company on behalf of any person or
entity in connection with any business competitive with the business of the
Company, nor shall the Executive make known the names and addresses of such
clients or any information relating in any manner to the Company's trade or
business relationships with such customers, other than in connection with the
performance of Executive's duties under this Agreement.
6.4 BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time.
6.5 DEFINITION OF COMPANY. As used in and solely for the
purposes of this Section 6, the term "Company" shall also include any existing
and future subsidiaries of the Company that are operating during the time
periods described herein, as well as Holding and any of its existing and future
subsidiaries.
6.6 ACKNOWLEDGMENT BY EXECUTIVE. The Executive acknowledges and
confirms that the length of the term of the provisions of this Section 6 and the
geographical restrictions contained in Section 6.1 are fair and reasonable and
not the result of overreaching, duress or coercion of any kind. The Executive
further acknowledges and confirms that his full, uninhibited and faithful
observance of each of the covenants contained in this Section 6 will not cause
him any undue hardship, financial or otherwise, and that enforcement of each of
the covenants contained herein will not impair his ability to obtain employment
commensurate with his abilities and on terms fully acceptable to him or
otherwise to obtain income required for the comfortable support of him and his
family and the satisfaction of the needs of his creditors. The Executive
acknowledges and confirms that his special knowledge of the business of the
Company is such as would cause the Company serious injury or loss if he were to
use such ability and knowledge to the benefit of a competitor or were to compete
with the Company in violation of the terms of this Section 6.
6.7 SURVIVAL. The provisions of this Section 6 shall survive
the termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Section 6 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess.
- 12 -
<PAGE>
8. ASSIGNMENT. The Executive agrees that the Company shall have the
right to assign this Agreement, provided, however, that such assignment does not
violate any other provision of this Agreement.. The Executive shall not delegate
his employment obligations hereunder, or any portion thereof, to any other
person.
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness on January 1, 1997, shall supersede all prior agreements,
understandings and arrangements, both oral and written, between the Executive
and the Company (or any of its affiliates) with respect to such subject matter,
including but not limited to the Prior Employment Agreement, it being understood
that the Prior Employment Agreement shall remain in full force and effect and
supersede this Agreement through December 31, 1996. This Agreement may not be
modified in any way unless by a written instrument signed by both the Company
and the Executive.
11. NOTICES: Any notice required or permitted to be given hereunder
shall be deemed given when delivered by hand or when deposited in the United
States mail, by registered or certified mail, return receipt requested, postage
prepaid, (i) if to the Company or Holding, to the address of the Company's
principal offices in Fort Lauderdale, Florida, with a copy to Capital Bank, 1221
Brickell Avenue, Miami, Florida 33133, Attention: President, and (ii) if to the
Executive, to his address as reflected on the payroll records of the Company, or
to such other address as either party hereto may from time to time give notice
of to the other.
12. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
13. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
14. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
- 13 -
<PAGE>
15. DAMAGES. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or the injunction of any
action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other.
16. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
17. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
18. INDEMNIFICATION. Subject to limitations imposed by law, the Company
shall indemnify the Executive to the fullest extent permitted by law.
19. WAIVER OF JURY TRIAL. THE UNDERSIGNED EXPRESSLY (I) WAIVE ANY RIGHT
TO A TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT
OF THIS AGREEMENT OR IN ANY WAY RELATED OR INCIDENTAL TO THE PERFORMANCE OF THE
PARTIES' OBLIGATIONS HEREUNDER, AND (II) AGREE THAT ANY PARTY HERETO MAY FILE AN
ORIGINAL COUNTERPART OR COPY OF THIS SECTION 19 WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT TO THE WAIVER OF THE RIGHT TO TRIAL BY JURY.
- 14 -
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
CAPITAL FACTORS, INC.
By: ________________________________________
Javier J. Holtz, Chairman of the Board
EXECUTIVE:
____________________________________________
James L. Morrison
Capital Factors Holding, Inc. hereby executes this Agreement for the purpose of
agreeing to the provisions of Section 4.5 hereof.
HOLDING:
CAPITAL FACTORS HOLDING, INC.
By: ________________________________________
Javier J. Holtz, Chairman of the Board
- 15 -
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into on
this ____ day of ____________, 1996, for the period commencing on January 1,
1997 and ending on December 31, 2001 by and between CAPITAL FACTORS, INC., a
Florida corporation (the "Company"), and STEPHEN J. DONOHUE (hereinafter called
the "Executive").
R E C I T A L S
A. The Executive is currently employed as Executive Vice President and
Regional Manager of the New York office of the Company.
B. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
C. The Boards of Directors (the "Boards") of the Company and Capital
Factors Holding, Inc., the parent company of the Company ("Holding"), and the
Compensation and Benefits Committee of Holding (the "Committee") recognize that
the Executive has contributed to the growth and success of the Company, and
desire to assure the Company of the Executive's continued employment and to
compensate him therefor.
D. The Boards and the Committee have determined that this Agreement
will reinforce and encourage the Executive's continued attention and dedication
to the Company.
E. The Executive is willing to make his services available to the
Company and on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT. The Company hereby agrees to employ the
Executive and the Executive hereby agrees to serve the Company on the terms and
conditions set forth herein.
1.2 DUTIES OF EXECUTIVE. During the term of this Agreement,
the Executive shall serve as the Executive Vice President and Regional Manager
of the New York office of the Company reporting directly to the President and
Board of Directors of the Company, shall diligently perform all services as may
be assigned to him by the Board or the President of the Company (provided that,
such services shall not materially differ from the services
<PAGE>
currently provided by the Executive), and shall exercise such power and
authority as may from time to time be delegated to him by the Boards or the
President of the Company. The Executive shall devote his full time and attention
to the business and affairs of the Company and its subsidiaries, render such
services to the best of his ability, and use his best efforts to promote the
interests of the Company and its subsidiaries.
2. TERM. The term of this Agreement, and the employment of the
Executive hereunder, shall commence as of January 1, 1997 (the "Commencement
Date") and shall expire on December 31, 2001 (the "Expiration Date"), unless
sooner terminated in accordance with the terms and conditions hereof (the
"Term").
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive a base salary
(the "Base Salary") at the annual rate of $255,000 during 1997, with such Base
Salary payable in installments consistent with the Company's normal payroll
schedule, subject to applicable withholding and other taxes. The Base Salary
shall be adjusted during each other year of the Term to reflect, at a minimum,
an eight percent (8%) increase from the Base Salary paid to the Executive in the
previous year. The Base Salary shall also be reviewed, at least annually, for
merit increases and may, by action and in the discretion of the Boards or the
Compensation and Benefits Committee (the "Committee") of Capital Factors
Holding, Inc. ("Holding"), the parent company of the Company, be increased at
any time or from time to time.
3.2 SIGNING BONUS AND COMPANY LOAN. Upon execution of this
Agreement, the Company shall: (i) pay the Executive $100,000 in cash as a
signing bonus, subject to applicable withholding and other taxes; and (ii) loan
the Executive $100,000 (the "Company Loan"). The Company Loan shall bear
interest at THE WALL STREET JOURNAL prime rate (as defined in the Capital Bank
line of credit agreements) plus 1 1/2%. On each December 31 during the Term,
commencing on December 31, 1997, until paid in full, Twenty-Five Thousand
Dollars ($25,000) of the principal amount of the Company Loan together with all
interest accrued on the Company Loan through such date shall become immediately
due and payable, except that if in any one year (but only the first and no more
than one such year) during the Term that EBT (as hereinafter defined) for that
year has not increased by at least 15% from EBT for the prior year, such amount
and all further installments under the Company Loan shall not become due and
payable until the December 31 following the December 31 that they would
otherwise have become due, although interest shall continue to accrue at the
applicable rate. Notwithstanding the foregoing, the entire principal balance
together with all accrued interest thereon shall be due and payable in full in
the event of and upon the earlier termination of this Agreement. Notwithstanding
the foregoing, for each December 31 during the Term that the Executive continues
to be employed by the Company at such time and at which EBT for the year ending
on such December 31 has increased by at least 15% from EBT for the prior year,
the Company shall pay to the
- 2 -
<PAGE>
Executive a bonus equal to the amount of principal and accrued interest due and
payable to the Company under the Company Loan at such December 31.
3.3 INCENTIVE COMPENSATION.
(a) The Executive shall be entitled to receive
incentive compensation ("Incentive Compensation") during each year of the Term
of this Agreement, commencing with the 1997 year, equal to 3% of EBT for such
year. For purposes hereof "EBT" is the Company's net earnings before income
taxes attributable to the New York regional office or the difference between (i)
Net Revenues (as hereinafter defined) and (ii) the sum of total operating
expenses and any provisions of the New York regional office.
EBT shall be derived from Holding's annual audited consolidated
financial statements for Holding's year and shall be calculated in accordance
with generally accepted accounting principles, applied consistently with prior
periods; provided that (i) EBT shall exclude extraordinary gains or losses
attributable to the New York regional office of the Company, (ii) funding costs
attributable to the New York regional office shall be calculated in accordance
with funding costs of the Company, and (iii) the Incentive Compensation for any
one year shall never exceed an amount equal to two times the Executive's Base
Salary for that year. Absent fraud, or manifest or gross error, the
determination of EBT by the Company will be final and shall not be subject to
further review, challenge or adjustment by the Executive.
(b) The Executive shall be entitled to receive the
estimated amount of the Incentive Compensation (the "Estimated Incentive
Compensation"), net of applicable withholding and other taxes, within thirty
(30) days after the end of the year, such Estimated Incentive Compensation to be
derived from the Company's and Holding's unaudited financial statements as
reviewed and approved by the Board. The Estimated Incentive Compensation will be
subject to upward or downward adjustment based on Holding's annual audited
consolidated financial statements reported on by Holding's independent certified
public accountants (the "Adjustment"). The Adjustment shall be paid by the
Executive to the Company, or shall be paid by the Company to the Executive, as
the case may be, within fifteen (15) days of receipt of Holding's audited
consolidated financial statements. In the event the Executive does not reimburse
the Company for any Adjustment within such fifteen-day period, the Company shall
have the right to offset the Adjustment against any other payments due to the
Executive hereunder.
3.4 ACCUMULATED ADDITIONAL BONUS FROM PRIOR EMPLOYMENT
AGREEMENT. Upon the execution of this Agreement, the Executive shall receive an
additional cash bonus (the "Additional Bonus") in the amount of $200,000,
subject to applicable withholding and other taxes, representing the pro rata
portion of the Additional Bonus provided for in Section 3.4 of the Employment
Agreement dated January 1, 1993 by and between the Company and the Executive
(the "Prior Employment Agreement"). The Executive shall not
- 3 -
<PAGE>
be entitled to any other portion of the Additional Bonus provided for in Section
3.4 of the Prior Employment Agreement and hereby waives any and all rights to
such payment.
3.5 DEFERRED COMPENSATION. The Executive shall be entitled to
deferred compensation equal to .50 of his Base Salary (the "Deferred
Compensation"), vesting and payable as set forth below, for each year during the
Term that (i) Net Revenues for such year have increased at least 13.5% over Net
Revenues for the prior year, and (ii) EBT for such year has increased at least
22.5% over EBT for the prior year. For purposes hereof, Net Revenues is the sum
of (i) the difference between interest income and interest expense of the New
York regional office of the Company, (ii) factoring fees or commission income of
the New York regional office of the Company, (iii) discount income of the New
York regional office of the Company and (iv) other income of the New York
regional office of the Company.
The Executive's rights in and to the Deferred Compensation for each
year shall vest as follows:
(i) The Executive shall vest in 50% of the Deferred
Compensation payable for any year during the Term on the January 1
first following the third anniversary of December 31 of the year in
which Deferred Compensation is earned by the Executive, provided that
the Executive is still employed by the Company at such time;
(ii) The Executive shall vest in an additional 25% of
the Deferred Compensation payable for any year during the Term on the
January 1 first following the fourth anniversary of December 31 of the
year in which Deferred Compensation is earned by the Executive,
provided that the Executive is still employed by the Company at such
time;
(iii) The Executive shall vest in the final 25% of
the Deferred Compensation payable for any year during the Term on the
January 1 first following the fifth anniversary of December 31 of the
year in which Deferred Compensation is earned by the Executive,
provided that the Executive is still employed by the Company at such
time; and
(iv) Notwithstanding the foregoing, the Executive
shall not be required to remain employed by the Company after the
Expiration Date in order to vest in and to be paid Deferred
Compensation vesting after the Expiration Date, provided that the
Executive is employed by the Company pursuant to this Agreement through
the Expiration Date. Furthermore, should the Company and the Executive
enter into another employment agreement or amend or extend this
Agreement for an additional period of five years or more, then,
immediately following the Expiration Date, the remaining unvested
portion of the Deferred Compensation shall immediately become vested
and payable subject to the other provisions of this Agreement.
- 4 -
<PAGE>
Subject to Section 3.6 hereof, upon or after the Executive's vesting in any
Deferred Compensation, whether during or after the Term, such Deferred
Compensation shall be paid to the Executive. Subject to Section 3.6 hereof,
payments shall be made on the date on which the Executive's Deferred
Compensation vests (the "Vesting Date"), or on such later date elected in
writing by the Executive at least one year prior to the earlier of the Vesting
Date or the Expiration Date.
3.6 EVENT OF NON-DEDUCTIBILITY.
SECTION 162(M) LIMITS. Notwithstanding any other
provision of this Agreement, payment of the portion (the "Section 162(m)
Portion") of the Executive's Incentive Compensation earned for any calendar year
that would not otherwise be deductible by reason of Section 162(m) of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (collectively, "Section 162(m)") (determined after taking into
account all other remuneration required to be taken into account under Section
162(m) for the year), as well as payment of any Deferred Compensation earned for
such year, shall be subject to the following conditions: (i) the performance
goals and incentive and deferred compensation set forth in Sections 3.3 and 3.5
that must be satisfied in order for the Section 162(m) Portion to be earned for
that year shall be subject to the approval of, and may be modified by, the
Committee, at such times as may be required for the Section 162(m) Portion to be
deductible under Section 162(m); (ii) payment of the Section 162(m) Portion
shall be subject to the approval by the shareholders of Holding of the material
terms of the performance goals and incentive and deferred compensation relating
to the Section 162(m) Portion before the Section 162(m) Portion is paid; and
(iii) the maximum amount of Incentive Compensation and Deferred Compensation
payable to the Executive is as set forth in Sections 3.3 and 3.5 of this
Agreement. If and to the extent that any remuneration (including without
limitation any Deferred Compensation) payable by the Company to the Executive
for any year would exceed the maximum amount of such remuneration that the
Company or Holding may deduct for that year by reason of Section 162(m), payment
of the portion of the remuneration for that year that would not be so deductible
under Section 162(m) shall, in the sole discretion of the Committee, be deferred
so that it shall become payable at such time or times as the Committee
reasonably determines that it first would be deductible by the Company or
Holding under Section 162(m), with interest at the "short-term applicable
federal rate" as such term is defined in Section 1274(d) of the Code. The grant
of options to purchase shares of Common Stock pursuant to Section 4.5 has been
approved by both the Stock Option Committee of Capital Bancorp and the Committee
and is subject to and conditioned upon the approval by shareholders of Holding
of the Company's Stock Option Plan. The Company agrees to seek the shareholder
approvals described in this Section 3.6.
3.7 NO PAYMENT IN VIOLATION OF APPLICABLE LAW OR REGULATION.
Notwithstanding anything else contained herein, no payment shall be made
hereunder that constitutes a golden parachute payment or prohibited
indemnification payment in violation of 12 CFR Part 359.
- 5 -
<PAGE>
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. During the term of Executive's
employment hereunder, the Company, upon the submission of proper substantiation
by the Executive, shall reimburse the Executive for all reasonable expenses
actually paid or incurred by the Executive in the course of and pursuant to the
business of the Company. The Executive shall account to the Company in writing
for all expenses for which reimbursement is sought and shall supply to the
Company copies of all relevant invoices, receipts or other evidence reasonably
requested by the Company.
4.2 OTHER BENEFITS. The Executive shall be entitled to
participate in all medical and hospitalization, group life insurance, and any
and all other plans as are presently and hereinafter offered by the Company to
its executives. The Executive shall be entitled to 20 business days of vacation
every year. During the term of this Agreement, the Company shall continue to pay
for the Executive's membership in a country club on terms consistent with past
practices.
4.3 WORKING FACILITIES. The Company shall furnish the
Executive with an office, secretarial help and such other facilities and
services suitable to his position and adequate for the performance of his duties
hereunder.
4.4 AUTOMOBILE. The Company shall pay the Executive an
automobile allowance of $600 per month during the Initial Term of this
Agreement.
4.5 STOCK OPTIONS. Holding has granted to the Executive
options to purchase 60,000 shares of Common Stock pursuant to a Stock Option
Agreement dated ______________ and the Company's Stock Option Plan. The
Executive shall also be eligible to be considered for the grant of options under
the Capital Bancorp Stock Option Plan pursuant to the terms thereof and subject
to the restrictions contained therein.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all times have
the right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, for cause. For purposes of this Agreement, the term
"cause" shall mean (i) an action or omission of the Executive which constitutes
a willful and material breach of this Agreement which is not cured within
fifteen (15) days after receipt by the Executive of written notice of same, (ii)
fraud, embezzlement, misappropriation of funds or breach of trust, (iii) any
criminal act which is a felony, (iv) gross negligence in connection with the
performance of the Executive's duties hereunder, (v) material and willful or
knowing failure or refusal (other than as a result of a disability) by the
Executive to perform his duties hereunder, or (vi) the request by any regulatory
agency that regulates Capital Bank or Capital Bancorp that the Executive be
removed from his duties hereunder. Any termination for cause shall
- 6 -
<PAGE>
be made in writing to the Executive, which notice shall set forth in detail all
acts or omissions upon which the Company is relying for such termination. The
Executive shall have the right to address the Company's Board regarding the acts
set forth in the notice of termination. Upon any termination pursuant to this
Section 5.1, the Executive shall be entitled to be paid his Base Salary to the
date of termination and the Company shall have no further liability hereunder
(other than for (i) reimbursement for reasonable business expenses incurred
prior to the date of termination, subject, however, to the provisions of Section
4.1, and (ii) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination occurs).
5.2 DISABILITY. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Executive's employment
hereunder, if the Executive shall, as the result of mental or physical
incapacity, illness or disability, become unable to perform his obligations
hereunder for a period of 90 consecutive days. Upon any termination pursuant to
this Section 5.2, the Company shall (i) pay to the Executive any unpaid Base
Salary through the effective date of termination specified in such notice, (ii)
pay to the Executive the Incentive Compensation, if any, not yet paid to the
Executive for any year prior to such termination, at such time as the Incentive
Compensation would otherwise have been payable to the Executive, (iii) pay to
the Executive a severance payment equal to three (3) months of the Executive's
Base Salary at the time of such disability, (iv) pay to the Executive (within 45
days after such termination) a pro rata portion of the Incentive Compensation,
if any, for the year in which such termination occurs, as calculated pursuant to
the terms of Section 3.3 (including the provisos set forth in clauses (i) -
(iii) of such Section); provided that, for purposes of such calculation, (x) EBT
shall be calculated for the portion of the year through the end of the month
prior to the month in which such termination occurs and based upon unaudited
financial information prepared in accordance with generally accepted accounting
principles, applied consistently with prior periods, as approved and reviewed by
the Board or the Committee, as applicable, and (y) in determining the maximum
Incentive Compensation for such year, Base Salary shall be the amount of Base
Salary actually paid to the Executive during the year of termination other than
pursuant to Section 5.2(iii), and (v) pay to the Executive, within 45 days after
the termination date, any Deferred Compensation earned in prior years during the
Term, whether or not vested, and a pro rata portion of the Deferred Compensation
for the current year, if any. Whether any Deferred Compensation is due for the
current year shall be determined pursuant to Section 3.5(i)-(iii) after
multiplying each of Net Revenues and EBT for the year through the month prior to
the month in which termination occurs by a fraction, the numerator of which is
12 and the denominator of which is the number of months in the year through the
month prior to the month in which termination occurs, and using the product of
each in performing the calculations under Section 3.5(i)-(iii). If Deferred
Compensation is due, the amount due shall be calculated by multiplying .50 by
the amount of Base Salary paid to the Executive for the year excluding severance
payments pursuant to Section 5.2(iii). The Company shall have no further
liability hereunder (other than for (i) reimbursement for reasonable business
expenses incurred prior to the date of termination, subject, however to the
provisions of Section 4.1, and (ii) payment of compensation for
- 7 -
<PAGE>
unused vacation days that have accumulated during the calendar year in which
such termination occurs).
5.3 DEATH. In the event of the death of the Executive during
the term of his employment hereunder, the Company shall (i) pay to the estate of
the deceased Executive any unpaid Base Salary through the Executive's date of
death, (ii) pay to the estate of the deceased Executive the Incentive
Compensation, if any, not yet paid to the Executive for any year prior to the
date of death, at such time as the Incentive Compensation would otherwise have
been payable to the Executive, (iii) pay to the estate of the deceased Executive
(within 45 days after such termination) a pro rata portion of the Incentive
Compensation, if any, for the year in which such termination occurs, as
calculated pursuant to the terms of Section 3.3 (including the provisos set
forth in clauses (i) and (ii) of such Section); provided that, for purposes of
such calculation, (x) EBT shall be calculated for the portion of the year
through the end of the month prior to the month in which such termination occurs
and based upon unaudited financial information prepared in accordance with
generally accepted accounting principles, applied consistently with prior
periods, as approved and reviewed by the Board or the Committee, as applicable,
and (y) in determining the maximum Incentive Compensation for such year, Base
Salary shall be the amount of Base Salary actually paid to the Executive during
the year of termination, and (iv) pay to the estate of the deceased Executive,
within 45 days after the termination date, any Deferred Compensation earned in
prior years during the Term, whether or not vested, and a pro rata portion of
the Deferred Compensation for the current year, if any. Whether any Deferred
Compensation is due for the current year shall be determined pursuant to Section
3.5(i)-(iii) after multiplying each of Net Revenues and EBT for the year through
the month prior to the month in which termination occurs by a fraction, the
numerator of which is 12 and the denominator of which is the number of months in
the year through the month prior to the month in which termination occurs, and
using the product of each in performing the calculations under Section
3.5(i)-(iii). If Deferred Compensation is due, the amount due shall be
calculated by multiplying .50 by the amount of Base Salary paid to the Executive
for the year. The Company shall have no further liability hereunder (other than
for (i) reimbursement for reasonable business expenses incurred prior to the
date of the Executive's death, subject, however to the provisions of Section
4.1, and (ii) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination occurs).
5.4 TERMINATION WITHOUT CAUSE. At any time the Company shall
have the right to terminate the Executive's employment hereunder by written
notice to the Executive. Upon any termination pursuant to this Section 5.4 (that
is not a termination under any of Sections 5.1, 5.2, 5.3, 5.5 or 5.6), the
Company shall (i) pay to the Executive any unpaid Base Salary through the
effective date of termination specified in such notice, (ii) subject to the
second last sentence of this Section 5.4, continue to pay the Executive's Base
Salary through the Expiration Date, in the manner and at such time as the Base
Salary would otherwise have been payable to the Executive, (iii) pay to the
Executive the Incentive Compensation, if any, not yet paid to the Executive for
any year prior to such termination, at such time as
- 8 -
<PAGE>
the Incentive Compensation would otherwise have been payable to the Executive,
(iv) pay to the Executive (within 45 days after such termination) a pro rata
portion of the Incentive Compensation, if any, for the year in which such
termination occurs, as calculated pursuant to the terms of Section 3.3
(including the provisos set forth in clauses (i)-(iii) of such Section);
provided that, for purposes of such calculation, (x) EBT shall be calculated for
the portion of the year through the end of the month prior to the month in which
such termination occurs and based upon unaudited financial information prepared
in accordance with generally accepted accounting principles, applied
consistently with prior periods, as approved and reviewed by the Board or the
Committee, as applicable, and (y) in determining the maximum Incentive
Compensation for such year, Base Salary shall be the amount of Base Salary
actually paid to the Executive during the year of termination other than
pursuant to Section 5.4(ii), and (v) pay to the Executive, within 45 days after
the termination date, any Deferred Compensation earned in prior years during the
Term, whether or not vested, and a pro rata portion of the Deferred Compensation
for the current year, if any. Whether any Deferred Compensation is due for the
current year shall be determined pursuant to Section 3.5(i)-(iii) after
multiplying each of Net Revenues and EBT for the year through the month prior to
the month in which termination occurs by a fraction, the numerator of which is
12 and the denominator of which is the number of months in the year through the
month in which termination occurs, and using the product of each in performing
the calculations under Sections 3.5(i)-(iii). If Deferred Compensation is due,
the amount due shall be calculated by multiplying .50 by the amount of Base
Salary paid to the Executive for the year other than pursuant to Section
5.4(ii). The Company shall have no further liability hereunder (other than for
(i) reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1, and (ii)
payment of compensation for unused vacation days that have accumulated during
the calendar year in which such termination occurs). Notwithstanding the
foregoing, if the Executive shall find other employment prior to the Expiration
Date, then the Executive shall notify the Company in writing of the date and
terms of such employment and the Company shall be entitled to reduce the amount
payable to the Executive pursuant to Section (ii) during the period from the
commencement of such other employment until the Expiration Date (the "Other
Employment Period") by the compensation payable to the Executive for services
rendered in connection with such other employment during the Other Employment
Period. Nothing contained in this Section 5.4 or elsewhere herein shall relieve
the Executive from any obligation to comply with any of the provisions of
Section 6 hereof, which shall remain binding on the Executive.
5.5 RESIGNATION BY EXECUTIVE. The Executive shall at all times have the
right, upon 90 days written notice to the Company, to terminate the Executive's
employment hereunder. Upon any termination pursuant to this Section 5.5, the
Executive shall be entitled to be paid his Base Salary to the date of
termination and the Company shall have no further liability hereunder (other
than for (i) reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 4.1, and
(ii) payment of compensation for unused vacation days that have accumulated
during the calendar year in which such termination occurs).
- 9 -
<PAGE>
5.6 CHANGE IN CONTROL. In the event that (x) a Change in Control (as
hereafter defined) in Holding shall occur during the Term, and (y) within one
year of such Change in Control, the Executive is (i) assigned any position,
duties or responsibilities that are significantly diminished or changed when
compared with the position, duties or responsibilities of the Executive prior to
such Change in Control, (ii) forced to relocate to another location more than 50
miles from his location prior to the Change in Control or (iii) no longer
provided coverage under benefit programs in existence prior to the Change in
Control (unless a comparable substitute is offered) (any of (i) to (iii) being
hereinafter referred to as an "Event"); then the Executive, by written notice to
the Company at any time within the thirty (30) day period following the
occurrence of an Event, shall have the right to terminate his employment
hereunder. For purposes of this Agreement, the term "Change in Control" shall be
deemed to have occurred if (a) Capital Bank and any other direct or indirect
subsidiaries of Capital Bancorp ("Corporate Affiliates"), after aggregating all
the shares of Holding held by such entities, no longer own enough shares of
Holding to, in the aggregate, be the largest single shareholder of Holding, (b)
Capital Bank and its Corporate Affiliates, in the aggregate, cease to own at
least 25% of the outstanding Common Stock of Holding; or (c) there occurs any
transaction which shall include a series of transactions occurring within 60
days or occurring pursuant to a plan (collectively, "Transaction") that has the
result that (i) shareholders of Capital Bancorp immediately before such
Transaction cease to own at least 51% of the voting stock of Capital Bancorp or
of any entity that results from the participation of Capital Bancorp in a
reorganization, consolidation, merger, liquidation or any other form of
corporate transaction and (ii) any person or group of persons acting in concert
acquire in excess of 40% or more of the outstanding voting stock of Capital
Bancorp; provided, however, that it shall not constitute a "Change in Control"
if all or part of the shares in Holding are distributed to shareholders of
Capital Bancorp, regardless of the manner in which such shares are distributed.
In the event that Capital Bank and Capital Bancorp make such a distribution
then, thereafter, a "Change in Control" shall be deemed to have occurred only
upon the following: (a) the shareholders of Holding shall approve and Holding
shall consummate a plan of merger, consolidation, reorganization, liquidation or
any other form of corporate transaction in which shareholders of Holding
immediately before such transaction cease to own at least 51% of the voting
stock of Holding or any other entity that results from the participation of
Holding in any of the foregoing; or (b) the shareholders of Holding shall
approve and Holding shall consummate a plan for the sale, lease, exchange or
other disposition of all or substantially all of the property and assets of
Holding.
Upon termination by the Executive pursuant to this Section 5.6, Holding
shall (i) pay to the Executive any unpaid Base Salary through the effective date
of termination specified in such notice, (ii) pay to the Executive the Incentive
Compensation, if any, not yet paid to the Executive for any year prior to such
termination, at such time as the Incentive Compensation would otherwise have
been payable to the Executive, (iii) pay to the Executive (within 45 days after
such termination) a pro rata portion of the Incentive Compensation, if any, for
the year in which such termination occurs, as calculated pursuant to the terms
of Section 3.3 (including the provisos set forth in clauses (i)-(iii) of such
- 10 -
<PAGE>
Section); provided that, for purposes of such calculation, EBT shall be
calculated for the portion of the year through the end of the month prior to the
month in which such termination occurs and based upon unaudited financial
information prepared in accordance with generally accepted accounting
principles, applied consistently with prior periods, as approved and reviewed by
the Board or the Committee, as applicable, and (y) in determining the maximum
Incentive Compensation for such year, Base Salary shall be the amount of Base
Salary actually paid to the Executive during the year of termination other than
as a lump sum pursuant to Section 5.6, (iv) pay to the Executive, within 45 days
after the termination date, any Deferred Compensation earned in prior years
during the Term, whether or not vested, and a pro rata portion of the Deferred
Compensation for the current year, if any (whether any Deferred Compensation is
due for the current year shall be determined pursuant to Section 3.5(i)-(iii)
after multiplying each of Net Revenues and EBT for the year through the month
prior to the month in which termination occurs by a fraction, the numerator of
which is 12 and the denominator of which is the number of months in the year
through the month in which termination occurs, and using the product of each in
performing the calculations under Sections 3.5(i)-(iii). If Deferred
Compensation is due, the amount due shall be calculated by multiplying .50 by
the amount of Base Salary paid to the Executive for the year other than as a
lump sum pursuant to this Section 5.6; and (v) pay to the Executive a lump sum
equal to the sum of (a) two years' Base Salary at the date of termination plus
(b) the product of his Incentive Compensation for the prior year multiplied by
two. In the event that the Executive's employment is terminated by the Company
within one year following a Change in Control and Without Cause, then, in lieu
of the compensation in clause (v) of this paragraph above, the Company shall pay
to the Executive a lump sum equal to the sum of (a) two years' Base Salary at
the date of termination and (b) the product of the sum of his Incentive
Compensation and Deferred Compensation for the prior year multiplied by two. The
Company shall also continue to pay the premiums for the same or substantially
similar medical and hospitalization, life (including any split dollar life
insurance policy existing presently) and other insurance coverage provided to
the Executive pursuant to Section 4.2 hereof for a period of two years from the
date of termination. In addition, all options held by the Executive to purchase
shares of Common Stock shall immediately vest in the Executive, subject to any
other restrictions contained in the applicable option agreement or option plan.
The Company shall have no further liability hereunder (other than for (i)
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1, and (ii)
payment of compensation for unused vacation days that have accumulated during
the calendar year in which such termination occurs).
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. For the period through the Expiration
Date (except that, if the Executive's employment is terminated pursuant to
Sections 5.4 or 5.6 hereof, the period shall be the greater of (i) one year
after such termination date, but in no event beyond the Expiration Date, or (ii)
(A) if the termination is pursuant to Section , the period of time that or for
which the Executive is receiving Base Salary payments or (B) if
- 11 -
<PAGE>
the termination is pursuant to Section , the period of time with respect to
which the Executive receives a lump sum Base Salary payment pursuant to Section
(identified as two years in Section 5.6)), the Executive shall not, directly or
indirectly, engage in or have any interest in any sole proprietorship,
partnership, corporation or business or any other person or entity (whether as
an employee, officer, director, partner, agent, security holder, creditor,
consultant or otherwise) that directly or indirectly engages in competition with
the Company in any state in which the Company operates or has a client or
customer at the time of such termination; provided that such provision shall not
apply to the Executive's ownership of Common Stock of Holding or the acquisition
by the Executive, solely as an investment, of securities of any issuer that is
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended, and that are listed or admitted for trading on any United States
national securities exchange or that are quoted on the National Association of
Securities Dealers Automated Quotations System, or any similar system or
automated dissemination of quotations of securities prices in common use, so
long as the Executive is not a member of any control group (within the meaning
of the rules and regulations of the Securities and Exchange Commission) of any
such issuer.
6.2 NONDISCLOSURE. The Executive shall not divulge,
communicate, use to the detriment of the Company or for the benefit of any other
person or persons, or misuse in any way, any confidential information pertaining
to the business of the Company. Any confidential information or data now or
hereafter acquired by the Executive with respect to the business of the Company
(which shall include, but not be limited to, information concerning the
Company's financial condition, prospects, customers, sources of leads and
methods of doing business) shall be deemed a valuable, special and unique asset
of the Company that is received by the Executive in confidence and as a
fiduciary, and Executive shall remain a fiduciary to the Company with respect to
all of such information.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. For the period
through the Expiration Date, and for a period of two years following the
Expiration Date (except that, the period shall be six months after the
Expiration Date if (i) the Executive is employed by the Company on the
Expiration Date, and (ii) the Company has not offered, at or prior to the
Expiration Date, to employ the Executive after the Expiration Date on terms that
provide for payment of (x) a base salary equal to or greater than the Base
Salary (adjusted for cost-of-living increases) being paid to the Executive on
the Expiration Date, and (y) incentive compensation on terms equal to or greater
than the Incentive Compensation terms in effect as of the Expiration Date); the
Executive shall not, directly or indirectly, for himself or for any other
person, firm, corporation, partnership, association or other entity (i) employ
or attempt to employ or enter into any contractual arrangement with any employee
or former employee of the Company, unless such employee or former employee has
not been employed by the Company for a period in excess of six months, and/or
(ii) call on or solicit any of the actual or targeted prospective clients of the
Company on behalf of any person or entity in connection with any business
competitive with the business of the Company, nor shall the Executive make known
the names and addresses of such clients or any information relating in any
manner to the Company's trade or business relationships with such
- 12 -
<PAGE>
customers, other than in connection with the performance of Executive's duties
under this Agreement.
6.4 BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time.
6.5 DEFINITION OF COMPANY. As used in and solely for the
purposes of this Section 6, the term "Company" shall also include any existing
and future subsidiaries of the Company that are operating during the time
periods described herein, as well as Holding and any of its existing and future
subsidiaries.
6.6 ACKNOWLEDGEMENT BY EXECUTIVE. The Executive acknowledges
and confirms that the length of the term of the provisions of this Section 6 and
the geographical restrictions contained in Section 6.1 are fair and reasonable
and not the result of overreaching, duress or coercion of any kind. The
Executive further acknowledges and confirms that his full, uninhibited and
faithful observance of each of the covenants contained in this Section 6 will
not cause him any undue hardship, financial or otherwise, and that enforcement
of each of the covenants contained herein will not impair his ability to obtain
employment commensurate with his abilities and on terms fully acceptable to him
or otherwise to obtain income required for the comfortable support of him and
his family and the satisfaction of the needs of his creditors. The Executive
acknowledges and confirms that his special knowledge of the business of the
Company is such as would cause the Company serious injury or loss if he were to
use such ability and knowledge to the benefit of a competitor or were to compete
with the Company in violation of the terms of this Section 6.
6.7 SURVIVAL. The provisions of this Section 6 shall survive
the termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Section 6 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess.
8. ASSIGNMENT. The Executive agrees that the Company shall have the
right to assign this Agreement, provided, however, that such assignment does not
violate any other
- 13 -
<PAGE>
provision of this Agreement. The Executive shall not delegate his employment
obligations hereunder, or any portion thereof, to any other person.
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness on January 1, 1997, shall supersede all prior agreements,
understandings and arrangements, both oral and written, between the Executive
and the Company (or any of its affiliates) with respect to such subject matter,
including but not limited to the Prior Employment Agreement, it being understood
that the Prior Employment Agreement shall remain in full force and effect and
supersede this Agreement through December 31, 1996. This Agreement may not be
modified in any way unless by a written instrument signed by both the Company
and the Executive.
11. NOTICES: Any notice required or permitted to be given hereunder
shall be deemed given when delivered by hand or when deposited in the United
States mail, by registered or certified mail, return receipt requested, postage
prepaid, (i) if to the Company or Holding, to the address of the Company's
principal offices in Fort Lauderdale, Florida, with a copy to Capital Bank, 1221
Brickell Avenue, Miami, Florida 33133, Attention: President, and (ii) if to the
Executive, to his address as reflected on the payroll records of the Company, or
to such other address as either party hereto may from time to time give notice
of to the other.
12. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
13. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
- 14 -
<PAGE>
14. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
15. DAMAGES. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or the injunction of any
action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other.
16. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
17. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
18. INDEMNIFICATION. Subject to limitations imposed by law, the Company
shall indemnify the Executive to the fullest extent permitted by law.
19. WAIVER OF JURY TRIAL. THE UNDERSIGNED EXPRESSLY (I) WAIVE ANY RIGHT
TO A TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT
OF THIS AGREEMENT OR IN ANY WAY RELATED OR INCIDENTAL TO THE PERFORMANCE OF THE
PARTIES' OBLIGATIONS HEREUNDER, AND (II) AGREE THAT ANY PARTY HERETO MAY FILE AN
ORIGINAL COUNTERPART OR COPY OF THIS SECTION 19 WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT TO THE WAIVER OF THE RIGHT TO TRIAL BY JURY.
- 15 -
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
CAPITAL FACTORS, INC.
By: ________________________________________
Javier J. Holtz, Chairman of the Board
EXECUTIVE:
____________________________________________
Stephen J. Donohue
Capital Factors Holding, Inc. hereby executes this Agreement for the purpose of
agreeing to the provisions of Section 4.5 hereof.
HOLDING:
CAPITAL FACTORS HOLDING, INC.
By: ________________________________________
Javier J. Holtz, Chairman of the Board
- 16 -
Exhibit 11
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
NINE MONTHS ENDED
SEPTEMBER 30,
Primary 1996 1995
----------- ----------
Weighted average number of common shares outstanding 10,623,358 10,000,000
Common equivalent shares outstanding - options 0 0
----------- ----------
Total common and common equivalent shares outstanding 10,623,358 10,000,000
----------- ----------
Net income 7,732,562 6,476,106
----------- ----------
Primary earnings per share $ 0.73 $ 0.65
=========== ==========
Fully diluted
Weighted average number of common shares outstanding 10,623,358 10,000,000
Common equivalent shares outstanding - options 97,744 0
----------- ----------
Total common and common equivalent shares outstanding 10,721,102 10,000,000
----------- ----------
Net income 7,732,562 6,476,106
----------- ----------
Fully diluted earnings per share $ 0.72 $ 0.65
=========== ==========
Three Months Ended
September 30,
Primary 1996 1995
----------- ----------
p
Weighted average number of common shares outstanding 11,856,522 10,000,000
Common equivalent shares outstanding - options 0 0
----------- ----------
Total common and common equivalent shares outstanding 11,856,522 10,000,000
----------- ----------
Net Income 3,271,402 2,524,482
----------- ----------
Primary earnings per share $ 0.28 $ 0.25
=========== ==========
Fully diluted
Weighted average number of common shares outstanding 11,856,522 10,000,000
Common equivalent shares outstanding - options 97,744 0
----------- ----------
Total common and common equivalent shares outstanding 11,954,266 10,000,000
----------- ----------
Net Income 3,271,402 2,524,482
----------- ----------
Fully diluted earnings per share $ 0.27 $ 0.25
=========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 34,960,177
<SECURITIES> 0
<RECEIVABLES> 499,102,821
<ALLOWANCES> (2,976,841)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,139,772
<DEPRECIATION> 679,185
<TOTAL-ASSETS> 541,917,775
<CURRENT-LIABILITIES> 0
<BONDS> 290,816,000
0
0
<COMMON> 123,000
<OTHER-SE> 58,596,164
<TOTAL-LIABILITY-AND-EQUITY> 541,917,775
<SALES> 0
<TOTAL-REVENUES> 47,477,321
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,688,196
<LOSS-PROVISION> 2,800,000
<INTEREST-EXPENSE> 14,756,499
<INCOME-PRETAX> 13,232,626
<INCOME-TAX> 5,500,064
<INCOME-CONTINUING> 7,732,562
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,732,562
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.72
</TABLE>
