Registration No. 333-61335
As filed with the Securities and Exchange Commission on October 8, 1998
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
AMERICASBANK CORP.
(Name of small business issuer in its charter)
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Maryland 6035 52-1948980
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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3621 EAST LOMBARD STREET, BALTIMORE, MARYLAND 21224
(410) 342-8303
(Address and telephone number of principal executive offices)
3621 EAST LOMBARD STREET, BALTIMORE, MARYLAND 21224
(Address of principal place of business or intended principal place of business)
J. CLARENCE JAMESON, III
515 EAST JOPPA ROAD, TOWSON, MARYLAND 21086
(410) 825-5580
(Name, address and telephone number of agent for service)
Copies of communications, including copies of all communications sent to
agent for service, should be sent to:
FRANK C. BONAVENTURE, JR., ESQUIRE,
OBER, KALER, GRIMES & SHRIVER, A PROFESSIONAL CORPORATION
120 E. BALTIMORE STREET, 9TH FLOOR, BALTIMORE, MARYLAND 21202
(410) 685-1120
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. X
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If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
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If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
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CALCULATION OF REGISTRATION FEE
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Title of each class of Dollar amount to be Proposed maximum Proposed maximum Amount of
securities to be registered Registered offering price per unit aggregate offering price(1) registration fee
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Units $3,750,000 $12.00 $3,750,000 (3)
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Common Stock, (2) (2) (2) (2)
$0.01 par value (2)
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Common Stock (2) (2) (2) (2)
Purchase Warrants (2)
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Common Stock, $4,062,500 $13.00 $4,062,500 $1,199
$0.01 par value (4)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(2) Included in the Units. No additional registration fee is required.
(3) Previously paid.
(4) Issuable upon exercise of the Common Stock Purchase Warrants. Pursuant
to Rule 416, there are also being registered an indeterminate number of
shares of Common Stock which may be issued pursuant to the
anti-dilution provisions of the Common Stock Purchase Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
DISCLOSURE ALTERNATIVE USED (CHECK ONE): ALTERNATIVE 1 ; ALTERNATIVE 2 X
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PRELIMINARY PROSPECTUS, DATED OCTOBER 8, 1998
SUBJECT TO COMPLETION
[LOGO OF AMERICASBANK]
AMERICASBANK CORP.
OFFERING OF UNITS
CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE COMMON STOCK PURCHASE WARRANT
125,000 UNITS (MINIMUM); 312,500 UNITS (MAXIMUM)
AmericasBank Corp., a Maryland corporation (the "Company") and the
savings and loan holding company for AmericasBank (the "Bank"), a federal stock
savings bank, hereby offers for sale a minimum of 125,000 Units (the "Units")
(the "Minimum Number of Units"), and a maximum of 312,500 Units ("Maximum Number
of Units"), at a price (the "Offering Price") of Twelve Dollars ($12.00) per
Unit (the "Offering"). Each Unit consists of one share (the "Shares") of Common
Stock, $0.01 par value per share (the "Common Stock"), and one Common Stock
Purchase Warrant (the "Warrants"). The Shares and the Warrants included in the
Units are separately transferable. Each Warrant entitles the holder to purchase
one share of Common Stock at an exercisable price of $13.00 per share (the
"Exercise Price"), subject to adjustment for certain events, commencing at any
time after [EIGHTEEN MONTHS AFTER EFFECTIVE DATE], and until 5:00 p.m. EST on
_______, 2001. Prior to this Offering, there has been no public market for the
Units or the Warrants, and a very limited and sporadic public market for the
Common Stock. See "RISK FACTORS - Illiquid Securities; Limited Market for
Securities"; "TERMS OF THE OFFERING; PLAN OF DISTRIBUTION" and "DESCRIPTION OF
CAPITAL STOCK AND WARRANTS."
(COVER CONTINUED ON NEXT PAGE)
AN INVESTMENT IN THE UNITS INVOLVES A HIGH DEGREE OF RISK AND PROSPECTIVE
INVESTORS SHOULD NOT INVEST ANY FUNDS IN THE OFFERING UNLESS THEY CAN AFFORD TO
LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS
PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
THE SECURITIES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS
AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE SAVINGS ASSOCIATION INSURANCE FUND, THE BANK INSURANCE FUND OR ANY OTHER
GOVERNMENT AGENCY.
THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES
The date of this Prospectus is _________, 1998.
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(COVER PAGE CONTINUED)
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting
Price to Discounts Proceeds to
Public(1) and Commissions(2) Issuer(3)
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Per Unit................................... $12.00 $0.72 $11.28
Total Minimum.............................. $1,500,000.00 $90,000.00 $1,410,000.00
Total Maximum.............................. $3,750,000.00 $225,000.00 $3,525,000.00
=====================================================================================================================
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(1) The Price to Public was determined by the Company in consultation with
the Company's financial advisor, Hopper Soliday & Co., Inc. ("Hopper
Soliday"). Hopper Soliday is a broker-dealer registered with the
Securities and Exchange Commission and a member of the National
Association of Securities Dealers, Inc. See "RISK FACTORS - Pricing of
Units."
(2) The Units will be offered and sold by the Company by one of the Company's
directors, to whom no commissions or other compensation will be paid on
account of such activity, although such person will be reimbursed for
reasonable expenses incurred in the Offering. In addition, offers and
sales of the Units may be made on behalf of the Company on a best-efforts
basis by Hopper Soliday and such other registered broker-dealers as may
be engaged by Hopper Soliday (each, a "Selling Agent"). On sales
effected through a Selling Agent, the Company will pay a sales commission
of $0.72 per Unit and the information presented in the table assumes a
Selling Agent commission is paid on all Units sold. To the extent that
sales are not made through a Selling Agent, the proceeds to the Company
will be increased by $0.72 per Unit. In addition, the Company has paid
Hopper Soliday a financial advisory fee of $25,000, and has agreed to
reimburse Hopper Soliday for reasonable out-of-pocket and legal expenses
not to exceed, without the Company's approval, $3,000 and $7,500,
respectively. The Company also has agreed to indemnify Hopper Soliday and
any other Selling Agent, to the extent allowed by law, for reasonable
costs and expenses incurred in connection with certain claims and
liabilities, including certain liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "TERMS OF THE OFFERING;
PLAN OF DISTRIBUTION."
(3) Before deducting expenses of the Offering payable by the Company,
including the financial advisory fee paid to Hopper Soliday, legal,
accounting, printing, registration and other expenses estimated at
approximately $185,000. See "USE OF PROCEEDS."
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(COVER PAGE CONTINUED)
The Company's executive offices currently are located at 3621 East
Lombard Street, Baltimore, Maryland 21224, and its telephone number is (410)
342-8303. Upon opening a branch of the Bank in Towson, Maryland at property
currently owned by a wholly owned subsidiary of the Company (the "Towson
Property"), the Company's executive offices will be moved to the Towson
Property, which is located at 500 York Road, Towson, Maryland 21286, and its
telephone number will be (410) 823- 0500. See "BUSINESS OF THE COMPANY -
PROPERTY."
Sale of the Units will commence on or about ______________, 1998. This is
a "best efforts" offering, and it will be terminated by the Company upon the
sale of the Maximum Number of Units or December 31, 1998, whichever occurs
first, unless the Offering is extended, at the discretion of the Company, for
additional periods ending no later than March 31, 1999. However, the Company
reserves the right to terminate the Offering at any time after the sale of the
Minimum Number of Units. Subscriptions are binding on subscribers and may not be
revoked without the consent of the Company.
The Company has established a minimum subscription of 200 Units and a
maximum subscription of 17,000 Units. However, the Company reserves the right to
waive these limits without notifying any subscriber. In addition, the Company
reserves the right to reject subscriptions for the purchase of Units in whole or
in part. It is anticipated that management of the Company will purchase
approximately 21,522 Units in the Offering. See "TERMS OF THE OFFERING; PLAN OF
DISTRIBUTION," and "SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY
HOLDERS."
Subscription proceeds will be deposited promptly in an interest-earning
escrow account with The First National Bank of Maryland, as escrow agent,
pending receipt of subscriptions and subscription proceeds for the Minimum
Number of Units. If the Offering is terminated prior to completion, all
subscription proceeds will be returned promptly to subscribers, together with
any interest earned thereon. In the event of the completion of the Offering, all
interest earned on subscription funds will be retained by the Company. After the
Minimum Number of Units is sold, the Company may continue to sell Units until
termination of the Offering, and all subscription proceeds from those sales will
be deposited in a non-escrow deposit account with The First National Bank of
Maryland pending acceptance or rejection of subscriptions. Upon acceptance, such
proceeds will be available for immediate use by the Company. See "TERMS OF THE
OFFERING; PLAN OF DISTRIBUTION."
[Legend on first page of prospectus]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
3
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be obtained at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. Such material may also be accessed
electronically by means of the SEC's web site on the Internet at
http://www.sec.gov.
The Company has filed with the SEC a Registration Statement on Form
SB-1 (together with all amendments thereto, the "Registration Statement"), of
which this Prospectus is a part, under the Securities Act of 1933, with respect
to the Units. This Prospectus does not contain all of the information set forth
in the Registration Statement and exhibits thereto, to which reference is hereby
made.
Regardless of whether the Company is subject to the informational
requirements of the Exchange Act, the Company intends to furnish its
stockholders with annual reports containing audited financial information for
each fiscal year and intends to distribute quarterly reports for the first three
quarters of each fiscal year containing unaudited summary financial information.
The Company's fiscal year ends on December 31.
The Company and the Bank have filed or will file various applications
with the Office of Thrift Supervision (the "OTS"), the Federal Deposit Insurance
Corporation (the "FDIC"), the Board of Governors of the Federal Reserve System
(the "Federal Reserve") and the Commissioner of Financial Regulation of the
State of Maryland (the "Commissioner"). As required by the applicable regulatory
authorities, these applications contain or will contain financial projections
relating to the Company and the Bank. These projections are not a part of this
Prospectus and while they are based on assumptions that the Company believes are
reasonable, they should not be relied upon by prospective investors. Prospective
investors should rely only on information contained in this Prospectus and in
the Company's related Registration Statement in making an investment decision.
To the extent that other available information not presented in this Prospectus,
including information in public files and records maintained by the OTS, the
FDIC, the Federal Reserve or the Commissioner, is inconsistent with information
presented in this Prospectus, such other information is superseded by the
information presented in this Prospectus.
4
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
DISCUSSION IN THIS PROSPECTUS CONTAINS CERTAIN FORWARD- LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS
PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING
STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN THIS PROSPECTUS UNDER
THE SECTION ENTITLED "RISK FACTORS."
BUSINESS OF THE COMPANY
AmericasBank Corp. (the "Company") was incorporated under the laws of the
State of Maryland on June 4, 1996, primarily to own all of the outstanding
shares of capital stock of a federal stock savings bank to be named AmericasBank
(the "Bank"). On April 15, 1997, the Office of Thrift Supervision (the "OTS")
granted the Company the necessary approvals to acquire the capital stock of the
Bank and to become a savings and loan holding company of the Bank. Effective as
of December 1, 1997, the Company purchased $2,150,000 of the capital stock of
the Bank and the Bank became a wholly owned subsidiary of the Company. The Bank
opened on December 1, 1997, and currently has one branch, in Baltimore,
Maryland. As of June 30, 1998, the Company had total assets of approximately
$11,385,000, total loans of approximately $6,641,000 and total deposits of
approximately $8,392,000. The Company experienced a loss of approximately
$92,000 for the six months ended June 30, 1998. See "BUSINESS OF THE COMPANY"
and "RESULTS OF OPERATIONS - General."
Assuming the sale of the Maximum Number of Units in the Offering or such
lesser amount as may be necessary to obtain regulatory approval, the Company
intends to cause the Bank, subject to regulatory approval, to convert from a
federal stock savings bank to a Maryland savings and loan association, and
immediately thereafter to a Maryland commercial bank, also named AmericasBank
(the "Conversion"). Both before and after the Conversion, AmericasBank is
referred to in this Prospectus as the "Bank." The purpose of the Conversion is
to provide the Bank with additional operating flexibility and to enhance its
ability to provide a broader range of banking products and services to its
community. There can be no assurance that the Bank and the Company will obtain
the necessary regulatory approval to consummate the Conversion. See "THE
CONVERSION."
BUSINESS OF THE BANK
Effective as of December 1, 1997, the Bank commenced banking operations.
Effective as of December 1, 1997, the Bank also purchased certain assets and
assumed certain deposit liabilities primarily related to the Baltimore, Maryland
branch office of Rushmore Trust and Savings, FSB ("Rushmore"), located at 3621
East Lombard Street, Baltimore, Maryland 21224 (the "Baltimore Branch"). See
"BUSINESS OF THE BANK - General."
5
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The Bank is a community-oriented financial institution. Its business has
been to attract retail deposits and to seek to invest those deposits, together
with funds generated from operations and borrowings, in one-to four-family
mortgage loans. Over 80% of the loans acquired from Rushmore were one-to-four
family mortgage loans. To a lesser extent, the Bank has sought to invest in home
equity and second trust loans, multi-family loans, commercial real estate loans,
commercial business loans, construction and lot loans (primarily for one- to
four-family home construction for the borrower) and consumer loans. The Bank's
deposit base is comprised of traditional deposit products including checking
accounts, insured investment accounts, statement savings accounts, passbook
deposit accounts, money market accounts, certificates of deposit and individual
retirement accounts. The Bank's deposit accounts are insured by the Federal
Deposit Insurance Corporation (the "FDIC") and the Bank is a member of the
Federal Home Loan Bank System. See "BUSINESS OF THE BANK" and "RESULTS OF
OPERATIONS."
The Bank's objective is to create a customer-driven financial institution
focused on providing value to customers by delivering products and services
matched to the customers' needs. In that regard, management has identified the
following factors and strategies that management believes will contribute to the
Bank's success:
o DEMAND FOR COMMUNITY BANK SERVICES - Management believes that
customers will be drawn to a locally owned and managed
institution that demonstrates an active interest in its
customers and their business and personal financial needs. As
a result of recent consolidations of financial institutions,
management believes that the Bank's current and potential
market areas are not being adequately served by existing
financial institutions and that there is an increasing local
demand for commercial real estate, commercial business,
construction and consumer loans offered by a truly
community-oriented financial institution.
o REFOCUSED LENDING STRATEGY - To capitalize on the increased
demand for commercial, construction and consumer loans,
management has determined to refocus the Bank's lending
strategy. While continuing to pursue its existing business of
seeking to originate mortgage loans, the Bank intends to
expand gradually its commercial, construction and consumer
lending. The Conversion is an integral part of this strategy.
o BRANCH EXPANSION - The Bank intends to establish a new branch
office in Towson, Maryland, the county seat of Baltimore
County, Maryland. It is estimated that there are
approximately 53,000 households within a three mile radius of
the proposed branch, excluding college students, with an
estimated average annual household income of approximately
$60,000. In addition to the Towson branch, the Bank intends
to open additional branches, either through internal growth or
through acquisitions of existing financial institutions or
branches thereof.
6
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THE CONVERSION
The Board of Directors of the Bank and the Board of Directors of the
Company adopted a plan for the Conversion (the "Conversion Plan") on August 27,
1998. Pursuant to the Conversion Plan, the Bank will convert from a federal
stock savings bank to a Maryland savings and loan association (the "State
Association"), and immediately thereafter to a Maryland commercial bank. The
Conversion is subject to regulatory approval and there can be no assurance that
the Conversion will be consummated. Management believes that the Conversion will
be beneficial because it will enable the Bank to refocus its lending strategy
and thereby capitalize upon the increasing local demand for commercial real
estate, commercial business, construction and consumer loans without being
limited to the activities permitted under the thrift charter. See "SUPERVISION
AND REGULATION Depository Institution Regulation - QTL Test."
The Bank has recruited a new President to implement the Bank's refocused
lending strategy. On September 24, 1998, the Bank hired Richard J. Hunt, Jr. to
serve as President of the Bank. Mr Hunt has over nine years of commercial
banking experience, having served in numerous capacities with several Maryland
and Washington, D.C. based banks. Mr. Hunt's appointment as President of the
Bank is subject to regulatory approval. Upon obtaining regulatory approval, the
Bank's current President, Patricia D'Alessandro, will serve as a Vice President
of the Bank.
As soon as practicable after the date of this Prospectus, the Bank will
apply to the Commissioner for approval of the conversion of the Bank to the
State Association and then to a Maryland commercial bank, and the Company will
apply to the Federal Reserve for approval to own all of the capital stock of the
Bank upon consummation of the Conversion, and thereby become a bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHC Act").
In addition, the Bank will apply with the Federal Reserve to become a member
bank. Contemporaneous with becoming a bank holding company under the BHC Act,
the Company will deregister with the OTS as a savings and loan holding company.
There can be no assurance that such approvals will be obtained. The Conversion
does not require the approval of the Company's stockholders. See "RISK FACTORS -
Potential Delay in Completion or Denial of Conversion Plan" and "THE
CONVERSION."
THE OFFERING
Securities Offered Units consisting of one share (the "Shares") of
Common Stock, $0.01 par value per share (the
"Common Stock") and one Common Stock Purchase
Warrant (the "Warrants"), each Warrant
entitling the holder to purchase one share of
Common Stock, at a price of $13.00 per share
(the "Exercise Price"), subject to adjustment
for certain events, commencing at any time
after [EIGHTEEN MONTHS AFTER EFFECTIVE DATE],
and until 5:00 p.m. EST on _______, 2001. The
Shares and the Warrants included in the Units
are separately transferable. See "DESCRIPTION
OF CAPITAL STOCK AND WARRANTS."
Offering Price $12.00 per Unit
Number of Units Offered Minimum: 125,000 Units (the "Minimum Number of
Units") ($1,500,000)
Maximum: 312,500 Units (the "Maximum Number of
Units") ($3,750,000)
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Terms of the Offering The Offering will be terminated and all
subscription funds will be returned promptly to
subscribers, together with any interest earned
thereon, unless on or before December 31, 1998
(or such later date if the Offering is extended
by the Company for additional periods not to
exceed beyond March 31, 1999) the Company has
accepted subscriptions and payment in full for
the Minimum Number of Units.
Subscription payments for Units will be
deposited promptly in an interest-earning
escrow account with The First National Bank of
Maryland, as escrow agent (the "Escrow Agent"),
under the terms of an escrow agreement (the
"Escrow Agreement"), pending the sale of the
Minimum Number of Units or the termination of
the Offering. Neither the Company nor any of
its officers or directors is affiliated with
the Escrow Agent. Any subscription proceeds
accepted after the sale of the Minimum Number
of Units but before termination of the Offering
will be deposited in a non-escrow deposit
account with The First National Bank of
Maryland and will be available for immediate
use by the Company. Subscriptions are binding
on subscribers and may not be revoked by
subscribers except with the consent of the
Company. The Company may, in its sole
discretion, allocate Units among subscribers in
the event of an oversubscription for the Units.
See "TERMS OF THE OFFERING; PLAN OF
DISTRIBUTION."
Use of Proceeds Of the estimated $1,225,000 of net proceeds,
assuming the sale of the Minimum Number of
Units, it is anticipated that approximately
$1,100,000 will be used to make additional
capital contributions to the Bank. It is
anticipated that the Bank will use
approximately $40,000 of the additional capital
for leasehold improvements to the Towson
branch; approximately $90,000 of the additional
capital for furniture, fixtures and equipment
for the Towson branch; approximately $50,000 of
the additional capital for pre-opening expenses
of the Towson branch, including employee
related expenses and legal fees associated with
obtaining regulatory approval to open the
branch; and approximately $25,000 of the
additional capital for promotional expenses
associated with the opening of the Towson
branch. The remaining additional capital may
be used to further the branch expansion
strategy, for loan originations, investments
and general banking purposes.
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Of the estimated $3,340,000 of net proceeds,
assuming the sale of the Maximum Number of
Units, it is anticipated that approximately
$3,300,000 will be used to make additional
capital contributions to the Bank.
Approximately $205,000 of such additional
capital will be expended by the Bank in the
same manner and the same amounts as described
above in connection with the Towson branch. The
remaining additional capital may be used to
further the branch expansion strategy, for loan
originations, investments and general banking
purposes.
Any net proceeds not used to make additional
capital contributions to the Bank may be used
by the Company to further the branch expansion
strategy and for general corporate purposes.
See "USE OF PROCEEDS" and "RISK FACTORS -
Potential Delay in Completion or Denial of
Conversion Plan" and "- No Assurance of Ability
to Open New Branch."
RISK FACTORS
An investment in the Units involves a high degree of risk and should be
considered only by investors who can afford a loss of their entire investment.
Prospective investors should consider all of the information set forth herein,
particularly the information set forth in the section entitled "RISK FACTORS."
9
<PAGE>
RISK FACTORS
IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
DISCUSSION IN THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS
PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING
STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN AFFORD A LOSS OF THEIR
ENTIRE INVESTMENT. PRIOR TO INVESTING IN THE SECURITIES, PROSPECTIVE INVESTORS
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND SPECULATIVE FACTORS INHERENT
IN AND AFFECTING THE BUSINESS OF THE COMPANY AND THE TERMS OF THE OFFERING.
Limited Operating History; History of Losses. Both the Company and the
Bank are recently formed and have limited operating histories. Because the
Company's primary asset is the capital stock of the Bank, the Company's
operating results and financial position are dependent upon the operating
results and financial position of the Bank. For the six months ended June 30,
1998 and the year ended December 31, 1997, the Company incurred net losses of
$92,000 and $41,000, respectively, and management expects that the Bank will
continue to incur losses as the Bank attempts to implement its branch expansion
strategy. Many factors could adversely affect the Company's short and long term
operating performance, including the failure to implement the branch expansion
strategy, the failure to implement the new lending strategy, unfavorable
economic conditions, increased competition, loss of key personnel and government
regulation.
No Assurance of Ability to Open New Branch. The Bank's ability to open a
new branch in Towson, Maryland is dependent upon the prior approval of the
Commissioner, if the Conversion is consummated and the Bank becomes a Maryland
commercial bank, or the OTS, if the Conversion is not consummated and the Bank
continues to operate as a federal stock savings bank. There can be no assurance
that the necessary approvals will be received or upon what terms and conditions,
if any, such approvals will be issued.
The failure to obtain regulatory approval to open a Towson branch would
significantly impair the branch expansion strategy and would, absent the opening
of other branches, render the Company and the Bank's success dependent on the
Bank's Lombard Street branch operations, which have not been profitable to date.
See "BUSINESS OF THE BANK--Strategy" and "USE OF PROCEEDS."
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Potential Delay in Completion or Denial of Conversion Plan. The
Conversion Plan requires the prior approval of the Commissioner for the Bank to
become a Maryland commercial bank, and the Federal Reserve for the Company to
become a bank holding company. There can be no assurance that such approvals
will be received or upon what terms and conditions, if any, such approvals will
be issued.
If the Conversion Plan is not approved or consummation of the Conversion
is otherwise delayed, the Bank would be limited to those activities permitted
under the thrift charter, which would generally limit the Bank's ability to
satisfy what it believes is an increasing local demand for commercial real
estate, commercial business, construction and consumer loans offered by a
community-oriented financial institution, and therefore limit the Bank's ability
to grow.
If the Company is unable to provide the Bank with the necessary
additional capital from this Offering to facilitate the Conversion, the Company
may seek additional funds to enable the Company to provide the Bank with the
necessary additional capital. Any equity or debt financings, if available at
all, may be on terms which are not as favorable as this Offering and, in the
case of equity financings, could result in dilution to the Company's
stockholders. With respect to debt financings, the Company may seek to create,
subject to regulatory approval, a subsidiary business trust to issue preferred
securities, which would be guaranteed in certain respects by the Company. See
"THE CONVERSION" and "USE OF PROCEEDS."
Risks Related to Commercial, Construction and Consumer Lending. The
Bank's loan portfolio is principally comprised of long-term fixed-rate mortgage
loans for owner occupied and non-owner occupied (investor) residential
properties. Management has determined that as a result of recent consolidations
of financial institutions, the Bank's current and potential market areas are not
being adequately served by existing financial institutions and that there is an
increasing local demand for commercial real estate, commercial business,
construction and consumer loans offered by a truly community-oriented financial
institution. As a result, management has determined to refocus the Bank's
lending strategy. Pursuant to this strategy, while continuing to pursue its
existing business of seeking to originate mortgage loans for the purpose of
financing and refinancing one-to-four family residential properties, the Bank
intends to expand gradually its commercial real estate, commercial business,
construction and consumer lending.
While commercial real estate, commercial business, construction and
consumer loans are generally more interest rate sensitive and carry higher
yields than do residential mortgage loans, they generally carry a higher degree
of credit risk than residential mortgage loans. Consequently, the
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diversification of the Bank's loan portfolio may adversely alter its risk
profile. Moreover, provisions for loan losses may increase in the future as
management implements the strategy of continuing existing lines of business
while expanding gradually its commercial real estate, commercial business,
construction and consumer lending.
Commercial real estate loans are generally larger and present a greater
degree of risk than residential mortgage loans. Because payments on loans
secured by commercial real estate are often dependent on the successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to adverse conditions in the real estate market or
in the economy. See "RESULTS OF OPERATIONS - Lending Activities - Commercial and
Multi-Family Real Estate Loans."
Unlike residential mortgage loans, which generally are made on the basis
of the borrower's ability to make repayment from his or her employment and other
income, and which are secured by real property whose value tends to be more
easily ascertainable, commercial business loans are of higher risk and typically
are made on the basis of the borrower's ability to make repayment from the cash
flow of the borrower's business. As a result, the availability of funds for the
repayment of commercial business loans may be substantially dependent on the
success of the business itself. Further, the collateral securing the loans may
depreciate over time, may be difficult to appraise and may fluctuate in value
based on the success of the business. See "RESULTS OF OPERATIONS Lending
Activities - Commercial Business Loans."
Construction loans generally are considered to involve a higher degree of
credit risk than residential mortgage loans. Risk of loss on a construction loan
is dependent largely upon the accuracy of the initial estimate of the property's
value at completion of construction or development compared to the estimated
cost (including interest) of construction. If the estimate of value proves to be
inaccurate, the Bank would be confronted with a project, when completed, having
a value which is insufficient to ensure full repayment. See "RESULTS OF
OPERATIONS - Lending Activities - Construction Loans."
Consumer loans may entail greater credit risk than do residential
mortgage loans, particularly in the case of consumer loans that are unsecured or
that are secured by rapidly depreciable assets, such as automobiles. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. In addition, consumer
loan collections are dependent on the borrower's continuing financial stability,
and therefore are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. See "RESULTS OF OPERATIONS - Lending Activities - Consumer Loans."
Risks Related to New Management. Management believes that the Bank's
President must have substantial experience in commercial banking in order to
implement the Bank's refocused lending strategy and to enhance the Bank's
management in connection with the Conversion. On September 24, 1998, the Bank
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hired Richard J. Hunt, Jr. to serve as President of the Bank. Mr. Hunt has over
nine years of commercial banking experience, having served in numerous
capacities with several Maryland and Washington, D.C. based banks. Mr. Hunt's
appointment as President of the Bank is subject to regulatory approval and there
can be no assurance that such regulatory approval will be obtained. In addition,
there can be no assurance that Mr. Hunt will be able to successfully implement
the refocused lending strategy.
Impact of Interest Rate Volatility on Deposits. The results of operations
of the Bank depend to a large extent on the Bank's "net interest income," which
is the difference between the interest expense incurred in connection with the
Bank's interest-bearing liabilities, such as interest on deposit accounts, and
the interest income received from its interest-earning assets, such as loans and
investment securities. Volatility in interest rates can result in the flow of
funds away from financial institutions of the type similar to the Bank and into
direct investments, such as corporate securities and other investment vehicles
which, because of among other things the absence of federal deposit insurance,
generally pay higher rates of return. Such volatility could cause the Bank to
pay increased interest rates to obtain deposits, and if the Bank was not able to
increase the interest rates on its loans and the rate of return on its
investment portfolio, its net interest income would suffer. See "RESULTS OF
OPERATIONS - Liquidity and Interest Rate Sensitivity."
Interest Rate, Lending and Other Risks Associated with the Loans Acquired
from Rushmore. The Bank's loans, which are comprised primarily of the loans
acquired from Rushmore, consist for the most part of fixed rate, long-term,
single family residential mortgage loans while the Bank's deposits consist
primarily of variable rate short-term accounts. Since the loans will mature more
slowly than the deposits, the net portfolio value and net interest income will
tend to decrease during periods of rising interest rates, but will tend to
increase during periods of falling interest rates. During the past several
years, market interest rates have been relatively lower than in prior years.
There is no assurance that such favorable conditions will continue. However,
lower market interest rates also have the effect of causing borrowers to
refinance their mortgage loans. The refinancing of the Bank's loans into loans
with lower interest rates would negatively impact the Bank's net interest income
as it would be unlikely that the Bank would be able to make new loans at or
above the interest rates of the refinanced loans. In addition, many of the loans
acquired from Rushmore were made prior to the current documentation requirements
of GNMA, FNMA or FHLMC and, therefore, they may not be able to be resold in the
traditional secondary market. During periods of rising interest rates, the
Bank's inability to resell certain of its loans in the secondary market could
have a material adverse effect on the Bank's net portfolio value and its net
interest income. See "RESULTS OF OPERATIONS Liquidity and Interest Rate
Sensitivity."
The growth of the Bank depends on, among other things, the Bank's ability
to limit the reduction of deposits acquired from Rushmore, its success in
deploying cash to invest in assets bearing sufficiently high yields without
incurring unacceptable credit or interest rate risk, and its ability to service
the loans purchased from Rushmore. There can be no assurance that the Bank will
be successful in performing these tasks.
Risk of Loan Losses. Like all financial institutions, the Bank maintains
an allowance for loan losses to provide for loan defaults and nonperformance.
The allowance is based on, among other things, prior experience with loan losses
and an evaluation of the risks in the current portfolio, and is maintained at a
level considered adequate by management to absorb anticipated losses. Because
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approximately 84% of the Bank's loans consist of loans acquired from Rushmore,
which loans were originated by Rushmore, the Bank's management made an estimate
of what was believed to be a reasonable initial allowance for loan losses. There
can be no assurance that the allowance for loan losses required in the future
will not be materially higher than the reserve established as of June 30, 1998.
Although management believes it uses the best information available to
make determinations with respect to the allowances for loan losses and believes
such allowances are adequate, future adjustments may be necessary if there are
additional loan losses or if economic, operating and other conditions differ
substantially from the assumptions used in making the determinations. In
addition, management anticipates that the Bank's provisions for loan losses will
increase in the future as it implements the strategy of continuing existing
lines of business while expanding gradually its commercial real estate,
commercial business, construction and consumer lending, which loans generally
entail greater risks than residential mortgage loans. Also, regulatory agencies
may require the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their examinations.
Future provisions for loan losses could materially and adversely affect results
of operations of the Company and the Bank.
Risk of Branch Expansion Strategy. Management intends to expand the
business of the Bank by opening branches, either through internal growth or
through acquisitions of existing financial institutions or branches thereof. The
Bank's ability to expand internally by establishing new branch offices will be
dependent on the ability to identify advantageous locations for such branches
and to fund the development of new branches. The ability to grow through
selective acquisitions of other financial institutions or branches of such
institutions will be dependent on successfully identifying, acquiring and
integrating such institutions or branches. Furthermore, the success of the
branch expansion strategy will be dependent upon the Bank's access to capital,
its ability to attract and train or retain qualified employees and its ability
to obtain regulatory approvals. The branch expansion strategy anticipates losses
from branch operations until such time as branch deposits and the volume of
other banking business reach the levels necessary to support profitable branch
operations.
There can be no assurance that the Bank will be able to generate internal
growth or identify attractive acquisition candidates, acquire such candidates on
favorable terms, or successfully integrate any acquired institutions or branches
into its operations. In addition, the Bank's inability
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to implement the branch expansion strategy could negatively impact the Bank's
long term ability to successfully compete in the marketplace. Except with
respect to the Towson branch, the Company and the Bank currently have no
specific plans regarding new branch offices or acquisitions of existing
financial institutions or branches thereof.
Reliance on Officers of Bank and Key Personnel. The Bank's success is and
will be dependent on the performance of each of Richard J. Hunt, Jr., Patricia
D'Alessandro, J. Clarence Jameson, III and Kenneth D. Pezzulla. Ms.
D'Alessandro, Mr. Jameson and Mr. Pezzulla currently serve as the President,
Vice President and Secretary of the Bank, respectively. Subject to regulatory
approval, Mr. Hunt will serve as President of the Bank and Ms. D'Alessandro will
serve as a Vice President of the Bank. The failure to obtain regulatory approval
for Mr. Hunt to serve as President of the Bank or the loss of the services of
any of these officers for any reason could have a material adverse effect on the
operations of the Bank. Ms. D'Alessandro and Messrs. Jameson and Pezzulla are
not parties to any employment agreement with the Bank and each could resign or
be terminated at any time and for any reason. Mr. Hunt is a party to an
employment agreement with the Bank which provides for a three year term, but Mr.
Hunt may terminate his employment at any time upon 90 days prior written notice
and the Bank may terminate Mr. Hunt's employment at any time and for any reason.
The Bank has not and does not intend to purchase "key man" life insurance on the
life of any personnel. See "DIRECTORS, OFFICERS AND SIGNIFICANT
EMPLOYEES--Officers and Directors" and "REMUNERATION OF DIRECTORS AND
OFFICERS--Employment Arrangements."
In addition, the Bank's growth will be dependent upon its ability to
attract and retain skilled managerial and marketing personnel, which the Bank
has not done to date. Competition for qualified executive personnel in the
banking industry is intense, and there can be no assurance that the Bank will be
successful in attracting and retaining such personnel.
Impact of Government Regulation on Operating Results. The Company and the
Bank operate in a highly regulated environment and are subject to examination,
supervision and comprehensive regulation by several federal and state regulatory
agencies. Currently, the Bank primarily is subject to supervision and regulation
by the OTS and the FDIC, and the Company currently is subject to supervision and
regulation by the OTS. Following the Conversion, the Bank will be subject to
supervision and regulation by the Commissioner, the Federal Reserve and the
FDIC, and the Company will be subject to supervision and regulation by the
Federal Reserve and the Commissioner. Banking regulations, designed primarily
for the safety of depositors, may limit the growth of financial institutions
like the Bank and the return to investors by restricting activities such as the
payment of dividends, mergers with or acquisitions by other institutions,
investments, loans and interest rates, interest rates paid on deposits and the
creation of branch offices. Financial institutions like the Bank also are
subject to capitalization guidelines set forth in federal legislation, and could
be subject to enforcement actions to the extent the financial institution is
found by regulatory examiners to be undercapitalized. Laws and regulations
applicable to the Company and the Bank could change at any time, and there can
be no assurance that such changes would not adversely affect the business of the
Company and/or the Bank. In addition, the cost of compliance with regulatory
requirements could adversely affect the Company's and the Bank's ability to
operate profitably. See "SUPERVISION AND REGULATION."
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Risks of Competitive Market. The Company and the Bank operate in a
competitive market for financial services and the Bank faces intense competition
both in making loans and in attracting deposits. The Bank faces direct
competition from a significant number of financial institutions operating in the
Bank's market area, many with a state-wide or regional presence and in some
cases a national presence. In addition, the Bank competes with other community
banks in its market area that have substantially the same business philosophy
and strategy as the Bank. Many of these financial institutions have been in
business for many years, have established customer bases, are significantly
larger and have greater financial resources than the Bank and are able to offer
certain services that the Bank is not able to offer. In addition, the Bank faces
competition for deposits and loans from non-bank institutions such as brokerage
firms, credit unions, insurance companies, money market mutual funds and private
lenders. See "BUSINESS OF THE BANK - Competition."
Impact of Monetary Policy and Other Economic Factors on Operating
Results. Changes in governmental economic and monetary policy and banking and
credit regulations also affect the demand for the Bank's services. The rates of
interest payable on deposits and chargeable on loans is affected by fiscal
policy as determined by various governmental and regulatory authorities, in
particular the Federal Reserve, as well as by national, state and local economic
conditions. Through open market transactions, variations in the discount rate
and the establishment of reserve requirements, the Federal Reserve exerts
considerable influence over the cost and availability of funds obtainable for
lending or investing. These actions may at times result in significant
fluctuations in interest rates, which could have adverse effects on the
operations of the Bank. See "BUSINESS OF THE BANK - Competition."
General economic conditions can affect the credit quality of the Bank's
assets. During periods of adverse economic conditions and depending on the
extent to which the income and assets of the borrowers are affected by the
declining economic conditions, the ability of the Bank's borrowers to repay
loans may be affected. Adverse economic conditions particularly affect
commercial real estate, commercial business, construction and consumer loans.
See "- Risks Related to Commercial, Construction and Consumer Lending," and
"RESULTS OF OPERATIONS - Lending Activities."
Dividend Restrictions. The Company is a legal entity separate and
distinct from the Bank. Because the Company's business currently is limited to
owning all of the outstanding shares of capital stock of the Bank and
AmericasBank Holdings Corporation, which is a wholly owned subsidiary of the
Company that currently owns the property at which the Towson branch will be
located, the Company's payment of dividends on its Common Stock generally will
be funded only from dividends received by the Company from the Bank, which
dividends are dependent on, among other things, the Bank's profitability. In
addition, the payment of dividends may be made only if the Bank and the Company
are in compliance with certain applicable regulatory requirements governing the
payment of dividends by each of them. No assurance can be given that dividends
on the Common Stock will ever be paid. The Company expects that earnings, if
any, will be used initially for operating capital and the Company does not
foresee payment of any dividends in the near future. THE UNITS SHOULD NOT BE
PURCHASED BY PERSONS WHO NEED OR DESIRE DIVIDEND INCOME FROM THIS INVESTMENT.
See "SUPERVISION AND REGULATION Depository Institution Regulation - Limitation
on Capital Distributions" and "DIVIDEND POLICY."
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Antitakeover Provisions. Certain provisions included in the Charter and
Bylaws of the Company are designed to encourage potential acquirors to negotiate
directly with the Board of Directors of the Company and to discourage takeover
attempts. Such provisions may discourage non-negotiated takeover attempts which
some stockholders may deem to be in their best interests. These provisions also
tend to perpetuate management. As a result, these provisions could adversely
affect the price of the Common Stock by, among other things, preventing a
stockholder from realizing a premium which might be paid as a result of a change
in control of the Company. See "DESCRIPTION OF CAPITAL STOCK AND WARRANTS -
Certain Antitakeover Provisions."
Uncertainty as to Effects of Proposed Federal Legislation. Legislation
recently passed by the House of Representatives may adversely affect the banking
industry or the operations of the Bank and may result in increased competition
in the financial services industry. On May 13, 1998, the House of
Representatives passed H.R. 10, the "Financial Services Competition Act of
1997." The legislation is intended to break down barriers between banking,
securities and insurance activities, while maintaining the bank holding company
structure. Under the bill, financial services holding companies, which would be
regulated by the Federal Reserve, would be allowed to own banks, securities
firms and insurance companies. The bill also contains provisions regulating the
commercial activities of holding companies. The legislation preserves the
federal thrift charter.
It is not currently possible to predict whether or when the bill will be
enacted into law, or if it is enacted into law, whether it will remain in the
form approved by the House of Representatives. It also is not possible to
predict what impact the bill will have on the Company or the Bank. One
consequence may be increased competition from large financial services companies
that, under the bill, would be permitted to provide many types of financial
services to customers. Neither the Company nor the Bank currently conducts any
nonfinancial activities. Certain provisions of the bill may affect the Bank upon
consummation of the Conversion due to a Maryland law that gives, with the
approval of the Commissioner, Maryland commercial banks the authority to engage
in activities in which a national bank may engage. See "SUPERVISION AND
REGULATION - Financial Services Modernization Legislation."
Developments in Technology. The market for financial services, including
banking services and consumer finance services, is increasingly affected by
advances in technology, including developments in telecommunications, data
processing, computers, automation, Internet-based banking, telebanking, debit
cards and so-called "smart" cards. The ability of the Company and the Bank to
compete successfully in its markets may depend on the extent to which it is able
to exploit such technological changes. However, there can be no assurance that
the development of these or any other new technologies, or the Company and the
Bank's success or failure in anticipating or responding to such developments,
will materially affect the Company's business, financial condition or operating
results. Currently, the Bank does not offer Internet-based banking, telebanking,
debit or smart cards or other similar technical banking products which are
offered by many of the Bank's competitors.
Year 2000 Issues. The much publicized Year 2000 Issue is the result of
computer programs being written using two digits rather than four to define an
applicable year. Computer programs with date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000.
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With respect to software used for bank operations, mistakes of this nature could
cause disruptions of operations, including, among other things, the temporary
inability to process transactions or engage in similar normal business
activities. In addition, the Year 2000 Issue increases transaction risk with
third parties, including customers.
The Bank's outside data processing firm has advised the Bank that it
intends for its software to be Year 2000 compliant by December 31, 1998;
therefore, the data processing firm's software would not be impacted by any
date- sensitive calculations related to the Year 2000 Issue. The Bank does not
anticipate incurring any extra costs from the data processing firm in connection
with the Year 2000 Issue and the Bank does not believe that its operations will
be materially impacted by the Year 2000 Issue, assuming that the data processing
firm fulfills its representation to the Bank that its software will be Year 2000
compliant by December 31, 1998. However, there can be no assurance that the data
processing system will be Year 2000 compliant, and such failure may have a
material adverse effect on the Company and the Bank's earnings, cash flows and
overall financial condition.
In addition to risks relating to internal Year 2000 compliance, the Bank
may be vulnerable to the failure of customers to remedy their own Year 2000
issues. See "BUSINESS OF THE BANK--Year 2000."
Control by Management. As of August 30, 1998, a total of 163,820 shares
of Common Stock were owned by directors, officers and related parties of the
Company, representing approximately 54.61% of the Common Stock outstanding
before the Offering. In addition, as of August 30, 1998, options to purchase an
aggregate of 30,180 shares of Common Stock were owned by directors and officers.
Assuming the directors and officers were able to exercise all of such options,
the directors, officers and related parties would beneficially own approximately
58.76% of the Common Stock outstanding before the Offering. See "REMUNERATION OF
DIRECTORS AND OFFICERS - Stock Option Plan."
It is anticipated that the Company's directors and officers, together
with their immediate families, will purchase, directly or indirectly, an
aggregate of approximately 21,522 Units in the Offering. On a pro forma basis,
assuming the sale of the minimum of 125,000 Units and the maximum of 312,500
Units, respectively, and the exercise of the options granted to the directors
and officers as of August 30, 1998, but without assuming the exercise of any
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Warrants issued in the Offering, directors, officers and related parties of the
Company would beneficially own approximately 47.35% and 33.53% respectively, of
the outstanding Common Stock of the Company.
The current and anticipated ownership by management as described above,
together with the influence that may be exerted by such persons due to their
positions with the Company, will result in management's ability to continue to
effectively control the Company and the Bank following the Offering. See
"SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS."
Broad Discretion as to Use of Proceeds. Other than the allocation of
$205,000 of the proceeds of the Offering for use in connection with opening a
branch in Towson, Maryland, the proceeds of the Offering will be used to provide
the Bank with additional capital, to further the branch expansion strategy, for
loan originations, investments and general corporate and banking purposes.
Accordingly, management will have broad discretion with respect to the
expenditure of the net proceeds of the Offering. Purchasers of Units will
necessarily depend upon the judgment of management. See "USE OF PROCEEDS."
Pricing of Units. The Offering Price of $12.00 per Unit and the exercise
price of the Warrants was determined by the Company's Board of Directors in
consultation with the Company's financial advisor, Hopper Soliday. These prices
are not based upon earnings or any significant history of operations of the
Company and should not be construed as indicative of the present or anticipated
future value of the Common Stock. No assurance can be given that the Common
Stock purchased in the Offering or acquired through exercise of the Warrants
will be able to be resold at or above the purchase or exercise price. See "TERMS
OF THE OFFERING; PLAN OF DISTRIBUTION" and "CAPITALIZATION."
Dilution. The Company's current stockholders acquired their shares of
Common Stock at a cost below the price at which the Units are being offered in
this Offering and were issued warrants to purchase shares of Common Stock (the
"Dividend Warrants"), as a dividend, with an exercise price below and upon
different terms and conditions than the Warrants. In addition, options to
purchase shares of Common Stock have been granted under the Company's stock
option plan with exercise prices which are less than the Offering Price of the
Units. Furthermore, the Offering Price of the Units is higher than the current
book value per share of the Common Stock.
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Consequently, after giving effect to the sale of Units in the Offering
and the deduction of Selling Agent commissions and estimated Offering expenses,
but attributing no part of the Offering Price of the Units to the Warrants, the
fully diluted net tangible book value of the Company as of June 30, 1998 would
be $9.08 per share of Common Stock if the Minimum Number of Units is sold, and
$9.52 per share of Common Stock if the Maximum Number of Units is sold. This
would represent an immediate dilution of $2.92 (or 24.33% of the Offering Price)
and $2.48 (or 20.67% of the Offering Price) per share to investors in the Units,
respectively.
The Company also may issue additional shares of Common Stock or preferred
stock in the future, and any such stock offerings could be dilutive to the
holdings of purchasers in this Offering. See "DILUTION," "BUSINESS OF THE
COMPANY - General," "DESCRIPTION OF CAPITAL STOCK AND WARRANTS - Dividend
Warrants," "REMUNERATION OF DIRECTORS AND OFFICERS - Stock Option Plan" and
"SHARES AVAILABLE FOR FUTURE SALE."
Illiquid Securities; Limited Market for Securities. There is no
established active public trading market for the Common Stock, although the
Common Stock is quoted on the OTC Bulletin Board operated by the National
Association of Securities Dealers and reported in the National Daily Quotation
Bureau "Pink Sheets" under the symbol "AMBB." Prior to this Offering, there has
been no public market for the Units or the Warrants.
Making a market in securities involves maintaining bid and ask quotations
and being able, as principal, to effect transactions in reasonable quantities at
those quoted prices, subject to various securities laws and other regulatory
requirements. The development of a public trading market depends, however, upon
the existence of willing buyers and sellers, the presence of which is not within
the control of the Company, the Bank or any market maker. Market makers on the
OTC Bulletin Board and in the Pink Sheets are not required to maintain a
continuous two sided market, are required to honor firm quotations for only a
limited number of shares, and are free to withdraw firm quotations at any time.
Even with a market maker, factors such as the limited size of this Offering and
the limited number of current stockholders of the Company, the lack of earnings
history for the Company and the absence of a reasonable expectation of dividends
within the near future means that there can be no assurance of the development
in the foreseeable future of an active and liquid market for the Common Stock or
the Warrants. Even if a market develops, there can be no assurance that a market
will continue, or that stockholders will be able to sell their Common Stock and
Warrants at or above the Offering Price. In addition, the development of any
trading market for the Common Stock and Warrants may be adversely impacted by
the large amounts of shares of Common Stock held by directors and officers of
the Company, since shares held by such persons generally are not freely
tradeable. If a market for the Common Stock and Warrants does not develop, any
investment in the Units will be highly illiquid, and purchasers in this Offering
may not be able to liquidate their investments in the event of an emergency or
for any other reason. Purchasers of Units in the Offering should carefully
consider the potentially illiquid and long-term nature of their investment. See
"SHARES AVAILABLE FOR FUTURE SALE."
Direct Public Offering; No Firm Commitment Underwriting. No commitment
exists for an underwriter to purchase any Units in the Offering. The Company is
offering the Units directly or through Selling Agents on a "best efforts" basis
and no assurance can be given that any Units will be sold. Neither Hopper
Soliday nor any other Selling Agent has any obligation or
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commitment to purchase any Units in the Offering. See "TERMS OF THE OFFERING;
PLAN OF DISTRIBUTION."
Investors May Be Unable to Exercise Warrants. The Warrants may be
exercised only if a current prospectus relating to the shares of Common Stock
issuable upon exercise of the Warrants is then in effect and only if such shares
of Common Stock are qualified for sale or exempt from registration under the
securities laws of the states in which the purchasers reside. Beginning on
______ (the date the Warrants are first exercisable), the Company will in good
faith use its best efforts to make all necessary filings under the Securities
Act, and to take appropriate action under federal law and the securities laws of
those states where the Units were initially offered to permit the issuance of
the Common Stock issuable upon exercise of the Warrants. However, there can be
no assurance that the Company will be able to take such action, and the failure
to do so may cause the exercise of the Warrants or the resale or other
disposition of the Common Stock issued upon such exercise to become unlawful. In
addition, in the event a purchaser of Units in the Offering relocates to a state
in which the Units were not initially offered, or in the event that a purchaser
of Warrants in the open market resides in a state in which the Units were not
initially offered, the exercise of the Warrants or the resale or other
disposition of the Common Stock issued upon such exercise by such holders may be
unlawful. See "DESCRIPTION OF CAPITAL STOCK AND WARRANTS - Warrants."
Effect of Outstanding Warrants. The terms on which the Company might
obtain additional financing during the periods that the Warrants and the
Dividend Warrants are outstanding may be adversely affected by the existence of
the Warrants and the Dividend Warrants. The holders of such warrants may
exercise their warrants at a time when the Company might be able to obtain
additional capital through a new offering of securities on terms more favorable
than those provided for in the Warrants or the Dividend Warrants.
21
<PAGE>
DILUTION
The difference between the Offering Price of a Unit and the net tangible
book value per share of the Common Stock after the Offering constitutes dilution
to purchasers of Units in the Offering. The net tangible book value of the
Company is the aggregate amount of the Company's tangible assets less its total
liabilities. The net tangible book value per share represents the net tangible
book value of the Company divided by the number of shares of Common Stock
outstanding.
As of June 30, 1998, the net tangible book value of the Company was
$2,329,000, or $7.76 per share of the Company's Common Stock. On a fully diluted
basis, giving effect to options granted to purchase 29,840 shares of Common
Stock as of June 30, 1998, and the Dividend Warrants granted on September 2,
1998, the net tangible book value of the Company as of June 30, 1998 would be
$8.94 per share.
After giving effect to the sale of the Minimum and Maximum Number of
Units in the Offering (after deducting Selling Agent commissions and estimated
Offering expenses), and attributing no part of the Offering Price of the Units
to the Warrants, the fully diluted net tangible book value of the Company as of
June 30, 1998 would be $9.08 per share or $9.52 per share, respectively. This
would represent an immediate increase in net tangible book value per share of
$0.14 and $0.58 to existing stockholders, assuming the sale of the Minimum and
Maximum Number of Units, respectively, and an immediate dilution of $2.92 and
$2.48 per share to investors in the Units, respectively, assuming the sale of
the Minimum and Maximum Number of Units. The information presented assumes a
Selling Agent commission is paid on all Units sold. To the extent that sales are
not made through a Selling Agent, the extent of the dilution would be reduced.
Minimum Maximum
------- -------
Offering Price $12.00 $12.00
Fully diluted net tangible book value
per share before Offering 8.94 8.94
Increase to existing stockholders 0.14 0.58
---- ----
Fully diluted net tangible book value
per share after Offering 9.08 9.52
------ ------
Dilution to new investors $ 2.92 $ 2.48
====== ======
22
<PAGE>
The following table sets forth as of June 30, 1998 (i) the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the price per share paid by the current stockholders, and
(ii) the number of shares of Common Stock included in the Units to be purchased
from the Company and total consideration to be paid by new investors (before
deducting Selling Agent commissions and estimated Offering expenses) at an
Offering Price of $12.00 per Unit and attributing no part of the Offering Price
of the Units to the Warrants.
<TABLE>
<CAPTION>
Minimum Shares Purchased Total Consideration
- ------- ---------------- ------------------- Average
Number Percent Amount Percent Price Per Share
------ ------- ------ ------- ---------------
<S><C>
Current Stockholders 300,000 70.6% $3,000,000 66.7% $10.00
New Investors 125,000 29.4% 1,500,000 33.3% 12.00
------- ----- ---------- ----- ------
Total 425,000 100.0% $4,500,000 100.0% $10.59
======= ===== ========== ===== ======
<CAPTION>
Maximum Shares Purchased Total Consideration
- ------- ---------------- ------------------- Average
Number Percent Amount Percent Price Per Share
------ ------- ------ ------- ---------------
<S><C>
Current Stockholders 300,000 49.0% $3,000,000 44.4% $10.00
New Investors 312,500 51.0% 3,750,000 55.6% 12.00
------- ----- ---------- ----- ------
Total 612,500 100.0% $6,750,000 100.0% $11.02
======= ===== ========== ===== ======
</TABLE>
23
<PAGE>
USE OF PROCEEDS
Although the amounts set forth below provide an indication of the
proposed use of funds based on the plans and estimates of management, actual
amounts may vary from the estimates.
Upon the sale of the Minimum Number of Units in the Offering, all
subscription funds will be released from escrow. The net proceeds to the Company
from the sale of the Units offered hereby (after deducting Selling Agent
commissions and estimated Offering expenses) are estimated to be between
$1,225,000 and $3,340,000. These amounts assume that a Selling Agent commission
is paid on all Units sold. To the extent that sales are not made through a
Selling Agent, the proceeds to the Company will be increased by $0.72 per Unit.
Assuming the sale of the Minimum Number of Units in the Offering, it is
anticipated that approximately $1,100,000 of net Offering proceeds will be used
to make additional capital contributions to the Bank. It is anticipated that the
Bank will use approximately $40,000 of the additional capital for leasehold
improvements to the Towson branch; approximately $90,000 of the additional
capital for furniture, fixtures and equipment for the Towson branch;
approximately $50,000 of the additional capital for pre-opening expenses of the
Towson branch, including employee related expenses and legal fees associated
with obtaining regulatory approval to open the branch; and approximately $25,000
of the additional capital for promotional expenses associated with the opening
of the Towson branch. The Bank's remaining additional capital may be used to
further the branch expansion strategy, for loan originations, investments and
general banking purposes. The approximately $125,000 of remaining Offering
proceeds may be used by the Company to further the branch expansion strategy,
for general corporate purposes and/or for the provision of additional capital
for the Bank.
Assuming the sale of the Maximum Number of Units in the Offering, it is
anticipated that approximately $3,300,000 of net Offering proceeds will be used
to make additional capital contributions to the Bank. Approximately $205,000 of
such additional capital will be expended by the Bank in the same manner and the
same amounts as described above in connection with the Towson branch. The Bank's
remaining additional capital may be used to further the branch expansion
strategy, for loan originations, investments and general banking purposes. The
approximately $40,000 of remaining Offering proceeds may be used by the Company
to further the branch expansion strategy, for general corporate purposes and/or
for the provision of additional capital for the Bank.
The following table sets forth the anticipated use of proceeds by the
Company and the Bank based on the sale of the Minimum Number and the Maximum
Number of Units in the Offering.
By the Company
<TABLE>
<CAPTION>
Minimum Offering Maximum Offering
Proceeds (1) Proceeds (2)
--------------------- ----------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S><C>
Gross proceeds from Offering................ $ 1,500,000 100.00% $ 3,750,000 100.00%
Offering expenses........................... (185,000) 12.33% (185,000) 4.93%
Selling Agent commissions................... (90,000)(3) 6.00% (225,000)(3) 6.00%
Investment in capital stock of the Bank..... (1,100,000) 73.33% (3,300,000) 88.00%
------------ ------ ------------ ------
Remaining proceeds.......................... $ 125,000(4) 8.33% $ 40,000(4) 1.07%
============ ====== ============ ======
</TABLE>
(1) Assumes that 125,000 Units are sold in the Offering at $12.00 per Unit.
(2) Assumes that 312,500 Units are sold in this Offering at $12.00 per Unit.
(3) Assumes that a Selling Agent commission is paid on all Units sold.
(4) This amount may be used by the Company to further the branch expansion
strategy, for general corporate purposes and/or for the provision of
additional capital for the Bank.
By the Bank
<TABLE>
<CAPTION>
Minimum Offering Maximum Offering
Proceeds (1) Proceeds (2)
--------------------- ----------------------
Amount (1) Percent Amount (2) Percent
---------- ------- ---------- -------
<S><C>
Investment by the Company in the
Bank's capital stock........................ $1,100,000 100.00% $3,300,000 100.00%
Towson branch expenses...................... (205,000)(3) 18.64% (205,000)(3) 6.21%
---------- ------ ---------- -----
Remaining proceeds.......................... $ 895,000(4) 81.36% $3,095,000(4) 93.79%
========== ====== ========== =====
</TABLE>
(1) Assumes that 125,000 Units are sold in the Offering at $12.00 per Unit.
(2) Assumes that 312,500 Units are sold in this Offering at $12.00 per Unit.
(3) Of this amount, approximately $40,000 will be used for leasehold
improvements to the Towson branch; approximately $90,000 will be used for
furniture, fixtures and equipment for the Towson branch; approxiamtely
$50,000 will be used for pre-opening expenses of the Towson branch,
including employee related expenses and legal fees associated with
obtaining regulatory approval to open the branch; and approximately
$25,000 will be used for promotional expenses associated with opening
the Towson branch.
(4) This amount may be used by the Bank to further the branch expansion
strategy, for loan originations, investments and general banking
purposes.
Management believes that if the Minimum Number of Units is sold in the
Offering, the approximately $1,100,000 of additional capital will provide the
Bank with the capital necessary to receive regulatory approval from the OTS to
open the Towson branch, although there can be no assurance that this will be the
case. If the Minimum Number of Units is sold in the Offering, but regulatory
approval for the Bank to open a Towson branch is not obtained, the Company and
the Bank will use all the proceeds from the sale of the Minimum Number of Units
to further the branch expansion strategy, for loan originations, investments
and general corporate and banking purposes. See "RISK FACTORS - No Assurance of
Ability to Open New Branch."
Management believes that if the Maximum Number of Units is sold in the
Offering, the approximately $3,300,000 of additional capital will provide the
Bank with the capital necessary to receive regulatory approval from the
Commissioner to consummate the Conversion, although there can be no assurance
that this will be the case. Management also believes that if the Conversion is
consummated, the Bank will receive approval from the Commissioner to open the
Towson branch,
24
<PAGE>
although there can be no assurance that this will be the case. If the Maximum
Number of Units is sold in the Offering, but regulatory approval to consummate
the Conversion is not obtained, the Company and the Bank will use all the
proceeds from the sale of the Maximum Number of Units to further the branch
expansion strategy, for loan originations, investments and general corporate and
banking purposes. See "RISK FACTORS - Potential Delay in Completion or Denial of
Conversion Plan."
25
<PAGE>
TERMS OF THE OFFERING; PLAN OF DISTRIBUTION
GENERAL
The Company is offering for sale a minimum of 125,000 Units and a maximum
of 312,500 Units at a purchase price of $12.00 per Unit to raise gross proceeds
between $1,500,000 and $3,750,000. The Company has established a minimum
subscription of 200 Units ($2,400.00) and a maximum subscription of 17,000 Units
($204,000). However, the Company reserves the right to waive these limits
without notifying any subscriber.
It is anticipated that the directors and officers of the Company,
together with members of their immediate families, will purchase, directly or
indirectly, an aggregate of approximately 21,522 Units to be sold in the
Offering (17.22% if the Minimum Number of Units is sold and 6.89% if the Maximum
Number of Units is sold), which Units have been reserved for their purchase. The
directors and officers may purchase additional Units in the Offering if
necessary to permit the Company to sell the Minimum Number of Units in the
Offering, and they may purchase additional Units even if the Company has sold
the Minimum Number of Units in the Offering. Any Units purchased by the
directors and officers in excess of their original commitment will be purchased
for investment and not with a view to the resale of such Units.
Subscriptions to purchase Units will be received until 12:00 p.m. EST, on
December 31, 1998, unless all of the Units offered hereby are earlier sold or
the Offering is earlier terminated or extended by the Company. The Company
reserves the right to terminate the Offering at any time or to extend the
expiration date for additional periods not to extend beyond March 31, 1999. The
date the Offering expires (as possibly extended) is referred to herein as the
"Expiration Date." No written notice of an extension of the Offering need be
given prior to any extension and any such extension will not alter the binding
nature of subscriptions already accepted by the Company.
Following acceptance by the Company, subscriptions are binding on
subscribers and may not be revoked by subscribers except with the consent of the
Company. In addition, the Company reserves the right to cancel accepted
subscriptions at any time and for any reason until the proceeds of the Offering
are released from escrow, and the Company reserves the right to reject, in whole
or in part and in its sole discretion, any subscription. The Company may, in its
sole discretion, allocate Units among subscribers in the event of an
oversubscription for the Units. In determining which subscriptions to accept, in
whole or in part, the Company may take into account the order in which
subscriptions are received and a subscriber's potential to do business with or
to direct customers to the Bank.
In the event the Company rejects all, or accepts less than all, of any
subscription, the Company or the Selling Agent will refund promptly, without
interest or deductions of any kind, the amount remitted that corresponds to
Twelve Dollars ($12.00) multiplied by the number of Units as to which the
subscription was not accepted. If the Company accepts a subscription but in its
discretion subsequently elects to cancel all or part of such subscription, the
Company or the Selling Agent will refund promptly the amount remitted that
corresponds to Twelve Dollars ($12.00) multiplied by the number Units as to
which the subscription was canceled, together with any interest earned thereon.
26
<PAGE>
HOPPER SOLIDAY
The Company has engaged Hopper Soliday as its exclusive financial advisor
in connection with the Offering. Hopper Soliday also may make offers and sales
of the Units on behalf of the Company on a best-efforts basis. Hopper Soliday is
located at 1703 Oregon Pike, Lancaster, Pennsylvania 17601, and is a
broker-dealer registered with the Securities and Exchange Commission and a
member of the National Association of Securities Dealers, Inc.
For its financial advisory services, the Company has paid Hopper Soliday
a fee of $25,000, and has agreed to reimburse Hopper Soliday for reasonable
out-of-pocket and legal expenses not to exceed, without the Company's approval,
$3,000 and $7,500, respectively.
METHOD OF OFFERING
The Units will be offered and sold by the Company by one of the Company's
directors, to whom no commissions or other compensation will be paid on account
of such activity, although such person will be reimbursed for reasonable
expenses incurred in the Offering.
In addition, offers and sales of the Units may be made on behalf of the
Company on a best-efforts basis by Hopper Soliday and such other registered
broker-dealers as may be engaged by Hopper Soliday (each, a "Selling Agent"). On
sales effected through a Selling Agent, the Company will pay a sales commission
of $0.72 per Unit. Neither Hopper Soliday nor any other Selling Agent has any
obligation or commitment to purchase any Units in the Offering.
The Company has agreed to indemnify Hopper Soliday and any other Selling
Agent, to the extent allowed by law, for reasonable costs and expenses incurred
in connection with certain claims and liabilities, including certain liabilities
under the Securities Act.
CONDITIONS OF THE OFFERING AND RELEASE OF FUNDS
Subscription proceeds for Units subscribed for will be deposited promptly
in an interest-earning escrow account with The First National Bank of Maryland,
as escrow agent (the "Escrow Agent"), under the terms of an escrow agreement
(the "Escrow Agreement"), pending the sale of the Minimum Number of Units or the
termination of the Offering. Neither the Company nor any of its officers or
directors is affiliated with the Escrow Agent. The Offering will be terminated,
no Units will be sold, and no subscription proceeds will be released from escrow
to the Company unless on or before the Expiration Date the Company has accepted
subscriptions and payment in full for the Minimum Number of Units.
If the above condition is not satisfied by the Expiration Date or the
Offering is otherwise earlier terminated, accepted subscription agreements will
be of no further force or effect. In either event, the Company or the Selling
Agents will promptly return to all subscribers all subscription funds together
with any interest earned thereon.
27
<PAGE>
The Escrow Agent has not investigated the desirability or advisability of
an investment in the Units by prospective investors and has not approved,
endorsed or passed upon the merits of an investment in the Units. Subscription
funds held in escrow will, at the direction of the Company, be invested by the
Escrow Agent only in bank accounts, including savings accounts and bank money
market accounts, short-term certificates of deposit issued by a bank or
short-term securities issued or guaranteed by the United States Government. In
no event will the subscription proceeds held in escrow be invested in
instruments that would mature after the Expiration Date.
If the Minimum Number of Units is sold, the subscription amounts held in
escrow, including any interest earned thereon, shall be released to the Company
for its immediate use. Any subscription proceeds accepted after the sale of the
Minimum Number of Units but before termination of the Offering will be deposited
in a non-escrow deposit account with The First National Bank of Maryland pending
acceptance or rejection of subscriptions. Upon acceptance, such proceeds will be
available for immediate use by the Company. See "USE OF PROCEEDS."
HOW TO SUBSCRIBE
Use of Subscription Agreement. Units may be subscribed for by executing
and delivering (by mail or in person) to the Company the subscription agreement
(the "Subscription Agreement") attached hereto as Exhibit A on or prior to 12:00
p.m. EST on December 31, 1998, unless the Offering is extended by the Company
for additional periods not to extend beyond March 31, 1999, together with full
payment of the purchase price for all Units for which subscription is made.
Subscribers should retain a copy of the completed Subscription Agreement for
their records.
The method of delivery of the Subscription Agreement and payment of the
aggregate purchase price to the Company will be at the election and risk of
subscribers, but if sent by mail, the Company recommends that such Subscription
Agreement and payments be sent by registered mail, properly insured, with return
receipt requested and that a sufficient number of days be allowed to ensure
delivery to the Company and clearance of payment prior to the Expiration Date.
Because uncertified checks may take five business days to clear, subscribers are
strongly urged to pay, or arrange for payment, by means of certified or
cashier's check, money order or wire transfer of funds.
In the event a Subscription Agreement (i) is not received; (ii) is
defectively completed or executed; or (iii) is not accompanied by the full
required payment for the Units subscribed, the Company may, but will not be
required to, waive any irregularity on any Subscription Agreement or require the
submission of corrected Subscription Agreements or the remittance of full
payment for subscribed Units by such date as the Company may otherwise specify.
The waiver of any irregularity in no way obligates the Company to waive any
other irregularity. Waivers will be considered on a case by case basis. The
Company reserves the right in its sole discretion to accept or reject
subscriptions received on photocopies or facsimile Subscription Agreements. The
interpretation by the Company of the acceptability of Subscription Agreements
will be final.
Payment for Units. For subscriptions to be valid, payment for all
subscribed Units, computed on the basis of the Offering Price, must accompany
all properly completed Subscription Agreements
28
<PAGE>
on or prior to the Expiration Date. Payment may be made (i) in cash if delivered
in person; (ii) by check or money order drawn to the order of The First National
Bank of Maryland, Escrow Agent; or (iii) by wire transfer of funds to the escrow
account at The First National Bank of Maryland, Escrow Agent, Account No.
19185092, ABA No. 052000113.
Purchases through a Selling Agent. Subscribers who elect to purchase
Units from a Selling Agent are advised that the Selling Agent will be required
either (i) upon receipt of an executed Subscription Agreement or direction to
execute a Subscription Agreement on behalf of a subscriber, to forward the
aggregate purchase price to the Escrow Agent on or before 12:00 p.m., prevailing
time, of the business day next following receipt of such executed Subscription
Agreement or direction to execute a Subscription Agreement; or (ii) upon receipt
of confirmation by such Selling Agent of a subscriber's interest in purchasing
Units, and following an acknowledgment by such Selling Agent to such subscriber
on the next business day next following receipt of confirmation, to debit the
account of such investor on the third business day next following receipt of
confirmation and to forward the aggregate purchase price to the Escrow Agent on
or before 12:00 p.m., prevailing time, of the business day next following such
debiting.
ISSUANCE OF CERTIFICATES
After the sale of the Minimum Number of Units and the receipt of escrowed
funds by the Company, certificates representing shares of Common Stock and
Warrants which are part of Units duly subscribed and paid for will promptly be
issued by the Company to the subscribers. Such certificates will be mailed at
the address noted on the Subscription Agreement. Any certificates returned as
undeliverable will be held until claimed by persons legally entitled thereto or
otherwise disposed in accordance with applicable law.
29
<PAGE>
CAPITALIZATION
The following table presents the capitalization of the Company as of June
30, 1998, and as adjusted to give effect to the sale of the Minimum and Maximum
Number of Units in the Offering, less Selling Agent commissions and the
estimated Offering expenses.
<TABLE>
<CAPTION>
As of June 30, 1998
-------------------
As Adjusted for the As Adjusted for the
Sale of the Minimum Sale of the Maximum
Actual Number of Units Number of Units
------ --------------- ---------------
<S><C>
Stockholder's Equity:
Common Stock, par value $0.01 per share; $3,000 $4,000 $6,000
5,000,000 shares authorized; 300,000
shares issued and outstanding; 425,000
shares issued and outstanding (as
adjusted for sale of Minimum Number
of Units); 612,500 shares issued and
outstanding (as adjusted for sale of
Maximum Number of Units)(1)(2)(3)
Preferred Stock, par value $0.01 per -- -- --
share; 5,000,000 shares authorized; no
shares issued or outstanding
Additional paid in capital(4) 2,847,000 4,071,000 6,184,000
Accumulated deficit (131,000) (131,000) (131,000)
---------- ---------- ----------
Total stockholder's equity $2,719,000 $3,944,000 $6,059,000
========== ========== ==========
</TABLE>
(1) Does not include 29,840 shares of Common Stock reserved for issuance as
of June 30, 1998 upon exercise of outstanding options pursuant to the
Company's stock option plan. All of such options have an exercise price
of $10.00 per share. See "REMUNERATION OF DIRECTORS AND OFFICERS - Stock
Option Plan" and "SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
SECURITYHOLDERS."
(2) Does not include between 125,000 and 312,500 shares of Common Stock,
based upon the sale of the Minimum and Maximum Number of Units,
respectively, issuable upon exercise of the Warrants.
(3) Does not include up to 300,000 shares of Common Stock issuable upon
exercise of the Dividend Warrants. The Dividend Warrants have an exercise
price of $10.00 per share. See "DESCRIPTION OF CAPITAL STOCK AND WARRANTS
- Dividend Warrants."
(4) The Selling Agent commissions and the Offering expenses will be charged
against this account. Offering expenses are estimated to be $185,000.
Selling Agent commissions are estimated at $90,000 assuming the sale of
the Minimum Number of Units and $225,000 assuming the sale of the Maximum
Number of Units. The amount of Selling Agent commissions assumes a
Selling Agent commission is paid on all Units sold. To
30
<PAGE>
the extent that sales are not made through a Selling Agent, the proceeds
to the Company will be increased by $0.72 per Unit.
31
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all of its
earnings, if any, to provide funds to operate and expand the Company.
Consequently, there are no plans for any cash dividends to be paid in the near
future. The Company's ability to pay any cash dividends to its stockholders in
the future will depend primarily on the Bank's ability to pay cash dividends to
the Company. The payment of dividends may be made only if the Bank and the
Company are in compliance with certain applicable regulatory requirements
governing the payment of dividends by each of them. In addition, the payment of
cash dividends by the Company is subject to the discretion of the Company's
Board of Directors, which will consider a number of factors, including the
Company's future earnings, financial condition, cash needs and general business
condition. See "SUPERVISION AND REGULATION - Depository Institution Regulation -
Limitation on Capital Distributions" and "- Holding Company Regulation After the
Conversion - Dividends."
32
<PAGE>
BUSINESS OF THE COMPANY
GENERAL
AmericasBank Corp. (the "Company") was incorporated under the laws of the
State of Maryland on June 4, 1996, primarily to own all of the outstanding
shares of capital stock of a federal stock savings bank to be named AmericasBank
(the "Bank"). On April 15, 1997, the Office of Thrift Supervision (the "OTS")
granted the Company the necessary approvals to acquire the capital stock of the
Bank and to become a savings and loan holding company of the Bank. The Company
acquired all of the Bank's capital stock and the Bank opened on December 1,
1997. The Bank currently has one branch in Baltimore, Maryland.
On December 30, 1997, the Company formed AmericasBank Holdings
Corporation, a Maryland corporation, as a wholly owned subsidiary of the
Company. On December 31, 1997, AmericasBank Holdings Corporation purchased a
building located at 500 York Road, Towson, Maryland 21286 (the "Towson
Property"), from NationsBank, N.A. ("NationsBank"). Until July 1997, the Towson
Property had served as a branch of NationsBank. AmericasBank Holdings
Corporation also purchased certain furniture, fixtures and equipment utilized by
NationsBank in its operation of the branch. AmericasBank Holdings Corporation
paid NationsBank approximately $650,000 for the Towson Property and the related
furniture, fixtures and equipment. The money for the purchase was loaned to
AmericasBank Holdings Corporation by the Company. Subject to, among other
things, regulatory approval, management believes that the sale of the Minimum
Number of Units in the Offering will enable the Company to utilize the Towson
Property as a branch of the Bank. Prior to utilizing the Towson Property as a
branch of the Bank, the Company may determine to transfer ownership of the
Towson Property and the related furniture, fixtures and equipment from
AmericasBank Holdings Corporation to the Bank. See "USE OF PROCEEDS" and
"BUSINESS OF THE BANK."
On September 2, 1998, the Company issued to the holders of record of its
Common Stock on September 1, 1998, a dividend of one common stock purchase
warrant for each share of Common Stock then held by the stockholders (the
"Dividend Warrants"). Each Dividend Warrant entitles the holder thereof to
purchase one share of Common Stock at an exercise price of $10.00 per share,
subject to adjustment for certain events, beginning any time after April 1,
2000, until the Dividend Warrant's expiration at 5:00 p.m. EST, on September 1,
2008. The Dividend Warrants contain anti-dilution provisions which are
substantially similar to those contained in the Warrants. See "DESCRIPTION OF
CAPITAL STOCK AND WARRANTS - Dividend Warrants."
Assuming the sale of the Maximum Number of Units in the Offering or such
lesser amount as may be necessary to obtain regulatory approval, the Company
intends to cause the Bank, subject to regulatory approval, to convert from a
federal stock savings bank to a Maryland savings and loan association, and
immediately thereafter to a Maryland commercial bank, also named AmericasBank
(the "Conversion"). Both before and after the Conversion, AmericasBank is
referred to in this Prospectus as the "Bank." The purpose of the Conversion is
to provide the Bank with additional operating flexibility and to enhance its
ability to provide a broader range of banking products and services to its
community. There can be no assurance that the Bank and the Company will obtain
the necessary regulatory approval to consummate the Conversion. See "THE
CONVERSION."
The Company currently is classified as a non-diversified unitary savings
and loan holding company and, as such, the Company may engage in certain
non-banking activities that the OTS has deemed to be closely related to banking.
See "SUPERVISION AND REGULATION - Holding
33
<PAGE>
Company Regulation Prior to the Conversion." Upon consummation of the
Conversion, the Company will be a bank holding company under the Bank Holding
Company Act of 1956, as amended, and generally will be limited to banking and
banking related activities. See "SUPERVISION AND REGULATION - Holding Company
Regulation After the Conversion." Currently, the Company has no present
intention of engaging in any activity other than owning all of the outstanding
shares of capital stock of the Bank and the outstanding shares of capital stock
of AmericasBank Holdings Corporation. However, if circumstances should lead the
Company's management to determine that it would be beneficial for the Company to
engage in other activities, management of the Company would have the flexibility
to do so, subject to the applicable regulatory requirements.
The Company has no significant assets other than its interests in the
Bank and AmericasBank Holdings Corporation. Accordingly, the Company's earnings
are primarily dependent upon dividends received by the Company from the Bank,
which dividends are dependent on the Bank's profitability and the Bank's
compliance with certain regulatory requirements.
EMPLOYEES
At the present time, the Company does not have and does not intend to
have any employees.
PROPERTY
The Company's executive offices are located at 3621 East Lombard Street,
Baltimore, Maryland 21224, and its telephone number is (410) 342-8303. Upon
opening a branch of the Bank at the Towson Property, the Company's executive
offices will be moved to the Towson Property, which is located at 500 York Road,
Towson, Maryland 21286, and its telephone number will be (410) 823-0500. Towson,
Maryland is the county seat of Baltimore County, Maryland.
The East Lombard Street property contains approximately 2,000 square feet
in a converted two-story rowhome that has been utilized as a bank since 1927.
The property is owned by the Company.
The Towson Property contains approximately 2,700 square feet of retail
banking space on the first floor, approximately 1,800 square feet of office
space on the second floor and approximately 2,500 square feet of retail office
space on the basement level. Until July 1997, the Towson Property had been
utilized as a branch of NationsBank. The Towson Property currently is owned by
the Company's wholly owned subsidiary, AmericasBank Holdings Corporation. Prior
to utilizing the Towson Property as a branch of the Bank, the Company may
determine to transfer ownership of the Towson Property from AmericasBank
Holdings Corporation to the Bank.
34
<PAGE>
BUSINESS OF THE BANK.
GENERAL
On June 5, 1996, the organizers of the Company and the Bank (the
"Organizers") filed an application with the OTS to organize the Bank as a
federal stock savings bank. On April 15, 1997, the OTS conditionally approved
the application, and the Bank obtained all necessary regulatory approvals to
commence banking operations as of December 1, 1997. Effective as of December 1,
1997, the Bank commenced banking operations. The Bank's deposit accounts are
insured by the Federal Deposit Insurance Corporation (the "FDIC") and the Bank
is a member of the Federal Home Loan Bank System.
Effective as of December 1, 1997, the Bank also purchased certain assets
and assumed certain deposit liabilities primarily related to the Baltimore,
Maryland branch office of Rushmore Trust and Savings, FSB ("Rushmore"), located
at 3621 East Lombard Street, Baltimore, Maryland 21224 (the "Baltimore Branch").
This transaction was initiated when Kenneth Pezzula, a director of the Company,
and an organizer of the Bank, as well as a director of Rushmore, approached
management of Rushmore to propose the sale of the Baltimore Branch to a group
desiring to establish a new community bank. As of October 31, 1997, Mr. Pezzula
resigned as a member of the Board of Directors of Rushmore.
The Bank assumed deposits booked at Rushmore's Baltimore Branch totaling
approximately $7,680,000 (the "Baltimore Branch Deposits"). The Bank acquired
all of Rushmore's loans, including accrued interest and charges thereon,
originated at the Baltimore Branch (the "Baltimore Branch Loans"), and certain
of Rushmore's loans, including accrued interest and charges thereon, originated
at Rushmore's Montgomery County, Maryland branch office (the "Montgomery County
Loans") (the Baltimore Branch Loans and the Montgomery County Branch Loans are
collectively referred to in this Prospectus as the "Rushmore Loans"). At
closing, the Rushmore Loans totaled approximately $6,504,000. In addition, at
closing, the Bank acquired certain assets related to the operation of the
Baltimore Branch (the "Baltimore Branch Assets"), which assets are being used by
the Bank in its operations. The Baltimore Branch Assets included the Baltimore
Branch's real property, building and improvements and all of the Baltimore
Branch's fixtures, furnishings, equipment, furniture and other tangible personal
property. The purchase price for the Baltimore Branch Assets totaled
approximately $80,000. At closing, the Bank also paid Rushmore $50,000 for its
agreement not to compete with the Bank, and a deposit premium of 3.5% of the
Baltimore Branch Deposits (plus accrued interest) less $105,000, which totaled
approximately $164,000. Finally, at closing, the Bank was given a credit for
$120,000 in deposits that it had paid Rushmore through November 30, 1997.
STRATEGY
The Bank is a community-oriented financial institution. Its business has
been to attract retail deposits and to seek to invest those deposits, together
with funds generated from operations and borrowings, in one-to four-family
mortgage loans. Over 80% of the loans acquired from Rushmore were one-to-four
family mortgage loans. To a lesser extent, the Bank has sought to invest in home
equity and second trust loans, multi-family loans, commercial real estate loans,
commercial business loans, construction and lot loans (primarily for one- to
four-family home construction for the borrower) and consumer loans. The Bank's
deposit base is comprised of various deposit products
35
<PAGE>
including checking accounts, insured investment accounts, statement savings
accounts, passbook deposit accounts, money market accounts, certificates of
deposit and individual retirement accounts. See "RESULTS OF OPERATIONS."
Management has determined that as a result of recent consolidations of
financial institutions, the Bank's current and potential market areas are not
being adequately served by existing financial institutions and that there is an
increasing local demand for commercial real estate, commercial business,
construction and consumer loans offered by a truly community-oriented financial
institution. As a result, the Bank will seek to convert from a federal stock
savings bank to a Maryland commercial bank and management will refocus the
Bank's lending strategy. Pursuant to this strategy, while continuing to pursue
its existing business of seeking to originate mortgage loans for the purpose of
financing and refinancing one-to-four family residential properties, the Bank
intends to expand gradually its commercial real estate, commercial business,
construction and consumer lending. See "THE CONVERSION."
The Bank offers direct deposit of payroll and social security checks and
automatic drafts for various accounts to its customers. To provide additional
convenience to its customers, the Bank participates in the HONOR Automatic
Teller Machine Network at locations throughout the United States, through which
customers can gain access to their accounts at any time. Although the Bank's
East Lombard Street branch does not have an automatic teller machine, an
AmericasBank automatic teller machine currently is operational at the Towson
Property. Although it does not currently do so, the Bank intends to offer its
customers cash management services, safe deposit boxes and travelers checks.
The Bank's objective is to create a customer-driven financial institution
focused on providing value to customers by delivering products and services
matched to the customers' needs. Management believes that customers will be
drawn to a locally owned and managed institution that demonstrates an active
interest in its customers and their business and personal financial needs.
The banking industry in the Bank's market area has experienced
substantial consolidation in recent years. Many of the area's locally owned or
managed financial institutions have either been acquired by large regional bank
holding companies or have been consolidated into branches. This consolidation
has been accompanied by increasing fees for bank services, the dissolution of
local boards of directors, management and personnel changes and, in the
perception of management, a decline in the level of customer service. With
recent changes in interstate banking regulation, this type of consolidation is
expected to continue.
The Bank intends to pursue a strategy of long term growth by competing
for loans and deposits in its market area, establishing a new branch office in
Towson, Maryland and by opening additional branches, either through internal
growth or through acquisitions of existing financial institutions or branches
thereof. The Bank's ability to expand internally by establishing new branch
offices will be dependent on the ability to identify advantageous locations for
such branches and to fund the development of new branches. The ability to grow
through selective acquisitions of other financial institutions or branches of
such institutions will be dependent on successfully identifying, acquiring and
integrating such institutions or branches. Furthermore, the success of the
branch expansion strategy will be dependent upon the Bank's access to capital,
its ability to attract and train or retain qualified employees and its ability
to obtain regulatory approvals. The branch expansion strategy anticipates losses
from branch operations until such time as branch deposits and the volume of
other
36
<PAGE>
banking business reach the levels necessary to support profitable branch
operations. At this time, other than the plan to open a Towson branch, the
Company and the Bank have no specific plans regarding new branch offices or
acquisitions of existing financial institutions or branches thereof.
There can be no assurance that the Bank will be able to generate internal
growth or identify attractive acquisition candidates, acquire such candidates on
favorable terms, or successfully integrate any acquired institutions or branches
into its operations. In addition, the Bank's inability to implement the branch
expansion strategy could negatively impact the Bank's long term ability to
successfully compete in the marketplace.
LOCATIONS AND SERVICE AREA
Currently, the Bank's sole branch is located at 3621 East Lombard Street,
Baltimore, Maryland 21224.
Management intends, subject to regulatory approval, to open a branch of
the Bank at the Towson Property, which is located at 500 York Road, Towson,
Maryland 21286. Upon opening a branch at the Towson Property, the Bank's
executive offices will move to the Towson Property. Towson, Maryland is the
county seat of Baltimore County, Maryland.
Management anticipates that the Bank will draw most of its customer
deposits and conduct most of its lending transactions from within the area
surrounding its branch offices as well as from within the Baltimore metropolitan
area.
COMPETITION
The Baltimore metropolitan area is a highly competitive market for
financial services and the Bank faces intense competition both in making loans
and in attracting deposits. The Bank faces direct competition from a significant
number of financial institutions operating in the Bank's market area, many with
a state-wide or regional presence and in some cases a national presence. In
addition, the Bank competes with other community banks in its market area that
have substantially the same business philosophy and strategy as the Bank. Many
of these financial institutions have been in business for many years, have
established customer bases, are significantly larger and have greater financial
resources than the Bank has and are able to offer certain services that the Bank
is not able to offer. In addition, the Bank faces competition for deposits and
loans from non-bank institutions such as brokerage firms, credit unions,
insurance companies, money market mutual funds and private lenders.
Any change in governmental economic and monetary policy, banking and
credit regulations and general economic conditions, which changes are beyond the
control of the Bank, also can affect the demand for the Bank's services. The
rates of interest payable on deposits and chargeable on loans will be affected
by fiscal policy as determined by various governmental and regulatory
authorities, in particular the Federal Reserve, as well as by national, state
and local economic conditions. Through open market transactions, variations in
the discount rate and the establishment of reserve requirements, the Federal
Reserve exerts considerable influence over the cost and availability of funds
obtainable for lending or investing. These actions may at times result in
37
<PAGE>
significant fluctuations in interest rates, which could have adverse effects on
the operations of the Bank. The nature or extent of any effects which monetary
policies or economic conditions might have on the business and earnings of the
Bank cannot be predicted.
EMPLOYEES
As of August 30, 1998, the Bank had four full-time employees and one
part-time employee. It is anticipated that the branch office at the Towson
Property will have four full-time and one part-time employee.
Year 2000
The Bank contracts with an outside firm to provide data processing
services. The Bank's contract with this firm is schedule to expire on December
1, 2000. The data processing firm has advised the Bank that it intends for its
software to be Year 2000 compliant by December 31, 1998; therefore, the data
processing firm's software would not be impacted by any date-sensitive
calculations related to the Year 2000 Issue. The Bank does not anticipate
incurring any extra costs from the data processing firm in connection with the
Year 2000 Issue. The data processing firm provides the Bank with periodic
updates on its progress with regard to the Year 2000 Issue. The Bank does not
believe that its operations will be materially impacted by the Year 2000 Issue,
assuming that the data processing firm fulfills its representation to the Bank
that its software will be Year 2000 compliant by December 31, 1998. However,
there can be no assurance that the data processing system will be Year 2000
compliant, and such failure may have a material adverse effect on the Company
and the Bank's earnings, cash flows and overall financial condition. In addition
to risks relating to internal Year 2000 compliance, the Bank may be vulnerable
to the failure of customers to remedy their own Year 2000 issues.
In addition, in accordance with OTS requirements, the Bank has appointed
a Year 2000 Committee and has adopted a written plan detailing the procedures to
be followed by management to identify and solve potential problems and to
monitor the progress made by the Bank and the data processing firm to avoid Year
2000 problems.
38
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma income statement and explanatory notes
has been derived from the historical financial statements of the Company and the
Baltimore Branch of Rushmore, adjusted to give effect to the transaction with
Rushmore. The statement assumes that such transaction occurred at the beginning
of the period presented. The unaudited pro forma income statement is not
necessarily indicative of the results of operation that would have occurred had
the transaction reflected therein occurred on date presented, nor is it
indicative of the results of operation of future periods. For audited
information regarding the Company and the Baltimore Branch of Rushmore, see the
Financial Statements located elsewhere in this Prospectus.
39
<PAGE>
AmericasBank
Pro Forma Income Statement
For the year ended 12/31/97
<TABLE>
<CAPTION>
The Baltimore
Branch of Rushmore
AmericasBank Trust and Savings
For the Year For the Year Pro Forma
Ended 12/31/1997 Ended 11/30/1997 Adjustments Total
---------------- ---------------- ----------- -----
<S><C>
INTEREST INCOME
Interest income on loans $ 47,000 $505,000 $ 67,000 (A) $ 619,000
Interest income on investment securities 63,000 -- -- 63,000
-------- -------- --------- ---------
Total interest income 110,000 505,000 67,000 682,000
INTEREST EXPENSE ON DEPOSITS 32,000 331,000 -- 363,000
-------- -------- --------- ---------
Net interest income 78,000 174,000 67,000 319,000
PROVISION FOR LOAN LOSSES 2,000 -- -- 2,000
-------- -------- --------- ---------
Net interest income after provision for loan losses 76,000 174,000 67,000 317,000
-------- -------- --------- ---------
LATE CHARGES AND OTHER FEES -- 17,000 -- 17,000
-------- -------- --------- ---------
OTHER OPERATING EXPENSES
Salaries and benefits 11,000 103,000 -- 114,000
Depreciation and amortization 10,000 4,000 76,000 (B) 90,000
Occupancy expense 1,000 -- 10,000 (C) 11,000
Deposit insurance premiums -- 5,000 -- 5,000
Other operating expenses 95,000 20,000 157,000 (C) 282,000
-------- -------- --------- ---------
Total other operating expenses 117,000 132,000 243,000 502,000
-------- -------- --------- ---------
(Loss) income before provision for income taxes (41,000) 59,000 (176,000) (168,000)
PROVISION FOR INCOME TAXES -- -- -- --
-------- -------- --------- ---------
(Loss) income before transfer to Rushmore (41,000) 59,000 (176,000) (168,000)
TRANSFER TO RUSHMORE -- 59,000 (59,000) --
-------- -------- --------- ---------
Net loss $(41,000) $ -- $(127,000) $(168,000)
======== ======== ========= =========
</TABLE>
40
<PAGE>
(A) Reflects the interest income earned on the additional loans acquired that
were originated at Rushmore's Montgomery County, Maryland branch office.
(B) Reflects estimated additional depreciation and amortization expense which
would be incurred while operating between January 1, 1997 through November
30, 1997 as follows:
Depreciation:
Real estate - $50,000 over 15 years $ 3,000
Furnishings - $30,000 over 5 years 6,000
Amortization:
Organization costs - $110,000 over 5 years 22,000
Premium on loans - $50,000 over 15 years 3,000
Premium on deposits - $181,000 over 5 years 36,000
Covenant not to compete - $50,000 over 3 years 17,000
-------
Total estimated 87,000
-------
Total estimated for 11 months 80,000
Less: Depreciation expense recognized in the
Baltimore Branch financial statements (4,000)
-------
Pro forma adjustment $76,000
=======
(C) Reflects the estimated additional occupancy expense and other costs that the
Baltimore Branch would have incurred, if it were operating on a stand-alone
basis.
41
<PAGE>
THE CONVERSION
The Board of Directors of the Bank and the Board of Directors of the
Company adopted a plan for the Conversion (the "Conversion Plan") on August 27,
1998. Pursuant to the Conversion Plan, the Bank will convert from a federal
stock savings bank to a Maryland savings and loan association (the "State
Association"), and immediately thereafter to a Maryland commercial bank. The
Conversion is subject to regulatory approval and there can be no assurance that
the Conversion will be consummated. Management believes that the Conversion will
be beneficial because it will enable the Bank to refocus its lending strategy
and thereby capitalize upon the increasing local demand for commercial real
estate, commercial business, construction and consumer loans without being
limited to the activities permitted under the thrift charter. See "SUPERVISION
AND REGULATION Depository Institution Regulation - QTL Test."
As soon as practicable after the date of this Prospectus, the Bank will
apply to the Commissioner for approval of the conversion of the Bank to the
State Association and then to a Maryland commercial bank, and the Company will
apply to the Federal Reserve for approval to own all of the capital stock of the
Bank upon consummation of the Conversion, and thereby become a bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHC Act").
In addition, the Bank will apply with the Federal Reserve to become a member
bank. Contemporaneous with becoming a bank holding company under the BHC Act,
the Company will deregister with the OTS as a savings and loan holding company.
There can be no assurance that such approvals will be obtained. The Conversion
does not require the approval of the Company's stockholders. See "RISK FACTORS -
Potential Delay in Completion or Denial of Conversion Plan."
Management believes that as a condition, among others, to the
Commissioner's approval of the Conversion Plan, the Bank must have stockholder's
equity of approximately $5,000,000. Management believes that the sale of the
Maximum Number of Units will be sufficient to provide the Bank with additional
capital so as to enable the Bank to have stockholder's equity of approximately
$5,000,000. Although the sale of less than the Maximum Number of Units may be
sufficient to enable the Company to provide the Bank with the necessary
additional capital, management is unable to estimate what such lesser amount may
be.
Upon consummation of the Conversion, the Bank initially will continue to
conduct business in substantially the same manner as it had prior to the
Conversion. Over time, however, management anticipates an increase in the
percentage of commercial real estate, commercial business, construction and
consumer loans in the Bank's portfolio. Diversification of the Bank's loan
portfolio may adversely alter the risk profile of the Bank. See "RISK FACTORS -
Risks Related to Commercial, Construction and Consumer Lending." As a Maryland
commercial bank, the Bank will be subject to many of the same regulatory
restrictions now applicable to the Bank as a federal stock savings bank.
However, unlike federal stock savings banks, Maryland commercial banks are not
required to invest a specified amount of assets in residential real estate
loans. See "SUPERVISION AND REGULATION - Depository Institution Regulation - QTL
Test.
42
<PAGE>
Management believes that the Bank's President must have substantial
experience in commercial banking in order to implement the Bank's refocused
lending strategy and to enhance the Bank's management in connection with the
Conversion. On September 24, 1998, the Bank hired Richard J. Hunt, Jr. to serve
as President of the Bank. Mr. Hunt has over nine years of commercial banking
experience, having served in numerous capacities with several Maryland and
Washington, D.C. based banks. Mr. Hunt's appointment as President of the Bank is
subject to regulatory approval and there can be no assurance that such
regulatory approval will be obtained. In addition, there can be no assurance
that Mr. Hunt will be able to successfully implement the refocused lending
strategy. See "RISK FACTORS Risks Related to New Management."
Upon obtaining regulatory approval for Mr. Hunt to serve as President of
the Bank, the Bank's current President, Patricia D'Alessandro, will serve as a
Vice President of the Bank with responsibility for overseeing the Bank's branch
operations, including responsibility for the hiring and training of branch
personnel. In addition, Ms. D'Alessandro will perform retail lending services
for the Bank, primarily in secured real estate and consumer loans.
43
<PAGE>
RESULTS OF OPERATIONS
GENERAL
The Bank commenced operations as of December 1, 1997, and its activities
have primarily consisted of accepting deposits, making loans and servicing the
deposits and loans acquired from Rushmore.
As of June 30, 1998, the Company had total assets of approximately
$11,385,000, total loans of approximately $6,641,000 and total deposits of
approximately $8,392,000. As of December 31, 1997, the Company had total assets
of approximately $11,420,000, total loans of approximately $6,303,000 and total
deposits of approximately $8,396,000. The Company experienced a loss of
approximately $92,000 for the six months ended June 30, 1998 and $41,000 for the
year ended December 31, 1997.
For the six months ended June 30, 1998, the Company's return on assets
(net loss divided by average total assets) was (0.82%), its return on equity
(net loss divided by average equity) was (3.32%), and its equity to assets ratio
(average equity divided by average total assets) was 24.81%. For the year ended
December 31, 1997, the Company's return on assets was (0.37%), its return on
equity was (1.45%), and its equity to assets ratio was 25.60%.
CAPITAL RESOURCES AND WRITE-OFF OF CAPITALIZED AMOUNTS
Management believes that the sale of the Minimum Number of Units in the
Offering will enable the Bank to open a branch in Towson, Maryland and that the
sale of the Maximum Number of Units in the Offering will enable the Conversion
to be consummated. If the Company is unable to sell the Maximum Number of Units
in the Offering, or such lesser amount as may be sufficient to enable the
Conversion to be consummated, the Company may seek additional funds to enable
the Conversion to be consummated. Any equity or debt financings, if available at
all, may be on terms which are not as favorable as this Offering and, in the
case of equity financings, could result in dilution to the Company's
stockholders. See "RISK FACTORS - Potential Delay in Completion or Denial of
Conversion Plan."
Direct costs incurred to incorporate and charter the Company and the Bank
are recorded on the Company's consolidated financial statements as
organizational costs, and currently are being amortized over a five-year period
using the straight line method. In April 1998, the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
issued Statement of Position 98-5 (the "SOP") regarding financial reporting on
the costs of start-up activities. Under the SOP, organizational costs are
considered start-up costs and, commencing with fiscal years beginning after
December 15, 1998, entities are required to expense such costs as they are
incurred. As a result of the SOP, the Company will be required to write off its
unamortized organizational costs during the first quarter of 1999, as a
cumulative change in an accouning principal. It is anticipated that an aggregate
of approximately $115,000 will be written off by the Company and the Bank during
the first quarter of 1999, which will negatively affect the Company's
consolidated results of operations for that period.
NET INTEREST INCOME/MARGINS
The operations of the Bank are substantially dependent on its net
interest income, which is the difference between the interest expense incurred
in connection with the Bank's interest-bearing liabilities, such as interest on
deposit accounts, and the interest income received from its interest-earning
assets, such as loans and investment securities. Volatility in interest rates
can result in the flow of funds away from banks of the type similar to the Bank
and into direct investments, such as corporate securities and other investment
vehicles which, because of among other things the absence of federal deposit
insurance, generally pay higher rates of return. Such volatility could cause the
Bank to pay increased interest rates to obtain deposits and, if the Bank is not
able to increase the interest rates on its loans and the rate of return on its
investment portfolio, the Bank's net interest income will suffer.
44
<PAGE>
The level of net interest income is determined primarily by the average
balances ("volume") and the rate spreads between the Bank's interest-earning
assets and the Bank's funding sources. The Bank's ability to maximize its net
interest income depends on increases or decreases in the volume of its
interest-earning assets and interest-bearing liabilities, increases or decreases
in the average rates earned and paid on such assets and liabilities, the ability
to manage the earning-asset portfolio, and the availability of particular
sources of funds, such as non-interest earning deposits.
The following table indicates the average volume of interest-earning
assets and interest-bearing liabilities and average yields and rates for the
Company and the Bank for the periods indicated, which are the operating periods
of the Bank.
Average Balances -- Yields and Rates (1)
- ----------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 December 1, 1997 to December 31, 1997
------------------------------ -------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
<S><C>
Assets:
Loans receivable (net of unearned income) (2) $6,659,000 $311,000 9.35% $ 6,399,000 $47,000 8.81%
Money market investment securities 533,000 12,000 4.43 893,000 4,000 5.38
Federal funds sold 2,534,000 70,000 5.50 2,681,000 12,000 5.37
Interest bearing bank balances 22,000 1,000 6.07 31,000 --(3) --
Other earning assets (FHLB stock) 54,000 2,000 8.11 27,000 --(3) --
----------- -------- ---- ----------- ------- ----
Total earning assets (4) 9,802,000 $396,000 8.08% 10,031,000 $63,000 7.54%
----------- -------- ---- ----------- ------- ----
Allowance for loan losses (62,000) (51,000)
Cash and due from banks 219,000 198,000
Property and equipment, net 742,000 414,000
Other assets 457,000 454,000
----------- -----------
Total assets $11,158,000 $11,046,000
=========== ===========
Liabilities and stockholders' equity:
Statement savings $ 1,388,000 $ 17,000 2.50% $ 1,452,000 $ 3,000 2.50%
Money market 39,000 1,000 2.78 3,000 --(3) 3.00
Certificates of deposit 665,000 17,000 5.13 578,000 3,000 5.31
IRA 450,000 10,000 4.48 496,000 2,000 4.76
Insured investment 5,062,000 134,000 5.27 4,844,000 24,000 5.36
Passbook deposit 93,000 1,000 2.93 35,000 --(3) 3.00
----------- -------- ---- ----------- ------- ----
Total interest-bearing liabilities 7,697,000 $180,000 4.68% 7,408,000 $32,000 5.18%
======== ==== ======= ====
Checking accounts 457,000 632,000
Other liabilities 236,000 178,000
Stockholders' equity 2,768,000 2,828,000
----------- -----------
Total liabilities and stockholders' equity $11,158,000 $11,046,000
=========== ===========
Interest rate spread (Average rate earned 3.40% 2.36%
less average rate paid) ==== ====
Net interest income (Interest earned less interest paid) $216,000 $31,000
======== =======
Net interest margin (Net interest income/total earning assets) 4.41% 3.71%
==== ====
</TABLE>
(1) Average balances were calculated using December 1, 1997 and month end
balances (which approximate daily averages), as daily averages were not
available for the periods presented.
(2) Loans on non-accrual status are included in the calculation of average
balances.
(3) No interest income or de minimus interest income.
(4) From inception through June 30, 1998, the Bank made no loans or investments
that qualify for tax-exempt treatment and, accordingly, had no tax-exempt
income.
45
<PAGE>
The following table indicates the average volume of interest-earning
assets and interest-bearing liabilities and average yields and rates for the
Baltimore Branch Deposits and the Rushmore Loans for the periods presented. The
information in the table has been derived from financial information received
from Rushmore in connection with the transaction with Rushmore.
Average Balances -- Yields and Rates
- ------------------------------------
<TABLE>
<CAPTION>
Eleven Months Ended
November 30, 1997(1) Year Ended December 31, 1996(2)
----------------------------- -------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
<S><C>
Interest earning assets:
Loans receivable (net of unearned income)(3) $6,818,000 $593,000 9.49% $7,588,000 $738,000 9.52%
Allowance for loan losses (50,000) -------- ---- (50,000) -------- ----
---------- ----------
Total assets $6,768,000 $7,538,000
========== ==========
Interest-bearing liabilities:
Statement savings $1,628,000 $ 37,000 2.50% $1,995,000 $ 50,000 2.50%
Money market 5,016,000 242,000 5.27 4,707,000 247,000 5.30
Certificates of deposit 578,000 28,000 5.32 629,000 31,000 4.56
IRA 422,000 19,000 4.84 471,000 24,000(4) 4.06
IRA money market 98,000 5,000 5.39 84,000 --(4) 5.30(4)
---------- -------- ---- ---------- -------- ----
Total interest-bearing liabilities 7,742,000 $331,000 4.66% 7,886,000 $352,000 4.46%
---------- -------- ---- ---------- -------- ----
Checking accounts 293,000 221,000
---------- ----------
Total liabilities $8,035,000 $8,107,000
========== ==========
Interest rate spread (Average rate earned 4.83% 5.07%
==== ====
less average rate paid)
Net interest income (Interest earned less interest paid) $262,000 $386,000
======== ========
Net interest margin (Net interest income/total earning assets) 4.19% 5.09%
==== ====
</TABLE>
(1) Average balances were calculated using quarter-end and November 30, 1998
balances (which approximate daily averages), as daily and monthly averages
were not available for the period presented.
(2) Average balances were calculated using month end balances, except for money
market accounts, where quarter-end balances were used (each of which
approximates daily averages). Daily averages were not available for the
period presented.
(3) There were no loans classified as non-accrual.
(4) Actual expense for IRA includes both IRA and IRA Money Market Accounts.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The primary objective of asset/liability management is to ensure the
steady growth of the Company and the Bank's primary earnings component, net
interest income. Net interest income can fluctuate with significant interest
rate movements. To lessen the impact of these rate swings, management will
endeavor to structure the Company and the Bank's balance sheet so that repricing
opportunities exist for both assets and liabilities in roughly equivalent
amounts at approximately the same time intervals. Imbalances in these repricing
opportunities at any point in time constitutes interest rate sensitivity.
46
<PAGE>
The measurement of the Company's and the Bank's interest rate
sensitivity, or "gap," is one of the principal techniques used in asset/
liability management. The interest sensitive gap is the dollar difference
between assets and liabilities which are subject to interest-rate pricing within
a given time period, including both floating rate or adjustable rate instruments
and instruments which are approaching maturity.
The following table sets forth the amount of the Company and the Bank's
interest-earning assets and interest-bearing liabilities as of June 30, 1998
which are expected to mature or reprice in each of the time periods shown:
Maturity and Rate Sensitivity Analysis
<TABLE>
<CAPTION>
Maturity or Maturity or Maturity or
Repricing Repricing Repricing Maturity or
Percent Within Within Within Repricing
Amount of Total 0-3 Months 4-12 Months 1-5 Years Over 5 Years
------ -------- ---------- ----------- --------- ------------
<S><C>
Interest-earning assets:
Loans receivable $ 6,641,000 65.20% $ 1,000 $ 490,000 $ 1,288,000 $4,862,000
Money market investment
securities 531,000 5.21 531,000 -- -- --
Federal funds sold 2,945,000 28.91 2,945,000 -- -- --
Interest bearing bank
balances 15,000 0.15 15,000 -- -- --
Other earning assets
(FHLB Stock) 54,000 0.53 -- -- -- 54,000
----------- ------ ----------- ----------- ----------- ----------
Total interest-earning
assets 10,186,000 100.00% $ 3,492,000 $ 490,000 $ 1,288,000 $4,916,000
=========== ====== =========== =========== =========== ==========
Interest-Bearing Liabilities:
Statement savings $ 1,378,000 17.23% $ 1,378,000 -- -- --
Money market 57,000 0.71 57,000 -- -- --
Certificates of deposit
& IRAs 1,164,000 14.56 121,000 603,000 440,000 --
Insured investment 5,278,000 66.01 5,278,000 -- -- --
Passbook deposits 119,000 1.49 119,000 -- -- --
----------- ------ ----------- ----------- ----------- ----------
Total interest-bearing
liabilities $ 7,996,000 100.00% $ 6,953,000 $ 603,000 $ 440,000 $ --
=========== ====== =========== =========== =========== ==========
Periodic repricing differences
(periodic gap) $(3,461,000) $ (113,000) $ 848,000 $4,916,000
=========== =========== =========== ==========
Cumulative repricing differences
(cumulative gap) $(3,461,000) $(3,547,000) $(2,726,000) $2,190,000
=========== =========== =========== ==========
Ratio of rate sensitive assets to rate
sensitive liabilities 50.22% 81.3% 292.73% --
===== ==== ====== ==
</TABLE>
Since all interest rates and yields do not adjust at the same velocity,
the gap is only a general indicator of interest rate sensitivity. The analysis
of the Bank's interest-earning assets and interest-bearing liabilities presents
only a static view of the timing of maturities and repricing opportunities,
without taking into consideration the fact that changes in interest rates do not
affect all assets and liabilities equally. Net interest income may be impacted
by other significant factors in a given interest rate environment, including
changes in the volume and mix of interest-earning assets and interest-bearing
liabilities.
47
<PAGE>
As indicated by the above table, the Bank's interest-earning assets
consist primarily of fixed rate, long-term loans while the Bank's
interest-bearing liabilities consist primarily of variable rate short-term
accounts. Since the interest-earning assets will mature more slowly than the
interest-bearing liabilities, the net portfolio value and net interest income
will tend to decrease during periods of rising interest rates, but will tend to
increase during periods of falling interest rates. In addition, many of the
Bank's loans which were acquired from Rushmore were made prior to the current
documentation requirements of GNMA, FNMA or FHLMC and, therefore, such loans may
not be able to be resold in the secondary market. During periods of rising
interest rates, the Bank's inability to resell certain of the loans acquired
from Rushmore in the secondary market could have a material adverse effect on
the Bank's net portfolio value and its net interest income.
Bank management will seek to improve the interest rate sensitivity of the
Bank's loan portfolio. Bank management meets periodically to monitor and manage
the structure of the Bank's balance sheet, control interest rate exposure, and
evaluate pricing strategies for the Bank. Strategies to better match maturities
of interest-earning assets and interest-bearing liabilities could include call
provisions, adjustable rate mortgages, residential construction lending and
other short term products. The Bank intends to sell originations of fixed rate
mortgages that are not subject to at least a five year call provision in the
secondary market and portfolio rate sensitive products. All fixed rate mortgages
will be underwritten in accordance with GNMA, FNMA or FHLMC requirements.
In theory, interest rate risk can be diminished by maintaining a nominal
level of interest rate sensitivity. In practice, this is made difficult by a
number of factors, including cyclical variation in loan demand, different
impacts on interest-sensitive assets and liabilities when interest rates change,
and the availability of funding sources. Bank management will generally attempt
to maintain a balance between rate-sensitive assets and liabilities as the
exposure period is lengthened to minimize the overall interest rate risk to the
Bank.
LENDING ACTIVITIES
General. As a federal stock savings bank, the Bank lending activities are
primarily comprised of seeking to originate mortgage loans for the purpose of
financing and refinancing one-to-four family residential properties. To a lesser
extent, the Bank, as a federal stock savings bank, seeks to originate home
equity and second trust loans, commercial real estate loans, multi-family real
estate loans (five units or more), commercial business loans, construction and
lot loans (primarily for one-to-four family home construction for the borrower)
and consumer loans. The types of loans the Bank originates generally are subject
to federal and state law and regulations.
In connection with and as a result of the Conversion, the Bank will
refocus its lending strategy. Pursuant to this strategy, while continuing to
pursue its existing business of seeking to originate mortgage loans for the
purpose of financing and refinancing one-to-four family residential properties,
the Bank intends to expand gradually its commercial real estate, commercial
business, construction and consumer lending.
The Bank's ability to originate loans is dependent upon the relative
customer demand, which is affected by the current and expected future level of
interest rates. Interest rates are affected by the
48
<PAGE>
demand for loans and the supply of money available for lending purposes and the
rates offered by competitors. Among other things, these factors are, in turn,
affected by economic conditions, monetary policies of the federal government,
including the Federal Reserve, and legislative tax policies.
In its first seven months of operations, the Bank disbursed approximately
$1,330,000 in new loans.
Loan Portfolio Composition. The Bank's loan portfolio as of December 31,
1997 and June 30, 1998 was principally comprised of long-term fixed-rate
mortgage loans for owner occupied and nonowner occupied (investor) residential
properties.
As of June 30, 1998, the Bank's loans totaled $6,641,000, of which
$4,820,000 were one-to-four-family mortgage loans, or approximately 72% of the
Bank's loan portfolio. At the same date, second trust mortgage loans were
$321,000, or approximately 5% of the Bank's loan portfolio. As of June 30, 1998,
commercial real estate loans were $1,116,000, or approximately 17% of the Bank's
loan portfolio, construction and lot loans were $192,000, or approximately 3%,
and consumer loans were $192,000, or approximately 3% of the Bank's loan
portfolio. As of June 30, 1998, $5,559,000 or approximately 84% of the Bank's
loan portfolio constituted loans purchased from Rushmore.
As of December 31, 1997, the Bank's loans totaled $6,303,000, of which
$5,210,000 were one-to-four-family mortgage loans, or approximately 83% of the
Bank's loan portfolio. At the same date, second trust mortgage loans were
$69,000, or approximately 1% of the Bank's loan portfolio. As of December 31,
1997, commercial real estate loans were $808,000, or approximately 13% of the
Bank's loan portfolio, and consumer loans were $216,000, or approximately 3% of
the Bank's loan portfolio. As of December 31, 1997, $6,115,000 or 97% of the
Bank's loan portfolio constituted loans purchased from Rushmore.
As of both June 30, 1998 and December 31, 1997, one of the Bank's loans,
with a balance on each date of $90,000, had an adjustable interest rate. Since
most of the Bank's loans are fixed-rate, the Bank does not have the flexibility
to adjust the rates of these loans to the current interest rate environment.
Adjustable rate loans allow this flexibility.
49
<PAGE>
The following table sets forth the composition of the Bank's loans in
dollar amounts and in percentage of the respective portfolio as of the dates
indicated.
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
Percentage Percentage
Type of Loans Amount of Total Amount of Total
- ------------- ------ ---------- ------ ----------
<S><C>
Commercial--real estate $1,116,000 16.80% $ 808,000 12.82%
Residential real estate
Owner occupied 3,662,000 55.14 3,886,000 61.65
Investor 1,158,000 17.44 1,324,000 21.01
Second trust 321,000 4.83 69,000 1.09
Construction & Lot 192,000 2.90 -- --
Consumer
Deposit secured 174,000 2.62 189,000 3.00
Unsecured 18,000 0.27 27,000 0.43
---------- ------ ---------- ------
Total loans 6,641,000 100.00% 6,303,000 100.00%
====== ======
Less:
Unearned income (9,000) --
Allowance for loan losses (70,000) (52,000)
========== ----------
Net loans $6,562,000 $6,251,000
========== ==========
</TABLE>
The following table sets forth the composition of the Rushmore Loans in
dollar amounts and in percentage of the respective portfolio as of the dates
indicated. The information in the table has been derived from financial
information received from Rushmore in connection with the transaction with
Rushmore.
<TABLE>
<CAPTION>
November 30, 1997 December 31, 1996
----------------- -----------------
Percentage Percentage
Type of Loans Amount of Total Amount of Total
- ------------- ------ ---------- ------ ----------
<S><C>
Commercial--real estate $ 813,000 12.61% $ 942,000 13.44%
Residential real estate
Owner occupied 3,970,000 61.70 4,295,000 61.26
Investor 1,364,000 21.17 1,441,000 20.55
Second trust 70,000 1.08 72,000 1.03
Consumer
Deposit secured 192,000 2.99 235,000 3.35
Unsecured 29,000 0.45 26,000 0.37
---------- ------ ---------- ------
Total loans 6,444,000 100.00% 7,011,000 100.00%
====== ======
Less:
Unearned income (38,000) (50,000)
Allowance for loan losses (50,000) (50,000)
---------- ----------
Net loans $6,356,000 $6,911,000
========== ==========
</TABLE>
50
<PAGE>
The following table sets forth the contractual maturity of the Bank's
fixed rate loans and the period to repricing of the Bank's adjustable rate loan
as of the dates indicated. Some of the loans may be renewed or repaid prior to
maturity. Therefore, the following table should not be used as a forecast of
future cash collections:
<TABLE>
<CAPTION>
As of June 30, 1998 As of December 31, 1997
------------------- -----------------------
More Than More Than
Up to 1 1 Year to 10 10+ Up to 1 1 Year to 10 10+
Year Years Years Total Year Years Years Total
---- ----- ----- ----- ---- ----- ----- -----
<S><C>
Real estate
(commercial and residential) $385,000 $2,745,000 $3,129,000 $6,257,000 $16,000 $2,841,000 $3,230,000 $6,087,000
Consumer 14,000 72,000 106,000 192,000 5,000 102,000 109,000 216,000
Construction & Lot 92,000 98,000 -- 192,000 -- -- -- --
-------- ---------- ---------- ---------- ------- ---------- ---------- ----------
Total $491,000 $2,915,000 $3,235,000 $6,641,000 $21,000 $2,943,000 $3,339,000 $6,303,000
======== ========== ========== ========== ======= ========== ========== ==========
Fixed interest rate $401,000 $2,915,000 $3,235,000 $6,551,000 $21,000 $2,853,000 $3,339,000 $6,213,000
Variable interest rate 90,000 -- -- 90,000 -- 90,000 -- 90,000
-------- ---------- ---------- ---------- ------- ---------- ---------- ----------
Total $491,000 $2,915,000 $3,235,000 $6,641,000 $21,000 $2,943,000 $3,339,000 $6,303,000
======== ========== ========== ========== ======= ========== ========== ==========
</TABLE>
The scheduled repayments as shown above are reported in the maturity category in
which the payment is due, except for the adjustable rate loan, which is reported
in the period to repricing.
Secured Residential Real Estate Loans. The Bank offers fixed-rate and
adjustable-rate mortgage loans primarily secured by one- to four-family
residences, with maturities up to 30 years. All one-to-four family loans
originated by the Bank are underwritten in accordance with GNMA, FNMA or FHLMC
standards. The Bank originates loans for both owner occupied and non-owner
occupied (investor) residential properties. Non-owner occupied residential
mortgage loans generally carry a higher degree of credit risk than owner
occupied residential mortgage loans.
The Bank also offers fixed-rate and adjustable-rate home equity and
second trust loans, primarily secured by one- to-four family, owner-occupied
residences. The Bank employs similar underwriting standards in making home
equity and second trust loans as those utilized in making residential mortgage
loans.
Although the Bank had not done so as of June 30, 1998, the Bank intends
from time to time to purchase or participate in adjustable-rate mortgage loans.
As of June 30, 1998, of the $6,641,000 of the Bank's loans, $4,820,000
were one-to-four family mortgage loans, or approximately 72% of the Bank's loan
portfolio, and $321,000 were second trust mortgage loans, or 5% of the Bank's
loan portfolio. Of the $4,820,000 in one-to-four family mortgage loans,
$4,583,000 or approximately 95% of such loans constituted loans purchased from
Rushmore. Of the $321,000 in second trust mortgage loans, $68,000 or
approximately 21% of such loans constituted loans purchased from Rushmore.
As of December 31, 1997, of the $6,303,000 of the Bank's loans,
$5,210,000 were one-to-four family mortgage loans, or approximately 83% of the
Bank's loan portfolio, and $69,000 were second trust mortgage loans, or 1% of
the Bank's loan portfolio. Of the $5,210,000 in one-to-four family
51
<PAGE>
mortgage loans, $5,022,000 or approximately 96% of such loans constituted loans
purchased from Rushmore. All of the second trust mortgage loans were purchased
from Rushmore.
Commercial and Multi-Family Real Estate Loans. The Bank offers commercial
and multi-family real estate loans (five units or more) generally secured by
property located in the Bank's market area. Although the Bank had not done so as
of June 30, 1998, the Bank intends from time to time to purchase or participate
in commercial and multi-family loans. In reaching a decision on whether to make
a commercial real estate or multi-family loan, the Bank considers a number of
factors, including market conditions, the net operating income of the mortgaged
premises before debt service and depreciation, the debt service ratio (the ratio
of net operating income to debt service) and the ratio of loan amount to
appraised value.
Commercial real estate and multi-family loans are generally larger and
present a greater degree of risk than residential mortgage loans. Because
payments on loans secured by commercial real estate and multi-family properties
are often dependent on the successful operation or management of the properties,
repayment of such loans may be subject to a greater extent to adverse conditions
in the real estate market or in the economy. The Bank seeks to minimize these
risks through its underwriting standards.
As of June 30, 1998, of the $6,641,000 of the Bank's loans, $1,116,000
were commercial real estate loans, or approximately 17% of the Bank's loan
portfolio. Of the $1,116,000 in commercial real estate loans, $716,000, or
approximately 64% of such loans constituted loans purchased from Rushmore. As of
December 31, 1997, of the $6,303,000 of the Bank's loans, $808,000 were
commercial real estate loans, or approximately 13% of the Bank's loan portfolio.
All of such loans were purchased from Rushmore. The commercial real estate loans
are primarily concentrated in loans secured by restaurants and taverns. The Bank
has no multi-family loans in its portfolio. The Bank intends to expand its
commercial real estate lending following the Conversion.
Commercial Business Loans. Although it had not done so as of June 30,
1998, the Bank intends to pursue opportunities to offer commercial business
loans, primarily to businesses located in the Bank's market area. While
federally chartered savings institutions are limited to holding a maximum of 20%
of their total assets in secured or unsecured loans and letters of credit for
commercial, corporate, business and agricultural purposes and in certain
commercial leases, Maryland commercial banks are not so limited.
Unlike residential mortgage loans, which generally are made on the basis
of the borrower's ability to make repayment from his or her employment and other
income, and which are secured by real property whose value tends to be more
easily ascertainable, commercial business loans are of higher risk and typically
are made on the basis of the borrower's ability to make repayment from the cash
flow of the borrower's business. As a result, the availability of funds for the
repayment of commercial business loans may be substantially dependent on the
success of the business itself. Further, the collateral securing the loans may
depreciate over time, may be difficult to appraise and may fluctuate in value
based on the success of the business. The Bank will seek to minimize these risks
through its underwriting standards.
52
<PAGE>
As of June 30, 1998 and December 31, 1997, the Bank had no commercial
business loans in its portfolio.
Construction and Lot Loans. The Bank seeks to originate, on a case by
case basis, loans for the development of property to customers in its market
area and loans secured by real property located in its market area. The Bank's
construction loans primarily will be made to finance the construction of
one-to-four family, owner-occupied residential properties.
Construction and lot loans generally are considered to involve a higher
degree of credit risk than residential mortgage loans. Risk of loss on a
construction loan is dependent largely upon the accuracy of the initial estimate
of the property's value at completion of construction or development compared to
the estimated cost (including interest) of construction. If the estimate of
value proves to be inaccurate, the Bank would be confronted with a project, when
completed, having a value which is insufficient to ensure full repayment. Risk
of loss on a lot loan is dependent on the borrower's continuing financial
stability and the accuracy of the appraisal of the real property. The Bank will
seek to minimize these risks through its underwriting standards.
As of June 30, 1998, of the $6,641,000 of the Bank's loans, $192,000 were
construction and lot loans, or approximately 3% of the Bank's loan portfolio.
None of these loans were purchased from Rushmore. As of December 31, 1997, the
Bank had no construction or lot loans in its portfolio. The Bank intends to
expand its construction lending following the Conversion.
Consumer Loans. The Bank offers a variety of consumer loans, primarily
consisting of fixed rate installment loans secured by automobiles or by deposits
at the Bank.
Consumer loans may entail greater credit risk than do residential
mortgage loans, particularly in the case of consumer loans that are unsecured or
that are secured by rapidly depreciable assets, such as automobiles. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. In addition, consumer
loan collections are dependent on the borrower's continuing financial stability,
and therefore are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. The Bank seeks to minimize these risks through its underwriting
standards.
As of June 30, 1998, of the $6,641,000 of the Bank's loans, $192,000 were
consumer loans, or approximately 3% of the Bank's loan portfolio. As of December
31, 1997, of the $6,303,000 of the Bank's loans, $216,000 were consumer loans,
or approximately 3% of the Bank's loan portfolio. All of the Bank's consumer
loans were purchased from Rushmore. The Bank intends to expand its consumer
lending following the Conversion.
Marketing and Procedures for Loan Approvals. The Bank's lending activity
currently is conducted primarily from its one branch office, primarily through
contacts with existing and past customers of the Baltimore Branch of Rushmore,
advertising, customer calls and contacts by the Bank's and the Company's
employees, officers and directors, and solicitations to local real estate
brokers, builders and real estate developers. Upon opening a branch at the
Towson Property and
53
<PAGE>
upon opening additional branches in connection with the branch expansion
strategy, the Bank's lending activity also will be conducted from these
additional branches, although there can be no assurance that the Bank will be
able to open a branch at the Towson Property or at any other location or that
the branch expansion strategy will be successful.
The Bank's lending is subject to written underwriting standards and to
loan origination procedures. Decisions on loan applications are made on the
basis of detailed applications and, where applicable, property valuations. The
loan applications are designed primarily to determine the borrower's ability to
repay and the more significant items on the applications are verified through
use of credit reports, financial statements, tax returns and/or confirmations.
The Bank intends to sell originations of fixed rate mortgage loans that are not
subject to at least a five year call provision in the secondary market and will
retain in its portfolio rate sensitive products.
The Bank generally requires title insurance on its secured real estate
loans as well as fire and extended coverage casualty insurance in amounts at
least equal to the principal amount of the loan or the value of improvements on
the property, depending on the type of loan. The Bank requires flood insurance
to protect the property securing its interest when the property is located in a
flood plain. The Bank generally will not lend more than 90% of the appraised
value on its secured real estate loans, and requires private mortgage insurance
on residential mortgage loans with loan-to-value ratios in excess of 80%.
Nonperforming Loans and Other Delinquent Assets. Management of the Bank
performs reviews of all delinquent loans. The procedures taken by the Bank with
respect to delinquencies vary depending on the nature of the loan and period of
delinquency. The Bank generally requires that delinquent mortgage loans be
reviewed and that a written late charge notice be mailed shortly after the date
of delinquency. The Bank's policies provide that telephone contact be attempted
to ascertain the reasons for delinquency and the prospects of repayment. The
Bank's policies provide that when contact is made with the borrower at any time
prior to foreclosure, the Bank will attempt to obtain full payment or work out a
repayment schedule with the borrower to avoid foreclosure.
The Bank generally classifies loans as non-accrual when collection of
full principal and interest under the original terms of the loan is not expected
or payment of principal or interest has become ninety days past due. Classifying
a loan as non-accrual results in the Bank no longer accruing interest on such
loan and reversing any interest previously accrued but not collected. A
non-accrual loan may be restored to accrual status when delinquent principal and
interest payments are brought current and future monthly principal and interest
payments are expected to be collected. The Bank recognizes interest on
non-accrual loans only when received.
Any property acquired by the Bank as a result of foreclosure on a
mortgage loan will be classified as "real estate owned" and will be recorded at
the lower of the unpaid principal balance or fair value at the date of
acquisition and subsequently carried at the lower of cost or net realizable
value. Any required write-down of the loan to its net realizable value will be
charged against the allowance for loan losses. Upon foreclosure, the Bank
generally will require an appraisal of the property and, thereafter, appraisals
of the property on at least an annual basis and external
54
<PAGE>
inspections on at least a quarterly basis. As of June 30, 1998, the Bank held no
real estate acquired as a result of foreclosure.
The following table sets forth information with respect to the Bank's
non-performing assets at the dates indicated. At the dates shown, the Bank had
no loans which are "troubled debt restructurings" as defined in Statement of
Financial Accounting Standards No. 15.
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S><C>
Loans accounted for on a non-accrual basis.......... $ 41,000 $41,000
Accruing loans delinquent 90 days or more
as to principal or interest ........................ 141,000 --
-------- -------
Total non-performing loans ............. $182,000 $41,000
======== =======
Non-performing loans to total loans 2.74% 0.65%
</TABLE>
For the six months ended June 30, 1998 and the year ended December 31,
1997, gross interest income of $2,700 and $1,000, respectively, would have been
recorded by the Bank on loans accounted for on a non-accrual basis if the loans
had been current throughout the respective periods. There was no interest on
such loans included in income during the respective periods.
As of June 30, 1998, the Bank had no loans in its portfolio which were
not accounted for on a non-accrual basis or as accruing loans delinquent 90 days
or more as to principal or interest with respect to which known information
about the possible credit problems of the borrowers or the cash flow of the
security has caused management of the Bank to have some doubts as to the ability
of the borrowers to comply with present loan repayment terms and which may
result in the future inclusion of the loans in the non-performing asset
categories.
Based on financial information received from Rushmore in connection with
the transaction with Rushmore, as of November 30, 1997 and December 31, 1996,
none of the Rushmore Loans were non-performing. Based on financial information
received from Rushmore in connection with the transaction with Rushmore, as of
November 30, 1997 and December 31, 1996, none of the Rushmore Loans were
"troubled debt restructurings" as defined in Statement of Financial Accounting
Standards No. 15.
The Bank has adopted the provisions of Statements of Financial Accounting
Standards No. 114 ("SFAS 114"), "Accounting by Creditors for Impairment of
Loan," as amended by Statements of Financial Accounting Standards No. 118 ("SFAS
118"), "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosure," effective January 1, 1995. SFAS 114 and SFAS 118 require that
impaired loans, which consist of all modified loans and other loans for which
collection of all contractual principal and interest is not probable, be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate, or at the loan's observable market price or
the fair value of the collateral if the loan is collateral dependent. The Bank
considers payments which are less than 60 days late to be a minimum delay in the
payment terms. The Bank
55
<PAGE>
considers consumer loans as homogenous loans and thus does not apply the SFAS
114 impairment test to these loans. Impaired loans will be written off when
collection of the loan is doubtful. As of June 30, 1998, an analysis of the
Bank's loan portfolio revealed that the Bank had no loans that needed to be
classified as impaired under SFAS 114 or SFAS 118.
Classified Assets and Allowance for Loan Losses. Federal regulations
require and the Bank's policy requires that the Bank utilize an internal asset
classification system as a means of reporting problem and potential problem
assets. The Bank classifies problem and potential problem assets as
"Substandard," "Doubtful" or "Loss." An asset is considered "Substandard" if it
is inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. "Substandard" assets include those
characterized by the distinct possibility that the Bank will sustain some loss
if the deficiencies are not corrected. Assets classified as "Doubtful" have all
of the weaknesses inherent in those classified "Substandard" with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions and values, highly
questionable and improbable. Assets classified as "Loss"are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss allowance is not warranted. Assets
which do not expose the Bank to sufficient risk to warrant classification in one
of the aforementioned categories but posses weaknesses are designated "Special
Mention."
When the Bank determines that an asset should be classified, it generally
will not establish a specific allowance for such asset unless it determines that
such asset should be classified as "Loss." When the Bank classifies one or more
assets, or portions thereof, as "Substandard" or "Doubtful," it will establish a
general valuation allowance for loan losses in an amount deemed prudent by
management. General valuation allowances represent loss allowances which have
been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. When the Bank classifies one or more of its assets,
or portions thereof, as "Loss," it will either establish a specific allowance
for losses equal to 100% of the amount of the asset so classified or will charge
off such amount. A savings institution's determination as to the classification
of its assets and the amount of its valuation allowances is subject to review by
the OTS, which can order the establishment of additional general or specific
loss allowances. The Bank regularly reviews its assets to determine whether any
assets require classification or reclassification.
As of June 30, 1998, none of the Bank's assets were classified as
"Substandard," "Doubtful" or "Loss," and approximately $182,000 of the Bank's
assets were classified as "Special Mention."
The Bank's policy is to establish reserves for estimated losses on
delinquent loans when it determines that losses are expected to be incurred on
such loans. The allowance for loan losses is maintained at a level believed
adequate by management to absorb potential losses in the portfolio.
Because approximately 84% of the Bank's loans consist of loans purchased
from Rushmore, which loans were originated by Rushmore, the Bank's management
made an estimate of what was believed to be a reasonable initial allowance for
loan losses. In establishing the Bank's initial allowance for loan losses,
management relied on, among other things, conversations with Rushmore,
56
<PAGE>
a review of the payment history of the loans acquired from Rushmore and economic
conditions. Currently, management's determination of the adequacy of the
allowance is based on an evaluation of the portfolio, past loss experience,
current economic conditions, volume, growth and composition of the portfolio,
and other relevant factors. The allowance is increased by provisions for loan
losses which are charged against income.
Although management believes it uses the best information available to
make determinations with respect to the allowances for losses and believes such
allowances are adequate, future adjustments may be necessary if there are
additional loan losses or if economic, operating and other conditions differ
substantially from the assumptions used in making the determinations. Thus,
there can be no assurance that charge-offs in future periods will not exceed the
allowance for loan losses or that additional increases in the loan loss
allowance will not be required. In addition, management anticipates that the
Bank's provisions for loan losses will increase in the future as it implements
the strategy of continuing existing lines of business while gradually expanding
its commercial real estate, commercial business, construction and consumer
lending, which loans generally entail greater risks than residential mortgage
loans.
Banking regulatory agencies, including the OTS, which currently regulates
the Bank, and the Federal Reserve, which will regulate the Bank upon
consummation of the Conversion, have adopted a policy statement regarding
maintenance of an adequate allowance for loan and lease losses and an effective
loan review system. This policy includes an arithmetic formula for checking the
reasonableness of an institution's allowance for loan loss estimate compared to
the average loss experience of the industry as a whole. Examiners will review an
institution's allowance for loan losses and compare it against the sum of: (i)
50% of the portfolio that is classified as "Doubtful"; (ii) 15% of the portfolio
that is classified as "Substandard"; and (iii) for the portions of the portfolio
that have not been classified (including those loans designated as "Special
Mention"), estimated credit losses over the upcoming 12 months given the facts
and circumstances as of the evaluation date. This amount is considered neither a
"floor" nor a "safe harbor" of the level of allowance for loan losses an
institution should maintain, but examiners will view a shortfall relative to the
amount as an indication that they should review management's policy on
allocating these allowances to determine whether it is reasonable based on all
relevant factors.
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<PAGE>
The following table sets forth an analysis of the Bank's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
Period from
Six Months Ended December 1, 1997 to
June 30, 1998 December 31, 1997
---------------- -----------------
<S><C>
Allowance for loan losses, beginning of period $ 52,000 $ 50,000(1)
Loans charged off -- --
Recoveries -- --
Net loans charged off -- --
Provision for loan losses 18,000 2,000
---------- ----------
Allowance for loan losses, end of period $ 70,000 $ 52,000
========== ==========
Loans (net of premiums and discounts):
Period-end balance $6,641,000 $6,303,000
Average balance during period $6,659,000 $6,399,000
Allowance as percentage of period-end loan balance 1.05% 0.83%
Percent of average loans:
Provision for loan losses(2) 0.27% 0.03%
Net charge-offs -- --
</TABLE>
(1) Purchased from Rushmore.
(2) Annualized for the six months ended June 30, 1998.
The following table summarizes the allocation of allowance by loan type
at the dates indicated. The allocation of the allowance to each category is not
necessarily indicative of future losses and does not restrict the use of the
allowance to absorb losses in any category.
<TABLE>
<CAPTION>
As of June 30, 1998 As of December 31, 1997
------------------- -----------------------
Percent of Percent of
Amount Total Amount Total
------ ---------- ------ ----------
<S><C>
Commercial Real Estate $11,000 15.72% $ 8,000 15.38%
Residential Real Estate 53,000 75.71 42,000 80.77
Consumer 2,000 2.86 2,000 3.85
Construction and Lot 4,000 5.71 -- --
------- ------ ------- ------
Total $70,000 100.00% $52,000 100.00%
======= ====== ======= ======
</TABLE>
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<PAGE>
The following table sets forth an analysis of the allowance activities
for the Baltimore Branch for the periods indicated. The information in the table
has been derived from financial information received from Rushmore in connection
with the transaction with Rushmore.
<TABLE>
<CAPTION>
Eleven Months Ended Year Ended
November 30, 1997 December 31, 1996
-------------------------- -----------------
<S><C>
Allowance for loan losses, beginning of period $ 50,000 $ 90,000
Loans charged off -- 40,000
Recoveries -- --
Net loans charged off -- 40,000
Provision for loan losses -- --
---------- ----------
Allowance for loan losses, end of period $ 50,000 $ 50,000
========== ==========
Loans (net of premiums and discounts):
Period-end balance $6,444,000 $7,011,000
Average balance during period $6,818,000 $7,588,000
Allowance as percentage of period-end loan balance 0.78% 0.71%
Percent of average loans:
Provision for loan losses -- --
Net charge-offs -- 0.53%
</TABLE>
Based on financial information received from Rushmore in connection with
the transaction with Rushmore, Rushmore did not allocate the Baltimore Branch's
allowance of loan losses by loan type at the dates indicated.
SECURITIES PORTFOLIO
The Bank has the authority to invest in various types of liquid assets,
including United States Treasury obligations, securities of various federal
agencies, certain certificates of deposit of insured banks and savings
institutions, certain bankers' acceptances, repurchase agreements,
mortgage-backed and related securities and federal funds. Subject to various
restrictions, the Bank also may invest in commercial paper, corporate debt
securities and mutual funds. Additionally, the Bank is required to maintain
minimum levels of investments that qualify as liquid assets under OTS
regulations. Upon consummation of the Conversion, the Bank will be subject to
the liquidity requirements imposed upon Maryland commercial banks by Maryland
law. See "SUPERVISION AND REGULATION - Depository Institution Regulation -
Liquidity.
While mortgage-backed and related securities carry a reduced credit risk
as compared to whole loans, such securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors such as the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loans and so affect the value of such
securities. Specifically, investments in mortgage-backed and related securities
involve risks that actual prepayments may exceed prepayments estimated over the
life of the security that may result in a loss of any premiums paid for such
securities thereby reducing their net yield. Conversely, if interest rates
increase, the
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<PAGE>
market value of such securities may be adversely affected. As of June 30, 1998,
the Bank had no investments in mortgage-backed or related securities.
The Board of Directors of the Bank sets the investment policy of the
Bank. The Board's policy is for investments to be made based on the safety of
the principal, the liquidity requirements of the Bank and the return on the
investment and capital appreciation. All investment decisions are made by the
Bank's investment committee.
The following table sets forth information regarding the book value of
the Bank's investment securities and other investments as of the dates
indicated.
<TABLE>
<CAPTION>
As of June 30, 1998 As of December 31, 1997
------------------- -----------------------
<S><C>
Investment securities (available for sale):
Money market accounts $ 531,000 $ 569,000
Federal funds sold 2,945,000 3,151,000
Interest-earning deposits 15,000 31,000
FHLB stock 54,000 54,000
---------- ----------
Total $3,545,000 $3,805,000
========== ==========
</TABLE>
The following table sets forth information regarding the scheduled
maturities, market value and weighted average yields for the Bank's investment
securities and certain other investments as of June 30, 1998:
<TABLE>
<CAPTION>
One Year or Less
----------------
Carrying Average
Value Yield
-------- -------
<S><C>
Investment securities (available for sale):
Money market accounts $ 531,000 4.43%
Federal funds sold 2,945,000 5.50%
Interest-earning deposits 15,000 6.07%
FHLB stock 54,000 8.11%
---------- ----
Total $3,545,000 5.41%
========== ====
</TABLE>
SOURCES OF FUNDS
Deposits are the primary source of the Bank's funds for use in lending,
investment activities and other general business purposes. In addition to
deposits, the Bank may obtain funds from advances from the Federal Home Loan
Bank of Atlanta and other borrowings. Following the
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<PAGE>
Conversion, the Bank will continue to have access to advances from the Federal
Home Loan Bank of Atlanta.
Deposits.
---------
The Banks offers a variety of deposit accounts having a range of interest
rates and terms. The Bank's deposits consist of checking accounts, insured
investment accounts, statement savings accounts, passbook deposit accounts,
money market accounts, certificates of deposit and individual retirement
accounts. The Bank relies, and will continue to rely in connection with the
branch expansion strategy, on advertising and customer calls and contacts by the
Bank's and the Company's employees, officers and directors to attract and retain
deposits. With respect to its current branch office, the Bank also relies on
relationships with past customers of the Baltimore Branch of Rushmore. Most of
the Bank's deposits currently come from customers residing in the community
surrounding the Bank's office. The Bank does not use brokers to obtain deposits.
The Bank's management believes that the Bank pays competitive interest rates on
deposits, but other institutions in its area may offer higher interest rates.
All deposits are insured by the Savings Account Insurance Fund ("SAIF")
administered by the FDIC up to the maximum amount allowed by law (generally,
$100,000 per depositor subject to aggregation rules).
The Bank believes that the variety of deposit accounts that it offers
allows the Bank to be competitive in its market area in obtaining funds and
enables the Bank to respond with flexibility to changes in customer demand. The
ability of the Bank to attract and maintain deposit accounts is affected by
market conditions.
The following table details the average amount and the average rate paid
on the following deposit categories of the Bank for the periods indicated. The
average balances were calculated using December 1, 1997 and month end balances
(which approximate daily averages), as daily averages were not available for the
periods presented.
<TABLE>
<CAPTION>
Six Months Ended December 1, 1997 to
June 30, 1998 December 31, 1997
------------------------ -----------------
Average Average Percent Average Average Percent
Composition of Deposits Balance Rate of Total Balance Rate of Total
- ----------------------- ------- ------- -------- ------- ------- --------
<S><C>
Checking $ 457,000 --% 5.60% $ 632,000 --% 7.85%
Statement savings 1,388,000 2.50 17.02 1,452,000 2.50 18.06
Money market 39,000 2.78 0.48 3,000 3.00 0.04
Certificates of deposit 665,000 5.13 8.16 578,000 5.31 7.19
IRA 450,000 4.48 5.52 496,000 4.76 6.17
Insured investment 5,062,000 5.27 62.08 4,844,000 5.36 60.25
Passbook deposit 93,000 2.93 1.14 35,000 3.00 0.44
---------- ---- ----- ---------- ---- -----
Total interest bearing deposits 7,697,000 4.68% 94.40% 7,408,000 5.18% 92.15%
---------- ---- ----- ---------- ---- -----
Total $8,154,000 4.42% 100.00% $8,040,000 4.78% 100.00%
========== ==== ====== ========== ==== ======
</TABLE>
61
<PAGE>
The following table describes the maturity of the Bank's time deposits of
$100,000 or more as of the dates indicated. All of such amounts constitute
certificates of deposits.
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S><C>
Within three months $1,247,000 $1,083,000
After three months but within six months - -
After six months but within twelve months - -
After twelve months
---------- ----------
Total $1,247,000 $1,083,000
========== ==========
</TABLE>
The following table details the average amount and the average rate
paid on the following deposit categories for the Baltimore Branch Deposits for
the periods indicated. For the eleven months ended November 30, 1997, average
balances were calculated using quarter-end balances (which approximate daily
averages), as daily averages were not available for the period presented. For
the year ended December 31, 1996, the average balances were calculated using
month end balances, except for money market accounts, where quarter-end balances
were used (each of which approximates daily averages), as daily averages were
not available for the period presented. The information in the table has been
derived from financial information received from Rushmore in connection with the
transaction with Rushmore.
<TABLE>
<CAPTION>
Eleven Months Ended Year Ended
November 30, 1997 December 31, 1996
--------------------- -----------------
Average Average Percent Average Average Percent
Composition of Deposits Balance Rate of Total Balance Rate of Total
- ----------------------- ------- ------- -------- ------- ---------- --------
<S><C>
Checking $ 293,000 --% 3.65% $ 221,000 --% 2.73%
Statement savings 1,628,000 2.50 20.26 1,995,000 2.50 24.60
Money market 5,016,000 5.27 62.43 4,707,000 5.30 58.06
Certificates of deposit 578,000 5.32 7.19 629,000 4.56 7.76
IRA 422,000 4.84 5.25 471,000 4.06 5.81
IRA money market 98,000 5.39 1.22 84,000 5.30 1.04
---------- ---- ----- ---------- ---- -----
Total interest bearing deposits $7,742,000 4.66% 96.35% $7,886,000 4.46% 97.27%
---------- ---- ----- ---------- ---- -----
Total $8,035,000 4.49% 100.00% $8,107,000 4.34% 100.00%
========== ==== ====== ========== ==== ======
</TABLE>
Borrowing. The Federal Home Loan Bank System (the "FHLB System")
functions as a reserve credit capacity for savings associations and certain
other member financial institutions. Members of the FHLB System are required to
own capital stock in a Federal Home Loan Bank (a "FHLB"). The Bank is a member
of the FHLB System and owns stock in the FHLB of Atlanta.
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<PAGE>
The Bank is able to obtain advances from the FHLB of Atlanta upon the
security of its capital stock in the FHLB of Atlanta and other eligible assets.
Such advances may be made pursuant to several different credit programs, each of
which has its own interest rate and range of maturities. The FHLB of Atlanta
will limit the advances it makes to the Bank based upon its review and analysis
of the Bank. The Bank may use FHLB advances as an alternative source of funds to
deposits in order to fund its lending activities when it determines that it can
profitably invest the borrowed funds over their term.
As of June 30, 1998 and December 31, 1997, the Bank had no advances
outstanding from the FHLB of Atlanta. Following the Conversion, the Bank will
continue as a member of the FHLB of Atlanta.
63
<PAGE>
SUPERVISION AND REGULATION
GENERAL
As a federal stock savings bank, the Bank is subject to examination,
supervision and regulation by the OTS, as its chartering agency, and the FDIC,
as the deposit insurer. With respect to certain consumer credit laws, the Bank
is subject to regulation by the Commissioner. The Bank is a member of the FHLB
of Atlanta and its deposit accounts are insured up to applicable limits by the
Savings Association Insurance Fund ("SAIF"), administered by the FDIC. The Bank
is required to file reports with the OTS and the FDIC concerning its activities
and financial condition and must obtain the approval of the OTS prior to
entering into certain transactions such as mergers with, or acquisitions of,
other financial institutions. The OTS and the FDIC perform periodic examinations
to test the Bank's compliance with various regulatory requirements.
Upon consummation of the Conversion, the Bank will be a Maryland
commercial bank and its deposit accounts will continue to be insured by the
SAIF. The Bank also will become a member of the Federal Reserve (a member bank).
The Bank will be subject to examination, supervision and regulation by the
Commissioner (rather than the OTS) and the Federal Reserve, and it will remain
subject to periodic examination by the FDIC. The Bank will be required to file
reports with the Commissioner and the Federal Reserve concerning its activities
and financial condition and will be required to obtain regulatory approvals from
the Commissioner and the Federal Reserve prior to entering into certain
transactions such as mergers with, or acquisitions of, other financial
institutions.
As a federally insured depository institution, the Bank is, and after the
Conversion will continue to be, subject to various regulations promulgated by
the Federal Reserve.
This supervision and regulation establishes a comprehensive framework of
activities in which an institution can engage and is intended primarily for the
protection of the insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Changes in the regulatory
framework could have a material adverse effect on the Bank and its operations
that, in turn, could have a material adverse effect on the Company.
The Company, as a savings and loan holding company, is required to file
certain reports with and otherwise comply with the rules and regulations of the
OTS. Upon consummation of the Conversion, the Company will become a bank holding
company registered with the Federal Reserve under the Bank Holding Company Act
of 1956, as amended (the "BHC Act"), and the Commissioner under the Maryland
Bank Holding Company Act of 1995, as amended (the "Maryland Act"). As such, the
Company will be subject to the supervision, examination and reporting
requirements contained in the BHC Act and the Maryland Act and the regulations
of the Federal Reserve and the Commissioner. The Company also is required to
file certain reports with and otherwise comply with the rules and regulations of
the SEC under the federal securities laws.
64
<PAGE>
The following is intended only as a summary of governmental supervision
and regulation of the Bank (as a federal stock savings bank and a Maryland
commercial bank) and the Company (as a savings and loan holding company and a
bank holding company), and does not purport to be a complete analysis of the
laws and regulations that govern or will govern the operations of the Bank and
the Company.
DEPOSITORY INSTITUTION REGULATION
Loans-to-One Borrower. Under the Home Owners' Loan Act, as amended (the
"HOLA"), savings institutions are generally required to comply with the loans to
one borrower limitations applicable to national banks. National banks generally
may make loans to one borrower in amounts up to 15% of the bank's unimpaired
capital and surplus, plus an additional 10% of unimpaired capital and surplus,
if such loan is secured by readily-marketable collateral.
The HOLA provides exceptions under which a savings institution may make
loans to one borrower in excess of the generally applicable national bank
limits. A savings institution may make loans to one borrower in excess of such
limits under one of the following circumstances: (i) for any purpose, in any
amount not to exceed $500,000; or (ii) to develop domestic residential housing
units, in an amount not to exceed the lesser of $30,000,000 or 30% of the
savings institution's unimpaired capital and surplus, provided other conditions
are satisfied. In addition, the Federal Institutions Reform, Recovery, and
Enforcement Act of 1989 provided that a savings institution could make loans to
one borrower to finance the sale of real property acquired in satisfaction of
debts previously contracted in good faith in amounts up to 50% of the savings
institution's unimpaired capital and surplus. The OTS, however, has modified
this third standard by limiting loans to one borrower to finance the sale of
real property acquired in satisfaction of debts to 15% of unimpaired capital and
surplus. The OTS rule provides, however, that purchase money mortgages received
by a savings institution to finance the sale of such real property do not
constitute "loans" (provided no new funds are advanced and the savings
institution is not placed in a more detrimental position holding the note than
holding the real estate) and, therefore, are not subject to the loans to one
borrower limitations.
As of June 30, 1998, the maximum amount that the Bank could have loaned
to any one borrower was $500,000. At such date, the largest aggregate amount of
loans that the Bank had outstanding to any one borrower or group of affiliated
borrowers was $400,000. At December 31, 1997, the maximum amount that the Bank
could have lent to any one borrower was $500,000. At such date, the largest
aggregate amount of loans that the Bank had outstanding to any one borrower or
group of affiliated borrowers was $290,000. Notwithstanding the Bank's ability
to lend $500,000 to one borrower, current Bank policy is limit the aggregate
amount of loans to any one borrower to $400,000.
Following the Conversion, the Bank will be subject to Maryland statutory
law with respect to limits on loans to one borrower. Generally, under Maryland
law, the maximum amount that a commercial bank may loan to one borrower at one
time may not exceed: (i) 10% of the unimpaired capital and surplus of the
commercial bank; or (ii) 30% of the unimpaired capital and surplus of the
commercial bank if the excess over 10% is approved by a two-thirds vote of the
board of directors
65
<PAGE>
and is secured by currency or obligations of the United States or obligations of
the State of Maryland or any political subdivision.
On a pro forma basis, assuming the sale of the Maximum Number of Units in
the Offering and the Company provides the Bank with additional capital so that
the Bank has stockholder's equity of approximately $5,000,000, the Bank's
lending limit to one borrower without a vote of the Bank's board of directors
would be (as of June 30, 1998) approximately $500,000, and such limit would be
approximately $1,500,000 million if the loan was approved by a two-third vote of
the board of directors and was properly secured. Notwithstanding the Bank's
ability to lend such amounts to one borrower upon consummation of the
Conversion, current Bank policy is, and is expected to continue to be upon
consummation of the Conversion, to limit the aggregate amount of loans to any
one borrower to $400,000.
QTL Test. The HOLA requires savings institutions to meet a qualified
thrift lender ("QTL") test. A savings institution that fails the QTL test must
either convert to a bank charter or operate under certain restrictions on its
activities. To meet the QTL test, a savings institution is required to maintain
at least 65% of its "portfolio assets" (generally, total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed and related securities) on a
monthly average basis in at least 9 months out of each 12 month period.
As of June 30, 1998, approximately 65.57% of the Bank's "portfolio
assets" were invested in "qualified thrift investments," which was in excess of
the percentage required to qualify the Bank under the QTL test. At December 31,
1997, approximately 65.38% of the Bank's "portfolio assets" were invested in
"qualified thrift investments," which was in excess of the percentage required
to qualify the Bank under the QTL test.
Following the Conversion, the QTL test, and the penalties for failure to
maintain QTL status, will not be applicable to the Bank.
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to stockholders
of another institution in a cash-out merger and other distributions charged
against capital.
The regulations establish three tiers of institutions, which are based
primarily on an institution's capital level. An institution that exceeds all
fully phased-in regulatory capital requirements before and after a proposed
capital distribution (a "Tier 1 Association") and has not been advised by the
OTS that it is in need of more than normal supervision, could, after prior
notice to, but without the approval of the OTS, make capital distributions
during a calendar year equal to the greater of: (i) up to 100% of its net
earnings to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the excess capital over its fully
phased-in capital requirements) at the beginning of the calendar year or (ii)
75% of its net earnings for the previous four quarters.
66
<PAGE>
Any additional capital distributions would require prior OTS approval. The Bank
currently meets the criteria to be designated a Tier 1 Association.
In the event an institution's capital falls below its capital
requirements or the OTS notifies the institution that it was in need of more
than normal supervision, the institution's ability to make capital distributions
could be restricted. In addition, the OTS could prohibit a proposed capital
distribution by an institution, which would otherwise be permitted by the
regulations, if the OTS determines that such distribution would constitute an
unsafe or unsound practice.
The OTS has proposed amendments to its capital distribution regulations
which would conform OTS regulations to the existing requirements of other
banking agencies, as well as simplify the existing OTS regulations. These
proposed rules generally would eliminate the requirement of notifying the OTS
when cash dividends of a certain amount are to be paid for institutions that
will remain at least adequately capitalized. However, applications for capital
distributions would be required for all distributions over a specified amount.
See "- Prompt Corrective Regulatory Action."
Following the Conversion, the Bank's ability to pay dividends will not be
subject to the limitations in the OTS regulations but instead will be governed
by the Maryland General Corporation Law (the "MGCL"), Maryland law relating to
financial institutions, and the regulations of the Federal Reserve. Under the
MGCL, dividends may not be paid if, after giving effect to the dividend: (i) the
corporation would not be able to pay the indebtedness of the corporation as the
indebtedness becomes due in the normal course of business; or (ii) the
corporation's total assets would be less than the sum of the corporation's total
liabilities plus, unless the charter permits otherwise, the amount needed, if
the corporation were to be dissolved at the time of distribution, to satisfy the
preferential rights upon dissolution of stockholders whose preferential rights
are superior to those receiving the dividend. Under Maryland law relating to
financial institutions, if the surplus of a commercial bank at any time is less
than 100% of its capital stock, then, until the surplus is 100% of the capital
stock, the commercial bank: (i) must transfer to its surplus annually at least
10% of its net earnings; and (ii) may not declare or pay any cash dividends that
exceed 90% of its net earnings.
As a member of the Federal Reserve, the Bank's payment of dividends also
will be subject to the Federal Reserve's Regulation H, which limits the
dividends payable by a state member bank to the net profits of the Bank then on
hand, less the bank's losses and bad debts. Additionally, the Federal Reserve
has the authority to prohibit the payment of dividends by a member bank when it
determines such payment to be an unsafe and unsound banking practice.
Liquidity. Under OTS regulations, savings institutions are required to
maintain an average daily balance of specified liquid assets (generally cash,
certain time deposits and savings accounts, bankers' acceptances, specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
4%) of the savings association's net withdrawable deposit accounts plus
short-term borrowings. Monetary penalties may be imposed for failure to meet the
liquidity requirements.
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<PAGE>
The average daily liquidity ratio of the Bank for the six months ended
June 30, 1998 was approximately 43.84%. The average daily liquidity ratio of the
Bank for the month of December 1997 was approximately 46.69%.
Upon consummation of the Conversion, the Bank will be subject to the
reserve requirements imposed by the State of Maryland. A Maryland commercial
bank is required to have at all times a reserve equal to at least 15% of its
demand deposits. The board of directors of a Maryland commercial bank must by
resolution direct the commercial bank to maintain this reserve ratio in: (i)
cash on hand; (ii) demand deposits in a bank of good standing in any state; or
(iii) as to 5% of its demand deposits, on approval of the Commissioner: (a)
registered or coupon bonds, or (b) general obligations guaranteed by the United
States government, an agency of the United States government, the State of
Maryland or any political subdivision. Additionally, a Maryland commercial bank
must have at all times a reserve equal to at least 3% of all time deposits. Time
deposit reserves must be kept in: (i) cash on hand; (ii) deposits in a bank of
good standing in any state or (iii) direct obligations of the United States
government or of the State of Maryland. For purposes of Maryland law, "demand
deposits" are defined as deposits payable within 30 days and "time deposits" are
defined to be deposits that are payable after 30 days, including a savings
account or certificate of deposit that requires at least a 30-day notice before
payment.
On a pro forma basis, assuming the sale of the Maximum Number of Units in
the Offering and the Company provides the Bank with additional capital so that
the Bank has stockholder's equity of approximately $5,000,0000, the Bank would
(as of June 30, 1998) be in compliance with Maryland's reserve requirement.
Assessments. Savings institutions are required by regulation to pay
assessments to the OTS to fund the agency's operations. The general assessment
is paid on a semi-annual basis and is computed upon the savings institution's
total assets, including consolidated subsidiaries, as reported in the
institution's latest quarterly Thrift Financial Report.
Upon consummation of the Conversion, the Bank, as a Maryland commercial
bank, will pay an annual assessment to the Commissioner to fund its expenses of
regulating state banking institutions. The assessment will be based upon the
Bank's assets for the previous calendar year.
Branching. OTS regulations permit savings institutions to branch
nationwide under certain conditions. Generally, savings institutions may
establish interstate networks and geographically diversify their loan portfolios
and lines of business. The OTS' authority preempts any state law purporting to
regulate branching by federal savings institutions.
For a discussion of branching after the Conversion, see "-Holding Company
Regulation After the Conversion - Interstate Banking Legislation."
Transactions with Related Parties. Transactions engaged in by a savings
institution or a state member bank with a related party or an "affiliate" (i.e.,
any company that controls or is under common control with the savings
institution) are subject to the restrictions contained in Sections 23A and 23B
of the Federal Reserve Act (the "FRA"). Section 23A of the FRA limits the
aggregate
68
<PAGE>
amount of "covered transactions" with any individual affiliate to 10% of the
capital and surplus of the savings institution or state member bank and also
limits the aggregate amount of transactions with all affiliates to 20% of the
savings institution's or state member bank's capital and surplus. In addition,
certain transactions with affiliates are required to be secured by collateral in
an amount and of a type described in Section 23A and the purchase of low quality
assets from affiliates is generally prohibited. Section 23B generally requires
that "covered transactions" be on terms and under circumstances, including
credit standards, that are substantially the same or at least as favorable to
the institution as those prevailing at the time for comparable transactions with
non-affiliated companies. The term "covered transactions" includes the making of
loans, purchase of assets, issuance of a guarantee and similar types of
transactions. Notwithstanding Sections 23A and 23B, savings institutions and
state member banks are prohibited from lending to any affiliate that is engaged
in activities that are not permissible for bank holding companies under Section
4(c) of the BHC Act. Further, a savings institution or state member bank may not
purchase the securities of any affiliate other than a subsidiary.
In addition, the authority of savings institutions and state member
bank's to extend credit to their executive officers, directors and 10%
stockholders, as well as entities controlled by such persons, is governed by
Sections 22(g) and 22(h) of the FRA, and Regulation O thereunder. Among other
things, these laws and regulations require that such loans be made on terms and
conditions substantially the same as those offered to unaffiliated individuals
and may not involve more than the normal risk of repayment. Regulation O also
places individual and aggregate limits on the amount of loans that a savings
institution or state member bank may make to such persons based, in part, on the
institution's capital position, and requires that certain board approval
procedures be followed.
Maryland law imposes restrictions on certain transactions with affiliates
of Maryland commercial banks. Generally, under Maryland law, a director, officer
or employee of a commercial bank may not borrow, directly or indirectly, any
money from the bank, unless the loan has been approved by a resolution adopted
by and recorded in the minutes of the board of directors of the bank, or the
executive committee of the bank, if that committee is authorized to make loans.
If such a loan is approved by the executive committee, the loan approval must be
reported to the board of directors at its next meeting. Certain commercial loans
made to directors of a bank and certain consumer loans made to non-officer
employees of the bank are exempt from the law's coverage.
Enforcement. Under the Federal Deposit Insurance Act ("FDI Act"), the OTS
has primary enforcement responsibility over savings institutions and has the
authority to bring action against all "institution-affiliated parties,"
including stockholders who participate in the conduct of the affairs of a
savings institution, and any attorneys, appraisers and accountants who knowingly
or recklessly participate in wrongful action likely to have an adverse effect on
the institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers or directors
to institution of receivership, conservatorship or termination of deposit
insurance. Civil penalties cover a wide range of violations and can amount to
$25,000 per day, or even $1,000,000 per day in especially egregious cases. Under
the FDI Act, the FDIC has the authority to recommend to the Director of the OTS
that enforcement action be taken with respect to a particular savings
institution. If action is not taken by the Director, the FDIC has authority to
take
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such action under certain circumstances. Federal law also establishes criminal
penalties for certain violations.
After the conversion, the Federal Reserve will have primary enforcement
responsibility over the Bank regarding the above since it will be a state member
bank.
Capital Requirements. OTS regulations require that savings institutions
maintain (i) "tangible capital" in an amount of not less than 1.5% of adjusted
total assets; (ii) "core capital" in an amount not less than 3.0% of adjusted
total assets; and (iii) a level of risk-based (or "total") capital equal to at
least 8% of "risk-weighted" assets.
Under OTS regulations, the term "core capital" generally includes common
stockholders' equity, noncumulative perpetual preferred stock and related
surplus, minority interests in the equity accounts of consolidated subsidiaries,
certain nonwithdrawable accounts and pledged deposits and "qualifying
supervisory goodwill." "Core capital" is generally reduced by the amount of the
savings institution's intangible assets for which no market exists. Limited
exceptions to the deduction of intangible assets are provided for purchased
mortgage servicing rights ("PMSRs") and purchased credit card relationships
(subject to certain conditions). "Tangible capital" generally is defined as core
capital minus intangible assets, with only a limited exception for PMSRs and
purchased credit card relationships.
Both "core" and "tangible capital" are further reduced by an amount equal
to a percentage of the savings institution's debt and equity investments in
subsidiaries engaged in activities not permissible for national banks, other
than subsidiaries engaged in activities undertaken as agent for customers or in
mortgage banking activities and subsidiary depository institutions or holding
companies therefor. As of June 30, 1998, the Bank had no such investments.
In calculating adjusted total assets, adjustments are made to the savings
institution's total assets to give effect to the inclusion and exclusion of
certain assets from capital and to account for the institution's investment in
subsidiaries that must be netted against capital under the capital rules. As of
June 30, 1998, the Bank's adjusted total assets for purposes of the "core" and
"tangible capital" requirements were $10,335,000.
"Total capital," for purposes of the risk-based capital requirement,
equals the sum of core capital plus supplementary capital (which, as defined,
includes the sum of, among other items, perpetual preferred stock not counted as
core capital, limited life preferred stock, subordinated debt and a portion of
the savings institution's general loss allowances) less certain deductions. The
amount of supplementary capital that may be counted towards satisfaction of the
total capital requirement may not exceed 100% of core capital, and OTS
regulations require the maintenance of a minimum ratio of core capital to total
risk-weighted assets of 4%.
In determining total "risk-weighted" assets for purposes of the
risk-based requirement, (i) each off-balance sheet asset must be converted to
its on-balance sheet credit equivalent amount by multiplying the face amount of
each such item by a credit conversion factor ranging from 0% to 100% (depending
upon the nature of the asset); (ii) the credit equivalent amount of each
off-balance
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sheet asset and each on-balance sheet asset must be multiplied by a risk factor
ranging from 0% to 100% (again depending upon the nature of the asset); and
(iii) the resulting amounts are added together and constitute total
risk-weighted assets.
The risk-based capital requirements of the OTS also require savings
institutions with more than a "normal" level of interest rate risk to maintain
additional "total" capital. A savings institution's interest rate risk is
measured in terms of the sensitivity of its "net portfolio value" to changes in
interest rates. Net portfolio value is defined, generally, as the present value
of expected cash inflows from existing assets and off-balance sheet contracts
less the present value of expected cash outflows from existing liabilities. A
savings institution is considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets. A savings institution with a greater than normal interest
rate risk will be required to deduct from "total" capital, for purposes of
calculating its risk-based capital requirement, an amount (the "interest rate
risk component") equal to one-half the difference between the institution's
measured interest rate risk and the normal level of interest rate risk,
multiplied by the economic value of its total assets.
The OTS calculates the sensitivity of a savings institution's net
portfolio value based on data submitted by the institution in a schedule to its
quarterly Thrift Financial Report and using the interest rate risk measurement
model adopted by the OTS. The amount of the interest rate risk component, if
any, to be deducted from a savings institution's total capital is based on the
institution's Thrift Financial Report filed two quarters earlier. Savings
institutions with less than $300 million in assets and a risk-based capital
ratio above 12% are generally exempt from filing the interest rate risk schedule
with their Thrift Financial Reports. However, the OTS requires any exempt
savings institution that it determines may have a high level of interest rate
risk exposure to file such schedule on a quarterly basis and may subject the
institution to an additional capital requirement based upon its level of
interest rate risk as compared to its peers.
Capital requirements higher than the generally applicable minimum may be
established for a particular savings institution if the OTS determines that the
institution's capital was or may become inadequate in view of its particular
circumstances.
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As of June 30, 1998 and December 31, 1997, the Bank exceeded all
regulatory minimum capital requirements. The following tables sets forth the
Bank's regulatory capital as of June 30, 1998 and December 31, 1997.
As of June 30, 1998:
<TABLE>
<CAPTION>
Actual Capital Required Capital Excess Capital
-------------- ---------------- --------------
Amount Percentage Amount Percentage Amount Percentage
------ ---------- ------ ---------- ------ ----------
<S><C>
Tangible $1,668,000 16.1% $155,000 1.5% $1,513,000 16.0%
Core $1,668,000 16.1% $310,000 3.0% $1,358,000 13.1%
Risk-based $1,738,000 40.9% $340,000 8.0% $1,398,000 32.9%
</TABLE>
As of December 31, 1997:
<TABLE>
<CAPTION>
Actual Capital Required Capital Excess Capital
-------------- ---------------- --------------
Amount Percentage Amount Percentage Amount Percentage
------ ---------- ------ ---------- ------ ----------
<S><C>
Tangible $1,700,000 16.6% $154,000 1.5% $1,546,000 15.1%
Core $1,700,000 16.6% $308,000 3.0% $1,392,000 13.6%
Risk-based $1,752,000 40.4% $347,000 8.0% $1,405,000 32.4%
</TABLE>
Upon consummation of the Conversion, the Bank will no longer be subject
to OTS capital regulations, but will be subject to the Federal Reserve
guidelines regarding capital requirements as well as statutory capital
requirements imposed under Maryland law. Federal Reserve regulations establish
two capital standards for state-chartered banks that are members of the Federal
Reserve: a leverage requirement and a risk-based capital requirement. In
addition, the Federal Reserve may, on a case-by-case basis, establish individual
minimum capital requirements for a bank that vary from the requirements which
would otherwise apply under Federal Reserve regulations. A bank that fails to
satisfy the capital requirements established under the Federal Reserve's
regulations will be subject to such administrative action or sanctions as the
Federal Reserve deems appropriate.
The leverage ratio adopted by the Federal Reserve requires a minimum
ratio of "Tier 1 capital" to adjusted total assets of 3% for banks rated
composite 1 under the CAMEL rating system for banks. Banks not rated composite 1
under the CAMEL rating system for banks are required to maintain a minimum ratio
of Tier 1 capital to adjusted total assets of 4% to 5%, depending upon the level
and nature of risks of their operations. For purposes of the Federal Reserve's
leverage requirement, Tier 1 capital generally consists of the same components
as core capital under the OTS's capital regulations, except that no intangibles
except certain PMSRs and purchased credit card relationships may be included in
capital. The Federal Reserve has noted that most expansion- oriented banking
organizations have maintained leverage capital ratios of between 4% and 5% of
adjusted total assets, and it is likely that these ratios will be applied to the
Company upon consummation of the Conversion.
The risk-based capital requirements established by the Federal Reserve's
regulations require state member banks to maintain "total capital" equal to at
least 8% of total risk-weighted assets. For purposes of the risk-based capital
requirement, "total capital" means Tier 1 capital (as described above) plus
"Tier 2 capital" (as described below), provided that the amount of Tier 2
capital may not exceed the amount of Tier 1 capital, less certain assets. The
components of Tier 2 capital under the Federal Reserve's regulations generally
correspond to the components of supplementary capital
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<PAGE>
under OTS regulations. Total risk-weighted assets generally are determined under
the Federal Reserve's regulations in the same manner as under the OTS's
regulations.
On a pro forma basis, assuming the sale of the Maximum Number of Units in
the Offering and the Company provides the Bank with additional capital so that
the Bank has stockholder's equity of approximately $5,000,0000, the Bank would
(as of June 30, 1998) be in compliance with the Federal Reserve's requirements
as follows:
Minimum
AmericasBank Regulatory
Corp. Ratios
------------ ----------
Tier 1 capital to adjusted total assets ............. 34.8% 3%
Total capital to risk weighted assets ............... 109.1% 8%
The Federal Reserve has indicated a desire to raise capital requirements
beyond their current levels. In this regard, the Federal Reserve has proposed an
amendment to the risk-based capital standards that would calculate the change in
a financial institution's net economic value attributable to increases and
decreases in market interest rates and would require banks with excessive
interest risk exposure to hold additional amounts of capital against such
exposures. As described above, the OTS has an interest-rate risk component in
its risk-based capital guidelines.
In addition, the Bank will be subject to the statutory capital
requirements imposed by the State of Maryland. Under Maryland law, if the
surplus of a Maryland commercial bank at any time is less than 100% of its
capital stock, then, until the surplus is 100% of the capital stock, the
commercial bank: (i) must transfer to its surplus annually at least 10% of its
net earnings; and (ii) may not declare or pay any cash dividends that exceed 90%
of its net earnings.
Prompt Corrective Regulatory Action. Pursuant to the FDI Act, the federal
banking agencies established for each capital measure levels at which an insured
institution is deemed to be well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. Federal banking agencies are required to take prompt
corrective action with respect to insured institutions that fall below minimum
capital standards. The degree of required regulatory intervention for
institutions that are not at least adequately capitalized is tied to an insured
institution's capital category, with increasing scrutiny and more stringent
restrictions being imposed as an institution's capital declines.
The prompt corrective action regulations generally are based upon an
institution's capital ratios. Under the prompt corrective action regulations
adopted by the OTS, an institution will be considered (i) "well capitalized" if
the institution has a total risk-based capital ratio of 10% or greater, a Tier 1
or core capital to risk-weighted assets ratio of 6% or greater, and a leverage
ratio of 5% or greater (provided that the institution is not subject to an
order, written agreement, capital directive or prompt corrective action
directive to meet and maintain a specific capital level for any capital
measure); (ii)
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"adequately capitalized" if the institution has a total risk-based capital ratio
of 8% or greater, a Tier 1 or core capital to risk-weighted assets ratio of 4%
or greater, and a leverage ratio of 4% or grater (3% or greater if the
institution is rated composite 1 in its most recent report of examination);
(iii) "undercapitalized" if the institution has a total risk-based capital ratio
that is less than 8%, a Tier 1 or core capital to risk-weighted assets ratio of
less than 4%, or a leverage ratio that is less than 4% (3% if the institution is
rated composite 1 in its most recent report of examination); (iv) "significantly
undercapitalized" if the institution has a total risk-based capital ratio that
is less than 6%, a Tier 1 or core capital to risk-weighted assets ratio that is
less than 3%, or a leverage ratio that is less than 3%; and (v) "critically
undercapitalized" if the institution has a ratio of tangible equity to total
assets that is less than or equal to 2%. The regulations also permit the OTS to
determine that a savings institution should be classified in a lower category
based on other information, such as the institution's examination report, after
written notice and an opportunity for a hearing.
Subject to a narrow exception, the regulations require the OTS to appoint
a receiver or conservator for an institution that is "critically
undercapitalized." The regulations also provide that a capital restoration plan
must be filed with the OTS within 45 days of the date an institution receives
notice that it is "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Compliance with the plan must be guaranteed by
any parent holding company. In addition, numerous mandatory supervisory actions
may become immediately applicable to the institution depending upon its
category, including, but not limited to, increased monitoring by regulators,
restrictions on growth and capital distributions and limitations on expansion.
The OTS also could take any one of a number of discretionary supervisory
actions, including the issuance of a capital directive and the replacement of
senior executive officers and directors.
Due to the Bank's recent formation, as of the date of this Prospectus,
the Bank had not been categorized by the OTS under one of the five categories
described above. Management believes that the Bank will be categorized as "well
capitalized" for purposes of the prompt corrective action regulations. Although
management believed that the OTS would categorize the Bank by June 30, 1998, as
of the date of this Prospectus, the OTS had not categorized the Bank.
Management of the Bank believes that the Bank will, immediately after the
Conversion, also be classified as "well-capitalized" under the Federal Reserve's
regulations, which are similar to those of the OTS.
Standards for Safety and Soundness. The FDI Act requires each federal
banking agency to establish safety and soundness standards for institutions
under its authority. In 1995, the federal banking agencies released Interagency
Guidelines Establishing Standards for Safety and Soundness (the "Guidelines") to
implement safety and soundness standards that the federal banking agencies use
to identify and address problems at insured depository institutions before
capital becomes impaired. The Guidelines require institutions to maintain
internal controls and information systems and internal audit systems that are
appropriate for the size, nature and scope of the institution's business. The
Guidelines also establish certain basic standards for loan documentation, credit
underwriting, interest rate risk exposure, and asset growth. The Guidelines
further provide that institutions should maintain safeguards to prevent the
payment of compensation, fees and benefits
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<PAGE>
that are excessive or that could lead to material financial loss, and
institutions should take into account factors such as comparable compensation
practices at comparable institutions.
In addition, under the Guidelines, an institution is required to
establish and maintain a system to identify problem assets and prevent
deterioration of those assets in a manner commensurate with its size and the
nature and scope of its operations. An institution also must establish and
maintain a system to evaluate and monitor earnings and ensure that earnings are
sufficient to maintain adequate capital and reserves in a manner commensurate
with the institution's size and the nature and scope of its operations.
If the appropriate federal banking agency determines that an institution
fails to meet any standard prescribed by the Guidelines, the agency may require
the institution to submit to the agency an acceptable plan to achieve compliance
with the standard.
Management believes that the Bank currently meets the standards adopted
in the Guidelines and that, upon consummation of the Conversion, the Bank will
continue to meet the standards adopted in the Guidelines.
Community Reinvestment Act. Under the Community Reinvestment Act (the
"CRA") and the implementing OTS regulations, the Bank has a continuing and
affirmative obligation to help meet the credit needs of its local community,
including low and moderate-income neighborhoods, consistent with the safe and
sound operation of the institution. The CRA requires the board of directors of
financial institutions, such as the Bank, to adopt a CRA statement for each
assessment area that, among other things, describes its efforts to help meet the
community's credit needs and the specific types of credit that the institution
is willing to extend. The Bank's Board of Directors is required to review the
appropriateness of the delineation of its community at least annually.
Upon consummation of the Conversion, the Bank's obligation to meet the
credit needs of its local community will continue; however, the Bank will be
subject to the implementing regulations of the Federal Reserve as its federal
supervisory agency.
Insurance of Deposit Accounts. Federal deposit insurance is required for
all federally chartered savings institutions. Deposits at the Bank are insured
up to a maximum of $100,000 for each depositor by the SAIF, which is
administered by the FDIC and which currently provides deposit insurance for
federally chartered savings institutions. The FDIC also administers the Bank
Insurance Fund ("BIF"), which is the insurance fund which insures most
commercial bank deposits. Currently, in general, the deposit insurance
assessment rate for institutions insured by BIF is slightly less than the rate
for institutions insured by SAIF.
Under either SAIF or BIF, to evaluate a financial institution's deposit
insurance assessment, the FDIC has adopted a risk-based insurance assessment
system. Based on the institution's financial condition, the FDIC assigns an
institution to one of three capital categories: (i) well capitalized; (ii)
adequately capitalized; or (iii) undercapitalized, as such terms are defined
under the prompt corrective regulatory action regulations (discussed above),
except that "undercapitalized" includes any institution that is not well
capitalized or adequately capitalized. Within each capital category,
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<PAGE>
institutions are assigned to one of three supervisory subgroups - "healthy"
(institutions that are financially sound with only a few minor weaknesses),
"supervisory concern" (institutions with weaknesses which, if not corrected,
could result in significant deterioration of the institution and increased risk
to the deposit insurer), or "substantial supervisory concern" (institutions that
pose a substantial probability to the deposit insurer unless corrective action
is taken). An institution's assessment rate depends on the capital category and
supervisory subgroup to which it is assigned. The FDIC has raised deposit
insurance premiums several times in the past and may raise insurance premiums in
the future. If such action is taken by the FDIC, it could have an adverse effect
on the earnings of the Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS.
Upon consummation of the Conversion, although the Bank, as a Maryland
commercial bank, would qualify for insurance of deposits by the BIF, substantial
entrance and exit fees apply to conversions from SAIF to BIF insurance.
Accordingly, following the Conversion, the Bank will remain a member of the
SAIF, which will insure deposits of the Bank up to a maximum of $100,000 for
each depositor. Because the Bank after the Conversion will continue to be a SAIF
member, its deposit insurance assessments will be determined on the same basis
as the deposit insurance assessments currently paid by the Bank.
Uniform Real Estate Lending Standards. Under OTS regulations, savings
institutions must adopt and maintain written policies that establish appropriate
limits and standards for extensions of credit that are secured by liens or
interests in real estate or are made for the purpose of financing permanent
improvements to real estate. These policies must establish loan portfolio
diversification standards, prudent underwriting standards, including
loan-to-value limits that are clear and measurable, loan administration
procedures and documentation, approval and reporting requirements. The real
estate lending policies must reflect consideration of the Interagency Guidelines
for Real Estate Lending Policies (the "Interagency Guidelines") that have been
adopted by the federal bank agencies.
The Interagency Guidelines, among other things, call upon depository
institutions to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits: (i) for loans
secured by raw land, the supervisory loan-to-value limit is 65% of the value of
the collateral; (ii) for land development loans (i.e., loans for the purpose of
improving unimproved property prior to the erection of structures), the
supervisory limit is 75%; (iii) for loans for the construction of commercial,
multifamily or other nonresidential property, the supervisory limit is 80%; (iv)
for loans for the construction of one-to-four family properties, the supervisory
limit is 85%; and (v) for loans secured by other improved property (e.g.,
farmland, completed commercial property and other income-producing property
including non-owner-occupied, one-to-four family property), the limit is 85%.
Although no supervisory loan-to-value limit has been established for
owner-occupied, one-to-four family and home equity loans, the Interagency
Guidelines state that for any such loan with a loan-to-value ratio that equals
or exceeds 90% at origination, an institution
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<PAGE>
should require appropriate credit enhancement in the form of either mortgage
insurance or readily marketable collateral.
The Interagency Guidelines state that it may be appropriate in individual
cases to originate or purchase loans with loan-to-value ratios in excess of the
supervisory loan-to-value limits, based on the support provided by other credit
factors. The aggregate amount of loans in excess of the supervisory
loan-to-value limits, however, should not exceed 100% of total capital and the
total of such loans secured by commercial, agricultural, multifamily and other
non-one-to-four family residential properties should not exceed 30% of total
capital. The supervisory loan-to-value limits do not apply to certain categories
of loans, including loans insured or guaranteed by the U.S. government and its
agencies or by financially capable state, local or municipal governments or
agencies; loans backed by the full faith and credit of a state government; loans
that are to be sold promptly after origination without recourse to a financially
responsible party; loans that are renewed, refinanced or restructured without
the advancement of new funds; loans that are renewed, refinanced or restructured
in connection with a workout; loans to facilitate sales of real estate acquired
by the institution in the ordinary course of collecting a debt previously
contracted; and loans where the real estate is not the primary collateral.
Upon consummation of the Conversion, the Bank will be subject to the real
estate lending guidelines promulgated by the Federal Reserve. In general, the
Federal Reserve requires that a member bank's real estate lending policies
should reflect consideration of the Interagency Guidelines. The Bank also will
be subject to certain Maryland laws concerning real estate lending.
Management believes that the Bank's current lending policies comply with
OTS' regulations and that, upon consummation of the Conversion, the Bank's real
estate lending policies will comply with applicable Federal Reserve regulations
and Maryland law.
Federal Home Loan Bank System. The Bank is a member of the FHLB System,
which consists of twelve regional FHLBs subject to supervision and regulation by
the Federal Housing Finance Board ("FHFB"). In particular, the Bank is a member
of the FHLB of Atlanta. Each FHLB provides a central credit facility primarily
for member institutions. It is funded primarily from proceeds derived from the
sale of consolidated obligations of the FHLB System. It offers advances to
members in accordance with policies and procedures established by the FHFB and
the Board of Directors of the FHLB of which the institution is a member. As of
June 30, 1998, the Bank had no advances outstanding with the FHLB of Atlanta.
The Bank, as a member of the FHLB of Atlanta, is required to acquire and
hold shares of capital stock in the FHLB of Atlanta in an amount equal to at
least 1% of the aggregate principal amount of its unpaid residential mortgage
loans and similar obligations at the beginning of each year, 0.3% of its total
assets at the beginning of each year, or 1/20 of its advances (borrowings) from
the FHLB of Atlanta, whichever is greater. The Bank was in compliance with this
requirement with an investment in FHLB of Atlanta stock as of June 30, 1998 of
$54,000. For additional information, see Note 1 of the Notes to the Company's
Consolidated Financial Statements.
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Upon consummation of the Conversion, the Bank will continue to be a
member of the FHLB of Atlanta.
Federal Reserve System. Pursuant to regulations of the Federal Reserve,
all FDIC-insured institutions must maintain non-interest-earning reserves
against their transaction accounts (primarily NOW and regular checking
accounts). During fiscal 1998, the Federal Reserve regulations require that
reserves be maintained against aggregate transaction accounts as follows: for
accounts aggregating $47.3 million or less (subject to adjustment by the Federal
Reserve), the reserve requirement is 3%; and for accounts greater than $47.3
million, the reserve requirement is $1,419,000 plus 10% (subject to adjustment
by the Federal Reserve between 8% and 14%) against that portion of total
transaction accounts in excess of $47.3 million. The first $4,700,000 of
otherwise reservable balances (subject to adjustments by the Federal Reserve)
are exempted from the reserve requirements. Because required reserves must be
maintained in the form of either vault cash, a non-interest-bearing account at a
Federal Reserve Bank or a pass-through account as defined by the Federal
Reserve, the effect of this reserve requirement is to reduce the Bank's
interest-earning assets. As of June 30, 1998, the Bank met its reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve may be used to satisfy liquidity requirements imposed by
the OTS.
Upon consummation of the Conversion, the Bank will become a member of the
Federal Reserve and will subscribe for stock in the Federal Reserve Bank of
Richmond in an amount equal to 6% of the Bank's common stock and paid-in
surplus. Upon Consummation of the Conversion, the Bank will continue to be
subject to the reserve requirements described above.
HOLDING COMPANY REGULATION PRIOR TO THE CONVERSION
The Company is a non-diversified unitary savings and loan holding
company within the meaning of the HOLA. As such, the Company is required to be
registered with the OTS and is subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over the Company and its non-savings association subsidiaries. Among
other things, this authority permits the OTS to restrict or prohibit activities
that are determined to be a serious risk to the subsidiary savings association.
The Bank is required to notify the OTS thirty days before declaring any dividend
to the Company.
As a unitary savings and loan holding company, the Company generally is
not restricted under existing laws as to the types of business activities in
which it may engage, provided that the Bank is a QTL. Upon any non-supervisory
acquisition by the Company of another savings institution, the Company would
become a multiple savings and loan holding company (if the acquired institution
is held as a separate subsidiary) and would become subject to extensive
limitations on the types of business activities in which it could engage. The
HOLA limits the activities of a multiple savings and loan holding company and
its non-insured institution subsidiaries primarily to activities permissible for
bank holding companies under Section 4(c)(8) of the BHC Act, subject to the
prior approval of the OTS, and to other activities authorized by OTS regulation.
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The HOLA prohibits a savings and loan holding company from acquiring
control of another savings institution, or holding company thereof, without
prior written approval of the OTS. Control includes acquisition of more than 25%
of any class of voting stock or 5% of any class of voting stock if certain OTS
defined control criteria are present. In evaluating applications by holding
companies to acquire savings institutions, the OTS must consider the financial
and managerial resources and future prospects of the company and institution
involved, the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community and competitive factors. Except in
certain circumstances, the OTS is prohibited from approving any acquisition that
would result in a multiple savings and loan holding company controlling savings
institutions in more than one state.
HOLDING COMPANY REGULATION AFTER THE CONVERSION
General. Upon consummation of the Conversion, the Company, as the sole
stockholder of the Bank, will become a bank holding company and will register as
such with the Federal Reserve Board. Bank holding companies of state commercial
banks are subject to comprehensive regulation by the Federal Reserve under the
BHC Act. As a bank holding company, the Company will be required to file with
the Federal Reserve reports and such additional information as the Federal
Reserve may require, and will be subject to regular examinations by the Federal
Reserve. The Federal Reserve also has extensive enforcement authority over bank
holding companies, including, among other things, the ability to assess civil
money penalties, to issue cease and desist or removal orders and to require that
a holding company divest subsidiaries (including its bank subsidiaries). In
general, enforcement actions may be initiated for violations of law and
regulations and unsafe or unsound practices.
Under the BHC Act, a bank holding company must obtain Federal Reserve
approval before: (i) acquiring, directly or indirectly, ownership or control of
any voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(iii) merging or consolidating with another bank holding company.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank or bank holding company, or
from engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by Federal Reserve regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The list of activities permitted by the Federal Reserve
includes, among other things, operating a savings institution, mortgage company,
finance company, credit card company or factoring company; performing certain
data processing operations; providing certain investment and financial advice;
underwriting and acting as an insurance agent for certain types of
credit-related insurance; leasing property on a full-payout, non-operating
basis; selling money orders, travelers' checks and United States Savings Bonds;
real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations,
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providing securities brokerage services for customers. The Company has no
present plans to engage in any of these activities.
In addition to Federal Reserve approval, Maryland law requires a bank
holding company to obtain prior approval of the Commissioner when acquiring a
Maryland bank holding company or bank. Maryland law defines "acquiring" or
"acquisition" as (i) one bank holding company merging or consolidating with
another bank holding company; (ii) a bank holding company assuming direct or
indirect ownership or control of either more than 5% of any class of voting
shares of another bank holding company or bank or all or substantially all the
assets of another bank holding company or bank; and (iii) taking any other
action that results in direct or indirect control by a bank holding company of
another bank holding company or bank. The Commissioner may deny approval of any
such acquisition if the Commissioner determines that the acquisition is
anti-competitive or threatens the safety or soundness of a banking institution.
Any voting stock acquired without the approval required under the statute may
not be voted for a period of 5 years. This restriction is not applicable to
certain acquisitions by bank holding companies of the stock of Maryland banks or
Maryland bank holding companies which are governed by the Maryland Act.
Dividends. The Federal Reserve has issued a policy statement on the
payment of cash dividends by bank holding companies, which expresses the Federal
Reserve's view that a bank holding company should pay cash dividends only to the
extent that the company's net income for the past year is sufficient to cover
both the cash dividends and a rate of earnings retention that is consistent with
the company's capital needs, asset quality and overall financial condition. The
Federal Reserve also has indicated that it would be inappropriate for a company
experiencing serious financial problems to borrow funds to pay dividends.
Furthermore, under the prompt corrective action regulations adopted by the
Federal Reserve pursuant to the FDI Act, the Federal Reserve may prohibit a bank
holding company from paying any dividends if the holding company's bank
subsidiary is classified as "undercapitalized."
Bank holding companies are required to give the Federal Reserve prior
written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
retained earnings. The Federal Reserve may disapprove such a purchase or
redemption if it determines that the proposal would constitute an unsafe or
unsound practice or would violate any law, regulation, Federal Reserve order, or
any condition imposed by, or written agreement with, the Federal Reserve. Bank
holding companies whose capital ratios exceed the threshold for "well
capitalized" banks on a consolidated basis are exempt from the foregoing
requirement if they were rated composite 1 or 2 in their most recent inspection
and are not the subject of any unresolved supervisory issues.
Interstate Banking Legislation. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Act") was enacted to ease restrictions on
interstate banking. Effective September 29, 1995, the Act allows the Federal
Reserve to approve an application of an adequately capitalized and adequately
managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve may
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not approve the acquisition of a bank that has not been in existence for the
minimum time period (not exceeding five years) specified by the statutory law of
the host state. The Act also prohibits the Federal Reserve from approving an
application if the applicant (and its depository institution affiliates)
controls or would control more than 10% of the insured deposits in the United
States or 30% or more of the deposits in the target bank's home state or in any
state in which the target bank maintains a branch. The Act does not affect the
authority of states to limit the percentage of total insured deposits in the
state which may be held or controlled by a bank or bank holding company to the
extent such limitation does not discriminate against out-of-state banks or bank
holding companies. Individual states may also waive the 30% state-wide
concentration limit contained in the Act. Under Maryland law, a bank holding
company is prohibited from acquiring control of any bank if the bank holding
company would control more than 30% of the total deposits of all depository
institutions in the State of Maryland unless waived by the Commissioner.
Pursuant to the Act, the Federal Reserve Board may approve an application
of an adequately capitalized and adequately managed non-Maryland bank holding
company to acquire control of, or acquire all or substantially all of the assets
of, a Maryland bank, as long as certain requirements of the Act are met.
Additionally, the Act authorizes the federal banking agencies, effective
June 1, 1997, to approve interstate merger transactions of banks without regard
to whether such transaction is prohibited by the law of any state, unless the
home state of one of the banks opts out of the Act by adopting a law after the
date of enactment of the Act and prior to June 1, 1997 that applies equally to
all out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. The State of Maryland has enacted legislation, effective
September 29, 1995, that authorizes interstate mergers involving Maryland banks.
The Maryland statute also authorizes out-of-state banks to establish branch
offices in Maryland by means of merger, branch acquisition or de novo branching,
provided that the home state of the out-of-state bank provides reciprocal
interstate branching authority to Maryland banks.
FINANCIAL SERVICES MODERNIZATION LEGISLATION
On May 13, 1998, the House of Representatives passed H.R. 10, the
"Financial Services Competition Act of 1997." The legislation is intended to
break down barriers between banking, securities and insurance activities, while
maintaining the bank holding company structure. The FSA repeals the
Glass-Steagall Act, which generally has separated the commercial and investment
banking industries. Under the bill, financial services holding companies, which
would be regulated by the Federal Reserve, would be allowed to own banks,
securities firms and insurance companies. Bank holding companies would be barred
from conducting nonfinancial activities, with certain nonfinancial activities
being grandfathered for ten years.
The bill also provides that national bank subsidiaries may conduct
certain activities including insurance, securities and travel agency services,
but may not engage in underwriting, merchant banking or real estate development
activities. National banks also would be permitted to underwrite revenue bonds
directly. The bill preserves the thrift charter provisions, but bars new unitary
thrift holding companies that have not filed applications with the OTS by March
31, 1998.
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It is not currently possible to predict whether or when the bill will be
enacted into law, or if it is enacted into law, whether it will remain in the
form approved by the House of Representatives. It also is not possible to
predict what impact the bill will have on the Company or the Bank. One
consequence may be increased competition from large financial services companies
that, under the bill, would be permitted to provide many types of financial
services to customers. Neither the Company nor the Bank currently conducts any
nonfinancial activities. Certain provisions of the bill may affect the Bank upon
consummation of the Conversion due to a Maryland law that gives, with the
approval of the Commissioner, Maryland commercial banks the authority to engage
in activities in which a national bank may engage.
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DIRECTORS, OFFICERS AND SIGNIFICANT EMPLOYEES
OFFICERS AND DIRECTORS
The following table sets forth the names, ages and terms of office of the
directors of the Company and the names and ages of the officers of the Company
as of August 30, 1998. None of the directors or officers are related.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE TERM TO
- ---- --- ----------------- -------
COMPANY EXPIRE
------- ------
<S><C>
Garbis Baklayan 52 Director 2000
Nicholas J. Belitsos, M.D. 48 Director 2000
King V. Cheek 61 Director 2001
Cynthia B. Conklin 45 Director 2000
Patricia D'Alessandro 53 Executive Vice N/A
President
William A. Fogle, Jr. 63 Director (Vice 2001
Chairman of the Board)
Constantine Frank 43 Director 1999
Leonard Frenkil 60 Director 1999
J. Clarence Jameson, III 67 Director (Chairman of 2001
the Board) and
President
Kemp Jayadeva 48 Director 2001
Norman H. Katz 71 Director 2001
Shawki N. Malek, M.D. 54 Director 2001
Mark D. Noar, M.D. 44 Director 1999
Larry D. Ohler 59 Director, Treasurer 2001
Kenneth D. Pezzulla 69 Director, Secretary 2001
Ramon F. Roig, Jr., M.D. 65 Director 2000
Russell A. Rourke 66 Director 2000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE TERM TO
- ---- --- ----------------- -------
COMPANY EXPIRE
------- ------
<S><C>
Melanie R. Sabelhaus 50 Director 2000
Baldev Singh 61 Director 2000
Michael Stern 46 Director 1999
</TABLE>
Messrs. Cheek, Fogle, Jameson, Jayadeva, Katz, Ohler and Pezzulla have
been directors of the Company since 1996. Effective as of March 28, 1998, the
number of directors of the Corporation was increased from seven to twenty-one,
and the then existing directors appointed Messrs. Baklayan, Frank, Frenkil,
Rourke, Singh and Stern; Drs. Belitsos, Malek, Noar and Roig; Ms. Conklin and
Ms. Sabelhaus, and Michael W. Makalian and George E. Rayme, Jr. to fill the
newly created directorships. Messrs. Mekalian and Rayme resigned as directors of
the Company as of August 27, 1998.
At the first annual meeting of the stockholders of the Company, which was
held on May 28, 1998, the directors of the Company were divided into three
classes, with each class containing approximately one-third of the total number
of directors, so that, after a phase-in period, each director will serve for a
term ending on the date of the third annual meeting of stockholders following
the annual meeting at which such director was elected. Pursuant to the Bylaws of
the Company, the term of office of one of the three classes of directors expires
each year.
Messrs. Jameson, Ohler, Pezzulla and Ms. D'Alessandro have been officers
of the Company since 1996. The officers of the Company are elected annually by
the Board of Directors following the annual meeting of stockholders and serve
for terms of one year and until their successors are duly elected and qualified
except where a longer term is expressly provided in an employment contract duly
authorized and approved by the Board of Directors of the Company. No officer is
the party to an employment contract. At the meeting of the Board of Directors
held on May 28, 1998, Messrs. Jameson, Ohler, Pezzulla and Ms. D'Alessandro were
reelected as the officers of the Company.
Ms. D'Alessandro and Messrs. Jameson, Ohler and Pezzulla also currently
serve, respectively, as the President, Vice President, Treasurer and Secretary
of the Bank. Messrs. Cheek, Fogle, Jameson, Jayadeva, Katz, Ohler and Pezzulla;
Drs. Malek, Noar and Roig; and Ms. D'Alessandro also currently serve as the
directors of the Bank, with Mr. Jameson serving as Chairman of the Board and Mr.
Fogle serving as Vice Chairman of the Board.
On September 24, 1998, the Bank hired Richard J. Hunt, Jr. to serve as
President of the Bank. Mr. Hunt's appointment as President of the Bank is
subject to regulatory approval and there can be no assurance that such
regulatory approval will be obtained. Upon obtaining regulatory approval for Mr.
Hunt to serve as President of the Bank, Ms. D'Alessandro will serve as a Vice
President of the Bank. Subject to regulatory approval, Mr. Hunt also will serve
as a director of the bank.
The Bank has established an advisory board of directors (the "Advisory
Board of Directors"), which is comprised primarily of professionals and business
persons (the "Advisory Directors"), who provide advice to the Board of Directors
of the Bank and who promote the interests of the Bank. An advisory board of
directors is not required by any Maryland or federal law or regulation and
Advisory Directors are not subject to regulatory approval or supervision. The
Advisory Directors serve at the pleasure of the Board of Directors of the Bank.
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Biographical information concerning the directors and officers of the
Company and the Bank is set forth below.
GARBIS BAKLAYAN is a director of the Company. Mr. Baklayan is President and
Chief Executive Officer of Gary's Sportswear and Athletic Shoes, a shoe and
sportswear company, and has served in that capacity since 1978.
NICHOLAS J. BELITSOS, M.D. is a director of the Company. Dr. Belitsos currently
practices internal medicine and gastroenterology in Baltimore, Maryland and is
President of Nicholas J. Belitsos, M.D., P.A. He has served in that capacity for
the past ten years.
KING V. CHEEK is a director of the Company and the Bank. Mr. Cheek currently is
a Senior Adviser to the President of the New York Institute of Technology, and
has served in that capacity since February 1997. Mr. Cheek also serves as a
marketing representative for BCI Contractors, Inc., a construction company, and
has served in that capacity since February 1997. From February 1996 until
January 1997, Mr. Cheek served as a Vice President for BCI Contractors, Inc. Mr.
Cheek was Vice President of Academic Affairs at the New York Institute of
Technology from September 1992 to January 1996. Mr. Cheek was a director of
Union Trust Bancorp from 1971 to 1974.
CYNTHIA B. CONKLIN is a director of the Company. Ms. Conklin currently is a
licensed realtor with O'Connor Piper & Flynn-ERA, a real estate sales company,
and has served in that capacity for over 12 years.
PATRICIA D'ALESSANDRO is the Executive Vice President of the Company, the
President of the Bank and a director of the Bank. Until December 1, 1997, Ms.
D'Alessandro was a Vice President of Rushmore Trust and Savings, FSB
("Rushmore"), and had served in that capacity for over six years. As a Vice
President of Rushmore, Ms. D'Alessandro was responsible for loan originations,
loan servicing, delinquencies and collections for both of Rushmore's branch
offices. Ms. D'Alessandro also was responsible for the operations of the
Baltimore Branch. Ms. D'Alessandro was employed from 1962 to 1974 and from 1984
to 1989 by Chesapeake Federal Savings and Loan Association, during which time
Ms. D'Alessandro served in a variety of capacities, including assistant
secretary of the association and manager of loan servicing.
WILLIAM A. FOGLE, JR. is Vice Chairman of the Board of Directors of the Company
and the Bank. Mr. Fogle currently is Vice President of York County Property
Management Company, a real estate construction, management and development
company in York County, Pennsylvania, and has served in that capacity since
January 1997. Since January 1997, Mr. Fogle also has been a licensed realtor
with Century 21 Country Home, a real estate sales company. He was an Assistant
Vice President of Marketing and Sales of BCI Contractors, Inc., a construction
company, from February 1995 to December 31, 1996. Mr. Fogle was Secretary of
the Maryland Department of Licensing and Regulation from 1987 to February 1995.
CONSTANTINE FRANK is a director of the Company. Since 1972, Mr. Frank has been
employed by Precision Vending, Inc. (f/k/a/ Nick Frank Vending, Inc.), a vending
company servicing
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customers in the Baltimore area. Mr. Frank has been President of Precision
Vending, Inc. since July 1, 1997.
LEONARD FRENKIL is a director of the Company. Mr. Frenkil currently is the
President and Chief Executive Officer of Atlantic Management Corporation, a real
estate management company, and has served in that capacity for over 20 years.
Mr. Frenkil also is the President of The Empire Construction Company, a
construction company, and the President of Empire Industries, Ltd., a real
estate company in the hospitality industry.
RICHARD J. HUNT, JR., will be, subject to regulatory approval, President of the
Bank. From October 1997 to September 1998, Mr. Hunt was Vice President/Private
Banking for Chevy Chase Bank in Chevy Chase, Maryland, and in that capacity was
responsible for the development and operation of the bank's private banking
group. From September 1994 to October 1997, Mr. Hunt was Vice
President/Corporate Lending and Vice President/Cash Management for Citizens
Savings Bank, F.S.B. in Gaithersburg, Maryland. As Vice President/Corporate
Lending, Mr. Hunt was responsible for developing and managing the bank's
commercial (including small business) clients in Montgomery County, Maryland.
From January 1993 to September 1994, Mr. Hunt was Assistant Vice
President/Not-For-Profit Lending for Riggs National Bank in Washington, D.C.,
and in that capacity was responsible for developing and implementing the bank's
plan to penetrate the not-for-profit lending market in Montgomery County,
Maryland. From May 1989 to January 1993, Mr. Hunt served in a variety of
capacities for The First National Bank of Maryland in Rockville, Maryland,
including commercial banking officer, corporate credit analyst and commercial
branch manager.
J. CLARENCE JAMESON, III is President of the Company and Vice President of the
Bank and is the Chairman of the Board of Directors of both the Company and the
Bank. Mr. Jameson currently is the President and a principal of Jameson and
Associates, P.A., a public accounting firm, and has served in that capacity for
over 14 years. From February 1994 to June 1995, Mr. Jameson was Chairman of the
Board of Maryland Bank Corp., the savings and loan holding company of
MarylandsBank, FSB. Mr. Jameson also was a director of MarylandsBank, FSB from
February 1994 to June 1995. Mr. Jameson also was an organizer of the Bank of
Maryland and its holding company, Bank Maryland Corp., and he served as Chairman
of the Board of both entities from 1985 to 1990.
KEMP JAYADEVA is a director of the Company and a director of the Bank. Mr.
Jayadeva currently is the President and sole stockholder of Allied Physician
Services, Inc., a computer services firm, and has served in that capacity for
over 11 years.
NORMAN H. KATZ is a director of the Company and the Bank. Mr. Katz is an
attorney is solo practice in the Baltimore metropolitan area and has been a sole
practitioner for over 15 years. Mr. Katz was the assistant director of the
Division of Parole and Probation for the State of Maryland from 1955 to 1978.
SHAWKI N. MALEK, M.D. is a director of the Company and the Bank. Dr. Malek is
in private practice specializing in adult and pediatric gastroenterology with
offices in Towson, Maryland and has served in that capacity since 1982.
MARK D. NOAR, M.D., is a director of the Company and the Bank. Dr. Noar
currently is a gastroenterologist in Baltimore, Maryland and is a principal of
Endoscopic Microsurgery Associates, P.A., which is a medical practice in
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Baltimore, Maryland. He has served in that capacity for over nine years. Dr.
Noar also is the Medical Director and a principal of The Endoscopy Center, Inc.,
which operates an ambulatory surgery center. He has served in that capacity for
over seven years.
LARRY D. OHLER is the Treasurer of the Company and the Bank and a director of
the Company and the Bank. Mr. Ohler currently is the Chief Financial Officer of
PATS, Inc., an aircraft equipment manufacturer, and has served in such capacity
for over 13 years. He also is a certified public accountant.
KENNETH D. PEZZULLA is Secretary of the Company and the Bank and a director of
the Company and the Bank. Mr. Pezzulla currently is a member of Pezzulla and
Pezzulla, LLC, a Towson law firm, and has served in that capacity since 1995.
Mr. Pezzulla had a solo legal practice from 1975 to 1995. Mr. Pezzulla was a
director of Rushmore from 1989 to October 1997, and was a director of its
predecessor, LaCorona Building and Loan Association, from 1963 to 1989. Mr.
Pezzulla was President of LaCorona Building and Loan Association from 1985 to
1988.
RAMON F. ROIG, JR., M.D. is a director of the Company and the Bank. Dr. Roig
currently practices in internal medicine and gastroenterology in Baltimore,
Maryland and is President of Ramon F. Roig, M.D., P.A. He has served in that
capacity since 1974.
RUSSELL A. ROURKE is a director of the Company. Mr. Rourke retired in 1997 from
the EPP Company, a private real estate development company, where he had served
as President for over 24 years. Mr. Rourke was Secretary of the Air Force
during the Reagan administration and was Assistant Secretary of Defense for
Legislative Affairs from 1981-1985. Mr. Rourke was a Special Assistant to
President Gerald R. Ford from 1974-1977. Mr. Rourke retired from the Marine
Corps Reserves in 1985 with the rank of Colonel.
MELANIE R. SABELHAUS is a director of the Company. Since January 1997, Ms.
Sabelhaus has been a Vice President of BridgeStreet Accommodations, Inc., a
provider of accommodation services primarily for business people and
professionals. Prior to January 1997, Ms. Sabelhaus was President of Exclusive
Interim Properties, Ltd., which she founded in June 1986. Exclusive Interim
Properties, Ltd. provided relocation services to executives on temporary
assignment in the Baltimore, Washington, D.C. and Virginia areas. In January
1997, Exclusive Interim Properties, Ltd. merged
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into an affiliate of BridgeStreet Accommodations, Inc. Ms. Sabelhaus also is a
director of BridgeStreet Accommodations, Inc.
BALDEV SINGH is a director of the Company. Mr. Singh currently is the President
of BGK Truckers Inn, Inc., a Maryland based developer and operator of truck
stops, gas stations and convenience stores, and has served in that capacity
since 1991. In addition, Mr. Singh is a member of Network Processing, LLC, a
provider of automatic teller machines, and has served in that capacity since
April 1998.
MICHAEL STERN is a director of the Company. Mr. Stern currently is the
President of RTW Rehabilitation Services, Inc., a company which provides case
management and vocational services to injured workers. He has served in that
capacity since 1980. RTW Rehabilitation Services, Inc. provides services in
Maryland, North Carolina, Virginia, Washington, D.C. and West Virginia. Mr.
Stern also is a Vice President of Family Vending, Inc., a vending company, Cash
All Checks Inc. of Maryland and Cash All Checks of P.A. Inc., which are check
cashing companies, and L'Enfant Card and Gift Inc., a gift shop.
INDEMNIFICATION
The Company's Charter and Bylaws provide, in relevant part, that the "the
Corporation shall indemnify and advance expenses to a director or officer of the
Corporation in connection with a proceeding to the fullest extent permitted by
and in accordance with" the Maryland General Corporation Law (the "MGCL").
The MGCL permits a corporation to indemnify its directors and officers,
among others, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those or other
capacities, unless it is established that (a) the act or omission of the
director or officer was material to the matter giving rise to such proceeding
and (i) was committed in bad faith or (ii) was the result of active and
deliberate dishonesty; (b) the director or officer actually received an improper
personal benefit in money, property or services; or (c) in the case of any
criminal proceeding, the director or officer had reasonable cause to believe
that the action or omission was unlawful. The Company maintains directors and
officers liability insurance.
The MGCL permits the charter of a Maryland corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, except to the extent that
(a) the person actually received an improper benefit or profit in money,
property or services; or (b) a judgment or other final adjudication is entered
in a proceeding based on a finding that the person's action, or failure to act,
was the result of active and deliberate dishonesty and was material to the cause
of action adjudicated in the proceeding. The Company's Charter contains a
provision providing for the elimination of the liability of its directors and
officers to the Company or its stockholders for money damages for any breach of
any duty owed by such directors or officers to the fullest extent permitted by
Maryland law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised by the Securities and Exchange Commission that such
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indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
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REMUNERATION OF DIRECTORS AND OFFICERS
REMUNERATION
At the present time, the Company does not have and does not intend to
have any employees.
The following table and notes sets forth information as to the
remuneration paid by the Bank to each of the three highest paid officers of the
Bank and all of such officers as a group for the year ended December 31, 1997.
Name of Individual or Capacities in Which Aggregate
Identity of Group Remuneration was Received Remuneration
- ----------------- ------------------------- ------------
Patricia D'Alessandro President $ 3,750
J. Clarence Jameson, III Vice President(1) 35,000
Kenneth D. Pezzulla Secretary(1) 25,000
-------
Officers as a Group (3 persons) $63,750
=======
(1) In consideration of services performed on behalf of the Company and the Bank
in preparing the necessary bank regulatory applications and negotiating the
terms of and performing the necessary investigations related to the transaction
with Rushmore, Mr. Jameson and Mr. Pezzulla each were paid $25,000 by the Bank.
In addition, Jameson and Associates, P.A. and Pezzulla and Pezzulla, LLC, each
were paid $12,500 by the Bank for such services. Mr. Jameson is the President
and a principal of Jameson and Associates, P.A., a public accounting firm, and
Mr. Pezzulla is a member of Pezzulla and Pezzulla, LLC, a Towson law firm. The
payment for the services performed as described in this footnote are not
recurrent. In addition, Mr. Jameson was entitled to $10,000 for additional
services rendered to the Bank during 1997.
EMPLOYMENT ARRANGEMENTS
The Bank has agreed to pay Ms. D'Alessandro $45,000 annually in
connection with her duties as President of the Bank. Ms. D'Alessandro is not a
party to any employment agreement with the Company or the Bank and she could
resign or be terminated at any time and for any reason.
In addition, through August 30, 1998, pursuant to the Company's stock
option plan, options to purchase 1,700 shares of Common Stock have been granted
to Ms. D'Alessandro. Of these options, 1,640 have an exercise price of $10.00
per share and 60 have an exercise price of $12.00 per share. All of the options
are first exercisable six months after their grant date, and the earliest
exercise date for any of such options is December 1, 1998. See "- Stock Option
Plan."
On September 24, 1998, the Bank hired Richard J. Hunt, Jr. to serve as
President of the Bank. Mr. Hunt's appointment as President of the Bank is
subject to regulatory approval and there can be no assurance that such
regulatory approval will be obtained. Upon obtaining regulatory approval for Mr.
Hunt to serve as President of the Bank, Ms. D'Alessandro will serve as a Vice
President of the Bank.
Mr. Hunt's employment agreement with the Bank provides for an annual base
salary of $85,000, subject to annual review, and a term of three years. However,
Mr. Hunt may terminate his employment at any time upon 90 days prior written
notice and the Bank may terminate Mr. Hunt's employment at any time and for any
reason. In general, if Mr. Hunt is terminated without cause, the Bank is
obligated to pay Mr. Hunt his salary for nine months after termination. In the
event of a change in control of more than fifty percent (50%) of the ownership
of any class of the Company's outstanding capital stock, and Mr. Hunt is
terminated or elects to terminate his employment, then the Bank shall pay Mr.
Hunt an amount equal to one year's salary. Mr. Hunt is entitled to participate
in any management bonus plan established by the Bank and to receive all benefits
offered to the Bank's executive employees. Mr. Hunt will receive an automobile
expense allowance of $400.00 per month.
In addition, upon the receipt of regulatory approval for Mr. Hunt to
serve as President of the Company, the Company has agreed to grant to Mr. Hunt,
pursuant to the Company's stock option plan, options to purchase 8,000 shares of
Common Stock at an exercise price of $12.00 per share. All of these options are
first exercisable six months after their grant. Mr. Hunt also will be granted,
pursuant to the Company's stock option plan, options to purchase 5,000 shares of
Common Stock over a three year period at an exercise price of $12.00 per share
based upon the performance of the Bank. See "-Stock Option Plan."
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COMPENSATION OF DIRECTORS
The Company currently does not pay directors' fees. Beginning November 1,
1998, Directors will receive $50.00 for each regular and special meeting of the
Board of Directors attended. Although the Bank has paid directors' fees for only
one of its meetings, the Bank intends, beginning November 1, 1998, to pay
directors' fees of $50.00 for each regular and special meeting of the Board of
Directors attended. However, the Company and the Bank reserve the right to
increase and/or decrease the fees that will be paid.
In addition, beginning November 1, 1998, the Bank has agreed to pay Mr.
Jameson $25,000 annually in connection with his duties as Chairman of the Board
of Directors of the Bank, and has agreed to pay William A. Fogle, Jr. $18,750
annually in connection with his duties as Vice Chairman of the Board of
Directors of the Bank. Mr. Jameson and Mr. Fogle will not be parties to any
written agreement with the Bank with respect to their compensation as Chairman
of the Board and Vice Chairman of the Board, respectively.
Pursuant to the Company's stock option plan, effective as of June 1, 1998
(the "Plan Effective Date"), each non-employee director of the Company who was
serving as such on the Plan Effective Date was granted an option to purchase 20
shares of Common Stock for (i) each Board of Directors meeting and each capital
committee meeting of the Board of Directors attended by such person from August
1, 1996 through and including the Plan Effective Date, and (ii) each other Board
committee meeting attended by such person from January 1, 1998 through and
including the Plan Effective Date. Pursuant to these terms, options to purchase
1,160 shares of Common Stock were granted to Mr. Jameson and options to purchase
980 shares of Common Stock were granted to Mr. Pezzulla. These options have an
exercise price of $10.00 per share.
In addition, effective as of the Plan Effective Date, options to purchase
an additional 8,960 shares of Common Stock were granted to Mr. Jameson and
options to purchase an additional 9,100 shares of Common Stock were granted to
Mr. Pezzulla, each at an exercise price of $10.00 per share.
Pursuant to the stock option plan, after the Plan Effective Date, each
non-employee director of the Company will be granted an option to purchase 20
shares of Common Stock for each Board of Directors meeting and each committee
meeting of the Board of Directors attended by such person. The options will be
granted as of the date of the meeting. Pursuant to these terms, as of August 30,
1998, options to purchase 120 shares of Common Stock have been granted to both
Mr. Jameson and Mr. Pezzulla. Of these options, 20 have an exercise price of
$10.00 per share and 100 have an exercise price of $12.00 per share.
All of the options that have been issued to non-employee directors of the
Company, including Mr. Jameson and Mr. Pezzulla, are first exercisable six
months after their grant date, and the earliest exercise date for any of such
options is December 1, 1998.
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STOCK OPTION PLAN
General. On April 23, 1998 the Board of Directors adopted, and on May 28,
1998, the stockholders approved, the AmericasBank Corp. Stock Option Plan (the
"Plan"). The purpose of the Plan is to advance the interests of the Company by
providing eligible individuals with an opportunity to acquire or increase their
proprietary interest in the Company, which thereby will create a stronger
incentive for such persons to expend maximum effort for the growth and success
of the Company and the Bank, and will encourage certain of such eligible
individuals to remain in the employ of the Company or the Bank. The effective
date of the Plan is June 1, 1998.
Shares Subject to the Plan. The Plan provides for the reservation of up
to 45,000 shares of Common Stock for issuance upon the exercise of options
granted under the Plan. Shares may be newly issued, or may be purchased by the
Company in the open market or in private transactions. The number of shares
reserved for the grant of options and the number of shares which are subject to
outstanding options under the Plan are subject to adjustment in the event of
stock splits, stock dividends, reclassifications or other changes in the
Company's capitalization. If an option expires or is terminated, the shares that
were subject to the unexercised portion of the option shall be available for
future options granted under the Plan. As of August 30, 1998, options to
purchase 30,900 shares of Common Stock have been granted under the Plan.
Administration and Amendment of the Plan; Eligibility of Participants.
The Plan is administered by the Compensation Committee appointed by the Board of
Directors and composed solely of two more non-employee directors. The
Compensation Committee is authorized to determine and designate from time to
time those persons to whom options are to be granted. Options may be "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or non-qualified options. The granting of an
option takes place only when a written and executed option agreement containing
the terms and conditions of the option is delivered to the optionee.
The Plan may be amended, suspended or terminated at any time by the Board
of Directors, provided that no such action may impair or alter rights or
obligations under an option without the consent of the options holder and
provided that stockholder approval is required for amendments that would
increase the number of shares available for options or materially increase
benefits available to Plan participants.
Each full-time employee of the Company or any subsidiary customarily
employed at least 20 hours per week and each director of the Company is eligible
to be a participant under the Plan, if so designated by the Compensation
Committee. As of August 30, 1998, 23 persons were eligible to participate in the
Plan. As described above, the Plan provides for the grant of certain options to
the Company's non-employee directors.
Terms of Options. The Plan has a 10 year term and each option granted
under the Plan shall expire on the 10th anniversary of the date the option was
granted or such other date as the Compensation Committee provides. In the event
of the termination of employment of an optionee, other than for cause or by
reason of death or permanent and total disability, all unexercised options
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<PAGE>
will terminate, be forfeited and will lapse unless such options are exercised by
the employee within three months after the optionee's employment with the
Company or its subsidiary is terminated or a shorter period as the Board of
Directors may determine from time to time. Options immediately lapse upon
termination for cause, and are exercisable for one year after death or
disability of the employee.
Any option granted to a non-employee director shall terminate on the
first anniversary of the effective date of termination of such person's service
on the Board of Directors or such earlier time specified in an option agreement
for such option. Notwithstanding the foregoing, any option granted to a
non-employee director shall terminate one year following the date in which a
non-employee director ceases to be a member of the Board of Directors by reason
of death or "permanent and total disability" as defined in the Plan.
The purchase price of each share of Common Stock subject to an option
shall be fixed by the Compensation Committee and stated in each option
agreement; provided, however, that the purchase price of any option intended to
be an "incentive stock option" (within the meaning of Section 422 of the Code),
or any option granted to a director, shall not be less than the greater of par
value or 100% of the fair market value of a share on the date the option is
granted (as determined in good faith by the Compensation Committee); provided
further, that in the event the optionee would otherwise be ineligible to receive
an incentive stock option by reason of the provisions of Sections 422(b)(6) and
424(d) of the Code (relating to stock ownership of more than 10%), the purchase
price of each share subject to an option shall be not less than the greater of
par value or 110% of the fair market value of a share at the time such option is
granted. In the event that the shares are listed on an established national or
regional stock exchange, are admitted to quotation on The Nasdaq Stock Market,
Inc., or are publicly traded on an established securities market, in determining
the fair market value of the shares, the Compensation Committee shall use the
closing price of the shares on such exchange or system or in such market (the
highest such closing price if there is more than one such exchange or market) on
the date the option is granted or, if such date was not a trading date, on the
trading date immediately preceding the date the option is granted (or, if there
is no such closing price, then the Committee shall use the mean between the
highest bid and the lowest asked prices or between the high or low prices on
such date). If there is no established market for the Common Stock, then the
fair market value shall be determined by the Compensation Committee in good
faith.
Options granted under the Plan are not transferable by an optionee
otherwise than by will or the laws of descent and distribution, as provided in
the Plan. Options shall be exercisable only by the optionee during his lifetime;
any attempt to transfer an option, or to assign, pledge, hypothecate or
otherwise dispose of an option in violation of the terms of the Plan, or to levy
any attachment or similar process upon such option, results in the immediate
lapse of such option. Notwithstanding the foregoing, in the event of the death
of an optionee or termination of employment due to permanent or total
disability, the option may be exercised by the personal representative or
bequestee, or by the disabled optionee, as the case may be, within one year
after the death or termination of his employment due to permanent or total
disability, subject to certain conditions set forth in the Plan.
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<PAGE>
Under the Plan, upon the occurrence of certain "extraordinary events" (as
described in the Plan), all options granted under the Plan will vest and become
fully exercisable upon the extraordinary event. An "extraordinary event" is
defined as the commencement of a tender offer (other than by the Company) for
any shares of the Company, or a sale or transfer, in one or a series of
transactions, of assets having a fair market value at least equal to 50% of the
fair market value of all assets of the Company, or a merger, consolidation or
share exchange pursuant to which shares may be exchanged for or converted into
cash, property or securities of another issuer, or the liquidation of the
Company.
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<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The table below sets forth information as of August 30, 1998, relating to
the ownership of the Company's Common Stock, $0.01 par value per share, by (i)
each of the Company's officers and directors; (ii) all officers and directors as
a group; and (iii) each person who is known by the Company to own 5% or more of
the outstanding shares of the Company's Common Stock. As of August 30, 1998,
there were 300,000 shares of the Company's Common Stock issued and outstanding.
The table also provides the number of shares of Common Stock which it is
anticipated that such persons will own as a result of their purchases of Units
in the Offering. Unless otherwise noted below, the Company believes that each
person named in the table has or will have the sole voting and sole investment
power with respect to each of the shares of Common Stock reported as owned or to
be owned by such person.
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<PAGE>
COMMON STOCK OWNERSHIP
<TABLE>
<CAPTION>
Amount Anticipated Amount Anticipated
Amount Owned to be Purchased to be Owned After Minimum Maximum
Name and Address Before the Offering in the Offering(1) the Offering(1) Offering(2) Offering(3)
---------------- ------------------- ------------------ --------------- ----------- -----------
<S><C>
Garbis Baklayan 11,050 (4) 1,042 12,092 2.85% 1.97%
14100 Phoenix Road
Phoenix, MD 21131
Nicholas J. Belitsos, M.D. 13,100 (5) 2,084 15,184 3.57% 2.48%
20 East Eager Street
Baltimore, MD 21202
King V. Cheek 5,720 (6) 500 6,220 1.46% 0.93%
14009 Broomall Lane
Wheaton, MD 20906
Cynthia B. Conklin 5,050 (7) 1,042 6,092 1.43% 0.99%
230 E. Montgomery Street
Baltimore, MD 21230
Patricia D'Alessandro 300 (8) 200 500 0.12% 0.08%
3621 E. Lombard Street
Baltimore, MD 21224
William A. Fogle, Jr. 1,000 (9) 500 1,500 0.35% 0.24%
RR 1, Box 192, Meckley Rd.
Glen Rock, PA 17327
</TABLE>
96
<PAGE>
<TABLE>
<CAPTION>
Amount Anticipated Amount Anticipated
Amount Owned to be Purchased to be Owned After Minimum Maximum
Name and Address Before the Offering in the Offering(1) the Offering(1) Offering(2) Offering(3)
---------------- ------------------- ------------------ --------------- ----------- -----------
<S><C>
Constantine Frank 10,000 (10) 500 10,500 2.47% 1.71%
14721 Manor Road
Phoenix, MD 21131
Leonard Frenkil 2,000 -- 2,000 0.47% 0.33%
Atlantic Management Corp.
100 H Warwickshire Lane
Glen Burnie, MD 21061
J. Clarence Jameson, III 38,300 (11) 2,700 41,000 9.65% 6.69%
515 E. Joppa Road
Towson, MD 21286
Kemp Jayadeva 10,000 (12) 500 11,042 2.60% 1.80%
3713 Michelle Way
Baltimore, MD 21208
Norman H. Katz 2,500 (13) 834 3,334 0.78% 0.54%
3420 Lynne Haven Drive
Baltimore, MD 21244
Shawki N. Malek, M.D. 12,550 (14) 2,084 14,634 3.44% 2.39%
120 Sister Pierre Drive
Suite 408
Towson, MD 21204
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
Amount Anticipated Amount Anticipated
Amount Owned to be Purchased to be Owned After Minimum Maximum
Name and Address Before the Offering in the Offering(1) the Offering(1) Offering(2) Offering(3)
---------------- ------------------- ------------------ --------------- ----------- -----------
<S><C>
Mark D. Noar, M.D. 10,000 (15) 1,042 11,042 2.60% 1.80%
603 Hastings Road
Towson, MD 21286
Larry D. Ohler 5,050 2,084 7,134 1.68% 1.16%
9570 Berger Road
Columbia, MD 21046
Kenneth D. Pezzulla 2,550 (16) 500 3,050 0.72% 0.50%
401 Washington Avenue
Suite 301
Towson, MD 21204-4804
Ramon F. Roig, Jr., M.D. 10,050 (17) 2,084 12,134 2.86% 1.98%
15 Aigburth Road
Towson, MD 21204
Russell A. Rourke 2,500 (18) 200 2,700 0.64% 0.44%
15 Maryland Avenue
Annapolis, MD 21401
Melanie R. Sabelhaus 5,050 1,042 6,092 1.43% 0.99%
1421 Clarkview Road
Suite 200
Baltimore, MD 21209
</TABLE>
98
<PAGE>
<TABLE>
<CAPTION>
Amount Anticipated Amount Anticipated
Amount Owned to be Purchased to be Owned After Minimum Maximum
Name and Address Before the Offering in the Offering(1) the Offering(1) Offering(2) Offering(3)
---------------- ------------------- ------------------ --------------- ----------- -----------
<S><C>
Baldev Singh 12,000 (19) 2,084 14,084 3.31% 2.30%
7401 Assateague Drive
Jessup, MD 20794
Michael Stern 5,050 (20) 500 5,550 1.31% 0.91%
Rehabilitation Services, Inc.
1866-B Reisterstown Road
Baltimore, MD 21208
Officers and Directors as a 163,820 21,522 185,342 43.61% 30.26%
Group (20 people)
</TABLE>
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<PAGE>
(1) Although it is anticipated that the directors and officers, together with
members of their immediate family, will purchase, directly or indirectly, Units
in the Offering, neither the directors nor officers nor any other person will be
obligated to purchase Units. The directors and officers may purchase additional
Units in the Offering if necessary to permit the Company to sell the Minimum
Number of Units in the Offering, and they may purchase additional Units even if
the Company has sold the Minimum Number of Units. Any Units purchased by the
directors and officers in excess of their original commitment will be purchased
for investment and not with a view to the resale of such Units. The information
contained in this column was compiled, in part, based upon information furnished
to the Company by the persons named in the table and the members of the
designated group.
(2) Indicates percentage of outstanding shares of Common Stock that would be
owned immediately after the Offering assuming the anticipated number of Units
are purchased by the directors and officers and the Company accepts
subscriptions for the Minimum Number of Units.
(3) Indicates percentage of outstanding shares of Common Stock that would be
owned immediately after the Offering assuming the anticipated number of Units
are purchased by the directors and officers and the Company accepts
subscriptions for the Maximum Number of Units.
(4) Includes 10,000 shares held for the benefit of Mr. Baklayan's IRA, as to
which Mr. Baklayan has sole voting and investment power.
(5) Includes 5,000 shares held for the benefit of the Nicholas J. Belitsos,
M.D. Profit Sharing Trust, as to which Dr. Belitsos is the sole trustee and
2,100 shares held by dependent children. Also includes 1,000 shares held by Dr.
Belitsos' wife. Dr. Belitsos disclaims beneficial ownership as to the shares
held by his wife.
(6) Includes 4,000 shares held for the benefit of the Albert C. Cheek Trust, as
to which Mr. Cheek is the sole trustee. Also includes 1,220 shares held for the
benefit of Mr. Cheek's wife's IRA, as to which Mrs. Cheek has sole voting and
investment power. Mr. Cheek disclaims beneficial ownership as to the shares held
for the benefit of the Albert C. Cheek Trust and for the benefit of his wife's
IRA.
(7) Includes 5,000 shares held for the benefit of the Cynthia B. Conklin Profit
Sharing Plan, as to which Ms. Conklin is the sole trustee.
(8) Includes 250 shares held jointly with Ms. D'Alessandro's husband, as to
which Ms. D'Alessandro shares voting and investment power.
(9) Includes 200 shares held for the benefit of Mr. Fogle's IRA, as to which
Mr. Fogle has sole voting and investment power.
(10) Includes 9,950 shares held jointly with Mr. Frank's wife, as to which Mr.
Frank shares voting and investment power.
(11) Includes 17,400 shares held jointly with Mr. Jameson's wife, as to which
Mr. Jameson shares voting and investment power, and 16,000 shares held for the
benefit of Mr. Jameson's IRA, as to which Mr. Jameson has sole voting and
investment power. Also includes 4,850 shares held by Mr. Jameson's wife. Mr.
Jameson disclaims beneficial ownership as to the shares held by his wife.
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<PAGE>
(12) Includes 2,450 shares held jointly with Mr. Jayadeva's wife, Shobha
Jayadeva, M.D., as to which Mr. Jayadeva shares voting and investment power, and
2,500 shares held by dependent children. Also includes 5,000 shares held for the
benefit of the Shobha Jayadeva Pension Plan, as to which Shobha Jayadeva, M.D.,
is the sole trustee. Mr. Jayadeva disclaims beneficial ownership as to the
shares held for the benefit of his wife's pension plan.
(13) Includes 2,000 shares held for the benefit of Mr. Katz's wife's IRA, as to
which Mrs. Katz has sole voting and investment power. Mr. Katz disclaims
beneficial ownership as to the shares held for the benefit of his wife's IRA.
(14) Includes 11,000 shares held for the benefit of the Shawki N. Malek KEOGH
Plan, as to which Dr. Malek is the trustee, and 500 shares held by dependent
children. The 11,000 shares held for the benefit of the Shawki N. Malek KEOGH
Plan include 10,000 shares held for the benefit of Dr. Malek and 1,000 shares
held for the benefit of Dr. Malek's wife. Dr. Malek disclaims beneficial
ownership as to the shares held in the KEOGH Plan for the benefit of his wife.
(15) Includes 9,950 shares held jointly with Dr. Noar's wife, as to which Dr.
Noar shares voting and investment power.
(16) Includes 2,500 shares held for the benefit of Mr. Pezzulla's IRA, as to
which Mr. Pezzulla has sole voting and investment power.
(17) Includes 3,000 shares held for the benefit of Dr. Roig's IRA, as to which
Dr. Roig has sole voting and investment power, and 5,000 shares held for the
benefit of the Raymond F. Roig, Jr., M.D. Profit Sharing Trust, as to which Dr.
Roig is the sole trustee. Also includes 2,000 shares held for the benefit of Dr.
Roig's wife's IRA, as to which Mrs. Roig has sole voting and investment power.
Dr. Roig disclaims beneficial ownership as to the share held for the benefit of
his wife's IRA.
(18) Includes 2,500 shares held jointly with Mr. Rourke's wife, as to which Mr.
Rourke shares voting and investment power.
(19) Includes 1,000 shares held jointly with Mr. Singh's wife, as to which Mr.
Singh shares voting and investment power. Also includes 1,000 shares held by Mr.
Singh's wife. Mr. Singh disclaims beneficial ownership as to the shares held by
his wife.
(20) Includes 5,000 shares held for the benefit of the RTW Rehabilitation
Services, Inc. 401K Profit Sharing Plan & Trust, of which Mr. Stern and his wife
are the trustees.
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<PAGE>
The table below sets forth information as of August 30, 1998, relating to
options and warrants to purchase the Company's Common Stock owned or to be owned
by each of the persons named in the above table and all of such persons as a
group. Unless otherwise noted below, the Company believes that each person named
in the table has or will have the sole voting and sole investment power with
respect to each option or warrant reported as owned or to be owned by such
person.
OPTIONS AND WARRANTS
<TABLE>
<CAPTION>
Number of Shares of Anticipated Number of
Common Stock Subject Number of Shares of Shares of Common Stock
to Options Pursuant to Common Stock Subject Subject to Warrants
Name Stock Option Plan (1) to Dividend Warrants(2) Pursuant to the Offering (3)
---- --------------------- ----------------------- ----------------------------
<S><C>
Garbis Baklayan 200 11,050 1,042
Nicholas J. Belitsos, M.D. 880 13,100 2,084
King V. Cheek 340 5,720 500
Cynthia B. Conklin 160 5,050 1,042
Patricia D'Alessandro 1,700 300 200
William A. Fogle, Jr. 1,680 1,000 500
Constantine Frank 240 10,000 500
Leonard Frenkil 140 2,000 --
J. Clarence Jameson, III 10,240 38,300 2,700
Kemp Jayadeva 840 10,000 500
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Number of Shares of Anticipated Number of
Common Stock Subject Number of Shares of Shares of Common Stock
to Options Pursuant to Common Stock Subject Subject to Warrants
Name Stock Option Plan (1) to Dividend Warrants(2) Pursuant to the Offering (3)
---- --------------------- ----------------------- ----------------------------
<S><C>
Norman H. Katz 800 2,500 834
Shawki N. Malek, M.D. 640 12,550 2,084
Mark D. Noar, M.D. 320 10,000 1,042
Larry D. Ohler 600 5,050 2,084
Kenneth D. Pezzulla 10,200 2,550 500
Ramon F. Roig, Jr., M.D. 520 10,050 2,084
Russell A. Rourke 120 2,500 200
Melanie R. Sabelhaus 160 5,050 1,042
Baldev Singh 280 12,000 2,084
Michael Stern 120 5,050 500
Officers and Directors as a 30,180 163,820 21,522
Group (20 people)
</TABLE>
103
<PAGE>
(1) The table provides information as to the options granted to such persons as
of August 30, 1998. Of these options, 29,200 are exercisable for $10.00 per
share and 980 are exercisable for $12.00 per share. All of the options are first
exercisable six months after their grant and the earliest exercise date for any
of such options is December 1, 1998. See "REMUNERATION OF DIRECTORS AND OFFICERS
- - Stock Option Plan." The table does not provide options to be granted to
Richard J. Hunt, Jr. See "REMUNERATION OF DIRECTORS AND OFFICERS - Employment
Arrangements."
(2) The Dividend Warrant was issued on September 2, 1998 to holders of record on
September 1, 1998. It is anticipated that the Dividend Warrant will be held by
such persons in the same manner as their Common Stock is held, as described in
the chart entitled "Common Stock Ownership." Each Dividend Warrant entitles the
holder thereof to purchase one share of Common Stock at an exercise price of
$10.00 per share, subject to adjustment for certain events, beginning any time
after April 1, 2000, until the Dividend Warrant's expiration at 5:00 p.m. EST,
on September 1, 2008. The Dividend Warrants contain certain anti-dilution
provisions See "DESCRIPTION OF CAPITAL STOCK AND WARRANTS - Dividend Warrants."
(3) See footnote 1 of chart entitled "Common Stock Ownership." Each Warrant
entitles the holder thereof to purchase one share of Common Stock at an exercise
price of $13.00 per share, subject to adjustment for certain events, beginning
any time after _______________, until the Warrant's expiration at 5:00 p.m. EST,
on _________, 2001. The Warrants contain certain anti-dilution provisions See
"DESCRIPTION OF CAPITAL STOCK AND WARRANTS - Warrants."
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<PAGE>
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
ORGANIZATIONAL AND RUSHMORE RELATED TRANSACTIONS
Effective as of December 1, 1997, the Bank purchased certain assets from,
and assumed certain liabilities of, Rushmore. The transaction was initiated in
1996 when Kenneth D. Pezzulla, who was then a director of Rushmore, approached
management of Rushmore to propose the sale of the Baltimore Branch of Rushmore
to a group desiring to establish a new community bank. As of October 31, 1997,
Mr. Pezzulla resigned as a member of the Board of Directors of Rushmore. Mr.
Pezzulla is the Secretary of the Company and the Bank and a Director of the
Company and the Bank.
In consideration of services performed on behalf of the Company and the
Bank in preparing the necessary bank regulatory applications and negotiating the
terms of and performing the necessary investigations related to the Rushmore
transaction, J. Clarence Jameson, III and Mr. Pezzulla each were paid $25,000 by
the Bank, and Jameson and Associates, P.A. and Pezzulla and Pezzulla, LLC, each
were paid $12,500 by the Bank. Mr. Jameson is the President of the Company, the
Vice President of the Bank and the Chairman of the Board of the Company and the
Bank. Mr. Jameson also is the President and a principal of Jameson and
Associates, P.A., a public accounting firm. Mr. Pezzulla is a member of
Pezzulla and Pezzulla, LLC, a Towson law firm.
During 1997, in order to assure that certain transaction and
organizational expenses were paid, the persons who were then serving as
directors of the Company and the Bank, certain persons who were to be named as
directors of the Company and the Bank and certain of the Bank's Advisory
Directors (collectively, the "Lenders"), loaned an aggregate of $652,000 (the
"Loan Account") to the Company for the benefit of the Company and the Bank (the
"Organizational Loans"). The Organizational Loans were only repayable from the
proceeds of the Company's initial public offering or from proceeds of the
Organizational Loans which were not expended by the Company, and the Lenders
could choose to receive repayment in full or in part through their receipt in
the Company's initial public offering of shares of Common Stock valued at $10.00
per share. The Organizational Loans bore interest as follows: (a) all money
expended from the Loan Account after April 1, 1997 bore interest accruing at the
rate of 10% per annum, with interest being allocated proportionately among the
Lenders, and (b) all money deposited into the Loan Account but not expended by
the Company bore no interest. No Lender loaned more than $50,000 to the Company.
Each Lender requested repayment of his or her loan through the receipt of
shares of Common Stock in the Company's initial public offering. As a result,
the Company issued a total of 65,200 shares of Common Stock in the initial
public offering to the Lenders.
BANKING AND OTHER TRANSACTIONS
The Company and the Bank have engaged and expect to engage in the future
in transactions in the ordinary course of business with directors and officers
of the Company and the Bank and their affiliates on substantially the same terms
as those prevailing at the time for comparable transactions with unrelated
parties. Such transactions are not expected to present any special unfavorable
features to the Company or the Bank. However, other than hypothecated loans, the
Bank will not make loans to its officers, directors or their affiliates,
although approximately $111,000 of Rushmore Loans
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<PAGE>
between Rushmore and the Bank's officers, director or their affiliates were
purchased by the Bank. An overdraft checking account established by the Bank
will not be considered a loan for these purposes. To date, the Bank has not made
any hypothecated loans to its or the Company's directors or officers or
affiliates of such persons.
Under current law, any hypothecated loans are required to be made on
substantially the same terms, including interest rates, as those prevailing for
comparable transactions and must not involve more than the normal risk of
repayment or present other unfavorable features.
The following related entities have provided services to the Company
and/or the Bank and will provide services to the Company and/or the Bank in the
future:
Jameson and Associates, P.A., has provided and will provide tax,
accounting and related services to the Company and the Bank. As described above
in the description of "Organizational and Rushmore Related Transactions," for
the year ended December 31, 1997, an aggregate of $12,500 was paid to Jameson
and Associates, P.A. by the Bank for such services.
Pezzulla and Pezzulla, LLC has provided and will provide legal services
to the Company and the Bank. As described above in the description of
"Organizational and Rushmore Related Transactions," for the year ended December
31, 1997, an aggregate of $12,500 was paid to Pezzulla and Pezzulla, LLC by the
Bank for such services.
The Bank intends to enter into an agreement with Network Processing, LLC
("Network"), of which Director Baldev Singh is a member, pursuant to which
Network will place the Bank's name on automatic teller machines owned by Network
and located at various truck stops, gas stations and convenience stores
throughout the United States. It is anticipated that the Bank will receive from
Network $0.05 each time a person utilizes a Network automatic teller machine
that is branded with the Bank's name and $0.02 each time a person utilizes a
Network automatic teller machine that is not branded with the Bank's name. It is
anticipated that this agreement will be entered into by October 15, 1998.
AmericasBank Holdings Corporation has entered into a lease agreement with
Network pursuant to which Network has leased approximately 700 square feet of
office space on the second floor of the Towson Property. The leases commences
August 1, 1998 and terminates July 31, 2000, and Network has an option for one
additional year. Network will pay AmericasBank Holdings Corporation $400 per
month during months one through six, $700 per month during months seven through
twelve, and $725 per month during the second year of the lease. The lease
payment amount for the option year is $750 per month. The premises were leased
to Network on an "as is" basis.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK AND WARRANTS
GENERAL
Each Unit consists of one share of Common Stock and one Warrant. The
shares of Common Stock and the Warrants will each be represented by separate
certificates, and the Common Stock and the Warrants are separately tradeable.
The Company currently acts and will continue to act as its own transfer agent
immediately after the Offering.
In general, stockholders or subscribers for capital stock of the Company
have no personal liability for the debts and obligations of the Company solely
as the result of their status as stockholders or subscribers, except to the
extent that the subscription price or other agreed consideration for the capital
stock has not been paid. However, pursuant to Section 2-312(b) of the Maryland
General Corporation Law (the "MGCL"), a director of the Company held liable
pursuant to Section 2-312(a) of the MGCL (relating to unlawful distributions)
has a right of contribution from each stockholder who knowingly accepts an
unlawful distribution, and pursuant to Section 3-419 of the MGCL, the
dissolution of the Company will not relieve the stockholders of the Company from
any liability imposed on them by law.
The following summary of certain terms of the Company's capital stock,
including the Common Stock, the Warrants and the Dividend Warrants, does not
purport to be complete and is subject to and qualified in its entirety by
reference to, in the case of the Company's capital stock, the Company's Charter
and Bylaws, and in the case of the Warrants and the Dividend Warrants, the form
of such warrants, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus forms a part.
COMMON STOCK
The Company is authorized to issue five million (5,000,000) shares of
Common Stock, par value $0.01 per share. As of August 30, 1998, there were
issued and outstanding 300,000 shares of Common Stock, which were held by
approximately 216 owners of record, and there were 30,900 shares issuable upon
exercise of outstanding options to purchase shares of Common Stock.
The shares of Common Stock to be issued upon the sale of Units will be
duly authorized and will, upon payment of the Offering Price, be fully paid and
nonassessable. Subject to the rights of holders of any other class or series of
stock, holders of shares of Common Stock are entitled to receive dividends on
such stock, if, as and when authorized and declared by the Board of Directors of
the Company from funds legally available therefor, and to share ratably in the
net assets of the Company upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company. The Company does not plan to declare
any dividends in the immediate future. See "DIVIDEND POLICY."
Except as otherwise required by law or except as provided with respect to
any other class or series of stock, each outstanding share of Common Stock
entitles the holder to vote for the election of directors and on all other
matters requiring stockholder action, each share being entitled to one vote.
There is no cumulative voting in the election of directors, which means that the
holders of a
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majority of the outstanding shares of Common Stock can elect all of the
directors then standing for election and the holders of the remaining shares
will not be able to elect any directors.
Holders of shares of Common Stock have no conversion, sinking fund,
redemption rights or preemptive rights to subscribe for any securities of the
Company.
The Charter of the Company grants to the Board of Directors the right to
classify or reclassify any unissued shares of Common Stock from time to time by
setting or changing the designations, preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms or conditions of redemption. Accordingly, the Board of Directors could
authorize the issuance of additional shares of Common Stock with terms and
conditions which could have the effect of discouraging a takeover or other
transaction which the holders of some, or a majority, of shares of Common Stock
might believe to be otherwise in their best interests or in which the holders of
some, or a majority, of shares of Common Stock might receive a premium for their
shares of Common Stock over the then market price of such shares. As of the date
hereof, the Board of Directors has no plans to classify or reclassify any
unissued shares of Common Stock.
PREFERRED STOCK
The Company is authorized to issue five million (5,000,000) shares of
preferred stock, par value $0.01 per share. Shares of preferred stock may be
issued from time to time by the Board of Directors in one or more series. Prior
to issuance of shares of each series, the Board of Directors is required by the
MGCL to fix for each such series the designation, preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption. The Board of Directors
could authorize the issuance of shares of preferred stock with terms and
conditions which could have the effect of discouraging a takeover or other
transaction which the holders of some, or a majority, of shares of Common Stock
might believe to be otherwise in their best interests or in which the holders of
some, or a majority, of shares of Common Stock might receive a premium for their
shares of Common Stock over the then market price of such shares. As of the date
hereof, no shares of preferred stock are issued or outstanding and the Company
has no present plans to issue any preferred stock.
WARRANTS
General. The Warrants included as part of the Units being offered
pursuant to this Prospectus will be issued in registered, certificate form. Each
Warrant will entitle the registered holder (the "Warrantholder") to purchase one
share of Common Stock at an exercise price of $13.00 per share (the "Exercise
Price"), subject to adjustment for certain events, beginning any time after
[EIGHTEEN MONTHS AFTER EFFECTIVE DATE], until their expiration at 5:00 p.m. EST
on _______, 2001. Shares of Common Stock, when issued upon the exercise of the
Warrants in accordance with the terms thereof, will be duly and validly issued,
fully paid and non-assessable.
Transfer and Exchange. The Warrants are separable and may be transferred
without the simultaneous transfer of the shares of Common Stock purchased with
the Warrants as part of a Unit. Warrants may be presented for exchange or
registration of transfer (with the form of assignment attached to the Warrant
duly completed and executed) at the Company's principal offices, upon
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payment of any taxes and other governmental charges and amounts as may be
required. Upon the surrendering of a Warrant, a new Warrant shall be issued and
delivered, in the name of the assignee and in the denomination or denominations
(in a whole number) specified in the form of assignment. If less than all
Warrants are being transferred, a new Warrant shall be issued to the transferor
for the portion not being transferred.
No Rights as Stockholders. Warrantholders will not be entitled to vote,
receive dividends or exercise any of the rights of holders of shares of Common
Stock for any purpose until the Warrants held by such Warrantholders have been
duly exercised and payment of the Exercise Price has been made.
Fractional Interests. The Company will not be required to issue any
fraction of a share of Common Stock upon the exercise of a Warrant. In lieu of
issuing a fraction of a share remaining after exercise of a Warrant, the Company
will make a cash payment for any fraction of a share equal to the same fraction
of the Exercise Price of the Warrant.
Right to Exercise Warrants. The Warrants may be exercised only if the
shares of Common Stock issuable upon exercise of the Warrants have been
registered under the Securities Act and applicable state securities laws (the
"State Acts") and a current prospectus relating to such shares of Common Stock
is then in effect, or upon the issuance to the Company of an opinion of counsel
satisfactory to counsel to the Company and/or submission to the Company of such
evidence as may be satisfactory to counsel to the Company, in each such case, to
the effect that any such exercise shall not be in violation of the Securities
Act and the applicable State Acts. Beginning on ______ (the date the Warrants
are first exercisable), the Company will in good faith use its best efforts to
make all necessary filings under the Securities Act, and to take appropriate
action under federal law and the State Acts of those states where the Units were
initially offered, to permit the issuance and resale of the Common Stock
issuable upon exercise of the Warrants. However, there can be no assurance that
the Company will be able to take such action, and the failure to do so may cause
the exercise of the Warrants and the resale or other disposition of the Common
Stock issued upon such exercise to become unlawful. In addition, in the event a
purchaser of Units in the Offering relocates to a state in which the Units were
not initially offered, or in the event that a purchaser of Warrants in the open
market resides in a state in which the Units were not initially offered, the
exercise of the Warrants and the resale or other disposition of the Common Stock
issued upon such exercise by such holders may be unlawful.
Subject to the above paragraph, upon presentation and surrender of the
Warrant, with a duly completed and executed purchase form (a copy of which is
attached to the Warrant), at the principal offices of the Company or at such
other place as the Company may designate, indicating the Warrantholders election
to exercise all or a portion (consisting of whole Warrants) of the
Warrantholder's Warrant, together with a check payable to the order of the
Company in the amount of the Exercise Price times the number of shares of Common
Stock being purchased, the Company will deliver to the Warrantholder, as
promptly as practicable, certificates representing the shares of Common Stock
being purchased and, if the Warrantholder is purchasing less than all of the
shares of Common Stock covered by the Warrant, a new Warrant.
Determination of Exercise Price. The Exercise Price of the Warrants has
been determined by the Company in its sole discretion. There is no assurance
that the price of the shares of the Common Stock will ever equal or exceed the
Exercise Price of the Warrants.
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Adjustment to Exercise Price and Number of Shares Purchasable. The
Exercise Price of the Warrants and the number of shares of Common Stock
purchasable upon exercise of the Warrants are subject to adjustment to protect
Warrantholders against dilution in certain events, including, if the Company:
(i) pays a dividend in shares of its Common Stock; (ii) subdivides outstanding
shares of its Common Stock into a greater number of shares; (iii) combines
outstanding shares of its Common Stock into a smaller number of shares; (iv)
reorganizes or reclassifies any of the Common Stock of the Company; (v)
consolidates or merges with another entity (other than a merger with a
subsidiary in which merger the Company is the continuing corporation and which
does not result in any reclassification or change of the shares issuable upon
exercise of the Warrants); (v) participates in a share exchange as the
corporation the stock of which is to be acquired; or (vi) sells or leases all or
substantially all of its assets.
DIVIDEND WARRANTS
General. Each Dividend Warrant entitles the registered holder (the
"Dividend Warrantholder") to purchase one share of Common Stock at an exercise
price of $10.00 per share (the "Dividend Warrant Exercise Price"), subject to
adjustment for certain events, beginning any time after April 1, 2000, until
their expiration at 5:00 p.m. EST on September 1, 2008. Shares of Common Stock,
when issued upon the exercise of the Dividend Warrants in accordance with the
terms thereof, will be duly and validly issued, fully paid and non-assessable.
No Rights as Stockholders. Dividend Warrantholders are not be entitled to
vote, receive dividends or exercise any of the rights of holders of shares of
Common Stock for any purpose until the Dividend Warrants held by such Dividend
Warrantholders have been duly exercised and payment of the Dividend Warrant
Exercise Price has been made.
Fractional Interests. The Company is not required to issue any fraction
of a share of Common Stock upon the exercise of a Dividend Warrant. In lieu of
issuing a fraction of a share remaining after exercise of a Dividend Warrant,
the Company will make a cash payment for any fraction of a share equal to the
same fraction of the Dividend Warrant Exercise Price of the Dividend Warrant.
Right to Exercise Warrants. The Dividend Warrants and the shares of
Common Stock issuable upon the exercise of the Dividend Warrants have not been
registered under either the Securities Act, or applicable State Acts, and the
Company has no obligation to register the Dividend Warrants or such shares. The
Dividend Warrants may only be exercised if the shares of Common Stock issuable
upon exercise of the Dividend Warrants have been registered under the Securities
Act and the applicable State Acts or upon the issuance to the Company of an
opinion of counsel satisfactory to counsel to the Company and/or submission to
the Company of such evidence as may be satisfactory to counsel to the Company,
in each such case, to the effect that any such exercise shall not be in
violation of the Securities Act and the applicable State Acts. In addition, the
Dividend Warrants and the shares of Common Stock issuable upon exercise of the
Dividend Warrants may not be sold, pledged, hypothecated, donated, assigned or
otherwise transferred (whether or not for consideration), in whole or in part,
unless the Dividend Warrants or such shares have been registered under the
Securities Act and the applicable State Act or upon the issuance to the Company
of an opinion of counsel satisfactory to counsel to the Company and/or
submission to the Company of
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such evidence as may be satisfactory to counsel to the Company, in each such
case, to the effect that any such transfer shall not be in violation of the
Securities Act and the applicable State Acts.
Subject to the above paragraph, upon presentation and surrender of the
Dividend Warrants, with a duly completed and executed purchase form (a copy of
which is attached to the Dividend Warrants), at the principal offices of the
Company or at such other place as the Company may designate, indicating the
Dividend Warrantholders election to exercise all or a portion (consisting of
whole Dividend Warrants) of the Dividend Warrantholder's Dividend Warrant,
together with a check payable to the order of the Company in the amount of the
Dividend Warrant Exercise Price times the number of shares of Common Stock being
purchased, the Company will deliver to the Dividend Warrantholder, as promptly
as practicable, certificates representing the shares of Common Stock being
purchased and, if the Dividend Warrantholder is purchasing less than all of the
shares of Common Stock covered by the Dividend Warrant, a new Dividend Warrant.
Adjustment to Dividend Warrant Exercise Price and Number of Shares
Purchasable. The Dividend Warrant Exercise Price and the number of shares of
Common Stock purchasable upon exercise of the Dividend Warrants is subject to
adjustment to protect Dividend Warrantholders against dilution in certain
events, including, if the Company: (i) pays a dividend in shares of its Common
Stock; (ii) subdivides outstanding shares of its Common Stock into a greater
number of shares; (iii) combines outstanding shares of its Common Stock into a
smaller number of shares; (iv) reorganizes or reclassifies any of the Common
Stock of the Company; (v) consolidates or merges with another entity (other than
a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or change of the
shares issuable upon exercise of the Dividend Warrants); (v) participates in a
share exchange as the corporation the stock of which is to be acquired; or (vi)
sells or leases all or substantially all of its assets.
CERTAIN ANTITAKEOVER PROVISIONS
The provisions of the Charter, the Bylaws and the MGCL summarized in the
following paragraphs may be deemed to have antitakeover effects and may delay,
defer or prevent a tender offer or takeover attempt which the holders of some,
or a majority, of shares of Common Stock might believe to be otherwise in their
best interests or in which the holders of some, or a majority, of shares of
Common Stock might receive a premium for their shares of Common Stock over the
then market price of such shares. In addition, certain of the provisions could
make removal of management more difficult.
Authorized Shares of Capital Stock. As discussed above, the Company's
Board of Directors may classify or reclassify any unissued shares of Common
Stock from time to time by setting or changing the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption. In addition, the Company's
Board of Directors may issue shares of preferred stock in one or more series,
provided, however, that prior to issuing any such shares, the Board of Directors
of the Company is required by the MGCL to fix for each such series the
designation, preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption.
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The possible classification or reclassification of any unissued shares of
Common Stock after the Offering, or the possible issuance of shares of preferred
stock, could affect the voting and other rights of stockholders of Common Stock.
Among other things, Common Stock issued by the Company after the Offering and
preferred stock could rank prior to the Common Stock currently issued and
outstanding and the Common Stock to be issued in the Offering as to dividend
rights, liquidation preferences, or both, could have full or limited voting
rights (including multiple voting rights) and could, with respect to the
preferred stock, be convertible into shares of Common Stock. Accordingly, the
Board of Directors of the Company could authorize the issuance of additional
shares of Common Stock and/or preferred stock with terms and conditions that
could have the effect of discouraging or preventing an acquisition of control of
the Company or a tender offer for all of the Company's stock which the holders
of some, or a majority, of shares of the Common Stock might believe to be
otherwise in their best interests or in which the holders of some, or a
majority, of shares of the Common Stock might receive a premium for their shares
of Common Stock over the then market price of such shares. As stated above, the
Company has no present plans or understandings regarding the classification or
reclassification of any unissued shares of Common Stock after the Offering or
the issuance of any preferred stock.
Classified Board of Directors. The Company's Bylaws provide that the
number of directors of the Company shall be nine, which number may be increased
or decreased by the Board of Directors but shall not be less than three unless
the number of stockholders is less than three, in which case the number of
directors shall not be less than the number of stockholders. The Board of
Directors has increased the number of directors to twenty-one. Vacancy are to be
filled at any regular meeting or at any special meeting by a majority of the
remaining directors. Pursuant to the terms of the Bylaws, the directors are
divided into three classes - Class A, Class B and Class C - with each class
consisting of approximately an equal number of directors. Each director serves
for a term ending on the date of the third annual meeting following the annual
meeting at which such director was elected; provided, however, that the Class A
Directors elected at the first annual meeting of the Company hold office for one
year or until the first annual meeting following their election, the Class B
Directors elected at the first annual meeting of the Company hold office for two
years or until the second annual meeting following their election and the Class
C Directors elected at the first annual meeting of the Company hold office for
three years or until the third annual meeting following their election.
Management of the Company believes that it is desirable to insure
continuity and stability of the Company's leadership and policy, thereby
enabling the Company and the Bank to carry out their long range plans for their
benefit and that of their stockholders, and that a classified board may assist
in achieving such continuity and stability. The classified Board, along with the
Bylaw provision that provides that directors of the Company may only be removed
for cause, would moderate the pace of any change of control of the Company since
a person or entity acquiring a majority stock interest in the Company would have
to wait for at least two consecutive annual meetings, covering a period of two
years, in order to elect a majority of the Company's Board of Directors. The
inability to change the composition of the Board of Directors immediately, even
if such change and composition were determined by the stockholders of the
Company to be beneficial to them, may tend to discourage a tender offer or
takeover bid for the Company's stock.
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Absence of Cumulative Voting. Cumulative voting entitles each stockholder
to cast a number of votes in the election of directors equal to the number of
such stockholder's shares of Common Stock multiplied by the number of directors
to be elected, and to distribute such votes among one or more of the nominees to
be elected. The Company's Charter does not provide for cumulative voting by
stockholders in the election of the Company's directors. The absence of
cumulative voting effectively means that the holders of a majority of the shares
voted at a meeting of stockholders may, if they so choose, elect all directors
of the Company to be elected at that meeting, thus precluding minority
stockholder representation on the Company's Board of Directors.
Removal of Directors. The Company's Bylaws provide that directors of the
Company may only be removed for cause. This provision will, under most
circumstances, preclude a person or entity from acquiring control of the
Company's Board of Directors through the removal of existing directors and the
election of his or its nominees to fill the newly created vacancies.
Certain Provisions of Maryland Law. In addition to the provisions of the
Company's Charter and Bylaws, certain provisions of the MGCL may also have an
antitakeover effect, such as the Maryland Business Combination Act and the
Maryland Control Share Act. These acts could have the effect of discouraging
offers to acquire the Company and of increasing the difficulty of consummating
any such offer.
The Maryland Business Combination Act, which is codified in Sections
3-601 to -604 of the MGCL (the "Business Combination Act"), among other things,
prohibits the Company from engaging in certain business combinations (including
a merger or share exchange) with a person who is the beneficial owner of 10% or
more of the Company's outstanding voting stock or any affiliate of such person,
or with a person who is an affiliate or associate of the Company and at any time
within the two year period immediately prior to the date in question was the
beneficial owner of 10% or more of the voting power of the then outstanding
voting stock of the Company (an "Interested Stockholder"), during the five year
period following the date such person became an Interested Stockholder. This
restriction does not apply if, among other things (i) the Board of Directors has
approved or exempted from the Business Combination Act, a business combination
prior to the Interested Stockholder becoming an Interested Stockholder; (ii) a
charter amendment is adopted by a vote of at least 80% of the votes entitled to
be cast by outstanding shares of voting stock of the Company, and two-thirds of
the votes entitled to be cast by persons (if any) who are not Interested
Stockholders of the Company or affiliates or associates of Interested
Stockholders, expressly electing not to be governed by the provisions of the
Business Combination Act; or (iii) the Company has fewer than 100 beneficial
owners of stock. Also, in addition to any vote otherwise required by Maryland
law or the Company's Charter, a business combination that is not prohibited by
the Business Combination Act must be recommended by the Board of Directors and
approved by the affirmative vote of at least 80% of the votes entitled to be
cast by outstanding shares of voting stock of the Company and two-thirds of the
votes entitled to be cast by holders of voting stock other than voting stock
held by the Interested Stockholder, unless certain fair price provisions, as
provided for in the statute, are met.
Under the Maryland Control Share Act, which is codified in Sections 3-701
to -709 of the MGCL (the "Control Share Act"), the voting rights of "control
shares" acquired in a "control share acquisition" are eliminated unless such
acquisition is exempt or is approved by at least two-thirds
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of all of the votes (other than shares held by the person making the "control
share acquisition," officers of the Company and employees who are also directors
of the Company) entitled to be cast at a meeting called in accordance with
specified procedures. A "control share acquisition" is the direct or indirect
acquisition by any person of ownership or control of "control shares," which are
shares of stock that would, if aggregated with all other voting stock owned by
such person, entitle such person to exercise voting power in electing directors
within one of the following ranges of voting power: (i) one-fifth or more but
less than one-third; (ii) one-third or more but less than a majority; or (iii) a
majority of all voting power. Under the Control Share Act, voting power held by
a person solely through revocable proxies would not constitute a control share
acquisition.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions, including an undertaking to pay
expenses, may compel the Board of Directors of the Company to call a special
meeting of stockholders to be held within 50 days of demand to consider the
voting rights of the shares. If no request for a meeting is made, the Company
may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the Control
Share Act, then, subject to certain conditions and limitations, the Company may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
voting rights, as of the date of the last control share acquisition or of any
meeting of stockholders at which the voting rights of such shares are considered
and not approved. If voting rights for control shares are approved at a
stockholders meeting and the acquiror becomes entitled to vote a majority of the
shares entitled to vote, all other stockholders may exercise appraisal rights.
Among other things, the Control Share Act does not apply to shares
acquired in a merger, consolidation or share exchange if the Company is a party
to the consolidation, merger or share exchange or to acquisitions approved or
exempted by the Company's Charter or Bylaws. In addition, the Control Share Act
will not apply if the Company has fewer than 100 beneficial owners of stock.
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SHARES AVAILABLE FOR FUTURE SALE
Upon the sale of the Minimum Number of Units, the Company would have
425,000 shares of Common Stock outstanding, and upon the sale of the Maximum
Number of Units, the Company would have 612,500 shares of Common Stock
outstanding. All of such shares will be freely transferable by persons other
than "affiliates" of the Company, without restriction or registration under the
Securities Act. With respect to the Warrants being issued as part of the Units,
subject to the restrictions described above under "DESCRIPTION OF CAPITAL STOCK
AND WARRANTS - Warrants - Right to Exercise Warrants," the Common Stock issuable
upon exercise of the Warrants generally will be freely transferable by persons
other than "affiliates" of the Company, without restriction or registration
under the Securities Act.
An affiliate is defined in Rule 144 of the Securities Act as a person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with the issuer. Rule 405 under the
Securities Act defines the term "control" to mean the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of the person whether through the ownership of voting securities, by
contract or otherwise. Directors and executive officers of the Company and the
Bank will likely be deemed to be affiliates. The shares held by affiliates may
be sold without registration only in accordance with the provisions of Rule 144
or another exemption from registration.
In addition, as of August 30, 1998, the Company has granted outstanding
options to purchase 30,900 shares of Common Stock under its Stock Option Plan.
Also, on September 2, 1998, the Company issued the Dividend Warrants, which
entitle the holders thereof to purchase up to 300,000 shares of Common Stock.
The shares issuable upon exercise of such options and Dividend Warrants will
constitute "restricted securities" within the meaning of Rule 144.
In general, under Rule 144 as currently in effect, a person is entitled
to sell restricted securities if at least one year has passed since the later of
the date such shares were acquired from the Company or any affiliate of the
Company. Rule 144 provides, however, that within any three-month period such
person may only sell up to the greater of 1% of the then outstanding shares of
the Company's Common Stock (approximately 6,125 shares immediately after this
Offering, assuming the sale of the Maximum Number of Units in the Offering) or
the average weekly trading volume in the Company's Common Stock during the four
calendar weeks immediately preceding the date on which the notice of the sale is
filed with the Commission under Rule 144. Sales pursuant to Rule 144 also are
subject to certain other requirements relating to manner of sale, notice of sale
and availability of current public information about the Company. Any person who
has not been an affiliate of the Company for a period of 90 days preceding a
sale of restricted securities is entitled to sell such shares under Rule 144
without regard to such limitations if at least two years have passed since the
later of the date such shares were acquired from the Company or any affiliate of
the Company. Shares held by persons who are deemed to be affiliates of the
Company are subject to such volume limitations regardless of how long the shares
have been owned or how the shares were acquired.
The Company can make no prediction as to the effect, if any, that sales
made by holders of restricted securities or by affiliates under Rule 144 or
otherwise would have on the then prevailing
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market price of the Common Stock. Nevertheless, sales in the public markets of a
significant amount of restricted securities or sales of shares held by
affiliates could adversely affect the market price of the Common Stock, as well
as impair the ability of the Company to raise capital through the issuance of
additional equity securities.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Ober, Kaler, Grimes & Shriver, a Professional
Corporation, 120 East Baltimore Street, Baltimore, Maryland 21202-1643.
EXPERTS
The audited financial statements of the Company included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon authority of said firm as experts in giving said report.
The audited financial statements of the former Baltimore Branch of Rushmore
Trust and Savings, FSB, included in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon authority of said firm
as experts in giving said report.
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AMERICASBANK CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S><C>
AmericasBank Corp.
Report of Independent Public Accountants....................................................... F-2
Consolidated Balance Sheets as of December 31, 1997, and June 30, 1998 (unaudited)............. F-3
Consolidated Statements of Operations for the year ended December 31, 1997,
for the period from June 4, 1996 (Inception) to December 31, 1996, and for
the three months ended June 30, 1998 and 1997 (unaudited)................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the year ended
December 31, 1997, for the period from June 4, 1996 (Inception) to
December 31, 1996, and for the three months ended June 30, 1998 and 1997
(unaudited)................................................................................. F-5
Consolidated Statements of Cash Flows for the year ended December 31, 1997,
for the period from June 4, 1996 (Inception) to December 31, 1996, and for the
three months ended June 30, 1998 (unaudited)................................................ F-6
Notes to Consolidated Financial Statements..................................................... F-7
The Former Baltimore Branch of Rushmore Trust and Savings, FSB
Report of Independent Public Accountants....................................................... F-17
Statements of Certain Revenues and Certain Expenses Charged to the Baltimore
Branch for the years ended December 31, 1996, and for the eleven months ended
November 30, 1997........................................................................... F-18
Statements of Cash Flows for the years ended December 31, 1996, and for the
Eleven months ended November 30, 1997....................................................... F-19
Notes to Financial Statements.................................................................. F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
AmericasBank Corp.:
We have audited the accompanying consolidated balance sheet of AmericasBank
Corp. (a Maryland corporation) and subsidiaries (the Company) as of December 31,
1997, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the year then ended and for the period
from June 4, 1996 (inception) to December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AmericasBank Corp.
and subsidiaries as of December 31, 1997, and the results of their operations
and their cash flows for the year then ended and the period from June 4, 1996
(inception) to December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
________________________
Baltimore, Maryland,
March 17, 1998
F-2
<PAGE>
AMERICASBANK CORP. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
AS OF DECEMBER 31, 1997, AND JUNE 30, 1998
------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(Unaudited)
<S><C>
ASSETS
------
Cash and cash equivalents:
On-hand and due from banks $ 155,000 $ 93,000
Interest-bearing accounts 31,000 15,000
Federal funds sold 3,151,000 2,945,000
Investment securities, available for sale 569,000 531,000
Loans receivable, net 6,251,000 6,562,000
Investment in Federal Home Loan Bank stock, at cost 54,000 54,000
Accrued interest receivable 51,000 61,000
Property and equipment, net 746,000 744,000
Organizational costs, net 133,000 118,000
Other assets, net 279,000 262,000
----------- -----------
Total assets $11,420,000 $11,385,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Deposits:
Noninterest-bearing $ 952,000 $ 396,000
Interest-bearing 7,444,000 7,996,000
Mortgage escrow deposits 119,000 202,000
Accrued interest on deposits 32,000 -
Accounts payable and accrued expenses 62,000 72,000
----------- -----------
Total liabilities 8,609,000 8,666,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 per share, 5,000,000 shares
authorized, 0 shares issued and outstanding - -
Common stock, par value $0.01 per share, 5,000,000 shares
authorized, 300,000 shares issued and outstanding 3,000 3,000
Additional paid-in capital 2,847,000 2,847,000
Accumulated deficit (39,000) (131,000)
----------- -----------
Total stockholders' equity 2,811,000 2,719,000
----------- -----------
Total liabilities and stockholders' equity $11,420,000 $11,385,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-3
<PAGE>
AMERICASBANK CORP. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
FOR THE PERIOD FROM JUNE 4, 1996 (INCEPTION) TO DECEMBER 31, 1996
-----------------------------------------------------------------
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
---------------------------------------------------
<TABLE>
<CAPTION>
For the
Period From For the For the
For the Year June 4, 1996 Six Months Ended Six Months Ended
Ended (Inception) to Ended Ended
December 31, December 31, June 30, June 30,
1997 1996 1998 1997
--------------- --------------- --------------- ---------------
(Unaudited) (Unaudited)
<S><C>
INTEREST INCOME:
Interest income on loans $ 47,000 $ - $311,000 $ -
Interest income on investment securities 63,000 2,000 84,000 11,000
-------- ------ -------- -------
Total interest income 110,000 2,000 395,000 11,000
INTEREST EXPENSE ON DEPOSITS 32,000 - 180,000 -
-------- ------ -------- -------
Net interest income 78,000 2,000 215,000 11,000
PROVISION FOR LOAN LOSSES 2,000 - 18,000 -
-------- ------ -------- -------
Net interest income after provision
for loan losses 76,000 2,000 197,000 11,000
-------- ------ -------- -------
FEES AND SERVICE CHARGES - - 7,000 -
-------- ------ -------- -------
OTHER OPERATING EXPENSES:
Salaries and benefits 11,000 - 62,000 -
Depreciation and amortization 10,000 - 71,000 -
Occupancy expense 1,000 - 10,000 -
Data processing 11,000 - 28,000 -
Professional fees 38,000 - 69,000 5,000
Office supplies 11,000 - 10,000 -
Other operating expenses 35,000 - 46,000 -
-------- ------ -------- -------
Total other operating expenses 117,000 - 296,000 5,000
-------- ------ -------- -------
(Loss) income before provision for
income taxes (41,000) 2,000 (92,000) 6,000
PROVISION FOR INCOME TAXES - - - -
-------- ------ -------- -------
Net (loss) income $(41,000) $2,000 $(92,000) $ 6,000
======== ====== ======== =======
LOSS PER COMMON SHARE - Basic and Diluted
$ (.77) $ - $ (.31) $ -
======== ====== ======== =======
WEIGHTED AVERAGE SHARES OUTSTANDING
53,000 - - 300,000
======== ====== ======== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-4
<PAGE>
AMERICASBANK CORP. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
FOR THE PERIOD FROM JUNE 4, 1996 (INCEPTION) TO DECEMBER 31, 1996
-----------------------------------------------------------------
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
------------------------------------------
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-In Accumulated
Stock Stock Capital Deficit
--------- ------- ---------- -----------
<S><C>
BALANCE, June 4, 1996 $ - $ - $ - $ -
Net income - - - 2,000
---- ------ ---------- ---------
BALANCE, December 31, 1996 - - - 2,000
Net proceeds from issuance of
common stock - 3,000 2,847,000 -
Net loss - - - (41,000)
---- ------ ---------- ---------
BALANCE, December 31, 1997 - 3,000 2,847,000 (39,000)
Net loss - - - (92,000)
---- ------ ---------- ---------
BALANCE, June 30, 1998 (unaudited) $ - $3,000 $2,847,000 $(131,000)
==== ====== ========== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-5
<PAGE>
AMERICASBANK CORP. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
FOR THE PERIOD FROM JUNE 4, 1996 (INCEPTION) TO DECEMBER 31, 1996
-----------------------------------------------------------------
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
---------------------------------------------------
<TABLE>
<CAPTION>
For the
Period From For the For the
For the Year June 4, 1996 Six Months Ended Six Months Ended
Ended (Inception) to Ended Ended
December 31, December 31, June 30, June 30,
1997 1996 1998 1997
--------------- --------------- --------------- ---------------
(Unaudited) (Unaudited)
<S><C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (41,000) $ 2,000 $ (92,000) $ 6,000
Adjustments to reconcile net (loss) income to net
cash provided by operating activities-
Provision for loan losses 2,000 - 18,000 -
Depreciation and amortization 10,000 - 71,000 -
Decrease (increase) in accrued interest
receivable 8,000 - (10,000) (1,000)
Increase in other assets (4,000) - (16,000) -
Increase (decrease) in accrued interest
on deposits 32,000 - (32,000) -
Increase in accounts payable and
accrued expenses 36,000 - 10,000 5,000
-------------- -------------- -------------- --------------
Net cash provided by (used in)
operating activities 43,000 2,000 (51,000) 10,000
-------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases) sales of investment securities (569,000) - 38,000 -
Purchase of Federal Home Loan Bank stock (54,000) - - -
Net cash acquired from acquisition of Rushmore 982,000 - - -
Refundable deposit (100,000) (20,000) - -
Return of refundable deposit 120,000 - - -
Branch acquisition costs (40,000) - - -
Loan principal disbursements (188,000) - (1,143,000) -
Principal repayments on loans receivable 379,000 - 814,000 -
Purchase of property and equipment (667,000) - (21,000) -
Cash paid for organizational costs (77,000) (58,000) - (9,000)
-------------- -------------- -------------- --------------
Net cash used in investing activities (214,000) (78,000) (312,000) (9,000)
-------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in savings deposits, net of
assumed balance $ 715,000 $ - $ (4,000) $ -
Increase in mortgage escrow deposits, net of
assumed balance 19,000 - 83,000 -
Proceeds from common stock offering 3,000,000 - - -
Stock offering costs (150,000) - - (8,000)
(Repayments to) advances from related parties (374,000) 374,000 - 193,000
-------------- -------------- -------------- --------------
Net cash provided by financing activities 3,210,000 374,000 79,000 185,000
-------------- -------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,039,000 298,000 (284,000) 186,000
CASH AND CASH EQUIVALENTS,
beginning of period 298,000 - 3,337,000 298,000
-------------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS,
end of period $ 3,337,000 $ 298,000 $ 3,053,000 $ 484,000
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-6
<PAGE>
AMERICASBANK CORP. AND SUBSIDIARIES
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1997 AND JUNE 30, 1998
-----------------------------------
1. ORGANIZATION:
-------------
AmericasBank Corp. (the Company) was incorporated under the laws of the State of
Maryland on June 4, 1996, primarily to hold all the outstanding shares of
capital stock of a federal stock savings bank.
Effective November 30, 1997, the Company completed an initial public offering
(the Offering) in which it sold 300,000 shares of stock for $10 per share, less
offering costs. During 1997, the Company received net proceeds from the Offering
of $2,850,000.
On December 1, 1997, the Company acquired certain assets and assumed certain
deposit liabilities primarily related to the Baltimore Branch of Rushmore Trust
and Savings, FSB (Rushmore). Concurrent with the acquisition, the branch
commenced banking operations under the name AmericasBank (the Bank) as a
wholly-owned subsidiary of the Company. The acquisition was recorded using the
purchase method of accounting, and the results of operations of the Bank for the
period from December 1, 1997 to December 31, 1997, are included in the
accompanying statement of operations for the year ended December 31, 1997. The
Bank is a member of the Federal Home Loan Bank System, and its deposits are
insured by the Federal Deposit Insurance Corporation (FDIC).
The assets purchased and liabilities assumed in the acquisition were as follows:
Assets:
Loans receivable, net $ 6,444,000
Property and equipment 81,000
Covenant not to compete 50,000
Core deposit premiums 164,000
Other assets 61,000
-------------
Total assets purchased 6,800,000
-------------
Liabilities:
Deposits 7,680,000
Accounts payable 2,000
-------------
Net liabilities assumed 7,682,000
-------------
882,000
Refundable deposits returned 120,000
-------------
Cash 1,002,000
Mortgage escrow deposits assumed 100,000
Refundable deposits returned (120,000)
-------------
Net cash received from acquisition $ 982,000
=============
F-7
<PAGE>
As the Bank is a start-up operation, there can be no assurance that the Bank can
attract sufficient depositors or issue sufficient quality loans to operate at a
profit. The Bank is subject to other risks and uncertainties, including interest
rate risk. The interest rate risk related to interest rates is significant to
the Bank as its deposits have relatively short maturities, while the loans have
much longer maturities at fixed rates. Without a significant change in the
Bank's investment, deposit or loan portfolio, an increase in interest rates
could have a significant negative effect on the Bank's net interest income and
results of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Basis of Presentation
- ---------------------
The accompanying consolidated financial statements include the activity of
AmericasBank Corp. and its wholly-owned subsidiaries, AmericasBank and
AmericasBank Holdings Corporation. All intercompany transactions have been
eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and conform to general
practices within the banking industry. The Company's primary operations are
conducted by the Bank, which operates one branch in Baltimore, Maryland. The
Bank is principally engaged in the business of investing in mortgage and
consumer loans and attracting deposits.
Interim Financial Statements
- ----------------------------
The financial statements for the six months ended June 30, 1998 and 1997, are
unaudited, but, in the opinion of management such financial statements have been
presented on the same basis as the audited financial statements for the year
ended December 31, 1997. These financial statements include all adjustments,
consisting of normal recurring adjustments necessary for a fair presentation of
the financial position and results of operations and cash flows for these
periods. The results of operations presented in the accompanying financial
statements are not necessarily representative of operations for an entire year.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents includes interest-bearing deposits in other banks with
original maturities of less than three months and Federal funds sold. Generally,
Federal funds are purchased and sold for one-day periods.
Federal Home Loan Bank Stock
- ----------------------------
Federal Home Loan Bank stock is carried at cost. The cost of securities sold is
determined using the specific identification method.
Loans Receivable and Allowance for Loan Losses
- ----------------------------------------------
Loans receivable are stated at the amount of unpaid principal, reduced by an
allowance for loan losses and deferred loan fees. Interest on loans is
calculated using the simple-interest method on principal amounts outstanding
each month.
The allowance for losses on loans is determined based on management's review of
the loan portfolio and analysis of the borrowers' ability to repay, past
collection experience, risk characteristics of individual loans or groups of
similar loans and underlying collateral, current and prospective economic
conditions and status of nonperforming loans. Loans are charged off when
considered, in the opinion of management, uncollectible.
F-8
<PAGE>
Interest on potential problem loans is not accrued when, in the opinion of
management, full collection of principal or interest is in doubt, or payment of
principal or interest has become 90 days past due. Such interest is considered
in management's determination of the allowance for loan losses. Any interest
received in excess of the amount previously accrued on such loans is recorded in
income on the period of recovery.
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by
Creditors for Impairment of a Loan" (SFAS No. 114) addresses the accounting by
creditors for impairment of certain loans. It is generally applicable to all
loans, except large groups of smaller balance homogenous loans, including
residential mortgage loans. It also applies to loans that are restructured in a
troubled debt restructuring involving a modification of terms, with limited
exceptions.
A loan is considered impaired when, based on current information and events, it
is probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement. SFAS No. 114 requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loans' effective interest rate, or at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. If the measure of the impaired loan is less than the
recorded investment in the loan, an impairment is recognized through a valuation
allowance.
Property and Equipment
- ----------------------
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the respective assets. Building and improvements are
depreciated over 15-25 years. Furniture and equipment are depreciated over 5
years.
Other Assets
- ------------
As of December 31, 1997 and June 30, 1998, other assets consisted of covenants
not to compete of $50,000 and $40,000, core premium on deposits of $164,000 and
$145,000, goodwill of $40,000 and $35,000 and prepaid expenses of $31,000 and
$59,000, respectively. These assets are net of accumulated amortization of
$6,000 and $40,000, respectively. Amortization is calculated using the
straight-line method over the following periods:
Covenants not-to-compete 3 years
Premium on deposits 5 years
Goodwill 5 years
Amortization expense on other assets during the year ended December 31, 1997,
and the six months ended June 30, 1998, was $6,000 and $34,000, respectively.
There was no amortization expense on other assets for the period ended December
31, 1996.
F-9
<PAGE>
Earnings Per Share (EPS)
- ------------------------
During 1997, the FASB issued SFAS No. 128, "Earnings Per Share" (SFAS No. 128),
which establishes new standards for computing and presenting earnings per share.
SFAS No. 128 requires presentation of basic earnings per share and diluted
earnings per share. Prior to the closing of the Offering during October and
November 1997, the Company had no common stock outstanding. As there were no
outstanding common stock equivalents during the year ended December 31, 1997,
the weighted average shares outstanding used to calculate both basic and diluted
loss per share, in accordance with SFAS No. 128, was 53,000. As of June 30,
1998, the Company had 29,840 options outstanding. As the option price and the
market price of the Company's stock were the same, using the treasury stock
method, the options do not represent common stock equivalents.
Organizational Costs
- --------------------
Direct costs incurred to incorporate and charter the Company and the Bank are
recorded as organizational costs. Organization costs are being amortized over a
five-year period using the straight-line method commencing upon the purchase of
the Bank. In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
98-5 (the "SOP") regarding financial reporting on the costs of start-up
activities. Under the SOP, organizational costs are considered start-up costs
and, commencing with fiscal years beginning after December 15, 1998, entities
are required to expense such costs as they are incurred. As a result of the SOP,
the Company will be required to write off its unamortized organizational costs
during the first quarter of 1999, as a cumulative change in accounting
principal.
As of June 30, 1998, the Company's net organizational costs subject to write-off
amounted to $118,000. Amortization expense on organizational costs for the year
ended December 31, 1997 and the six months ended June 30, 1998, was $2,000 and
$15,000, respectively. There was no amortization expense on organizational costs
for the periods ended December 31, 1996, or June 30, 1997.
New Accounting Standards
- ------------------------
During 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"), which is effective for fiscal years beginning after December
15, 1997. This statement establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. The Company adopted this
standard effective January 1, 1998. The Company does not have any adjustment for
comprehensive income for the periods presented. Comprehensive income is the same
as income reported in the accompanying statements of operations.
During 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information" (SFAS No. 131), which is effective for
fiscal years beginning after December 15, 1997. This statement establishes
revised standards under which an entity must report business segment information
in its financial statements and what segment information must be disclosed. The
Company adopted this standard effective January 1, 1998, and concluded that it
only has one segment.
F-10
<PAGE>
Advances from Related Parties
- -----------------------------
Certain related parties of the Company loaned money to the Company for offering
costs, organizational costs and costs associated with the purchase of the Bank.
Such persons were reimbursed with an equivalent value of the Company's stock as
part of the Offering.
Loan Origination Fees
- ---------------------
Loan origination fees, net of certain direct loan origination costs, are
deferred and recognized as an adjustment to interest income using the
straight-line method over the life of the loans. Amortization using the
straight-line method does not differ materially from amounts computed using the
effective interest method as required by generally accepted accounting
principles. Amortization of loan origination fees for the year ended December
31, 1997, and for the six months ended June 30, 1998, was immaterial.
Income Taxes
- ------------
The Company benefit for income taxes for the year ended December 31, 1997, and
the six months ended June 30, 1998, is net of a 100% valuation reserve, as its
utilization is not reasonably assured.
Use of Estimates
- ----------------
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. UNAUDITED PRO FORMA FINANCIAL INFORMATION:
------------------------------------------
The unaudited pro forma results of operations for the year ended December 31,
1997, as if the assets and liabilities of Rushmore had been acquired on January
1, 1997, were as follows:
Interest income $ 680,000
Interest expense on deposits 360,000
--------
Net interest income 320,000
(488,000)
--------
Other operating expenses
Net loss $(168,000)
=========
F-11
<PAGE>
4. LOANS RECEIVABLE:
-----------------
As of December 31, 1997, and June 30, 1998 (unaudited) loans receivable
consisted of:
December 31, June 30,
1997 1998
------------ -----------
(Unaudited)
Real estate first mortgage loans:
Residential $ 5,210,000 $ 4,820,000
Commercial 808,000 1,116,000
Real estate second mortgage loans 69,000 321,000
Construction and lot - 192,000
Loans secured by deposits 189,000 174,000
Unsecured consumer loans 27,000 18,000
------------- -------------
6,303,000 6,641,000
Less: Allowance for loan losses 52,000 70,000
Unearned income - 9,000
------------- -------------
Loans receivable, net $ 6,251,000 $ 6,562,000
============= =============
As of June 30, 1998, the Bank's undisbursed portion of loans in process related
to construction loans was $182,000. There were no undisbursed loans at December
31, 1997.
Substantially all of the loans receivable are mortgage loans secured by
residential and commercial real estate properties located in the State of
Maryland. Loans are extended only after evaluation by management and loan
committee of customers' creditworthiness and other relevant factors on a
case-by-case basis. The Bank generally does not lend more than 90% of the
appraised value of a property and requires private mortgage insurance on
residential mortgages with loan-to-value ratios in excess of 80%.
Residential lending is generally considered to involve less risk than other
forms of lending, although payment experience on these loans is dependent, to
some extent, on economic and market conditions in the Bank's lending area.
Commercial loan repayments are generally dependent on the operations of the
related properties or the financial condition of the borrowers or guarantors.
Accordingly, repayment of such loans can be more susceptible to adverse
conditions in the real estate market and the regional economy.
Nonperforming loans amounted to approximately $41,000 and $182,000 as of
December 31, 1997 and June 30, 1998. These loans were not considered impaired.
The amount of interest income that would have been recorded on loans in
nonaccrual status at period-end, had such loans performed in accordance with
their terms, was immaterial.
F-12
<PAGE>
A summary of the changes in the allowance for loan losses is as follows:
December 31, June 30,
1997 1998
------------ -----------
(Unaudited)
Beginning balance $ - $ 52,000
Balance acquired with Rushmore purchase 50,000 -
Provision charged to operations 2,000 18,000
------------- -------------
Ending balance $ 52,000 $ 70,000
============= =============
5. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment consists of the following as of December 31, 1997:
December 31, June 30,
1997 1998
------------ -----------
(Unaudited)
Land $ 148,000 $ 148,000
Buildings and improvements 476,000 482,000
Furniture and equipment 124,000 138,000
------------- -------------
748,000 768,000
Less: Accumulated depreciation 2,000 24,000
------------- -------------
Property and equipment, net $ 746,000 $ 744,000
============= =============
Depreciation expense for the year ended December 31, 1997 and the six months
ended June 30, 1998, was $2,000 and $22,000, respectively.
6. DEPOSITS:
---------
As of December 31, 1997, deposits consisted of:
Weighted
Average
Rate at
December 31,
1997 Amount Percent
------------ ------ -------
Insured investment 5.36% $ 4,973,000 59.2%
Statement savings 2.50% 1,425,000 17.0%
Passbook deposits 3.00% 43,000 0.5%
Money market accounts 3.00% 6,000 0.1%
Checking accounts -% 952,000 11.3%
Certificates of deposit 5.31% 576,000 6.9%
IRA plans 4.76% 421,000 5.0%
------------- ----------
$ 8,396,000 100.0%
============= ==========
F-13
<PAGE>
As of June 30, 1998 (unaudited), deposits consisted of:
Weighted
Average
Rate at
June 30,
1998 Amount Percent
-------- ------ -------
Insured investment 5.27% $ 5,278,000 62.9%
Statement savings 2.50% 1,378,000 16.4%
Passbook deposits 2.93% 119,000 1.4%
Money market accounts 2.78% 57,000 0.7%
Checking accounts - % 396,000 4.7%
Certificates of deposit 5.13% 769,000 9.2%
IRA plans 4.48% 395,000 4.7%
------------- ----------
$ 8,392,000 100.0%
============= ==========
A schedule of maturities of deposits as of June 30, 1998, is as follows:
June 30,
1998
-----------
(Unaudited)
No contractual maturity $ 7,228,000
Maturity within one year 724,000
Maturity in one to five years 440,000
-------------
$ 8,392,000
=============
The aggregate amount of deposits, each with a minimum denomination of $100,000,
was approximately $1,083,000 and $1,247,000 as of December 31, 1997 and June 30,
1998, respectively.
7. INCOME TAXES:
-------------
Income taxes are reconciled to the amount computed by applying the federal
corporate tax rate of 34% to income before taxes as follows for the year ended
December 31, 1997:
Statutory federal income tax rate $ 14,000
State income tax benefit, net of federal income tax effect 2,000
Valuation allowance (16,000)
-------------
Total $ -
=============
F-14
<PAGE>
The tax effect of temporary differences between the financial reporting basis
and income tax basis of assets and liabilities relate to the following at
December 31, 1997:
Deferred tax assets:
Allowance for loan losses $ 1,000
Intangible assets 1,000
Net operating loss carryforwards 14,000
-------------
Total gross deferred tax assets 16,000
Less: Valuation allowance (16,000)
-------------
Net deferred tax asset $ -
=============
8. RELATED PARTY TRANSACTIONS:
---------------------------
Two organizers of the Company are principals in a law firm and a public
accounting firm, respectively. These firms provide legal and accounting services
to the Company. As a result of these services, these firms were each paid
$12,500 for the year ended December 31, 1997.
In addition, the two organizers were each paid $25,000 as consulting fees for
services performed on behalf of the Company and the Bank for the year ended
December 31, 1997.
One organizer was paid approximately $10,000 for providing pre-opening
assistance to the Bank for the year ended December 31, 1997.
The Company purchased approximately $111,000 of Rushmore loans between Rushmore
and the Company's officers, directors or their affiliates.
9. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
------------------------------------------------------
The fair value of cash and cash equivalents is the carrying amount, which is a
reasonable estimate of fair value. For investment securities, fair value is
determined using quoted market prices.
Fair value of loans receivable is estimated by discounting future cash flows,
taking into consideration future loan losses, using current rates at which
similar loans would be made to borrowers with similar credit ratings for the
same remaining maturities. For commitments to extend credit, the carrying amount
is a reasonable estimate of fair value. Management estimates that the fair value
of loans receivable is approximately $350,000 higher than the carrying amount as
of December 31, 1997.
With respect to deposits, fair value of passbook deposits, money market accounts
and NOW accounts is the amount payable on demand at the reporting date. Fair
value of fixed maturity term accounts and individual retirement accounts is
estimated using rates currently offered for accounts of similar remaining
maturities. Management estimates that the fair value of deposits approximates
the carrying amount as of December 31, 1997.
F-15
<PAGE>
10. STOCK OPTIONS:
--------------
On June 1, 1998, the Company adopted a stock option plan for the granting of
stock options to employees and nonemployee directors. The options are vested
immediately and may be exercised six months after the grant date. In the event
of termination without cause, the stock options expire in three months from the
date of termination. Options granted to directors expire on the first
anniversary of the effective date of termination. All options expire on the 10th
anniversary of the date of the grant.
As of June 30, 1998, 29,840 stock options have been issued at an option price of
$10 per share, which approximates management's estimate of the fair value of the
Company's stock on the date of grant. No options have been exercised as of June
30, 1998.
11. REGULATORY MATTERS:
-------------------
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital action, the Bank must meet specific
capital guidelines that involve quantative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy
required the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
Due to the Bank's recent formation, as of December 31, 1997, the Bank has not
been categorized by the Office of Thrift Supervision (OTS) under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier 1 Risk-based, Tier 1
leverage ratios as set forth in the table. There are no conditions or events
that management believes would prevent the Bank from being categorized as well
capitalized.
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt
For Capital Adequacy Corrective Action
Actual Purposes Provisions
-------------------- -------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S><C>
As of December 31, 1997
Tier 1 Core Capital $ 1,700,000 16.6% $ 411,000 4.0% $ 616,000 6.0%
Tier 1 Risk-Based
Capital 1,700,000 39.2% 173,000 4.0% 217,000 5.0%
Total Risk-Based
Capital 1,752,000 40.4% 347,000 8.0% 434,000 10.0%
</TABLE>
F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
AmericasBank Corp.:
We have audited the accompanying statements of certain revenues and certain
expenses of The Former Baltimore Branch of Rushmore Trust and Savings, FSB (a
Maryland corporation), for the year ended December 31, 1996, and the eleven
months ended November 30, 1997 (see Note 1), and the related statements of cash
flows for the periods then ended. These financial statements are the
responsibility of the Branch management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
These statements have been prepared pursuant to the Branch Purchase and
Assumption Agreement, as amended, and the Loan Purchase and Assumption
Agreement, as amended, described in Notes 1 and 4 of the financial statements
and thus, are not intended to be a complete presentation of Rushmore Trust and
Savings, FSB's or the Branch's results of operations or cash flows on a stand
alone basis in accordance with generally accepted accounting standards.
In our opinion, the statements referred to above present fairly, in all material
respects, the statements of certain revenues and certain expenses charged to The
Former Baltimore Branch of Rushmore Trust and Savings, FSB for the year ended
December 31, 1996, and the eleven months ended November 30, 1997 and cash flows
for the periods then ended in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
________________________
Baltimore, Maryland,
July 23, 1998
F-17
<PAGE>
THE FORMER BALTIMORE BRANCH OF
------------------------------
RUSHMORE TRUST AND SAVINGS, FSB
-------------------------------
STATEMENTS OF CERTAIN REVENUES AND CERTAIN EXPENSES
---------------------------------------------------
CHARGED TO THE BALTIMORE BRANCH
-------------------------------
<TABLE>
<CAPTION>
For the
For the Eleven Months
Year Ended Ended
December 31, November 30,
1996 1997
------------ ------------
<S><C>
INTEREST INCOME ON LOANS $ 643,000 $ 505,000
INTEREST EXPENSE ON DEPOSITS 352,000 331,000
-------------- --------------
Net interest income 291,000 174,000
PROVISION FOR LOAN LOSS RESERVE - -
-------------- --------------
Net interest income after provision for loan losses 291,000 174,000
-------------- --------------
LATE CHARGES AND OTHER FEES 29,000 17,000
-------------- --------------
EXPENSES CHARGED TO THE BALTIMORE BRANCH
Salaries and benefits 106,000 103,000
Collection and foreclosure 25,000 10,000
Electric and telephone 8,000 10,000
Depreciation 6,000 4,000
Deposit insurance premiums 23,000 5,000
-------------- --------------
Total expenses charged to the Baltimore Branch 168,000 132,000
-------------- --------------
EXCESS OF CERTAIN REVENUES OVER CERTAIN EXPENSES CHARGED TO THE BALTIMORE
BRANCH (excludes certain charges to the Baltimore Branch)
152,000 59,000
TRANSFER TO RUSHMORE 152,000 59,000
-------------- --------------
NET $ - $ -
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE>
THE FORMER BALTIMORE BRANCH OF
------------------------------
RUSHMORE TRUST AND SAVINGS, FSB
-------------------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
For the
For the Eleven Months
Year Ended Ended
December 31, November 30,
1996 1997
------------ -------------
<S><C>
OPERATING ACTIVITIES:
Net income $ - $ -
Adjustments to reconcile net income to cash
provided by operating activities-
Depreciation and amortization 17,000 13,000
(Increase) decrease in accrued interest receivable 26,000 (9,000)
Increase in due from Rushmore (214,000) (59,000)
-------------- --------------
Net cash provided by operating activities (171,000) (55,000)
-------------- --------------
INVESTING ACTIVITIES:
Decrease in loans receivable 1,313,000 565,000
Purchase of property and equipment (1,000) -
-------------- --------------
Net cash provided by investing activities 1,312,000 565,000
-------------- --------------
FINANCING ACTIVITIES:
Decrease in deposits (1,141,000) (510,000)
-------------- --------------
Net cash provided by financing activities (1,141,000) (510,000)
-------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS $ - $ -
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
THE FORMER BALTIMORE BRANCH OF
------------------------------
RUSHMORE TRUST AND SAVINGS, FSB
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOVEMBER 30, 1997
-----------------
1. GENERAL:
--------
The accompanying financial statements include certain revenues and certain
expenses charged to The Former Baltimore Branch of Rushmore Trust and Savings,
FSB (the "Baltimore Branch") (see Note 4). The accompanying financial statements
of the Baltimore Branch have been prepared in accordance with generally accepted
accounting principles. Certain revenues and expenses not accounted for at the
Baltimore Branch level have been excluded. The Baltimore Branch is principally
engaged in the business of investing in loans to commercial enterprises and
individuals employing deposits attracted from the general public.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements.
Actual results could significantly differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Basis of Presentation
- ---------------------
Rushmore Trust and Savings, FSB (Rushmore) has historically accounted for the
Baltimore Branch as a department without separately accounting for certain
individual assets, liabilities, revenues or expenses related to the Baltimore
Branch. Therefore, certain costs incurred by Rushmore that benefited the
Baltimore Branch have not been included in the accompanying financial
statements. The accompanying financial statements represent the certain revenues
and certain expenses that Rushmore directly attributes to the Baltimore Branch.
The revenue of the Baltimore Branch includes interest on loans, fees and charges
to borrowers and depositors. The Baltimore Branch expenses include salaries and
related benefits for those employees employed at the Baltimore Branch,
depreciation of the Baltimore Branch assets, utilities cost of the Baltimore
Branch, deposit insurance premiums, and collection and foreclosure cost on
loans. Expenses do not include costs incurred by Rushmore that benefit the
Baltimore Branch or indirect costs which benefit the Baltimore Branch. Rushmore
also does not allocate a tax provision to the excess earnings included in the
accompanying statements of certain revenues and certain expenses charged to the
Baltimore Branch.
F-20
<PAGE>
As the accompanying financial statements do not include certain interest income
that was earned on excess Baltimore Branch funds invested by Rushmore in which
Rushmore did not allocate the interest income to the Baltimore Branch and do not
include certain expenses that benefited the Baltimore Branch which Rushmore had
not charged to the Baltimore Branch, these financial statements are not
representative of the Baltimore Branch's operation if they had operated on a
stand-alone basis or if Rushmore would have charged these costs to the Baltimore
Branch. The results shown in the accompanying financial statements are not
representative of future operations of the Baltimore Branch.
Provision for Loan Loss Reserve
- -------------------------------
The Baltimore Branch establishes an allowance for loan losses. Interest on loans
is accrued based on the outstanding principal amount. An allowance for
uncollected interest is provided on any loan that is contractually delinquent
more than 90 days and on any other loan when the collectibility of the loan is
in doubt. Such allowance is netted against accrued interest receivable. Any such
interest ultimately collected is recorded as interest income in the period of
recovery.
Management periodically reviews and evaluates the loan portfolio to determine
the adequacy of the allowance for loan losses. This evaluation is based on the
risk characteristics of the loan portfolio and considers such factors as past
loan loss experience, the financial condition of the borrower, current economic
conditions, net realizable value of the collateral and other relevant factors.
The allowance is increased by provisions for loan losses charged to operations
and is reduced by charge-offs and increased by net recoveries.
The Baltimore Branch measures impaired loans based on the present value of
expected future cash flows discounted at the loan's effective interest rate. As
a practical expedient, impairment may be measured based on the loan's observable
market price or the fair value of the collateral if the loan is
collateral-dependent. When the measure of the impaired loan is less than the
recorded investment in the loan, the impairment is recorded as a provision for
loan loss in the statement of operations.
In the ordinary course of business the Baltimore Branch has entered into an
off-balance sheet financial instrument, which consists of commitments to extend
credit. As of November 30, 1997, there were no outstanding commitments.
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful, at which
time payments received are recorded as reductions of principal. The Baltimore
Branch recognized interest income on impaired loans of approximately $2,000 for
both the year ended December 31, 1996, and the eleven months ended November 30,
1997.
F-21
<PAGE>
Changes in the allowance for loan losses, for the year ended December 31, 1996,
and the eleven months ended November 30, 1997, were as follows:
December 31, November 30,
1996 1997
------------ ------------
BALANCE, beginning of year $ 90,000 $ 50,000
Provision for loan losses - -
Charge-offs (40,000) -
-------------- --------------
BALANCE, end of period $ 50,000 $ 50,000
============== ==============
As of December 31, 1996 and November 30, 1997, there were no loans for which the
Baltimore Branch had discontinued accruing interest.
Depreciation
- ------------
Depreciation expense is computed on the straight-line method over the following
estimated useful lives:
Building 15-40 years
Furniture and equipment 5-10 years
Loan Origination Fees
- ---------------------
Net loan origination fees are deferred and recognized as an adjustment to yield
using the straight-line method over the lives of the loans. Amortization using
the straight-line method does not differ materially from amounts computed using
the interest method as required by generally accepted accounting principles.
Sale of the Baltimore Branch
- ----------------------------
Effective December 1, 1997, Rushmore sold and assigned all loans, fixed assets,
deposits and certain intangible assets of the Baltimore Branch to AmericasBank.
The sale also required Rushmore to provide to AmericasBank certain non-Baltimore
Branch loans (see Note 4).
3. RELATED PARTY TRANSACTIONS:
---------------------------
Kenneth Pezzula of Pezzula and Pezzula, LLC is a former Director and Officer of
Rushmore Trust and Savings, FSB and provides certain legal services for the
Baltimore Branch. For the year ended December 31, 1996 and the eleven months
ended November 30, 1997, the Baltimore Branch had incurred legal fees related to
collection and foreclosure processing performed by Pezzula and Pezzula which
approximated $19,000 and $10,000, respectively.
F-22
<PAGE>
4. SALE OF THE BALTIMORE BRANCH:
-----------------------------
On May 31, 1996, Rushmore, entered into a Branch Purchase and Assumption
Agreement, as amended, and a Loan Purchase and Assumption Agreement, as amended
(collectively, the Agreements), with AmericasBank for the sale of certain assets
and assignment of certain deposit liabilities primarily related to Rushmore's
Baltimore, Maryland, branch. This sale was consummated on December 1, 1997. The
Agreements also provided for Rushmore to sell to AmericasBank approximately
$1,178,000 of loans originated at Rushmore's Montgomery County, Maryland,
branch.
F-23
<PAGE>
EXHIBIT A
---------
SUBSCRIPTION AGREEMENT
This Subscription Agreement is entered into in connection with the offer
and sale (the "Offering") of up to 312,500 Units, each Unit consisting of one
share (the "Shares") of Common Stock, $0.01 par value per share, of AmericasBank
Corp., a corporation incorporated under the laws of the State of Maryland (the
"Company"), and one Common Stock Purchase Warrant (the "Warrants"), for a
purchase price of $12.00 per Unit. Each Warrant entitles the holder to purchase
one share of Common Stock, at an exercisable at a price of $13.00 per share (the
"Exercise Price"), subject to adjustment for certain events, commencing at any
time after [EIGHTEEN MONTHS AFTER EFFECTIVE DATE], and until 5:00 p.m. EST on
_______, 2001. The Units, the Shares and the Warrants are referred to
collectively herein as the "Securities."
WITNESSETH:
1. Purchase of Units. The undersigned agrees to purchase the number of Units set
forth below and tenders the amount required to purchase such number of Units by
check, bank draft or money order drawn to the order of "The First National Bank
of Maryland, ESCROW AGENT."
2. Acknowledgments. The undersigned acknowledges and agrees that:
(a) The Company has established a minimum subscription of 200 Units
($2,400) and a maximum subscription of 17,000 Units ($204,000). However, the
Company reserves the right to waive these limits without notifying any
subscriber.
(b) The undersigned has received a copy of the Company's Prospectus dated
_______ __, 1998 (the "Prospectus"). By executing this Subscription Agreement,
the undersigned acknowledges and agrees to all of the terms and conditions of
the Offering as described in the Prospectus. This Subscription Agreement is not
binding until accepted by the Company. The Company reserves the right to accept
or reject, in whole or in part and in its sole discretion, any Subscription
Agreement. The Company or the selling agent that effects the transaction on
behalf of the Company (the "Selling Agent") shall notify the subscriber by mail
of its acceptance or rejection, in whole or in part, of this Subscription
Agreement.
(c) Following acceptance by the Company, subscriptions are binding on
subscribers and may not be revoked by subscribers except with the consent of the
Company.
(d) THE COMPANY RESERVES THE RIGHT TO CANCEL ACCEPTED SUBSCRIPTION
AGREEMENTS AT ANY TIME AND FOR ANY REASON UNTIL THE SATISFACTION OF THE
CONDITION OF THE OFFERING.
(e) The Company may, in its sole discretion, allocate securities among
subscribers in the event of an oversubscription for the Units.
<PAGE>
3. Representations and Warranties. The undersigned represents and warrants that
he:
(a) Is aware that no federal or state agency has made any finding or
determination as to the fairness for public investment in, or any recommendation
or endorsement of, the Securities.
(b) Understands that the Company has a limited financial and operating
history and that the Securities, as an investment, involve a high degree of
risk, as described in the Prospectus.
(c) Is aware that (i) there is a limited market for the Shares and the
Warrants and that there can be no assurance that a further market will develop
and (ii) it may not be possible to liquidate his investment in the Shares or
Warrants readily.
(d) Understands that the Warrants contain certain limitations as to
their exercisability as described in the Prospectus.
(e) Has adequate means of providing for his current needs and possible
personal contingencies and has no need for liquidity in this investment.
(f) Has carefully read the entire Prospectus, particularly the "Risk
Factors" section therein, and has had the opportunity to ask questions and
receive answers with regard thereto.
(g) Is a resident of Delaware, Florida, Maryland, New York, Pennsylvania,
Virginia or the District of Columbia.
THE SECURITIES BEING OFFERED BY THE PROSPECTUS ARE NOT SAVINGS ACCOUNTS OR
SAVINGS DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE SAVINGS ASSOCIATION INSURANCE FUND, THE BANK
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
The Shares and Warrants purchased by the undersigned shall be registered
with the Company as specified below. If Shares and Warrants are to be issued in
more than one name, please specify whether ownership is to be as tenants in
common, joint tenants with right of survivorship, community property, etc. If
the Shares and Warrants are to be held in joint ownership, all joint owners
should sign this Subscription Agreement. If Securities are to be issued in the
name of one person for the benefit of another, please indicate whether
registration should be as trustee or custodian for such other person. If the
subscriber is not an individual, please indicate the capacity in which the
signatory is executing this Subscription Agreement (e.g., president of a
corporation).
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on the date set forth below.
<TABLE>
<S><C>
Date: ______________________ _______________________________
Signature of Subscriber
___________________________________ _______________________________
Name of Entity, if applicable Printed Name of Subscriber
Number of Units Subscribed for: ___ _______________________________
(at $12.00 per Unit) Signature of Subscriber
Total Subscription Price: $________ _______________________________
Printed Name of Subscriber
Form of Registration (check one): Address of Subscriber:
[ ] Individual
[ ] Joint Tenants with right of survivorship ___________________________________
(both parties must sign) Street Address
[ ] Tenants by the Entireties (husband and
wife only) ___________________________________
[ ] Tenants-in-Common (both parties must City, State and ZIP Code
sign)
[ ] Community Property (one signature ___________________________________
required if interest held in one name, i.e., Social Security/Taxpayer Identification
managing spouse, two signatures required Number
if interest held in both names)
[ ] Partnership _______________________________
[ ] Corporation Telephone Number and Area Code
[ ] Limited Liability Company
[ ] Employee Benefit Plan
[ ] Individual Retirement Account
[ ] Trust
[ ] Uniform Gift to Minors
[ ] Other _________________________________
</TABLE>
3
<PAGE>
ACCEPTANCE
The foregoing subscription is hereby acknowledged and accepted as to
_____________ Units.
AMERICASBANK CORP.
Date:________________, 199 . By: _____________________________
J. Clarence Jameson, III, President
4
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or the solicitation of an offer to buy any securities other than the securities
to which it relates or any offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
----------------------
TABLE OF CONTENTS
Page
----
Available Information......................................... 4
Prospectus Summary............................................ 5
Risk Factors.................................................. 10
Dilution...................................................... 21
Use of Proceeds............................................... 23
Terms of the Offering; Plan of Distribution................... 26
Capitalization................................................ 30
Dividend Policy............................................... 31
Business of the Company ...................................... 32
Business of the Bank.......................................... 34
Unaudited Pro Forma Financial Information..................... 38
The Conversion................................................ 41
Results of Operations......................................... 43
Supervision and Regulation.................................... 62
Directors, Officers and
Significant Employees.................................. 80
Remuneration of Directors and Officers........................ 86
Security Ownership of Management and
Certain Securityholders................................ 91
Interest of Management and Others in
Certain Transactions................................... 99
Description of Capital Stock and
Warrants...............................................101
Shares Available for Future Sale..............................109
Legal Matters.................................................110
Experts.......................................................110
Index to Financial Statements................................ F-1
Subscription Agreement................................. Exhibit A
================================================================================
================================================================================
AMERICASBANK CORP.
Units Consisting of One Share of
Common Stock and
One Common Stock Purchase Warrant
125,000 Units (Minimum)
312,500 Units (Maximum)
LOGO OF AMERICASBANK
---------------
PROSPECTUS
---------------
AmericasBank Corp.
3621 East Lombard Street
Baltimore, Maryland 21224
Phone: (410) 342-8303
[DATE]
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Seventh of the Registrant's Charter and Article Eighth of the
Registrant's Bylaws provide that directors and officers of the Registrant are to
be indemnified by the Registrant to the fullest extent permitted under Maryland
law. Section 2-418 of the Maryland General Corporation Law sets forth
circumstances under which directors, officers, employees and agents may be
insured or indemnified against liability which they may incur in their
capacities as such. The text of Section 2-418 is reproduced below:
Section 2-418. Indemnification of directors, officers, employees and
agents.
(a) Definitions. - In this section the following words have the
meanings indicated.
(1) "Director" means any person who is or was a director of a
corporation and any person who, while a director of a corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or foreign predecessor
entity of a corporation in a merger, consolidation, or other transaction in
which the predecessor's existence ceased upon consummation of the transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director, the office
of director in the corporation; and
(ii) When used with respect to a person other than a
director as contemplated in subsection (j), the elective or
appointive office in the corporation held by the officer, or
the employment or agency relationship undertaken by the
employee or agent in behalf of the corporation.
(iii) "Official capacity" does not include service for
any other foreign or domestic corporation or any partnership,
joint venture, trust, other enterprise, or employee benefit
plan.
(5) "Party" includes a person who was, is, or is threatened to
be made a named defendant or respondent in a proceeding.
II.1
<PAGE>
(6) "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative.
(b) Permitted indemnification of director. - (1) A corporation may
indemnify any director made a party to any proceeding by reason of service in
that capacity unless it is established that:
(i) The act or omission of the director was material
to the matter giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and
deliberate dishonesty; or
(ii) The director actually received an improper
personal benefit in money, property, or services; or
(iii) In the case of any criminal proceeding, the
director had reasonable cause to believe that the act or
omission was unlawful.
(2) (i) Indemnification may be against judgments, penalties,
fines, settlements, and reasonable expenses actually incurred
by the director in connection with the proceeding.
(ii) However, if the proceeding was one by or in the right
of the corporation, indemnification may not be made in respect
of any proceeding in which the director shall have been
adjudged to be liable to the corporation.
(3) (i) The termination of any proceeding by judgment, order,
or settlement does not create a presumption that the director
did not meet the requisite standard of conduct set forth in
this subsection.
(ii) The termination of any proceeding by conviction, or a
plea of nolo contendere or its equivalent, or an entry of an
order of probation prior to judgment, creates a rebuttable
presumption that the director did not meet that standard of
conduct.
(c) No indemnification of director liable for improper personal
benefit. - A director may not be indemnified under subsection (b) of this
section in respect of any proceeding charging improper personal benefit to the
director, whether or not involving action in the director's official capacity,
in which the director was adjudged to be liable on the basis that personal
benefit was improperly received.
(d) Required indemnification against expenses incurred in successful
defense. - Unless limited by the charter:
II.2
<PAGE>
(1) A director who has been successful, on the merits or
otherwise, in the defense of any proceeding referred to in subsection (b) of
this section shall be indemnified against reasonable expenses incurred by the
director in connection with the proceeding.
(2) A court of appropriate jurisdiction, upon application of a
director and such notice as the court shall require, may order indemnification
in the following circumstances:
(i) If it determines a director is entitled to
reimbursement under paragraph (1) of this subsection, the
court shall order indemnification, in which case the director
shall be entitled to recover the expenses of securing such
reimbursement; or
(ii) If it determines that the director is fairly and
reasonably entitled to indemnification in view of all the
relevant circumstances, whether or not the director has met
the standards of conduct set forth in subsection (b) of this
section or has been adjudged liable under the circumstances
described in subsection (c) of this section, the court may
order such indemnification as the court shall deem proper.
However, indemnification with respect to any proceeding by or
in the right of the corporation or in which liability shall
have been adjudged in the circumstances described in
subsection (c) shall be limited to expenses.
(3) A court of appropriate jurisdiction may be the same court
in which the proceeding involving the director's liability took place.
(e) Determination that indemnification is proper. -- (1)
Indemnification under subsection (b) of this section may not be made by the
corporation unless authorized for a specific proceeding after a determination
has been made that indemnification of the director is permissible in the
circumstances because the director has met the standard of conduct set forth in
subsection (b) of this section.
(2) Such determination shall be made:
(i) By the board of directors by a majority vote of a
quorum consisting of directors not, at the time, parties to
the proceeding, or, if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting
solely of two or more directors not, at the time, parties to
such proceeding and who were duly designated to act in the
matter by a majority vote of the full board in which the
designated directors who are parties may participate;
(ii) By special legal counsel selected by the board of
directors or a committee of the board by vote as set forth in
subparagraph (i) of this paragraph, or, if the requisite
quorum of the full board cannot be obtained
II.3
<PAGE>
therefor and the committee cannot be established, by a
majority vote of the full board in which directors who are
parties may participate; or
(iii) By the stockholders.
(3) Authorization of indemnification and determination as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible. However, if the determination that
indemnification is permissible is made by special legal counsel, authorization
of indemnification and determination as to reasonableness of expenses shall be
made in the manner specified in subparagraph (ii) of paragraph (2) of this
subsection for selection of such counsel.
(4) Shares held by directors who are parties to the proceeding
may not be voted on the subject matter under this subsection.
(f) Payment of expenses in advance of final disposition of action. --
(1) Reasonable expenses incurred by a director who is a party to a proceeding
may be paid or reimbursed by the corporation in advance of the final disposition
of the proceeding upon receipt by the corporation of:
(i) A written affirmation by the director of the
director's good faith belief that the standard of conduct
necessary for indemnification by the corporation as authorized
in this section has been met; and
(ii) A written undertaking by or on behalf of the
director to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
(2) The undertaking required by subparagraph (ii) of paragraph
(1) of this subsection shall be an unlimited general obligation of the director
but need not be secured and may be accepted without reference to financial
ability to make the repayment.
(3) Payments under this subsection shall be made as provided
by the charter, bylaws, or contract or as specified in subsection (e) of this
section.
(g) Validity of indemnification provision. -- The indemnification and
advancement of expenses provided or authorized by this section may not be deemed
exclusive of any other rights, by indemnification or otherwise, to which a
director may be entitled under the charter, the bylaws, a resolution of
stockholders or directors, an agreement or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(h) Reimbursement of director's expenses incurred while appearing as
witness. -- This section does not limit the corporation's power to pay or
reimburse expenses incurred by a director in connection with an appearance as a
witness in a proceeding at a time when the director has not been made a named
defendant or respondent in the proceeding.
II.4
<PAGE>
(i) Director's service to employee benefit plan. --
For purposes of this section:
(1) The corporation shall be deemed to have
requested a director to serve an employee benefit plan where
the performance of the director's duties to the corporation
also imposes duties on, or otherwise involves services by, the
director to the plan or participants or beneficiaries of the
plan;
(2) Excise taxes assessed on a director with
respect to an employee benefit plan pursuant to applicable law
shall be deemed fines; and
(3) Action taken or omitted by the director
with respect to an employee benefit plan in the performance of
the director's duties for a purpose reasonably believed by the
director to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the corporation.
(j) Officer, employee or agent. -- Unless limited by the charter:
(1) An officer of the corporation shall be indemnified as and
to the extent provided in subsection (d) of this section for a director and
shall be entitled, to the same extent as a director, to seek indemnification
pursuant to the provisions of subsection (d);
(2) A corporation may indemnify and advance expenses to an
officer, employee, or agent of the corporation to the same extent that it may
indemnify directors under this section; and
(3) A corporation, in addition, may indemnify and advance
expenses to an officer, employee, or agent who is not a director to such further
extent, consistent with law, as may be provided by its charter, bylaws, general
or specific action of its board of directors, or contract.
(k) Insurance or similar protection. -- (1) A corporation may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the corporation, or who, while a director,
officer, employee, or agent of the corporation, is or was serving at the request
of the corporation as a director, officer, partner, trustee, employee, or agent
of another foreign or domestic corporation, partnership, joint venture, trust,
other enterprise, or employee benefit plan against any liability asserted
against and incurred by such person in any such capacity or arising out of such
person's position, whether or not the corporation would have the power to
indemnify against liability under the provisions of this section.
(2) A corporation may provide similar protection, including a
trust fund, letter of credit, or surety bond, not inconsistent with this
section.
(3) The insurance or similar protection may be provided by a
subsidiary or an affiliate of the corporation.
II.5
<PAGE>
(l) Report of indemnification to stockholders. -- Any indemnification
of, or advance of expenses to, a director in accordance with this section, if
arising out of a proceeding by or in the right of the corporation, shall be
reported in writing to the stockholders with the notice of the next
stockholder's meeting or prior to the meeting.
ITEM 2. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of issuance and distribution are as follows:
Legal fees $75,000
Blue Sky filing fees 5,000
Printing and Postage 17,000
SEC filing fee 2,306
EDGAR filing expenses 4,000
Accounting 35,000
Selling Agent 35,500
Miscellaneous 11,194
Total $185,000
ITEM 3. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended (the
"Securities Act");
(ii) reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) include any additional or changed material
information on the plan of distribution.
(2) For purposes of determining any liability under the
Securities of Act, treat each post-effective amendment as a new registration
statement of the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
II.6
<PAGE>
(4) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 4. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR.
As of August 30, 1998, the Registrant had issued, pursuant to the
AmericasBank Corp. Stock Option Plan (the "Plan"), options to purchase an
aggregate of 30,900 shares of the Registrant's common stock, $0.01 par value per
share (the "Common Stock"). The options were issued to Patricia D'Alessandro,
the president of the Registrant's wholly owned subsidiary, AmericasBank (the
"Bank"), and to the following persons who were directors of the Registrant:
Garbis Baklayan, Nicholas J. Belitsos, M.D., King V. Cheek, Cynthia B. Conklin,
William A. Fogle, Jr., Constantine Frank, Leonard Frenkil, J. Clarence Jameson,
III, Kemp Jayadeva, Norman H. Katz, Shawki N. Malek, M.D., Michael W. Mekalian,
Mark D. Noar, M.D., Larry D. Ohler, Kenneth D. Pezzulla, George E. Rayme, Jr.,
Ramon F. Roig, Jr., M.D., Russell A. Rourke, Melanie R. Sabelhaus, Baldev Singh
and Michael Stern. The earliest any of the options are exercisable is December
1, 1998, and 29,840 options have a per share exercise price of $10.00 and 1,060
options have a per share exercise price of $12.00.
All options were issued in private transactions in reliance upon
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act").
In issuing the options, neither the Registrant nor any person acting on its
behalf offered the options by means of any form of general advertising or
general solicitation. The options were issued only to directors and officers of
the Registrant and the Bank, all of whom have access to all relevant financial
and other information about the Registrant and the Bank. The options are not
transferrable other than by will or the laws of descent and distribution. Prior
to exercising any option, the optionee must acknowledge that, so long as the
shares of Common Stock issuable upon exercise of the options are not registered
under the Securities Act, the optionee is acquiring the shares for investment
and not with a view to distribution and that the shares are subject to
restrictions on their transferability.
On September 2, 1998, the Registrant issued to the holders of record of
its Common Stock on September 1, 1998, for no consideration, a dividend of one
Common Stock purchase warrant for each share of Common Stock then held by the
stockholders (the "Dividend Warrants"). Each Dividend Warrant entitles the
holder thereof to purchase one share of Common Stock at an exercise
II.7
<PAGE>
price of $10.00 per share, subject to adjustment for certain events, beginning
any time after April 1, 2000, until the Dividend Warrant's expiration at 5:00
p.m. EST, on September 1, 2008.
ITEM 5. INDEX TO EXHIBITS.
See Exhibit Index on page II-12.
ITEM 6. DESCRIPTION OF EXHIBITS.
See Exhibit Index on page II-12.
II.8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that is has reasonable grounds to believe that
it meets all of the requirements of filing on Form SB-1 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Baltimore, State of Maryland on October 8, 1998.
AMERICASBANK CORP.
By:/s/J. Clarence Jameson, III
___________________________________
J. CLARENCE JAMESON, III, President
& Chairman of the Board of Directors
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints J. Clarence Jameson, III as his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agent full power and authority to do and perform each and
every act and thing necessary or advisable to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue thereof. This power
of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S><C>
Director
_____________________________
Garbis Baklayan
* Director October 8, 1998
_____________________________
Nicholas J. Belitsos, M.D.
</TABLE>
II.9
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S><C>
* Director October 8, 1998
_____________________________
King V. Cheek
Director
_____________________________
Cynthia B. Conklin
* Director October 8, 1998
_____________________________
William A. Fogle
* Director October 8, 1998
_____________________________
Constantine Frank
Director
_____________________________
Leonard Frenkil
/s/J. Clarence Jameson, III President October 8, 1998
_____________________________ (Principal Executive Officer)
J. Clarence Jameson, III & Chairman of the Board of
Directors
* Director October 8, 1998
_____________________________
Kemp Jayadeva
* Director October 8, 1998
_____________________________
Norman H. Katz
* Director October 8, 1998
_____________________________
Shawki N. Malek, M.D.
</TABLE>
II.10
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S><C>
* Director October 8, 1998
_____________________________
Mark D. Noar, M.D.
* Treasurer October 8, 1998
_____________________________ (Principal Financial Officer &
Larry D. Ohler Principal Accounting Officer)
and Director
* Director October 8, 1998
_____________________________
Kenneth D. Pezzulla
Director
_____________________________
Ramon F. Roig, M.D.
Director
_____________________________
Russell A. Rourke
* Director October 8, 1998
_____________________________
Melanie R. Sabelhaus
* Director October 8, 1998
_____________________________
Baldev Singh
</TABLE>
II.11
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S><C>
* Director October 8, 1998
_____________________________
Michael Stern
</TABLE>
* By: /s/ J. CLARENCE JAMESON, III
______________________________
J. Clarence Jameson, III
Attorney-in-fact
II.12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S><C>
1 Form of Agreement between the Registrant and
Hopper Soliday
2A Articles of Incorporation of the Registrant**
2B Amended and Restated Bylaws of the Registrant*
3A Form of Warrant*
3B Form of Divided Warrant*
3C AmericasBank Corp. Stock Option Plan*
3D Form of Stock Certificate**
4 Form of Subscription Agreement (included as Exhibit
A to Prospectus)*
6A Form of Founder Loan Agreement by and among the
Registrant, the organizers of the Registrant and
certain other parties regarding organizational loans to
the Registrant**
6B Indemnity Agreement by and among the Registrant,
AmericasBank (in organization) and Rushmore Trust
and Savings, FSB**
6C Agreement of Lease by and between the AmericasBank
Holdings Corporation and Network Processing, LLC*
6D Employment Agreement between AmericasBank and
Richard J. Hunt, Jr.*
8A(i) Branch Purchase and Assumption Agreement by and between
AmericasBank (in organization) and Rushmore Trust &
Savings, FSB**
8A(ii) Modification to Branch Purchase and Assumption
Agreement by and between AmericasBank and Rushmore
Trust & Savings, FSB**
8A(iii) Second Modification to Branch Purchase and
Assumption Agreement by and between AmericasBank
and Rushmore Trust & Savings, FSB**
8A(iv) Third Modification to Branch Purchase and
Assumption Agreement by and between AmericasBank
and Rushmore Trust & Savings, FSB***
</TABLE>
II.13
<PAGE>
<TABLE>
<S><C>
8B(i) Loan Purchase and Assumption Agreement by and between
AmericasBank (in organization) and Rushmore Trust &
Savings, FSB**
8B(ii) Modification to Purchase and Assumption Agreement
by and between AmericasBank and Rushmore Trust &
Savings, FSB**
8B(iii) Second Modification to Loan Purchase and
Assumption Agreement by and between AmericasBank
and Rushmore Trust & Savings, FSB**
8B(iv) Third Modification to Loan Purchase and Assumption
Agreement by and between AmericasBank and Rushmore
Trust & Savings, FSB***
8C Purchase and Sale Agreement by and between
NationsBank, N.A. and AmericasBank Holdings
Corporation***
9 Form of Escrow Agreement*
10A(i) Consent of Ober, Kaler, Grimes & Shriver, a
Professional Corporation (consent is contained in that
firm's opinion filed as Exhibit (11))*
10A(ii) Consent of Arthur Andersen LLP
11 Opinion of Ober, Kaler, Grimes & Shriver, a
Professional Corporation, regarding the legality of the
securities covered by the Registration Statement*
21 Subsidiaries of the Registrant*
24 Power of Attorney (included in the signature page
hereof)
27A Financial Data Schedule for the 12 months ended
December 31, 1997*
</TABLE>
II.14
<PAGE>
<TABLE>
<S><C>
27B Financial Data Schedule for the six months ended June
30, 1998*
</TABLE>
* Previously filed.
** Items 2A, 3D, 6A and 6B, 8A(i) through 8A(iii) and 8B(i) through 8B(iii), as
listed above, were previously filed by the Company as Exhibits (with the same
respective Exhibit Numbers as indicated herein, except for Exhibit 3D, which was
previously filed as Exhibit 12B) to the Company's Registration Statement on Form
SB-1, as amended, filed on June 10, 1997 (SEC File No. 333- 28881), and such
documents are incorporated herein by reference.
*** Item 8A(iv), Item 8B(iv) and Item 8C, as listed above, were previously filed
by the Company as Exhibits (with the same respective Exhibit Numbers as
indicated herein) to the Company's Annual Report on Form 10-KSB, filed on March
31, 1998, and such documents are incorporated herein by reference.
II.15
AMERICASBANK CORP.
Maximum of 312,500 Units
AGENCY AGREEMENT
____________, 1998
Hopper Soliday & Co., Inc.
1703 Oregon Pike
Lancaster, PA 17601-4201
AmericasBank Corp., a Maryland corporation (the "Company"), is
a savings and loan holding company with its principal executive offices located
at 3621 East Lombard Street, Baltimore, Maryland 21224. The Company's principal
subsidiary is AmericasBank (the "Bank"), a federal stock savings bank. The
Bank's deposits are insured by the Savings Association Insurance Fund ("SAIF")
of the Federal Deposit Insurance Corporation (the "FDIC") to the applicable
legal limits. As of the date hereof, the Bank's only branch is located at 3621
East Lombard Street, Baltimore, Maryland.
As of August 30, 1998, the authorized capital stock of the
Company consists of 5,000,000 shares of common stock, par value $0.01 per share
(the "Common Stock"), and 5,000,000 shares of preferred stock, $0.01 par value
per share (the "Preferred Stock"). As of August 30, 1998, 300,000 shares of
Common Stock are issued and outstanding. As of August 30, 1998, there are
approximately 216 holders of record of the Common Stock.
The Company proposes to offer for sale on a "best effort
basis" a minimum of 125,000 and a maximum of 312,500 units (collectively the
"Units", each a "Unit"). Each Unit consists of one share of Common Stock and a
Warrant to purchase one share of Common Stock at a price of $13.00 per share (a
"Warrant"). The Units are being offered at a subscription price of $12.00 per
1
<PAGE>
Unit ("Unit Price") to the public (the "Offering"). The Offering includes the
Syndicated Offering defined below.
The Offering is described in a Prospectus dated ____________,
1998, which Prospectus is part of a Registration Statement on Form SB-1 (File
Number 333-61335) filed with the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 Act") on August 13, 1998
(as amended from time to time, the "Registration Statement"). Such Prospectus
may be amended or supplemented from time to time as contemplated by this
Agreement. As utilized herein, the term Prospectus shall mean the Prospectus as
it may be amended or supplemented from time to time.
It is presently contemplated that you, as Agent (as
hereinafter defined), will apply to the National Association of Securities
Dealers, Inc. ("NASD"), for approval of the terms of your compensation, as
described herein ("NASD Approval"). It is understood that your participation in
the Offering will not commence unless and until you are in receipt of NASD
Approval.
The Offering will be made on a best-efforts basis to the
general public as described in the Prospectus. While the Company shall have the
right to reject individual subscriptions in the Offering in its discretion, the
Company shall also reject individual subscriptions at the request of the Agent
based upon valid legal or regulatory criteria.
The Units will be offered and sold to the general public by
you as the Agent and the Selling Group referred to in Section 1 of this
Agreement, upon receipt of NASD Approval. In addition, the Units will be offered
and sold directly by the Company.
2
<PAGE>
All capitalized terms not otherwise defined herein shall have
the same meanings as those ascribed to such terms in the Prospectus.
SECTION 1. Appointment of Hopper Soliday & Co., Inc.
as Agent: Compensation to the Agent.
(a) Subject to the terms and conditions herein
set forth, the Company hereby appoints Hopper Soliday & Co., Inc. ("Agent" or
"you"), as its sole agent to consult with and advise the Company and to solicit
subscriptions for (other than subscriptions sold directly by the Company) Units
on behalf of the Company, in connection with the Company's offering of the Units
in the Offering. On the basis of the representations, warranties, covenants and
agreements set forth herein, Agent accepts such appointment and agrees to
consult with and advise the Company as to the matters described in subsection
(b) of this Section 1 and to use its best efforts to solicit subscriptions for
Units in accordance with this Agreement; provided, however, that Agent shall not
be obligated to sell any minimum number of Units or to take any action not in
accordance with all applicable laws, regulations, decisions or orders. The
appointment of Agent hereunder shall terminate upon (a) the sale of the maximum
number of Units in the Offering, (b) the Withdrawal Date (as hereinafter
defined), or (c) termination by Agent in accordance with Section 11 hereof. In
addition, with the prior consent of the Company, which consent shall not be
unreasonably withheld, Agent may form a syndicate of NASD member firms, which
firms may include Hopper Soliday & Co., Inc. (such syndicate herein collectively
called "Selling Group" or "Selected Dealers"), to participate in the
solicitation of offers to buy the Units under a Selected Dealers Agreement,
substantially in the form of Exhibit "A" attached to this Agreement ("Syndicated
Offering"). The Agent will (i) transmit executed Subscription Agreements
substantially in the form attached hereto as Exhibit "B" and investors' funds
(made payable to "The First National Bank of
3
<PAGE>
Maryland, Escrow Agent") received by it thereunder and, (ii) use its best
efforts to cause Selected Dealers to transmit investors' funds (made payable to
"The First National Bank of Maryland, Escrow Agent") and the corresponding
executed Subscription Agreements, to The First National Bank of Maryland, as
escrow agent (the "Escrow Agent") by mail on or before twelve noon, E.D.T., of
the business day next following receipt of such funds and Subscription
Agreements by the Agent or Selected Dealer.
(b) Pursuant to an Engagement Letter dated
May 22, 1998, between the Company and the Agent ("Engagement Letter"), the Agent
has consulted with and advised the Company and shall continue to consult with
and advise the Company with respect to the following:
(i) Work with management and attorneys in
developing and administering a time and responsibility schedule for the
Offering;
(ii) Function as project manager for the
Offering, working closely with Company management;
(iii) Develop with Company management a
coordinated marketing program for the Offering. The program will
include items such as purchase limitations, community
presentations, timing and duration of the Offering;
(iv) Work with Company management and
directors in identifying target investors for the Offering;
(v) Assist in developing a sales strategy
for the Offering;
(vi) Review the Prospectus and all other
Offering-related documents from a marketing perspective;
4
<PAGE>
(vii) Determine all document requirements
and work with Company management, financial printer and local suppliers in
developing a quality and consistent presentation format at reasonable cost. Such
documents include, but are not limited to: advertisements, news releases,
mailing inserts, internal communications, various selling and response letters,
brochures, order forms, and mailing packages;
(viii) Work with Company management and
graphics material suppliers in outlining and developing format for community
presentations. Draft slides for community meetings (for review by Company
management and counsel) and assist Company management in rehearsing the
presentation;
(ix) Assemble and manage a syndicate of
selected broker/dealers to assist in the sale of Units if
warranted by market demand;
(x) Prepare drafts of all
Offering-related marketing documents for review by Company management and
counsel. Usher the finalized documents through the printing process in
conjunction with the financial printer;
(xi) Prepare sales center documents,
including phone logs, prospect cards, and an operations manual to
be used as a reference;
(xii) Meeting with Company's board,
reviewing with them their role in the marketing effort and
overall conduct of the Offering process;
(xiii) Work closely with designated
manager(s) to assure a complete understanding of the process and
his/her role. Meet with senior officers and branch managers to
explain their roles and answer questions;
5
<PAGE>
(xiv) Employees - Conduct overall training
session(s) for all employees covering the employees' role in selling effort,
what they may and may not say and defining unfamiliar terms, etc.;
(xv) Provide procedures manual to be used
in the operation of the sales center. Such procedures include order solicitation
and processing, handling of correspondence and answering inquiries, follow-up
with prospective purchasers, telephone solicitation, branch activity
coordination and assistance and internal controls;
(xvi) Determine with Company management the
most expeditious way to perform marketing tasks
(i.e. manual vs. computer) based on availability and
qualifications of personnel. Develop equipment and supply lists
for setting up the sales center, based upon techniques to be
employed; and
(xvii) Document procedures to be followed
and train appropriate personnel to assure an efficient marketing effort.
(c) In addition to the reimbursement of the
expenses specified in Sections 7, 8 and 9 hereof, assuming the consummation of
the Offering, the Company will pay to the Agent, the following compensation for
its services hereunder:
(i) to the Agent, an advisory and
management fee of $25,000 (which fee has been paid by the Company prior to the
date hereof);
(ii) in the case of sales of Units by the
Selling Group, the Company shall pay to the Agent six percent
6
<PAGE>
(6.0%) of the aggregate dollar amount of the Units sold by members of the
Selling Group (which may include Hopper Soliday & Co., Inc.).
(d) If the Offering is (A) abandoned or
terminated by the Company after the Prospectus is first distributed and no
shares are issued hereunder, and the NASD approval with respect to the Offering
has been obtained (the date such approval is received being the "Effective
Date"); (B) not consummated by March 31, 1999; or (C) if this Agreement is
terminated by the Agent in accordance with Section 11(a)(i), (ii) or (iii)
hereof, Agent shall not be entitled to the compensation set forth in subsection
(c)(ii) above, but shall be entitled to receive, in addition to the
reimbursement for expenses specified in Sections 7, 8 and 9 hereof, the advisory
and management fee of $25,000 specified in Section 1(c)(i).
(e) Subject to subsection (h) below, the fees
specified in subsection (c) of this Section 1 shall be payable in immediately
available funds on each Closing Date for the Offering.
(f) The Company agrees to reimburse the Agent
for its out-of-pocket costs and expenses, in the maximum aggregate amounts
specified in Section 7 hereof, and for all costs and expenses specified in
Sections 8 and 9 hereof, promptly upon receiving invoices for such costs and
expenses. Such costs and expenses shall be paid whether the Offering is
consummated or not, subject to the applicable limits, as further described in
Section 7.
(g) The Company acknowledges that it has
retained the Agent in connection with the Offering and that, in such capacity,
only personnel employed by the Agent and such other personnel as are assigned
for the specific purposes contemplated by this Agreement to be performed by the
Agent will be involved
7
<PAGE>
in providing the services described herein. In forming the Selling Group, the
Agent may include the brokerage office of Hopper Soliday & Co., Inc., in such
group. In such event, Hopper Soliday & Co., Inc. will (i) execute a Selected
Dealers Agreement and (ii) abide by the terms thereof and will be entitled to
the same compensation as any other member of the Selling Group as set forth in
subsection (c)(ii) of this Section 1.
SECTION 2. Closing: Release of Funds and Delivery of
Certification.
If all conditions precedent to the consummation of the
Offering are satisfied, the Company agrees to issue with respect to Units sold
in the Offering as of the first Closing Date and thereafter until the sale of
the Maximum Number of Units and to release for delivery or deliver certificates
for the shares of Common Stock included in the Units and Stock Purchase Warrants
for the Warrants included in such Units on each Closing Date (each such date
being a "Certificate Delivery Date") against payment thereof to the Company by
release of funds from the Escrow Agent. No funds shall be released to the
Company or withdrawn until the conditions specified in Section 10 hereof shall
have been complied with to the reasonable satisfaction of the Agent and its
counsel. Such release, withdrawal and payment shall be made at the Closing Date,
at 10:00 a.m., Pennsylvania time, on a business day and at a place selected by
the Agent, which date and place are acceptable to the Company on at least two
business days prior notice to the Company; such business day shall not be more
than five (5) business days after the Termination Date, or such other time or
place as shall be agreed upon by the Agent and the Company. Certificates for
Shares shall be delivered directly to the purchasers in accordance with their
respective Subscription Agreement. The hour and date upon which the Company
shall release for delivery or deliver the Units sold, receive the funds due to
Company from the Escrow Agent and pay the compensation due to Agent hereunder,
according to the terms
8
<PAGE>
hereof (the "Closing") with respect to the Offering are referred to herein as
the "Closing Date." After the first Closing Date, each subsequent closing shall
be at such times and dates as the Company may determine in accordance with the
escrow agreement dated September 18, 1998, among the Company, the Escrow Agent,
and the Agent (the "Escrow Agreement"), after prior notice to the Agent by the
Company. In the event there is no Closing, all funds held by the Escrow Agent
shall be promptly returned to each subscriber. In any event, funds received by
the Escrow Agent for which the Company does not accept a Subscription Agreement
shall also be promptly returned to the subscriber.
(a) For purposes of this Agreement, the
following terms shall have the following meaning:
(i) The term "Termination Date" shall mean
December 31, 1998 unless the Offering is extended by the Company to a date no
later than March 31, 1999 by written notice delivered to Agent by the Company.
(ii) The term "Withdrawal Date" shall mean
the date on which the Company delivers to the Agent a notice certifying that the
Company has elected to cancel and withdraw the Offering.
SECTION 3. Offering. The Units are to be offered in
the Offering at the Unit Price.
SECTION 4. Representations and Warranties. The
Company represents and warrants to the Agent and agrees as
follows:
(a) The Registration Statement does not, and at
the Closing Date will not, include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements
9
<PAGE>
therein, in the light of the circumstances under which they were made, not
misleading; provided that this representation and warranty shall not apply to
statements and/or omissions from the Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by the Agent
expressly for use in the Prospectus, it being understood and agreed that the
only such information is that described in Section 8(a) hereof.
(b) The accountants who certify the financial
statements and supporting schedules, if any, included or incorporated by
reference in the Registration Statement are independent certified public
accountants with respect to the Company and its subsidiaries within the meaning
of Regulation S-X under the 1933 Act.
(c) The Company is duly registered as a savings
and loan holding company under the Homeowners' Loan Act of 1933, as amended; the
Company is not currently required to register as a bank holding company under
the Bank Holding Company Act of 1956, as amended.
(d) Each "significant subsidiary" of the Company
(as such term is defined in Rule 1-02 of Regulation S-X) has been duly organized
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to own,
lease and operate its properties and conduct its business as described in the
Prospectus and is duly qualified as a foreign corporation to transact business
and is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or of leasing of property or the
conduct of business; and all of the issued and outstanding capital stock of each
such subsidiary has been duly authorized and validly issued, is fully paid and
nonassessable and, is owned by the Company, directly or through subsidiaries,
free and clear of any security interest,
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mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding
shares of capital stock of the subsidiaries was issued in violation of any
preemptive or similar rights operating by operation of law, or under the charter
or bylaws of any subsidiary or under any agreement to which the Company or any
subsidiary is a party. The only subsidiaries of the Company are the Bank and
AmericasBank Holdings Corporation, a Maryland corporation.
(e) The financial statements of the Company,
audited and unaudited, if any, included in the Prospectus present fairly the
financial position of the Company at the dates indicated and the results of its
operations for the periods specified; and such financial statements were
prepared in conformity with generally accepted accounting principles applied on
a consistent basis for the periods presented. The financial, statistical and pro
forma information and related notes included in the Prospectus are accurate and
present fairly the information therein on a basis consistent with the financial
statements of the Company included in the Prospectus.
(f) Since the respective dates as of which
information is given in the Prospectus, except as may otherwise be stated
therein: (i) on the date hereof there has not been, and of the Closing Date
there will not be, any material adverse change in the condition, earnings,
business affairs or business prospects of the Company, financial or otherwise,
whether or not arising in the ordinary course of business, and (ii) on the date
hereof there has not been, and as of the Closing Date there will not be, any
material transactions entered into by the Company.
(g) As of the date of the Prospectus and the
Closing Date: (i) the Company is a corporation, duly incorporated, validly
existing and in good standing under the laws of the State of Maryland with full
power and authority (corporate and other) to own or lease its properties and to
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conduct its business as described in the Prospectus; (ii) the Company is in good
standing in each jurisdiction in which the character of the business conducted
by it or the location of the properties owned by it makes such qualification
necessary, and (iii) the Company has obtained all licenses, permits and other
governmental authorizations required for the conduct of its business.
(h) As of the date of the Prospectus and the
Closing Date:
(i) The Bank is a federal stock savings
bank, duly incorporated, validly existing and in good standing under the laws of
the United States of America with full power and authority (corporate and other)
to own or lease its properties and to conduct its business as described in the
Prospectus;
(ii) The Bank is in good standing in each
jurisdiction in which the character of the business conducted by
it or the location of the properties owned by it makes such
qualification necessary; and
(iii) The Bank has obtained all licenses,
permits and other governmental authorizations required for the
conduct of its business.
(i) The deposit accounts of the Bank are insured
by the Savings Association Insurance Fund of the FDIC up to the
maximum allowable limits thereof.
(j) The authorized capital stock of the Company
consists of 5,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock. As of the date of the Prospectus there were 300,000 shares of Common
Stock issued and outstanding and no shares of Preferred Stock issued or
outstanding. The shares of
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Common Stock to be sold in the Offering (the "Shares") have been duly and
validly authorized for issuance and, when issued and delivered by the Company
against payment of the consideration therefor, the Shares will be duly and
validly issued, fully paid and non-assessable and will be free and clear of any
security interest, pledge, lien, encumbrance, claim or equity other than created
by the purchase thereof; the issuance of the Shares will not be in violation of
any pre-emptive rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any shares of Common Stock pursuant
to the Company's articles of incorporation, bylaws or other governing documents
or any agreement or other instrument to which the Company is a party or by which
it is bound; and the terms and provisions of the Shares conform and will conform
in all material respects to the description thereof contained in the Prospectus.
(k) The Warrants to be sold in the Offering have
been duly and validly authorized for issuance and, when issued and delivered by
the Company against payment of the consideration therefor and in accordance with
the terms thereof, the shares of Common Stock issuable in connection therewith
will be duly and validly issued, fully paid and non-assessable and will be free
and clear of any security interest, pledge, lien, encumbrance, claim or equity
other than created by the purchase thereof; the issuance of the shares of Common
Stock upon exercise of the Warrants will not be in violation of any pre-emptive
rights or other rights to subscribe for or to purchase, or any restriction upon
the voting or transfer of, any shares of Common Stock pursuant to the Company's
articles of incorporation, bylaws or other governing documents or any agreement
or other instrument to which the Company is a party or by which it is bound; and
the terms and provisions of the Warrants conform and will conform in all
material respects to the description thereof contained in the Prospectus.
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(l) As of the date of the Prospectus and the
Closing Date, neither the Company nor the Bank is in violation of any material
law, rule, regulation or order (including laws, rules, regulations and orders
pertaining to the offer and sale of securities), or in violation of its articles
of incorporation or by laws, or in default in the performance or observance of
any material obligation, agreement, covenant, or condition contained in any
material contract, lease, loan agreement, indenture or other instrument to which
it is a party or by which it or any of its properties may be bound, except where
such violation or default does not have a material adverse effect on the
condition, financial or otherwise, or the business, operations or income of the
Company; nor will the consummation of any of the transactions described in the
Prospectus, nor the execution and delivery of this Agreement or the consummation
of the transactions herein contemplated, conflict with or constitute a violation
of the articles of incorporation or bylaws of the Company, or any law, rule,
regulation or order applicable to the Company, or result in a default under any
material contract, lease or other instrument to which the Company is a party,
except where such conflict or violation would not have a material adverse effect
on the condition, financial or otherwise, of the business, operations or income
of the Company.
(m) As of the Closing Date and the date of the
Prospectus, the Company, the Bank and AmericasBank Holdings Corporation each has
good and marketable title in fee simple to all items of real property, and good
and marketable title to all personal property and assets which are material to
its business and are described in the Prospectus as owned by it as of such
dates, in each case, free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or do not affect the value of
such property and do not interfere in any material respect with the business of
the Company or the Bank.
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(n) As of the date of the Prospectus and the
Closing Date, neither the Company nor the Bank is in violation of any directive
or order (including any memorandum of understanding) specific to the Company
from the Office of Thrift Supervision (the "OTS"), the FDIC or any other agency
to make any material change in the method of conducting its business as
described in the Prospectus or as otherwise presently contemplated; the Company
and the Bank are each conducting its business so as to comply in all material
respects with all applicable statutes and regulations, and there is no suit or
proceedings, charge, investigation or action before or by any court, regulatory
authority or governmental agency or body pending or, to the best of the
knowledge of the Company, threatened, which might affect the performance of this
Agreement or the consummation of the transactions herein contemplated or
described in the Prospectus or which might result in any material adverse change
in the condition (financial or otherwise), earnings, business affairs or
business prospects of the Company, or which would materially affect its
properties and assets.
(o) Any certificate signed by the President and
the Secretary of the Company and delivered to the Agent or its counsel that
refers to this Agreement and any certificate signed by said officers of the
Company and delivered to the Agent or its counsel shall be deemed to be a
representation and warranty by the Company to the Agent as to the matters
covered thereby with the same effect as if such representation and warranty were
set forth herein.
(p) The Company has not granted or authorized
nor made prior arrangements to grant or authorize any options, warrants or
rights to purchase the Company's capital stock other than as described in the
Prospectus.
(q) This Agreement has been duly authorized,
executed and delivered by the Company and is the legal, valid and
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binding agreement of the Company enforceable in accordance with its terms,
subject, as to enforceability, to bankruptcy, insolvency, reorganization,
moratorium and other laws of general applicability relating to or affecting
creditors' rights, to general principles of equity and to the extent that rights
to indemnity hereunder may be limited under applicable laws.
(r) Each lease of real property (together with
any improvements thereon) and personal property to which the Company or the Bank
is a party has been duly authorized, executed and delivered, and is the legal,
valid and binding agreement of the Company or the Bank, as the case may be,
enforceable in accordance with its terms, subject, as to enforceability, to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
applicability relating to or affecting creditors rights, to general principles
of equity and to the extent that rights to indemnity thereunder may be limited
under applicable laws.
(s) The Company has not taken and shall not
take, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Shares of Common Stock to
facilitate the sale of the Units.
(t) Except as disclosed in the Prospectus, there
is no action, suit, proceeding, inquiry or investigation before or brought by
any court or governmental body or agency, domestic or foreign, now pending or,
to the knowledge of the Company, threatened, against or affecting the Company or
any subsidiary, which is required to be described in the Prospectus, or which
might reasonably be expected to have a material adverse effect on the financial
condition, results of operations, properties, or
16
<PAGE>
conduct of business of the Company or any subsidiary (a "Material Adverse
Effect").
(u) There are no contracts or documents which
are required to be described in the Registration Statement or the Prospectus or
filed as exhibits thereto which have not been so described and filed as
required.
(v) The Company and each subsidiary has filed
all federal, state, and local tax returns on or before the date such returns are
required to be filed or has filed for an extension as permitted by applicable
law, and has paid all federal, state, and local taxes due on or before the date
due.
(w) No relationship, direct or indirect, exists
between the Company, on one hand, and the directors, officers, shareholders,
customers or suppliers of the Company on the other hand, which is required to be
described in the Prospectus and is not so described.
(x) Except as described in the Registration
Statement and Prospectus, there are no persons with registration rights or
similar rights to have any securities registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933 Act.
(y) The Company and each of its subsidiaries
carry, or are covered by, insurance in such amounts and covering such risks as
is adequate for the conduct of their respective business and as is customary for
companies engaged in similar businesses.
SECTION 5. Representations and Warranties of the Agent. The
Agent represents and warrants to Company as follows:
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(a) Hopper Soliday & Co., Inc. is registered as
a broker-dealer with the SEC and is registered, to the extent registration is
required, with the appropriate governmental agency in each state in which the
Agent intends to offer or sell the Shares and is a member of the NASD and will
use its best efforts to maintain such registrations, qualifications and
memberships throughout the term of the Offering.
(b) To the knowledge of the Agent, no action or
proceeding is pending against the Agent or any of its officers or directors
concerning the Agent's activities as a broker or dealer that would materially
adversely affect the Company's offering of the Units.
(c) The Agent will offer the Units only in those
states and in the quantities that are identified in the Blue Sky Memorandum(s)
from the Company's counsel to the Agent confirming that the Offering of the
Units has been qualified for sale, or is exempt from registration, under the
applicable state statutes and regulations in accordance with such Memorandum(s).
(d) The Agent, in connection with the offer and
sale of the Units and in the performance of its duties and obligations under
this Agreement, agrees to comply with all applicable federal laws, the laws of
the states or other jurisdictions in which the Units are offered and sold and
the Rules and Regulations of the NASD, and will not, in connection with its
efforts hereunder to sell the Units, make any representation or give any
information other than as contained in the Prospectus or in any marketing
materials prepared by the Company with the assistance of Agent, which materials
must be approved for use by Agent.
(e) The Agent is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania. The Agent has all requisite power
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<PAGE>
and authority to enter into this Agreement and to carry out its obligations
hereunder.
(f) This Agreement has been duly authorized,
executed and delivered by the Agent and is a valid agreement on the part of the
Agent, subject, as to enforceability, to bankruptcy, insolvency, reorganization,
moratorium and other laws of general applicability relating to or affecting
creditors rights, to general principles of equity and to the extent that rights
to indemnity thereunder may be limited under applicable laws.
(g) Neither the execution of this Agreement nor
the consummation of the transactions contemplated hereby will result in any
breach of any of the terms or conditions of, or constitute a default under, the
articles of incorporation or bylaws of the Agent or any indenture, agreement or
other instrument to which the Agent is a party or violate any order directed to
the Agent of any court or any federal or state regulatory body or administrative
agency having jurisdiction over the Agent or its affiliates.
(h) The Agent knows of no person who rendered
any services in connection with the introduction of the Company to the Agent who
will be entitled to receive from the Agent or from the Company any finder's fees
or similar payments.
SECTION 6. Covenants of the Company. The Company hereby
covenants with you as follows:
(a) The Company will only offer the Units in the
states of Maryland, Delaware, Virginia, Pennsylvania, New York, and Florida and
in the District of Columbia. The Company will to the extent required, use its
best efforts to have the Offering approved in those states; and will notify you
(i) of the receipt of any comments from the SEC or any other regulatory
authority
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with respect to the Offering or any other matter referred to in the Registration
Statement, (ii) of any request by the SEC or any other regulatory authority for
any amendment or supplement to the Registration Statement, the Blue Sky
Materials (as hereinafter defined) or for additional information, (iii) of the
issuance by the SEC or any other regulatory authority of any order or other
action suspending the Offering or the use of the Prospectus or any other filing
of the Company under applicable state law or the threat of any such action, and
(iv) of the issuance by the SEC or any regulatory authority of any stop order
suspending the use of the Prospectus or of the initiation or threat of
initiation of any proceedings for that purpose. The Company will make every
reasonable effort to prevent the issuance by the SEC or any regulatory authority
of any such order, and if any such order shall at any time be issued, to obtain
the lifting thereof at the earliest possible time. The Company shall file with
the state securities authorities of the states listed above, to the extent
necessary, appropriate registration materials in order to comply with the laws
of such states applicable to the sale of the Units ("Blue Sky Materials").
(b) The Company will give you notice of its
intention to amend or file any amendment or supplement to the Prospectus which
differs from the Prospectus most recently filed with the SEC and will not amend
or file any such amendment or supplement to the Prospectus to which you shall
reasonably object.
(c) The Company has or will deliver to you and
to your counsel at least one (1) conformed copy of the Registration Statement
and the Blue Sky Materials, as originally filed, and each amendment thereto or
correspondence in connection therewith.
(d) The Company will furnish to you, from time
to time, such number of copies of the Prospectus (as amended or supplemented) as
you may reasonably request for the purposes
20
<PAGE>
contemplated by the respective applicable rules and regulations of the NASD.
(e) As of the effective date of the Registration
Statement and continuing through each Closing Date, the Company will comply, at
its own expense, with all requirements imposed upon it by the SEC, state
securities regulators and by any other applicable regulatory authority, so far
as necessary to permit the continuance of sales or dealing in shares of Common
Stock during such period in accordance with the provisions hereto and the
Prospectus, provided, however, that the Company may, in its sole discretion,
withdraw from selling Units in any state listed in (a) above after prior written
notice to and consultation with Agent.
(f) If any event relating to or affecting the
Company shall occur, as a result of which it is necessary, in the reasonable
opinion of counsel for the Company to amend or supplement the Prospectus in
order to make the Prospectus not misleading in light of the circumstances
existing at the time it is delivered to a purchaser, the Company will forthwith
prepare and furnish to you a reasonable number of copies of an amendment or
amendments of, or a supplement or supplements to, the Prospectus (in form and
substance satisfactory to each of Company's counsel and your counsel) which will
amend or supplement the Prospectus so that, as amended or supplemented, it will
not contain any untrue statement of any material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances existing at the time the Prospectus is delivered to a
prospective purchaser or a purchaser, not misleading. For the purpose of this
subsection (f), the Company will furnish to you such information with respect to
itself as you may from time to time reasonably request; provided, however, that
any information which is of a confidential or proprietary nature shall not be
delivered to any
21
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third party other than your legal counsel or accountants in connection with the
Offering, or as otherwise required by law.
(g) During the period of eighteen (18) months
from the last Closing Date, the Company will furnish to you as soon as
practicable after the end of each fiscal year, but not later than one hundred
and twenty (120) days after the end of such fiscal year, a balance sheet and
statements of income, shareholders' equity and cash flows of the Company and its
subsidiaries, if any, as of the end of and for such year, certified by
independent public accountants.
(h) During the period of eighteen (18) months
from the Closing Date, the Company will furnish to its shareholders as soon as
practicable after the end of each fiscal year, but not later than one hundred
and twenty (120) days after the end of such fiscal year, an annual report
including a consolidated balance sheet and statements of consolidated income,
shareholder's equity and cash flows of the Company and its subsidiaries, if any,
as of the end of and for such year, certified by independent public accountants.
(i) During the period of eighteen (18) months
from the Closing Date , the Company will furnish to you as soon as available, a
copy of each report of the Company furnished generally to shareholders of the
Company or, to the extent required, filed with the SEC, or any national
securities exchange or system on which any class of securities of the Company
may be listed or quoted.
(j) The Company will use the net proceeds from
the sale of the Units in the manner set forth in the Prospectus under the
caption, "Use of Proceeds".
(k) Other than the Prospectus or as permitted by
applicable law, the Company will not distribute any prospectus,
22
<PAGE>
offering circular or other offering material in connection with the offer and
sale of the Units and will not publish any writing which constitutes an offer or
prospectus.
(l) The Company will use all reasonable efforts
to comply with such requirements as may be necessary for Hopper Soliday & Co.,
Inc. or other brokerage firms to make an active market for the Common Stock.
(m) The Company will cause the Escrow Agent to
maintain such records of all funds submitted to the Escrow Agent in connection
with the Offering as necessary to enable the Escrow Agent to make appropriate
refunds of such funds in the event that such refunds are required to be made in
accordance with the Offering as described in the Prospectus and the Escrow
Agreement.
(n) The Company shall not be deemed to have
accepted any subscription offer accompanied by a check or comparable instrument
until final payment has been made on such check or instrument and the Company
accepts the subscription by executing the Subscription Agreement.
(o) The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally available
to its security holders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by the last paragraph of
Section 11 of the 1933 Act.
SECTION 7. Payment of Expenses. The Company agrees to pay
all expenses in connection with the Offering and otherwise incident to the
performance of the obligations of the Company under this Agreement, including,
but not limited to, the following: (i) the preparation, issuance and delivery
of
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certificates for the Shares to the subscribers in the Offering, (ii) the fees
and disbursements of the Company's legal counsel and accountants, (iii) the
filing fees, if any, incurred in connection with the qualification of the Shares
under all applicable securities or Blue Sky laws, (iv) the printing and delivery
to you, in such quantities as you shall reasonably request, of copies of the
Prospectus and all other documents in connection with the Offering and this
Agreement, (v) the cost of preparing and printing marketing materials,
advertising expenses and expenses relating to meetings with prospective
subscribers, (vi) filing fees incurred in connection with the review of the
Offering by the NASD, (vii) the cost of printing all stock certificates and all
other documents related to the Offering, and the fees and charges of any
transfer agent, registrar and other similar agents, if any, (viii) documented
out-of-pocket expenses incurred by you in connection with the Offering and this
Agreement not in excess of $3,000, and (ix) fees, disbursements and other
expenses of your counsel, in addition to amounts specified in clause (iii)
above. Reimbursement or payment of legal fees (excluding expenses) enumerated
under clause (ix) shall not exceed $7,500. Reimbursement of fees and expenses
set forth in clause (viii) shall be made on a quarterly basis, beginning October
1, 1998. The fees and expenses of your counsel shall be billed directly to the
Company on a quarterly basis beginning October 1, 1998. Such bills will be
payable promptly upon receipt thereof. If there is a material delay in the
consummation of this Offering which would require updating of the financial
information in the Prospectus for a period ending later than June 30, 1998, the
parties hereby agree to increase the limitation on fees set forth above.
SECTION 8. Indemnification.
(a) The Company agrees to indemnify and hold
harmless you, your officers, directors, agents, employees and each person, if
any, who controls you within the meaning of
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Section 15 of the Securities Act of 1933, as amended (the "1933 Act"), against
all losses, claims, damages or liabilities, joint or several, to which you or
any of them may become subject under all applicable federal and state laws or
otherwise, and to reimburse you and such persons for any expenses (including
reasonable fees and disbursements of counsel) incurred by you or any of them in
connection with investigating, preparing or defending any actions, to the extent
such losses, claims, damages, liabilities or actions (i) arise out of or are
based upon any untrue statement or alleged untrue statement contained in the
Registration Statement (or any amendment or supplement thereto), or any Blue Sky
application or other instrument executed by the Company or based upon written
information supplied by the Company filed in any state or jurisdiction to
qualify any or all of the Units under the securities laws thereof (collectively
the "Blue Sky Application"), or (ii) arise out of or are based upon the omission
or alleged omission to state in any of the foregoing documents a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or (iii)
arise from or are based upon any Prospectus or any other documentation
distributed in connection with the offering and this Agreement; provided,
however, that the Company shall not be liable in any such case to the extent
such losses, claims, damages, liabilities or actions arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact in, or
material omission or alleged material omission from, the Prospectus (or any
amendment or supplement thereto) made in reliance upon and in conformity with
information furnished in writing to the Company by you regarding you expressly
for use in the Prospectus or if you fail to deliver a Prospectus that corrects a
deficient disclosure if such corrected Prospectus was made available to you on a
timely basis. The Company agrees that the only information furnished by you for
use in the Prospectus is set forth in footnote number (1) on the cover page of
the Prospectus and the first paragraph under "Terms
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<PAGE>
of the Offering, Plan of Distribution - Hopper Soliday" in the Prospectus.
(b) You agree to indemnify and hold harmless the
Company, its directors, officers, employees, agents and each person, if any, who
controls the Company within the meaning of section 15 of the 1933 Act against
all losses, claims, damages or liabilities, joint or several, to which they, or
any or them, may become subject under all applicable federal and state laws or
otherwise, and to reimburse the Company and such persons for any expenses
(including reasonable fees and disbursements of counsel) incurred by them, in
connection with investigating, preparing or defending any actions, to the extent
such losses, claims, damages, liabilities or actions arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus (or any amendment or supplement thereto), or based
upon the omission or alleged omission to state in the Prospectus a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; Provided, however, that your obligations
under this Section 8(b) shall exist only if and only to the extent that such
untrue statement or alleged omitted material fact was contained in the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with information furnished in writing to the Company by you regarding
you expressly for use in the Prospectus.
(c) Promptly after receipt by an indemnified
party under this Section 8 of notice of any claim or the commencement of any
action, the indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this Section 8, notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have to an indemnified party. If any such claim
or action shall be
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brought against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel satisfactory to
the indemnified party. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim or action,
the indemnifying party shall not be liable to the indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, that any indemnified party shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment thereof has been
specifically authorized by the indemnifying party in writing, (ii) such
indemnified party shall have been advised by such counsel that there may be one
or more legal defenses available to it which are different from or additional to
those available to the indemnifying party and in the reasonable judgment of such
counsel it is advisable for such indemnified party to employ separate counsel or
(iii) the indemnifying party has failed to assume the defense of such action and
employ counsel reasonably satisfactory to the indemnified party, in which case,
if such indemnified party notifies the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party. Each indemnified party, as a condition of
the indemnity agreements contained in Sections 8(a) and 8(b) shall use its best
efforts to cooperate with the indemnifying party in the defense of any such
action or claim. No indemnifying party shall be liable for any settlement of any
such action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent
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<PAGE>
or if there be a final judgment of the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any indemnified party
from and against any loss or liability by reason of such settlement or judgment.
(d) The agreements contained in this Section 8
and in Section 9 hereof and the representations and warranties of the Company
set forth in this Agreement shall remain operative and in full force and effect
regardless of (i) any investigation made by or on behalf of you or your
officers, directors or controlling persons, or by or on behalf of the Company or
any officers, directors or controlling persons of the Company, (ii) delivery of
and payment for the Units, or (iii) any termination of this Agreement.
SECTION 9. Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnification provided
for in Section 8 is due in accordance with its terms but is for any reason held
by a court to be unavailable from the Company, the Company and you shall
contribute to the aggregate losses, claims, damages and liabilities (including
any investigation, legal and other expenses) incurred in connection with, and
any amount paid in settlement of, any action, suit or proceeding or any claims
asserted, (but after deducting any contribution received by the Company from
persons other than you, who may also be liable for contribution) to which the
Company may be subject in such proportion so that you are responsible for that
portion represented by the percentage that the fees paid to the Agent pursuant
to Section 1 of this Agreement (not including expenses) bears to the gross
proceeds received by the Company from the sale of the Units in the Offering, and
the Company shall be responsible for the balance. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such
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proportion as appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and you on the other hand in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and you on the other hand shall be deemed to be in the
same proportion as total net proceeds from the sale of Units (before deducting
expenses) received by the Company bear to the total fees (not including
expenses) received by the Agent. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to written information supplied by the Company on the one hand or you on
the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and you agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
considerations referred to above in this Section 9. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section 9
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9, you shall not
be required to contribute any amount in excess of the amount by which the
aggregate price of Units sold by the Agent in the Offering exceeds the amount of
any damages which you would have otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of any fraudulent misrepresentation (within the meaning of section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of
29
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such fraudulent misrepresentation. The obligations of the Company under this
Section 9 and under Section 8 shall be in addition to any liability which the
Company may otherwise have. For purposes of this Section 9, each of your
officers and directors and each person, if any, who controls you within the
meaning of the 1933 Act shall have the same rights to contribution as you and
each person, if any, who controls the Company within the meaning of the 1933
Act, and each officer and director of the Company shall have the same rights to
contribution as the Company. Any party entitled to contribution, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect to which a claim for contribution may be made against another
party under this Section 9, will notify such party from whom contribution may be
sought, but the omission to so notify such party shall not relieve the party
from whom contribution may be sought from any other obligation it may have
hereunder or otherwise than under this Section 9.
SECTION 10. Conditions to Closing. Unless otherwise agreed
upon by you and the Company, the consummation of this Offering is subject to the
condition that all representations and warranties and other statements of the
Company herein are, as applicable, at and as of the commencement of the Offering
or as of each Closing Date, true and correct in all material respects, the
condition that the Company shall have performed in all material respects all its
obligations hereunder to be performed on or before such dates, and to the
following further conditions:
(a) No stop order suspending the use of the
Prospectus shall have been issued under any applicable law or proceedings
thereof initiated or threatened by any regulatory authority, and no order or
other action suspending the consummation of the transactions described in the
Prospectus
30
<PAGE>
shall have been issued or proceeding therefor initiated or threatened by the SEC
or any other regulatory authority.
(b) At the first Closing Date you shall have
received:
(1) The opinion addressed to you, as of the
first Closing Date of Ober, Kaler, Grimes & Shriver, counsel for the Company, in
form and substance satisfactory to your counsel, substantially to the effect
that:
(i) The Company has been duly
incorporated and is validly existing and in good standing under the laws of the
State of Maryland.
(ii) The Company has the corporate
power and authority to conduct its business and to own, lease and operate its
properties as described in the Prospectus and as otherwise contemplated.
(iii) The deposit accounts of the
Bank are insured by the Savings Association Insurance Fund of the FDIC up to the
maximum amount allowed under law.
(iv) All Shares offered pursuant to
the Offering have been duly and validly authorized for issuance, and when
issued, sold and delivered by the Company pursuant to the terms of the Offering
against payment of the consideration set forth in the Prospectus, the Shares
will be duly and validly issued and fully paid and nonassessable.
(v) All of the capital stock of the
Company to be issued and outstanding immediately following the conclusion of the
Offering has been duly authorized and, upon
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payment of consideration therefor in accordance with the description set forth
in the Prospectus, will be validly issued, fully paid, and nonassessable.
(vi) This Agreement, and each lease
of real property of the Company or the Bank described in the Prospectus, if any,
has been duly authorized, executed and delivered by the Company and is the
legal, valid and binding agreement of the Company enforceable in accordance with
its terms, subject, as to enforceability, to bankruptcy, insolvency,
reorganization, moratorium and other laws of general applicability relating to
or affecting creditors' rights, to general principles of equity and to the
extent that rights to indemnity thereunder may be limited under applicable laws.
(vii) No stop order suspending the
use of the Prospectus has been issued or, to the best of such counsel's
knowledge, proceedings therefor initiated or threatened by any regulatory
authority respecting the issuance of the Units.
(viii) No further approval,
registration, authorization, consent or other order of any public board or body
is required in connection with the execution and delivery of this Agreement, the
issuance of the Units and the consummation of the transactions described in the
Prospectus.
(ix) In addition, we advise you
that in the course of the preparation of the Registration Statement and the
Prospectus, we participated in conferences with officers and representatives of
the Company, with the Company's independent public accountants, at which
conferences the content of the Registration Statement and the Prospectus were
discussed and at which conferences we made inquiries of such officers,
representatives and accountants, and, on the basis of the foregoing, nothing has
come to our attention that would lead us to believe that either the Registration
Statement or any
32
<PAGE>
amendment thereto, as of the date the Registration Statement or such amendment
is or was declared effective, and as of the Closing Date, or the Prospectus as
of the date thereof and as of the Closing Date, contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading (it
being understood that we do not express any belief with respect to the financial
statements, and the notes and schedules related thereto and other financial
information or statistical data included in the Registration Statement, any
amendment thereto, or the Prospectus). Without limiting the generality of the
foregoing, we assume no responsibility for the accuracy, completeness or
fairness of any statements contained in the Registration Statement or
Prospectus, other than statements insofar as they relate to legal matters under
the captions "Supervision and Regulation", "Description of Capital Stock and
Warrants" and "Shares Available for Future Sale."
(x) The information in the
Prospectus under the captions: "Supervision and Regulation," "Description of
Capital Stock and Warrants", and "Shares Available for Future Sale", to the
extent such information purports to summarize provisions of law or summarizes
legal conclusions, are accurate summaries in all material respects.
(xi) The terms and provisions of
the Shares conform to the description thereof contained in the Prospectus, and
the form of certificate to be used to evidence the Shares is in due and proper
form.
(xii) There are no pending or, to
the best of counsel's knowledge, threatened legal or governmental proceedings
which are required to be disclosed in the Prospectus, other than those disclosed
therein, and all pending or, to the
33
<PAGE>
best of counsel's knowledge, threatened legal and governmental proceedings to
which the Company is a party are described in the Prospectus other than ordinary
routine litigation incidental to the business of the Company which are,
considered in the aggregate, not material.
(xiii) To the best of such
counsel's knowledge after reasonable inquiry, there are no material contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments of
the Company required to be described or referred to in the Registration
Statement or to be included as exhibits thereto other than those described or
referred to therein or included exhibits thereto, the descriptions thereof or
references thereto are correct in all material respects.
(xiv) The Company has all material
licenses, permits and other governmental authorizations currently required for
the conduct of its business as described in the Prospectus, all such licenses,
permits and other governmental authorization are or will be in full force and
effect, and the Company is in all material respects in compliance therewith.
(xv) The Company is not in
violation of its articles of incorporation or bylaws, or to the best of such
counsel's knowledge, in violation of any material obligation, agreement,
covenant or condition contained in any material contract, indenture, mortgage,
loan agreement, note, lease or other instrument to which it is a party other
than loans it makes in the ordinary course of business or by which it or its
properties may be bound; the execution and delivery of this Agreement, the
incurrence of the obligations herein set forth and the consummation of the
transactions contemplated herein have been duly authorized by all necessary
corporate action and do not conflict with or constitute a material breach of, or
default under, or result in the creation or imposition of any lien,
34
<PAGE>
charge or encumbrance upon any property or assets of the Company pursuant to its
articles of incorporation, or, to the best of such counsel's knowledge, any
material contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company is a party or by which it may be bound or any
applicable law, regulation or order.
In rendering the foregoing opinions, counsel may
rely, as to factual matters, on certificates of officers of the Company and on
certificates of appropriate public officials. In addition, counsel's opinion may
be limited to laws of the United States of America and the State of Maryland.
(c) At each Closing Date, you shall receive a
joint certificate of the Chief Executive Officer, and the Chief Financial
Officer of the Company, dated as of such Closing Date, to the effect that (i)
since the respective dates as of when information was given in the Prospectus,
there has been no material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company, whether or not arising in the ordinary course of business, (ii) the
representations and warranties in Section 4 are true and correct with the same
force and effect as though expressly made at and as of the Closing Date, (iii)
the Company has complied with all agreements and satisfied all conditions
relating to the Offering and this Agreement on its part to be performed or
satisfied at or prior to the applicable Closing Date, (iv) no stop order
suspending the use of the Prospectus has been issued and no proceedings for that
purpose have been initiated or threatened and, (v) no order suspending the
Offering or the authorization for final use of the Prospectus has been issued
and no proceedings for that purpose have been initiated or threatened.
(d) At each Closing Date your counsel shall have
been furnished with such documents and opinions as they may
35
<PAGE>
reasonably require for the purpose of enabling them to pass upon the sale of
Units as herein contemplated and related proceedings or in order to evidence the
accuracy or completeness of any of the representations or warranties, or the
fulfillment of any of the conditions herein contained; and all proceedings taken
by the Company in connection with the Offering, this Agreement and the sale of
the Units as herein contemplated shall be satisfactory in form and substance to
you and your counsel.
(e) The Company shall not have sustained, since
the date of the latest audited financial statements included in the Prospectus,
any material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and since the respective dates as of
which information is given in the Prospectus, there shall not have been any
change or any development involving a prospective change in, or affecting the
general affairs, management, financial position, shareholders' equity or results
to operations of the Company, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described above, is in your
judgment so material and adverse as to make it impracticable or inadvisable to
proceed with the Offering or the delivery of the Units on the terms and in the
manner contemplated in the Prospectus.
(f) There shall not exist as of the relevant
date any of the following: (i) a suspension or material limitation in trading in
securities generally on the New York or American Stock Exchanges; or (ii) a
general moratorium on commercial bank activities or a general moratorium on the
withdrawal of deposits from federal stock savings banks insured by the FDIC.
36
<PAGE>
(g) Subscriptions for at least 125,000 Units
(and payment therefor) shall have been received by the Escrow Agent and accepted
by the Company.
(h) A Memorandum prepared by Ober, Kaler, Grimes
& Shriver, counsel to the Company, in form and substance satisfactory to you,
setting forth the filings made with the state securities agencies of Maryland,
Delaware, Florida, New York, Pennsylvania, Virginia, and the District of
Columbia and any exemptions relied on in such jurisdictions in connection with
the Offering.
If any of the conditions specified in this section
shall not have been fulfilled when and as required by this Agreement, this
Agreement and all of your obligations hereunder may be cancelled by you by
notifying the Company of such cancellation in writing or by telegram at any time
at or prior to the Closing Date, and any such cancellation shall be without
liability of any party to any other party except as otherwise provided in
Sections 1, 7, 8, and 9 hereof.
SECTION 11. Termination.
(a) Upon the occurrence of any of the following
events, Agent, at its election, may terminate this Agreement and neither party
to this Agreement shall thereafter have any obligation to the,other hereunder,
except for obligations of the Company to the Agent as set forth in Sections 1,
7, 8, and 9 hereof, if: (i) at any time prior to the Closing Date, Agent in its
sole discretion determines that a material adverse change has occurred in the
financial condition or operations of the Company since June 30, 1998; (ii) prior
to the commencement of the Offering, Agent, in its sole discretion, determines
that the Prospectus and/or related disclosure documents do not accurately and
satisfactorily disclose all relevant information of and concerning the Company
and that the sale of the Units based on
37
<PAGE>
such information is not advisable; (iii) Agent, in its sole discretion,
determines that due to the market conditions prevailing at the time the Offering
is to be commenced it is inadvisable to proceed with the Offering, or (iv) the
Offering is not consummated by March 31, 1999.
(b) In the event the Company fails to meet the
conditions specified in Section 10 hereof within the period specified in, and in
accordance with the Prospectus, at the election of either party hereto this
Agreement shall terminate and neither party to this Agreement shall thereafter
have any obligation to the other hereunder, except for obligations of the
Company to the Agent as set forth in Sections 1, 7, 8, and 9 hereof.
(c) This Agreement may only be terminated by
Agent, with respect to Agent's obligations hereunder, by notifying the Company
in writing of the same.
SECTION 12. Survival. The respective indemnities, agreements,
representations, warranties and other statements of or respecting the Company
and you, as set forth in this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of you or any of your officers or directors or any person
controlling you, or the Company, and shall survive delivery of and payment for
the Units.
SECTION 13. Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, and all of which together shall constitute one instrument.
38
<PAGE>
SECTION 14. Miscellaneous.
(a) Notices hereunder, except as otherwise
provided herein, shall be given in writing or by telegraph, addressed (i) to the
Agent at 1703 Oregon Pike, Lancaster, Pennsylvania 17601 (Attention: Eric G.
Hoerner), with a copy to: Wesley R. Kelso, Stevens & Lee, One Penn Square, 2nd
Floor, Lancaster, Pennsylvania 17602, and (ii) to the Company at the Company's
principal office (Attention: J. Clarence Jameson, III, President) with a copy to
Frank C. Bonaventure, Jr., Ober, Kaler, Grimes & Shriver, 120 East Baltimore
Street, Baltimore, Maryland 21202-1643.
(b) This Agreement in made solely for the
benefit of and will be binding upon the parties hereto and their respective
successors and the controlling persons, directors and officers referred to in
Section 8 hereof, and no other person will have any right or obligation
hereunder. The term "successor" shall not include any purchaser, as such, of any
of the Units.
(c) This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
If the foregoing correctly sets forth the arrangement between
the Company and the Agent, please indicate acceptance
39
<PAGE>
thereof in the space provided below for that purpose, whereupon this letter and
your acceptance shall constitute a binding agreement.
Very truly yours,
AMERICASBANK CORP.
By:______________________________
J. Clarence Jameson, III,
President
Accepted as of the date
first above written
HOPPER SOLIDAY & CO., INC.
By:___________________________
Eric G. Hoerner, Senior
Vice President
40
<PAGE>
EXHIBIT A
---------
AMERICASBANK CORP.
Maximum of 312,500 Units
SELECTED DEALERS AGREEMENT
--------------------------
_____________, 1998
Gentlemen:
You have agreed to assist Hopper Soliday & Co., Inc., in
connection with the public offering of up to 312,500 units (the "Units"), with
each Unit consisting of one share (the "Shares") of Common Stock, par value
$0.01 per share, of AmericasBank Corp. (the "Company"), and one Common Stock
Purchase Warrant, at a subscription price of $12.00 per Unit. The Units will be
offered to the general public (the "Offering"). The Units and certain of the
terms on which they are being offered are more fully described in the
Prospectus.
We are offering to Selected Dealers (of which you are one) the
opportunity to participate in the solicitation of offers to buy the Units in the
Offering, and we will pay to you directly a fee in the amount of four and
one-half percent (4.5%) of the dollar amount of the Units sold on behalf of the
Company by you. The dollar amount of Units sold on behalf of the Company by you
shall be evidenced on the Subscription Agreements supplied by the Company
executed by subscribers or executed by your firm on behalf of subscribers,
pursuant to authority previously given. You understand that executed
Subscription Agreements, together with the funds representing payment in full of
the Units purchased thereby, must be forwarded to the Escrow Agent on or before
twelve noon, prevailing time, of the business day next following such execution.
It is understood that (i) Subscription Agreements must bear the authorized
designation of your firm; and (ii) Subscription Agreements executed by you shall
indicate on
1
<PAGE>
the front thereof the true and correct beneficial subscriber for the indicated
units.
Each Subscription Agreement must precisely set forth the
Taxpayer Identification Number, number of Units and state of residence of the
beneficial subscriber for each order and the name in which each certificate for
Shares and Warrants should be issued and delivered. Subscription Agreements
should be executed and clearly identify your firm. All checks shall be made
payable to "The First National Bank of Maryland, Escrow Agent."
As soon as practicable after the Termination Date, as defined
in the Prospectus, we will remit to you the fees to which you are entitled
hereunder; provided that our obligation to pay you such fees is limited to the
extent such fees are paid to us by the Company.
This offer is made subject to the terms and conditions herein
set forth and is made only to Selected Dealers who are members in good standing
of the National Association of Securities Dealers, Inc. ("NASD") who agree to
comply with all applicable rules of the NASD, including, without limitation, the
NASD'S Interpretation with Respect to Free-Riding and Withholding. Orders for
Units will be strictly subject to confirmation and the Company, reserves the
right in its unfettered discretion to reject any order, in whole or in part, to
accept or reject orders in the order of their receipt or otherwise to allot
Units among subscribers. Neither you nor any other person is authorized by the
Company or by us to give any information or make any representations other than
those contained in the Prospectus in connection with the sale of any of the
Units. No Selected Dealer is authorized to act as agent for us when soliciting
offers to buy the Units from the public or otherwise. No Selected Dealer shall
engage in any stabilizing activities (as defined in Regulation M promulgated
under the
2
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Securities Exchange Act of 1934) with respect to the Company's Common Stock
during the Offering.
We and each Selected Dealer assisting in selling Units
pursuant hereto agree to comply with all federal and state statutes, rules and
regulations applicable to the Offering. In addition, we and each Selected Dealer
confirm that the Securities and Exchange Commission interprets Rule 15c2-8
promulgated under the Securities Exchange Act of 1934 as requiring that a copy
of the Prospectus be supplied to each person who is expected to receive a
confirmation of sale at least 48 hours prior to the mailing of such confirmation
and agree to abide by and comply with this rule.
Unless earlier terminated by us, this Agreement shall
terminate on the Termination Date. We may terminate this Agreement or any
provisions hereof by giving notice in the manner set forth herein.
You agree that at any time or times prior to the termination
of this Agreement you will, upon our request, report to us the number of Units
sold on behalf of the Company by you under this Agreement. You agree that
Subscription Agreements will be delivered to the Company, with copies to us.
We shall have full authority to take such actions as we may
deem advisable in respect of all matters pertaining to the Offering. We shall be
under no liability to you except for lack of good faith and for obligations
expressly assumed by us in this Agreement.
Upon application to us, we will inform you as to the states in
which we believe the Units have been qualified for sale under, or are exempt
from the requirements of, the respective Blue Sky laws of such states, but we
assume no responsibility or obligation as to your rights to sell Units in any
state.
3
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Copies of the Prospectus and any supplements thereto will be
supplied in reasonable quantities upon request.
Any notice from us to you shall be deemed to have been duly
given if mailed, telephoned, transmitted by telephone facsimile or telegraphed
to you at the address to which this Agreement is mailed.
This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
Please confirm your agreement hereto by signing and returning
the confirmation accompanying this letter at once to us at Hopper Soliday & Co.,
Inc., 1703 Oregon Pike, Lancaster, Pennsylvania 17601-4201, Attention: Eric G.
Hoerner. The enclosed duplicate copy will evidence the Agreement between us.
Very truly yours,
HOPPER SOLIDAY & CO., INC.
By:_______________________________
Agreed to and accepted:
[Name of Firm)
By:_________________________ Date:____________________________
_________________________
[Title]
4
EXHIBIT 10(A)(ii)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated March 17, 1998 on the AmericasBank Corp. and our report dated July
23, 1998 on the Former Baltimore Branch of Rushmore Trust and Savings, FSB
financial statements and to all references to our Firm included in or made a
part of this Form SB-1 Registration Statement.
/s/ Arthur Andersen LLP
___________________________
ARTHUR ANDERSEN LLP
Baltimore, Maryland
October 7, 1998
