FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION STATEMENT NO:333-42083
PROSPECTUS
[EAGLE BANCORP, INC. LOGO]
1,200,000 SHARES COMMON STOCK
($.01 PAR VALUE)
$10.00 PER SHARE
MINIMUM PURCHASE - 100 SHARES ($1,000)
EAGLE BANCORP, INC., a proposed bank holding company organized under
the laws of the State of Maryland (the "Company"), is hereby offering (the
"Offering") up to 1,200,000 shares (the "Shares") of its common stock, $.01 par
value (the "Common Stock"), at a price of $10.00 per Share (the "Subscription
Price"). The Company also reserves the right to sell up to an additional 180,000
shares of Common Stock at the Subscription Price, in the event that the volume
of subscriptions exceeds the number of shares offered (the "Oversubscription
Allotment").
The Offering is being made directly by the Company through its
Directors and Officers, with the limited assistance of Koonce Securities, Inc.,
a registered broker-dealer, in order to comply with the securities laws of the
various jurisdictions in which the Shares will be offered, on a minimum-maximum
basis. No Shares will be sold unless acceptable subscriptions for at least
800,000 Shares are received by the Company. The minimum number of Shares for
which any investor may subscribe is 100, for a minimum investment of $1,000,
subject to the right of the Company to permit smaller subscriptions
(continued on following page)
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THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE MARYLAND DEPARTMENT OF FINANCIAL
REGULATION OR ANY OTHER FEDERAL OR STATE SECURITIES OR BANK REGULATORY AGENCY,
NOR HAVE ANY OF THE FOREGOING PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF
THE COMPANY'S PROPOSED BANKING SUBSIDIARY, AND ARE NOT, AND WILL NOT BE, INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
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SEE "RISK FACTORS" AT PAGE 6 FOR A DISCUSSION OF CERTAIN MATTERS THAT
SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK
OFFERED HEREBY.
<TABLE>
<CAPTION>
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UNDERWRITING DISCOUNTS AND PROCEEDS TO ISSUER(2)
PRICE TO PUBLIC COMMISSIONS(1)
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<S> <C> <C> <C>
Per Share Minimum $10.00 $0 $10.00
Per Share Maximum $10.00 $0 $10.00
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Total Minimum $8,000,000 $0 $8,000,000
Total Maximum $12,000,000(3) $0 $12,000,000(3)
====================================================================================================================================
</TABLE>
(1) The Shares are being offered by the Directors and Officers of the Company,
with the limited assistance of a registered broker-dealer for purposes of
complying with state securities laws. Directors and Officers will not
receive any special compensation for selling the Shares, but may be
reimbursed for reasonable expenses, if any, incurred by them in connection
with selling Shares, which expenses are currently anticipated not to exceed
$10,000. All proceeds of the Offering will be placed in an escrow account
with Capital Bank, N.A., Rockville, Maryland, pending receipt of
subscriptions for not less than the minimum number of Shares. (See "THE
OFFERING--Escrow Account"). If for any reason the Bank does not receive its
charter to open for business, or the minimum number of Shares are not
subscribed for by the Termination Date, including extensions, if any, all
subscription funds will be promptly refunded to subscribers without
interest, except that interest will be paid to the extent law, regulation
or administrative policy of the subscriber's state of residence
specifically requires. (See "THE OFFERING -- Acceptance and Refunding of
Subscriptions").
(2) Before deducting expenses of this Offering which are estimated at $110,000
($0.14 per share if the minimum number of Shares are sold or $0.09 per
share if the maximum number of Shares are sold), including legal and
accounting fees and printing and other expenses.
(3) Does not reflect Shares subject to the Oversubscription Allotment. If all
Shares subject to the Oversubscription Allotment are sold, the aggregate
price to public, proceeds to issuer, and estimated expenses per share,
based upon the assumptions in Footnote (2), would be $13,800,000,
$13,800,000 and $0.08 per share, respectively.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 9, 1998.
<PAGE>
(continued from preceding page)
in its discretion. The maximum number of Shares for which any investor may
subscribe is five percent (5%) of the total number of Shares sold in the
Offering, or a maximum investment of $600,000 if all of the Shares, not
including Shares subject to the Oversubscription Allotment, offered hereby are
sold, or $400,000 if the minimum number of Shares are sold, subject to the right
of the Company to permit larger subscriptions in order to ensure the sale of the
minimum number of shares offered hereby, or otherwise in its discretion. Subject
to the foregoing and the Company's right to reject any subscription in whole or
in part, all subscriptions, once delivered to the Company, are irrevocable by
the subscriber.
Prospective purchasers should note that: (1) neither the Company nor
its proposed subsidiary, EagleBank, (in organization) (the "Bank") has engaged
in business operations, and the Bank has not yet been authorized to conduct
banking activities; (2) 260,500 of the Shares being offered hereby have been
reserved for sale to Directors and Officers of the Company and the Bank if the
minimum number of Shares are sold (320,500 if the maximum number of Shares are
sold and 347,500 if all Shares subject to the Oversubscription Allotment are
sold); and (3) the Subscription Price has been determined arbitrarily by the
Board of Directors of the Company and bears no relationship to assets, earnings,
book value or any other established measure of value. At present there is no
public market for the Shares, and there is no assurance that an active trading
market will develop as a result of this Offering. (See "RISK FACTORS").
The Offering will expire on April 10, 1998, unless terminated earlier
or extended by the Company in its sole discretion. The Offering may be extended
for periods of up to thirty (30) days without notice; however, under no
circumstances will the Offering be extended beyond June 9, 1998. (See "THE
OFFERING -- General"). Subscribers will be unable to obtain a refund of their
funds during the Offering period, and will not be entitled to receive interest
on funds held in escrow. (See "THE OFFERING -- Acceptance and Refunding of
Subscriptions").
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<PAGE>
AVAILABLE INFORMATION
The Company is a newly organized company and to date has not issued
any capital stock or engaged in any business operations. As such, it is not
currently subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended, although it will become subject to the periodic reporting
requirements following the completion of this offering, until such time as it
has fewer than three hundred shareholders of record. The Company will furnish
stockholders with annual reports containing audited financial statements. It may
also send other reports to keep stockholders currently informed concerning its
affairs.
The Company has filed a Registration Statement on Form SB-2 with the
Securities and Exchange Commission (the "Commission"), of which this Prospectus
forms a part. This Prospectus does not contain all of the information contained
in the Registration Statement and the exhibits thereto, certain parts of which
have been omitted in accordance with rules of the Commission. Any statements
contained herein concerning the provisions of any document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission are not
necessarily complete, and, in each instance, reference is made to the copy of
the document so filed for a more complete description of the matter involved,
and each such statement is qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto are on file with, and may be
examined without charge, at the following public reference facilities of the
Commission: 450 Fifth Street, NW, Room 1024, Washington, DC 20549; 7 World Trade
Center, Suite 1300, New York, New York, 10048; and the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may be obtained, at prescribed rates, from the Public Reference Section
of the Commission 450 Fifth Street, NW, Room 1024, Washington, DC 20549. The
Commission maintains an Internet web site that contains information, including
registration statements, of issuers who file electronically with the Commission.
The address of that web site is http://www.sec.gov.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE BANK SINCE THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
- 2 -
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to
the more detailed information contained elsewhere in this Prospectus.
Prospective purchasers are urged to carefully read the entire Prospectus,
including the information under "RISK FACTORS", before making any investment
decision.
THE COMPANY AND THE BANK
Eagle Bancorp, Inc. (the "Company") was incorporated under the laws of
the State of Maryland on October 28, 1997, to be a bank holding company and,
subject to regulatory approvals, will initially use $7,000,000 of the proceeds
of this Offering to purchase all of the then-issued shares of the common stock
of EagleBank, a Maryland chartered commercial bank in the process of
organization (the"Bank"). If more than $8,000,000 is raised through this
Offering, the Company may use all or a portion of the additional proceeds for
the purpose of purchasing additional shares of the Bank's common stock (or
otherwise contribute all or a portion of such additional proceeds to the Bank),
or may retain the additional proceeds in the Company for general corporate
purposes, including permitting the Company to engage in other business
activities permitted for bank holding companies and to meet future expenses. The
Bank will use the proceeds of the sale of its Common stock to furnish and equip
the Bank's premises and offices, to provide working capital for expansion and to
fund lending activities. (See "USE OF PROCEEDS"; "SUPERVISION AND REGULATION --
The Company"). Whether or not the Company contributes additional proceeds of the
Offering to the Bank will depend on the total amount raised.
Neither the Company nor the Bank has commenced operations and neither
will do so unless this Offering is completed and the requisite approvals of the
Maryland Department of Financial Regulation, Board of Governors of the Federal
Reserve System and Federal Deposit Insurance Corporation are obtained. Neither
the Company nor the Bank has issued any stock and neither will do so until at
least 800,000 Shares are subscribed for pursuant to this Offering. The assets of
the Company as of November 30, 1997, as shown on its balance sheet, were
$53,341, consisting of cash and equipment, and the Company's total stockholders'
deficit as of that date was $(74,236). Advances from organizers have been the
source of funding for the Company. These non-recourse advances, in the aggregate
amount of $155,000 as of January 15, 1998 ($80,000 as of November 30, 1997, the
date of the audited finacial information contained herein), together with any
additional advances by organizers, are to be repaid from the proceeds of this
Offering, together with interest at the prime rate, adjusted monthly.
The Bank has not yet engaged in any business operations and is in the
process of obtaining the approvals necessary to commence operations as a
commercial bank. It is anticipated that the Bank, which will have a primary
market area in Montgomery County, Maryland, will open in the second quarter of
1998, although no assurances can be given as to the date actual operations will
begin. Temporary offices of the Company and the Bank are located at 8101
Glenbrook Road, c/o Ronald D. Paul, Bethesda, Maryland 20814 and its telephone
number is (301) 986-9288. (See "THE COMPANY AND THE BANK").
The Company and the Bank are being organized by a group of individuals
active in Montgomery County and surrounding area business, professional,
banking, financial and charitable activities. Many of the organizers and
proposed Directors and Officers of the Company and the Bank have significant
prior experience and contacts from service with other successful Montgomery
County area community banks. (See "MANAGEMENT"). It is the present intention of
the Company to seek to establish branch offices of the Bank as rapidly as
possible in order to more effectively service customer relationships anticipated
by the Company, and better compete in a highly competitive environment including
the establishment of two branch offices within two months of the Bank opening
for business. There can be no assurance that the Bank will be able to establish
any additional branches, that any of the anticipated relationships will
materialize, or that the Bank will be able to compete successfully.
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<PAGE>
THE OFFERING
Shares Offered Hereby Up to 1,200,000 shares of Common Stock.
Acceptable subscriptions for a minimum of
800,000 shares must be received before any
shares will be sold in this Offering. The
Company reserves the right to sell up to an
additional 180,000 shares of Common Stock
in the event that the volume of
subscriptions exceeds the number of shares
offered (the "Oversubscription Allotment").
Subscription Price $10.00 per Share
Termination Date April 10, 1998, unless earlier terminated
or extended by the Company to a date not
later than June 9, 1998.
Minimum Subscription 100 Shares ($1,000), subject to the right
of the Company to permit smaller
subscriptions in its discretion.
Maximum Subscription Five percent (5%) of the total number of
Shares sold in the Offering, subject to the
right of the Company to permit larger
purchases in order to ensure the sale of
the minimum number of Shares to be sold in
the Offering or otherwise in its
discretion. The filing of certain
information or applications with the bank
regulatory agencies may be a prerequisite
to the purchase of five percent or more of
the Common Stock. The Company reserves the
right to reduce, or reject, in whole or in
part, any subscription which would require
prior regulatory application or approval if
such is not obtained prior to the
Termination Date. (See "THE OFFERING --
Regulatory Limitations")
Gross Proceeds of the Offering $8,000,000 if the minimum number of shares
are subscribed for. $12,000,000 if the
maximum number of shares are subscribed
for. $13,800,000 if all shares subject to
the Oversubscription Allotment are
subscribed for.
Estimated Net Proceeds
of the Offering $7,890,000 if the minimum number of shares
are subscribed for; $11,890,000 if the
maximum number of shares are subscribed
for; $13,690,000 if all shares subject to
the Oversubscription Allotment are
subscribed for, in each case after
deduction of expenses of the Offering
estimated at $110,000.
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<PAGE>
Use of Proceeds The Company will use the first $7,000,000
of the net proceeds of the Offering to
purchase all of the then-issued shares of
common stock of the Bank. Net proceeds in
excess of $8,000,000 will, subject to a
determination by the Board of Directors of
the Company to contribute all or part of
such excess proceeds to the Bank, be
invested in short term U.S. government
securities, or other investments authorized
by the Company, pending use of such
proceeds as working capital for the
Company. The Company may engage in
non-banking activities permissible for bank
holding companies, including but not
limited to venture capital and mortgage
banking activities.
The Bank will utilize the funds received
from the Company to furnish and equip
facilities for the Bank, to provide working
capital, and for general corporate purposes
of the Bank. (See "USE OF PROCEEDS").
RISK FACTORS
Investment in the Shares offered hereby involves certain risks,
including but not limited to the possibility that there will not be a trading
market, active or otherwise, for the Shares, the lack of an operating history of
the Company and the Bank and the fact that the Bank will be faced with
competition from other financial institutions that have substantially greater
financial resources than will the Bank. Investors should carefully consider the
information contained herein under "RISK FACTORS."
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<PAGE>
RISK FACTORS
An investment in the securities offered by this Prospectus involves
various risks. Prospective purchasers should consider the following, together
with the other information contained herein, before making a decision to
purchase any Shares offered hereby.
Limited Trading Market. While the Shares being offered hereby will be
freely transferable by most shareholders immediately upon issuance, it is not
anticipated that there will be an active market for trading the Shares following
this Offering, and no assurance can be given that an active or established
trading market will develop in the foreseeable future. Directors and Officers of
the Company and the Bank have indicated their intentions to purchase an
aggregate of 260,500 of the Shares being offered hereby, subject to increase in
the event that more than the minimum number of Shares are sold. While the
Company currently intends to list the Shares on The Nasdaq Stock Market National
Market System ("Nasdaq/NMS") or another securities exchange as soon as it meets
the requirements therefore, the Common Stock will not initially be so listed and
there can be no assurance that trading in the over-the-counter market or through
brokers or market makers will develop. Qualification requirements for the
Nasdaq/NMS currently include at least one year of pre-tax income of $750,000 and
after-tax income of $400,000, 400 shareholders of record and 1,000,000 publicly
held shares (exclusive of shares held by Directors and Officers) or 800
shareholders and 500,000 publicly held shares, and two market makers; or a three
year operating history, net assets of $12,000,000, and 1,000,000 publicly held
shares with a market value of $15,000,000. There can be no assurance that the
Company will qualify for listing on Nasdaq/NMS or another securities exchange.
Additionally, even if qualified, future events may cause the Company to elect
not to seek listing on Nasdaq/NMS or another securities exchange. As a result,
an investment in the Shares offered hereby may be relatively illiquid. (See "THE
OFFERING -- Limited Market for Shares").
Lack of Operating History and Profitability. The Company and the Bank
are in the process of organization and neither has any prior operating history.
Since the Company will function as a holding company, its profitability will
primarily depend on the results of operations of its principal asset, the Bank.
Although the organizing directors and executive officers have significant
experience and contacts in the market in which the Bank will operate, it is
expected that the Bank will incur operating losses during its initial years of
operation, may not achieve significant profitability, if at all, for at least
two years, and no assurance can be given as to its long-term profitability. The
establishment of branch offices, and the attendant costs, may further delay
profitability if such branches do not grow as presently anticipated. There can
be no assurance that the Bank will receive approval to establish its first two
branches as planned. (See "BUSINESS OF THE COMPANY").
Release of Funds From Escrow Without Regulatory Approval to Commence
Banking Operations. The Company reserves the right to break escrow, receive the
subscription funds from the account into which they have been deposited, and
issue shares of Common Stock at any time after the receipt of acceptable
subscriptions for the minimum number of Shares, whether or not all approvals
necessary for the Bank to commence operations as a subsidiary of the Company
have been received. If the Company elects to break escrow prior to receiving all
approvals, and such approvals are not ultimately received, investors' funds will
be irrevocably invested in Common Stock, but the Company will not be able to
effect its plan to own and operate a newly formed bank. In that event, the
Company intends to commence liquidation proceedings and return investor funds,
without interest, as soon as possible after completion of such proceedings. The
election to break escrow prior to receiving all required regulatory approvals
would be made to obtain use of the escrowed funds to finance the buildout of the
Bank's offices. In making the determination to break escrow, the Board of
Directors would consider the amount of funds required to fund the buildout, the
timely availability of additional organizer advances, the availability and cost
of other temporary financing sources, and the judgment of the Board of Directors
as to the ultimate success of the Company and the Bank in obtaining all
approvals required to commence banking operations and the timing of such
approvals. Because of the nature of the regulatory approval process, there can
be no assurance that the judgment of the Board of Directors will be correct in
these matters. The organizers of the Company have indicated that in the event
the Company and the Bank do not receive all required approvals and the Company
effects a liquidation, they will contribute to the Company such funds as may be
required to cause all investors to receive the full amount of their initial
investment in the Company, including interest to the extent law, regulation or
administrative policy of the investor's state of residence specifically
requires, without deduction for expenses incurred in the attempted organization
of the Company and the Bank. (See "THE OFFERING -- Escrow Account; Release of
Funds").
Potential for Management to Block Action by Shareholders Through
Voting of Their Shares. Directors and Officers of the Company and the Bank have
indicated their intention to purchase 260,500 Shares if the minimum number of
Shares are sold, 320,500 Shares if the maximum number of Shares are sold, and
347,500 Shares if all Shares subject to the Oversubscription Allotment are sold,
representing approximately 32.56%, 26.71%, and 25.18%, respectively, of the
total Shares outstanding following the Offering. If such persons purchase the
number of Shares indicated, then by voting against a proposal submitted to
shareholders, the Directors and Officers of the Company and the Bank, as a
group, would be able to block approval of any proposal submitted to shareholders
which requires an 80% vote of shareholders (such as certain votes under
Maryland's statute regarding business combinations with certain "interested
stockholders"), and make approval more difficult for proposals requiring the
vote of two-thirds of shareholders (such as mergers, share exchanges, certain
asset sales, and amendments to the Company's Articles of Incorporation).
Directors and Officers of the Company, or persons related or affiliated with
them, may purchase additional Shares in the Offering.
Arbitrarily Determined Subscription Price. The subscription price of
the Shares offered hereby has been arbitrarily determined by the Board of
Directors of the Company, and no independent investment banking firm was
retained to assist in such determination. The $10.00 per Share price bears no
relationship to the assets, earnings, book value or other established measure of
value of the Company or the Bank; rather, in fixing the price the Board
considered, among other things, the subscription prices of securities offered by
other newly organized financial institutions and bank holding companies.
Limitations on Dividends. The Bank will be the wholly owned subsidiary
of the Company and, initially, its principal revenue producing operation. It is
anticipated that the Bank will incur losses during its intial phase of
operations, and therefore, it is not anticipated that any dividends will be paid
by the Bank or the Company for at least three years and in the forseeable
future. Even if the Bank and the Company have earnings in an amount sufficient
to pay dividends, the Board of Directors may determine, and it is the present
intention of the Board of Directors, to retain earnings for the purpose of
funding the growth of the Company and the Bank. No assurance can be given that
the Bank's earnings, if any, will ever permit the payment of any dividends to
the Company, and, similarly, no assurance can be given that the Company's
earnings, if any, will ever permit the payment of dividends to shareholders.
Approvals of the Department of Financial Regulation or the Board of Governors of
the Federal Reserve System may be required prior to payment of dividends by the
Bank to the Company under certain circumstances. (See "DESCRIPTION OF THE
CAPITAL STOCK -- Limitations on Payment of Dividends").
Competition. In the Greater Washington, DC metropolitan area,
generally, and in the Bank's primary service area in Montgomery County, Maryland
in particular, competition is exceptionally keen in the business and consumer
banking markets both from large and community commercial banking institutions.
The Bank will also compete with savings and loan associations, credit unions,
mortgage companies, brokerage and investment firms, insurance companies and
others providing financial services. Among the advantages that many of these
institutions have over the Bank are their abilities to finance extensive
advertising campaigns, maintain large branch networks and to directly offer
certain services, such as international banking and trust services, which will
not be offered directly by the
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<PAGE>
Bank. Further, the greater capitalization of the larger institutions allows for
substantially higher lending limits than the Bank. (See "BUSINESS OF THE BANK --
Competition").
Non-Underwritten Offering; Sale of Minimum Number of Shares. The
Common Stock is being sold directly by the Company, through the efforts of its
organizing Directors and Officers, with the limited assistance of Koonce
Securities, Inc., Rockville, Maryland, a registered broker-dealer, or another
registered broker-dealer in any jurisdiction in which Koonce Securities, Inc. is
not registered, for the purpose of compliance with the securities laws of the
various jurisdictions in which the Shares are being offered. No broker-dealer
which assists the Company in the Offering will have any obligation to purchase
any shares being offered hereby. Because the Offering is not underwritten, there
can be no assurance that the minimum number of Shares will be sold. If the
minimum number of Shares is not subscribed for, subscriber funds will be
returned, without deduction, but subscribers will have lost the use of their
funds during the pendency of the Offering.
If only the minimum number of Shares are sold in the Offering, the
Company and the Bank will have less capital to fund initial operating losses and
Bank operations and expansion activities. While management believes that the
proceeds of the sale of the minimum number of Shares is adequate to implement
the Company's and Bank's business plans, the capital levels resulting from the
sale of only the minimum number of Shares, in combination with adverse business
conditions, could result in restricted or slower growth for the Bank, slower
establishment of branches or non-banking activities, and could cause the Company
to seek to raise capital by the sale of additional Common Stock earlier than it
would if it sold the maximum number of Shares in this Offering.
Shares Available for Sale Without Shareholder Action. The articles of
incorporation of the Company authorize an aggregate of 5,000,000 shares of
Common Stock, 1,200,000 of which are offered hereby (1,380,000 including Shares
subject to the Oversubscription Allotment), and 1,000,000 shares of undesignated
preferred stock, the terms of which may be determined by the Board of Directors
at the time of issuance. The Board of Directors is authorized to issue
additional shares of Common Stock, or shares of preferred stock having such
rights, powers and privileges as it may fix, at such times and for such
consideration as it may determine, without shareholder action. The existence of
authorized shares of preferred stock and Common Stock could have the effect of
rendering more difficult or discouraging hostile takeover attempts, or of
facilitating a negotiated acquisition of the Company, and could thereby affect
the market for and price of the Common Stock. Any future offering of capital
stock could have a dilutive effect on holders of Common Stock. (See "DESCRIPTION
OF CAPITAL STOCK").
Reliance On Management; Discretion of Management. As newly organized
institutions without existing operations, facilities or business lines, the
Company and the Bank will rely upon the executive officers and directors of the
Company and the Bank to locate, establish and outfit appropriate quarters for
the Bank, hire staff, develop and implement marketing and business development
strategies and evaluate lines of businesses in addition to the Bank's core
commercial banking functions. There can be no assurance the Board of Directors
of the Company and the Bank, who, subject to the requirements of safe and sound
banking practices, will have substantial discretion in these matters, will be
successful in this regard. Subject to the anticipated requirement that at least
$7,000,000 be contributed to the capital of the Bank, and the requirements of
safe and sound banking practices, the Board of Directors of the Company and the
Bank will have substantial discretion of the use of Offering proceeds. The
discretion of the Board of Directors and management of the Company to allocate
the proceeds of the Offering May result in the use of such proceeds for
non-banking activities permitted for bank holding companies which are not
specified herein.
Limitation of Director Liability. The articles of incorporation of the
Company provide that to the full extent permitted by Maryland law, an officer or
director of the Company will not be liable to the Company or its shareholders
for monetary damages. (See "MANAGEMENT"). This could result in monetary loss to
the Company and its shareholders as a result of the default of its officers or
directors without the ability to obtain compensation for that loss from the
officers or directors.
Monetary Policy and Economic Conditions. The operating income and net
income of the Bank will depend to a great extent on "rate differentials," i.e.,
the difference between the interest yields the Bank receives on its loans,
securities and other interest bearing assets and the interest rates it pays on
its interest bearing deposits and other liabilities. These rates are highly
sensitive to many factors which are beyond the control of the Bank, including
general economic conditions and the policies of various governmental and
regulatory authorities, including the Board of Governors of the Federal Reserve
System. (See "SUPERVISION AND REGULATION -- The Bank").
Government Regulation. The Company and the Bank will be subject to
extensive governmental regulation, control and examination by the Maryland
Department of Financial Regulation, the Board of Governors of the Federal
Reserve System and the Federal Deposit Insurance Corporation. The regulations of
these various agencies which will govern most aspects of the Company's and the
Bank's business, including investments, loans, borrowings, dividends, setting of
required reserves, and location and number of branches, are promulgated
principally for the
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<PAGE>
protection of depositors and the deposit insurance system, and not for the
protection of the investment of the Company's shareholders. (See "SUPERVISION
AND REGULATION").
Repayment of Organizational Expenses to Organizing Directors.
Organizers of the Company, each of whom is a Director of the Company and the
Bank, have, as of January 15, 1998, advanced an aggregate of $155,000 to the
Company to cover organization costs, pre-opening expenses and the acquisition of
certain fixed assets of the Company and the Bank. One organizer has obtained a
line of credit in the amount of $350,000 (of which $75,000 has been drawn) for
the purpose of funding additional organizational expenses of the Company and
Bank through additional organizer advances. The Company's ability to repay such
advances, or loans incurred to repay such advances, depends upon the success of
this Offering. If the Offering is completed and the Bank opens, but organizer
advances are not promptly repaid, and if such advances are not forgiven as a
portion of the consideration for such organizers' subscriptions for Shares in
the Offering, the organizers would be entitled to seek legal recourse against
the Company, including seeking to place liens on assets of the Company,
including the stock of the Bank. If successful in such legal action, and if the
Company does not have funds available to pay any judgment, the organizers could
cause the Bank stock to be sold to satisfy the judgment. (See "EXECUTIVE
COMPENSATION AND CERTAIN TRANSACTIONS WITH MANAGEMENT -- Certain Transactions";
"USE OF PROCEEDS"; "BUSINESS OF THE COMPANY -- Management's Plan Of Operation").
Allocation of Shares in the Discretion of the Company. The Company
will have broad discretion in determining which subscriptions other than those
of Directors and Officers of the Company and the Bank to accept, in whole or in
part, including in the event the Offering is oversubscribed. In making such
determinations, the Company may consider the order in which subscriptions are
received, a subscriber's potential to do business with, or to direct business
to, the Bank, and the Company's desire to have a broad distribution of stock
ownership. As a result, a subscriber cannot be assured of receiving the full
number of Shares subscribed for, and may forego use of all or a portion of such
subscriber's funds pending allocation of available Shares. (See "THE OFFERING --
General"; " -- Acceptance and Refunding of Subscriptions").
Delay in Opening. As of the date hereof, the Company has identified,
but has not entered into leases relating to, sites for the Bank's main office
and for the two branches sought to be opened shortly after the Bank opens. The
inability to enter into, or delay in entering into, satisfactory leases, or in
effecting renovations to such sites, could result in the Bank's opening being
delayed. Delay may also be experienced as a result of the process of obtaining
regulatory approvals. Delay in the commencement of operations by the Bank may
result in increased aggregate organizational expense, reducing the funds
potentially available for the conduct of the Company's business.
Voting Control of the Bank. The Board of Directors of the Company will
elect the Directors of the Bank, and the stockholders of the Company will not be
entitled to directly elect the Directors of the Bank.
THE COMPANY AND THE BANK
The Company was incorporated under the laws of the State of Maryland
on October 28, 1997, to operate as a bank holding company. An application will
be filed on behalf of the Company with the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") for prior approval of the Federal
Reserve Board to become a bank holding company pursuant to the Bank Holding
Company Act of 1956, and, in connection therewith, to purchase all of the
capital stock to be issued by the Bank.
An application to organize the Bank was filed with the Maryland
Department of Financial Regulation on December 5, 1997. The application
contemplates sale of all of the shares of the Bank's common stock to the Company
for an aggregate price of $7,000,000. In the event more than $8,000,000 in net
proceeds is raised in this Offering, the Company may purchase additional shares
of common stock of the Bank, or otherwise contribute such additional proceeds to
the Bank, or may retain all or a portion of the additional proceeds in the
Company for the purpose of allowing the Company to engage in business activities
permitted for bank holding companies. (See "SUPERVISION AND REGULATION -- The
Company").
An application for insurance of the Bank's deposits was filed with the
Federal Deposit Insurance Corporation ("FDIC") on December 5, 1997.The Company's
application to become a bank holding company and the Bank's application for
membership in the Federal Reserve System were submitted in final form on
February 4, 1998.
The Bank anticipates that it will open in the second quarter of 1998,
or as soon thereafter as practicable. Meeting such targeted opening date is
dependent upon a number of factors which may be beyond the control of the Bank,
including the timely completion of this offering, approval by the state and
federal banking agencies, final development of the Bank's facility and the
hiring of employees. Any delay in the commencement of operations could increase
the estimated pre-opening expenses of the Bank.
- 8 -
<PAGE>
Neither the Company nor the Bank has commenced operations and neither
will do so unless this Offering is successfully completed and the Bank meets the
conditions of the Department of Financial Regulation to receive its certificate
of authority to commence the business of banking (the "Charter"), of the FDIC to
receive deposit insurance, and of the Federal Reserve Board to become a member
bank, and the Company obtains approval from the Federal Reserve Board to become
a bank holding company. If the Company elects to forego membership by the Bank
in the Federal Reserve System, which it reserves the right to do, then the FDIC
will be the primary federal regulator of the Bank. The FDIC will regulate the
Bank in substantially the same manner as the Federal Reserve Board.
("SUPERVISION AND REGULATION").
THE OFFERING
GENERAL
The Company is hereby offering for sale up to 1,200,000 shares (the
"Shares") of its common stock, $.01 par value (the "Common Stock"), at a price
of $10.00 per Share (the "Subscription Price"). The Company also reserves the
right to sell up to an additional 180,000 shares of Common Stock in the event
that the volume of subscriptions exceeds the number of shares offered (the
"Oversubscription Allotment"). No Shares will be sold unless acceptable
subscriptions for a minimum of 800,000 Shares are received by the Company. It is
expected that Directors and Officers of the Company and the Bank will purchase
approximately 32.56% of the Shares offered hereby if the minimum number of
Shares are sold, or 26.71% if the maximum number of Shares are sold.
Subscriptions to purchase Shares must be received by the Company no later than
5:00 p.m., eastern time, on April 10, 1998, unless the Offering is terminated
earlier or extended by the Company. The Company reserves the right to terminate
the Offering at any time prior to April 10, 1998, or to extend the expiration
date for periods of up to thirty (30) days each, without notice to subscribers;
however, under no circumstances will the Offering be extended beyond June 9,
1998. The date this Offering terminates, whether on April 10, 1998, or before or
after, shall be referred to herein as the "Termination Date".
Investors must subscribe for the purchase of a minimum of 100 Shares
(for a minimum investment of $1,000), subject to the Company's right to permit
smaller subscriptions in its discretion. The maximum number of Shares any person
will be permitted to purchase is five percent (5%) of the total number of Shares
sold in the Offering, except in the event such purchases are necessary to ensure
the minimum number of Shares are subscribed and paid for in this Offering. The
Company reserves the right, however, to permit such larger purchases in its
discretion. (See "THE OFFERING - Regulatory Limitation")
THE COMPANY RESERVES THE RIGHT TO ACCEPT OR REJECT ANY SUBSCRIPTION IN
WHOLE OR IN PART. IN DETERMINING WHETHER TO ACCEPT ANY SUBSCRIPTION, IN WHOLE OR
IN PART, THE DIRECTORS MAY, IN THEIR SOLE DISCRETION, TAKE INTO ACCOUNT THE
ORDER IN WHICH SUBSCRIPTIONS ARE RECEIVED, A SUBSCRIBER'S POTENTIAL TO DO
BUSINESS WITH, OR TO DIRECT CUSTOMERS TO, THE BANK AND THE COMPANY'S DESIRE TO
HAVE A BROAD DISTRIBUTION OF STOCK OWNERSHIP, AS WELL AS LEGAL OR REGULATORY
RESTRICTIONS. NOTWITHSTANDING THE COMPANY'S UNFETTERED RIGHT OF REJECTION, ONCE
RECEIVED BY THE COMPANY, ALL SUBSCRIPTIONS ARE IRREVOCABLE BY THE SUBSCRIBER.
No underwriting discounts or commissions will be paid in connection
with the sale of the Shares offered hereby. The Offering will be made through
the efforts of the Officers and Directors of the Company, who will solicit
subscriptions from prospective stockholders. Such Officers and Directors will
not receive any special compensation for such services, but will be reimbursed
for reasonable out-of-pocket expenses, if any, incurred by them in connection
therewith. Although all of the Officers and Directors of the Company and the
Bank will participate in the Offering, Messrs. Abel and Paul, the Chairman of
the Company and the President of the Company and Chairman of the Bank,
respectively, along with Messrs. Ward and Murphy, the President/Chief Executive
Officer and Executive Vice President/Chief Operating Officer of the Bank,
respectively, will have principal responsibility for coordination of investor
development activities, answering questions from investors and, participating in
informational meetings and coordinating the efforts of the Officers and
Directors in the Offering. The Company has retained Koonce Securities, Inc.,
Rockville, Maryland ("Koonce"), a registered broker-dealer, to provide limited
assistance to the Company in order to effect sales of Shares in compliance with
the securities laws of the various jurisdictions in which the Offering will be
made. To the extent the Company seeks to offer Shares in jurisdictions in which
Koonce is not registered, the Company may effect sales through another
registered broker-dealer. Executed subscription documents (which will be
promptly forwarded to the Company) and subscription proceeds (which will be
forwarded to the escrow agent by noon of the business day following receipt)
will be received by Koonce. No broker-dealer who assists the Company in the
Offering, including Koonce, will independently assess the information in this
Prospectus or determine the value of the Common Stock or the
- 9 -
<PAGE>
reasonableness of the Subscription Price. Koonce will receive $10,000 for its
services in connection with the Offering if the Offering is completed. Koonce
will also receive reimbursement of its out-of-pocket expenses, whether or not
the Offering is completed.
METHOD OF SUBSCRIPTION
Persons who wish to participate in the Offering and invest in the
Company may do so by completing and signing the Subscription Agreement
accompanying this Prospectus and delivering the completed Subscription Agreement
to Koonce prior to the Termination Date, together with payment in full of the
Subscription Price of all Shares subscribed for. Such payment in full must be by
(a) check or bank draft drawn upon a U.S. bank, or (b) postal, telegraphic or
express money order, in either case, payable to "Capital Bank, N.A., Escrow
Agent for Eagle Bancorp, Inc.". The Subscription Price will be deemed to have
been received only upon (i) clearance of any uncertified check, or (ii) receipt
of any certified check or bank draft drawn upon a U.S. bank or of any postal,
telegraphic or express money order. A postage paid, addressed envelope is
included for the return of Subscription Agreement. If paying by uncertified
personal check, please note that the funds paid thereby may take at least five
business days to clear. Accordingly, persons who wish to pay the Subscription
Price by means of uncertified personal check are urged to make payment
sufficiently in advance of the Termination Date to ensure that such payment is
received and clears by such date. All funds received in payment of the
Subscription Price shall be deposited at Capital Bank, N.A., Rockville, Maryland
("Capital Bank") in the Eagle Bancorp, Inc. Escrow Account and, pending closing
of the Offering, shall be invested at the direction of the Company in short-term
obligations of the United States.
The address to which Subscription Agreements and payment of the
Subscription Price should be delivered is:
Koonce Securities, Inc. (Eagle Bancorp, Inc.)
6550 Rock Spring Drive
Suite 600
Bethesda, Maryland 20817
Telephone No.: (800) 368-2806 or (301) 897-9700
If the aggregate Subscription Price paid by a subscriber is
insufficient to purchase the number of Shares that such person indicates are
being subscribed for, or if a subscriber does not specify the number of Shares
to be purchased, then such subscriber will be deemed to have subscribed to
purchase Shares to the full extent of the payment tendered (subject only to the
reduction to the extent necessary to comply with any regulatory limitation or
conditions imposed by the Company in connection with the Offering). If the
Subscription Price paid by a subscriber exceeds the amount necessary to purchase
the number of Shares for which such subscriber has indicated an intention to
subscribe, then such subscriber will be deemed to have subscribed to purchase
Shares to the full extent of the excess payment tendered (subject only to
reduction to the extent necessary to comply with any regulatory limitation or
conditions imposed by the Company in connection with the Offering).
Notwithstanding the foregoing, the Company reserves the right to reject, in
whole or in part, any subscription. In determining whether to accept any
subscription, in whole or in part, the Directors may, in their sole discretion,
take into account the order in which subscriptions are received, a subscriber's
potential to do business with, or to direct customers to, the Bank and the
Company's desire to have a broad distribution of stock ownership, as well as
legal or regulatory restrictions.
THE FULL SUBSCRIPTION PRICE FOR THE SHARES SUBSCRIBED FOR MUST BE
INCLUDED WITH THE APPLICATION. FAILURE TO INCLUDE THE FULL SUBSCRIPTION PRICE
WITH THE APPLICATION MAY CAUSE THE COMPANY TO REJECT THE APPLICATION.
The method of delivery of Subscription Agreements and payment of the
Subscription Price will be at the election and risk of persons participating in
the Offering, but if sent by mail, it is recommended that such Subscription
Agreements and payments be sent by registered mail, return receipt requested,
and that a sufficient number of days be allowed to ensure delivery to the
Company and clearance of payment prior to the Termination Date.
- 10 -
<PAGE>
All questions concerning the timeliness, validity, form and
eligibility of Subscription Agreements received will be determined by the
Company, whose determinations will be final and binding. The Company in its sole
discretion may waive any defect or irregularity, or permit any defect or
irregularity to be corrected within such time as it may determine, or reject the
purported subscription. Subscription Agreements will not be deemed to have been
received or accepted until all irregularities have been waived or cured within
such time as the Company determines in its sole discretion. Neither the Company
nor any broker-dealer utilized by the Company will be under any duty to give
notification of any defect or irregularity in connection with the submission of
Subscription Agreements or incur any liability for failure to give such
notification.
Subscriptions for Common Stock which are received by the Company or
its broker-dealer may not be revoked by subscribers.
ESCROW ACCOUNT; RELEASE OF FUNDS
In connection with the sale of the Shares by the Company, an escrow
account has been established at Capital Bank, N.A., One Church Street,
Rockville, Maryland 20850. All funds submitted with Subscription Agreements will
be forwarded to Capital Bank by noon of the following business day, for deposit
in said escrow account. Subscription funds may be invested temporarily in
short-term government obligations. The funds in the escrow account will be held
by Capital Bank and will not be released until the acceptance by the Company of
subscriptions for not less than the minimum number of Shares offered hereby.
In the event that the Offering is not completed because the minimum
number of Shares are not subscribed for, all regulatory approvals are not
received, or otherwise, all subscription funds will be returned to investors,
without interest or deduction, except that interest will be paid to the extent
that law, regulation or administrative policy of an investor's state of
residence specifically requires.
The Company reserves the right to break escrow, receive the funds in
the escrow account and issue shares of Common Stock to subscribers at any time
after the receipt of acceptable subscriptions for the minimum number of Shares
and receipt of the approval of the Bank's Articles of Incorporation by the
Commissioner of Financial Regulation. Such approval, which was received on
January 16, 1998, does not constitute authority to commence business as a bank,
which authority will not be granted until insurance of the Bank's deposits is
obtained, its premises are completed and until immediately prior to the Bank's
opening for business. There can be no assurance that the Bank will receive final
approval to commence business from the Commissioner of Financial Regulation,
approval of its application for deposit insurance, or that the Company will
receive approval of its application to become a bank holding company by
acquiring the shares of the Bank's common stock. If the Company elects to break
escrow prior to the Bank receiving all approvals required to commence business,
and such approvals are not ultimately obtained, investors' funds will be
irrevocably invested in Company Common Stock, but the Company will not be able
to effect its plan to own and operate a newly formed bank. In that event, the
Company intends to commence liquidation proceedings and return investor funds,
without interest (except to the extent that law, regulation or administrative
policy of an investor's state of residence specifically requires), as soon as
possible after completion of such proceedings. The election to break escrow
prior to receiving all required regulatory approvals would be made to obtain use
of the escrowed funds to finance the buildout of the Bank's offices. In making
the determination to break escrow, the Board of Directors would consider the
amount of funds required to fund the buildout, the timely availability of
additional organizer advances, the availability and cost of other temporary
financing sources, and the judgment of the Board of Directors as to the ultimate
success of the Company and the Bank in obtaining all approvals required to
commence banking operations and the timing of such approvals. Because of the
nature of the regulatory approval process, there can be no assurance that the
judgment of the Board of Directors will be correct in these matters. The
organizers of the Company have indicated that in the event the Company and the
Bank do not receive all required approvals and the Company effects a
liquidation, they will contribute to the Company such funds as may be required
to cause all investors to receive the full amount of their initial investment in
the Company (plus interest to the extent that law, regulation or administrative
policy of an investor's state of residence specifically requires), without
deduction for expenses incurred in the attempted organization of the Company and
the Bank. The organizers of the Company have indicated that in the event the
Company and the Bank do not receive all required approvals and the Company
effects a liquidation, they will contribute to the Company such funds as may be
required to cause all investors to receive the full amount of their initial
investment in the Company, (plus interest to the extent that law, regulation or
administrative policy of an investor's state of residence specifically
requires), without deduction for expenses incurred in the attempted organization
of the Company and the Bank.
Whether or not the Offering is completed and Shares sold, all interest
earned on funds held in escrow representing accepted subscriptions will be
retained by the Company. By submitting a subscription, subscribers will forego
interest they otherwise could have earned on the funds for the period during
which their funds are held in escrow. Notwithstanding the foregoing, interest
will be paid to the extent that law, regulation or administrative policy of an
investor's state of residence specifically requires in the event that the
Offering is not completed, or in the event that the Offering is completed, but
funds are returned in liquidation because all approvals required for the
commencement of business by the Bank are not ultimately received. Prior to the
time the Offering is completed or terminated, the Company shall be entitled to
request, from time to time, that the escrow agent distribute accrued earnings on
the escrowed funds to the Company of general corporate purposes.
ACCEPTANCE AND REFUNDING OF SUBSCRIPTIONS
Subscription Agreements are not binding on the Company until accepted
by the Company, which reserves the right to reject, in whole or in part, in its
sole discretion, any Subscription Agreement or, if the Offering is
oversubscribed, to allot a lesser number of Shares than the number for which a
person has subscribed. In determining the number of Shares to allot to each
subscriber in the event the Offering is oversubscribed, the Directors, in their
sole discretion, may take into account the order in which subscriptions are
received, a subscriber's potential to do business with, or to direct customers
to, the Bank, and the Company's desire to have a broad distribution of stock
ownership, as well as legal or regulatory restrictions. The Company will decide
which Subscription Agreements to accept within three days after the Termination
Date, including extensions, if any. Once made, a subscription is irrevocable by
the subscriber during the period of the Offering, including extentions, if any.
In the event the Company rejects all or a portion of any subscription,
the escrow agent will promptly refund to the subscriber by check sent by
first-class mail all, or the appropriate portion of, the amount submitted with
the Subscription Agreement, without interest or deduction, except that interest
will be paid to the extent that law, regulation or administrative policy of an
investor's state of residence specifically requires. If for any reason the
Offering is not completed, because the Bank does not receive its Charter to open
for business, the minimum number of Shares are not subscribed for by the
Termination Date, including extensions, if any, or for any other reason, all
subscription funds will be promptly refunded to subscribers without interest or
deduction, except that interest will be paid to the extent that law, regulation
or administrative policy of an investor's state of residence specifically
requires.
After all refunds have been made, the escrow agent, the Company, the
Bank and their respective Directors, Officers, and agents will have no further
liabilities to subscribers. Certificates representing Shares duly subscribed and
paid for will be issued by the Company as soon as practicable after funds are
released to the Company by the escrow agent.
Interest for Pennsylvania Residents. Not in limitation of anything
contained herein, in the event that subscription funds of an investor residing
in Pennsylvania are returned (including upon a liquidation in the event that all
regulatory approvals required for the Bank to commence operations as a
subsidiary of the Company are not received after the Company has broken escrow),
such investors will be entitled to receive interest if their funds have been
held by the Company for more than ninety days.
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<PAGE>
LIMITED MARKET FOR SHARES
Except for Shares held by the Company's Directors and certain
Officers, the Shares will be freely transferable immediately upon issuance and
will not be subject to any transfer restrictions. Although the Shares may be
bought or sold in the over-the-counter market through securities brokers and
dealers, it is not anticipated that an active trading market will develop in the
foreseeable future. There can be no assurance that an over-the-counter market
will develop for the Common Stock. It is not anticipated that the Shares will
initially be listed on any stock exchange or be designated for trading on the
Nasdaq system, although the Company currently intends to list the Shares on the
Nasdaq/NMS or another exchange as soon as it meets the requirements therefor.
There can be no assurance however, that the Company will qualify for, or if
qualified for will seek, listing on the Nasdaq/NMS or another securities
exchange.
REGULATORY LIMITATION
The purchase of five percent (5%) or more of the Common Stock of the
Company may require the subscriber to provide certain information to, or seek
the prior approval of, state and federal bank regulators. The Company will not
be required to issue shares of Common Stock pursuant to the Offering to any
person who, in the opinion of the Company, would be required to obtain prior
clearance or approval from any state or federal bank regulatory authority to own
or control such shares if, at the Termination Date, such clearance or approval
has not been obtained or any required waiting period has not expired. The
Company reserves the right to reduce or reject, in whole or in part, any
subscription which would require prior regulatory application or approval if
such has not been obtained prior to the Termination Date.
USE OF PROCEEDS
The proceeds to the Company from the sale of the Shares offered hereby
will be $8,000,000 if the minimum number of Shares are sold, $12,000,000 if the
maximum number of Shares offered hereby are sold, and $13,800,000 if all Shares
subject to the Oversubscription Allotment are sold, in each case before
deducting expenses of the Offering, which are estimated at $110,000.
The Company will initially use $7,000,000 of the net proceeds of the
Offering to purchase all of the then-issued common stock of the Bank.
Additionally, the Company will pay all of the organizational expenses of the
Company and the Bank from the proceeds of the Offering, including through
repayment of funds advanced to the Company by the organizers. If more than
$8,000,000 of net proceeds is raised in the Offering, the Company may use all or
a portion of the additional proceeds for purchase of more shares of the Bank's
common stock (or otherwise contribute such funds to the Bank) or may retain all
or a portion of the additional proceeds in the Company for general corporate
purposes, including permitting the Company to engage in business activities
permitted for bank holding companies, and to meet future accounting, legal and
regulatory expenses (See "SUPERVISION AND REGULATION"). There can be no
assurance that the Company will not be required to contribute to the capital of
the Bank more than the amount currently anticipated as a condition to the
approval of the Bank's charter or the establishment of its planned branches.
The Bank will apply the proceeds of the sale of its capital stock to
the Company to furnish and equip the Bank's premises and the Company's offices
(at an estimated cost of $833,000), to provide working capital for expansion, to
fund lending activities and for general corporate purposes (including the
investment of all or a portion of the working capital funds in interest-bearing
certificates of deposit or other deposits with the Bank or other types of
securities, such as government bonds). Certain of the expenses attributable to
the Bank for furnishing and equipping premises and offices may be initially paid
through organizer advances, and the Bank or Company will repay the organizer
loans reflecting such expenses.
Set forth below is a tabular presentation reflecting the anticipated
allocation of the net proceeds of the Offering, after deducting estimated
expenses of the Offering of $110,000. The presentation assumes the sale of a
maximum of 1,200,000 Shares, that no Shares subject to the Oversubscription
Allotment are sold, the payment of all pre-opening and organizational costs
(other than Bank premises and equipment expense) by the Company, and
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<PAGE>
in the case of the maximum number of Shares being sold, the contribution of all
proceeds in excess of $8,000,000 to the Bank. Pre-opening expenses will
initially have been funded by organizer advances, which will be repaid from the
proceeds of this Offering. The presentation assumes the direct payment of all
such expenses (other than Bank premises and equipment expense) by the Company.
<TABLE>
<CAPTION>
Minimum Maximum(1)
Amount % of Proceeds(1) Amount % of Proceeds(1)
--------------------------------------- -----------------------------------------
THE COMPANY:
<S> <C> <C> <C> <C>
Net Proceeds $ 7,890,000 100% $ 11,890,000 100%
Purchase of Stock of Bank/
Capital Contributions 7,000,000 88.72% 10,890,000 91.59%
Salary(2)(3) 230,000 2.92% 230,000 1.93%
Other pre-opening expense(3)(4) 70,000 0.89% 70,000 0.59%
Interest on organizer advances(5) 23,233 0.29% 23,233 0.20%
Working Capital 566,767 7.18% 676,767 5.69%
THE BANK
Proceeds of Capital Contributions
By Company 7,000,000 88.72% 10,890,000 91.59%
Premises and equipment expense(3)(6) 833,000 10.56% 833,000 7.01%
Working Capital 6,167,000 78.16% 10,057,000 84.58%
</TABLE>
(1) Represents, in case of the Bank, percentage of total net proceeds of
Offering. The Company reserves the right to not contribute to the Bank any
portion of the proceeds of the Offering in excess of $7,000,000.
(2) Represents pre-opening salary and benefits for President and Executive Vice
President of Bank.
(3) All or a portion of such items will be initially funded by organizer
advances. These organizer advances, with interest at the prime rate,
adjusted monthly, will be repaid from the proceeds of the Offering.
Organizer advances amounted to $80,000 at November 30, 1997 and $155,000 at
January 15, 1998.
(4) Includes application costs and legal expense not related to the Offering,
and office expense for pre-opening period.
(5) Represents interest at rate of 8.5% on aggregate of $410,000 in organizer
advances for a period of eight months.
(6) Represents costs incurred in outfitting main offices of Bank and two
branches.
BUSINESS OF THE COMPANY
The Company's application to become a bank holding company was filed
with the Federal Reserve Board on February 4, 1998. The Company knows of no
reason why the approval from the Federal Reserve Board would not be received,
although no assurances can be given as to when, or if, such approval will be
received, and if received, whether it will be received without conditions.
The principal asset of the Company will be its investment in all of
the issued and outstanding capital stock of the Bank. Future operations of the
Company have not been decided upon at this time but will be closely evaluated
and may be predicated on the availability of additional business opportunities
and/or acquisitions to be financed by Bank dividends, borrowings, the sale of
additional Common Stock or preferred stock of the Company, or any combination
thereof.
With the prior approval of the Federal Reserve Board, a bank holding
company may engage in non-banking activities closely related to the business of
banking. With such approval the Company could engage in the making and servicing
of loans, which would be made by companies engaged in consumer finance, credit
card issuance, making of mortgages, and commercial financing. Further, the
Federal Reserve Board allows bank holding companies to give investment or
financial advice, lease personal or real property, provide data processing and
courier services, invest in Small Business Investment Companies, among others.
If a favorable opportunity is presented, the Company could engage in such
activities, or other activities which the Federal Reserve Board currently or in
the future may consider closely related to banking, with the prior approval of
the Federal Reserve Board.
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<PAGE>
Although the Company has not determined the nature of any non-banking
activities it may engage in, and has no agreements or understandings pursuant to
which it would engage in any such non-banking activities, the Company
anticipates that it will explore the feasibility of engaging in venture capital
finance and mortgage banking activities, either directly or through subsidiaries
established for the purpose. There can be no assurance that the Company will
conduct such activities, or if it does, that any such activities will be
profitable or successful for the Company.
Market Experience. While the Company and the Bank are newly formed
enterprises without existing operations, the Company believes that the
composition of its and the Bank's boards of directors will give them substantial
ability to successfully establish the Bank's business and compete in the highly
competitive and heavily banked Montgomery County market. Prior to joining the
organizing group, a majority of the Bank's directors were members of the Board
of Directors of one or more commercial banks in the Washington, D.C.
metropolitan area. The proposed President and Chief Executive Officer and
Executive Vice President - Chief Operating Officer of the Bank each has over 25
years of banking and finance related experience. Each of the organizers is a
successful member of the business community in the Montgomery County, Maryland
and surrounding market areas, and has significant business and personal
relationships within that area. (See "MANAGEMENT").
PRO FORMA CAPITALIZATION OF THE COMPANY
The following table sets forth the pro forma consolidated
capitalization of the Company at November 30, 1997, after giving effect to the
receipt of the estimated net proceeds of (i) the sale of the minimum number of
Shares required to be sold in the Offering; (ii) the sale of all of the Shares
offered hereby, other than Shares subject to the Oversubscription Allotment; and
(iii) pre-opening expenses (other than premises and equipment expenses for the
Bank, but including expenses of the Offering) of $433,000, and based upon the
assumptions set forth herein.
<TABLE>
<CAPTION>
November 30, 1997
-----------------------------------------------------------
Actual Pro Forma 1 Pro Forma 2(2)
----------- ----------------- ---------------------------
<S> <C> <C> <C>
Stockholders' equity:
Common Stock, $.01 par value; shares
authorized, 5,000,000; shares
outstanding, 0 actual, 800,000 pro forma 1;
1,200,000 pro forma 2 $ 0 $ 8,000 $ 12,000
Preferred Stock, $.01 par value; shares
authorized, 1,000,000; shares
outstanding, 0 actual, 0 pro forma 1; 0 pro
forma 2 0 0 0
Capital surplus 0 7,882,000 11,878,000
Retained earnings (deficit) (74,236)(3) (323,000)(3) (323,000)(3)
---------- ----------------- ---------------------------
Total stockholders' equity (74,236) $7,567,000 $11,567,000
========== ================= ===========================
Book value per share of common stock(1) N/A $ 9.46 $ 9.64
========== ================= ===========================
</TABLE>
(1) Book value per share of common stock is determined by dividing the
Company's pro forma total consolidated equities at November 30, 1997 by
800,000 and 1,200,000 shares issued and outstanding, respectively.
(2) If all Shares subject to the Oversubscription Allotment were sold, the
total stockholders' equity and book value per share of common stock would
be $13,367,000 and $9.69, respectively.
(3) Represents estimated pre-opening expenses, other than expenses of the
Offering (which are deducted from capital surplus). See "Use of Proceeds"
for a breakdown of the allocation of such funds.
- 14 -
<PAGE>
BUSINESS OF THE BANK
As of the date of this Prospectus, the Bank has not been authorized to
conduct banking business and has not engaged in banking business or other
operational activities. The issuance of a Charter by the Department of Financial
Regulation and approval of deposit insurance by FDIC will be dependent upon
compliance with certain conditions and procedures, including the sale of the
Bank's stock to the Company, the completion of the Bank's premises, the purchase
of certain fidelity and other insurance, the hiring of its staff and the
adoption of certain operating procedures and policies. Upon completion of this
Offering and issuance of the Charter by the Department of Financial Regulation,
and subject to receipt of all required regulatory approvals, the Bank will open
for business with its main office in Bethesda, Maryland and will engage in the
business of commercial banking. It is currently intended that the Bank will
establish two branches, in Rockville, Maryland and Silver Spring, Maryland,
within two months of opening. The Bank will accept checking and savings
deposits, offer a full range of commercial, consumer/installment and real estate
loans and provide customary banking services.
The Bank will seek to operate as a community bank alternative to the
superregional financial institutions which dominate its primary market area. The
cornerstone of the Bank's philosophy will be to provide superior, personalized
service to its customers. The Bank will seek to focus on relationship banking,
providing each customer with a number of services, familiarizing itself with,
and addressing itself to, customer needs in a proactive, personalized fashion.
PRIMARY SERVICE AREA AND PROPOSED SERVICES
Bank Location and Market Area
The Bank's proposed main office and the headquarters of the Company
and the Bank will be located in Bethesda, Maryland. While an available location
has been identified for the main office, no lease has been entered into as of
the date hereof. It is currently anticipated that two branches, in Rockville,
Maryland and Silver Spring, Maryland, will be established within two months of
the opening of the Bank. As of this date, no leases have been entered into.
The primary service area of the Bank is Montgomery County, Maryland,
with a secondary market area in the Washington D.C. RMA, particularly Washington
D.C., Prince George's County in Maryland, and Arlington and Fairfax Counties in
Virginia. The Washington, D.C. area attracts a substantial federal workforce as
well as supporting a variety of support industries such as attorneys, lobbyists,
government contractors, real estate developers and investors, non-profit
organizations, tourism and consultants.
Household income for Montgomery County in 1996 was established at
$106,950 compared to a national average for similar counties of $67,090. Per
capita income of $38,400 similarly exceeded the national average of $24,730.
Montgomery County, with a total population of about 840,000,
represents the second largest suburban employment center in the Washington, D.C.
area, with approximately 470,000 jobs in 1996, and an unemployment rate below
the national average. While government employment provides a significant number
of jobs, over 80% of the jobs in the county involve private employers. Almost
half of the county's employment is located in the Bethesda, Rockville, North
Bethesda area in which the Bank will be located. Much of the job growth and
development is located in that area and in the nearby I-270 technology corridor.
Description of Services
The Bank will offer full commercial banking services to its business
and professional clients as well as complete consumer banking services to
individuals living and/or working in the service area. The Bank will primarily
emphasize providing commercial banking services to sole proprietorships, small
and medium-sized
- 15 -
<PAGE>
businesses, partnerships, corporations, non-profit organizations and
associations, and investors living and working in and near the Bank's primary
service area. A full range of retail banking services will be offered to
accommodate the individual needs of both corporate customers as well as the
community the Bank will serve.
The Bank will seek to develop a loan portfolio consisting primarily of
business loans with variable rates and/or short maturities where the cash flow
of the borrower is the principal source of debt service with a secondary
emphasis on collateral. Real estate loans will generally be for commercial
purposes and will be structured using variable rates and/or fixed rates with
short (three to five year) maturities. Consumer loans will be made on the
traditional installment basis for a variety of purposes.
All new business customers will be screened to determine, in advance,
their credit qualifications and history. Employing this practice will permit the
bank to respond quickly to credit requests as they arise.
In general, the Bank anticipates offering the following credit
services:
1) Commercial loans for business purposes including working capital,
equipment purchases, real estate, lines of credit, and government
contract financing. Asset based lending and accounts receivable
financing will also be available on a selective basis.
2) Real estate loans, including construction loan financing, for
business and investment purposes.
3) Traditional general purpose consumer installment loans including
automobile and personal loans. In addition, the Bank will offer
personal lines of credit.
4) Credit card services, to be offered through an outside vendor.
The direct lending activities in which the Bank expects to engage each
carries the risk that the borrowers will be unable to perform on their
obligations. As such, interest rate policies of the Federal Reserve Board and
general economic conditions, nationally and in the Bank's primary market area
will have a significant impact on the Bank's and the Company's results of
operations. To the extent that economic conditions deteriorate, business and
individual borrowers may be less able to meet their obligations to the Bank in
full, in a timely manner, resulting in decreased earnings or losses to the Bank.
To the extent the Bank makes fixed rate loans, general increases in interest
rates will tend to reduce the Bank's spread as the interest rates the Bank must
pay for deposits increase while interest income is flat. Economic conditions and
interest rates may also adversely affect the value of property pledged as
security for loans.
Deposit services will include business and personal checking accounts,
NOW accounts, and a tiered savings/Money Market Account basing the payment of
interest on balances on deposit. Certificates of Deposits will be offered using
a tiered rate structure and various maturities. The acceptance of brokered
deposits is not a part of the current strategy. A complete IRA program will be
available.
Other services for business accounts will include cash management
services such as PC banking sweep accounts, repurchase agreements, lock box, and
account reconciliation, credit card depository, safety deposit boxes and
Automated Clearing House origination. In addition, a daily messenger service and
a microcomputer link to the Bank will be developed subject to sufficient demand.
After hours depositories and ATM service will be available.
SOURCE OF BUSINESS
Management believes that the market segments targeted, small to medium
sized businesses and the consumer base of the Bank's market area, are demanding
the convenience and personal service that a smaller, independent financial
institution can offer. It will be those themes of convenience and personal
service that will form the basis for the Bank's business development strategies.
The Bank first plans to provide services from a strategically located
- 16 -
<PAGE>
main office in Bethesda, Maryland, followed by branches in adjacent areas which
it believes will complement the needs of the Bank's customers, and will provide
prospects for additional growth and expansion. Subject to obtaining necessary
regulatory approvals, capital adequacy, the identification of appropriate sites,
then current business demand and other factors, the Company presently plans for
the Bank to establish two branch offices within two months of opening for
business. There can be no assurance that the Bank will establish such branches
or that they will be profitable.
The Bank expects to capitalize upon the extensive business and
personal contacts and relationships of its Directors and Executive Officers to
establish the Bank's initial customer base. To introduce new customers to the
Bank, early reliance will be on Directors' referrals, officer-originated calling
programs and customer and shareholder referrals.
Management intends to build a staff of competent, professional
associates to provide the Bank's customers with bankers sensitive to customer
needs and experienced in providing a level of personal and professional service
expected by the business community.
ASSET MANAGEMENT
Consistent with the objective of the Bank to serve the needs of the
business community, assets will be concentrated in commercial and commercial
real estate loans. To be consistent with the requirements of prudent banking
practices, adequate assets will be invested in high grade securities to provide
liquidity and safety. Loans will be targeted at 80% or less of deposits
(excluding repurchase agreements), and structured generally with variable rates
and/or fixed rates with short maturities. Investment securities will primarily
be United States treasury securities and United States government or
"quasi-government" agencies, and tax exempt municipal securities with a minimum
rating of A from an established rating agency.
The risk of nonpayment (or deferred payment) of loans is inherent in
commercial banking. The Bank's marketing focus on small to medium-sized
businesses may result in the assumption by the Bank of certain lending risks
that are different from those attendant to loans to larger companies. Management
of the Bank will carefully evaluate all loan applications and will attempt to
minimize its credit risk exposure by use of thorough loan application, approval
and monitoring procedures; however, there can be no assurance that such
procedures can significantly reduce such lending risks.
COMPETITION
Deregulation of financial institutions and holding company
acquisitions of banks across state lines has resulted in widespread, fundamental
changes in the financial services industry. This transformation, although
occurring nationwide, is particularly intense in the greater Washington, D.C.
metropolitan area because of the changes in the area's economic base in recent
years and changing state laws authorizing interstate mergers and acquisitions of
banks, and the interstate establishment or acquisition of branches.
In Montgomery County, Maryland, competition is exceptionally keen from
large banking institutions headquartered outside of Maryland. In addition, the
Bank will compete with other community banks, savings and loan associations,
credit unions, mortgage companies, finance companies and others providing
financial services. Among the advantages that many of these institutions have
over the Bank are their abilities to finance extensive advertising campaigns,
maintain extensive branch networks and technology investments, and to directly
offer certain services, such as international banking and trust services, which
will not be offered directly by the Bank. Further, the greater capitalization of
the larger institutions allows for substantially higher lending limits than the
Bank. Certain of these competitors have other advantages, such as tax exemption
in the case of credit unions, and lesser regulation in the case of mortgage
companies and finance companies.
- 17 -
<PAGE>
EMPLOYEES
Management anticipates that the Bank will initially employ
approximately twenty five persons on a full time basis, four of which will be
senior officers of the Bank, and one person on a part time basis. Except for the
Chairman of the Board of Directors and the President of the Company, it is not
anticipated that the Company (as distinguished from the Bank) will have any
employees or officers during the first year of operations.
PREMISES
As of the date hereof, the Bank has identified, but has not entered
into, leases with respect to, sites for the main office of the Bank in Bethesda,
and both of the branches to be located in Rockville and Silver Spring.
MANAGEMENT'S PLAN OF OPERATION
As of the date hereof, neither the Company nor the Bank has commenced
operations or engaged in any activities except those related to the organization
of the Company and the Bank and raising capital in this Offering. Such limited
activities have been financed solely by advances, in the amount of $155,000 as
of January 15, 1998 ($80,000 as of November 30, 1997), by certain organizers of
the Company. One organizer has obtained a $350,000 line of credit from an
unaffiliated bank, of which $75,000 has been drawn, for purposes of financing
additional advances. All advances will be repaid from the proceeds of the
Offering with interest at the prime rate, adjusted monthly. If the Offering is
not completed, no other person or entity is obligated to repay the aggregate
advances to the organizers. This temporary funding source is expected to be
sufficient to meet the Company's needs until the sale of Shares pursuant to the
Offering is completed.
It is anticipated that the Bank will incur approximately $833,000 in
expenses in leasehold improvements for its three planned offices and in
furniture, fixtures and equipment for such offices, including vaults, teller
equipment, computer work stations, furniture for the branch lobbies and
administrative offices, ATM units and other equipment. The Bank will contract
its data processing requirements to an outside vendor. The Company had two full
time employees at November 30, 1997, and expects to have twenty five employees
at the Bank level after all three planned branches have opened.
The Company believes that the proceeds of the Offering, $8,000,000 if
the minimum number of Shares are sold, $12,000,000 if the maximum number of
Shares are sold, and $13,800,000 if all Shares subject to the Oversubscription
Allotment are sold (in each case without deduction for $110,000 estimated
expenses of the Offering), will be sufficient to fund the expenses of
establishing and opening the Bank, and the Bank's and Company's operations for
at least twelve months after the Offering, and does not anticipate a need to
raise additional capital during that period.
SUPERVISION AND REGULATION
THE COMPANY
The Company will be a bank holding company registered under the Bank
Holding Company Act of 1956, as amended, (the "Act") and will be subject to
supervision by the Federal Reserve Board. As a bank holding company, the Company
will be required to file with the Federal Reserve Board an annual report and
such other additional information as the Federal Reserve Board may require
pursuant to the Act. The Federal Reserve Board may also make examinations of the
Company and each of its subsidiaries.
The Act requires approval of the Federal Reserve Board for, among
other things, the acquisition by a proposed bank holding company of control of
more than five percent (5%) of the voting shares, or substantially all the
assets, of any bank or the merger or consolidation by a bank holding company
with another bank holding company. The Act also generally permits the
acquisition by a bank holding company of control or substantially all the assets
of any bank located in a state other than the home state of the bank holding
company, except where the bank has not been in existence for the minimum period
of time required by state law, but if the bank is at least 5 years old, the
Federal Reserve Board may approve the acquisition.
With certain limited exceptions, a bank holding company is prohibited
from acquiring control of any voting shares of any company which is not a bank
or bank holding company and from engaging directly or indirectly in any activity
other than banking or managing or controlling banks or furnishing services to or
performing service for its authorized subsidiaries. A bank holding company may,
however, engage in or acquire an interest in, a company that engages in
activities which the Federal Reserve Board has determined by order or regulation
to be so closely related to banking or managing or controlling banks as to be
properly incident thereto. In making such a determination, the Federal Reserve
Board is required to consider whether the performance of such activities can
reasonably be expected to produce benefits to the public, such as convenience,
increased competition or gains in efficiency, which outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. The Federal
Reserve Board is also empowered to differentiate between activities commenced de
novo and activities commenced by the acquisition, in whole or in part, of a
going concern. Some of the activities that the Federal Reserve Board has
determined by regulation to be closely related to banking include making or
servicing loans, performing certain data processing services, acting as a
fiduciary or investment or financial advisor, and making investments in
corporations or projects designed primarily to promote community welfare.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or any of its subsidiaries, or investments in the stock
or other securities thereof, and on the taking of such stock or securities as
collateral for loans to any borrower. Further, a holding company and any
subsidiary bank are prohibited from engaging in certain tie-in arrangements in
connection with the extension of credit. A subsidiary bank may not extend
credit, lease or sell property, or furnish any services, or fix or vary the
consideration for any of the foregoing on the condition that: (i) the customer
obtain or provide some additional credit, property or services from or to such
bank other than a loan, discount, deposit or trust service; (ii) the customer
obtain or provide some additional credit, property or service from
- 18 -
<PAGE>
or to the Company or any other subsidiary of the Company; or (iii) the customer
not obtain some other credit, property or service from competitors, except for
reasonable requirements to assure the soundness of credit extended.
THE BANK
The Bank, as a Maryland chartered commercial bank which will be a
member of the Federal Reserve System (a "state member bank") and whose accounts
will be insured by the Bank Insurance Fund of the FDIC up to the maximum legal
limits of the FDIC, will be subject to regulation, supervision and regular
examination by the Department of Financial Institutions and the Federal Reserve
Board. If the Company elects to forego membership by the Bank in the Federal
Reserve System, which it reserves the right to do, then the FDIC will be the
primary federal regulator of the Bank. The FDIC will regulate the Bank in
substantially the same manner as the Federal Reserve Board. The regulations of
these various agencies govern most aspects of the Bank's business, including
required reserves against deposits, loans, investments, mergers and
acquisitions, borrowing, dividends and location and number of branch offices.
The laws and regulations governing the Bank generally have been promulgated to
protect depositors and the deposit insurance funds, and not for the purpose of
protecting stockholders.
Competition among commercial banks, savings and loan associations, and
credit unions has increased following enactment of legislation which greatly
expanded the ability of banks and bank holding companies to engage in interstate
banking or acquisition activities. As a result of federal and state legislation,
banks in the Washington D.C./Maryland/Virginia area can, subject to limited
restrictions, acquire or merge with a bank in another of the jurisdictions, and
can branch de novo in any of the jurisdictions. Additionally, legislation has
been proposed which may result in non-banking companies being authorized to own
banks, which could result in companies with resources substantially in excess of
the Company's entering into competition with the Company and the Bank.
Banking is a business which depends on interest rate differentials. In
general, the differences between the interest paid by a bank on its deposits and
its other borrowings and the interest received by a bank on loans extended to
its customers and securities held in its investment portfolio constitute the
major portion of the bank's earnings. Thus, the earnings and growth of the Bank
will be subject to the influence of economic conditions generally, both domestic
and foreign, and also to the monetary and fiscal policies of the United States
and its agencies, particularly the Federal Reserve Board, which regulates the
supply of money through various means including open market dealings in United
States government securities. The nature and timing of changes in such policies
and their impact on the Bank cannot be predicted.
Branching and Interstate Banking. The federal banking agencies are
authorized to approve interstate bank merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks has opted out of the interstate bank merger provisions
of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the"Riegle-Neal Act") by adopting a law after the date of enactment of the
Riegle-Neal Act and prior to June 1, 1997 which applies equally to all
out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. Interstate acquisitions of branches are permitted only if
the law of the state in which the branch is located permits such acquisitions.
Such interstate bank mergers and branch acquisitions are also subject to the
nationwide and statewide insured deposit concentration limitations described in
the Riegle-Neal Act.
The Riegle-Neal Act authorizes the federal banking agencies to approve
interstate branching de novo by national and state banks in states which
specifically allow for such branching. The District of Columbia, Maryland and
Virginia have all enacted laws which permit interstate acquisitions of banks and
bank branches and permit out-of-state banks to establish de novo branches.
Capital Adequacy Guidelines. The Federal Reserve Board and the FDIC
have adopted risk based capital adequacy guidelines pursuant to which they
assess the adequacy of capital in examining and supervising banks and bank
holding companies and in analyzing bank regulatory applications. Risk-based
capital requirements determine the adequacy of capital based on the risk
inherent in various classes of assets and off-balance sheet items.
- 19 -
<PAGE>
State member banks are expected to meet a minimum ratio of total
qualifying capital (the sum of core capital (Tier 1) and supplementary capital
(Tier 2)) to risk weighted assets of 8%. At least half of this amount (4%)
should be in the form of core capital. These requirements apply to the Bank and
will apply to the Company (a bank holding company) once its total assets equal
$150,000,000 or more, it engages in certain highly leveraged activities or it
has publicly held debt securities.
Tier 1 Capital generally consists of the sum of common stockholders'
equity and perpetual preferred stock (subject in the case of the latter to
limitations on the kind and amount of such stock which may be included as Tier 1
Capital), less goodwill, without adjustment for changes in the market value of
securities classified as "available for sale" in accordance with FAS 115. Tier 2
Capital consists of the following: hybrid capital instruments; perpetual
preferred stock which is not otherwise eligible to be included as Tier 1
Capital; term subordinated debt and intermediate-term preferred stock; and,
subject to limitations, general allowances for loan losses. Assets are adjusted
under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no risk-based
capital) for assets such as cash, to 100% for the bulk of assets which are
typically held by a bank holding company, including certain multi-family
residential and commercial real estate loans, commercial business loans and
consumer loans. Residential first mortgage loans on one to four family
residential real estate and certain seasoned multi-family residential real
estate loans, which are not 90 days or more past-due or non-performing and which
have been made in accordance with prudent underwriting standards are assigned a
50% level in the risk- weighing system, as are certain privately-issued
mortgage-backed securities representing indirect ownership of such loans.
Off-balance sheet items also are adjusted to take into account certain risk
characteristics.
In addition to the risk-based capital requirements, the Federal
Reserve Board has established a minimum 3.0% Leverage Capital Ratio (Tier 1
Capital to total adjusted assets) requirement for the most highly-rated banks,
with an additional cushion of at least 100 to 200 basis points for all other
banks, which effectively increases the minimum Leverage Capital Ratio for such
other banks to 4.0% - 5.0% or more. The highest-rated banks are those that are
not anticipating or experiencing significant growth and have well diversified
risk, including no undue interest rate risk exposure, excellent asset quality,
high liquidity, good earnings and, in general, those which are considered a
strong banking organization. A bank having less than the minimum Leverage
Capital Ratio requirement shall, within 60 days of the date as of which it fails
to comply with such requirement, submit a reasonable plan describing the means
and timing by which the bank shall achieve its minimum Leverage Capital Ratio
requirement. A bank which fails to file such plan is deemed to be operating in
an unsafe and unsound manner, and could subject the bank to a cease-and-desist
order. Any insured depository institution with a Leverage Capital Ratio that is
less than 2.0% is deemed to be operating in an unsafe or unsound condition
pursuant to Section 8(a) of the Federal Deposit Insurance Act (the "FDIA") and
is subject to potential termination of deposit insurance. However, such an
institution will not be subject to an enforcement proceeding solely on account
of its capital ratios, if it has entered into and is in compliance with a
written agreement to increase its Leverage Capital Ratio and to take such other
action as may be necessary for the institution to be operated in a safe and
sound manner. The capital regulations also provide, among other things, for the
issuance of a capital directive, which is a final order issued to a bank that
fails to maintain minimum capital or to restore its capital to the minimum
capital requirement within a specified time period. Such directive is
enforceable in the same manner as a final cease-and-desist order.
Prompt Corrective Action. Under Section 38 of the FDIA, each federal
banking agency is required to implement a system of prompt corrective action for
institutions which it regulates. The federal banking agencies have promulgated
substantially similar regulations to implement the system of prompt corrective
action established by Section 38 of the FDIA. Under the regulations, a bank
shall be deemed to be: (i) "well capitalized" if it has a Total Risk Based
Capital Ratio of 10.0% or more, a Tier 1 Risk Based Capital Ratio of 6.0% or
more, a Leverage Capital Ratio of 5.0% or more and is not subject to any written
capital order or directive; (ii) "adequately capitalized" if it has a Total Risk
Based Capital Ratio of 8.0% or more, a Tier 1 Risk Based Capital Ratio of 4.0%
or more and a Tier 1 Leverage Capital Ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a Total Risk Based Capital Ratio that is less than
8.0%, a Tier 1 Risk based Capital Ratio that is less than
- 20 -
<PAGE>
4.0% or a Leverage Capital Ratio that is less than 4.0% (3.0% under certain
circumstances); (iv) "significantly undercapitalized" if it has a Total Risk
Based Capital Ratio that is less than 6.0%, a Tier 1 Risk Based Capital Ratio
that is less than 3.0% or a Leverage Capital Ratio that is less than 3.0%; and
(v) "critically undercapitalized" if it has a ratio of tangible equity to total
assets that is equal to or less than 2.0%.
An institution generally must file a written capital restoration plan
which meets specified requirements with an appropriate federal banking agency
within 45 days of the date the institution receives notice or is deemed to have
notice that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. A federal banking agency must provide the institution with
written notice of approval or disapproval within 60 days after receiving a
capital restoration plan, subject to extensions by the applicable agency.
An institution which is required to submit a capital restoration plan
must concurrently submit a performance guaranty by each company that controls
the institution. Such guaranty shall be limited to the lesser of (i) an amount
equal to 5.0% of the institution's total assets at the time the institution was
notified or deemed to have notice that it was undercapitalized or (ii) the
amount necessary at such time to restore the relevant capital measures of the
institution to the levels required for the institution to be classified as
adequately capitalized. Such a guaranty shall expire after the federal banking
agency notifies the institution that it has remained adequately capitalized for
each of four consecutive calendar quarters. An institution which fails to submit
a written capital restoration plan within the requisite period, including any
required performance guaranty, or fails in any material respect to implement a
capital restoration plan, shall be subject to the restrictions in Section 38 of
the FDIA which are applicable to significantly undercapitalized institutions.
A "critically undercapitalized institution" is to be placed in
conservatorship or receivership within 90 days unless the FDIC formally
determines that forbearance from such action would better protect the deposit
insurance fund. Unless the FDIC or other appropriate federal banking regulatory
agency makes specific further findings and certifies that the institution is
viable and is not expected to fail, an institution that remains critically
undercapitalized on average during the fourth calendar quarter after the date it
becomes critically undercapitalized must be placed in receivership. The general
rule is that the FDIC will be appointed as receiver within 90 days after a bank
becomes critically undercapitalized unless extremely good cause is shown and an
extension is agreed to by the federal regulators. In general, good cause is
defined as capital which has been raised and is imminently available for
infusion into the Bank except for certain technical requirements which may delay
the infusion for a period of time beyond the 90 day time period.
Immediately upon becoming undercapitalized, an institution shall
become subject to the provisions of Section 38 of the FDIA, which (i) restrict
payment of capital distributions and management fees; (ii) require that the
appropriate federal banking agency monitor the condition of the institution and
its efforts to restore its capital; (iii) require submission of a capital
restoration plan; (iv) restrict the growth of the institution's assets; and (v)
require prior approval of certain expansion proposals. The appropriate federal
banking agency for an undercapitalized institution also may take any number of
discretionary supervisory actions if the agency determines that any of these
actions is necessary to resolve the problems of the institution at the least
possible long-term cost to the deposit insurance fund, subject in certain cases
to specified procedures. These discretionary supervisory actions include:
requiring the institution to raise additional capital; restricting transactions
with affiliates; requiring divestiture of the institution or the sale of the
institution to a willing purchaser; and any other supervisory action that the
agency deems appropriate. These and additional mandatory and permissive
supervisory actions may be taken with respect to significantly undercapitalized
and critically undercapitalized institutions.
Additionally, under Section 11(c)(5) of the FDIA, a conservator or
receiver may be appointed for an institution where: (i) an institution's
obligations exceed its assets; (ii) there is substantial dissipation of the
institution's assets or earnings as a result of any violation of law or any
unsafe or unsound practice; (iii) the institution is in an unsafe or unsound
condition; (iv) there is a willful violation of a cease-and-desist order; (v)
the institution is unable to pay its obligations in the ordinary course of
business; (vi) losses or threatened losses deplete all or substantially all of
an institution's capital, and there is no reasonable prospect of becoming
"adequately
- 21 -
<PAGE>
capitalized" without assistance; (vii) there is any violation of law or unsafe
or unsound practice or condition that is likely to cause insolvency or
substantial dissipation of assets or earnings, weaken the institution's
condition, or otherwise seriously prejudice the interests of depositors or the
insurance fund; (viii) an institution ceases to be insured; (ix) the institution
is undercapitalized and has no reasonable prospect that it will become
adequately capitalized, fails to become adequately capitalized when required to
do so, or fails to submit or materially implement a capital restoration plan; or
(x) the institution is critically undercapitalized or otherwise has
substantially insufficient capital.
Regulatory Enforcement Authority. Federal banking law grants
substantial enforcement powers to federal banking regulators. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties. In general, these enforcement actions may be initiated for violations
of laws and regulations and unsafe or unsound practices. Other actions or
inactions may provide the basis for enforcement action, including misleading or
untimely reports filed with regulatory authorities.
MANAGEMENT
The following table sets forth certain information concerning the
Directors and Officers of the Company, including the number and percentage of
Shares expected to be acquired in this Offering by each individual (directly and
indirectly), all Directors and Officers of the Company as a group, and all
Directors and Officers of the Company and the Bank as a group.
<TABLE>
<CAPTION>
% of Outstanding Shares
Name Age Position Number of Minimum Maximum(1)
Shares
The Company:
<S> <C> <C> <C> <C>
Leonard L. Abel 71 Chairman of Board of 40,000(2) 5% 5%(2)(4)
Company; Director of Bank
Dudley C. Dworken 48 Director of Company and Bank 25,000 3.13% 2.08%
Eugene F. Ford, Sr.(3) 68 Director of Company 25,000 3.13% 2.08%
William A. Koier 78 Director of Company and Bank 40,000(2) 5% 5%(2)(4)
Ronald D. Paul 41 Vice Chairman, President and 40,000(2) 5% 5%(2)(4)
Treasurer of Company; ------- ----- -----
Chairman of Board of Bank
All directors and
officers of Company
as a group (5 persons) 170,000 21.25% 19.17%(4)
======= ===== =====
All directors and
officers of Company
and Bank as a group
(16 persons) 260,500 32.56% 26.71%(4)
======= ===== =====
</TABLE>
(1) Does not reflect sale of Shares subject to the Oversubscription
Allotment.
(2) In the event that more than the minimum number of Shares are sold,
these individuals may increase their total investment in the Offering
to maintain their respective percentage interests in the Company at up
to five percent of the number of Shares outstanding after completion
of the Offering.
(3) Eugene F. Ford, Sr. is the father of Eugene F. Ford, Jr., a proposed
director of the Bank. Intended share purchases shown for Mr. Ford, Sr.
do not include intended purchases by Mr. Ford, Jr.
(4) If all Shares subject to the Oversubscription Allotment were sold and
individuals identified in note (2) increase their subscriptions to the
full extent, the total number and percentage of Shares purchased by
all Directors and Officers of the Company as a group would be 257,000
and 18.62%, respectively, and the total number and percentage of
Shares purchased by all Directors and Officers of the Company and Bank
as a group would be 347,500 and 25.18%, respectively.
- 22 -
<PAGE>
The Company's Bylaws provide that the number of Directors of the
Company shall be fixed from time to time by the Board of Directors but shall not
be less than 3 nor more than 25. The Board has fixed the current number of
Directors at 5. The Bylaws may be amended by action of the Board of Directors.
All of the Company's current Directors were duly elected or appointed to the
Board and will continue to serve as Directors until their successors are elected
and qualified.
The Bank's Bylaws will provide for a range of 5 to 30 Directors and
will permit its stockholders to fix an exact number of Directors within that
range. The Board of Directors plans to initially fix the number of Directors at
15. Before the Bank opens for business, its sole stockholder, the Company, will
be required to elect Directors of the Bank, subject to the approval of the
Department of Financial Regulation and Federal Reserve Board. Directors of the
Bank will serve for one year and until their successors are elected and
qualified. The Company intends, together with the 12 additional persons set
forth under "MANAGEMENT -- Additional Information About the Directors, Officers
and Organizers of the Company and the Bank - The Bank" to elect 4 of the 5
current Directors of the Company to serve on the Board of the Bank.
Each of the Bank's Directors is required by law to own a minimum of 50
shares of Common Stock of the Company.
The Articles of Incorporation of the Company provide that to the full
extent that the Maryland General Corporation Law (the "MGCL") permits the
limitation or elimination of the liability of directors or officers, a director
or officer of the Company shall not be liable to the Company or its shareholders
for monetary damages. The MGCL provides that the liability of a director or
officer in a proceeding brought by or in the right of shareholders, or on behalf
of shareholders may be eliminated, except that the liability of a director or
officer may not be eliminated if the officer or director received an improper
benefit or profit, or if a judgment against the director or officer is based on
a finding that such person's action or failure to act was the result of active
and deliberate dishonesty and was material to the cause of action against such
person. The Articles of Incorporation of the Bank will similarly provide that to
the full extent that the MGCL permits the limitation or elimination of the
liability of directors or officers, subject to federal law limitations on that
authority, a director or officer shall not be liable to the Bank or its
shareholders for monetary damages.
The Articles of Incorporation of the Company provide that to the full
extent permitted by the MGCL and other applicable law, the Company shall
indemnify a director or officer of the Company who is or was a party to any
proceeding by reason of the fact that he is or was such a director or officer,
and the Board of Directors of the Company may contract in advance to indemnify
any director or officer. The MGCL provides that except as limited by its
articles of incorporation, a corporation shall indemnify a director who entirely
prevails in the defense of any proceeding to which he was a party because he is
or was a director of the corporation against reasonable expenses incurred in
connection with the proceeding. The MGCL further provides that a corporation may
indemnify an individual made a party to a proceeding because he is or was a
director against liability incurred in the proceeding unless (i) the act or
omission was material to the matter giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty;
(ii) the director actually received an improper personal benefit; or (iii) in
the case of any criminal proceeding, the director had reasonable cause to
believe the act or omission was unlawful, provided however, that if the
proceeding was by or in the right of the corporation, no indemnification may be
made if the director is adjudged liable to the corporation. The Board of
Directors may also indemnify an employee or agent of the Company who was or is a
party to any proceeding by reason of the fact that he is or was an employee or
agent of the Company.
The Articles of Incorporation and the Bylaws of the Bank similarly
will provide that, subject to limitations under federal statute or regulation,
to the full extent permitted by the MGCL, the Bank shall indemnify a director or
officer of the Bank who is or was a party to any proceeding by reason of the
fact that he is or was such a director or officer.
- 23 -
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Directors, Officers and persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is therefore unenforceable.
ADDITIONAL INFORMATION ABOUT THE DIRECTORS, OFFICERS AND ORGANIZERS OF THE
COMPANY AND BANK
Set forth below is a description of the principal occupation and
business experience of each of the Directors, Officers, and organizers of the
Company and the Bank. Except as expressly indicated below, each person has been
engaged in his principal occupation for at least five years.
The Company
Leonard L. Abel. Until retiring in 1994, Mr. Abel was
partner-in-charge of the certified public accounting firm of Kershenbaum, Abel,
Kernus and Wychulis, Rockville, Maryland with which he served for forty five
years. From October, 1996, until resigning in September 1997, Mr. Abel was a
member of the Board of Directors of F&M National Corporation (NYSE) and its
wholly owned subsidiary, F&M Bank - Allegiance, Bethesda, Maryland, and prior to
that time was Chairman of the Board of Allegiance Bank, N.A. (collectively with
F&M Bank - Allegiance, "Allegiance") and its holding company Allegiance Banc
Corporation, from their organization until their acquisition by F&M National
Corporation. Mr. Abel was also Chairman of the Board of Directors of Central
National Bank of Maryland from 1968 until its acquisition in 1985 by Citizens
Bank of Maryland (now Crestar Bank).
Dudley C. Dworken. Mr. Dworken is the owner of Curtis Chevrolet-Geo,
an automobile dealership in Washington, D.C. Until becoming a member of the
group organizing the Company and the Bank, Mr. Dworken was a director of
Allegiance from 1987, and was a director of Allegiance Banc Corporation from
1988 until its acquisition. In April 1997, Curtis Chevrolet filed a petition
under Chapter 11 of the Bankruptcy Code as a protection against potential
liability resulting from a jury verdict, currently on appeal, in excess of the
damages sought, against that company. Mr. Dworken is an active member of
numerous community, business, charitable and educational institutions in the
Washington, D.C./Montgomery County area.
Eugene F. Ford, Sr. Mr. Ford is engaged in the business of property
management and development as Chairman of Mid-City Financial Corporation, an
apartment developer, of which he was also president until 1995. He is Chairman
of the Community Preservation and Development Corporation, a non-profit
organization in the business of preserving public purpose housing complexes and
providing social program support for residents thereof. Mr. Ford was Chairman of
Second National Federal Savings Bank, Salisbury, Maryland, a federal savings
association closed by the Office of Thrift Supervision in 1992, and its holding
company. Through his ownership of Mid-City Financial, Mr. Ford is the largest
owner of assisted housing units in Maryland and the Washington metropolitan
area. Mr. Ford has received numerous awards for his work in the housing
development field.
William A. Koier. Mr. Koier is a private investor involved in the
ownership, development and management of real estate properties, as well as
investment in debt and equity instruments. Mr. Koier served as a director of
Allegiance 1989 until October 1997, and Allegiance Banc Corporation from 1989
until its acquisition. He also served as a director of Central National Bank of
Maryland until its acquisition by Citizens Bank of Maryland (now Crestar Bank).
Ronald D. Paul. Mr. Paul is President of Ronald D. Paul Companies,
which is engaged in the business of real estate development and management
activities. Mr. Paul is also active in private investments. Mr. Paul was a
director of Allegiance from 1990 until September 1997, and a director of
Allegiance Banc Corporation from 1990 until its acquisition including serving as
Vice Chairman of the Board of Directors from 1995. Mr. Paul is also active in
various charitable organizations, including serving as Vice Chairman of the
Board of Directors of the National Kidney Foundation from 1996 to 1997.
- 24 -
<PAGE>
The Bank
Arthur H. Blitz. Mr. Blitz, 56, an attorney engaged in private
practice since 1971, is a partner in the Bethesda, Maryland law firm of Paley,
Rothman, Goldstein, Rosenberg & Cooper. Mr. Blitz was a director of Allegiance
at various times from 1987 to October 1997.
Steven L. Fanaroff. Mr. Fanaroff, 38, is Vice President- Chief
Financial Officer of Magruder Holdings, Inc., a regional supermarket chain, with
which he has served since 1981. Mr. Fanaroff served on the Board of Directors of
Allegiance from 1990 until October 1997.
Eugene F. Ford, Jr. Mr. Ford, 45, engages in the business of property
management and apartment development. He has been president of Van Buren
Corporation, an apartment developer, since 1984, Chairman of Edgewood Management
Company, a property management company, and president of Mid-City Financial
Corporation, an apartment developer, since 1995. From 1992 to 1994, Mr. Ford was
a physical therapist with George Washington University Ambulatory Care.
Sandra S. Garrett., Ph.D. Dr. Garrett, 49, has been President and
Chief Executive Officer of Medifacts, Ltd. since 1985, and of MIMC, Inc., since
1991. Both companies are involved in pharmaceutical research.
Harvey M. Goodman. Mr. Goodman, 42, has been with The Goodman, Gable,
Gould Company, the Maryland based public insurance adjusting firm where he
serves as President, since 1977. He is the current President of the National
Association of Public Insurance Adjusters, and is a director and principal of
Adjusters International, a national public adjusting firm.
Benson Klein. Mr. Klein, 52, has been an attorney in Montgomery County
since 1970, and a principal with Ward & Klein, Chartered, since 1978. Mr. Klein
is also engaged in real estate investment activities in Montgomery County. He
served as a director of F&M Bank - Allegiance from 1996 to 1997 and previously
served as a director of Lincoln National Bank. Mr. Klein is currently, and has
been, a member of a variety of community, business and charitable institutions
for the Washington, D.C./Montgomery County area.
David H. Lavine. Mr. Lavine, 39, has been Chief Executive Officer of
The American Bagel Company, Inc., franchisor of the Chesapeake Bagel Bakery
chain, and its related retail store operator since March 1997. Prior to that
time, he was a principal of the public accounting firm of Reznick, Fedder &
Silverman, CPA's, since 1987. Mr. Lavine is also engaged in real estate
development and private investment. Mr. Lavine was a director of Suburban Bank
of Virginia and its holding company, Suburban Bancshares, Inc., from 1991 to
1994.
Thomas D. Murphy. Mr. Murphy, 50, the proposed Executive Vice
President - Chief Operating Officer of the Bank, served at Allegiance from
September 1994, including as Executive Vice President and Chief Operating
Officer from December 1995 until November 1997. Prior to his service at
Allegiance, he served in the same position at First Montgomery Bank from August
1991 until its acquisition by Sandy Spring National Bank of Maryland in December
1993, and he served as a Vice President of that organization until September
1994. Mr. Murphy has 28 years experience in the commercial banking industry.
Donald R. Rogers. Mr. Rogers, 51, has been engaged in the private
practice of law since 1972 with the Rockville, Maryland based firm Shulman,
Rogers, Gandal, Pordy & Ecker, P.A., of which he is a partner. Mr. Rogers was a
member of the Board of Directors of Allegiance from 1987 until October 1997.
Worthington H. Talcott, Jr. Mr. Talcott, 46, an attorney engaged in
private practice since 1979, has been a shareholder in the Bethesda law firm of
Marsh, Fleischer & Quiggle, Chartered, since 1992, and from 1983 to 1992 was a
partner in the firm of Ross, Marsh, Foster, Meyers and Quiggle. Mr. Talcott has
been an active member of the Juvenile Diabetes Foundation; serving as a member
of the Board of Directors for the Capital Chapter from 1992 to 1996, and as
President of the Capital Chapter from 1994 to 1995.
H. L. Ward. Mr. Ward, 51, the proposed President and Chief Executive
Officer of the Bank, was President and Chief Executive Officer of Allegiance
from December 1995 to November 1997. Prior to that time he served
- 25 -
<PAGE>
in various executive lending positions at Allegiance and its former sister bank
Prince George's National Bank, including Executive Vice President - Chief
Lending Officer, from 1992 to 1995. Mr. Ward has over 28 years of experience in
the commercial banking and real estate development and finance industries.
EXECUTIVE COMPENSATION AND
CERTAIN TRANSACTIONS WITH MANAGEMENT
It is not anticipated that following the opening for business of the
Bank, the Company will separately compensate any officers or employees of the
Company or the Bank for services rendered to the Company, except that the
President of the Company will receive an annual payment of $18,000 from the
Company in lieu of regular director fees, in addition to the payment described
below to be paid in his capacity as Chairman of the Board of Directors of the
Bank. Prior to the opening of the Bank, Messrs. Ward and Murphy, the proposed
President and Chief Executive Officer and Executive Vice President - Chief
Operating Officer of the Bank will receive compensation from the Company at
annual rates of $139,000 and $120,000, respectively.
The Company anticipates that it will provide its and the Bank's
directors with fees of $200 per meeting of the Board or its committees. The
Chairman of the Board of Directors of the Company will receive an annual payment
of $24,000 in lieu of regular director fees from the Company and the Bank. The
Chairman of the Board of Directors of the Bank will receive an annual payment of
$18,000 in lieu of regular director fees from the Bank.
After the Bank opens for business, Mr. Ward will initially be entitled
to an annual base salary of $160,000. He will also be entitled to a bonus,
payable over three years, in the amount of $30,000, $750,000 of Bank paid life
insurance (at standard rates), a $7,200 annual car allowance, warrants,
exercisable for a 5 year term to purchase, at the subscription price, 7,500
shares of Common Stock ("Warrants"), and participation in all other health,
welfare, benefit, stock, option and bonus plans, if any, generally available to
officers or employees of the Bank or the Company. Mr. Murphy will be initially
entitled to an annual base salary of $130,000. He will also be entitled to a
bonus, payable over three years, in the amount of $30,000, $600,000 of Bank paid
life insurance (at standard rates), a $6,000 annual car allowance, and Warrants
to purchase 6,000 shares of Common Stock, and participation in all other health,
welfare, benefit, stock, option and bonus plans, if any, generally available to
officers or employees of the Bank or the Company. Although it is anticipated
that the Company will enter into written employment agreements with Messrs. Ward
and Murphy, no such agreements have been executed to date.
INCENTIVE STOCK OPTION PLAN
To attract and retain highly qualified personnel, it is the intention
of the Directors of the Company to adopt a Stock Option Plan (the "Plan"), which
would be subject to approval by the holders of a majority of the outstanding
Common Stock of the Company after this offering. It is intended that the Plan
provide for incentive options which would be available for grant to officers and
key employees of the Company and the Bank. The exercise price under each
incentive stock option would not be less than 100% of the fair market value of
the shares on the date the option is granted. No taxable income would be
recognized by the optionee at the time an incentive stock option is granted or
at the time exercised, and correspondingly, the Company would not be entitled to
a compensation expense deduction for Federal income tax purposes. The aggregate
fair market value of the Common Stock for which any one officer or employee may
be granted incentive stock options in any calendar year would not exceed
$100,000 as provided in Section 422A of the Code, including the requirements
which restrict the term of such an option to ten years. Within three (3) months
following termination of employment for any reasons other than death, disability
or retirement, or cause, an optionee would be entitled to exercise his or her
option to the extent such option were exercisable on the date of termination.
The Plan would extend for a period of ten years and be administered by a
committee appointed by the Board.
Since the Plan has not yet been adopted, it is impossible at this time
to designate the identity of the recipients of stock options or the number of
options to be granted.
- 26 -
<PAGE>
CERTAIN TRANSACTIONS
As of November 30, 1997, four of the organizers of the Company have
each advanced $20,000 to the Company, an aggregate of $80,000, for the purpose
of funding the Company's and Bank's application and organization expenses. One
organizer has obtained a $350,000 unsecured line of credit (of which $75,000 had
been drawn as of January 15, 1998) for the purpose of funding additional
organizational expenses of the Company and Bank through additional organizer
advances to the Company. The line bears interest at the prime rate, adjusted
monthly. The Company will repay all organizer advances with interest at the
prime rate out of the proceeds of the Offering. Such expenses include
organization, application and registration expenses, pre-opening operating
expenses and office improvement and equipment. (See "USE OF PROCEEDS"). The
Company expects to incur aggregate pre-opening expenses of approximately
$433,000 (including interest on organizer advances but not including premises
and equipment expenses of the Bank) assuming the Bank commences operations in
June 1998, and intends to defray a portion of such expenses with interest earned
from the interim investment of the gross proceeds of this Offering.
It is anticipated that the Directors and Officers of the Company and
the business and professional organizations with which they are associated will
have banking transactions with the Bank in the ordinary course of business. It
is the policy of management of the Bank that any loans and loan commitments will
be made in accordance with applicable laws and on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons of comparable credit standing. Loans
to Directors and Officers must comply with the Bank's lending policies and
statutory lending limits, and directors with a personal interest in any loan
application will be excluded from considering any such loan application.
SHARES ELIGIBLE FOR FUTURE SALE
All Shares sold in this offering will be freely tradeable without
restriction or registration under the Securities Act of 1933, except for any
Shares purchased by an "affiliate" of the Company, which will be subject to the
resale limitations set forth in Securities and Exchange Commission Rule 144.
All of the Company's Directors are considered "affiliates" within the
meaning of Rule 144 and will, therefore, be subject to the applicable resale
limitations with respect to the Shares purchased in this offering. In general,
the number of shares that can be sold by each Director in brokers' transactions,
(as that term is used in Rule 144) within any three month period may not exceed
the greater of (i) one percent (1%) of the outstanding shares as shown by the
most recent report or statement published by the Company (8,000 shares if the
minimum number of Shares are sold or 12,000 shares if the maximum number of
Shares are sold), or (ii) the average weekly reported volume of trading in the
Shares on all national securities exchanges and/or reported through the
automated quotation system of a registered securities association during the
four calendar weeks preceding the sale.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital consists of 5,000,000 shares of
Common Stock, $.01 par value, and 1,000,000 of undesignated preferred stock,
$.01 par value, the terms of which may be determined by the Board of Directors
at the time of issuance.
Holders of Common Stock are entitled to cast one vote for each share
held of record, to receive such dividends as may be declared by the Board of
Directors of the Company out of legally available funds, and to share ratably in
any distribution of the Company's assets after payment of all debts and other
liabilities, upon liquidation, dissolution or winding up. Shareholders do not
have cumulative voting rights or preemptive rights or other rights to subscribe
for additional Shares, and the Common Stock is not subject to conversion or
redemption. The shares of Common Stock to be issued by the Company in connection
with this offering will be, when issued, fully paid and nonassessable. No shares
of Common Stock are presently outstanding.
- 27 -
<PAGE>
The Board of Directors, by action of a majority of the full Board of
Directors, is authorized to issue the shares of preferred stock from time to
time on such terms as it may determine, and to divide the preferred stock into
one or more classes or series, and to fix by resolution or resolutions the
designations, voting powers, preferences, participation, redemption, sinking
fund, conversion, dividend, and other optional or special rights of such classes
or series, and the qualifications, limitations or restrictions thereof. The
existence of shares of authorized undesignated preferred stock will enable the
Company to meet possible contingencies or opportunities in which the issuance of
shares of preferred stock may be advisable, such as in the case of acquisition
or financing transactions. Shares of preferred stock could be issued to
shareholders of another institution enabling the Company to acquire such other
institution without the expenditure of any cash. Shares of preferred stock could
also be sold in a public or private offering to enable the Company to engage in
acquisition activity, to expand the Company's ability to engage in lending
activities or for other corporate purposes. Having shares of preferred stock
available for issuance would give the Company flexibility in that it would be
able to avoid the expense and delay of calling a meeting of shareholders at the
time the contingency or opportunity arises. Any issuance of preferred stock
could have a dilutive effect on the existing holders of Common Stock.
The existence of authorized shares of preferred stock could have the
effect of rendering more difficult or discouraging hostile takeover attempts or
of facilitating a negotiated acquisition of the Company. Such shares, which may
be convertible into shares of Common Stock, could be issued to the Company's
shareholders or to a third party in an attempt to frustrate or render more
expensive a hostile acquisition of the Company. The Company does not currently
intend to issue any shares of preferred stock unless such issuance is approved
by a majority of those directors who are not interested in the issuance, other
than as a result of being a shareholder or subscriber in a general offering,
which directors have access to counsel at Company expense.
Limitations on Payment of Dividends. The payment of dividends by the
Company will depend largely upon the ability of the Bank to declare and pay
dividends to the Company, as the principal source of the Company's revenue will
initially be from dividends paid by the Bank. Dividends will depend primarily
upon the Bank's earnings, financial condition, and need for funds, as well as
governmental policies and regulations applicable to the Company and the Bank. It
is anticipated that the Bank will incur losses during its initial phase of
operations, and therefore, it is not anticipated that any dividends will be paid
by the Bank or the Company for at least three years and in the foreseeable
future. Even if the Bank and the Company have earnings in an amount sufficient
to pay dividends, the Board of Directors may determine, and it is the present
intention of the Board of Directors, to retain earnings for the purpose of
funding the growth of the Company and the Bank.
Regulations of the Federal Reserve Board and Maryland law place limits
on the amount of dividends the Bank may pay to the Company without prior
approval. Prior regulatory approval is required to pay dividends which exceed
the Bank's net profits for the current year plus its retained net profits for
the preceding two calendar years, less required transfers to surplus. State and
federal bank regulatory agencies also have authority to prohibit a bank from
paying dividends if such payment is deemed to be an unsafe or unsound practice,
and the Federal Reserve Board has the same authority over bank holding
companies.
The Federal Reserve Board has established guidelines with respect to
the maintenance of appropriate levels of capital by registered bank holding
companies. Compliance with such standards, as presently in effect, or as they
may be amended from time to time, could possibly limit the amount of dividends
that the Company may pay in the future. In 1985, the Federal Reserve Board
issued a policy statement on the payment of cash dividends by bank holding
companies. In the statement, the Federal Reserve Board expressed its view that a
holding company experiencing earnings weaknesses should not pay cash dividends
exceeding its net income, or which could only be funded in ways that weaken the
holding company's financial health, such as by borrowing. As a depository
institution, the deposits of which are insured by the FDIC, the Bank may not pay
dividends or distribute any of its capital assets while it remains in default on
any assessment due the FDIC.
LITIGATION
- 28 -
<PAGE>
To the knowledge of the Company and its Directors and Officers, there
is no pending or threatened litigation involving the Company.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Kennedy, Baris & Lundy, L.L.P., Bethesda, Maryland. Members of
such firm may subscribe to purchase shares of Common Stock offered hereby.
EXPERTS
The audited financial statements of Eagle Bancorp, Inc. (a development
stage company) for the period ending November 30, 1997 included in this
Prospectus has been included herein in reliance upon the report of Stegman &
Company, independent certified public accountants, and upon the authority of
said firm as experts in accounting and auditing.
- 29 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report................................................F-1
Audited Balance Sheet of the Company at November 30, 1997...................F-2
Audited Statement of Operations ............................................F-3
Audited Statement of Changes in Stockholders' Deficit ......................F-4
Audited Statement of Cash Flows ............................................F-5
Notes to Audited Balance Sheet..............................................F-6
- 30 -
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Eagle Bancorp, Inc.
Bethesda, Maryland
We have audited the accompanying balance sheet of Eagle Bancorp, Inc.
(a Development Stage Company) as of November 30, 1997 and the related statements
of operations, changes in stockholders' deficit and cash flows for the period
October 28, 1997 (date of inception) to November 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 of the financial statements provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Eagle Bancorp, Inc.
(a Development Stage Company) as of November 30, 1997 and the results of
operations and cash flows for the period October 28, 1997 (date of inception) to
November 30, 1997 in conformity with generally accepted accounting principles.
/s/ STEGMAN & COMPANY
Baltimore, Maryland
December 8, 1997
F - 1
<PAGE>
EAGLE BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
NOVEMBER 30, 1997
ASSETS
Cash $ 49,655
Equipment - net 3,686
----------
TOTAL ASSETS $ 53,341
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Payable to organizers (Note 2) $ 80,000
Accounts Payable 47,577
----------
Total liabilities $ 127,577
---------
Stockholders' Equity
Common stock, $.01 par, 5,000,000 shares authorized,
-0- shares issued and outstanding --
Deficit (74,236)
Total Stockholders' Deficit $(74,236)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 53,341
=========
F - 2
<PAGE>
EAGLE BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 28, 1997
(DATE OF INCEPTION) TO
NOVEMBER 30, 1997
REVENUES $ -
---------
EXPENSES:
Depreciation 60
Interest 410
Legal 43,075
Payroll taxes 2,641
Salaries 27,489
Other 561
---------
Total expenses 74,236
LOSS BEFORE INCOME TAX BENEFIT (74,236)
INCOME TAX BENEFIT -
----------
NET LOSS $ (74,236)
==========
See accompanying notes.
F - 3
<PAGE>
EAGLE BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM OCTOBER 28, 1997
(DATE OF INCEPTION) TO
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Common
Stock Surplus Deficit
------------------- ----------------- --------------------
<S> <C> <C> <C>
BALANCES AT OCTOBER 28, 1997 $ - $ - $ -
NET LOSS - - (74,236)
------------------- ----------------- --------------------
BALANCES AT NOVEMBER 30, 1997 $ - $ - $(74,236)
=================== ================= ====================
</TABLE>
See accompanying notes.
F - 4
<PAGE>
EAGLE BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 28, 1997
(DATE OF INCEPTION) TO
NOVEMBER 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(74,236)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 60
Increase in accounts payable 47,577
Net cash used by operating activities (26,599)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (3,746)
Net cash used by investing activities (3,746)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in payable to organizers 80,000
Net cash provided by financing activities 80,000
---------
NET INCREASE IN CASH 49,655
CASH AT BEGINNING OF PERIOD -
---------
CASH AT END OF PERIOD 49,655
=========
Supplemental Cash Flows Information:
Interest payments $ -
=========
Income tax payments $ -
=========
See accompanying notes.
F - 5
<PAGE>
EAGLE BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO BALANCE SHEET
AS OF NOVEMBER 30, 1997
1. NATURE OF BUSINESS
Eagle Bancorp, Inc. (the "Company") was incorporated on October 28,
1997 under the laws of the State of Maryland to operate as a bank
holding company. It is intended that the Company will purchase all the
shares of common stock to be issued by EagleBank (the "Bank"). An
application to organize the Bank was filed with the Maryland
Department of Financial Regulation on December 5, 1997. The Bank has
not commenced operations and will not do so unless the public offering
of stock by the Company is completed and the Bank meets the conditions
of the Maryland Department of Financial Regulation to receive its
charter authorizing it to commence operations as a commercial bank,
and has obtained the approval of the FDIC to insure its deposit
accounts.
2. PAYABLE TO ORGANIZERS
Organizers of the Company have advanced an aggregate of $80,000 to pay
certain organization expenses (principally legal and filing fees).
These advances are to be repaid with interest at the prime rate from
the proceeds of the common stock offering at the time the Company
opens for business. One organizer has obtained a line of credit in the
amount of $350,000 for the purpose of funding additional expenses of
the Company through additional organizer advances. Organization
expenses will be expensed as incurred.
3. INCOME TAXES
No income tax benefit or deferred tax asset is reflected in the
financial statements. Deferred tax assets are recognized for future
deductible temporary differences and tax loss carryforwards if their
realization is "more likely than not".
F - 6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
============================================================= ================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE
HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY 1,200,000
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO SHARES OF
CHANGE IN THE AFFAIRS OF THE COMPANY OR BANK SINCE THE DATE COMMON STOCK
OF THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY $10.00 PER SHARE
SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO.
TABLE OF CONTENTS
PAGE
Available Information......................................2
Prospectus Summary ........................................3
Risk Factors...............................................6 [EAGLE BANCORP, INC.
The Company and the Bank...................................9 LOGO]
The Offering..............................................10
Use of Proceeds...........................................14
Business of the Company...................................15
Pro Forma Capitalization of the Company...................16
Business of the Bank......................................17
Supervision and Regulation................................20
Management................................................25
Executive Compensation and Certain
Transactions with Management...........................28
Shares Eligible for Future Sale...........................30
Description of Capital Stock..............................30
Litigation................................................31 _____________________
Legal Matters.............................................31
Experts...................................................31 PROSPECTUS
Index to Financial Statements.............................32 _____________________
UNTIL MAY 10, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN
THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO February 9, 1998
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
============================================================ ================================
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