SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
SOUTHERN SECURITY FINANCIAL CORPORATION
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(Exact name of Small Business Issuer in its Charter)
File No. 0-22911
Delaware 65-0325364
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(State of Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
278-A New Dorp Lane, Staten Island, New York 10306-3036
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Address of Principal Executive Office) (Zip code)
718-667-9117
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Issuer's Telephone Number
Securities to be registered under Section 12(b) of the Act:
Title of each Class Name of each Exchange on which
to be so Registered each Class is to be Registered
Securities to be registered pursuant to Section 12(g) of the Act:
Shares of Class A Voting Common Stock, $.01 par value per share
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(Title of class)
<PAGE>
PART I
Item 1. Description of Business
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Southern Security Financial Corporation (the "Registrant") was organized
under the Delaware Corporation Law on October 4, 1996 by Mega Holding Corp., a
Delaware corporation ("Mega"). Mega capitalized the Registrant by purchasing
602,500 shares of the Registrant's Class A Voting Common Stock, par value $.01
per share (the "Class A Stock") for $6,525. In July, 1997, Mega distributed
160,000 shares of Class A Stock to its shareholders, pro rata, in accordance
with their holdings of the common stock of Mega, distributed 340,000 shares of
Class A stock to officers, directors and consultants in partial consideration
for services rendered to Mega and retained 102,500 shares of Class A Stock. In
November, 1997, the Registrant reverse split its issued and outstanding shares
in the ratio of 2.352707 so that there are at present 602,500 shares
outstanding. (See "Principal Stockholders.")
To date, the Registrant has had no business operations, has no employees
and has generated no revenues.
The Registrant's plan of operation is to become a shell corporation with
602,500 shares of Class A Stock of record and such class of equity securities
registered under Section 12(g) of the Securities Exchange Act of 1934 (the
"Exchange Act") and then to merge (the "Merger") with Southern Security Bank
Corporation, a Florida bank holding company ("SSBC"), with the Registrant being
the surviving corporation, but under the name "Southern Security Bank
Corporation" and with the board of directors and management of SSBC. As a result
of the Merger, the holders of the shares of Class A Stock immediately prior to
the Merger would receive less than 5% of the outstanding equity securities of
SSBC and the holders of the equity securities of SSBC would receive more than
95% of the outstanding equity securities of the Registrant immediately after the
Merger.
SSBC has advised the Registrant that if the Registrant is able to position
itself in a timely manner as a "clean" shell corporation, with its Class A Stock
registered under Section 12(g) of the Exchange Act and held by at least 279
shareholders, then SSBC will enter into an appropriate merger agreement
satisfactory to it for the following purposes: (i) to cause the shareholders of
SSBC immediately prior to the Merger to receive more than 95% of the outstanding
equity securities of the surviving corporation; (ii) to cause SSBC to be
reincorporated under the Delaware Corporation Law; (iii) to cause the number of
shareholders of Class A Voting Common Stock of SSBC to be increased from
approximately 100 to approximately 379 holders of Class A Stock of the surviving
corporation; and (iv) to cause the surviving corporation to have the Class A
Stock registered under Section 12(g) of the Exchange Act. The management of SSBC
has advised the Registrant that if the Merger is consummated, it will cause the
Registrant to file a Form 8-K Report with the Securities and Exchange Commission
in order appropriately to disclose the effect of the Merger on the Registrant
and to disclose the nature and operations of the Registrant on a pro forma
basis. A copy of the proposed merger agreement is attached as an exhibit to this
registration statement. It is contemplated that the merger agreement will be
executed soon after the filing of this amendment to this registration statement
(the "Registration Statement") and that filings with the states of Delaware and
Florida will follow as soon as practical thereafter.
If the Merger is not consummated, the Registrant may seek to effect a
similar merger with some other entity under similar terms or, if it is unable to
do so, it may dissolve. The Registrant has made no plans for that contingency.
If the Merger is not consummated, the Registrant will file an amendment to the
Registration Statement setting forth its intentions. In addition, the Registrant
will mail a notice to its shareholders informing them of the failure to
consummate the Merger and its contingency plans.
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The Registrant has had no discussions with nor are there any agreements or
understandings with any consultant. The Company's officers, directors, promoters
and their affiliates have not used particular consultants or advisors in the
past; and, as a result, there is no probability that any such officer, director,
promoter or affiliate will recommend the use of a particular consultant by the
Registrant. The Registrant has not established any criteria for the retention of
independent consultants nor does it intend to.
The Registrant is subject to the informational requirements of the Exchange
and in accordance therewith files reports, proxy statements, and other
information with the Commission. Such reports, proxy statements, and other
information filed by the Registrant can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549-1004; and at the following Regional Offices of
the Commission: Northeast Regional Office, 7 World Trade Center, New York, New
York 10007; and Chicago Regional Office, Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549-1004 at prescribed rates. In the event the
Registrant's reporting obligations under the Securities Exchange Act is
suspended, the Registrant intends, nonetheless, to file periodic reports with
the Commission.
The Registrant will not make any loans in connection with the Merger. The
Company has no present intention of offering its securities by placements of
restricted stock or through a public offering of its securities, but may do so
after the Merger.
The Company will not borrow funds and use the proceeds therefrom to make
payments to its promoters, management or their affiliates or associates. The
Merger does not involve a related party transaction in that the Registrant's
management or promoters or their affiliates have no interest in the transaction
nor will they derive any pecuniary benefit from the transaction aside from any
stockholders they may have in the Registrant. There is no possibility that this
policy will be changed. Pursuant to the Merger Agreement, SSBC will own a
controlling interest in the Registrant subsequent to the execution of that
agreement.
Pursuant to the Merger Agreement, no shares presently held by officers or
directors will be sold and no such sale has been negotiated or will any officer
or director consent to such a sale. This policy is based on an oral
understanding among the officers and directors of the Registrant. No
arrangements or understandings exist under which non-management shareholders
directly or indirectly influence or participate in the Registrant's affairs. No
finders' fees are payable in cash or in securities in connection with the
Merger either from the Registrant or from SSBC.
The Registrant intends to provide its shareholders with complete disclosure
documentation including audited financial statements concerning the Merger.
Item 2. Management's Discussion and Analysis of Financial Condition and
Plan of Operation
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Results of Operations for the period, October 4, 1996, inception, to
June 30, 1997
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Reference is made to the information contained in "Item 1. Description of
Business" which is incorporated herein by reference.
If the Merger is completed within the next twelve months, in the opinion of
Management, the Registrant will have sufficient cash available from its capital
contributions to fund its cash requirements until the Merger is consummated as
the Registrant has no plans to hire employees, lease premises or to undertake
any business operations prior to the consummation of the Merger.
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<PAGE>
Item 3. Description of Property
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The Registrant owns no property or equipment. It occupies premises leased
by its major shareholder, Mega.
Item 4. Security Ownership of Certain Beneficial Owners and Management
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(a) Securities Ownership of Certain Beneficial Owners
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As of June 30, 1997, the following persons were known by the Registrant to
own of record or beneficially more than five (5%) of the voting interests of the
Registrant. Subject to the voting powers, if any, granted to holders of
Preferred Stock, and except as may otherwise be required by law, the Class A
Stock shall have the exclusive right to vote for the election of directors and
for all other purposes; and each holder of Class A Stock shall be entitled to
one vote for each share held.
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
- -------------- ------------------- -------------------- --------
Shares of Class Mega Holding Corp. (4)(5) 43,567 17.0%
A Stock 278-A New Dorp Lane
Staten Island, NY
Shares of Class Thomas Abate (1) 51,005 19.9%
A Stock 278-A New Dorp Lane
Staten Island, NY
Shares of Class James Paulsen (2) 15,302 5.9%
A Stock 278-A New Dorp Lane
Staten Island, NY
Shares of Class TGJ Associates (3) (6) 20,827 8.1%
A Stock 231 Clarke Avenue
Staten Island, NY
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1. Includes 5,313 as joint tenant with Renee Abate; 797 shares as custodian
for Amanda Alexander; 797 shares as custodian for Megan Abate; 797 shares as
custodian for Samantha Alexander; and 797 shares as custodian for James Abate.
Mr. Abate has sole investment power and sole voting power over these shares.
2. Includes 1,328 shares as joint tenant with Judith Paulsen. Mr. Paulsen
has sole investment power and sole voting power over these shares.
3. Of the Shares of Common Stock owned by TGJ Associates, 9,776 shares are
beneficially owned by Thomas Abate and 9,776 shares are beneficially owned by
James Paulsen. Messrs. Abate and Paulsen have shared investment power and shared
voting power of these shares.
4. Mega Holding Corp. is a Small Business Issuer and a reporting company
pursuant to the Exchange Act.
5. Mega Holding Corp. is a mortgage broker, a provider of business and
consulting services, a marketer of companies used in "reverse acquisitions" and
a company which forms subsidiaries to be spun-off for acquisitions or mergers.
6. TGJ is a shareholder of Mega Holding Corp. It is otherwise inactive.
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(b) Securities Ownership of Management
------------------------------------------
Nancy Montanaro, President and Silvio Codispoti, Secretary/Treasurer, the
officers and directors of the Registrant, own the number of shares set forth
after their names.
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
- --------------- ------------------- -------------------- --------
Shares of Class Nancy Montanaro(7) 1,700 0.7%
A Stock 278-A New Dorp Lane
Staten Island, NY
Shares of Class Silvio Codispoti(8) 4,675 1.8%
A Stock 278-A New Dorp Lane
Staten Island, NY
All officers and
directors as a
group (2 persons) 6,375 8.8%
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7. Includes 372 shares as joint tenant with Paul Montanaro. Mrs. Montanaro
has sole investment power and sole voting power over these shares.
8. Includes 26 shares as joint tenant with Dina Codispoti; 26 shares as
joint tenant with Denis Codispoti; and 213 shares as joint tenant with Florence
Codispoti. Mr. Codispoti has sole investment power and sole voting power over
these shares.
Item 5. Directors, Executive Officers, Promoters and Control Persons
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The following sets forth certain information concerning the directors and
executive officers of the Registrant. All directors hold office for a one year
term or until their successors are elected and have qualified. The officers
serve at the discretion of the board of directors.
Name Age Position Since
---- --- -------- -----
Nancy Montanaro (1) 25 President and a Director 1996
Silvio Codispoti (1) 54 Secretary and a Director 1996
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(1) Promoter of the Registrant
Nancy Montanaro has served as administrative secretary of Mega Holding
Corp. since 1995. From January 1994 to January 1995, she was an associate for
Dean Witter Reynolds on the trading floor of The New York Commodities Exchange.
Silvio Codispoti has, since 1991, served as Senior Vice-President of Mega
Holding Corp. Prior thereto, he was Vice-President in the Commercial Lending
Department of National Westminster Bank where he was employed for over 30 years.
5
<PAGE>
Management spends only as much time on the Registrant's business as
required to negotiate the Merger and to prepare and review documents related
thereto, including but not limited to, the Merger Agreement and the Registration
Statement. No securities will be issued to management of the Registrant in
connection with the Merger. In the opinion of management of the Registrant,
there are no conflicts of interest as there are no related party transactions
related to the Merger. No additional securities will be issued prior to the
Merger. No member of management nor any promoter or affiliate is promoting any
"blank check" companies nor has have they promoted any blank check company in
the past. In the opinion of management, the Registrant will not be subject to
regulation under the Investment Company Act of 1940 as a result of the Merger.
Pursuant to the Merger Agreement, present management intends to appoint the
present board of directors of SSB as directors of the Registrant and thereafter
to resign after the execution of that agreement.
Neither, management nor promoters of the Registrant or their affiliates
have taken any steps to require or encourage any broker-dealer to act as a
market maker for the Company' securities nor have there been any preliminary
discussion or understandings with any broker-dealer or any consultant acting on
behalf of a broker-dealer.
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Commission pursuant to
the Securities Enforcement and Penny Stock Reform Act of 1990. Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on
Nasdaq provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in connection with the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules.
Item 6. Executive Compensation
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The following table sets forth certain information concerning the
compensation paid or accrued by the Registrant for services rendered during the
period from inception, October 4, 1996 to June 30, 1997 to the President of the
Registrant and to other Officers and Directors receiving greater than $100,000
in salary and bonus.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
<TABLE>
<CAPTION>
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(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Other Res- All
and Annual tricted Other
Principal Compen- Stock Options LTIP Compen-
Position Year Salary Bonus sation Awards SARs Payouts sation
($) ($) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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Nancy * -0- -0- -0- -0- -0- -0- -0-
Montanaro,
President
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*from inception, October 4, 1996 to June 30, 1997
</TABLE>
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The Registrant has not adopted an option plan and has issued no options
since its formation.
The Registrant has no standard arrangements pursuant to which its Directors
are compensated for services provided as a director. The Registrant has no other
arrangements pursuant to which any director was compensated during the period
since its inception for any service to the Registrant as a director. The
Registrant has no employment contract with respect to any executive officer that
has resulted or will result in any payments to be received from the Registrant
based on the resignation, retirement or any other termination of such executive
officer's employment with the Registrant or from a change in control of the
Registrant or a change in such executive officer's responsibilities following
any change of control.
Item 7. Certain Relationships and Related Transactions
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The Registrant, a Delaware corporation, was formed on October 4, 1996. In
October, 1996, it issued 602,500 shares of Class A Voting Common Stock, $.01 par
value per share, (the "Class A Stock") to Mega in consideration of $6,525. Mega
distributed 120,000 shares to Thomas Abate (includes shares in joint or
custodial tenancy of which he claims beneficial ownership); 36,000 shares to
James Paulsen (includes shares in joint tenancy of which he claims beneficial
ownership); 4,000 shares to Nancy Montanaro (includes shares in joint tenancy of
which she claims beneficial ownership); 11,000 shares to Silvio Codispodi,
Secretary, Treasurer (includes shares in joint tenancy of which he claims
beneficial ownership); and 49,000 shares to TGJ Associates of which 23,000
shares are beneficially owned by Thomas Abate and 23,000 shares are beneficially
owned by James Paulsen. In addition, 120,000 shares were transferred to
consultants in consideration of services rendered to Mega. Mega distributed, as
a dividend, 160,000 shares to its shareholders in proportion to their holdings.
Item 8. Description of Securities
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The authorized capital stock of the Registrant consists of 30,000,000
shares of Class A Voting Common Stock, par value $.01 per share; 5,000,000
shares of Class B Non-Voting Common Stock, $.01 par value per share (the "Class
B Stock"); and 5,000,000 shares of Preferred Stock, $.01 par value per share
(the "Preferred Stock").
Shares of Class A Stock
-----------------------
602,500 Shares of Class A Stock are outstanding. Stockholders (i) have
general ratable rights to dividends from funds legally available therefor, when,
as and if declared by the Registrant's Board of Directors; (ii) are entitled to
share ratably in all assets of the Registrant available for distribution to
shareholders upon liquidation, dissolution or winding up of its affairs; (iii)
do not have preemptive, subscription or conversion rights, nor are there any
redemption or sinking fund provisions applicable thereto; and (iv) subject to
the voting powers, if any, granted to the holders of Preferred Stock, and except
as may otherwise be required by law, the Class A Stock shall have the exclusive
right to vote for the election of directors and for all other purposes, and each
holder of Class A Stock shall be entitled to one vote for each share held. All
Shares of Class A Stock now outstanding are fully paid and nonassessable.
Stockholders do not have cumulative voting rights. Thus, the holders of
more than 50% of such outstanding Common Shares, voting for the election of
Directors, can elect all of the Directors to be elected, if they so choose, and
in such event, the holders of the remaining Shares of Common Stock will not be
able to elect any of the Registrant's Directors.
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Shares of Class B Stock
-----------------------
No Shares of Class B Stock are outstanding. Class B stockholders (i) have
general ratable rights to dividends from funds legally available therefor, when,
as and if declared by the Registrant's Board of Directors; (ii) are entitled to
share ratably in all assets of the Registrant available for distribution to
shareholders upon liquidation, dissolution or winding up of its affairs; (iii)
do not have preemptive, subscription or conversion rights, nor are there any
redemption or sinking fund provisions applicable thereto; and, (iv) except as
may be otherwise required by law, the Class B Stock shall have no voting rights
on any matter. Each share of Class B Stock converts to a share of Class A Stock
upon the happening of certain specified events.
Preferred Stock
---------------
The Registrant has issued no shares of Preferred Stock. The Board of
Directors of the Registrant has the authority, without further action by the
holders of the outstanding stock to issue shares of Preferred Stock from time to
time in one or more classes or series, to fix the number of shares constituting
any class or series and the stated value thereof, if different from the par
value, and to fix the terms of any such series or class, including dividend
rights, dividend rates, conversion or exchange rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price
and the liquidation preference of such class or series. No preemptive rights are
granted to holder of Preferred Stock.
Of the authorized shares of Preferred Stock, the certificate of
incorporation, as amended, authorizes the issuance of 1,200,000 shares of Series
A Preferred Stock. The Preferred Stock provides for dividends at the annual rate
of $.06 per share. No cash dividends or redemptions may be paid to any junior
shares while any shares of such Preferred Stock are outstanding. Each share
entitles the holder to one vote in all matters in which holders of Class A Stock
may vote. Holders of such shares have preferences in liquidation with respect to
holders of any junior securities. Holders have the right to convert their shares
into Shares of Class A Stock upon the happening of certain events. Holders of
Series A Preferred Stock have "piggy back" registration rights in the event a
registration statement is filed with the Securities and Exchange Commission
relating to an initial public offering of Class A Stock.
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<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Transactions
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There is no public trading market for any of the Registrant's securities,
including the Registrant's Class A Voting Common Stock, par value $.01 per share
(the "Class A Stock"). On June 30, 1997, the Class A Stock was held of record by
290 persons.
Reference is made to the information contained in "Item 1. Description of
Business," which is incorporated herein by reference. Prior to the merger, it is
not anticipated that any public trading market for the Registrant's securities
will develop. SSBC has advised the Registrant that if the merger is consummated,
it does not anticipate that there will be any immediate development of a public
trading market in its securities. If the merger is consummated, the Class A
Stock of the surviving corporation that is received by the former shareholders
of the Registrant will be "restricted securities" within the meaning of Rule 144
to the Securities Act of 1933 (the "Securities Act") and, accordingly, will only
be able to be sold or transferred upon registration under the Securities Act, or
upon compliance with a suitable exemption from such registration. SSBC has
advised the Registrant that it believes that if the merger is completed, the
basis for the future development of a public trading market in the Registrant's
Class A Stock will have been created, and that the management of SSBC may, but
will be under no obligation to, take actions to facilitate the development of a
public trading market in the Class A Stock.
Item 2. Legal Proceedings
- -------------------------
No legal proceedings are pending to which the Registrant or any of its
property is subject, nor to the knowledge of the Registrant are any other such
legal proceedings threatened.
Item 3. Changes in and Disagreement With Accountants on Accounting and
Financial Matters
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None.
Item 4. Recent Sales of Unregistered Securities
- -----------------------------------------------
In October, 1996, it issued 602,500 shares of Class A stock to Mega Holding
Corp. in consideration of $6,525.
Item 5. Indemnification of Directors and Officers
- -------------------------------------------------
The personal liability of the directors of the Corporation is eliminated to
the fullest extent permitted by the provisions of Delaware General Corporation
Law.
The Delaware General Corporation Law provides for the indemnification of
the Registrant's officers, directors and corporate employees and agents under
certain circumstances as follows:
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"INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstance of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such court shall deem
proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorney's fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
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(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses including attorneys' fees incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(f) The indemnification and advancement expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement
expenses may be entitled under any bylaw, agreement, vote or stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this Section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
including (any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries and a person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such person."
11
<PAGE>
Article Ninth of the registrant's Certificate of Incorporation states:
"NINTH. Directors of the corporation shall not be liable to either the
corporation or its stockholders for monetary damages for a breach of fiduciary
duties unless the breach involves: (1) a director's duty of loyalty to the
Corporation or its stockholders; (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (3)
liability for unlawful payments of dividends or unlawful stock purchases or
redemption by the Corporation; or (4) a transaction from which the director
derived an improper personal benefit."
Article Eleventh of the registrant's Certificate of Incorporation states:
"ELEVENTH. The Corporation shall indemnify all persons whom it may
indemnify to the fullest extent allowed by the General Corporation Law of
Delaware."
Article IV of the registrant's bylaws states:
"The Corporation will indemnify and hold harmless to the fullest extent
authorized by the Delaware General Corporation Law, any Director, Officer, agent
or employee of the Company, against all expense, liability and loss reasonably
incurred or suffered by such person in connection with the Corporation."
12
<PAGE>
McManus & Co., P.C. Certified Public Accountants
- -------------------------------------------------------------------------------
188 Speedwell Avenue, Morris Plains, NJ 07950
Tel: 201-285-0012 Fax: 201-285-0939
350 5th Avenue, Suite 1423, New York, NY 10118
To the Board of Directors and Stockholders
of Southern Security Financial Corporation:
We have audited the accompanying balance sheet of Southern Security
Financial Corporation as of June 30, 1997, and the related statements of
operations, stockholders' equity, and cash flows for the period October 4, 1996
(date of inception) to June 30, 1997. These financial statements are the
responsibility of Southern Security Financial Corporation management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to
above present fairly, in all material respects, the financial position of
Southern Security Financial Corporation as of June 30, 1997, and the results of
its operations, stockholders' equity, and their cash flows for the period then
ended are in conformity with generally accepted accounting principles.
/s/McManus & Co. P.C.
- ---------------------
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
July 16, 1997
F-1
<PAGE>
SOUTHERN SECURITY FINANCIAL CORPORATION
BALANCE SHEET
JUNE 30, 1997
ASSETS
Current Assets: $ --
Other Assets:
Organization Costs (Note 1) 6,025
Total Other Assets 6,025
---------
Total Assets $ 6,025
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities: $ --
=========
Stockholders' Equity:
Preferred Stock - $.01 par value
Authorized 3,800,000 shares
Issued -0- shares --
Preferred Stock (Series A) - $.01 par value
Authorized 1,200,000 shares
Issued -0- shares --
Common Stock (Class A) - $.01 par value
Authorized 30,000,000 shares
Issued 602,500 shares 6,025
Common Stock (Class B) - $.01 par value
Authorized 5,000,000 shares
Issued -0- shares --
Paid In Capital 500
Retained Earnings (500)
---------
Total Stockholders' Equity 6,025
---------
Total Liabilities and Stockholders' Equity $ 6,025
=========
See Notes to Financial Statements.
F-2
<PAGE>
SOUTHERN SECURITY FINANCIAL CORPORATION
STATEMENT OF OPERATIONS
FOR THE PERIOD OCTOBER 4, 1996 (Date of Inception) TO JUNE 30, 1997
Revenues $ --
---------
Expenses
Accounting Fees 500
Total Expenses 500
--------
Net Earnings/(Loss) $ (500)
========
Net Earnings/(Loss) Per Share:
Weighted Average Number of Common Shares 602,500
Net Earnings/(Loss) $ (0.0008)
==========
See Notes to Financial Statements.
F-3
<PAGE>
SOUTHERN SECURITY FINANCIAL CORPORATION
STATEMENT OF CASH FLOWS
FOR THE PERIOD OCTOBER 4, 1996 (Date of Inception) TO JUNE 30, 1997
Cash Flow from Operating Activities:
Net Income/(Loss) $ (500)
Adjustments To Reconcile Net Income To Net
Cash Provided/(Used)In Operating Activities --
Total Adjustments --
-------
Net Cash Provided/(Used) by Operating Activities (500)
-------
Cash Flow from Investing Activities:
(Increase)/Decrease in Organization Expense (6,025)
-------
Net Cash Provided/(Used) by Investing Activities (6,025)
-------
Cash Flow from Financing Activities:
Issuance of Common Stock 6,525
-------
Net Cash Provided/(Used) by Financing Activities 6,525
-------
Net Increase/(Decrease) in Cash --
Cash at the Beginning of the Period --
Cash at the End of the Period $ --
========
F-4
<PAGE>
SOUTHERN SECURITY FINANCIAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD OCTOBER 4, 1996 (Date of Inception) TO JUNE 30, 1997
Common Additional Total
October 4, 1996 Stock Paid-In Retained Stockholders'
(Date of Inception) (Class A) Capital Earnings Equity
to June 30, 1997
--------- ---------- -------- -------------
October 4, 1996
(Date of Inception) $ -- $ -- $ -- $ --
Issuance of Common Stock 6,025 500 -- 6,525
Net Loss
(Date of Inception to -- -- (500) (500)
June 30, 1997
Total Stockholders' Equity
As of June 30, 1997 $ 6,025 $ 500 $ (500) $ 6,025
========= ======== ======== =========
F-5
<PAGE>
SOUTHERN SECURITY FINANCIAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
Note 1 - Basis of Presentation and Significant Accounting Policies:
Southern Security Financial Corporation (the Company) incorporated as a
Delaware corporation and commenced business on October 4, 1996. The Company was
formed with the intent to negotiate a merger with a banking corporation based in
Florida. Therefore, no revenues or expenses will be generated until the merger
becomes effective.
A) Income Taxes
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires a change
from the deferral method to the assets and liability method of accounting for
income taxes. Timing differences exist between book income and tax income which
relate primarily to the recognition of income.
B) Net Earnings/(Loss) Per Common Share
Net earnings/(loss) per common share is computed by dividing net earnings/
(loss) by the weighted average number of shares of common stock outstanding
during the period.
C) Organizational Costs
Organizational costs are amortized using the straight-line method over a
period of sixty (60) months. Amortization of these expenses will not occur until
operations commence.
Note 2 - Common Stock:
A) Class A Shares
At June 30, 1997, 602,500 shares of Class A Common Stock have been issued
and are outstanding. The holders of these shares are considered to have voting
rights where one share equals one vote. Additionally, this class of stock
carries with it the right to receive dividends if the Board of Directors so
chooses.
F-6
<PAGE>
Note 2 - Common Stock:(continued)
B) Class B Shares
At June 30, 1997, no shares of Class B Common Stock have been issued or are
outstanding. The holders of these shares carry no voting rights, yet they have
the right to receive dividends if the Board of Directors so chooses. Upon the
occurrence of certain events, each share of Class B Common Stock is convertible
into one share of Class A Common Stock.
Note 3 - Preferred Stock:
In and among itself, the Preferred Stock carries with it no natural rights.
The Preferred Stock, however, at the authorization of the Board of Directors,
may be designated into one or more series. Upon designation, the Board of
Directors will determine any and all rights that these series of Preferred Stock
shall carry.
At June 30, 1997, the Board of Directors has designated 1,200,000 shares of
the Preferred Stock as Series A Preferred Stock. Holders of Series A Preferred
Stock are considered to have voting rights where one share of stock equals one
vote. The Series A Preferred Stock is entitled to cumulative dividends at the
rate of $.06 per share. Holders of the Series A Preferred Stock will be entitled
to additional dividends in the event the Board of Directors declares and pays
dividends on the Company's Common Stock on the same basis as though the shares
of Series A Preferred Stock had been converted into shares of Common Stock.
Note 4 - Related Party Transactions:
Since inception, the Company has been sharing office space with its major
shareholder, Mega Holding Corp. (Mega). Additionally, the Company maintains two
of Mega's current employees as its own officers. Due to the nature of shell
company operations, compensation due to Mega and its employees for these
services are deemed immaterial and are therefore not accounted for in these
financial statements.
F-7
<PAGE>
SOUTHERN SECURITY BANK CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1996
F-8
<PAGE>
McCadrey & Pullen, L.L.P.
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Southern Security Bank Corporation and Subsidiary
Boca Raton, Florida
We have audited the accompanying consolidated balance sheet of Southern
Security Bank Corporation and subsidiary as of December 31, 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of the Company
for the year ended December 31, 1995, were audited by other auditors whose
report, dated June 10, 1997, expressed an unqualified opinion on those
statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Southern Security Bank Corporation and subsidiary as of December 31, 1996, and
the results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
As discussed in Note 14 to the financial statements, the Company entered
into a written agreement with the Federal Reserve Bank ("FRB") which requires,
among other things, that the Bank meet prescribed minimum capital requirements.
Although the Bank met these capital requirements at December 31, 1996, the
Bank's ability to meet the prescribed capital requirements in the future is
uncertain. Failure to meet these requirements may result in one or more
regulatory sanctions, including restricting as to the source of deposits and the
appointment of a conservator. Management's plans concerning these matters are
described in Note 14.
/s/McGadrey & Pullen, LLP
Fort Lauderdale, Florida
March 14, 1997, except for reference to prior
auditor, as to which the date is June 10, 1997
F-9
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
-------------- ---------------
Cash and due from banks (Note 2) $ 3,005,602 $ 1,392,862
Federal funds sold 1,231,000 1,012,000
-------------- ---------------
Total cash and cash equivalents 4,236,602 2,404,862
Securities held to maturity (Note 3) 2,108,882 1,644,863
Securities available for sale (Note 3) 1,377,545 3,363,079
Federal Reserve Bank stock, at cost 59,500 53,800
Loans, net (Notes 4, 11 and 15) 11,414,773 9,343,107
Premises and equipment (Note 5) 430,275 439,156
Other real estate owned 489,804 489,804
Accrued interest receivable 106,715 130,654
Other assets 96,896 198,209
-------------- ---------------
$ 20,320,992 $ 18,067,534
============== ===============
F-10
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
------------ -------------
Liabilities:
Noninterest-bearing deposits $ 5,847,168 $ 3,615,650
Interest-bearing deposits (Note 6) 12,409,035 12,820,529
------------- -------------
Total deposits 18,256,203 16,436,179
Securities sold under repurchase agreements 750,000
Notes Payable (Note 8) 250,000 250,000
Other liabilities 305,805 349,778
------------- -------------
Total liabilities 19,562,008 17,035,957
------------- -------------
Commitments and contingencies (Note 15)
Minority interest in subsidiary 37,816 45,800
------------- -------------
Stockholders' equity (Notes 3, 9, 10, and 13):
Series A voting convertible preferred stock,
$.01 par value; $1.50 liquidation value;
1,200,000 shares authorized; issued and
outstanding 1996 596,622 shares;
1995 1,002,624 shares 5,966 10,026
Class A voting common stock, $.01 par value;
20,000,000 1,644,988 shares authorized;
issued and outstanding 1996 9,856,664
shares; 1995 8,893,442 shares 98,567 88,934
Capital surplus 3,259,822 2,933,995
Accumulated (deficit) (2,619,576) (2,064,237)
------------- -------------
744,779 968,718
Unrealized gain (loss) on securities
available for sale, net (Note 3) (23,611) 17,059
------------- -------------
Total stockholders' equity 721,168 985,777
------------- -------------
$ 20,320,992 $ 18,067,534
============= =============
See Notes to Consolidated Financial Statements.
F-11
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996 and 1995
1996 1995
------------- -------------
Interest income:
Interest and fees on loans $ 1,077,786 $ 883,351
Interest and dividends on securities 280,152 158,756
Interest on federal funds sold 46,831 118,105
-------------- -------------
1,404,769 1,160,212
Interest expense:
Deposits 591,883 524,592
-------------- -------------
Net interest income 812,886 635,620
Provision for loan losses (Note 4) 8,000
-------------- -------------
Net interest income
after provision for loan losses 804,886 635,620
-------------- -------------
Other income:
Service charges on deposit accounts 70,062 51,108
Securities losses, net (Note 3) (6,697)
Other 44,162 83,111
-------------- -------------
Total other income 107,527 134,219
-------------- -------------
Other expenses:
Salaries and employee benefits 685,646 701,575
Occupancy and equipment 333,710 367,838
Other 454,877 427,890
-------------- -------------
Total other expenses 1,474,233 1,497,303
-------------- -------------
Net (loss) before minority interest in
net income of subsidiary (561,820) (727,464)
Minority interest in net income of subsidiary 6,481 13,332
-------------- -------------
Net (loss) $ (555,339) $ (714,132)
============== =============
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Preferred Stock Common Stock
Paid-In Accumulated Available for
---------------- ------------
Shares Amount Shares Amount
Capital (Deficit) Sale, Net Total
---------- --------- --------- ---------
- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
Balance, December 31, 1994 624,264 $ 6,243 7,632,244 $ 76,322
$2,004,490 $ (1,350,105) $ (8,461) $ 728,489
Net (loss) - - - -
- (714,132) - (714,132)
Issuance of stock in
private placements 378,360 3,783 1,261,198 12,612
929,505 - - 945,900
Net change in unrealized
gain (loss) on securities
available-for-sale (Note 3) - - - -
- - 25,520 25,520
---------- --------- --------- ---------
- ----------- ------------- ---------- -----------
Balance, December 31, 1995 1,002,624 $ 10,026 8,893,442 $ 88,934
$2,933,995 $ (2,064,237) $ 17,059 $ 985,777
Net (loss) - - - -
- (555,339) - (555,339)
Issuance of stock in
private placements 29,558 296 527,662 5,277
325,827 - - 331,400
Conversion of preferred
stock (Note 9) (435,560) (4,356) 435,560 4,356
- - - -
Net change in unrealized
gain (loss) on securities
available-for-sale (Note 3) - - - -
- - (40,670) (40,670)
---------- --------- --------- ---------
- ----------- ------------- ---------- -----------
Balance, December 31, 1996 596,622 $ 5,966 9,856,664 $ 98,567
$3,259,822 $ (2,619,576) $ (23,611) $ 721,168
========== ========= ========= =========
=========== ============= =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-13
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
1996 1995
------------- -------------
Cash Flows From Operating Activities
Net (loss) $ (555,339) $ (714,132)
Adjustments to reconcile net (loss)
to net cash provided by operating activities:
Net (accretion) on securities (1,931) (4,126)
Provision for loan losses 8,000
Depreciation and amortization 65,254 58,707
Securities losses, net 6,697
Minority interest in net income of subsidiary (6,481) (13,332)
Decrease (increase) in
Accrued interest receivable 23,939 (70,230)
Other assets 21,105 54,983
Increase in other liabilities 36,235 147,155
------------ -------------
Net cash (used in operating activities (402,521) (540,975)
------------ -------------
Cash Flows From Investing Activities
Net cash flows from securities (Note 16) 1,474,576 (3,411,905)
Purchase of Federal Reserve Bank stock (5,700) (16,400)
Loan originations and principal
collections on loans (289,132) (1,918,981)
Purchases of loans (1,790,534)
Purchase of premises and equipment (56,373) (57,374)
Proceeds from sale of other real estate owned 206,065
------------ -------------
Net cash (used in) investing activities (667,163) (5,198,595)
------------ -------------
Cash Flows From Financing Activities
Proceeds from notes payable 750,000
Net increase in deposits 1,820,024 5,753,170
Proceeds from issuance of stock 331,400 945,900
------------ -------------
Net cash provided by financing activities 2,901,424 6,699,070
------------ -------------
Increase in cash and cash equivalents 1,831,740 959,500
Cash and cash equivalents
Beginning 2,404,862 1,445,362
------------ -------------
Ending $ 4,236,602 $ 2,404,862
============= =============
See Notes to Consolidated Financial Statements.
F-14
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Description of business: Southern Security Bank Corporation (the "Corp.")
provides a full range of banking services to individual and corporate customers
in Southeast Florida through its subsidiary bank.
Basis of presentation: The financial statements of the Corp. and its
subsidiary have been prepared in conformity with generally accepted accounting
principles and conform to predominate practice within the banking industry. In
preparing the financial statements, the Corp.'s management is required to make
estimates and assumptions which significantly affect the amounts reported in the
financial statements. Significant estimates which are particularly susceptible
to change in a short period of time include the determination of the allowance
for loan losses and the fair value of securities. Actual results could differ
from those estimates.
Principles of consolidation: The accompanying consolidated financial
statements include the accounts of Southern Security Bank Corporation and its
majority-owned subsidiary, Southern Security Bank of Hollywood (the "Bank"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
Cash and cash flows: Cash and cash equivalents includes cash and due from
banks, and federal funds sold. For purposes of reporting cash flows, loans and
deposits are reported net.
Securities held to maturity: Debt securities for which the Bank has both
the positive intent and ability to hold to maturity are classified as held to
maturity and reported at amortized cost. Amortization of premiums and accretion
of discounts, computed by the interest method over their contractual lives, is
included in interest income.
In November 1995, the FASB issued a Special Report on implementation of
SFAS No. 115. The Special Report included a transition provision which permitted
all entities to reassess the appropriateness of securities classifications and
permitted the transfer of securities between classifications by December 31,
1995. On December 28, 1995, $1.2 million of securities held to maturity with
aggregate unrealized losses of $2,600 were transferred to securities available
for sale.
Securities available for sale: Securities classified as available-for-sale
are those debt securities that the Bank intends to hold for an indefinite period
of time, but not necessarily to maturity. Any decision to sell a security
classified as available-for-sale would be based on various factors, including
significant movements in interest rates, changes in the maturity mix of the
Bank's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors.
Securities available for sale are reported at fair value with unrealized
gains or losses reported as a separate component of stockholders' equity, net of
the related deferred tax effect. The amortization of premiums and accretion of
discounts, computed by the interest method over the contractual lives of the
applicable securities are included in interest income. Realized gains or losses,
determined on the basis of the cost of specific securities sold, are included in
earnings.
Declines in the fair value of individual securities classified as either
held to maturity or available for sale below their amortized cost that are
determined to be other than temporary result in write-downs of the individual
securities to their fair value with the resulting write-downs included in
current earnings as realized losses.
F-15
<PAGE>
Note 1. Summary of Significant Accounting Policies (Continued)
Loans: Loans receivable that management has the intent and ability to hold
for the foreseeable future or until maturity or payoff are stated at the amount
of unpaid principal, net of unearned discount, net of loan origination fees and
costs, and an allowance for loan losses.
Loan origination and commitment fees and certain direct loan origination
costs are being deferred and recognized over the expected life of the related
loan as an adjustment of yield. The Bank is generally amortizing these amounts
over the contractual life. Commitment fees based upon a percentage of a
customer's unused line of credit and fees related to standby letters of credit
are recognized over the commitment period.
Interest on loans is calculated by using the simple interest method on
daily balances of the principal amount outstanding. For impaired loans, accrual
of interest is discontinued on a loan when management believes, after
considering collection efforts and other factors, that the borrower's financial
condition is such that collection of interest is doubtful. Interest income is
recognized on those loans only upon receipt.
A loan is impaired when it is probable the Bank will be unable to collect
all contractual principal and interest payments due in accordance with the terms
of the loan agreement. Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. The amount of
impairment, if any, and any subsequent changes are included in the allowance for
loan losses.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb estimated losses on existing loans, based on an evaluation of the
collectibility of loans and prior loss experience. This evaluation also takes
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrower's ability to pay. While
management uses the best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are significant changes
in economic conditions.
Premises and equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed principally by the
straight-line methods over the following estimated useful lives:
Years
---------------
Leasehold improvements 5 - 10
Furniture and equipment 3 - 12
F-16
<PAGE>
Note 1. Summary of Significant Accounting Policies (Continued)
Other real estate owned: Real estate acquired through foreclosure or deed
in lieu of foreclosure represents specific assets to which the Corp. has
acquired legal title in satisfaction of indebtedness. Such real estate is
recorded at the property's fair value at the date of foreclosure (cost). Initial
valuation adjustments, if any, are charged against the allowance for loan
losses. Property is evaluated regularly to ensure the recorded amount is
supported by its current fair value and valuation allowances to reduce the
carrying amount to fair value less estimated cost to dispose are recorded as
necessary. Revenues and expenses related to holding and operating these
properties are included in operations.
Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences, and
operating loss or tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
Current accounting development: The Financial Accounting Standards Board
has issued Statement No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities, which becomes effective for
certain transactions occurring after December 31, 1996 and for other
transactions occurring after December 31, 1997. The Statement does not permit
earlier or retroactive application. The Statement distinguishes transfers of
financial assets that are sales from transfers that are secured borrowings. A
transfer of financial assets in which the transferor surrenders control over
those assets is accounted for as a sale to the extent that consideration other
than beneficial interests in the transferred assets is received in exchange. The
Statement also establishes standards on the initial recognition and measurement
of servicing assets and other retained interests and servicing liabilities, and
their subsequent measurement.
The Statement requires that debtors reclassify financial assets pledged as
collateral and that secured parties recognize those assets and their obligation
to return them in certain circumstances in which the secured party has taken
control of those assets. In addition, the Statement requires that a liability be
derecognized only if the debtor is relieved of its obligation through payment to
the creditor or by being legally released from being the primary obligor under
the liability either judicially or by the creditor.
Management does not believe the application of the Statement to
transactions of the Bank that have been typical in the past will materially
affect the Bank's financial position and results of operations.
Note 2. Restrictions on Cash and Due From Banks
The Bank is required to maintain reserve balances in cash or on deposit
with the Federal Reserve Bank, based on a percentage of deposits. Required
reserve balances were completely satisfied by cash on hand at December 31, 1996
and 1995.
F-17
<PAGE>
Note 3. Investment Securities
Securities held to maturity: The amortized cost and fair values of
securities held to maturity as of December 31, 1996 and 1995 are summarized as
follows:
1996
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
----------- -------- ---------- -----------
U. S. Government
corporations and agencies $ 1,399,327 $ $ (22,708) $ 1,376,619
Mortgage-backed securities 709,555 7,518 717,073
----------- -------- ---------- -----------
$ 2,108,882 $ 7,518 $ (22,708) $ 2,093,692
=========== ======== ========== ===========
1995
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
----------- -------- ---------- -----------
U. S. Government
corporations and agencies $ 1,401,641 $ 6,732 $ (937) $ 1,407,436
Mortgage-backed securities 243,222 4,720 247,942
----------- -------- ---------- -----------
$ 1,644,863 $ 11,452 $ (937) $ 1,655,378
=========== ======== ========== ===========
The amortized cost and fair values of securities held to maturity at
December 31, 1996, by contractual maturity, are shown below.
Amortized Fair
Cost Values
------------ -------------
Due after five years through ten years $ 899,327 $ 887,089
Due after ten years 500,000 489,530
Mortgage-backed securities 709,555 717,073
------------ -------------
$ 2,108,882 $ 2,093,692
============ =============
Gross losses of $1,453 were recognized on securities held to maturity in
the year ended December 31, 1996 as a result of the disposition of a security
that was called by the maker.
Securities held to maturity with a carrying amount of approximately
$475,000 and $402,000 at December 31, 1996 and 1995, respectively, were pledged
as collateral on trustee deposits and repurchase agreements.
F-18
<PAGE>
Note 3. Investment Securities (Continued)
Securities available for sale: The amortized cost and fair values of
securities available for sale as of December 31, 1996 and 1995 are summarized as
follows.
1996
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
----------- -------- ---------- -----------
Mortgage-backed securities $ 1,390,201 $ 2,852 $ (15,508) $ 1,377,545
=========== ======== ========== ===========
1995
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
----------- -------- ---------- -----------
U. S. Government
corporations and agencies $ 1,690,860 $ $ (12,795) $ 1,678,065
Mortgage-backed securities 1,654,475 31,594 (1,055) 1,685,014
----------- -------- ---------- -----------
$ 3,345,335 $ 31,594 $ (13,850) $ 3,363,079
=========== ======== ========== ===========
Contractual maturities of mortgage-backed securities available for sale are
not disclosed because borrowers have the right to call or repay obligations with
or without call or repayment penalties.
Gross realized losses from the sale of securities available for sale for
the year ended December 31, 1996 were $5,244. No securities available for sale
were sold in the year ended December 31, 1995.
Securities available for sale with a carrying amount of approximately
$715,000 and $250,000 at December 31, 1996 and 1995, respectively, were pledged
as collateral on trustee deposits and for repurchase agreements.
F-19
<PAGE>
Note 3. Investment Securities (Continued)
Changes in the unrealized loss on securities available for sale are as
follows:
Years Ended December 31,
------------------------
1996 1995
------------------------
Balance, beginning $ 17,059 $ (8,461)
Net change in unrealized gains
(losses) during the year (42,373) 26,712
Amortization of unrealized loss on
security transferred to held to maturity 145
Allocation of changes to minority
interest in subsidiary 1,558 (1,192)
---------- ----------
Balance, ending $ (23,611) $ 17,059
========== ==========
Note 4. Loans
The composition of net loans as of December 31, 1996 and 1995 is as
follows:
1996 1995
-------------- -------------
Commercial $ 3,641,451 $ 2,734,280
Commercial real estate 3,342,084 1,815,355
Residential real estate 3,627,871 3,183,972
Consumer 915,062 1,745,659
Other 57,953 19,990
-------------- -------------
11,584,421 9,499,256
-------------- -------------
Allowance for loan losses (196,140) (182,832)
Deferred loan costs, net 26,492 26,683
-------------- -------------
Loans, net $ 11,414,773 $ 9,343,107
============== =============
Activity in the allowance for loan losses for the years ended December 31,
1996 and 1995 was as follows:
1996 1995
------------- ------------
Balance, beginning $ 182,832 $ 168,767
Provision for loan losses 8,000
Recoveries of amounts charged off 10,634 14,065
Amounts charged off (5,326)
------------- ------------
Balance, ending $ 196,140 $ 182,832
============= ============
F-20
<PAGE>
Note 4. Loans (Continued)
The Bank's recorded investment in impaired loans was $56,124 and none at
December 31, 1996 and 1995, respectively. The specific SFAS No. 114 allowance
associated with impaired loans, and included in the allowance for loan losses,
at December 31, 1996 was $24,073. The average recorded investment in impaired
loans during 1996 and 1995 was $45,000 and $50,000, respectively. Interest
income on impaired loans, recognized for cash payments received in 1996 and
1995, was not significant.
Note 5. Premises and Equipment
The major classes of premises and equipment and the total accumulated
depreciation as of December 31, 1996 and 1995 are as follows:
1996 1995
------------ ------------
Leasehold improvements $ 675,332 $ 671,007
Furniture, fixtures, and equipment 536,105 578,937
------------ ------------
1,211,437 1,249,944
Less accumulated depreciation and amortization 781,162 810,788
------------ ------------
$ 430,275 $ 439,156
============ ============
Note 6. Deposits
The composition of interest-bearing deposits at December 31, 1996 and 1995
is as follows:
1996 1995
------------- -------------
Now accounts $ 1,167,277 $ 1,220,545
Money markets 3,584,884 3,400,278
Savings accounts 363,789 297,727
Certificates of deposit less than $100,000 5,203,073 5,801,979
Certificates of deposit of $100,000 or more 2,090,012 2,100,000
------------- -------------
Total $ 12,409,035 $ 12,820,529
============= =============
At December 31, 1996, the scheduled maturities of certificates of deposit
are as follows:
Years ending December 31,
-------------------------
1997 $ 6,358,240
1998 928,845
2001 6,000
-------------
$ 7,293,085
=============
F-21
<PAGE>
Note 7. Income Taxes
The net cumulative tax effects of the primary temporary differences as of
December 31, 1996 and 1995 are shown in the following table:
1996 1995
------------- ------------
Deferred tax assets:
Allowances for loan losses $ $ 1,800
Other real estate owned writedowns 25,200 25,200
Premises and equipment 47,900 49,600
Net operating loss carryforward 2,568,900 2,382,700
Accrual to cash conversion for income taxes 40,100 8,000
Unrealized loss on securities available for sale 4,800
Other 2,300 2,300
------------- ------------
Total deferred tax assets 2,689,200 2,469,600
------------- ------------
Deferred tax liabilities:
Allowances for loan losses (6,800)
Deferred loan costs (9,900) (10,000)
Unrealized gain on securities available for sale (6,700)
------------- ------------
Total deferred tax liabilities (16,700) (16,700)
------------- ------------
2,672,500 2,452,900
Valuation allowance for deferred tax assets (2,672,500) (2,452,900)
------------- ------------
Net deferred tax assets $ $
============ ============
The Corp. has recorded a valuation allowance on the deferred tax assets to
reduce the total to an amount that management believes will ultimately be
realized. Realization of deferred tax assets is dependent upon sufficient future
taxable income during the period that deductible temporary differences and
carryforwards are expected to be available to reduce taxable income. No income
tax benefits have been provided for the years ended December 31, 1996 and 1995,
because of the net operating losses available for carryforward.
F-22
<PAGE>
Note 7. Income Taxes (Continued)
The Bank has available federal net operating loss carryforwards
approximating the following at December 31, 1996:
Expiring December 31,
--------------------- -------------
2002 $ 143,000
2003 998,000
2004 500,000
2005 759,000
2006 526,000
2007 935,000
2008 905,000
2009 872,000
2010 898,000
2011 313,000
-------------
$ 6,849,000
=============
Note 8. Notes Payable
The Corp. has an unsecured note payable to a trust affiliated with a
shareholder in the amount of $100,000 at December 31, 1996. The note is due June
30, 1997 and interest is payable quarterly at 8.0%. The due date of the note is
automatically extended for additional periods of six months at each due date
unless the lender provides 30 days notice of its intent not to permit additional
extensions.
The Corp. also has unsecured notes payable to two directors and officers in
the total amount of $150,000 at December 31, 1996. The notes are due on demand
and are noninterest bearing.
Note 9. Preferred Stock
The Series A preferred stock is convertible into common stock on a
share-for-share basis upon the occurrence of certain events. Dividends are
payable quarterly, when declared by the Board of Directors, on the Series A
preferred stock at an annual rate of $.05 per share. Accumulated but unpaid
dividends for any past quarterly dividend periods will be cumulative and accrue
without interest. No dividends may be declared or paid on common stock of the
Corp. and no common stock shall be redeemed until all dividends in arrears on
the Series A preferred stock have been paid. In addition, holders of Series A
preferred stock shall also receive a dividend any time a dividend is declared on
the Class A common stock generally on a share for share basis. No dividends have
been declared on the Series A preferred stock since the inception of the Corp.
Accrued but unpaid dividends at December 31, 1996 and 1995 totaled approximately
$120,000 and $70,000, respectively.
F-23
<PAGE>
Note 9. Preferred Stock (Continued)
Shares of Series A preferred stock may be either converted to Class A
common stock, generally on a share for share basis, or redeemed at a price of
$1.50 per share plus the amount of any dividends in arrears, in the event the
Corp. files a registration statement. Shares of Series A preferred stock may be
redeemed at a price of $1.50 per share plus the amount of any dividends in
arrears, in the event the Company (1) merges with another company and does not
remain as the continuing corporation, (2) sells or transfers all or
substantially all of its assets to another corporation, or (3) the Company is
liquidated, dissolved or otherwise winds up its business. In the event of a
stock split, reverse stock split or stock dividend resulting in an increase or
decrease in the number of shares of common stock outstanding, the conversion
price of the Series A preferred stock shall be correspondingly increased or
decreased proportionately.
In addition, 5 million shares of Class B nonvoting convertible common stock
have been authorized by the Corp. No such shares have been issued and none were
outstanding at either December 31, 1996 or 1995.
Note 10. Stock Options
Under the Incentive Stock Option Plan (the "Plan") adopted by the Bank in
1988, the Bank is authorized to grant options for the purchase of up to 20% of
the outstanding common shares of the Bank, or 380,000 shares at December 31,
1996. All directors, officers and employees of the Bank are eligible to receive
options to purchase shares of common stock at the fair value of the stock at the
date of grant, but in no event may the price be less than the par value of such
stock. The Plan expires March 19, 1998 and no additional options may be granted
after that date under the Plan. The weighted-average remaining life of options
outstanding at December 31, 1996 and 1995 is 6.9 years and 7.5 years,
respectively.
A summary of the options for the purchase of common stock of the Bank
outstanding as of December 31, 1996 and 1995, and changes during the years then
ended is presented below. The fair value of each option grant is estimated on
the date of grant using the present value with the following weighted-average
assumptions used for grants in 1996 and 1995: risk-free interest rates of 7
percent and expected lives of 6 years for 1996 and 7 years for 1995.
1996 1995
--------------------------------------------
Weighted- Weighted-
Average Average
Shares Exercise Price Shares Exercise Price
--------------------------------------------
Outstanding at beginning of year 193,930 $ 1.00 3,130 $ 1.00
Granted 137,760 1.00 194,520 1.00
Exercised
Forfeited (12,000) (3,720)
-------- --------
Outstanding at end of year 319,690 1.00 193,930 1.00
======== ========
Options exercisable at year-end 319,690 1.00 193,930 1.00
======== ========
Weighted-average fair value of
options granted during the year $ 0.09 $ 0.10
F-24
<PAGE>
Note 10. Stock Options (Continued)
In addition to the plan discussed above, the Corp. has granted stock
options for the purchase of shares of common stock of the Company to directors
of the Company under various compensation agreements and actions of the Board of
Directors, representing a majority of the shareholders. All options for the
purchase of common stock of the Corp. expire 10 years from the date of issue.
The weighted-average remaining life of options outstanding at December 31, 1996
and 1995 was 7.6 years and 8.6 years, respectively.
A summary of the options for the purchase of common stock of the Corp.
outstanding as of December 31, 1996 and 1995, and changes during the years then
ended is presented below. The fair value of each option grant is estimated on
the date of grant using the present value with the following weighted-average
assumptions used for grants in 1996 and 1995: risk-free interest rates of 7
percent and expected lives of 9 years for both years.
1996 1995
----------------------------------------------
Weighted- Weighted-
Average Average
Shares Exercise Price Shares Exercise Price
----------------------------------------------
Outstanding at beginning of year 1,898,402 $ 0.09 1,628,000 $ 0.08
Granted 103,000 0.09 270,402 0.09
Exercised
Forfeited
--------- ---------
Outstanding at end of year 2,001,402 0.09 1,898,402 0.09
========= =========
Options exercisable at year-end 2,001,402 0.09 1,774,949 0.09
========== ==========
Weighted-average fair value of
options granted during the year $ 0.04 $ 0.04
The Corp. and its subsidiary apply APB Opinion 25 and related
Interpretations in accounting for their plans. Accordingly, no compensation cost
has been recognized for the stock options discussed above. Had compensation cost
for the Corp.'s stock options been determined based on the fair value at the
grant dates for awards under those plans, the Corp.'s net loss for the years
ended December 31, 1996 and 1995 would have increased by approximately $16,000
and $30,000, respectively.
Note 11. Related-Party Transactions
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, significant
stockholders, principal officers, their immediate families and affiliated
companies in which they are principal stockholders (commonly referred to as
related parties). Aggregate loans to, or guaranteed by, these related parties
totaled approximately $705,000 and $836,000 at December 31, 1996 and 1995,
respectively.
F-25
<PAGE>
Note 12. Leases
The Bank leases its facilities under a noncancelable agreement which
expires December 31, 2003, with one ten-year renewal option. The approximate
future minimum lease payments, as reduced by minimum sublease income, under this
lease as of December 31, 1996, are as follows:
Years ending December 31 Amount
------------------------ -------------
1997 $ 232,016
1998 268,650
1999 294,735
2000 303,577
2001 312,684
Thereafter 653,792
-------------
Total minimum lease payments $ 2,065,454
=============
Total lease expense for the years ended December 31, 1996 and 1995
approximated $226,900 and $203,600, respectively, net of sublease income of
approximately $40,600 and $58,700, respectively, and is included in occupancy
and equipment expense in the accompanying consolidated statements of income.
Note 13. Restrictions on Retained Earnings and Regulatory Capital Requirements
The Bank is subject to certain restrictions on the amount of dividends that
may be declared without prior regulatory approval. At December 31, 1996, no
retained earnings were available for dividend declaration without regulatory
approval.
The Bank is subject to various 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 adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative 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
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets (all defined in the regulations). Management believes
the Bank meets all capital adequacy requirements to which it is subject as of
December 31, 1996.
As of December 31, 1996, the most recent notification from the Federal
Reserve categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized the Bank
must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table below. There are no conditions or events since
that notification that management believes have changed the Bank's category.
F-26
<PAGE>
Note 13. Restrictions on Retained Earnings and Regulatory Capital Requirements
(Continued)
The Bank's actual capital amounts and ratios are also presented in the
table below:
<TABLE>
<CAPTION>
<S> <C> <C>
<C>
To Be Well Capitalized
For Capital
Under Prompt Corrective
Actual Adequacy Purposes
Action Provisions
------------------- ------------------
--------------------
---------------------------
As of December 31, 1996:
Total Capital (to
Risk-Weighted Assets) $ 1,238,319 11.2% $ 881,360 8.0%
$ 1,101,700 10.0%
Tier I Capital (to
Risk-Weighted Assets) $ 1,099,885 10.0% $ 440,680 4.0%
$ 661,020 6.0%
Tier I Capital (to
Average Assets) $ 1,099,885 6.6% $ 670,440 4.0%
$ 838,050 5.0%
As of December 31, 1995:
Total Capital (to
Risk-Weighted Assets) $ 1,303,647 13.7% $ 763,775 8.0%
$ 954,719 10.0%
Tier I Capital (to
Risk-Weighted Assets) $ 1,183,523 12.4% $ 381,888 4.0%
$ 572,832 6.0%
Tier I Capital (to
Average Assets) $ 1,183,523 6.7% $ 710,440 4.0%
$ 888,050 5.0%
</TABLE>
Note 14. Regulatory Matters and Going Concern Considerations
On April 13, 1995, the Company entered into a written agreement (the
"Agreement") with the Federal Reserve Bank of Atlanta (the "FRB"). Among other
items, the written agreement:
a. Prohibits the declaration or payment of dividends by the Corp. without the
prior written approval of the FRB;
b. Requires the Corp. to submit a written plan to maintain an adequate capital
position which, at a minimum, addresses and considers (i) current and
future capital requirements of the Bank, including the maintenance of
adequate capital ratios, (ii) the volume of the Bank's adversely classified
assets, (iii) the Bank's anticipated level of earnings, and (iv) the source
and timing of additional funds that may be necessary to fulfill future
capital requirements;
c. Prohibits any additional borrowings by the Corp., or any payments on
existing debt of the Company, without the prior written approval of the
FRB;
d. Prohibits the Corp. from entering into new financial transactions, or
amending the terms of existing agreements, with related parties, without
the prior written approval of the FRB; and,
e. Prohibits the Corp. from entering into any transaction with the Bank
without the prior written approval of the FRB.
F-27
<PAGE>
Note 14. Regulatory Matters and Going Concern Considerations (Continued)
On March 17, 1992, the Bank entered into a written agreement (the
"Agreement") with the Federal Reserve Bank of Atlanta (the "FRB") and the State
of Florida Department of Banking and Finance (the "Department"). In addition to
requiring the Bank to implement certain operating administrative policy and
procedure changes, the written agreement:
a. Prohibits the declaration or payment of dividends by the Bank without the
prior written approval of the FRB and the Department;
b. Requires the Bank to submit a written plan to maintain an adequate capital
position which, at a minimum, addresses and considers (a) current and
future capital requirements including the maintenance of minimum capital
ratios, (b) the volume of adversely classified assets, (c) the Bank's
anticipated level of retained earnings, and (d) the source and timing of
additional funds that fulfill future capital requirements;
c. Requires that, in the event the Bank's leverage ratio falls below 6.25%,
the Bank notify the FRB and the Department about the capital deficiency and
submit a written statement detailing the steps to be taken to increase the
leverage ratio; and,
d. Requires the Bank to maintain at all times an allowance for loan losses not
less than 1.53% of total loans.
The accompanying financial statements have been prepared assuming that the
Corp. will continue as a going concern which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. As
shown in the financial statements, the Corp. incurred net losses of $555,339 and
$714,132 during the years ended December 31, 1996 and 1995, respectively.
Although the Bank met the minimum regulatory capital requirements prescribed by
the Federal Reserve Board, Federal Deposit Insurance Corporation, and the State
of Florida Department of Banking and Finance at December 31, 1996, the Bank's
ability to meet the prescribed capital requirements in the future is uncertain.
Failure to meet these capital requirements may result in one or more regulatory
sanctions, including restrictions as to the source of deposits and the
appointment of a conservator. In the Corp.'s written plan submitted to the FRB,
as well as the Bank's written plan submitted to the FRB and the State of Florida
Department of Banking and Finance, management has indicated that it intends to
raise additional capital through the sale of common stock. It is the opinion of
management that the future of the Corp. is dependent on additional capital to be
raised through this sale of additional common stock. There can be no assurance
that such sale can be accomplished. The financial statements do not include the
adjustments, if any (such as those related to the recovery of reported asset
amounts), that might result from the outcome of this uncertainty.
F-28
<PAGE>
Note 15. Commitments and Contingencies
Financial instruments with off-balance-sheet risk: The Bank is a party to
financial instruments with off-balance-sheet risk in the normal course of
business, to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amounts recognized on the consolidated balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instruments for commitments to extend credit and
letters of credit is represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
These commitments were as follows at December 31, 1996 and 1995:
1996 1995
-------------- -------------
Commitments to extend credit $ 1,536,353 $ 1,391,395
Standby letters of credit 58,632
--------------- -------------
$ 1,594,985 $ 1,391,395
============== =============
Commitments to extend credit are commitments to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
any, is based on management's credit evaluation of the counterparty. Collateral
held varies, but may include cash, accounts receivable, inventory, property,
plant and equipment, and residential and commercial real estate.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, construction bonding, and similar transactions. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers. The collateral varies but may include
accounts receivable, inventory, property, plant and equipment, and residential
and commercial real estate.
Contingencies: In the normal course of business, the bank is involved in
various legal proceedings. In the opinion of management, any liability resulting
from such proceedings would not have a material adverse effect on the Bank's
financial statements.
In addition, the Corp. has executed employment agreements with two
individuals who are both officers and directors of the Company. Under the terms
of the employment agreements, the Corp. has agreed to pay base salaries and
certain other benefits and compensation to the two officers. The actual amounts
paid through December 31, 1996 are less than the amount contractually due under
the employment agreements by approximately $385,000. The two individuals have
voluntarily agreed not to demand the payment of such additional amounts due to
them until such time, if ever, that certain conditions are met.
The employment agreements also include provisions requiring the payment of
certain amounts upon the occurrence of certain events leading to the termination
of employment such as a change in control of the Corp., death or disability.
F-29
<PAGE>
Note 15. Commitments and Contingencies (Continued)
Financial instruments with concentration of credit risk: The Bank makes
commercial, residential and consumer loans to customers primarily in Southeast
Florida. A substantial portion of its debtors' abilities to honor their
contracts is dependent upon the local economy. The economy of the Bank's primary
market area is not heavily dependent on any individual economic sector.
Interest rate risk: The Bank assumes interest rate risk as a result of its
normal operations. As a result, the fair values of the Bank's financial
instruments will change when interest rate levels change, and that change may be
either favorable or unfavorable to the Bank. Management attempts to match
maturities of assets and liabilities to the extent believed necessary to manage
interest rate risk. However, borrowers with fixed-rate obligations are more
likely to prepay in a falling rate environment and less likely to prepay in a
rising rate environment. Conversely, depositors who are receiving fixed rates
are more likely to withdraw funds before maturity in a rising rate environment
and less likely to do so in a falling rate environment. Management monitors
rates and maturities of assets and liabilities and attempts to manage interest
rate risk by adjusting terms of new loans and deposits and by investing in
securities with terms that mitigate the Bank's overall interest rate risk.
Note 16. Additional Cash Flow Information
Years Ended December 31,
--------------------------------
1996 1995
------------- -------------
Cash flows from securities:
Securities available for sale:
Sales $ 1,173,016 $
Maturities and paydowns 252,964 551,155
Purchases (2,317,981)
Securities held to maturity:
Maturities and paydowns 447,846 555,751
Purchases (399,250) (2,200,830)
------------- --------------
$ 1,474,576 $ (3,411,905)
============= ==============
Supplemental disclosures of
cash flow information:
Cash payments for interest $ 632,532 $ 524,592
============= ==============
F-30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
SOUTHERN SECURITY FINANCIAL CORPORATION
(Registrant)
Date: November 7, 1997 By: /s/Nancy Montanaro
-------------------
Nancy Montanaro,
President and Principal
Executive Officer and
Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities on the date(s).
/s/Nancy Montanaro
- - ----------------- Director November 7, 1997
Nancy Montanaro
/s/ Silvio Codispoti
- - -------------------- Director November 7, 1997
Silvio Codispoti
<PAGE>
Exhibits
Exhibit List
3.1 Certificate of Incorporation (2)
3.2 Amendment to Certificate of Incorporation (2)
3.3 Bylaws (2)
4.1 Specimen Class A Common Stock Certificate (1)
10.1 Pro-forma merger agreement with Southern Security Bank Corporation
27 Financial Data Schedule
-----------------------
1. To be supplied by amendment
2. Previously submitted
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
SOUTHERN SECURITY FINANCIAL CORPORATION,
AND
SOUTHERN SECURITY BANK CORPORATION
DATED AS OF , 1997
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this the
day of 1997, by and between SOUTHERN SECURITY BANK CORPORATION
("Acquired Corporation"), a Florida corporation, and SOUTHERN SECURITY FINANCIAL
CORPORATION ("SSFC"), a Delaware corporation.
WITNESSETH:
WHEREAS, Acquired Corporation operates as a bank holding company for its
subsidiary, Southern Security Bank of Hollywood (the "Bank"), with its principal
office in Hollywood, Florida; and
WHEREAS, SSFC is desirous of becoming a bank holding company; and
WHEREAS, Acquired Corporation wishes to merge into SSFC and SSFC wishes
Acquired Corporation to merge into SSFC;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Parties hereto agree as follows:
ARTICLE 1
MERGER - TERMS AND CONDITIONS
1.1 Applicable Law.
On the Effective Date, Acquired Corporation shall be merged with and into
SSFC which shall be the surviving corporation in the merger (the "Merger") and
shall continue its corporate existence under the laws of the State of Delaware.
The Merger shall be undertaken pursuant to the provisions of and with the effect
provided in the Delaware General Corporation Law ("DGCL") and, to the extent
applicable, the Florida Business Corporation Act ("FBCA"). The offices and
facilities of Acquired Corporation shall become the offices and facilities of
SSFC.
1.2 Corporate Existence; Name of Surviving Corporation.
On the Effective Date, the corporate existence of Acquired Corporation
shall be merged into and continued in SSFC. All rights, franchises and interests
of Acquired Corporation and SSFC, respectively, in and to every type of property
(real, personal and mixed) and choses in action shall be transferred to and
vested in SSFC by virtue of the Merger without any deed or other transfer. SSFC
on the Effective Date, and without any order or other action on the part of any
court or otherwise, shall hold and enjoy all rights of property, franchises and
interests, including appointments, designations and nominations and all other
rights and interests as trustee, executor, administrator, transfer agent and
<PAGE>
registrar of stocks and bonds, guardian of estates, assignee, and receiver and
in every other fiduciary capacity and in every agency, and capacity, in the same
manner and to the same extent as such rights, franchises and interests were held
or enjoyed by Acquired Corporation on the Effective Date. Simultaneously with
the effective time and date of the merger, or as soon thereafter as is
reasonably practicable, the name of SSFC shall be changed to Southern Security
Bank Corporation.
1.3 Articles of Incorporation and Bylaws.
On the Effective Date, the certificate of incorporation and bylaws of SSFC
shall be the restated certificate of incorporation and bylaws of SSFC as they
exist immediately before the Effective Date.
1.4 SSFC's Officers and Board.
The members of the Board of Directors and the officers of the Surviving
Corporation immediately at the effective time and date of the Merger shall be
those persons who were members of the Board of Directors and the officers of the
Acquired Corporation at the Effective Date of the Merger. SSFC's stockholders
and Board of Directors shall take all actions necessary to accomplish the
foregoing.
1.5 Stockholder Approval.
This Agreement shall be submitted to the shareholders of Acquired
Corporation at a stockholders meeting ("Stockholder Meeting") to be held as
promptly as practicable consistent with the satisfaction of the conditions set
forth in this Agreement. Upon approval by the requisite vote of the shareholders
of Acquired Corporation as required by applicable Law, the Merger shall become
effective as soon as practicable thereafter in the manner provided in section
1.7 hereof.
1.6 Further Acts.
If, at any time after the Effective Date, SSFC shall consider or be advised
that any further assignments or assurances in law or any other acts are
necessary or desirable (i) to vest, perfect, confirm or record, in SSFC, title
to and possession of any property or right of Acquired Corporation, acquired as
a result of the Merger, or (ii) otherwise to carry out the purposes of this
Agreement, Acquired Corporation's officers and directors shall execute and
deliver all such proper deeds, assignments and assurances in law and do all acts
necessary or proper to vest, perfect or confirm title to, and possession of,
such property or rights in SSFC and otherwise to carry out the purposes of this
Agreement; and the proper officers and directors of SSFC are fully authorized in
the name of Acquired Corporation to take any and all such action.
1.7 Effective Date.
Subject to the terms of all requirements of Law and the conditions
specified in this Agreement, the Merger shall become effective on the date
specified in the Certificate of Merger to be issued by the Secretary of State of
the State of Delaware (such time being herein called the "Effective Date"). On
the Effective Date or as soon as practicable thereafter, SSFC shall cause itself
to be qualified to conduct business as a foreign corporation in the State of
Florida.
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ARTICLE 2
CONVERSION OF ACQUIRED CORPORATION STOCK
2.1 Conversion of Acquired Corporation Stock.
(a) On the Effective Date, each share of Class A common stock of Acquired
Corporation outstanding and held by Acquired Corporation's
shareholders shall be converted by operation of law and without any
action by any holder thereof into one-third the number of shares of
SSFC Class A Common Stock.
(b) On the Effective Date, each share of Series A convertible preferred
stock of Acquired Corporation outstanding and held by Acquired
Corporation's shareholders shall be converted by operation of law and
without any action by the holder thereof into one-third the number of
SSFC Series A Convertible Preferred Stock.
(c)
(i) On the Effective Date, SSFC shall assume all Acquired Corporation
Options outstanding, and each such option shall cease to
represent a right to acquire Acquired Corporation common stock
and shall, instead, represent the right to acquire SSFC Common
Stock on substantially the same terms applicable to the Acquired
Corporation Options except that the number of shares of SSFC
Common Stock to be issued pursuant to such options shall equal
one-third the number of shares of Acquired Corporation's Class A
common stock subject to such Acquired Corporation Options.
(ii) Subsequent to becoming a reporting company under the rules of the
Securities Exchange Act of 1934, SSFC shall file at its expense a
registration statement in an appropriate form with respect to the
shares of the SSFC's Common Stock to be issued pursuant to such
options and shall use its reasonable best efforts to secure and
maintain the effectiveness of such registration statement for so
long as such options remain outstanding. Such shares shall also
be registered or qualified for sale under the securities laws of
any state in which registration or qualification is necessary.
2.2 Surrender of Acquired Corporation Stock.
After the Effective Date, each holder of an outstanding certificate or
certificates which prior thereto represented shares of Acquired Corporation
Stock who is entitled to receive SSFC Common or Preferred Stock shall be
entitled, upon surrender to SSFC of his certificate or certificates representing
shares of Acquired Corporation Stock (or an affidavit or affirmation by such
holder of the loss, theft, or destruction of such certificate or certificates in
such form as SSFC may reasonably require and, if SSFC reasonably requires, a
bond of indemnity in form and amount, and issued by such sureties, as SSFC may
reasonably require), to receive in exchange therefor a certificate or
certificates representing the number of whole shares of SSFC Common or
Preferrred Stock into and for which the shares of Acquired Corporation Stock so
surrendered shall have been converted, such certificates to be of such
denominations and registered in such names as such holder may reasonably
request. Until so surrendered and exchanged, each such outstanding certificate
which, prior to the Effective Date, represented shares of Acquired Corporation
Stock and which is to be converted into SSFC Common or Preferred Stock shall for
all purposes evidence ownership of SSFC Common or Preferred Stock into and for
which such shares shall have been so converted, except that no dividends or
other distributions with respect to such SSFC Common or Preferred Stock shall be
made until the certificates previously representing shares of Acquired
Corporation Stock shall have been properly tendered.
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2.3 Fractional Shares.
No fractional shares of SSFC Common or Preferred Stock shall be issued, and
each holder of shares of Acquired Corporation Stock having a fractional interest
arising upon the conversion of such shares into SSFC Common or Preferred Stock
shall, at the time of surrender of the certificates previously representing
Acquired Corporation Stock, be paid by SSFC an amount in cash equal to the book
value of such fractional share on the financial statements of SSFC as of the
Effective Date.
2.4 Adjustments.
In the event that prior to the Effective Date SSFC Common Stock shall be
changed into a different number of shares or a different class of shares by
reason of any recapitalization or reclassification, stock dividend, combination,
stock split, or reverse stock split of the SSFC Common Stock, an appropriate and
proportionate adjustment shall be made in the number of shares of SSFC Common
Stock into which the Acquired Corporation Stock shall be converted.
2.5 SSFC Stock.
The shares of Common Stock of SSFC issued and outstanding immediately
before the Effective Date shall continue to be issued and outstanding shares of
SSFC, subject to Section 3.2 below. No shares of Preferred Stock of SSFC shall
be issued and outstanding immediately before the Effective Date.
2.6 Dissenting Rights.
Any shareholder of Acquired Corporation who shall not have voted in favor
of this Agreement and who has complied with the applicable procedures set forth
in the FBCA relating to rights of dissenting shareholders, shall be entitled to
receive payment for the fair value of his/her/its Acquired Corporation stock.
If, after the Effective Date, a dissenting shareholder of Acquired Corporation
fails to perfect, or effectively withdraws or loses, his/her/its right to
appraisal and payment for his shares of Acquired Corporation Stock, SSFC shall
issue and deliver the consideration to which such holder of shares of Acquired
Corporation Stock is entitled under Section 2.1 (without interest) upon
surrender of such holder of the certificate or certificates representing shares
of Acquired Corporation Stock held by him/her/it.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SSFC
SSFC represents, warrants and covenants to and with Acquired Corporation as
follows:
3.1 Organization.
SSFC is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. SSFC has the necessary corporate powers
to carry on its business as presently conducted and is qualified to do business
in every jurisdiction in which the character and location of the assets owned by
it or the nature of the business transacted by it requires qualification or in
which the failure to qualify could, individually or in the aggregate, have a
material adverse effect.
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3.2 Capital Stock.
The authorized capital stock of SSFC consists of (a) 30,000,000 shares of
Class A Common Stock, $0.01 par value per share, of which, 602,500 shares are
validly issued and outstanding, fully paid and nonassessable and are not subject
to preemptive rights, (b) 5,000,000 shares of Class B Common Stock, $0.01 par
value, none of which are issued and outstanding, and (c) 5,000,000 shares of
Preferred Stock, $0.01 par value per share, none of which are issued and
outstanding. Prior to the Effective Date SSFC shall effectuate a 2.352707 to 1
reverse split of its outstanding and issued Class A Common Stock. The shares of
SSFC Common Stock to be issued in the Merger are or will be upon the stockholder
approval referenced in the following sentence duly authorized and, when so
issued, will be validly issued and outstanding, fully paid and nonassessable.
3.3 Financial Statements; Taxes.
(a) SSFC has delivered to Acquired Corporation copies of the audited
financial statements dated as of June 30, 1997.
All such financial statements are in all material respects in
accordance with the books and records of SSFC and have been prepared
in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated, all as more
particularly set forth in the notes to such statements.
(b) All tax returns required to be filed by or on behalf of SSFC have been
timely filed (or requests for extensions therefor have been timely
filed and granted and have not expired), and all returns filed are
complete and accurate in all material respects. All taxes shown on
these returns to be due and all additional assessments received have
been paid.
3.4 No Conflict with Other Instruments.
The consummation of the transactions contemplated by this Agreement will
not result in a breach of or constitute a default (without regard to the giving
of notice or the passage of time) under any material contract, indenture,
mortgage, deed of trust or other material agreement or instrument to which SSFC
is a party or by which its assets may be bound; will not conflict with any
provision of the amended certificate of incorporation or bylaws of SSFC; and
will not violate any provision of any Law, regulation, judgment or decree
binding on it or any of its assets.
3.5 Absence of Material Adverse Change.
Since the date of the most recent balance sheet provided under section
3.3(a) above, there have been no events, changes or occurrences which have had
or are reasonably likely to have, individually or in the aggregate, a material
adverse effect on SSFC.
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3.6 Approval of Agreements.
The Board of Directors of SSFC and the stockholders of SSFC have approved
this Agreement and the transactions contemplated by it and has authorized the
execution and delivery by SSFC of this Agreement. This Agreement constitutes the
legal, valid and binding obligation of SSFC, enforceable against it in
accordance with its terms. Subject to the matters referred to in section 7.2
hereof, SSFC has full power, authority and legal right to enter into this
Agreement and to consummate the transactions contemplated by this Agreement.
SSFC has no knowledge of any fact or circumstance under which the appropriate
regulatory approvals required by section 7.2 will not be granted without the
imposition of material conditions or material delays.
3.7 Tax Treatment.
SSFC has no present plan to sell or otherwise dispose of any of the assets
of Acquired Corporation, subsequent to the Merger, and SSFC intends to continue
the historic business of Acquired Corporation.
3.8 Title and Related Matters.
SSFC has good and marketable title to all the properties, interests in
properties and assets, real and personal, reflected in the most recent balance
sheet referred to in section 3.3(a), or acquired after the date of such balance
sheet (except properties, interests and assets sold or otherwise disposed of
since such date, in the ordinary course of business), free and clear of all
mortgages, liens, pledges, charges or encumbrances except (i) mortgages and
other encumbrances referred to in the notes of such balance sheet, (ii) liens
for current taxes not yet due and payable and (iii) such imperfections of title
and easements as do not materially detract from or interfere with the present
use of the properties subject thereto or affected thereby, or otherwise
materially impair present business operations at such properties. To the
knowledge of SSFC, the material structures and equipment of SSFC comply in all
material respects with the requirements of all applicable laws.
3.9 Contracts.
SSFC is not in default in any material respect under the terms of any
material contract, agreement, lease or other commitment which is or may be
material to the business, operations, properties or assets, or the condition,
financial or otherwise, of such company and, to the knowledge of SSFC, there is
no event which, with notice or lapse of time, or both, may be or become an event
of default under any such material contract, agreement, lease or other
commitment in respect of which adequate steps have not been taken to prevent
such a default from occurring.
3.10 Litigation.
There is no litigation before or by any court or agency, domestic or
foreign, now pending, nor, to the knowledge of SSFC, threatened against or
affecting SSFC (nor is SSFC aware of any facts which could give rise to any such
litigation).
3.11 Compliance.
SSFC to the knowledge of SSFC, is in material compliance with all material
federal, state or local laws applicable to their or the conduct of its business.
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3.12 Registration Statement.
SSFC has filed a registration statement on Form 10SB which, when it becomes
effective, will comply in all material respects with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations thereunder, will
not contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3.13 Brokers.
All negotiations relative to this Agreement and the transactions
contemplated by this Agreement have been carried on by SSFC directly with
Acquired Corporation and without the intervention of any other person, either as
a result of any act of SSFC or otherwise in such manner as to give rights to any
valid claim against SSFC for finders fees, brokerage commissions or other like
payments.
3.14 Disclosure.
No representation or warranty, or any statement or certificate furnished or
to be furnished to Acquired Corporation by SSFC, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements contained in this Agreement or in any such
statement or certificate not misleading.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF ACQUIRED CORPORATION
Acquired Corporation represents, warrants and covenants to and with SSFC,
as follows:
4.1 Organization.
Acquired Corporation is a Florida corporation, and the Bank is a Florida
state bank. The Acquired Corporation and the Bank are duly organized, validly
existing and in good standing under the respective Laws of their jurisdictions
of incorporation and each has all requisite power and authority to carry on its
business as it is now being conducted and is qualified to do business in every
jurisdiction in which the character and location of the assets owned by it or
the nature of the business transacted by it requires qualification or in which
the failure to qualify could, individually, or in the aggregate, have a material
adverse effect.
4.2 Capital Stock.
The authorized capital stock of Acquired Corporation consists of 20,000,000
shares of Class A common stock, $0.01 par value per share, of which 14,910,613
shares are issued and outstanding; 5,000,000 shares of Class B common stock,
$0.01 par value, none of which are issued and outstanding; 1,200,000 shares of
Series A preferred convertible shares, $0.01 par value, of which no shares are
issued and outstanding. In addition, the Acquired Corporation has authorized and
issued to its Officers and directors options that expire over ten year terms, at
option exercise prices when granted equating to 110% of the then net book value
per share for common stock, 2,311,080 of which options have been granted as of
September 30, 1997.
Except for the foregoing, Acquired Corporation does not have any other
arrangements or commitments obligating it to issue shares of its capital stock
or any securities convertible into or having the right to purchase shares of its
capital stock, other than the stock option plans incorporated in the employment
contracts entered into with Philip C. Modder and James L. Wilson.
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4.3 Subsidiaries.
Acquired Corporation has no direct Subsidiaries other than the Bank, and
there are no Subsidiaries of the Bank. Acquired Corporation owns 96.6% of the
issued and outstanding capital stock of the Bank free and clear of any liens,
claims or encumbrances of any kind. All of the issued and outstanding shares of
capital stock of the Subsidiaries have been validly issued and are fully paid
and nonassessable. The Bank has no arrangements or commitments obligating it to
issue shares of its capital stock or any securities convertible into or having
the right to purchase shares of its capital stock, other than its stock option
plan for its officers and directors.
4.4 Financial Statements; Taxes.
(a) Acquired Corporation has delivered to SSFC copies of its audited
financial statements dated December 31, 1996.
All of the foregoing financial statements are in all material respects
in accordance with the books and records of Acquired Corporation and
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods
indicated, except for changes required by GAAP, all as more
particularly set forth in the notes to such statements.
Each of such balance sheets presents fairly as of its date the
financial condition of Acquired Corporation. Except as and to the
extent reflected or reserved against in such balance sheets (including
the notes thereto), Acquired Corporation did not have, as of the date
of such balance sheets, any material Liabilities or obligations
(absolute or contingent) of a nature customarily reflected in a
balance sheet or the notes thereto. The statements of income,
stockholders' equity and cash flows present fairly the results of
operation, changes in shareholders equity and cash flows of Acquired
Corporation for the periods indicated.
(b) All tax returns required to be filed by or on behalf of Acquired
Corporation have been timely filed (or requests for extensions
therefor have been timely filed and granted and have not expired), and
all returns filed are complete and accurate in all material respects.
All Taxes shown on these returns to be due and all additional
assessments received have been paid. The amounts recorded for Taxes on
the balance sheets provided under section 4.4(a) are, to the knowledge
of Acquired Corporation, sufficient in all material respects for the
payment of all unpaid federal, state, county, local, foreign and other
Taxes (including any interest or penalties) of Acquired Corporation
accrued for or applicable to the period ended on the dates thereof,
and all years and periods prior thereto and for which Acquired
Corporation may at such dates have been liable in its own right or as
a transferee of the assets of, or as successor to, any other
corporation or other party. No audit, examination or investigation is
presently being conducted or, to the knowledge of Acquired
Corporation, threatened by any taxing authority which is likely to
result in a material tax liability, no material unpaid tax
deficiencies or additional liability of any sort have been proposed by
any governmental representative and no agreements for extension of
time for the assessment of any material amount of Tax have been
entered into by or on behalf of Acquired Corporation. Acquired
Corporation has not executed an extension or waiver of any statute of
limitations on the assessment or collection of any tax due that is
currently in effect.
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(c) Acquired Corporation and the Bank have withheld from their employees
(and timely paid to the appropriate governmental entity) proper and
accurate amounts for all periods in material compliance with all Tax
withholding provisions of applicable federal, state, foreign and local
Laws (including without limitation, income, social security and
employment tax withholding for all types of compensation).
4.5 Absence of Certain Changes or Events.
Since the date of the most recent balance sheet provided under section
4.4(a) above, neither Acquired Corporation nor the Bank have
(a) issued, delivered or agreed to issue or deliver any stock, bonds or
other corporate securities (whether authorized and unissued or held in
the treasury) except shares of common stock issued upon the exercise
of Acquired Corporation Options and shares issued as director's
qualifying shares;
(b) borrowed or agreed to borrow any funds or incurred, or become subject
to, any liability (absolute or contingent) except borrowings,
obligations (including purchase of federal funds) and Liabilities
incurred in the ordinary course of business and consistent with past
practice;
(c) paid any material obligation or Liability (absolute or contingent)
other than current liabilities reflected in or shown on the most
recent balance sheet referred to in section 4.4(a) and current
liabilities incurred since that date in the ordinary course of
business and consistent with past practice;
(d) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever to
shareholders, or purchased or redeemed, or agreed to purchase or
redeem, directly or indirectly, or otherwise acquire, any of its
outstanding securities;
(e) except in the ordinary course of business, sold or transferred, or
agreed to sell or transfer, any of its assets, or canceled, or agreed
to cancel, any debts or claims;
(f) except in the ordinary course of business, entered or agreed to enter
into any agreement or arrangement granting any preferential rights to
purchase any of its assets, or requiring the consent of any party to
the transfer and assignment of any of its assets;
(g) suffered any Losses or waived any rights of value which in either
event in the aggregate are material considering its business as a
whole;
(h) except in the ordinary course of business, made or permitted any
amendment or termination of any contract, agreement or license to
which it is a party if such amendment or termination is material
considering its business as a whole;
(i) except in accordance with normal and usual practice, made any accrual
or arrangement for or payment of bonuses or special compensation of
any kind or any severance or termination pay to any present or former
officer or employee;
(j) except in accordance with normal and usual practice, increased the
rate of compensation payable to or to become payable to any of its
officers or employees or made any material increase in any profit
sharing, bonus, deferred compensation, savings, insurance, pension,
retirement or other employee benefit plan, payment or arrangement made
to, for or with any of its officers or employees;
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(k) received notice or had knowledge or reason to believe that any of its
substantial customers has terminated or intends to terminate its
relationship, which termination would have a material adverse effect
on its financial condition, results of operations, business, assets or
properties;
(l) failed to operate its business in the ordinary course so as to
preserve its business intact and to preserve the goodwill of its
customers and others with whom it has business relations;
(m) entered into any other material transaction other than in the ordinary
course of business; or
(n) agreed in writing, or otherwise, to take any action described in
clauses (a) through (m) above.
Between the date hereof and the Effective Date, neither Acquired
Corporation nor the Bank, without the express written approval of SSFC, will do
any of the things listed in clauses (a) through (n) of this section 4.5 except
as permitted therein or as contemplated in this Agreement, and no Acquired
Corporation Company will enter into or amend any material Contract, other than
Loans or renewals thereof entered into in the ordinary course of business,
without the express written consent of SSFC.
4.6 Title.
Acquired Corporation has good and marketable title to all the properties,
interest in properties and assets, real and personal, reflected in the most
recent balance sheet referred to in section 4.4(a) hereof, or acquired after the
date of such balance sheet (except properties, interests and assets sold or
otherwise disposed of since such date, in the ordinary course of business), free
and clear of all mortgages, liens, pledges, charges or encumbrances except (i)
mortgages and other encumbrances referred to in the notes to such balance sheet,
(ii) liens for current taxes not yet due and payable and (iii) such
imperfections of title and easements as do not materially detract from or
interfere with the present use of the properties subject thereto or affected
thereby, or otherwise materially impair present business operations at such
properties. To the knowledge of Acquired Corporation, the material structures
and equipment of the Bank comply in all material respects with the requirements
of all applicable Laws.
4.7 Commitments.
Neither Acquired Corporation and the Bank are a party to any undisclosed
oral or written (i) Contracts for the employment of any officer or employee
which is not terminable on 30 days' (or less) notice, other than the employment
contracts recited in section 9.7 hereof, (ii) profit sharing, bonus, deferred
compensation, savings, stock option, severance pay, pension or retirement plan,
agreement or arrangement, (iii) loan agreement, indenture or similar agreement
relating to the borrowing of money by such party, (iv) guaranty of any
obligation for the borrowing of money or otherwise, excluding endorsements made
for collection, and guaranties made in the ordinary course of business, (v)
consulting or other similar material Contracts, (vi) collective bargaining
agreement, (vii) agreement with any present or former officer, director or
shareholder of such party, or (viii) other contract, agreement or other
commitment which is material to the business, operations, property, prospects or
assets or to the condition, financial or otherwise, of the Bank. Complete and
accurate copies of all contracts, plans and other items so listed have been made
or will be made available to SSFC for inspection.
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4.8 Charter and Bylaws.
The articles of incorporation and bylaws of Acquired Corporation and the
Bank, including all amendments thereto, previously provided to SSFC , are
currently in effect. There will be no changes in such articles of incorporation
or bylaws prior to the Effective Date, without the prior written consent of
SSFC.
4.9 Litigation.
There is no Litigation (whether or not purportedly on behalf of Acquired
Corporation) pending or, to the knowledge of Acquired Corporation, threatened
against or affecting Acquired Corporation and the Bank (nor is Acquired
Corporation aware of any facts which are likely to give rise to any such
Litigation) at law or in equity, or before or by any governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
before any arbitrator of any kind, which involves the possibility of any
judgment or Liability not fully covered by insurance in excess of a reasonable
deductible amount or which may have a material adverse effect on Acquired
Corporation, and neither Acquired Corporation nor the Bank is in default with
respect to any judgment, order, writ, injunction, decree, award, rule or
regulation of any court, arbitrator or governmental department, commission,
board, bureau, agency or instrumentality, which default would have a material
adverse effect on Acquired Corporation. To the knowledge of Acquired
Corporation, each Acquired Corporation Company has complied in all material
respects with all material applicable laws and regulations including those
imposing Taxes, of any applicable jurisdiction and of all states,
municipalities, other political subdivisions and agencies, in respect of the
ownership of its properties and the conduct of its business, which, if not
complied with, would have a material adverse effect on Acquired Corporation.
4.10 Material Contract Defaults.
Neither Acquired Corporation nor the Bank is in default in any material
respect under the terms of any material contract, agreement, lease or other
commitment which is or may be material to the business, operations, properties
or assets, or the condition, financial or otherwise, of such company and, to the
knowledge of Acquired Corporation, there is no event which, with notice or lapse
of time, or both, may be or become an event of default under any such material
contract, agreement, lease or other commitment in respect of which adequate
steps have not been taken to prevent such a default from occurring.
4.11 No Conflict with Other Instrument.
The consummation of the transactions contemplated by this Agreement will
not result in the breach of any term or provision of or constitute a default
under any material contract, indenture, mortgage, deed of trust or other
material agreement or instrument to which either Acquired Corporation or the
Bank is a party and will not conflict with any provision of the charter or
bylaws of Acquired Corporation or the Bank.
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4.12 Governmental Authorization.
Acquired Corporation and the Bank have all permits that, to the knowledge
of Acquired Corporation, are or will be legally required to enable Acquired
Corporation and the Bank to conduct their business in all material respects as
now conducted by Acquired Corporation and the Bank.
4.13 Absence of Regulatory Communications.
Neither Acquired Corporation nor the Bank is subject to, nor has Acquired
Corporation or the Bank received during the past three years, any written
communication directed specifically to it from any agency to which it is subject
or pursuant to which such agency has imposed or has indicated it may impose any
material restrictions on the operations of it or the business conducted by it or
in which such Agency has raised any material question concerning the condition,
financial or otherwise, of such company.
4.14 Absence of Material Adverse Change.
To the knowledge of Acquired Corporation, since the date of the most recent
balance sheet provided under section 4.4(a) hereof, there have been no events,
changes or occurrences which have had, or are reasonably likely to have,
individually or in the aggregate, a material adverse effect on Acquired
Corporation or the Bank.
4.15 Insurance.
Acquired Corporation and the Bank have in effect insurance coverage and
bonds with reputable insurers which, in respect to amounts, types and risks
insured, management of Acquired Corporation reasonably believes to be adequate
for the type of business conducted by Acquired Corporation and the Bank. Neither
Acquired nor the Bank is liable for any material retroactive premium adjustment.
All insurance policies and bonds are valid, enforceable and in full force and
effect, and neither Acquired Corporation nor the Bank has received any notice of
any material premium increase or cancellation with respect to any of its
insurance policies or bonds. Within the last three years, neither Acquired
Corporation nor the Bank has been refused any insurance coverage which it has
sought or applied for, and it has no reason to believe that existing insurance
coverage cannot be renewed as and when the same shall expire, upon terms and
conditions as favorable as those presently in effect, other than possible
increases in premiums that do not result from any extraordinary loss experience.
All policies of insurance presently held or policies containing substantially
equivalent coverage will be outstanding and in full force with respect to
Acquired Corporation and the Bank at all times from the date hereof to the
Effective Date.
4.16 Pension and Employee Benefit Plans.
(a) To the knowledge of Acquired Corporation, all employee benefit plans
of Acquired Corporation and the Bank have been established in
compliance with, and such plans have been operated in material
compliance with, all applicable Laws.
Except as may have been previously disclosed to SSFC, neither Acquired
Corporation nor the Bank sponsors or otherwise maintains a "pension
plan" within the meaning of section 3(2) of ERISA or any other
retirement plan other than the defined benefit plan of
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Acquired Corporation that is intended to qualify under section 401 of
the Code, nor do any unfunded Liabilities exist with respect to any
employee benefit plan, past or present. To the knowledge of Acquired
Corporation, no employee benefit plan, any trust created thereunder or
any trustee or administrator thereof has engaged in a "prohibited
transaction," as defined in section 4975 of the Code, which may have a
material adverse effect on the condition, financial or otherwise, of
any Acquired Corporation Company.
(b) To the knowledge of Acquired Corporation, no amounts payable to any
employee of Acquired Corporation or the Bank will fail to be
deductible for federal income tax purposes by virtue of Section 280G
of the Code and regulations thereunder.
4.17 Buy-Sell Agreement.
To the knowledge of Acquired Corporation, there are no agreements among any
of its shareholders granting to any person or persons a right of first refusal
in respect of the sale, transfer, or other disposition of shares of outstanding
securities by any shareholder of Acquired Corporation, any similar agreement or
any voting agreement or voting trust in respect of any such shares.
4.18 Brokers.
All negotiations relative to this Agreement and the transactions
contemplated by this Agreement have been carried on by Acquired Corporation
directly with SSFC and without the intervention of any other person, either as a
result of any act of Acquired Corporation, or otherwise, in such manner as to
give rise to any valid claim against Acquired Corporation for a finder's fee,
brokerage commission or other like payment.
4.19 Approval of Agreement.
The Board of Directors of Acquired Corporation has approved this Agreement
and the transactions contemplated by this Agreement and has authorized the
execution and delivery by Acquired Corporation of this Agreement.
Subject to the matters referred to in section 7.2, Acquired Corporation has
full power, authority and legal right to enter into this Agreement, and, upon
appropriate vote of the shareholders of Acquired Corporation in accordance with
this Agreement, Acquired Corporation shall have full power, authority and legal
right to consummate the transactions contemplated by this Agreement.
4.20 Disclosure.
No representation or warranty, nor any statement or certificate furnished
or to be furnished to SSFC by Acquired Corporation, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements contained in this Agreement or in any such
statement or certificate not misleading.
4.21 Registration Statement.
At the time the registration statement on Form 10SB becomes effective and
at the time of the stockholders meeting, the Registration Statement will not
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
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4.22 Loans; Adequacy of Allowance for Loan Losses.
All reserves for loan losses shown on the most recent financial statements
furnished by Acquired Corporation have been calculated in accordance with
prudent and customary banking practices and are adequate in all material
respects to reflect the risk inherent in the loans of Acquired Corporation.
Acquired Corporation has no knowledge of any fact which is likely to require a
future material increase in the provision for loan losses or a material decrease
in the loan loss reserve reflected in such financial statements. Each loan
reflected as an asset on the financial statements of Acquired Corporation is the
legal, valid and binding obligation of the obligor of each loan, enforceable in
accordance with its terms subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, or other similar laws relating to creditors' rights
generally and to general equitable principles. Acquired Corporation does not
have in its portfolio any loan exceeding its legal lending limit, and, Acquired
Corporation has no known significant delinquent, substandard, doubtful, loss,
non performing or problem loans which have not been disclosed to SSFC.
4.23 Environmental Matters.
To the knowledge of Acquired Corporation, Acquired Corporation and the Bank
each is in material compliance with all Laws and other governmental requirements
relating to the generation, management, handling, transportation, treatment,
disposal, storage, delivery, discharge, release or emission of any waste,
pollution, or toxic, hazardous or other substance (the "Environmental Laws" ),
and Acquired Corporation has no knowledge that Acquired Corporation or the Bank
have not complied with all regulations and requirements promulgated by the
Occupational Safety and Health Administration that are applicable to any
Acquired Corporation Company. To the knowledge of Acquired Corporation, there is
no Litigation pending or threatened with respect to any violation or alleged
violation of the Environmental Laws. To the knowledge of Acquired Corporation,
with respect to assets of or owned by Acquired Corporation or the Bank,
including any Loan Property, (i) there has been no spillage, leakage,
contamination or release of any substances for which the appropriate remedial
action has not been completed; (ii) no owned or leased property is contaminated
with or contains any hazardous substance or waste; and (iii) there are no
underground storage tanks on any premises owned or leased by Acquired
Corporation or the Bank. Acquired Corporation has no knowledge of any facts
which might suggest that either Acquired Corporation or the Bank has engaged in
any management practice with respect to any of its past or existing borrowers
which could reasonably be expected to subject Acquired Corporation or the Bank
to any liability.
4.24 Transfer of Shares.
Acquired Corporation has no knowledge of any plan or intention on the part
of Acquired Corporation's shareholders to sell or otherwise dispose of any of
the SSFC Common Stock to be received by them in the Merger that would reduce
such shareholders' ownership to a number of shares having, in the aggregate, a
fair market value of less than fifty (50%) percent of the total fair market
value of Acquired Corporation common stock outstanding immediately before the
Merger.
4.25 Collective Bargaining.
There are no labor contracts, collective bargaining agreements, letters
of undertakings or other arrangements, formal or informal, between Acquired
Corporation and the Bank and any union or labor organization covering any
employees of Acquired Corporation or the Bank and none of said employees are
represented by any union or labor organization.
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4.26 Labor Disputes.
To the knowledge of Acquired Corporation, Acquired Corporation and the Bank
are in material compliance with all federal and state laws respecting employment
and employment practices, terms and conditions of employment, wages and hours.
Neither Acquired Corporation nor the Bank is or has been engaged in any unfair
labor practice, and, to the knowledge of Acquired Corporation, no unfair labor
practice complaint against Acquired Corporation or the Bank is pending before
the National Labor Relations Board. Relations between management of Acquired
Corporation and the Bank and their employees are amicable and there have not
been, nor to the knowledge of Acquired Corporation, are there presently, any
attempts to organize employees, nor to the knowledge of Acquired Corporation,
are there plans for any such attempts.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Additional Covenants of SSFC.
SSFC covenants to and with Acquired Corporation as follows:
(a) Registration Statement and Other Filings. SSFC has prepared and filed
with the SEC the Registration Statement and all amendments and
supplements thereto, in form reasonably satisfactory to Acquired
Corporation and its counsel, with respect to the Common Stock to be
issued pursuant to this Agreement. SSFC shall use reasonable good
faith efforts to prepare all necessary filings with any Agencies which
may be necessary for approval to consummate the transactions
contemplated by this Agreement. SSFC shall provide to counsel for
Acquired Corporation for review and comment (i) copies of drafts of
all filings made pursuant to this section 5.1(a) in advance of filing,
(ii) copies of documents as filed, and (iii) copies of any
correspondence between SSFC and any Agencies, including the SEC,
respecting the filings made pursuant to this section 5.1(a).
(b) Financial Statements. With reasonable promptness, SSFC shall furnish
Acquired Corporation with such additional financial data as Acquired
Corporation may reasonably request.
(c) No Control of Acquired Corporation by SSFC. Notwithstanding any other
provision hereof, until the Effective Date, the authority to establish
and implement the business policies of Acquired Corporation shall
continue to reside solely in Acquired Corporation's officers and Board
of Directors.
(d) Employee Benefit Matters. On the Effective Date, all employees of
Acquired Corporation shall either become employees of SSFC or be
entitled to severance benefits in accordance with the severance policy
of Acquired Corporation as of the date of this Agreement.
(e) Indemnification.
(i) Subject to the conditions set forth in the succeeding paragraph,
for a period of six years after the Effective Date SSFC shall
indemnify, defend and hold harmless each person entitled to
indemnification from the Acquired Corporation (each being an
"Indemnified Party") against all liabilities arising out of
actions or omissions occurring upon or prior to the Effective
Date (including without limitation the transactions contemplated
by this Agreement) to the extent authorized under the articles of
incorporation and bylaws of Acquired Corporation and Florida law.
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(ii) Any Indemnified Party wishing to claim indemnification under this
subsection (g), upon learning of any such liability or
Litigation, shall promptly notify SSFC thereof. In the event of
any such Litigation (whether arising before or after the
Effective Date) (i) SSFC shall have the right to assume the
defense thereof with counsel reasonably acceptable to such
Indemnified Party and, upon assumption of such defense, SSFC
shall not be liable to such Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequently
incurred by such Indemnified Parties in connection with the
defense thereof, except thatif SSFC elects not to assume such
defense or counsel for the Indemnified Parties advises that there
are substantive issues which raise conflicts of interest between
SSFC and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and SSFC shall pay all
reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; provided,
that SSFC shall be obligated pursuant to this subsection to pay
for only one firm of counsel for all Indemnified Parties in any
jurisdiction, (ii) the Indemnified Parties will cooperate in the
defense of any such litigation; and (iii) SSFC shall not be
liable for any settlement effected without its prior consent; and
provided further provided that SSFC shall not have any obligation
hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall determine, and such determination
shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited
by applicable Law.
(iii)In consideration of and as a condition precedent to the
effectiveness of the indemnification obligations provided by SSFC
in this section to a director or officer of the Acquired
Corporation, such director or officer of the Acquired Corporation
shall have delivered to SSFC on or prior to the Effective Date a
letter in form reasonably satisfactory to SSFC concerning claims
such directors or officers may have against Acquired Corporation.
In the letter, the directors or officers shall: (i) acknowledge
the assumption by SSFC as of the Effective Date of all Liability
(to the extent Acquired Corporation is so liable) for claims for
indemnification arising under section 5.1(e) hereof; (ii) affirm
that they do not have nor are they aware of any claims they might
have (other than those referred to in the following clause (iii))
against Acquired Corporation; (iv) identify any claims or any
facts or circumstances of which they are aware that could give
rise to a claim for indemnification under section 5.1(e) hereof;
and (iv) release as of the Effective Date any and all claims that
they may have against Acquired Corporation or the Bank other than
(A) those referred to in the foregoing clause (iii) and disclosed
in the letter of the director or officer, (B) claims by third
parties which have not yet been asserted against such director or
officer (other than claims arising from facts and circumstances
of which such director or officer is aware but which are not
disclosed in such director or executive officer's letter), (C)
claims by third parties arising from any transaction contemplated
by this Agreement and (D) claims by third parties arising in the
ordinary course of business of Acquired Corporation after the
date of the letter.
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(iv) Acquired Corporation hereby represents and warrants to SSFC that
it has no knowledge of any claim, pending or threatened, or of
any facts or circumstances that could give rise to any obligation
by SSFC to provide the indemnification required by this section
5.1(e) other than as disclosed in the letters of the directors
and executive officers referred to in section5.1(e)(iii) hereof
and claims arising from any transaction contemplated by this
Agreement.
5.2 Additional Covenants of Acquired Corporation.
Acquired Corporation covenants to and with SSFC as follows:
(a) Operations. Acquired Corporation will conduct its business and the
business of the Bank in a proper and prudent manner and will use its
best efforts to maintain its relationships with its depositors,
customers and employees. Neither Acquired Corporation nor the Bank
will engage in any material transaction outside the ordinary course of
business or make any material change in its accounting policies or
methods of operation, nor will Acquired Corporation permit the
occurrence of any change or event which would render any of the
representations and warranties in Article 4 hereof untrue in any
material respect at and as of the Effective Date with the same effect
as though such representations and warranties had been made at and as
of such Effective Date.
(b) Stockholders Meeting; Best Efforts. Acquired Corporation will
cooperate with SSFC in the preparation of the Registration Statement
and any regulatory filings and will cause the stockholders meeting to
be held for the purpose of approving the Merger as soon as practicable
after the effective date of the Registration Statement, and will use
its best efforts to bring about the transactions contemplated by this
Agreement, including stockholder approval of this Agreement, as soon
as practicable unless this Agreement is terminated as provided herein.
(c) Director Recommendation. The members of the Board of Directors of
Acquired Corporation agree to support publicly the Merger.
(d) Financial Statements. Acquired Corporation shall furnish to SSFC with
reasonable promptness, such additional financial data as SSFC may
reasonably request; and
(e) Fiduciary Duties. Prior to the Effective Date, (i) no director or
officer (each an "Executive") of Acquired Corporation shall, directly
or indirectly, own, manage, operate, join, control, be employed by or
participate in the ownership, proposed ownership, management,
operation or control of or be connected in any manner with, any
business, corporation or partnership which is competitive to the
business of Acquired Corporation, except that a director or officer
may own stock in a publicly traded competitive business, (ii) all
Executives, at all times, shall satisfy their fiduciary duties to
Acquired Corporation and the Bank, and (iii) such Executives shall not
(except as required in the course of his or her employment with
Acquired Corporation or the Bank) communicate or divulge to, or use
for the benefit of himself or herself or any other person, firm,
association or corporation, without the express written consent of
Acquired Corporation, any confidential information which is possessed,
owned or used by or licensed by or to Acquired Corporation or the Bank
or confidential information belonging to third parties which Acquired
Corporation or the Bank shall be under obligation to keep secret or
which may be communicated to, acquired by or learned of by the
Executive in the course of or as a result of his or her employment
with Acquired Corporation or the Bank.
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ARTICLE 6
MUTUAL COVENANTS AND AGREEMENTS
6.1 Best Efforts; Cooperation.
Subject to the terms and conditions herein provided, SSFC and Acquired
Corporation each agrees to use its best efforts promptly to take, or cause to be
taken, all actions and do, or cause to be done, all things necessary, proper or
advisable under applicable Laws or otherwise, including, without limitation,
promptly making required deliveries of stockholder lists and stock transfer
reports and attempting to obtain all necessary Consents and waivers and
regulatory approvals, including the holding of any regular or special board
meetings, to consummate and make effective, as soon as practicable, the
transactions contemplated by this Agreement. The officers of each Party to this
Agreement shall fully cooperate with officers and employees, accountants,
counsel and other representatives of the other Parties not only in fulfilling
the duties hereunder of the Party of which they are officers but also in
assisting, directly or through direction of employees and other persons under
their supervision or control, such as stock transfer agents for the Party, the
other Parties requiring information which is reasonably available from such
Party.
6.2 Press Release.
Each Party hereto agrees that, unless approved by the other Parties in
advance, such Party will not make any public announcement, issue any press
release or other publicity or confirm any statements by any person not a party
to this Agreement concerning the transactions contemplated hereby.
Notwithstanding the foregoing, each Party hereto reserves the right to make any
disclosure if such Party, in its reasonable discretion, deems such disclosure
required by Law. In that event, such Party shall provide to the other Party the
text of such disclosure sufficiently in advance to enable the other Party to
have a reasonable opportunity to comment thereon.
6.3 Access to Properties and Records.
Each Party hereto shall afford the officers and authorized representatives
of the other Party full access to the assets, books and records of such Party in
order that such other Parties may have full opportunity to make such
investigation as they shall desire of the affairs of such Party and shall
furnish to such Parties such additional financial and operating data and other
information as to its businesses and assets as shall be from time to time
reasonably requested. All such information that may be obtained by any such
Party will be held in confidence by such party, will not be disclosed by such
Party or any of its representatives except in accordance with this Agreement,
and will not be used by such Party for any purpose other than the accomplishment
of the Merger as provided herein.
6.4 Notice of Adverse Changes.
Each Party agrees to give written notice promptly to the other Party upon
becoming aware of the occurrence or impending occurrence of any event or
circumstance relating to it or any of its Subsidiaries which (i) is reasonably
likely to have, individually or in the aggregate, a material adverse effect on
it or (ii) would cause or constitute a material breach of any of its
representations, warranties, or covenants contained herein, and to use its
reasonable efforts to prevent or promptly to remedy the same.
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ARTICLE 7
CONDITIONS TO OBLIGATIONS OF ALL PARTIES
The obligations of SSFC and Acquired Corporation to cause the transactions
contemplated by this Agreement to be consummated shall be subject to the
satisfaction, in the sole discretion of the Party relying upon such conditions,
on or before the Effective Date of all the following conditions, except as such
Parties may waive such conditions in writing:
7.1 Approval by Shareholders.
At the Stockholders Meeting, this Agreement and the matters contemplated by
this Agreement shall have been duly approved by the vote of the holders of not
less than the requisite number of the issued and outstanding voting securities
of Acquired Corporation as is required by applicable Law and Acquired
Corporation's articles of incorporation and bylaws.
7.2 Regulatory Authority Approval.
Orders, consents and approvals, in form and substance reasonably
satisfactory to SSFC and Acquired Corporation, shall have been entered by the
Board of Governors of the Federal Reserve System and other appropriate bank
regulatory Agencies (i) granting the authority necessary for the consummation of
the transactions contemplated by this Agreement hereof and (ii) satisfying all
other requirements prescribed by Law. No order, consent or approval so obtained
which is necessary to consummate the transactions as contemplated hereby shall
be conditioned or restricted in a manner which in the reasonable good faith
judgment of the Board of Directors of SSFC or Acquired Corporation would so
materially adversely impact the economic benefits of the transaction as
contemplated by this Agreement so as to render inadvisable the consummation of
the Merger.
7.3 Litigation.
There shall be no pending or threatened litigation in any court or any
pending or threatened proceeding by any governmental commission, board or
agency, with a view to seeking or in which it is sought to restrain or prohibit
consummation of the transactions contemplated by this Agreement or in which it
is sought to obtain divestiture, rescission or damages in connection with the
transactions contemplated by this Agreement and no investigation by any Agency
shall be pending or threatened which might result in any such suit, action or
other proceeding.
7.4 Registration Statement.
The registration statement on Form 10SB filed pursuant to the Securities
Exchange Act of 1934 shall have become effective and no stop order suspending
the effectiveness of the Registration Statement shall be in effect; no
proceedings for such purpose, or under the proxy rules of the SEC or any bank
regulatory authority with respect to the transactions contemplated hereby, shall
be pending before or threatened by the SEC or any bank regulatory authority; and
all approvals or authorizations for the offer of SSFC Common Stock shall have
been received or obtained pursuant to any applicable state securities Laws, and
no stop order or proceeding with respect to the transactions contemplated hereby
shall be pending or threatened under any such state Law.
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ARTICLE 8
CONDITIONS TO OBLIGATIONS OF ACQUIRED CORPORATION
The obligations of Acquired Corporation to cause the transactions
contemplated by this Agreement to be consummated shall be subject to the
satisfaction on or before the Effective Date of all the following conditions
except as Acquired Corporation may waive such conditions in writing:
8.1 Representations, Warranties and Covenants.
Notwithstanding any investigation made by or on behalf of Acquired
Corporation, all representations and warranties of SSFC contained in this
Agreement shall be true in all material respects on and as of the Effective Date
as if such representations and warranties were made on and as of such Effective
Date, and SSFC shall have performed in all material respects all agreements and
covenants required by this Agreement to be performed by it on or prior to the
Effective Date.
8.2 Adverse Changes.
There shall have been no changes after the date of the most recent balance
sheet provided under section 4.4(a) hereof in the results of operations (as
compared with the corresponding period of the prior fiscal year), assets,
liabilities, financial condition or affairs of SSFC which in their total effect
constitute a material adverse effect, nor shall there have been any material
changes in the Laws governing the business of SSFC or which would impair the
rights of Acquired Corporation or its shareholders pursuant to this Agreement.
8.3 Certificate.
In addition to any other deliveries required to be delivered hereunder,
Acquired Corporation shall have received a certificate from the President or a
Vice President and from the Secretary or Assistant Secretary of SSFC certifying
that:
(a) the Board of Directors of SSFC has duly adopted resolutions approving
the substantive terms of this Agreement and authorizing the
consummation of the transactions contemplated by this Agreement and
such resolutions have not been amended or modified and remain in full
force and effect;
(b) each person executing this Agreement on behalf of SSFC is an officer
of SSFC holding the office or offices specified therein and the
signature of each person set forth on such certificate is his or her
genuine signature;
(c) the certificate of incorporation and bylaws of Acquired Corporation
and the Bank referenced in section 4.8 hereof remain in full force and
effect;
(d) such persons have no knowledge of a basis for any material claims in
any court or before any Agency or arbitration or otherwise against, by
or affecting SSFC or the business, prospects, condition (financial or
otherwise), or assets of SSFC or which would prevent the performance
of this Agreement or the transactions contemplated by this Agreement
or declare the same unlawful or cause the rescission thereof;
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(e) to such persons' knowledge, the Proxy Statement delivered to Acquired
Corporation's shareholders, or any amendments or revisions thereto so
delivered, as of the date thereof, did not contain or incorporate by
reference any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under
which they were made (it being understood that such persons need not
express a statement as to information concerning or provided by
Acquired Corporation for inclusion in such Proxy Statement); and
(f) the conditions set forth in this Article 8 insofar as they relate to
SSFC have been satisfied.
8.4 Other Matters.
There shall have been furnished to such counsel for Acquired Corporation
certified copies of such corporate records of SSFC and copies of such other
documents as such counsel may reasonably have requested for such purpose.
8.5 Material Events.
There shall have been no determination by the Board of Directors of
Acquired Corporation that the transactions contemplated by this Agreement have
become impractical because of any state of war, declaration of a banking
moratorium in the United States or a general suspension of trading on the
exchange on which SSFC Common Stock may be traded.
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF SSFC
The obligations of SSFC to cause the transactions contemplated by this
Agreement to be consummated shall be subject to the satisfaction on or before
the Effective Date of all of the following conditions except as SSFC may waive
such conditions in writing:
9.1 Representations, Warranties and Covenants.
Notwithstanding any investigation made by or on behalf of SSFC, all
representations and warranties of Acquired Corporation contained in this
Agreement shall be true in all material respects on and as of the Effective Date
as if such representations and warranties were made on and as of the Effective
Date, and Acquired Corporation shall have performed in all material respects all
agreements and covenants required by this Agreement to be performed by it on or
prior to the Effective Date.
9.2 Adverse Changes.
There shall have been no changes after the date of the most recent balance
sheet provided under section 4.4(a) hereof in the results of operations (as
compared with the corresponding period of the prior fiscal year), assets,
liabilities, financial condition, or affairs of Acquired Corporation which
constitute a material adverse effect, nor shall there have been any material
changes in the Laws governing the business of Acquired Corporation which would
impair SSFC's rights pursuant to this Agreement.
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9.3 Certificate.
In addition to any other deliveries required to be delivered hereunder,
SSFC shall have received a certificate from Acquired Corporation executed by the
President or Vice President and from the Secretary or Assistant Secretary of
Acquired Corporation certifying that:
(a) the Board of Directors of Acquired Corporation has duly adopted
resolutions approving the substantive terms of this Agreement and
authorizing the consummation of the transactions contemplated by this
Agreement and such resolutions have not been amended or modified and
remain in full force and effect;
(b) the shareholders of Acquired Corporation have duly adopted resolutions
approving the substantive terms of the Merger and the transactions
contemplated thereby and such resolutions have not been amended or
modified and remain in full force and effect;
(c) each person executing this Agreement on behalf of Acquired Corporation
is an officer of Acquired Corporation holding the office or offices
specified therein and the signature of each person set forth on such
certificate is his or her genuine signature;
(d) the articles of incorporation and bylaws of Acquired Corporation and
the Bank referenced in section 4.8 hereof remain in full force and
effect and have not been amended or modified since the date hereof;
(e) to such persons' knowledge, the Proxy Statement delivered to Acquired
Corporation's shareholders, or any amendments or revisions thereto so
delivered, as of the date thereof, did not contain or incorporate by
reference any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under
which they were made (it being understood that such persons need only
express a statement as to information concerning or provided by
Acquired Corporation for inclusion in such Proxy Statement); and
(f) the conditions set forth in this Article 9 insofar as they related to
Acquired Corporation have been satisfied.
9.4 Other Matters.
There shall have been furnished to counsel for SSFC certified copies of
such corporate records of Acquired Corporation and copies of such other
documents as such counsel may reasonably have requested.
9.5 Dissenters.
The number of shares as to which shareholders of Acquired Corporation have
exercised dissenters rights of appraisal under section 2.6 does not exceed 10%
of the outstanding shares of common stock of Acquired Corporation.
9.6 Material Events.
There shall have been no determination by the Board of Directors of SSFC
that the transactions contemplated by this Agreement have become impractical
because of any state of war, declaration of a banking moratorium in the United
States or general suspension of trading on the NYSE or on any market on which
SSFC Common Stock may be traded.
9.7 Employment Agreements.
The President and Chairman of the Board of the Acquired Corporation,
respectively James L. Wilson and Philip C. Modder, are employed by the Acquired
Corporation under long-term employment agreements. At the consummation and
Effective Date and time of the Merger contemplated hereunder, the employment
agreements shall immediately become the liability of SSFC. Any contractual
obligations and liabilities of the Acquired Corporation shall immediately become
the contractual obligations and liabilities of SSFC upon the consummation and
Effective Date and time of the Merger contemplated hereunder.
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ARTICLE 10
TERMINATION OF REPRESENTATIONS AND WARRANTIES
All representations and warranties provided in Articles 3 and 4 of this
Agreement or in any certificate pursuant to Articles 8 and 9 shall terminate and
be extinguished at and shall not survive the Effective Date. All covenants,
agreements and undertakings required by this Agreement to be performed by any
Party hereto following the Effective Date shall survive such Effective Date and
be binding upon such Party. If the Merger is not consummated, all
representations, warranties, obligations, covenants, or agreements hereunder or
in any certificate delivered hereunder relating to the transaction which is not
consummated shall be deemed to be terminated or extinguished, except that
Sections 6.2, 6.4, 12.3 and 13.4, and Article 10 shall survive. Items
disclosed in the Exhibits and Schedules attached hereto are incorporated into
this Agreement and form a part of the representations, warranties, covenants or
agreements to which they relate. Information provided in such Exhibits and
Schedules is provided only in response to the specific section of this Agreement
which calls for such information.
ARTICLE 11
NOTICES
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given at the
time given or mailed, first class postage prepaid:
(a) If to Acquired Corporation, to:
P.O. Box 520
Boca Raton, Florida 33429
with a courtesy copy to:
Hodgson, Russ, Andrews, Woods & Goodyear, LLP
2000 Glades Road - Suite 400
Boca Raton, Florida 33431-4303
or as may otherwise be specified by or as Acquired Corporation in writing
to SSFC.
b) If to SSFC, to:
278A New Dorp Lane
Staten Island, New York 10306-9117
with a courtesy copy to:
Joel Pensley, Esq.
276 Fifth Avenue - Suite 715
New York, New York 10001
or as may otherwise be specified in writing by SSFC to Acquired
Corporation.
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ARTICLE 12
AMENDMENT OR TERMINATION
12.1 Amendment.
This Agreement may be amended by the mutual consent of SSFC and Acquired
Corporation before or after approval of the transactions contemplated herein by
the shareholders of Acquired Corporation.
12.2 Termination.
This Agreement may be terminated at any time prior to or on the Effective
Date whether before or after action thereon by the shareholders of Acquired
Corporation, as follows:
(a) by the mutual consent of the respective boards of directors of
Acquired Corporation and SSFC;
(b) by the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in
this Agreement) in the event of a material breach by the other Party
of any representation or warranty contained in this Agreement which
cannot be or has not been cured within thirty (30) days after the
giving of written notice to the breaching Party of such breach and
which breach would provide the non-breaching Party the ability to
refuse to consummate the Merger under the standard set forth in
section 9.1 of this Agreement in the case of SSFC and section 8.1 of
this Agreement in the case of Acquired Corporation;
(c) by the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in
this Agreement) in the event of a material breach by the other Party
of any covenant or agreement contained in this Agreement which cannot
be or has not been cured within thirty (30) days after the giving of
written notice to the breaching Party of such breach, or if any of the
conditions to the obligations of such Party contained in this
Agreement in Article 8 as to Acquired Corporation or Article 9 as to
SSFC shall not have been satisfied in full; or
(d) by the Board of Directors of either SSFC or Acquired Corporation if
all transactions contemplated by this Agreement shall not have been
consummated on or prior to October 31, 1997, if the failure to
consummate the transactions provided for in this Agreement on or
before such date is not caused by any breach of this Agreement by the
Party electing to terminate pursuant to this section 12.2(d).
12.3 Damages.
In the event of termination pursuant to section 12.2, Acquired
Corporation and SSFC shall not be liable for damages for any breach of a
covenant, warranty or representation contained in this Agreement made in good
faith, and, in that case, the expenses incurred shall be borne as set forth in
section 13.1 hereof.
24
<PAGE>
ARTICLE 13
MISCELLANEOUS
13.1 Expenses.
Each Party hereto shall bear its own legal, auditing, trustee, investment
banking, regulatory and other expenses in connection with this Agreement and the
transactions contemplated hereby.
13.2 Benefit.
This Agreement shall inure to the benefit of and be binding upon Acquired
Corporation and SSFC, and their respective successors. This Agreement shall not
be assignable by any Party without the prior written consent of the other Party.
13.3 Federal Tax Attributes.
This Merger for tax and other purposes shall be construed as a form of
reorganization, and therefor the tax attributes of the Acquired Corporation and
the Bank shall carry over to and consolidate with SSFC, from that of the
Acquired Corporation and the Bank which file consolidated Federal Income Tax
returns. It is anticipated that SSFC will file consolidated Federal Income Tax
returns involving those entities contemplated by this Merger Agreement, thereby
preserving the tax attributes in Acquired Corporation and the Bank.
13.4 Governing Law.
Except to the extent that the laws of the State of Florida apply to the
Merger, this Agreement shall be governed by, and construed in accordance with
the Laws of the State of Delaware without regard to any conflicts of law.
13.5 Counterparts.
This Agreement may be executed in counterparts, each of which shall be
deemed to constitute an original. Each such counterpart shall become effective
when one counterpart has been signed by each Party thereto.
13.6 Headings.
The headings of the various articles and sections of this Agreement are for
convenience of reference only and shall not be deemed a part of this Agreement
or considered in construing the provisions thereof.
13.7 Severability.
Any term or provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining terms
and provisions thereof or affecting the validity or enforceability of such
provision in any other jurisdiction, and if any term or provision of this
Agreement is held by any court of competent jurisdiction to be void, voidable,
invalid or unenforceable in any given circumstance or situation, then all other
terms and provisions, being severable, shall remain in full force and effect in
such circumstance or situation and the term or provision shall remain valid and
in effect in any other circumstances or situation.
13.8 Construction.
Use of the masculine pronoun herein shall be deemed to refer to the
feminine and neuter genders and the use of singular references shall be deemed
to include the plural and vice versa, as appropriate. No inference in favor of
or against any Party shall be drawn from the fact that such Party or such
Party's counsel has drafted any portion of this Agreement.
25
<PAGE>
13.9 Return of Information.
In the event of termination of this Agreement prior to the Effective Date,
each Party shall return to the other, without retaining copies thereof, all
confidential or nonpublic documents, work papers and other materials obtained
from the other Party in connection with the transactions contemplated in this
Agreement and shall keep such information confidential, not disclose such
information to any other person or entity, and not use such information in
connection with its business.
13.10 Equitable Remedies.
The Parties agree that, in the event of a breach of this Agreement by
either Party, the other Party may be without an adequate remedy at law owing to
the unique nature of the contemplated transactions. In recognition thereof, in
addition to (and not in lieu of) any remedies at law that may be available to
the non-breaching Party, the non-breaching Party shall be entitled to obtain
equitable relief, including the remedies of specific performance and injunction,
in the event of breach of this Agreement by the other Party, and no attempt on
the part of the non-breaching Party to obtain such equitable relief shall be
deemed to constitute an election of remedies by the non-breaching Party that
would preclude the non-breaching Party from obtaining any remedies at law to
which it would otherwise be entitled.
13.11 Attorneys' Fees.
If any Party hereto shall bring an action at law or in equity to enforce
its rights under this Agreement (including an action based upon a
misrepresentation or the breach of any warranty, covenant, agreement or
obligation contained herein), the prevailing Party in such action shall be
entitled to recover from the other Party its costs and expenses incurred in
connection with such action (including fees, disbursements and expenses of
attorneys and costs of investigation).
13.12 No Waiver.
No failure, delay or omission of or by any Party in exercising any right,
power or remedy upon any breach or default of any other Party shall impair any
such rights, powers or remedies of the Party not in breach or default, nor shall
it be construed to be a wavier of any such right, power or remedy, or an
acquiescence in any similar breach or default; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any Party of any provisions of this
Agreement must be in writing and be executed by the Parties to this Agreement
and shall be effective only to the extent specifically set forth in such
writing.
13.13 Remedies Cumulative.
All remedies provided in this Agreement, by law or otherwise, shall be
cumulative and not alternative.
26
<PAGE>
13.14 Entire Contract.
This Agreement and the documents and instruments referred to herein
constitute the entire contract between the parties to this Agreement and
supersede all other understandings with respect to the subject matter of this
Agreement.
IN WITNESS WHEREOF, Acquired Corporation and SSFC have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
SOUTHERN SECURITY FINANCIAL CORPORATION
By:
Its:
SOUTHERN SECURITY BANK CORPORATION
By:
Its:
27
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data schedule consists of the unaudited balance sheet of the
Registrant as of June 30, 1997 and the related unaudited statements of
operations, cash flows and stockholders' equity for the period from inception
(October 4, 1996) to June 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> OCT-04-1996
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 500
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 6,025
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 500
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
